November 18, 2015
- New Benefits Blueprint Examines ‘Cadillac Tax’ Economic Research
- DOL Proposes New Claims Procedures for Plans Providing Disability Benefits
- Council Urgently Requests Guidance on Mortality Tables under BBA
- Council Asks IRS, OMB for Additional Clarity on New Form 5500 Filing Requirements
New Benefits Blueprint Examines ‘Cadillac Tax’ Economic Research
The Council continues to pursue repeal of the so-called “Cadillac Tax” on health plans as a top advocacy priority. In our November 17 Action Alert, we urge Council members to join the effort and help us advocate for repeal this year, before Congress is slated to adjourn on December 11.
As part of this ongoing effort, we are closely examining the leading research on the likely economic effects of the tax. In a new Benefits Blueprint summary, the Council evaluates two recent and significant studies of the tax.
Pursuant to the Affordable Care Act (ACA), starting in 2018 a nondeductible 40 percent excise tax will be imposed on employer-sponsored coverage that exceeds certain thresholds ($10,200 for self-only coverage, $27,500 for family coverage). Proponents of the tax argue that the measure will put downward pressure on health costs in the long term, while the revenue from the tax can be used to help defray the cost of the ACA’s other provisions.
Despite the “Cadillac tax” nickname, the Council is extremely concerned that the tax will target employer-sponsored health plans that are not inherently lavish but may trigger the tax anyhow because the plan operates in high-cost areas, includes high-cost occupations or covers high-cost individuals. Additionally, because the tax is indexed to regular inflation, rather than health cost inflation, the tax is likely to affect an increasing number of plans over time.
Numerous recent studies have attempted to quantify the practical effect of the tax on employer-sponsored coverage and have found that:
- Under the scenarios examined, a very large percentage of workers (and their families) are enrolled in plans that will trigger the tax – even though the original intent of the 40% tax on health benefits may have been to target only “overly rich” plans.
- Middle income workers affected by the excise tax will experience significant reductions in benefits and will bear an increased tax burden that is a greater proportion of their income than for high and low income groups.
The Council’s analysis of these studies demonstrates that the tax will almost certainly increase taxes or costs – or both – for employers and employees.
Earlier this spring the American Benefits Council established the Alliance to Fight the 40, a diverse group of organizations (business associations, unions, and public sector employers) seeking congressional repeal of the 40 percent tax. Since the Alliance’s launch, coalition members have been on Capitol Hill every day explaining the negative implications of the tax. We encourage Council members to consider joining the Alliance, as we are now undertaking a coordinated public relations campaign and every voice makes our message stronger.
Please review this two-page brochure to learn more about the Alliance. For more information on the 40 percent tax and the Council’s repeal efforts, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.
DOL Proposes New Claims Procedures for Plans Providing Disability Benefits
The U.S. Department of Labor (DOL) is seeking to apply certain existing claims procedures for group health plans, enacted under the Affordable Care Act (ACA), to disability benefit plans, according to a notice of proposed rulemaking published on November 18.
“Because of the volume and constancy of litigation in this area, and in light of advancements in claims processing technology, the Department recognizes a need to revisit, reexamine, and revise the current regulations in order to ensure that disability benefit claimants receive a fair review of denied claims as provided by law,” The DOL wrote in the proposed rule. The proposed amendments under Section 503 of ERISA would affect plan administrators and participants and beneficiaries of plans providing disability benefits, and others who assist in the provision of these benefits, including third-party benefits administrators and other service providers.
The proposed regulations adopt many of the procedural protections for health care claimants as provided in the ACA, including provisions to ensure:
- claims and appeals are adjudicated in manner designed to ensure independence and impartiality of the persons involved in making the decision.
- benefit denial notices contain a full discussion of why the plan denied the claim and the standards behind the decision.
- claimants have access to their entire claim file and are allowed to present evidence and testimony during the review process.
- claimants are notified of and have an opportunity to respond to any new evidence reasonably in advance of an appeal decision.
- final denials at the appeals stage are not based on new or additional rationales unless claimants first are given notice and a fair opportunity to respond.
- if plans do not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other specified conditions are met.
- certain rescissions of coverage are treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures.
- notices are written in “a culturally and linguistically appropriate manner.”
