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Health and Welfare Issues and COVID-19: Reminder: Decrease in Pay/Hours Does Not Permit Dropping Health Plan Coverage If There is No Loss of Eligibility

As many employers reduce employees’ work hours, employers should consider that employees will remain responsible for their health plan contributions even though their pay is decreasing. As long as eligibility for coverage does not change, an employee is not permitted to change his or her health plan elections due solely to the decrease in pay or hours. One exception to this general rule is a change in status event created in connection with the Affordable Care Act, which provides that, in certain circumstances, an employee with reduced work hours may drop health plan coverage if the employee enrolls in other health plan coverage. Because the reduced pay may not cover all payroll deductions, employers should consider adopting a priority order for payroll deductions (e.g., health plan deductions are made before 401(k) plan deductions). In addition, an employer may want to consider a waiver of premiums, which is permitted if done… Continue Reading

Additional Nondiscrimination Relief for Closed Defined Benefit Plans Through 2020

In Notice 2019-60, the IRS granted additional nondiscrimination relief for certain “closed” defined benefit plans (i.e., plans frozen as to new participants before December 13, 2013, but that provide ongoing benefit accruals for existing participants). This relief is in addition to the relief originally provided in Notice 2014-5, which permits employers who sponsor both a “closed” defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Code Section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis. The new nondiscrimination relief provides that these closed defined benefit plans will also be deemed to satisfy the nondiscrimination requirements that relate to plan benefits, rights, and features (such as optional forms of benefits and certain ancillary benefits) that were provided under the plan at the time it was… Continue Reading

Possible Year-End Deadline for Retirement Plans of Plan Sponsors Involved in a 2017 Corporate Transaction

Generally, employee benefit plans of members of the same controlled group must satisfy certain requirements of the Internal Revenue Code on an aggregated basis (e.g., retirement plan nondiscrimination and coverage testing). Following a corporate transaction, such as a merger or a stock or an asset sale, the benefit plans of the buyer and seller may differ significantly. In order for plan sponsors to have a period of time post-closing to determine how best to structure their benefit plans going forward, Code Section 410(b)(6)(C) provides transition relief by permitting the plans to choose to be operated and tested separately, if certain requirements are met, such as coverage under the plan not being materially modified during a transition period. The transition period begins on the transaction’s closing date and, generally, ends on the last day of the first plan year beginning after the year in which the transaction occurred or, if earlier,… Continue Reading

IRS Extends Nondiscrimination Relief for Closed Defined Benefit Plans through 2018

In Notice 2017-45, the IRS extended the temporary nondiscrimination relief that it provided in Notice 2014-5 for plan years beginning before 2019. Notice 2014-5 permits certain employers that sponsor a “closed” defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Section 401(a)(4) of the Internal Revenue Code on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis. A “closed” defined benefit plan for purposes of these Notices provides ongoing accruals but was amended before December 13, 2013, to limit those accruals to some or all of the employees who participated in the plan as of a certain date (i.e., is frozen to new participants). View IRS Notice 2017-45. View IRS Notice 2014-5.

ACA Section 1557 and Nondiscrimination in Health Programs and Activities

In May, we provided information about the release of final HHS regulations implementing ACA Section 1557 and their potential effects on healthcare providers, insurers, and employer-provided healthcare coverage. Chris Beinecke wrote an article discussing these implications in greater detail. A link to this article, which was recently published in the Dallas Business Journal, is available here.

ACA Nondiscrimination in Health Programs and Activities Final Regulations Released

Section 1557 of the Affordable Care Act (the “ACA”) prohibits discrimination in certain health care programs and activities on the basis of race, color, national origin, sex, age, or disability. HHS recently issued final rules under Section 1557, which specify gender identity discrimination and sexual stereotyping as forms of sex discrimination. However, these rules only apply to “covered entities” as defined for this purpose. The term “covered entity” includes health care systems or providers that accept Medicare Part A or Medicaid and insurance carriers and/or third party administrators (“TPA”) that receive federal funding through participation in the public insurance marketplace, which will also have to comply with respect to benefits offered to their own employees. While HHS interprets the rule to impact an insurance carrier’s and/or a TPA’s entire book of business, a TPA is not responsible for discrimination due to a plan sponsor’s self-insured plan design decisions beyond the… Continue Reading

IRS Announces Withdrawal of Certain Proposed Nondiscrimination Rules Applicable to Cross-Tested Plans

The U.S. Department of the Treasury and the Internal Revenue Service announced in Announcement 2016-16 that they will withdraw certain provisions of proposed regulations published in January 2016 (the “Withdrawn Regulations”) relating to certain nondiscrimination requirements applicable to qualified retirement plans. The provisions of the Withdrawn Regulations were intended to address certain plan designs that satisfy existing nondiscrimination rules when providing a special benefit formula for selected employees without extending that formula to a classification of employees that is reasonable and established under objective business criteria. The Withdrawn Regulations would have presented problems for so-called “QSERP” provisions in defined benefit plan and certain cash balance plan designs, among others. Announcement 2016-16 can be found here.

IRS Proposes Nondiscrimination Relief for Certain “Closed” Defined Benefit Pension Plans

Many employers have moved away from traditional defined benefit plans, but have not completely terminated those plans. This movement may have been in the form of “freezing” participation so that new employees cannot participate or through the adoption of a new benefit formula, like a cash balance plan, where certain employees in the “old” defined benefit plan formula have been allowed to continue to earn benefits under that formula. In either case, the traditional defined benefit plan is referred to by the IRS as a “closed” plan, and the employees continuing to earn benefits are referred to as “grandfathered” employees. The IRS recently issued proposed regulations that would modify the nondiscrimination requirements applicable to these closed plans because the proportion of the grandfathered employees who are highly compensated tends to increase over time. The proposed regulations would provide temporary nondiscrimination relief where the proportion of highly compensated employees has increased… Continue Reading

IRS Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans

Employers have increasingly closed their defined benefit plans to new employees and placed those new employees in defined contribution plans.  Those closed defined benefit plans may, over time, tend to cover primarily employees who are highly compensated, which risks those plans becoming discriminatory in favor of highly compensated employees. In Notice 2014-5, the IRS provided temporary nondiscrimination relief for many of those defined benefit plans, if certain conditions were met.  Notice 2015-28 extends the nondiscrimination relief provided in Notice 2014-5 in anticipation of issuing amendments to the Code Section 401(a)(4) regulations. IRS Notice 2015-28 can be found here. IRS Notice 2014-5 can be found here.

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