American Benefits Council
Benefits Byte


September 29, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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Agencies Finalize Regulations Allowing EAPs and Dental and Vision Plans as 'Excepted Benefits'

Federal agencies have finalized regulations by which limited-scope vision and dental benefits and employee assistance programs (EAPs) constitute "excepted benefits." The final regulations, released on September 26 by the U.S. Departments of Treasury, Labor (DOL) and Health and Human Services (HHS), are consistent with several recommendations made in the Council’s comments on proposed regulations issued in December 2013.

“Excepted benefits” are excluded from the portability provisions established under HIPAA as well as certain health plan requirements of PPACA. “Excepted benefits” generally do not constitute “minimum essential coverage” under PPACA, and thus would not disqualify an individual for premium tax credits for the purchase of individual insurance through a health exchange. The regulations finalize some, but not all of the proposed rules with some modifications. The final regulations do not include “wraparound” benefits provided by employers on top of exchange-provided coverage. Instead, the final regulations indicate that the agencies intend to issue additional guidance on limited wraparound coverage in the future.

The final regulations provide an important clarification with respect to when dental and vision benefits qualify as excepted benefits. Under existing regulations, such benefits are excepted benefits if they are limited in scope and (1) are provided under a separate policy, certificate, or contract of insurance; or (2) otherwise not an integral part of a group health plan. Currently, only insured coverage can qualify under the first test. With respect to the second test, HIPAA regulations provided that either insured or self-insured coverage can qualify, so long as participants had the right to elect not to receive coverage for the benefits, and, if participants elect coverage, they pay an additional premium or contribution. Consistent with the proposed regulations, the final regulations eliminate the requirement that participants pay an additional premium or contribution for limited-scope vision or dental benefits. The final regulations also clarify that to satisfy the requirement that coverage is “not an integral part of a group health plan”, the limited-scope vision or dental benefits:

  • do not have to be offered in connection with a separate offer of a major medical or “primary” group health coverage (and may be the only plan offered to participants); and either:
  • participants may decline the coverage (for example, by “opt-out”); or claims for benefits may be administered under a contract separate from claims administration for any other benefits under the plan.

The final regulations also include the four criteria included in the proposed regulations for determining whether an EAP is an “excepted benefit” including:

  • The EAP cannot provide “significant benefits in the nature of medical care.” The final regulations do not adopt the 10 visit limit discussed in the preamble to the 2013 proposed regulations. The final regulations clarify that to determine whether the EAP provides significant benefits in the nature of medical care, “the amount, scope, and duration of covered services are taken into account.” The preamble to the final regulations includes an example of an EAP that provides only limited, short-term outpatient counseling for substance abuse disorder services (without covering inpatient, residential, partial residential, or intensive outpatient care) without requiring prior authorization or review for medical necessity, as not providing significant benefits in the nature of medical care. However, an EAP that provides disease management services (such as lab testing, counseling, and prescription drug) for individuals with chronic conditions, such as diabetes, does provide significant benefits in the nature of medical care. (The final regulations indicate that the agencies may provide additional guidance in the future regarding when a program provides “significant benefits in the nature of medical care).”
  • Benefits cannot be coordinated with benefits under another group health plan. This means participants in the separate group health plan must not be required to use and exhaust benefits under the EAP (making the EAP a gatekeeper) before an individual is eligible for benefits under the other group health plan, and participant eligibility for benefits under the EAP must not be dependent on participation in another group health plan.
  • No employee premiums or contributions are required as a condition of participation in the EAP.
  • No employee cost sharing under the EAP.

The final regulations do not provide a HIPAA-excepted category for wellness programs. The preamble to the final regulations expressly states that treating wellness programs as excepted benefits by including them in an EAP “would circumvent” certain statutory consumer protections for wellness programs.

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

CMS Provides FAQ Guidance on HPID Requirements and Procedures

The Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) have issued frequently asked questions (FAQs) with guidance on requirements and procedures for obtaining a health plan identifier (HPID). The Council and other employer and insurer groups have urged CMS to expedite guidance given the November 5 application deadline for obtaining an HPID for large plans.

As we reported in a September 25 Benefits Byte story, health plans that are “controlling health plans” (a definition added by prior final regulationsimplementing the HPID requirements of HIPAA), with the exception of small health plans, are required to obtain an HPID by November 5, 2014. Such plans include employer sponsored self-insured health plans. CMS released a quick reference guide, a Health Plan ID User Manual and a dedicated CMS website with information on the application process.

