Introduction
As reported in our
March 2010 Client Alert, many of the new health care law
requirements will go into effect for an existing medical plan as of
its first plan year beginning on or after September 23, 2010 --
January 1, 2011 for a calendar year plan. However, medical plans in
existence on March 23, 2010, the date of enactment for the new
requirements, are "grandfathered" for purposes of certain
of the new requirements, with the result that certain of the new
requirements will not apply to existing plans. The new
nondiscrimination requirements for fully-insured medical plans are
covered by the grandfathered plan exception.
New Nondiscrimination Requirements Inapplicable to Grandfathered Plans
As reported in our March 2010 Client Alert, effective
immediately for new plans or, for existing plans, as of the first
plan year beginning on or after September 23, 2010, fully-insured
medical plans (as has been the case for self-insured medical plans)
will become subject to requirements prohibiting discrimination in
favor of highly compensated employees. Failure to satisfy these new
nondiscrimination requirements will result in an employer excise
tax equal to $100 per day per affected participant, with a maximum
excise tax for unintentional failures of $500,000 per tax year (the
IRS will also have the discretion to waive all or part of the tax
where the failure is due to reasonable cause and not willful
neglect). However, grandfathered plans are excluded from these new
nondiscrimination requirements. Guidance is expected, perhaps as
early as this Summer, as to the specifics of grandfathering and the
possible loss of grandfathered status. It is clear, however, that
adding additional family members and new hires to a grandfathered
plan will not result in loss of grandfathered plan status.
Timing
For any medical plan in existence on March 23, 2010 which does not have an October 1, November 1 or December 1 plan year (e.g., a calendar year plan), the applicability of the new nondiscrimination requirements and the grandfathering/loss of grandfathering specifics will not be effective until 2011. In light of current regulatory efforts to issue guidance very soon, the best course of action for the sponsor of a potentially grandfathered plan is to protect its grandfathered status by making no or as few changes as possible to the plan until the anticipated guidance is issued, hopefully well in advance of 2011
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.
