United States: December 2015 Employee Benefits Update

EMPLOYEE BENEFITS UPDATE

COMPLIANCE DEADLINES AND REMINDERS

Upcoming Health Plan Compliance Deadlines and Reminders

  1. Summary Annual Report for Calendar Year Group Health Plans. For calendar year plans that obtained an extension to file their annual report (Form 5500), the Summary Annual Report must be distributed to participants and beneficiaries no later than December 15, 2015 (two months after the close of the extension period).
  2. Health Plan Open Enrollment Requirements.
  1. SBCs. Plan sponsors of group health plans must issue a new summary of benefits and coverage ("SBC") to participants and beneficiaries covered under the plan with each open enrollment. Group health plans without open enrollment must issue the SBC 30 days in advance of the plan year (December 2, 2015 for calendar year plans).
  2. HRA Opt-Out. Plan sponsors of health reimbursement arrangements ("HRA") must offer participants an annual opportunity to opt-out of and waive all future reimbursements from their HRA. This notice of opt-out can be provided with the open enrollment materials.
  1. ACA Reporting for Plan Sponsors of Self-Funded Health Plans and Applicable Large Employers. Plan sponsors of self-funded health plans and applicable large employers (generally, those employers with 50 or more full-time employees and full-time employee equivalents) must file the first Affordable Care Act ("ACA") reports with the Internal Revenue Service ("IRS") no later than February 29, 2016 (March 31, 2016 if e-filing) and provide a copy of the report to employees no later than February 1, 2016. Because these reports generally require plan sponsors of self-funded health plans and applicable large employers to accumulate monthly enrollment and eligibility data for the 2015 calendar year, plan sponsors and applicable large employers should be preparing, or working with their venders to prepare, these reports in order to meet the February 1, 2016 deadline.

Upcoming Retirement Plan Compliance Deadlines and Reminders

All Retirement Plans

  1. Discretionary Amendments. All discretionary amendments to qualified retirement plans must be adopted no later than the end of the plan year in which they are effective. A discretionary amendment generally includes any change to the terms of a plan that is not required for plan qualification. Plan sponsors of calendar year plans must ensure discretionary amendments effective in 2015 are adopted no later than December 31, 2015.
  2. Determination Letter Filing. Remedial Amendment Period Cycle E individually designed plans must be submitted for a favorable IRS determination letter no later than January 31, 2016. Cycle E plans include those sponsored by employers with tax identification numbers ending in a five or a zero, as well as governmental plans.
  3. Form 1099-R. IRS Form 1099-R—Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.—must be sent to recipients of retirement plan distributions during the prior plan year by January 31, 2016.

RETIREMENT PLAN DEVELOPMENTS

Department of Labor ("DOL") Issues Guidance Regarding State-Based Retirement Plans

In recent years, several states have enacted legislation intended to provide access to retirement plans to private sector employees not otherwise covered by an employer-sponsored retirement plan, known as "state-based retirement initiatives." The DOL recently issued guidance in the form of Interpretive Bulletin 2015-2 (the "Interpretive Bulletin") and a proposed regulation with the intent of providing states with clarification concerning the establishment of state-based retirement initiatives.

Interpretive Bulletin.

The purpose of the Interpretive Bulletin is to provide states with additional clarity regarding the DOL's position with respect to whether state-based retirement plans for private sector employees would be subject to ERISA. In its Interpretive Bulletin, the DOL takes note of three different state-based approaches:

(1) the marketplace approach in which the state establishes a marketplace to connect employers with suitable private sector plans;

(2) the prototype plan approach in which the state establishes a retirement plan that private sector employers may adopt on a voluntary basis; and

(3) the multiple employer plan approach in which the state establishes a multiple employer-style retirement plan in which private sector employers may join.

In the DOL's view, ERISA would not apply to any of the above approaches because they do not (a) mandate employee benefit structures, (b) provide for alternative regulatory or enforcement mechanisms, (c) bind employers to particular choices, or (d) preclude uniform administrative practice that would regulate ERISA plans. The DOL noted, however, that a state must implement these approaches without establishing standards that are inconsistent with ERISA and without providing for remedies that are governed exclusively by ERISA.

