Payment Matters: CMS Contractors Disallow Pension Costs in FFY 2012 Wage Index, Finding Pension Plans Overfunded in 2008

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An important deadline is looming in the federal fiscal year (FFY) 2012 wage index review process, and providers with pension plans should take particular note of changes to their allowable pension costs. Some providers were undoubtedly surprised to discover that their intermediaries or Medicare Administrative Contractors (MACs) considered their pension plans to be overfunded at the close of 2008, the worst year for stock market performance since the Great Depression. This is the curious outcome of a change that CMS implemented in March of 2008 with Transmittal 436PR1.

Transmittal 436PR1 was ostensibly a clarification that replaced “GAAP terms” with “ERISA terms” in order to prevent confusion. However, the transmittal has a much more significant effect than its preamble language suggests. The key change implemented by the transmittal is the addition of the term “surplus assets” to section 2142.5A of the Provider Reimbursement Manual. The term “surplus assets” is defined as the amount by which the actuarial value of a plan’s assets exceeds the actuarial value of its liabilities. If a plan is deemed by CMS to have surplus assets, then many FIs/MACs will disallow pension costs – even costs that were timely funded by the provider – for purposes of calculating the wage index.

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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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