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IRS Publishes 2018 Required Amendments List

In Notice 2018-91, the IRS published the Required Amendments List for 2018, which lists statutory and administrative changes in plan qualification requirements that (i) are first effective in the plan year in which the list is published and (ii) may require a plan amendment. This year’s list did not include any such items. Nevertheless, a required amendment that was listed in the 2016 Required Amendments List must be adopted (if applicable to an employer’s plan) by December 31, 2018. That required amendment relates to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to a plan sponsor’s bankruptcy. Additional information on the 2016 Required Amendments List is available on our prior blog post. View Notice 2018-91

Fifth Circuit Opinion Clarifies Legal Claims Distinction under ERISA

In Manuel v. Turner Industries Group, L.L.C., the U.S Circuit Court of Appeals for the Fifth Circuit (whose jurisdiction includes Texas) considered various claims under ERISA that were brought by Michael Manuel, a former employee of Turner Industries (“Turner”). His claims were brought against Turner and Prudential, the insurer and claims fiduciary under Turner’s long-term disability benefits plan, and related to a denial of benefits to Manuel under that plan. One of his claims was for breach of fiduciary duty asserted against Turner under Section 502(a)(3) of ERISA (the “Equitable Relief Provision”) based on Manuel’s argument that the plan’s SPD omitted the pre-existing condition exclusion contained in the plan document that was the basis for Prudential’s denial of his benefits claim, and thus Manuel relied to his detriment on a deficient SPD. Citing Fifth Circuit and U.S. Supreme Court precedent under ERISA, the Fifth Circuit reiterated the standing rule that… Continue Reading

Final ACA Rules Regarding Religious and Moral Exemptions and Accommodations for Objections to Coverage of Contraceptives

The U.S. Departments of Health and Human Services, Labor, and the Treasury recently released final rules regarding religious or moral objections to the coverage of contraceptives under the preventive services requirements of the Affordable Care Act (the “ACA”) as well as accommodations for those objections. Generally, the ACA requires non-grandfathered group health plans and health insurance issuers to cover all FDA-approved contraceptive methods, sterilization procedures, and related education and counseling. The final rules expand the religious exemption to this requirement to include all types of non-governmental employers, including for-profit corporations (regardless of their size or whether they are publicly or privately held). Moreover, the moral exemption applies to certain non-governmental employers, including privately held for-profit employers, insurers, and individuals. In addition, the new rules maintain the availability of the accommodation pursuant to which the entity’s insurer or third party administrator is responsible for providing contraceptive services to the entity’s plan… Continue Reading

IRS Announces Proposed Regulations Implementing New Hardship Distribution Requirements

The IRS recently published proposed regulations addressing changes enacted by the Tax Cuts and Jobs Act of 2017, the Bipartisan Budget Act of 2018, and other prior changes to the tax code. Specifically, the proposed regulations: Permit, but don’t require, hardship distributions from a participant’s elective contributions, QNECs, QMACs (including safe harbor matching contributions), and any earnings on those amounts, regardless of when they were contributed or earned Eliminate the requirement that a participant take out all available plan loans before receiving a hardship distribution (although plans may continue to contain such a requirement) Prohibit plans from containing a requirement that a participant may not contribute to the plan for any period of time following a hardship distribution (in other words, eliminate the six-month suspension rule). If a suspension is still being applied as of January 1, 2019 for a prior hardship distribution, a plan may eliminate the suspension as… Continue Reading

IRS Notice Increases Dollar Amount Basis of PCORI Fee

The IRS recently issued Notice 2018-85, which increases the dollar amount that is the basis of the fee established under the Affordable Care Act to help fund the Patient-Centered Outcomes Research Institute (“PCORI Fee”). The PCORI Fee is imposed on plan sponsors of applicable self-funded health plans and issuers of specified health insurance policies. Plan sponsors remit the PCORI Fee to the IRS annually by filing an IRS Form 720. The PCORI Fee is based on a flat dollar amount multiplied by the average number of lives covered under the plan for the applicable plan year. The dollar amount for plan and policy years that ended on or after October 1, 2017 and before October 1, 2018, is $2.39. Notice 2018-85 increases the dollar amount for plan and policy years that end on or after October 1, 2018 and before October 1, 2019, to $2.45. View Notice 2018-85.