Proposed Regulation.

The DOL issued a proposed regulation providing for a new safe harbor designed to permit states to create mandatory retirement programs. Under these programs, employers without an existing retirement plan must offer a voluntary payroll deduction for IRA arrangements on behalf of its employees. The new safe harbor provides that these payroll deduction programs under state law will not be considered an "employee pension benefit plan" subject to ERISA, provided the following conditions are met:

  • The program is established by a state under state law;
  • The program is administered by the state establishing the program;
  • The state assumes responsibility for the security of payroll deductions and employee savings;
  • The state adopts measures to notify employees of their rights under the program and provides a mechanism to enforce those rights;
  • Participation is voluntary for employees;
  • The program does not require the employee to keep any portion of the contributions or earnings in his or her IRA;
  • There are no restrictions on withdrawals, transfers or rollovers other than those provided under the Internal Revenue Code;
  • The rights of the employee, former employee or beneficiary are enforceable only by such person;
  • Employer involvement is limited to collecting contributions, providing notices to employees, providing information to the state and distributing information from the state to employees;
  • The employer does not contribute to the program;
  • The employer's participation is mandatory;
  • The employer has no discretionary authority under the program; and
  • The employer receives no compensation other than reimbursement of costs in connection with the program.

The proposed regulation has a 60-day comment period, which will expire on January 19, 2016.

Boeing Settles Excessive Fee Case

On November 5, 2015, Boeing Company agreed to settle a suit dating to 2006 in which the plaintiffs alleged that Boeing paid unreasonable administrative and investment management fees, failed to monitor and remove an imprudently risky concentrated technology sector fund, and paid excessive fees and held excessive fees in connection with the company's stock fund. Boeing agreed to a $57 million payment, as well as to hire an independent investment consultant to evaluate the technology sector as an investment option and will hire a fiduciary to monitor cash levels in its stock fund.

HEALTH AND WELFARE PLAN DEVELOPMENTS

Departments Issue Final Regulations on Certain ACA Requirements

On November 18, 2015, the DOL, Department of Health and Human Services, and the Internal Revenue Service (collectively, the "Departments") issued regulations finalizing the 2010 interim final regulations on the following ACA requirements:

  • Preservation of the right to maintain existing coverage through "grandfathered" status;
  • Prohibition of preexisting condition exclusions;
  • Prohibition of lifetime or annual dollar limits in essential health benefits;
  • Prohibition of rescissions;
  • Internal claims and appeals and external review process; and
  • Patient protections (e.g., choice of provider, non-network emergency room services).

The final regulations closely track the interim final regulations, incorporate subsequent guidance, including the FAQs, and provide additional clarification on several topics. The final regulations are effective the first plan year beginning on or after January 1, 2017. Below are notable clarifications.

Grandfathered Plans.

  • The addition of any new contributing employer or new group of employees of an existing contributing employer to a grandfathered multiemployer health plan will not affect the plan's grandfathered status, provided that the plan has not made other changes that would cause the loss of grandfathered status.
  • All group health plans with fixed-dollar employee contributions or no employee contributions will not lose grandfathered status if the employer contribution decreases, provided the employee contributions do not change.

Lifetime and Annual Limits: Non-Grandfathered and Grandfathered.

  • A reasonable interpretation of the term "essential health benefits" ("EHB") includes only the 51 EHB benchmark plans that have been selected by a state or the District of Columbia, or the benchmark plans for the Federal Employees Health Benefit Program. Consequently, self-funded plans that have not already done so must select a state benchmark plan effective for the first plan year beginning on or after January 1, 2017.
  • A group health plan that allows for reinstatement of forfeited or waived HRA account balances upon a fixed date, a participant's death, or the earlier of the two events (referred to in the final regulations as the "reinstatement event"), can maintain integrated status. It appears that this would allow a plan to effectively "suspend" the HRA account balance for a set period of time (likely, a least one year) and allow the employee the opportunity to access any accumulated funds in the future. This would also allow a participant's family to regain access to the HRA account balance after the participant's death.

