American Benefits Council
Benefits Byte


March 4, 2015

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.

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Supreme Court Hears Oral Arguments in King v. Burwell

On March 4, the U.S. Supreme Court heard oral arguments in King v. Burwell, the controversial case that challenges the legality of federal subsidies for individuals obtaining health coverage in federally facilitated insurance exchanges.

The Court will be deciding whether the Patient Protection and Affordable Care Act (PPACA) allows individuals to receive federal subsidies to buy health coverage in states that have not established their own exchanges. (See the November 7, 2014, Benefits Byte) To date, 13 states and the District of Columbia operate exchanges. In the remaining states, the federal government runs the exchanges, some of them in partnership with the states.  

A ruling for the plaintiff-petitioners who are challenging the legality of the subsides would have far-reaching implications for individuals who are currently receiving subsidies for plans purchased in federal exchanges; disruption of insurance markets and risk pools; and application of the Code section 4980H employer penalties (triggered by receipt of subsidies by eligible full-time employees).  Such a decision would also create pressure on the Obama Administration, Congress and states to address the decision in the form of regulatory or legislative “fixes,” particularly for individuals who rely on subsidies to purchase health coverage. The court’s decision is expected by June 2015.

It is anticipated that the high court’s most conservative justices (Alito, Thomas and Scalia) would be more likely to endorse the petitioners’ strict literal reading of the statute, while the more liberal justices (Ginsburg, Breyer, Sotomayor and Kagan) would more likely endorse the administration’s  contextual, interpretive reading, That would leave Chief Justice John Roberts, Justice Anthony Kennedy  as “swing votes.” Today’s oral arguments appeared to confirm that likelihood.

As described in a summary of the oral argument provided by Miller & Chevelier, the liberal justices pressed the point that the statute must be read a whole and “in context” implying that the federal government should prevail.  Justice Kennedy was pointed in his questioning of the plantiff-petitioners. As noted by SCOTUSblog, “Justice Kennedy expressed deep concern with a system where the statute would potentially destroy the insurance system in states that chose not to establish their own exchanges – likening this to an unconstitutional form of federal coercion.” Kennedy would also point out later that state insurance systems would likely fail if the subsidy/mandate system created by PPACA does not operate in that particular state. Chief Justice Roberts asked very few questions.

In the event that the Supreme Court should rule that subsidies are not permitted for policies purchased on federally facilitated exchanges, the House Republican Working Group (including House committee chairmen John Kline (R-MN), Paul Ryan (R-WI) and Fred Upton (R-MI)) has offered an “off-ramp” plan that would, among other things, provide individuals an advanceable, refundable tax credit with which people can buy insurance approved by a state insurance commissioner.

As we have previously reported, Republican leaders in the U.S. Senate and House of Representatives recently released The Patient Choice, Affordability, Responsibility, and Empowerment (Patient CARE) Act to replace PPACA. The Patient CARE Act was unveiled on February 5 by its chief authors, Senate Finance Committee Chairman Orrin Hatch (R-UT); Senator Richard Burr (R-NC), a member of both the Finance Committee and the Health, Education, Labor and Pensions (HELP) Committee; and House Energy and Commerce Committee Chairman Fred Upton (R-MI). The Patient CARE Act would eliminate the individual and employer mandates, provide medical liability reforms, revise the age rating rules and transition Medicaid to a “capped allotment” system. (A two-page summaryand comparison chart are also available; see the February 5 Benefits Byte for more information.)

HHS Secretary Burwell has stated that the administration has no contingency plans as it believes there are no administrative actions that it could take after such a ruling to address the “massive damage” that it would create.  

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

Council Comments on Proposed PPACA Summary of Benefits and Coverage

On March 2, the Council submitted written comments on the proposed regulations on the summary of benefits and coverage (SBC) and the uniform glossary to be provided by group health plans and health insurance coverage in the group and individual markets under the Patient Protection and Affordable Care Act (PPACA). 

The SBC is a brief document intended to provide standard and easy-to-understand information about health plan benefits and coverage options to help consumers compare and select health insurance. The proposed regulations  on SBC requirements were issued by the U.S. departments of Treasury, Labor and Health and Human Services on December 22, 2014, and amend the final regulations released on February 9, 2012 (see the February 9, 2012, Benefits Byte), that implement the disclosure requirements under Section 2715 of the Public Health Service Act. 

