Federal Departments Announce No Enforcement Action Regarding Drug Manufacturer Coupons Counting Toward Out-of-Pocket Maximums
HHS’s 2020 Notice of Benefit and Payment Parameters (“NBPP”) provides that a group health plan does not have to count drug manufacturer coupons for brand-name drugs towards an annual out-of-pocket maximum if there is a medically appropriate generic equivalent. Many questions were raised by this rule, including (i) how it interacted with health savings account guidance and (ii) what types of arrangements and/or plans to which it applied. The DOL, HHS, and the Treasury Department (collectively, the “Departments”) announced in an FAQ (available here) that the Departments will not initiate any enforcement action if a group health plan does not count the value of drug manufacturer coupons toward an out-of-pocket maximum. This no enforcement policy lasts until HHS’s 2021 NBPP becomes effective, and the 2021 NBPP should clarify how this rule affects employer-sponsored group health plans.
In Private Letter Ruling 201933005 (the “PLR”), the IRS recently addressed whether certain genetic testing services and reports provided to an individual by a commercial retailer of bundled ancestry and health evaluation services (“Ancestry Provider”) constituted “medical care” expenses under Section 213(d) of the Internal Revenue Code, which would be reimbursable to the individual from his or her employer-sponsored health flexible spending arrangement (“HFSA”). Under the facts of the PLR, the Ancestry Provider (i) collected a DNA sample from an individual through a DNA testing kit, (ii) sent the sample to a third-party laboratory for genetic testing, and (iii) issued reports to the individual with results from such laboratory testing, including, among other things, information regarding the individual’s potential health risks. The IRS concluded that because the Ancestry Provider’s bundled services included both non-medical (i.e., ancestry) as well as health services, the costs of its services must be valued and… Continue Reading
IRS: Retirement Plan Distributions are Taxable Even if a Participant Refuses to Cash a Distribution Check
In Revenue Ruling 2019-19, the IRS clarified that a plan participant’s refusal to cash a distribution check after she received it does not (i) permit her to exclude the amount of the distribution from her taxable income, (ii) alter her employer’s duty to withhold all applicable taxes from the distribution, or (iii) alter her employer’s duty to report the taxable income on a Form 1099-R. While this Revenue Ruling addresses the treatment of plan distributions when a participant receives, but refuses to cash, a distribution check, the ruling does not address other situations in which a distribution check is not cashed, such as in the case of missing participants. The ruling states that the IRS and Treasury are continuing to analyze such issues and may publish related guidance in the future. Revenue Ruling 2019-19 is available here.
DOL Publishes FAQs on Employer Retirement Plan Obligations to Reemployed Service Members Under USERRA
The DOL recently published a series of frequently asked questions (“FAQs”) on its website that provide general guidance to employers on their retirement plan obligations to reemployed service members under the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”). Among other things, the FAQs address (i) what military service must be credited for purposes of determining retirement benefits, (ii) an employer’s obligation to make retirement plan contributions while an employee is on a qualifying military leave of absence, and (iii) an employee’s right to make up missed contributions when he or she is reemployed following a qualifying military leave of absence. The FAQs are available here.
The DOL has updated the model notice that employers providing group health coverage may use to notify eligible employees about Medicaid or the Children’s Health Insurance Program (“CHIP”) premium assistance programs available in their home states. Employers must provide this notice before the start of the plan year. The updated model CHIP notice is available here.
Generally, the Affordable Care Act (“ACA”) requires group health plan coverage sponsored by large employers to be “affordable” in order to avoid certain penalties. “Affordability” is based on whether the premium for employee-only coverage is less than a certain percentage of an employee’s household income or an applicable safe harbor amount. In Notice 2019-29, the IRS announced that the affordability percentage for 2020 would decrease to 9.78% from 9.86% in 2019. Employers should note this change as they set premiums for 2020. Notice 2019-29 is available here.
A recent decision from the U.S. Court of Appeals for the Fifth Circuit highlights that a qualified domestic relations order (“QDRO”) can be valid and enforceable even if it is issued after a participant’s death. In Miletello v. RMR Mechanical, Inc., the Fifth Circuit affirmed an award to the former spouse of a deceased 401(k) plan participant, even though (i) the QDRO in favor of the former spouse was not entered into until over a year after the participant’s death, and (ii) the participant was married to a new spouse at the time of his death. Importantly, a divorce settlement executed by the former spouse and the decedent before his death explicitly provided for the award from the 401(k) plan and contemplated that the former spouse would obtain a QDRO to receive the 401(k) plan assets. A copy of the Fifth Circuit’s opinion is available here.
A frequent, but often times avoidable, operational error for retirement plans is the failure to use the proper definition of “compensation” for various plan purposes, including, without limitation, calculating employee deferrals and employer contributions. A retirement plan’s definition of compensation typically includes dozens of components that all must be properly coded in the plan sponsor’s payroll system as either eligible or ineligible plan compensation. One such component that is frequently misclassified is the value of employee equity awards, such as stock options and restricted stock. Accordingly, plan sponsors should periodically compare the plan’s definition of compensation to the employer’s payroll records to verify that the proper definition of compensation has been used for all relevant plan purposes. Performing such an audit can help identify any errors and minimize the amount of corrective contributions and other fees or expenses that may be associated with correcting the error.
Fifth Circuit Defers to Plan Administrator’s Claim Appeal Decision Involving Competing Medical Opinions
In Rittinger v. Health Alliance Life Insurance Company, the U.S. Court of Appeals for the Fifth Circuit, whose jurisdiction includes Texas, analyzed the claims decision-making process of a group health plan administrator that had been granted discretion under the terms of the employer’s group health plan. The court determined that, based on such grant of discretion, the plan administrator’s decision regarding a participant’s benefits claim appeal was entitled to judicial deference, even with respect to the plan administrator’s selection of competing medical providers’ opinions. Background regarding Grant of Discretion under ERISA Under general standards, a court will consider denials of appealed benefits claims under an employer-sponsored employee benefit plan (including a group health plan) that is subject to ERISA on a “de novo” basis, which means that the court will not give any deference to the plan administrator’s prior decision on a benefit claim appeal, but instead can substitute its… Continue Reading
Final regulations were recently released by the U.S. Departments of Labor, Health and Human Services, and the Treasury (collectively, the “Departments”) which create two new options for providing employer-sponsored group health coverage under a health reimbursement arrangement (“HRA”). The Departments also issued a set of FAQs which outline key points regarding these new HRA options and other changes reflected in the regulations. An HRA is a type of account-based health plan that employers may use to reimburse employees for their medical care expenses. Individual Coverage HRA The first option, an “Individual Coverage HRA,” may be offered by employers as an alternative to coverage under a traditional group health plan (“Traditional GHP”), subject to certain conditions. In effect, Individual Coverage HRAs extend the federal tax advantages that are afforded to Traditional GHPs (i.e., exclusion of premiums and benefits received from federal income and payroll taxes) to HRA reimbursements of an individual’s… Continue Reading