Rescissions: Non-Grandfathered and Grandfathered.

  • Retroactive termination or discontinuance of coverage is not a rescission if it is initiated (1) at the request of a participant or beneficiary, or (2) at the request of the exchange.
  • The regulatory exception to the prohibition of rescission for failure to timely pay required premiums or contributions extends to the failure to timely pay required premiums or contributions toward COBRA coverage.

Dependent Coverage: Non-Grandfathered and Grandfathered.

  • Plans may not impose eligibility restrictions on dependent children that would require the child to work, live or reside in a service area.

Claims and Appeals: Non-Grandfathered Only.

  • The final regulations reiterate that a plan must automatically send a participant or beneficiary new or additional evidence or rationale upon which the plan may rely during an appeal. Merely sending a notice to participants that such information is available fails to satisfy this requirement.
  • If the new or additional evidence or rationale is received so late that it would be impossible to provide to the claimant in time for the claimant to respond, the period for providing a notice of final internal adverse benefit determination is tolled until such time as the claimant has a reasonable opportunity to respond.
  • The scope for external review is permanently limited to (1) adverse benefit determinations that involve medical judgment (as determined by the external reviewer), and (2) rescissions of coverage. The final regulations also provide additional examples of adverse benefit determinations that involve medical judgment:
    • Entitlement to an alternative standard under a wellness program, and
    • Nonquantitative treatment limitations under the Mental Health Parity and Addiction Equity Act.

Patient Protections: Non-Grandfathered Only.

  • Plans may apply reasonable and appropriate geographic limits for participating primary care providers.
  • Participants may designate a specialist as their primary care provider.
  • The Departments advise that they will consider ways to prevent providers from balance-billing participants for emergency services from out-of-network providers at in-network hospitals and facilities.

As noted above, the final regulations are effective the first day of the first plan year beginning on or after January 1, 2017. Until then, plans must continue to comply with the interim final regulations. In advance of the final regulations' effective date:

  • Plan sponsors should review and select one of the benchmark plans to define EHB.
  • Plan sponsors that offer HRAs should consider whether to allow reinstatement of waived or forfeited HRA funds after a "reinstatement event."
  • Plan sponsors should review their claim and appeal procedures to ensure that participants are sent new or additional evidence or rationale upon which the plan may rely during an appeal, and not merely send a notice that such information is available.

DOL Proposes Regulation Impacting Disability Claim Procedures

On November 18, 2015, the DOL published a proposed regulation modifying the ERISA claim procedures for pension and welfare plans that provide disability benefits. The DOL's stated purpose in proposing the new regulation is to better align the requirements for claims for disability benefits with the internal claims and appeals procedures for group health plans under the regulations implementing the requirements of the ACA.

In summary, the proposed regulation requires that:

  • Claims and appeals are decided in an impartial and independent manner;
  • Benefit denial notices contain additional disclosure concerning why the plan denied the claim, including a basis for disagreeing with any disability determination by the Social Security Administrator, treating physician or other third-party disability payor;
  • Claimants have access to their entire claim file and be permitted to present evidence and testimony during the claims and appeals process;
  • Claimants must be given notice of, and the opportunity to respond to, new evidence considered in an appeals decision;
  • Certain rescissions of coverage be treated as adverse benefit determinations;
  • If the plan fails to follow claims processing rules, the claimant will be deemed to have exhausted his or her administrative remedies under the plan and may bring suit against the plan (unless it is a minor error); and
  • Notices must be provided in a culturally and linguistically appropriate manner.

Court Finds Anti-Assignment Clause Enforceable

In a recent case, University of Wisconsin Hospitals v. Aetna Health & Life Insurance Co. (W.D. Wis. November 3, 2015), a court found that plan benefits could not be assigned to another party. In this case, an insured under an ERISA-governed health insurance policy incurred certain hospital expenses. The hospital sued the insurer, seeking reimbursement. The court held that because the health insurance plan explicitly specified that benefit rights may not be assigned, the hospital lacked standing to sue for reimbursement as a beneficiary of the insurance plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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