legislative update on h&w and qualified plans

© 2020 Warner Norcross + Judd LLPThese materials are for educational use only. This is not legal advice and does not create an attorney-client relationship.

Legislative Update on H&W and Qualified PlansInternational Society of Certified Employee Benefit Specialists

Norbert F. KugeleJustin W. StempleNovember 10, 2020

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Retirement Plans

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• Now: Return to Work in New Normal– Recent workforce and retirement plan developments

– Current challenges and issues to monitor

• Soon: Year-End Tasks– Governance things to do now & annually

– Deadlines

– Other year-end tasks

– Getting things done while working from home

• Looking Ahead: Next Year and Beyond– SECURE Act

– Other future amendments & restatements

– Possible legislative developments and effects of election

AGENDA

• Recap: Employer Responses to COVID-19

– Freeze OT and salary increases

– Reduced pay and/or reduced hours

– Furloughs

• Refers to unpaid leave, no duties performed, no intention to terminate employment

– Layoffs

• March 2020: CARES Act Passed

Return to Work in New Normal

• June 2020: IRS Notices clarifies CARES

Act provisions

– Coronavirus-related distributions (CRDs)

– Loans

– Definition of Qualified Individual

– Required minimum distributions (RMDs)

• July 2020: IRS/PBGC guidance on

funding relief

Return to Work in New Normal (continued)

Current Challenges: Rehires, furloughed

employees returning, and return to full

pay/hours

• Resumption of deferrals

• Service credit considerations

• Distributions

– Bona fide termination requirement


Continue to monitor

• Partial terminations

– Vesting required

• Reportable events

• Layoff/severance practice creating ERISA plan


Things to Do Now: Fiduciary Committee

• Review make up of committee and make

changes if necessary

• Fiduciary training

• Consider instituting a checklist or calendar

for 2021

Remember: A prudent process is key!

Things to Do Now: Review Items at Least Annually

• Privacy and cybersecurity practices

• Proxy voting policy

• Investment policy statement

• ERISA bond requirements & fiduciary liability coverage

• Policies such as QDROs, loans, hardships

• 404(c) compliance

• Fees

• Adviser compensation & ADV filings

• Required compliance items such as nondiscrimination testing, Form 5500 filing, audit, participant notices

• Participant education & communication, plan effectiveness

More frequently than annually: investment performance, fund menu, allocation report

Things to Do Now: Review Items at Least Annually (continued)

• Annual Deadlines

• Year End Deadlines

• How to meet those deadlines while working

from home?

Some Deadlines Remain Unchanged

• Safe Harbor Notice

• Automatic Enrollment Annual Notice

• Qualified Default Investment Notice

When to distribute:

– 30 to 90 days before the plan year begins

Annual Notices

• Participant Fee Disclosure Notice

– When to distribute:

• Every 14 months

• Correct ADP/ACP Failures

– When to correct:

• 2 ½ months after the end of the plan year being tested

• Think about combining these with year- end deadlines

Additional Deadlines

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• Update Payroll System for New IRS limits

– January 1

• Distribute 2019 SARs with Form 5500

– 2 months after the Form 5500 is due

• 2020 Discretionary Amendments

– December 31

• Distribute Post First Year RMDs (if applicable)

– December 31

End of the Year To-Dos

• IRS Guidance: Remote Signature for

Participant Elections

– Until December 31, 2020

• DocuSign

• State laws

• Electronic Disclosure

Year End To-Dos While Working Remotely

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• RMD changes

• Part-time eligibility

• Lifetime income disclosure

• Safe harbor notice

SECURE Act: Mandatory Changes

These changes affect plan documents, distribution

forms, SPD & other participant communications,

402(f) notice, and plan process

• Required Minimum Distributions

– Required beginning date age changed from age 70½ to 72

– Applies to employees who turn age 70½ after December 31, 2019

SECURE Act: RMD Changes

• Post-Death Required Minimum Distributions

– Change affects defined contribution plans

– Distributions after participant’s death generally must be made by the end of the 10th calendar year following the year of death unless certain type of beneficiary (then life expectancy):

• Surviving spouse

• Disabled or chronically ill individual (or trust for same)

• No more than 10 years younger than participant

• Minor child of participant (until child reaches 18)

SECURE Act: RMD Changes (continued)

Affects 401(k) plans

Current rule

– Part-time employees can be excluded from a plan unless they reach 1,000 hours in any 12-month eligibility period

New rule

– Part-time employees must be eligible to make elective deferrals once they have worked 500 hours in 3 consecutive 12-month periods beginning in 2021

SECURE Act: Part-Time Eligibility

• Defined contribution plans required to add to participant statements at least once per year

• Must show the value of the participant’s account balance expressed as a life annuity and a 100% joint and survivor annuity

– Must assume participant is currently age 67, married, and that the spouse is the same age

– Dictates the interest and mortality assumptions to use to convert the account balance to annuity payments

– Requires explanation about the assumptions and what they mean

• Effective one year from final regulations (not yet issued)

SECURE Act: Lifetime Income Disclosure

• Normally year-end notice required for safe harbor

plans

• SECURE Act eliminated the notice requirement for

nonelective safe harbor plans

– What about nonelective plans with discretionary match?

