Health & Welfare Plans
Health Care Reform: Agencies Issue Proposed Regulations on 90-Day Waiting Period Limitation
On March 21, the IRS, DOL, and Department of Health and Human Services issued proposed regulations on the 90-day waiting period limit that applies to employer group health plans beginning in 2014 under the Affordable Care Act. Some important aspects of the proposed rules include: 1) a clarification that 90 days does not equal three calendar months (90 days is 90 days, including non-business days); 2) it is acceptable to impose an eligibility requirement based solely on the lapse of time (e.g., a requirement to simply be employed full-time for a certain time period), as long as the time period does not exceed 90 days; 3) it is acceptable to impose other eligibility requirements that are not based on the lapse of time, even if some employees will need more than 90 days to satisfy the eligibility requirement, as long as the requirement is not designed to replicate a time-based standard of more than 90 days; and 4) an eligibility requirement that requires completion of a certain number of hours of service will not be considered a time-based standard if (a) the required hours of service are not greater than 1,200 and (b) once an employee reaches the required hours he or she is not required to wait more than 90 days to enroll.
Health Care Reform: College & University Group Submits Comments on Application of Pay or Play Rules in College & University Setting
On March 18, the American Council on Education submitted a comprehensive comment letter on the application of the Affordable Care Act’s “pay or play” rules to certain groups of employees that are unique to the college and university setting (such as adjunct faculty and student employees). Although we are still waiting for clear guidance from the IRS on these issues, our college and university clients and friends may want to consider some of the items and suggestions that are raised in ACE’s comment letter. In particular, it is not clear that the IRS will issue any further guidance on these issues before the 2014 effective date, so college and university employers should consider this commentary when determining how to reasonably comply with the rules.
IRS Issues Opinion Letter Program for Pre-Approved 403(b) Plan Documents
The IRS issued Revenue Procedure 2013-22 which provides a long-awaited opinion letter program for prototype and volume submitter 403(b) plans. The IRS will begin accepting applications under the program on June 28, 2013. Although employers that sponsor 403(b) plans cannot directly apply for a favorable opinion letter on their 403(b) plan document, employers can take advantage of this new program by adopting (or continuing to use) a 403(b) prototype or volume submitter plan document that receives a favorable opinion letter. We expect that most providers of 403(b) prototype plans will use the program and thereby provide their employer clients with an assurance that their plan document complies with all applicable requirements of Code Section 403(b). Unfortunately, plan sponsors with individually designed plans are not yet eligible to use this program.
ERISA Reporting Requirements
DOL Issues Guidance on New Information Required in Annual Funding Notice for DB Plans
The DOL issued Field Assistance Bulletin 2013-01 which provides guidance on new information that is required in the Annual Funding Notice for certain single-employer defined benefit plans. More specifically, new information must be included in a plan’s 2012 Annual Funding Notice if the plan sponsor took advantage of the lower interest rates under the 2012 MAP-21 Act. The MAP-21 Act provided funding relief for defined benefit plans in the form of new lower interest rates that plan sponsors could elect to use for funding purposes. If a plan sponsor elected to use these lower interest rates in 2012, the plan’s 2012 Annual Funding Notice must include certain new information that has not been required in past years. Importantly, the Field Assistance Bulletin provides a model supplement that can be used to satisfy this new requirement. For plans that operate on the calendar year, the 2012 Annual Funding Notice must be provided to participants no later than April 30, 2013.
DOL Issues Fact Sheet on Target Date Funds in 401(k) Plans
The DOL issued an informal fact sheet entitled “Target Date Retirement Funds – Tips for ERISA Plan Fiduciaries.” The fact sheet provides an outline of items that sponsors of 401(k) plans (and other employee self-directed plans that provide target date funds as an investment option) should consider when selecting and reviewing target date funds as an investment option for participants. Target date funds are quickly becoming the predominant investment option in most defined contribution plans. As a result, for the last few years the DOL has said that it intends to eventually regulate these funds in some way. But the DOL has not yet issued any regulations or other formal guidance. Because this fact sheet is the best piece of guidance currently available on this issue, plan sponsors should strongly consider reviewing and following its advice.
Federal Appeals Court Finds That Employer Breached ERISA Fiduciary Duties by Offering Retail-Level Mutual Funds in 401(k) Plan
On March 21, the U.S. Court of Appeals for the Ninth Circuit, in Tibble v. Edison International, 9th Cir., No. 10-56406, held that the fiduciaries of a large 401(k) plan breached their fiduciary duties under ERISA by offering retail-level mutual funds as investment options under the plan without fully considering the possibility of offering institutional-level mutual funds that charged lower fees. The decision is an important one because it gives deference to the DOL’s longtime position that Section 404(c) of ERISA does not fully protect plan fiduciaries in their decisions regarding the investment options that are offered under a plan. On this issue, the Tibble decision is a departure from decisions of other federal appeal courts (the Seventh Circuit in particular), which have held that Section 404(c) provides extremely broad protection to plan fiduciaries in their decisions regarding plan investment options. Plan committees that oversee plan investment options should take note of this decision and its potential impact on the plan governance process.