Employee Benefit Plan Year-End Considerations
We hope that this email finds all of our clients and friends enjoying the holiday season. We realize that you get bombarded with “updates” and “breaking news” regularly, but we wanted to take the time to give you our perspective on a few relevant employee benefits topics before the end of 2022.
Retirement Plan Amendment & Deadlines
As we previously have advised, the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act require plan amendments to reflect several changes. Many plan sponsors have already operationally implemented these changes, but still need to adopt amendments to their retirement plans. The original deadline was the end of 2022 for most plans (and 2024 for governmental plans).
The IRS recently issued guidance announcing an extension for plan sponsors to adopt amendments under the SECURE Act and CARES Act until December 31, 2025. This extension applies to all qualified retirement plans, 403(b) plans, and governmental 457(b) plans. However, it does not extend the amendment deadline for tax-exempt Section 457(b) plans.
In general, a tax-exempt entity sponsor of a Section 457(b) plan may need to amend the plan to comply with changes required by the SECURE Act. These changes may include increasing the age at which required minimum distributions must begin from age 70 ½ to age 72 and ensuring that any post-death distributions are completed no later than ten years after the participant’s death. However, the terms of the plan may not be implicated by these changes if, for example, a participant cannot defer distributions to age 72 in any event and/or death benefits are paid in a lump sum shortly after the death of the participant. It may also be the case that your plan incorporates the required minimum distribution rules by reference (as many, but not all, Smith & Downey plan documents do), so no updates would be needed to the plan, but likely will be needed in the plan’s administrative forms.
Of course, regardless of the deadline, we recommend that all plan sponsors take steps to adopt these required (and certain optional) plan amendments as soon as possible. This is simply a best practice to ensure your plan document is mirroring plan operations, thereby reducing the risk of operational errors, IRS or DOL audit, violation of fiduciary duties, among other similar issues. In addition, plan sponsors should ensure all participant communications are updated and accurately reflect plan operations and administration. Please reach out to us immediately if you would like us to prepare amendments to your plans by year-end and/or review the plan’s administrative forms.
Department of Labor Updates Impacting Retirement Plans
The DOL has issued guidance in the past few weeks on two notable items. First, the DOL issued a final rule with respect to environmental, social, and corporate governance (ESG) factors and impacts to ERISA retirement plans and the fiduciaries that oversee them.
Fortunately, the DOL walked back what appeared to be a mandate in its earlier-issued proposed rule that fiduciaries consider ESG factors when selecting and managing investment options available to participants. The final rule clarifies that is not the case, but it does reinforce protection for fiduciaries, allowing them to consider ESG factors when evaluating risk and return factors of a particular investment or investment course of action. It also reminds fiduciaries that the weight given to any such factor should appropriately reflect an assessment of its impact on risk and return.
Fiduciaries considering any ESG investment options should proceed with caution and take advantage of all possible fiduciary protections, particularly in light of the recent Supreme Court decision (Hughes v. Northwestern University) reinforcing that each investment option in a retirement plan’s lineup must stand on its own as a prudent investment option. Fiduciaries also should take into account the fact that the new DOL guidelines have not been tested in litigation and may not offer full protection for fiduciaries from participant lawsuits.
Second, the DOL proposed a rule in late November that, if finalized, would allow plan sponsors to “self-correct” certain “late deposits” of participant salary reduction contributions/loan repayments to retirement plans that have resulted in $1,000 or less in lost earnings. This is very welcome guidance as it was becoming commonplace for plan sponsors to have to submit a written application through the DOL’s Voluntary Fiduciary Correction Program (VFCP) when it had made late deposits of these contributions/loan repayments. Plan sponsors should consider this a good reminder to make sure that all participant salary reduction contributions/loan repayments are deposited in the Plan’s trust immediately after they are withheld from salary and to consider corrective action if there are late deposits. Please continue to reach out to us if you need assistance with late deposits of these contributions/loan repayments and potential corrective action.
Key Updates for Health & Welfare Plans
Although many plan sponsors will likely rely upon their vendors (generally, the health plan’s TPA) to do the heavy lifting in satisfying numerous compliance requirements from the Consolidated Appropriations Act (CAA) and Affordable Care Act (ACA), it is important for plan sponsors to keep in mind that they have ultimate responsibility in most areas of plan administration. As a result, plan sponsors must be taking actions to ensure compliance updates are made to plan documents and participant communications and to ensure they have a say in any interpretations with respect to upcoming compliance deadlines for health and welfare plans.
Here are some of those compliance updates/deadlines and other items to be thinking about:
First, prescription drug and healthcare spending reporting is due by December 27, 2022. Under the CAA, group health plans must report detailed information regarding the plan’s annual prescription drug and healthcare spending to the Department of Health and Human Services (HHS), the Department of Treasury (IRS) and the Department of Labor (DOL) beginning with the 2020 calendar year. The first reporting deadline (for calendar years 2020 and 2021) is December 27, 2022. Thereafter, reporting for each calendar year will be due by June 1 of the following year. Reporting for the 2022 calendar year, for example, is due on June 1, 2023.