The DOL is also seeking comment regarding notice related to contractual limitation periods. As explained in the supplementary information of the proposed rulemaking, ERISA does not specify a limitations period after a final adverse benefit determination for bringing a lawsuit. Instead federal courts look to analogous state laws to determine appropriate limitations period. In Heimeshoff v. Hartford Life & Accident Ins. Co, the Supreme Court recently upheld the use of contractual limitations periods so long as they are reasonable.
The DOL is soliciting comments on whether the final regulation should require plans to provide claimants with a clear and prominent statement of any applicable contractual limitations period and its expiration period for the claim at issue in the final notice of adverse benefit determination on appeal and with an updated notice of that expiration date if tolling or some other event causes that date to change.
The deadline for submitting comments on the proposed regulations is January 19, 2016. For more information, or to provide input for a possible Council comment letter, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
Council Urgently Requests Guidance on Mortality Tables under BBA
The Council asked the U.S. Treasury Department and Internal Revenue Service (IRS) in a November 18 letter to issue guidance “extremely soon” implementing the mortality table relief provided under the Bipartisan Budget Act of 2015 (BBA).
As we reported in the October 27 Benefits Byte, the BBA – signed into law by President Obama on November 2 – provided increased flexibility for defined benefit plan sponsors to use mortality tables that are different than those prescribed by the U.S. Treasury Department. Mortality assumptions are a key component when calculating pension funding obligations, benefit restrictions and PBGC premiums.
Under current law, plans qualify to use a separate table only if (1) the proposed table reflects the “actual experience” of the pension plan maintained by the plan sponsor and projected trends in general mortality experience, and (2) there are a sufficient number of plan participants, and the plan was maintained for a sufficient period of time to have credible information necessary for that purpose.
Under the BBA, plan may use blended substitute mortality tables, adjusted from the Treasury tables, based on a combination of the regulatory tables and plan experience. Also, the “credible information” determination shall be made in accordance with established actuarial credibility theory.The change applies beginning with the 2016 plan year and does not require a change in the regulations for it to take effect, but the Council has requested guidance on how the change applies with regard to several issues:
- We are concerned that there may be insufficient time for the IRS to develop and publish guidance and still have time to process applications in a timely way for 2016, the year for which the legislation takes effect under the statute. We would also like to discuss the alternative, which is expedited guidance on how to make such submissions and the deadlines for doing so.
- We are concerned that the IRS may be challenged to process the many expected applications to use the blended tables on an expedited basis. We would strongly support “automatic approval” mechanisms to streamline the application process.
- To alleviate pressure on the IRS, the Council’s actuarial members have volunteered to provide whatever help is needed with respect to guidance on submissions and automatic approval procedures.
As we most recently reported in the October 8 Benefits Byte, the Council has been working closely with Treasury and the Internal Revenue Service to ensure that the official mortality tables reflect proper assumptions and experience. For more information on mortality tables or other defined benefit plan issues, contact Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.
Council Asks IRS, OMB for Additional Clarity on New Form 5500 Filing Requirements
In a November 17 letter to the Internal Revenue Service (IRS) and Office of Management and Budget (OMB), the Council urged the issuance of transition guidance and relief with regard to the filing of the Form 5500 Annual Return/Report of Employee Benefit Plans.
Form 5500 is used to satisfy annual reporting requirements under ERISA and the Internal Revenue Code. The IRS is likely to issue the 2015 version of the Form 5500 series before the end of the calendar year. In a notice and request for comment released in late 2014, the IRS revealed that a new supplemental form, the 5500-SUP, would solicit additional compliance information. The IRS issued an early draft version of the 5500-SUP in March and an early draft version of the 5500-EZ (and instructions) in August.
As the Council’s letter notes, many of the changes described in the notice and draft forms involve new or significantly changed questions, many of which are ambiguous. “This ambiguity will require additional guidance before companies can implement the changes. Changes of this nature will need significant systems changes so it will be very difficult to implement them properly if required for the 2015 plan year.”
The Council recommends further review of the suggested changes to the forms and delayed implementation until EFAST3 is rolled out. Alternatively, the changes could be delayed until two years after the date on which they are finalized and made public, giving plans and their recordkeepers sufficient time to revise their systems. At the very least, new questions (and newly required entries which were formerly optional) should be made optional for the time period indicated above.
For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.