Users that need to obtain a Controlling Health Plan (CMP) Health Plan Identifier (HPID) will go through the CMS Enterprise Portal, access the Health Insurance Oversight system (HIOS), and apply for an HPID from the Health Plan and Other Entity System (HPOES). The HPOES has been updated with new functionality to allow multiple controlling health plans to register for an HPID using a single employer identification number (EIN).

Specifically, the FAQs address:

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

IRS Issues Final Rule on Electronic Filings; EBSA Proposed Rule Requires Electronic Filing of 'Top-Hat' Statements

On September 26, the Internal Revenue Service (IRS) issued final regulations on filing certain retirement plan documents electronically. The final regulations require certain employee retirement plan administrators to submit Form 5500 Series annual reports and other plan-related documents using electronic filing methods or other specified magnetic media.

The final regulations apply only to plan administrators required to file at least 250 information returns during the calendar year ending with or within the plan year. Information returns like Form W-2 and Form 1099 are counted towards the 250 return threshold, meaning most large employers are covered by the rule (as reported in the November 5, 2013 Benefits Byte).

In August 2013, the IRS issued a proposal to require certain plans to file employee retirement benefit plan statements, returns, and reports on “magnetic media,” including electronic filing. The rule applies to Form 5500, which is required to be filed under both ERISA and the Internal Revenue Code, and to Form 8955-SSA (identifying separated participants with deferred vested benefits), which is required just by the Code. Since the U.S. Department of Labor (DOL) already generally requires electronic filing of Forms 5500 and 5500-SF through EFAST2, the main effect of the rule for retirement plans is the required filing of the Form 8955-SSA electronically.

The Council submitted a November 4, 2013 letter to the IRS in response to the proposed regulations, expressing support for the expansion of rules allowing for electronic benefit plan administration while pointing out some practical implementation challenges of the proposal and urging the IRS to take these challenges into account in setting the timeline for implementation. The Council has repeatedly urged the IRS and the U.S. Treasury Department, as well as DOL, to enhance rules allowing electronic communication to serve as the default method of disclosure, while ensuring that participants that wish to receive paper are entitled to do so upon request.

The final regulations did not extend the timeline for electronically filing Form 8955-SSA but did delay the electronic filing requirement for 5500 filings if the plan was not already required to file electronically (most plans are already required to file electronically). The Form 8955-SSA must be filed electronically for plan years that begin on or after January 1, 2014, but only for filings with a filing deadline (not taking into account extensions) on or after July 31, 2015. Generally, calendar year plans will be required to file the form electronically. The IRS also noted that they would possibly add items to the 5500.

In another electronic filing proposal, the Department of Labor Employee Benefits Security Administration (EBSA) released proposed regulations on September 29 requiring electronic filing of “top hat” plan statements with DOL. (“Top hat” plans are unfunded or insured pension plans established for a select group of management or highly compensated employees.)

According to the final regulations, the change is being instituted because DOL “has determined that regular mail or personal delivery are no longer the most efficient or cost-effective ways to file and process these notices and statements” and “the internet is widely accessible to persons who file these notices and statements.”

The Council’s new public policy strategic plan, A 2020 Vision: Flexibility and the Future of Employee Benefits, includes a recommendation that regulatory agencies adopt a “presumption of good faith” standard that allows employers to use technology as it becomes available, rather than waiting for regulatory approval.” This would apply to broader electronic disclosure by employers to participants as well as federal agencies.

For more information, contact Lynn Dudley, senior vice president, retirement and international benefits policy, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

Regulators Propose New Margin Rules for Swap Transactions

A newly proposed rule and request for comment, issued by a team of federal regulatory agencies, would establish minimum margin and capital requirements with respect to uncleared swaps for registered swap dealers, major swap participants, security-based swap dealers and major security-based swap participants pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection (“Dodd-Frank”) Act of 2010. These proposed rules affect retirement plans because, among other reasons, the rules require swap dealers and the other covered entities to impose margin requirements on their counterparties, including retirement plans.

Defined benefit pension plans often use swaps to hedge or mitigate risks endemic to plan liabilities and investments. The Council testified on the importance of swaps for defined benefit plans in a 2011 hearing of the U.S. House of Representatives Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises and has commented repeatedly on proposed margin rules for uncleared swaps, since such rules can impose unnecessary costs and restrictions on pension plans that are simply trying to manage risks.

