Honing Your Compliance Checklist for 2011
While new laws may be difficult to enact with the current composition of Congress, regulations and other guidance are expected to abound. Much of the health care reform law was drafted to push the details down to regulations and there are still open issues for qualified plans under the Pension Protection Act ("PPA") that need to be resolved. In addition, there are significant 401(k) regulations issued by the DOL that become effective in 2011.
Start your employee benefits compliance checklist for 2011 with the following items:
Welfare Plans and Other Benefits
Nondiscrimination for health plans – The IRS, in Notice 2011-1, delayed application of Internal Revenue Code Section 105(h) nondiscrimination rules for insured plans until plan years after regulations are issued. This does not affect self-funded plans, which remain subject to the 105(h) testing rules. See our separate Compensation & Benefits Brief for more in depth discussion.
FSA accounts – The IRS has issued guidance that provides that effective January 1, 2011 the cost of OTC medications may be reimbursed out of flexible spending accounts only if there is a valid prescription and a Rx number assigned and maintained by the pharmacy. This new rule does not apply to reimbursement for the cost of insulin. FSA maximum for reimbursable health expenses will be set at $2500 starting in 2013.
Health Plan Auto-Enrollment – In frequently asked questions posted by the DOL on its website for health reform ("PPACA FAQs"), the DOL and Treasury have indicated that the requirement for automatic enrollment in group health plans that was to be effective January 1, 2011 has been postponed. Although the effective date for this mandate is not yet clear, the DOL has indicated that there will be regulations completed by 2014.
Health Plan Summary of Benefits – Separate from SPD requirements, group health plans will need to provide a written summary upon initial enrollment and 60 days in advance of changes under PPACA. This requirement has been delayed, but the DOL and Treasury now say there will be regulations and a model summary to be effective in 2012, issued no later than March 23, 2012. A uniform explanation of benefits form is expected to be issued in March 2011.
Wellness Programs – The DOL has distinguished between wellness programs that base a reward on a health status factor vs. mere participation in a wellness program. Rewards tied to mere participation are not subject to the 20% reward limit (rising to 30% in 2014). Additional guidance is expected this year. In addition, the DOL has provided guidance on how a plan sponsor can structure a wellness program which does not violate the Genetic Information and Nondiscrimination Act of 2008 (GINA). Specifically, the DOL has indicated that employers may not provide rebates, discounts or other financial incentives in exchange for a participant completing a health risk assessment that includes information about the participant's family medical history. However, a voluntary health risk assessment is permitted. See http://dol/gov/ebsa/faqs/faq-GINA.html.
W-2 Reporting Cost of Health Coverage – IRS Notice 2010-69 delayed the required reporting of the cost of coverage under an employer-sponsored health plan that would have applied to 2011 W-2s. Guidance on how to determine cost is expected so that the 2012 W-2s may be able to comply.
Claims Procedures External Review Procedures – To permit insurers and states enough time to adopt compliant procedures for external review procedures to be used in connection with health plan claims procedures (except for grandfathered plans), HHS has announced a no-enforcement policy until July 1, 2011. This will need to be watched closely. Implementation of PPACA's external review procedures will most likely result in new and revised claims provider agreements.
Guidance on Code Section 162(m)(6) Limits – As described in our prior alert, new Code Section 162(m)(6), added under PPACA, provides that the permitted deduction for compensation for services provided by persons to certain health insurance providers will be limited to $500,000 starting in 2013. This rule is applied on a controlled group basis. IRS Notice 2011-2 provides clarification on which individuals are subject to the limit and sets forth helpful exceptions to the rule.
Mental Health Parity and Addiction Equity Act – If a health plan has an increased cost of at least 2% in the first year of compliance, there can be an exemption in the second year but there must be compliance in the third year. These rules may inhibit employers from seeking the exemption on account of the burden of compliance, but should be considered if needed. Also, compliance requires that the plan make the criteria used for medical necessity for mental health and substance abuse benefits be made available to participants upon request, including in the claims procedures.
Educational Assistance – Tax relief legislation extended the exclusion of up to $5,250 in employer-provided education assistance under Code Section 127 through December 31, 2012.
Qualified Retirement Plans
Electronic Disclosures - The DOL has announced that in 2011 it will review and add to the electronic disclosure rules. Timing is unclear at this point.
Fee Disclosures to Plan Fiduciaries – In 2010, interim regulations were issued on fee disclosures from service providers to plan fiduciaries. Originally to become effective July 16, 2011, a delay in the effective date to January 1, 2012 has just been announced. Plan fiduciaries will need to take steps to put procedures into place in a timely manner so that they will be able to determine if the service provider is in compliance and, if necessary, report noncompliance to the DOL. It is likely that modifications to current service provider agreements will need to be adopted prior to the effective date.
Disclosures to Plan Participants – For 401(k) and other individual account plans, ramped-up plan-related and investment-related disclosures will be required when an employee first enters the plan and thereafter annually. This is in addition to the SPD. Existing participants must receive the first notices on or before December 31, 2011. These disclosures are more detailed than most SPDs, including 1, 5 and 10 year returns for investment options and more information on the precise timing for elections and changes.
Determination Letter Cycle A – Plans with an EIN ending in 1 or 6 can begin filing applications with the IRS for determination letters on the continued qualification of qualified plans beginning February 1, 2011. The filing period ends on January 31, 2012. Changes in plan sponsor or mergers, acquisitions or dispositions should be examined to keep the right cycle for determination letters.
409A Corrections – Starting in 2011, utilization of the operational and written compliance corrections programs will usually trigger some level of income and tax on the individual to correct a 409A defect. Plan terminations and voluntary forfeitures may be alternatives, but carry risks. As described in our previous alert, the IRS will continue to permit errors in plans and agreements that invovlve payments subject to an employee providing a valid release of claims to be corrected at any time through December 31, 2012, as long as the correction occurs before "vesting" occurs. We strongly advise that employers take steps to have compliant language at the ready for inclusion in, or modification of, employment and severance arrangements.
SEC Say-on-Pay Rules – Final rules in connection with shareholder advisory votes on executive compensation, the frequency of say-on-pay votes and golden parachute arrangements have been adopted by the SEC. These rules affect current public companies for the first annual meeting occurring on or after January 21, 2011.
Nelson Mullins Executive Compensation and Employee Benefits attorneys are ready to assist with your compensation and benefits related matters in a cost-effective and responsive manner. Please contact one of our Executive Compensation and Employee Benefits partners or the Nelson Mullins attorney with whom you work. Also, be sure to visit our Employee Benefits Blog.
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