Monthly Benefits Update - November 2013

by Franczek Radelet P.C.
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Monthly Benefits Update - November 2013 [pdf]

Health & Welfare Plans

Health Care Reform: Supreme Court Grants Review to Two Cases Challenging ACA’s Contraception Coverage Mandate

The United States Supreme Court has agreed to hear two cases challenging the Affordable Care Act’s (ACA) contraception mandate, which requires health plans sponsored by employers with 50 or more employees to offer coverage for contraception-related services, including drugs, devices, and counseling at no charge to their employees (Sebelius v. Hobby Lobby Stores, Inc., U.S., No. 13-354 from the Tenth Circuit Court of Appeals, and Conestoga Wood Specialties Corp. v. Sebelius, U.S., No. 13-356 from the Third Circuit). The Supreme Court announced it will hear combined oral arguments for the two cases.

Both cases involve plaintiffs that are closely held, for-profit corporations. At issue is whether closely held corporations are exempt from the contraception mandate if its owners object to the mandate on religious grounds. The plaintiffs are challenging the mandate under both the free exercise clause of the First Amendment and the federal Religious Freedom Restoration Act (RFRA), which states that the government may not impose a “substantial burden” on a person’s religious exercise absent a compelling governmental interest and a showing that the burden is the least restrictive means of furthering the compelling interest.  

The Tenth Circuit ruled in the Hobby Lobby case that the corporation-plaintiffs were likely to succeed on the merits in establishing that they are exempt from the ACA’s mandate because they qualify as “person[s]” who can exercise religion and assert rights under the RFRA. By contrast, the Third Circuit ruled in the Conestoga case (involving a Mennonite family’s incorporated woodworking business) that the plaintiffs were unlikely to succeed on the merits because “for-profit, secular corporations—apart from its owners—[cannot] exercise religion.”

The Supreme Court’s decision to weigh in on the issue may resolve the circuit split and provide clearer guidance on the applicability of the contraceptive mandate. It should be noted that many religious, non-profit organizations are already exempt from ACA’s contraceptive mandate.

Health Care Reform: IRS Publishes Final Rules on Additional Medicare Tax

The Internal Revenue Service (IRS) has issued final regulations on the Additional Medicare Tax added by the ACA which increased the employee portion of the Medicare tax for high-income employees from 1.45% to 2.35% beginning in 2013. The employer portion of the Medicare tax remained at 1.45%. Employers are required to withhold the Additional Medicare Tax from employees earning more than $200,000 (but the actual liability thresholds for employees are: $250,000 for married individuals filing jointly, $125,000 for married individuals filing separately, and $200,000 for all other individuals).

The final rules provide guidance for employers with respect to withholding of the Additional Medicare Tax from employees’ wages, filing and reporting requirements for the tax, and the process for correcting underpayments and seeking refunds for overpayments of the tax. The rules went into effect on November 29, 2013.

Agencies Issue Final Regulations on Mental Health Parity Requirements

The Departments of Treasury, Labor, and Health and Human Services (collectively, the “Agencies”) issued final regulations implementing the Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008. The rules generally require that health plans offering mental health/substance abuse disorder services offer parity of coverage between those services and medical/surgical services. That is, plans may not make the financial requirements (e.g., coinsurance, deductibles, and copayments) and treatment limitations (e.g., annual or lifetime limits or visit limits) for mental health/substance abuse disorder services more restrictive than medical/surgical services. 

The rules largely implement the interim regulations issued in February 2010. Like the interim regulations, the final regulations include the ACA-implemented rule that mental health/substance abuse disorder services are an essential health benefit (EHB) that must be offered by small group and individual non-grandfathered plans. However, a notable difference between the 2010 rules and the final rules is that the final rules provide that a plan may not impose a non-quantitative treatment limitation (NQTL) which is a limitation on the scope or duration of a treatment not expressed numerically (e.g., medical management technique such as prior authorization), on a mental health/substance abuse disorder treatment, unless it is applied no more stringently than it is to comparable medical/surgical services.

The final regulations apply for plan years beginning on or after July 1, 2014 (January 1, 2015 for calendar year plans).

Retirement Plans

IRS Publishes Final Business Hardship Rules for Safe Harbor Defined Contribution Plans

The IRS published final regulations permitting sponsors of 401(k) plans to reduce or suspend nonelective safe harbor contributions in the middle of the plan year. The regulations provide that such midyear contribution changes may be made if (1) the employer is operating at an economic loss; or (2) the employer provides notice to participants prior to the start of a plan year that nonelective contributions may be reduced or suspended during that upcoming plan year and provides a supplemental notice to participants at least 30 days before making any midyear contribution changes. Prior to the issuance of these rules, the 2009 proposed rules provided that safe harbor plan sponsors must show a “substantial business hardship” in order to be able to make midyear reductions or suspensions to nonelective contributions.

In addition, to achieve uniformity between the rules applying to nonelective contributions and those applying to safe harbor matching contributions, the final regulations provide that the requirements for making midyear matching contributions changes are the same as they are for nonelective contributions. In other words, employers may suspend or reduce safe harbor matching contributions if they meet either (1) or (2), as stated above.

These rules go into effect for plan years beginning on or after January 1, 2015. The IRS also indicated that it may provide additional relief in the future for safe harbor plans.

IRS Permits 403(b) Plan Sponsors to Correct Failure to Adopt Written Plan Document Using VCP

In its retirement plan newsletter dated November 22, 2013, the IRS stated that 403(b) plan sponsors who did not adopt a written plan document by the December 31, 2009 deadline can correct the error by making a Voluntary Correction Program (VCP) submission under the IRS’s Employee Plans Compliance Resolution System (EPCRS).

If the plan’s only error is its failure to timely adopt a written plan document, it can get a 50% discount on the VCP fee as long as the filing is sent to the IRS by December 31, 2013.

Public Plans

State Legislators Reach Deal to Increase Pension Funding

On November 27, 2013, leaders of the Illinois General Assembly reportedly struck a deal to address the state pension system’s nearly $100 billion of unfunded pension liability. Much of the savings would reportedly come from a reduction in annual cost-of-living adjustments (COLA) to pensions. Instead of a flat 3% annual COLA for all pensioners as the current formula provides, the proposed change would provide a 3% COLA for each year of the employee’s service times $1,000 (e.g., a pensioner with 20 years of service would get a 3% COLA on the first $20,000 of her annual pension, even if the pensioner’s actual pension amount is higher than $20,000). In addition, further savings would come from increased minimum retirement ages for workers who are currently 45 and younger. Employees older than 45 would be unaffected by this change.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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