Deadlines And Developments Employee Benefits & Executive Compensation Update - December 2013

Author:Ms Maureen Gorman, Anna M. O'Meara, Karen F. Grotberg, Elizabeth Dyer, Debra B. Hoffman, James C. Williams, Cecilia A. Roth, Ryan J. Liebl, Rebecca C. Davenport, Christina M. Cerasale, Lennine Occhino, Erika Gosker and Katherine H. Dean
Profession:Mayer Brown

Keywords: employee benefits, executive compensation, welfare plans, healthcare reform

Following is a list of significant developments and deadlines in the areas of Welfare Plans, Qualified Plans and Executive Compensation. The list is not exhaustive but is intended to cover key updates in these three areas that may be applicable to our clients.





Health Care Reform

Patient Protection and Affordable Care Act, Public Law 111-148 Health Care and Education Reconciliation Act, Public Law 111-152 Nat'l Federation of Independent Business et al. v. Sebelius, U.S. No. 11-393, June 28, 2012, available here For general information concerning PPACA's requirements and links to applicable guidance, click here (DOL) or here (IRS)

Additional requirements for sponsors of group health plans continue to become effective pursuant to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (together, PPACA). Many of PPACA's requirements have already gone into effect; however, additional requirements (summarized below) became effective during 2013 or will become effective in 2014. For a copy of our Mayer Brown Legal Update "US Health Care Reform—Effect on Employers and Employer-Sponsored Plans," click here.


IRC Section 4980H IRS Notice 2013-45, available here IRS Proposed Regulations, 78 Fed. Reg. 218, January 2, 2013, available here IRS Proposed Regulations, 78 Fed. Reg. 54996, September 9, 2013, available here IRS Proposed Regulations, 78 Fed. Reg. 54986, September 9, 2013, available here

Employer Shared Responsibility Mandate/Excise Tax/Reporting Requirements. The Internal Revenue Service (IRS) delayed the effective date of penalties to be imposed on certain "applicable large employers" that provide no group medical coverage, unaffordable coverage, or coverage that does not provide minimum value to full-time employees from January 1, 2014 to January 1, 2015. The postponed deadline relates to a delay in requiring certain reporting that will give the IRS information required to assess the penalties. Although compliance with the reporting requirements is not required until 2015 (with the first reports being due in 2016), the reporting requirements will require collection of substantial data, so employers should be taking steps towards compliance. The IRS encourages employers to voluntarily comply with the reporting rules for 2014, if possible.

January 1, 2015

Various Requirements. For plan years beginning on and after January 1, 2014, the following restrictions apply to group health plans:

Waiting periods in excess of 90 days are prohibited. Pre-existing condition exclusions are prohibited. No annual dollar limit is allowed on essential health benefits. Plans that offer coverage for children must cover those children through age 26 regardless of the availability of other coverage. This requirement previously applied to non-grandfathered plans, but prior to January 1, 2014, a grandfathered plan was not required to cover an adult child eligible for coverage under an employer's group health plan other than that of the child's parent. Non-grandfathered plans may not impose an in-network out-of-pocket maximum above stated limits ($6,350/person, $12,700/family for 2014). Non-grandfathered plans must provide coverage for certain clinical trials. Non-grandfathered plans may not discriminate against providers. Plan years beginning on and after January 1, 2014

IRC section 125(i) IRS Notice 2012-40, available here

Limitation on Health FSA Contributions. Beginning in 2013, employee salary reduction contributions to health flexible spending accounts (FSAs) are limited to $2,500 per year (indexed for inflation). The limit remains at $2,500 for 2014.

Plans were required to comply in operation January 1, 2013. Deadline for amending plans is December 31, 2014.

IRS Notice 2013-71, available here

Health FSA Carryovers. In light of PPACA's $2,500 limit on health FSAs, the IRS has modified the "use-it-or-lose-it" rule that applies to such arrangements. Beginning with the 2013 plan year, plan sponsors may allow participants to carry over up to $500 of unused funds to the next plan year. The carryover may be permitted instead of (but not in addition to) the previously available "grace period" pursuant to which plans may allow participants to use funds remaining at year-end to cover medical expenses incurred during the first 2-1/2 months of the subsequent plan year. This does not affect the availability of the use of a run-out period under the plan.

