American Benefits Council
Benefits Byte


November 24, 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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House Formally Files Lawsuit Against Obama Administration

On November 21, the U.S. House of Representatives officially filed the lawsuit it had authorized this past summer against the Obama Administration, asserting that the president exceeded his authority in delaying implementation of certain parts of the Patient Protection and Affordable Care Act (PPACA).

The lawsuit was filed in federal court against the U.S. departments of Treasury and of Health and Human Services (HHS) as well as their respective secretaries, Jacob Lew and Sylvia Burwell. The suit alleges that the Obama Administration unlawfully postponed the requirement that employers (with 50 or more employees) offer health coverage to their full-time employees.

In July 2013, following an informal announcement by the U.S. Treasury Department,  the Internal Revenue Service (IRS) issued Notice 2013-45 delaying for one year (until January 2015) the mandatory employer and insurer reporting requirements under sections 6055 and 6056 of PPACA, as well as the associated "employer shared responsibility" penalties under Section 4980H. The Council applauded this delay by the administration after having communicated to executive branch officials the implementation burdens that would have otherwise been imposed on employer health plan sponsors.

The suit also argues that the funding for the cost-sharing reduction subsidies to insurers to reduce deductibles on health plans sold through exchanges (an estimated $175 billion over the next 10 years, according to the Congressional Budget Office) were not appropriated by Congress and therefore constitute an unlawful transfer of funds.

The lawsuit follows a resolution formally approved by the House on July 30 by a vote of 225-201 largely along party lines (as we reported in the July 31 Benefits Byte). The resolution charged the president and other federal officials with failure “to act in a manner consistent with that official’s duties under the Constitution and laws of the United States with respect to implementation of (including a failure to implement) any provision of the [PPACA].”

The case has been assigned to U.S. District Judge Rosemary M. Collyer, who has served on the Washington court for more than a decade after being nominated by President George W. Bush in 2002.

For more information, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.

CMS Announces PPACA Transitional Reinsurance Fee Amount for 2016; Formalizes In-Patient Hospitalization Requirement for Minimum Value Plans

On November 21, 2014, the U.S. Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) released proposed regulations in the form of the 2016 Notice of Benefit and Payment Parameters. The proposed regulations address a number of issues, including the transitional reinsurance program (TRP) fee and minimum value requirements that were the subject of some recent attention and controversy.

Transitional Reinsurance Program Fee

Under Section 1341 of the Patient Protection and Affordable Care Act (PPACA), during the first three years that state health insurance exchanges are operational (2014 through 2016), health insurance issuers and plan administrators (on behalf of self-insured group health plans) will be assessed a per-enrollee fee to finance a three-year transitional reinsurance program. The contribution rate for 2015 is $44 per covered life; it was $63 per covered life for 2014.

The proposed regulations set the TRP fee at $27 per enrollee for the 2016 benefit year. The regulations also include additional information on the exception for certain self-administered, self-insured group health plans, clarifications regarding certain counting methods, and guidance regarding the deadline for satisfying reporting requirements where the reporting date does not fall on a business day. Specifically:

  • Self-administered, self-insured plan exception: For the 2015 and 2016 benefit years, a “covered entity” does not include qualifying self-administered, self-insured group health plans. In the preamble to the 2015 Notice of Benefit and Payment Parameters, HHS indicated that it considered a third party administrator to be an entity that is not under common ownership or control with the self-insured group health plan or its plan sponsor. The preamble to the proposed regulations states that principles similar to the controlled group rules of Code sections 414(b) and (c) would apply for purposes of determining whether a third-party administrator is under common ownership or control with a plan or its plan sponsor.
  • Clarification to Snapshot Count and Snapshot Factor Counting Methods: The proposed regulations clarify the application of the snapshot count and snapshot factor counting methods to a health insurance plan or coverage that is established or terminated, or that changes funding mechanisms, in the middle of a quarter. The proposed regulations provide that, if the plan or coverage in question had enrollees on any day during a quarter and if the contributing entity uses either the snapshot count or snapshot factor method, it must choose a set of counting dates for the counting period such that the plan or coverage has enrollees on each of the dates, if possible. However, the enrollment count for a date during a quarter in which the plan or coverage was in existence for only part of the quarter can be reduced by a factor reflecting the amount of time during the quarter for which the plan or coverage was not in existence.
  • Clarification to Reporting Deadlines: The proposed regulations would require a contributing entity to submit its annual enrollment count for the applicable benefit year to HHS no later than November 15 of benefit year 2014, 2015, or 2016, or, if such date is not a business day, the next business day.

