New Hardship Rules, New DOL Disability Claims Procedures, and ACA Developments
New Hardship Withdrawal Rules.
We have been fielding a lot of calls from clients and friends who are receiving requests from their TPAs and other vendors to update their qualified retirement plans (for example, 401(k) and 403(b) plans) to implement the new hardship withdrawal rules. There has been some confusion on what is required and what is not required, as well as uncertainty as to when actions to implement the new rules need to be taken.
As we previously reported to you, the Bipartisan Budget Act of 2018 made changes to the hardship withdrawal rules. In November, the Department of Treasury issued proposed regulations that explained the new rules. Some of the materials we have seen from vendors account for these proposed regulations and others do not.
Some of the new rules (for example, the expanded list of safe harbor hardship events) can be implemented as early as this year, may not require a plan amendment, and may be able to be implemented by simply changing the plan's administrative procedures and forms. Some of the new rules are not mandatory, can be implemented as early as January 1, 2019, and, if implemented, will require the adoption of a plan amendment by December 31, 2019. Some of the new rules are mandatory, must be implemented in 2020, and will require the adoption of a plan amendment.
The biggest takeaway is that, although you are permitted to adopt a plan amendment now, you do not have to amend your Plan by year-end for any of these changes. The earliest deadline for adopting a Plan amendment is December 31, 2019.
Before implementing permitted operational changes that later will be incorporated into a retroactively effective plan amendment, you should be alerting your TPA and discussing those changes with us. These optional enhancements include allowing participants to take hardship withdrawals from additional accounts under a 401(k) or 403(b) plan and removing the requirement for a participant to first take all available loans before taking a hardship withdrawal.
Also, plans may eliminate the six-month suspension of elective deferrals following a hardship withdrawal as early as January 1, 2019 (even for a suspension already in place on that date). Under the proposed regulations, beginning in 2020, plans must implement this change and plans will need a new certification of hardship event process for hardship withdrawals.
Please contact us if you have any questions on the decisions you are being asked to make by your TPAs and other vendors, if you would like us to provide legal review of any new administrative procedures or forms, or if you want to update your plan documents.
New Disability Claims Procedures Are in Effect for ERISA Governed Plans.
As we previously have discussed in our alerts and seminars, new final claims and appeals rules for ERISA-governed disability claims were issued by the DOL and are effective for claims filed after April 1, 2018. Plans subject to these new rules already should be following the new claims procedures. If not already amended to adopt the new requirements, plan documents should be amended as soon as possible to incorporate the new rules.
The new rules, like the old ERISA rules for "disability claims", apply to any benefit offered under any ERISA plan that requires a determination by the plan (rather than an outside party) of whether an individual is disabled. That obviously includes determinations under ERISA short-term and long-term disability plans, but also can include determinations under accidental death and dismemberment plans, as well as any retirement plans or non-qualified deferred compensation plans that provide any benefits that are based on a person becoming disabled, if the plan determines disability status. The ERISA disability rules do not apply to a claim if a determination of disability status is made by reference to a determination by a third party. For example, if a pension plan provides for early commencement of full retirement benefits for a participant who becomes disabled and the plan makes its own determination of whether the person is disabled, the ERISA rules would apply. However, if the plan defines disability by reference to a determination by the Social Security Administration or a determination under the employer's long-term disability plan, the ERISA disability rules would not apply to the pension plan's determination of whether the participant is eligible for a disability retirement.
The changes required under the new rules include the following: (1) the definition of "adverse benefit determination" has been broadened to include a rescission of coverage, (2) claimants have the right to review the claim file and to present evidence and testimony as part of the internal plan claims procedure, (3) new requirements for avoiding conflicts of interest apply, (4) more detailed claims and appeal notice requirements apply, and (5) notices regarding claims determinations must be provided in a "culturally and linguistically appropriate manner".
Plan documents for plans that include any benefits requiring a determination of disability by the plan should be updated as soon as possible. For insured benefits, plan sponsors should confirm that the insurance carrier has implemented the new rules.
Please contact us if you would like us to review your plans and prepare any required amendments.
A Brief Comment on Texas v. Azar and the ACA.
Contrary to some statements being made in the press, the Affordable Care Act ("ACA") will continue to be enforced at the federal level pending further developments. The ruling from the Federal District Court in Texas v. Azar on Friday, December 14, determined that the ACA is unconstitutional due to the repeal of the "individual mandate" effective January 1, 2019 (repealed by the 2017 Tax Act). However, that ruling did not immediately block enforcement of the ACA. States will need to decide whether to stop enforcing or administering the law, which we believe is unlikely to occur any time soon even in those 20 states (see list below) that brought the lawsuit. However, the Trump administration has confirmed, in a statement from the Dept. of Health and Human Services (issued December 17), that it intends to continue enforcement of the ACA at this time.
This means that employers subject to the ACA mandates should continue to operate their plans in accordance with the ACA. Also, employers currently in negotiations with the IRS regarding penalties and other enforcement actions must continue with those negotiations because the IRS will not drop those actions at this time.
We will continue to monitor all developments and are available to answer any questions you may have regarding your plans that are subject to the ACA. Please contact us if you would like us to advise you on any of these issues.
The 20 states that brought the lawsuit challenging the constitutionality of the ACA are: Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, Nebraska, North Dakota, South Dakota, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wisconsin.