IRS Announces 2019 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2019. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2019: Compensation limit used in calculating a participant’s benefit accruals: increased to $280,000. Elective deferrals to 401(k) and 403(b) plans: increased to $19,000. Annual additions to a defined contribution plan: increased to $56,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,000. Annual benefit limit for a defined benefit plan: increased to $225,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: increased to $180,000. Compensation dollar limit for defining a “highly compensated employee”: increased to $125,000. View the full list of 2019 plan limits in Notice 2018-83.

New HRA Option for Employers in 2020 May Avoid ACA Employer Penalties

New proposed rules have been issued by the federal Departments of the Treasury, Labor, and Health and Human Services that permit employers to offer health reimbursement arrangements (“HRAs”) to employees who are enrolled in individual health insurance coverage. An employee could use such an HRA to pay the employee’s premiums for individual health insurance and other medical expenses. The same HRA must be offered to an entire “class” of employees, and a traditional group health plan could not be offered to that class. Classes of employees include full-time, part-time, seasonal, union, employees in a waiting period, employees under age 25, non-resident aliens with no U.S. income, employees in the same insurance rating area, or a combination of those classes. The HRA contribution could increase with age, reflecting the fact that health coverage for older employees is generally more expensive, and the IRS will provide an approach for varying contributions by… Continue Reading

IRS Tax Exempt and Government Entities Division Issues 2019 Compliance Program Letter

The IRS’s Tax Exempt and Government Entities Division (“TE/GE”) recently issued its Compliance Program Letter for 2019, which lists TE/GE’s compliance priorities for the 2019 calendar year. Those priorities include issuing additional guidance under the Tax Cuts and Jobs Act (the “Act”), which was enacted in December 2017, and expanding its use of Pay.gov and secure messaging with taxpayers and practitioners in the TE/GE’s employee plans program. The letter does not list any specific guidance topics to be addressed under the Act or provide that guidance is forthcoming on Internal Revenue Code changes enacted by the Bipartisan Budget Act of 2018, such as changes to the hardship distribution rules. The letter does, however, state that if additional issues are identified in the future, TE/GE will modify its list of priority items to ensure that TE/GE remains focused on the highest priority items. View the 2019 Compliance Program Letter.

Court Finds ERISA Requires Disclosure of “Reasonable and Customary” Methodology

A federal district court in Michigan, in Zack v. McLaren Health Advantage, Inc., recently considered whether the claims regulations under ERISA require an employer-sponsored group health plan to disclose its methodology for determining the “reasonable and customary” amount related to a benefit claim for services rendered to a plan participant by an out-of-network medical service provider, regardless of whether the participant requested such information. Summary of the Case The claimant, Zack, who was a participant in the group health plan sponsored by her husband’s employer, obtained medical services from an out-of-network provider and filed a benefits claim under the plan. The plan stated that out-of-network benefits would be paid at 60 percent of a “reasonable and customary amount”, but did not define what that term meant or how it would be calculated. In practice, the “reasonable and customary amount” under the plan (“R&C Amount”) was determined by calculating an average… Continue Reading

Hardship Withdrawals

The Bipartisan Budget Act of 2018 (the “Budget Act”) contains changes that will impact 401(k) plans that offer hardship withdrawals. Effective January 1, 2019, the following key changes to the Internal Revenue Code’s hardship withdrawal rules become effective: Permissible Contribution Sources Expanded: The contribution sources from which hardship withdrawals are permitted have been expanded to include qualified nonelective contributions (“QNECs”), qualified matching contributions (“QMACs”), 401(k) safe harbor plan contributions, and earnings on such QNECs, QMACs, and employee deferrals (including post-1988 earnings on elective deferrals). Loan Exhaustion Requirement Eliminated: Participants may take a hardship withdrawal without first having to take out all nontaxable loans available under the plan. Six Month Suspension Requirement Eliminated: Plan administrators are no longer required to suspend a participant’s elective deferrals for six months following a hardship withdrawal. Although the IRS has not yet issued explanatory guidance regarding these changes, plan sponsors need to decide now how… Continue Reading

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