In-Patient Hospitalization Requirement for Minimum Value Plans

The proposed regulations formalize guidance provided in IRS Notice 2014-69 (released on November 4) addressing the glitch in the HHS minimum value (MV) calculator that generated a fair amount of media attention earlier this year. (See the Council’s November 4 Benefits Byte story for more details.) The calculator is intended to be used to determine whether an employer-sponsored plan provides 60 percent minimum value. According to HHS and Treasury, the online MV calculator was improperly qualifying certain group health plan benefit designs that do not provide coverage for in-patient hospitalization services.

The proposed regulations formalize the guidance provided in Notice 2014-69. The proposed regulations would require that, in order to satisfy minimum value, an employer-sponsored plan must provide substantial coverage of both in-patient hospital services and physician services. The proposed regulations would apply to employer-sponsored plans, including plans that are in the middle of a plan year, immediately on the effective date of the final regulations. However, the proposed regulations provide that the final regulations will not apply before the end of the plan year for plans that, before November 4, 2014, entered into a binding written commitment to adopt, or began enrolling employees into, the plan, so long as that plan year begins no later than March 1, 2015.

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

PBGC Finalizes Rules on Defined Contribution-to-Defined Benefit Plan Rollovers

In final regulations released November 24, the Pension Benefit Guaranty Corporation (PBGC) seeks to clarify the treatment of benefits resulting from a rollover distribution from a defined contribution plan to a defined benefit plan, if the defined benefit plan was terminated and trusteed by PBGC. Under the regulations, a benefit resulting from rollover amounts will generally not be subject to PBGC's maximum guaranteed benefit or phase-in limitations and is in the second highest priority category of benefits in the allocation of assets. This amends PBGC’s regulations on allocation of assets and benefits payable in terminated single-employer defined benefit pension plans.

Under the new rule, benefits earned from a rollover generally will not be affected by PBGC's maximum guarantee limits, currently set at $59,320 annually for a 65-year old retiree. Also under the rule, the PBGC’s five-year phase-in limits – under which benefit increases from changes in the final five years of a plan are only partially guaranteed – generally will not apply.

The final regulations follow proposed regulations released in April (as reported in the April 1 Benefits Byte), with only the following minor clarifications from the proposed rules:

  • The amendments in this final rule apply only to rollovers from defined contribution plans.
  • Rollover amounts include both salary deferral contributions made by the participant, any additional employer contributions provided for under the defined contribution plan, and earnings on both.
  • The annuity benefit resulting from a rollover amount is a pension benefit (and thus is eligible to be guaranteed).

Except for these clarifications, the final regulation is the same as the proposed regulation.

The proposed regulations were prompted by Internal Revenue Service Revenue Ruling 2012-04, issued in February 2012 as part of the White House’s lifetime income initiative, which clarified certain qualification requirements under Section 401(a) of the Internal Revenue Code for use of rollover amounts to provide an additional benefit under a defined benefit plan. The agency stated that this rulemaking is part of PBGC’s efforts to enhance retirement security by promoting lifetime income options.

The rules become effective on December 26, 2014. For more information, contact Jan Jacobson, senior counsel, retirement policy, at 202-289-6700.

IRS Issues Guidance on Safe Harbor Rollover Notices

On November 24, the Internal Revenue Service (IRS) issued Notice 2014-74, which amends the safe harbor explanations required before making an eligible rollover distribution from a retirement plan and now reflects the IRS’s September release of guidance allowing more flexibility to taxpayers in choosing how to split after-tax contributions between traditional and Roth individual Retirement Accounts (IRAs).

Under Internal Revenue Code Section 402(f), plan administrators are required to provide a written explanation to any recipient of an eligible rollover distribution. In 2009, the IRS released Notice 2009-68, which contains two safe harbor explanations (one for payments not from a designated Roth account, sometimes referred to as a Special Tax Notice, and another for payments from a designated Roth account) that may be provided to recipients of eligible rollover distributions from an employer plan in order to satisfy Section 402(f).

The IRS released Notice 2014-54 on September 18, along with proposed regulations, allowing taxpayers to choose how to split after-tax contributions between traditional and Roth IRAs whenever after-tax and pre-tax amounts are simultaneously disbursed to multiple destinations. (See the Council’s September 18 Benefits Byte story for more details). The allocation rules in Notice 2014-54 are required to be effective for distributions on or after January 1, 2015, and can be applied on or after September 18.

However, the safe harbor Special Tax Notice provided under Notice 2009-68 was not compatible with Notice 2014-54 and the proposed regulations. In an October 27 letter, the Council urged the IRS to issue guidance as soon as possible clarifying the requirement under the tax code that plans provide a written explanation before making an eligible rollover distribution from a retirement plan (see the October 27 Benefits Byte for more information).

Notice 2014-74 updates the two safe harbor explanations for changes in the law and makes certain other clarifying changes, including amendments to the safe harbor explanation for payments either from a designated Roth account or another account.

For more information, contact 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).