Immediately. Sponsors that chose to allow the carryover must amend the cafeteria plan to reflect the new rule. Deadline for amendment depends on whether the plan currently offers a grace period. In general, amendment to reflect carryover will be required by the end of the plan year in which the carryover is implemented, but transition relief applies for implementation in 2013.

Transition relief for cafeteria plan elections was originally provided in preamble to proposed regulations relating to shared responsibility payment — IRS Proposed Regulations, 78 Fed. Reg. 218, January 2, 2013, available here Clarified in IRS Notice 2013-71, available here

Change in Status Relief. The IRS clarified previously announced transition relief with respect to changes in salary reduction elections under a section 125 cafeteria plan. Under the "change in status" rules that normally apply to such plans, mid-year changes relating to pretax payment of health plan premiums are only allowed under limited circumstances and would not generally be permitted in connection with enrollment or disenrollment due to PPACA (e.g., the individual mandate, availability of coverage on the Exchange). The transition relief, which applies only to non-calendar year plans, allows employers to amend their plans to offer the ability to make a single change during non-calendar plan years beginning in 2013 to either revoke an existing salary reduction election or make a prospective salary reduction election, as applicable.

Applicable to non-calendar year plans with plan years beginning in 2013. Plans must be amended to reflect this relief, if applicable, no later than December 31, 2014.

Final Regulations, 77 Fed. Reg. 8668, February 14, 2012, available here For templates, instructions, sample language and related materials, click here For FAQs, click here

Summary of Benefits & Coverage/Notice of Changes. Plan administrators of self-insured plans (or health insurance issuers in the case of insured arrangements) are required to provide participants and beneficiaries in group health plans with a Summary of Benefits and Coverage (SBC) (and a uniform glossary of defined terms upon request) in accordance with guidance provided by Health and Human Services (HHS), Department of Labor (DOL) and IRS. Generally, SBCs must be provided at the time of enrollment in the plan, at renewal (or open enrollment), and within 7 days after request. The penalty for failing to comply is $1,000 per day, applied separately for each failure with respect to a participant or beneficiary. Government agencies have published templates, instructions, and sample language for use in creating the SBC. The DOL updated its previously published template for the SBC in April of this year and has also published guidance in the form of questions and answers posted to its website. In addition, material modifications (other than changes made at renewal time) that would change the information contained in the SBC are subject to a 60-day advance notice requirement.

Ongoing obligation

DOL Technical Release 2013-02, available here For model notice and FAQs, click here

Notice of Exchange Option. PPACA amended the Fair Labor Standards Act (FLSA) by adding new section 18A, which requires employers subject to the FLSA to provide each employee with a written notice containing information regarding the exchanges.

October 1, 2013 for existing employees; ongoing obligation to provide notice to new hires

For revised model COBRA notice, click here

Revised Model COBRA Election Notice. In connection with DOL guidance concerning the Notice of Exchange Option, the DOL has issued a revised model COBRA election notice that should be used beginning January 1, 2014. The revised model notice also reflects certain PPACA changes, including the removal of pre-existing condition exclusions.

January 1, 2014

Interim Final Regulations, 75 Fed. Reg. 43330, July 23, 2010, available here Amendments to Interim Final Regulations, 76 Fed. Reg. 37208, June 24, 2011, available here For model notices and other technical guidance, click here

Claims & Appeal Processes. In addition to regular claims procedures under ERISA, non-grandfathered group health plans must now comply with mandatory external claims review processes. Internal claims review processes may also need to be modified to comply with the new rules. If a plan does not "strictly adhere" to claims procedures mandated by PPACA, the claimant will be deemed to have exhausted the claims and appeal process and may proceed to other available remedies, including judicial review. Substantial compliance is not sufficient to meet the strict adherence standard.

July 1, 2012 (applies to non-grandfathered health plans)

IRS Final Regulations, 77 Fed. Reg. 72721, December 6, 2012, available here

Comparative Clinical Effectiveness Research Fees (also known as PCORI). Sponsors of self-insured group health plans and issuers of health insurance policies are subject to fees imposed for each plan year ending after September 30, 2012 and before October 1, 2019 (generally, 2012-2018 for calendar year plans). These fees provide funding for the Patient-Centered Outcomes Research Institute, a nonprofit corporation established through PPACA to facilitate the making of informed health decisions by patients, clinicians...

To continue reading