The Centers for Medicare and Medicaid Services (CMS) is collecting this data on behalf of the HHS, IRS and DOL. Again, most of the heavy lifting in this respect is being done by TPAs and Pharmacy Benefit Managers, but plan sponsors must ensure this reporting requirement is being met, ideally by entering into (or updating) contractual agreements (that include indemnification provisions for reporting failures). If your plan uses multiple TPAs, reporting should be coordinated as CMS expects a single aggregated file to be submitted for each of the required categories.
Second, plan sponsors should ensure that their TPA has updated benefits booklets for the various No Surprises Act (a part of the CAA) requirements and any other recent changes in the law or plan design, and that all wrap plan documents are updated appropriately. Please contact us if your plan documents have not been updated and we can prepare these amendments and/or review changes.
Third, the ACA requires group health plans to post machine-readable files (MRFs) (or links to MRFs) on the plans’ public websites (or the employer’s or TPA’s public website) in order to enhance the public’s access to, and understanding of, health care pricing. These MRFs include in-network rate files and out-of-network allowed amount files for each medical coverage option available under the plan and must be updated monthly (the MRF requirement for prescription drug files has been delayed indefinitely). Regardless of whether the MRFs are accessed through the plan’s website or a TPA’s website, TPAs are generally in control of the MRFs as group health plans do not have the information needed to create or maintain them. Nevertheless, plan sponsors are generally responsible for ensuring this requirement is being met and therefore should:
- enter into (or update) TPA contractual agreements to include maintenance of MRFs on behalf of the group health plan and associated indemnities for MRF failures;
- monitor the MRFs on the TPA’s website to ensure they are updated monthly; and
- add MRFs as a due diligence item when selecting a new TPA or negotiating with an existing TPA in the future.
Fourth, the ACA also requires group health plans to make price comparison information available to enrollees through an online self-service tool and in paper format, upon request. The member-facing Pricing Tool is required to include information such as member out-of-pocket cost sharing and member accumulated deductibles. By January 1, 2023, a subset of 500 shoppable items and services (by billing code) will need to be included in the Pricing Tool. Thereafter, plans will be responsible for updating their Pricing Tool within a “reasonable amount of time” following quarterly updates to the list to reflect the current codes. The full list of services – including prescription drugs – is not required until January 1, 2024, so there is still time to meet this requirement.
Fifth, as a reminder, plan sponsors and health insurers that are subject to the Mental Health Parity and Addiction Equity Act (MHPAEA) are required to implement a Non-Quantitative Treatment Limitation (NQTL) comparative analysis under the CAA. The CAA requires health plans and insurers that provide both medical or surgical and mental health/substance use disorder benefits to perform and document “comparative analyses of the design and application” of any NQTLs that are imposed on each subset of benefits. Beginning in 2021, the comparative analysis and other specific information must be made available to regulators (e.g., DOL and state regulators) upon request. In our experience, regulators have been very aggressive in audits in this area and the DOL has created special task force teams on this topic, so employers should ensure that they are complying with this requirement. (Note that certain plans are exempt from MHPAEA, such as, for example, a self-insured plan of an employer with under 50 employees or a state or local governmental plan that has opted out of HIPAA and MHPAEA compliance.)
Sixth, all employers should continue to evaluate any travel or other benefits for abortion-related services in the aftermath of the Supreme Court’s ruling in Dobbs v. Jackson Women’s Health Organization. There are various state civil and criminal laws that have taken effect, including some civil “aiding and abetting” laws which allow for private causes of action. Any employer considering these benefits should consider these recently-enacted laws, as well as considering other applicable laws and legal implications, including but not limited to the impact of ERISA preemption, and HIPAA and MHPAEA impacts. And, of course, the applicable plan documents should be reviewed/amended to ensure that the documents reflect the desired terms.
Seventh, all employers will want to consider the impact of the end of the COVID-19 public health emergency on various features of its plans. We expect a formal end to the public health emergency at some point in 2023, and with that end, group health plans will have to evaluate various items that have been implemented over the past few years, such as whether the plan will continue to cover certain COVID-19 testing and other over-the-counter medications, and whether to implement any reasonable medical management techniques for health plan costs related to COVID-19.
We are happy to discuss any of the information outlined above. Importantly, these are all legal requirements on the applicable plan and therefore the status of ensuring compliance should be reported to your respective governing/fiduciary committees within reasonable times.
Please reach out to us if we can be of assistance with any of your compliance efforts.
We hope everyone has a very Happy Holiday Season!