Sections 731 and 764 of the Dodd-Frank Act require certain prudential agencies to adopt rules jointly “to establish capital requirements and initial and variation margin requirements for such entities and their counterparties on all non-cleared swaps and non-cleared security-based swaps which are intended to offset the greater risk to such entities and the financial system arising from the use of swaps and security-based swaps that are not cleared.”

On September 24, the Office of the Comptroller of the Currency of the U.S. Treasury Department, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency issued the proposed regulations required under Dodd-Frank.

The newly proposed rule would:

  • Expand the types of collateral eligible to be posted as initial margin.
  • Apply to non-cleared swaps and non-cleared security-based swaps entered into after the proposed rule's applicable compliance dates. The amount of margin that would be required under the proposed rule would vary based on the relative risk of the counterparty and of the non-cleared swap or non-cleared security-based swap.

The proposed regulations do not require a covered swap entity to collect specific or minimum amounts of initial margin or variation margin from nonfinancial end users, but rather leave that decision to the covered swap entity, consistent with its overall credit risk management.

The agencies are soliciting comments on the proposed regulations through November 24, 2014. Based on prior comments submitted, the Council anticipates submitting comments registering very serious concerns with the proposed rules. The fundamental problem with the regulations is that they fail to recognize that pension plans are among the safest counterparties and pose almost no risk to swap dealers and other covered entities. Instead of recognizing this point, the proposed regulations actually go in the opposite direction and classify retirement plans as financial end users subject to very onerous margin requirements. This could be very costly and burdensome for pension plans that use swaps to a material extent in order to manage risks. At this point, we plan to comment both on this threshold issue and on the many onerous requirements that would apply to pension plans if they remain treated as financial end users. For example, the proposed regulations require cash to be posted for variation margin, which for many plans could be very costly and burdensome.

The Council welcomes your input. For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700. 

CORRECTION: PBGC Guidance Describes Premium Payment under Pension 'Smoothing' Provisions of Highway Act

The Pension Benefit Guaranty Corporation (PBGC) issued Technical Notice 2014-01 on September 24 explaining how the defined benefit pension funding stabilization provisions of the recently enacted Highway and Transportation Funding Act (HATFA) will affect payment of plan insurance premiums. This story was previously published in the September 25 Benefits Byte; please note the corrected third paragraph below.

The funding stabilization (or “smoothing”) provisions in HATFA extended for five years the measures originally passed as part of the previous transportation bill, the Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012. The original MAP-21 provision stabilized interest rates for purposes of calculating defined benefit plan funding by constricting the segment rates used to determine funding status within a specified percentage of a 25-year average of prior segment rates, with the specified percentage starting at 10 percent and phasing out over four years. (See the August 1 Benefits Byte story for more details.)

First, Technical Update 14-1 confirmed that Technical Update 12-1 (implementing MAP-21) continues to apply with respect to the new legislation. Technical Update 12-1 provides clarifications with respect to the use of stabilized interest rates for purposes of variable rate premiums.

Second, under IRS Notice 2014-53, plans may decide whether to use MAP-21 or HATFA rates for 2013 funding determinations as late as December 31, 2014 (or, if later, the due date for the 2013 Form 5500). This results in unique timing issues related to the enactment of HATFA. Accordingly, Technical Release 2014-01 states that “PBGC will not require a plan that makes a 2014 premium filing using an asset value that includes 2013 contributions receivable discounted using MAP-21 effective interest rates and uses HATFA rates for 2013 funding purposes, to pay additional premium or late payment charges or amend its 2014 premium filing” under the following conditions:

  • The 2014 premium filing is due on or before December 31, 2014, and is timely made.
  • As of the 2014 premium due date, the plan has not filed a 2013 Schedule SB based on HATFA calculations.
  • The asset value reported in the 2014 premium filing included contributions made after the end of the 2013 plan year discounted using the effective interest rate that would have applied had HATFA not been enacted (i.e., based on the MAP?21 corridor).
  • The plan's contributions for the 2013 plan year made after the end of such plan year do not exceed $25 million.

The PBGC has also revisited its 2011 policy statement on amended filings and redesignations, ruling in Technical Update 2014-01 that “plans that redesignate 2013 contributions to 2014 in accordance with IRS Notice 2014-53 should amend their 2014 premium filings to exclude the discounted value of such redesignated contributions from the value of assets used to determine the 2014 [variable-rate premium]. In general, such a redesignation will affect premiums for both 2014 and 2015. If the redesignation is made after the 2014 premium filing, the 2014 filing should be amended to reflect the higher premium.”

For more information, contact Lynn Dudley, senior vice president, global retirement & compensation policy, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).