• Notice still needed for safe harbor match plans

SECURE ACT: Safe Harbor Notice

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• Birth and Adoption Withdrawals

• Safe Harbor for Lifetime Income

• Lifetime Income Portability

• Automatic Escalation Cap

SECURE Act: Discretionary Changes

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• $5,000 distribution for each parent for each child

– Must take within a year

• Payback treatment:

– One or multiple payments

– If paid back treated as a direct rollover within 60 days of the distribution

• How to Implement: Plan amendment

SECURE Act: Birth and Adoption Withdrawals

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• Provides a safe harbor for fiduciaries

when selecting an insurer

• Must engage in an objective, thorough,

and analytical search

SECURE Act: Safe Harbor for Lifetime Income Options

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• Lifetime income options that cannot be held

as an investment option anymore may be

rolled over

• No penalty

• No restriction on in-service distributions

SECURE Act: Lifetime Income Portability

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Old Rule for QACAs only: The amount of elective deferrals for a qualified automatic contribution arrangement cannot exceed 10% of compensation.

• Note: Most plans were not subject to the 10% limit in the old rule, but have caps anyway.

New Rule: Increased to 15% (no more than 10% in the first year the participant is enrolled)

• Action Required: Inquiry and plan amendment

SECURE Act: Automatic Escalation Cap

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Future Amendments Needed

• SECURE Act (enacted December 2019)

• CARES Act (enacted March 2020)

• IRS Announcement of 401(k) Restatement

Period

– August 2020 – July 2022

Timing of Future Amendments

• Depends on law change, terms of plan, type of plan and choices employer making

• Restatement language pre-approved before SECURE Act & CARES Act and will not cover

• Amendments for SECURE Act and CARES Act not required until 2022– Governmental plans have extra two years

– IRS working on guidance, premature to adopt now

– Discretionary changes may have earlier deadline

Plan Restatement• Restatements are a process, not just a product

• Opportunity to revisit design, operation, processes, and prevent compliance problems

• Plan documents not one size fits all

– Underlying document quality

• Designed with flexibility and plan sponsor focus

• Avoid conflicts of interest

• Expertise of drafter

– Legal protection from pre-approval and IRS filing for letter

– Retention of plan document records critical

• Legal review of restatement

• Other legislative developments possible

– Possible COVID legislation (e.g. Heroes Act)

– SECURE Act 2.0

• Potential effects of election

– 401(k) plan limits and pre-tax deferrals

– Pooled employer plans and multiple employer plans

– Non-qualified deferred compensation

Looking Ahead

Health and Welfare Plans

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COVID-19 REVIEW

• Mandatory:

• Coverage for COVID-19 testing

• COVID-19 vaccines covered 100% (once available)

• Voluntary:

• HDHP waiver of deductibles for teleheatlh

• Health FSA coverage for OTC drugs and menstrual care products

• Tax-free student loan repayments (2020 only)

FFCRA and CARES Act

• Suspended deadlines

• COBRA

• HIPAA special enrollment rights

• ERISA claims procedures

• Cafeteria plan mid-year elections

(optional)

• Indexing of health FSA carryovers

Other COVID-19 Developments

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• Make sure changes are documented

• Formal plan amendments

• Summary of material modifications

• Communication plan for suspended

deadlines

Action Items

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ACA Developments

California v. Texas

• Supreme Court argument today!

• Will court strike down the entire ACA?

ACA Litigation

• Revised forms/instructions

• Plan year start date

• ICHRAs

State reporting?

1094-C/1095-C Reporting

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• Trump-era regulations validated

by Supreme Court.

• Religious objection

• Moral objection

Contraceptive Coverage Exemptions

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Cost-sharing information• Internet-based; paper upon request• Initially, 500 items and services

• Estimated cost sharing/accumulated amounts• Negotiated rates/out-of-network allowed amount

Public Disclosures• Machine-readable files, updated monthly• Negotiated rates/historical payments• Prescription drug information

Transparency in Coverage

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• If ACA overturned:

• Consider whether to amend plans

• Watch for action by Congress

• Continue to plan for ACA reporting

• To elect contraceptive exemption:

• review regulatory requirements

• discuss with insurer/TPA

• Self-insured plans: contract with TPA during 2021 for new reporting requirements.

