American Benefits Council
Benefits Byte


April 1, 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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Council Comments on Proposed Regulations for HIPAA Certification of Compliance

In April 1 written comments to the U.S. Health and Human Services Department, the Council recommended that regulations governing HIPAA certification further clarify the submission requirements for employer sponsors of group health plans.

Under the administrative simplification provisions of HIPAA, covered entities are required to conduct certain transactions electronically using standards and code sets designated by HHS. Transactions subject to these requirements include eligibility, claims & encounter information, claims status, enrollment and disenrollment, payment, premium payment and coordination of benefits. In addition to adding new transactions, PPACA mandated that health plans submit certain documentation and information to HHS that demonstrates compliance with electronic transaction standards and established new penalties for health plans that fail to comply.

On January 2, 2014, HHS issued proposed regulations implementing this requirement. Under these proposed regulations, health plans that are “controlling health plans” (CHPs, a definition added by prior final regulations implementing the unique health plan identifier (HPID) requirements of HIPAA) must submit: (1) documentation that demonstrates compliance using one of two available methods; and (2) its number of covered lives on the date. These requirements apply with respect to three transactions: eligibility for a health plan, health care claim status and health care electronic funds transfer and remittance advice. Under the proposed regulations, the required documentation and information will be due December 31, 2015. Additional background regarding HIPAA administrative simplification and the proposed regulations are included in a summary provided courtesy of Groom Law Group.

The comment letter expressed concerns that, under the proposed rule, all health plans that meet the definition of a CHP will be required to meet the certification requirements, regardless of whether they actually conduct any standard transactions. Self-insured group health plans typically utilize third parties to administer the plan, including carrying out any covered transactions.

The Council requested that final regulations clarify that CHPs that are not engaged in standard transactions are exempt from the certification requirements. If the Secretary intends for such CHPs to certify compliance, the Council recommended that the certification requirements be significantly simplified where the plan conducts no transactions. “At a minimum, the final rule should allow a plan administrator to act on behalf of self-insured group health plans in providing documentation indicating a CORE Phase III Seal or HIPAA Credential. Further, it should permit a self-insured group health plan that is a CHP to reasonably rely upon written representations from business associates that they have complied with the certification requirement.”

The Council’s letter also addresses other concerns related to:

  • Application of the requirements to health spending arrangements, such as flexible spending arrangements (FSAs), health care reimbursement accounts (HRAs) and health savings accounts (HSAs);
  • Submission of information on the number of covered lives, which the Council believes is “unreasonable and unnecessary” in the absence of any allegations of violations;
  • Requirements in the proposed rule to certify compliance with the privacy and security provisions of HIPAA, which the Council believes would be redundant and burdensome in light of existing law and regulations covering compliance with HIPAA privacy and security; and
  • The importance of providing an opportunity for corrective action by a CHP prior to finalizing the certification.

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

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

In proposed regulations released April 1, the Pension Benefit Guaranty Corporation (PBGC) seeks to clarify the treatment of benefits resulting from a rollover distribution from a defined contribution plan (or other qualified trust) to a defined benefit plan, if the defined benefit plan was terminated and trusteed by PBGC. This proposed rule would amend PBGC’s regulations on allocation of assets and benefits payable in terminated single-employer defined benefit pension plans.

Under the new proposal, benefits earned from a rollover generally would not be affected by PBGC's maximum guarantee limits, currently set at $59,320 annually for a 65-year old retiree. Also under the proposal, 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 would not apply.

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.

In a news release publicizing the issuance, the PBGC suggested that the new rules would make it easier for retirement plan participants to secure lifetime retirement income by giving them more access to annuity vehicles. “The agency wants employees that have rollover options to move their benefits from defined contribution plans to defined benefit plans. The new proposal removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits,” PBGC said.

The proposal is scheduled for publication in the April 2 Federal Register. Comments on the proposed rule will be accepted through June 2. The Council will consider filing comments on the proposal. To provide input, or for more information, contact Jan Jacobson, senior counsel, retirement policy, at 202-289-6700.

Amicus Brief Seeks Reversal of Windfall Award Under ERISA

In a March 28 amicus (“friend of the court”) brief, the Council – along with the American Council of Life Insurers, the U.S. Chamber of Commerce and America’s Health Insurance Plans – urged the full Sixth Circuit Court of Appeals to overturn a windfall ERISA award in the case of Rochow v. Life Insurance Company of North America (LINA).

The District Court for the Eastern District of Michigan and the Sixth Circuit Court of Appeals have consistently held that LINA wrongfully denied the plaintiff disability benefits owed to him, awarding the plaintiff $900,000 in benefits plus attorneys’ fees and costs. In a subsequent ruling, the same district court ruled that LINA also breached its fiduciary duty by denying benefits and thus additional “equitable” remedies were appropriate, awarding the plaintiff nearly $3.8 million in “disgorgement” of adjudged LINA “profits” under ERISA Section 502(a)(3), which allows a plan beneficiary "to obtain other appropriate equitable relief.” A three-judge panel of the Sixth Circuit upheld the “disgorgement” award in a December 6, 2013, decision; the full Sixth Circuit Court of Appeals has since vacated the panel’s ruling and will take up the case later this year.

As the amicus brief notes, “the decision, if affirmed, would significantly increase the risk, cost, and uncertainty associated with offering ERISA-governed employee benefits, including a dramatic increase in the expense and burden of resolving benefits cases. These effects will have negative repercussions for the availability and affordability of valuable employee benefits on which millions of American workers and their families depend.” And even disregarding these adverse policy effects, “the district court committed legal error and its judgment should be reversed.”

Specifically, the brief asserts that the district court ruling (and earlier appellate affirmation) should be overturned since it (1) dramatically increases the risk, expense and burden associated with providing and administering ERISA benefits, (2) conflicts with Sixth Circuit and U.S. Supreme Court precedent, permitting an impermissible windfall for the plaintiff under ERISA, and (3) represents a “punitive” disgorgement award and is therefore also impermissible under ERISA.

On February 19, the case was set for rehearing en banc, and the panel’s earlier decision was vacated. Oral arguments will commence on June 18, 2014. 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.

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