The Council offered a range of recommendations, including:

  • Applicability date of new SBC requirements: The applicability date in the proposed rule does not allow plans and issuers sufficient time to update their internal processes to comply with the proposed changes to the SBC template. The Council encourages the departments to change the effective date for the new SBC requirements beginning the first day of the first open enrollment period beginning on or after January 1, 2017, for participants and beneficiaries who enroll or re-enroll in group health coverage through open enrollment, and on the first day of the first plan year beginning on or after January 1, 2017, for participants and beneficiaries who enroll in group health coverage other than through open enrollment.
  • Requirements for employers that contract with third parties to provide SBCs: The Council expressed concern that the new requirements imposed on employers that contract with another party to provide SBCs are unnecessary and burdensome, as employers entering into a contract with a third party are already aware that they are not absolved from liability and monitor contract performance on an ongoing basis to ensure that third parties are performing in accordance with not only contract terms but also SBC rules.
  • Good faith safe harbor for implementation of new changes: The Council letter requests that final regulations reiterate the safe harbor stated under existing guidance that penalties will not be imposed on plans and issuers that are working diligently and in good faith to provide the required SBC content in an appearance that is consistent with final regulations (FAQs About Affordable Care Act Implementation Part XIX, Q8).

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

SEC Issues No-Action Letter on Participant-Level Fee Disclosure for Non-ERISA Plans

The Security and Exchange Commission (SEC) has extended relief to non-ERISA participant-directed plans complying with participant-level fee disclosure requirements, similar to its treatment of ERISA plans. In a “no-action” letter dated February 18, the SEC states that the required disclosures will not violate Rule 482 of the Securities Act of 1933, described further below.

In October 2010, the DOL issued the final regulations addressing fiduciary requirements for fee disclosure to participants in participant-directed individual account plans, such as 401(k) plans (see the October 14, 2010, Benefits Byte). The required participant disclosure, which became effective in 2011, required plan administrators to furnish each participant or beneficiary with certain plan-related information and certain investment-related information in specific categories.

This required disclosure, if considered an “advertisement” governed by the securities laws, was inconsistent in a few ways with SEC Rule 482. In particular, Rule 482 has different timing requirements for updating information, the disclosure of money market fund performance and certain narrative and legend disclosures. Finally, it was not clear how the Financial Industry Regulatory Authority (FINRA, the largest independent regulator for all securities firms doing business in the U.S.) would treat such disclosures created by a broker-dealer subject to its jurisdiction.

In October 2011, the SEC provided “no-action” relieffor ERISA plans, stating that information required by, and that complies with, the fee disclosure regulations will be treated as a communication that satisfies the requirements of Rule 482 (see the October 28, 2011, Benefits Byte). No relief was provided for non-ERISA plans at that time. 

The new no-action letter, issued to the American Retirement Association, provides similar relief for non-ERISA 403(b) plans, governmental 457(b) plans, governmental 401(a) plans, 415(m) plans, church 401(a) plans, non-governmental 457(b) plans, and 409A plans or 457(f) plans of governmental or tax-exempt entities.

The relief is conditioned on the following:

  • Each investment vendor must provide the required information to participants in the plan pursuant to a “written agreement” with the employer (or its designee) that requires the vendor to provide the information for each investment option that the vendor offers under the plan and also, to the extent available to the investment vendor, the fee and expense information as specified in the DOL regulation.
  • The written agreement must specify a date on or before which the vendor will provide the required information to all current participants in the plan.
  • Each vendor under the plan will provide the information to participants initially on or before the date specified in the written agreement with the employer (or its designee), update the information at least annually, update the performance information to be disclosed at an Internet web site address listed pursuant to the DOL regulation on at least a quarterly basis (or more frequently if required by other applicable law) and require the contact person designated by the vendor as a source of additional information to provide upon request the information specified in the DOL regulation.
  • The required information will be furnished to new participants in the plan prior to their initial investment and to each participant at least annually in accordance with the timing requirements in the DOL regulation.
  • Information provided by a vendor will include no information other than that which would be required if the plan were subject to ERISA. (Although this is stated as a condition, in a footnote, the SEC acknowledges that the disclosure can be accompanied by an enrollment form and any information that is not required by the DOL regulation will simply not receive relief from SEC Rule 482.  Presumably, so long as such information is not an “advertisement” as contemplated by Rule 482, no relief is needed.)

The relief does not apply to “frozen” vendors of 403(b) plans (vendors of investment options that were available before January 1, 2009, but not available for new employer contributions or employee salary reduction contributions on or after January 1, 2009). 

The “written agreement” requirement can be satisfied by providing written notice to the employer (or its designee) on or after the date of the SEC’s no-action letter that the vendor is complying with this condition as a term of an existing written agreement.

For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, 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).