Action Items

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Indexing Changes for 2021

2021 2020

HSA contribution limit Self-only: $3,600Family: $7,200

Self-only: $3,550Family: $7,100

HSA catch-upcontributions

$1,000 $1,000

HDHP minimum deductibles



HDHP maximum OOP



HDHPs/HSAs

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2021 2020

Affordability % 9.83% of household income

9.78% of household income

4980H(a) penalty $2,700 $2,570

4980H(b) penalty $4,060 $3,860

ACA OOP maximum

$8,550 individual$17,100 family

$8,150 individual$16,300 family

ACA

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Other Limits

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2021 2020

Health FSA maximum contribution

$2,750 $2,750

Health FSA maximum carryover

$550 $550

Dependent Care FSAMaximum contribution

$5,000 $5,000

Qualified parking expenses

$270/month $270/month

Qualified transit passes $270/month $270/month

QSEHRA $5,300 single coverage$10,700 family coverage

$5,250 single coverage$10,600 family coverage

• Confirm your HDHP still fits the definition of HDHP for minimum deductible and maximum OOP

• Are employees’ share of health insurance premiums “affordable”?

• Plan amendments may be needed if:

• Plan terms don’t allow for automatic increasing and you want to automatically increase limits each year, or

• You want a contribution limit less than the IRS limit

Action Items

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Mental Health Parity

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• Examples of recent mental health parity violations:

• Plan imposed office visit limits for alcohol and chemical abuse that were more restrictive than office visit limits for medical or surgical treatment

• Plan imposed coinsurance on all mental health office visits, but only imposed copays on medical office visits

• Plans required to re-process claims and reimburse excess cost-sharing payments to affected participants

Enforcement Activity (2019)

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• MHPAEA Self-Compliance Tool

• Recently updated

• Now includes red flags for possible violations

• Tool for comparing provider reimbursement rates to Medicare rates

Other Guidance

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• Compare coverage for mental health/substance

use disorder benefits with medical benefits

• Consistency?

• How does TPA/insurer explain differences?

• Carefully evaluate claims appeals on mental

health/substance use disorder issues

Action Items

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Recent Cases/State Legislation

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• U.S. Supreme Court case ruled employer

violates Title VII when they discharge

employees for being gay or transgender

• Title VII prohibits discrimination in almost

every aspect of employment – including

compensation and benefits

Bostock v. Clayton Cnty, GA

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• Mistake in recording income for life

insurance benefits

• $700,000 instead of $18,600

• Court rulings:

• Promissory estoppel could include monetoryrecovery

• Employer responsible for service provider’s mistake

Sullivan v. Verizon

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Medicare Secondary Payer

nondiscrimination issue:

• All dialysis providers considered to be out-

of-network

• Paid lower rate for dialysis than for other

out-of-network services

DeVita v. Marietta Memorial

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• Gov. Whitmer recently signed PA to curtail

“surprise billing”

• Surprise bills occur when patient receives

care from provider that does not have a

contract with the insurer (i.e., out-of-

network)

Surprise Medical Billing

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Insured Plans: no change

Self-insured plan options:

• Partial or total exclusion of auto accident

injuries• must communicate status of employees

• Qualified health coverage• Can still be secondary• But individuals can opt out of PIP medical

Auto Insurance Reform

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• Review plan terms for potential Bostock red flags:

• Benefit provisions based on sexual orientation (e.g., eligibility limited to opposite-sex spouses)

• Benefit provision limits based on transgender status (e.g., blanket exclusions for gender dysphoria treatment)

• Review service provider contracts for limitations of liability provisions

• What remedies do you have if the service provider makes a mistake (e.g. Sullivan v. Verizon)?

• Review any limitations on dialysis for compliance with MSP rules.

• Educate employees on use of in-network vs. out-of-network providers (may help curtail surprise billing)

• Communicate with employees about auto insurance coverage issues

Action Items

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Privacy and Information Security

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• Right of access enforcement

• Housing Works Inc. - $38,000

• All Inclusive Medical Services, Inc. - $15,000

• Beth Israel Lahey Health Behavioral Services - $70,000

• King MD - $3,500

• Wise Psychiatry - $10,000

• St. Joseph’s Hospital - $160,000

• NY Spine Medicine - $100,000

• Riverside Psychiatric Medical Group - $25,000

HIPAA Enforcement

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• Hacker used vendor’s

credentials

• Demanded money in

exchange for stolen data

• $1.5 million penalty +

corrective action plan

Athens Orthopedic Clinic PA

With respect to California employees:

• De-identified PHI is exempt from CCPA

• But re-identified data is NOT exempt.

Requires contractual provisions preventing

re-identification of PHI.

CCPA Amendment – AB 713

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• Review procedures for responding to access

requests.

• Evaluate vendor management process

• If have CA employees, amend HIPAA business

associate agreements

Action Items

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© 2020 Warner Norcross + Judd LLPThese materials are for educational use only. This is not legal advice and does not create an attorney-client relationship.

Conclusion

Norbert Kugele | [email protected] | 616.752.2186

Justin W. Stemple | [email protected] | 616.752.2375

legislative update on h&w and qualified plans

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