Compensation and Benefits Insights – June 2016

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Final Summary of Benefits and Coverage (SBC) Guidance Issued

Author, Laura R. Westfall

The Departments of Labor, Health and Human Services and Treasury (the “Departments”) recently issued final changes to the Summary of Benefits and Coverage (“SBC”) template, a sample completed template, instructions, and related materials (including the uniform glossary) (collectively, the “Final SBC Materials”) for use in fulfilling the SBC requirement of the Affordable Care Act (the “ACA”). The Final SBC Materials include, among other things, an additional coverage example and a new requirement to provide information about any significant plan limitations and exceptions. Most plans and issuers will be required to conform their SBCs to reflect these changes in time for the fall 2017 open enrollment season.

Background. The ACA requires group health plans (including “grandfathered” plans) and insurers to provide SBCs to participants and beneficiaries that accurately describe the benefits and coverage under the plan in a uniform format. SBCs are intended to give participants a way to directly compare the benefits and coverage offered under available plans, and to help them better understand their own coverage. The uniform glossary of coverage and medical terms (the “Uniform Glossary”) is to be used in tandem with the SBC to assist users in understanding terms used in the SBC.

The Departments first released an SBC template on April 23, 2013. On December 30, 2014, the Departments issued a proposed rule amending the final SBC regulations and, at the same time, issued for comment revised SBC templates, samples, instructions, coverage examples and the Uniform Glossary. On June 16, 2015, the Departments issued final regulations regarding the SBC requirement on June 16, 2015 and indicated at that time that the SBC template and related materials would be finalized in 2016. However, it was not until April 6, 2016 that the Final SBC Materials were issued.

Changes to SBC Instructions. The Final SBC Materials include detailed instructions for completing each section of the revised SBC template. Although the SBC instructions include numerous specific directives regarding font, spacing, and the like, the Final SBC Materials do give plans and insurers some flexibility in completing the template; for example, although the Final SBC Materials encourage plans and issuers to use Arial Narrow font, plans and issuers are permitted to use different font types (such as Times New Roman), and to modify the margins as necessary, provided that such modifications are done in a manner that is consistent with the SBC template format and the SBC does not exceed 4 double sided pages. The Final SBC Materials also include a “Special Rule,” stating that if plan terms that are required to be described in an SBC cannot reasonably be described in a manner that meets the requirements set forth in the Final SBC Materials, plans or insurers must instead “accurately describe the terms using their best efforts in a way that is as consistent with the instructions and template as reasonably possible.” According to the Final SBC Materials, such a situation might occur where a plan provides a different structure for provider network tiers or drug tiers than is reflected in the SBC template and instructions, or imposes different cost-sharing levels depending on participation in a wellness program. The Final SBC Materials note, however, that in such circumstances, the coverage examples should note the assumptions used in creating them. (An example of how to note assumptions used in creating coverage examples is provided at the bottom of page 5 of the Departments’ sample completed SBC.)

SBC Template Changes. Changes made to the sample completed SBC template by the Final SBC Materials include the following highlights:

  • Added an explanation at the beginning of the SBC. At the top of the first page of the SBC, plans and issuers must use the language shown in the sample completed SBC template describing what an SBC is and where consumers can find more information about the plan’s coverage.
  • Changed the “Limitations & Exceptions” column to a “Limitations, Exceptions, & Other Important Information” column. According to the Final SBC Materials, plans and issuers must include significant limitations, exceptions, and other important information for each service listed in the SBC. The following “core limitations and exceptions” must be addressed in this column: (i) when the plan or issuer does not cover a particular service category, or a substantial portion of a service category (e.g., if a plan only covers generic drugs, the column should note that brand name drugs are excluded); (ii) when cost sharing for covered in-network services does not factor into the out-of-pocket limit; (iii) visit or dollar limits; and (iv) when services require prior authorization.

INSIGHT. The final SBC instructions emphasize that as a general rule, the SBC is not permitted to substitute a cross-reference to the summary plan description (“SPD”) or any other document for any content that is required to be addressed in the SBC. However, an SBC may include a general reference to the SPD in the box at the top of the first page of the SBC. In addition, the Final SBC Materials state that where it is not possible to address all of the “core limitations and exceptions” without violating the four double-sided page limit, the plan or issuer must cross-reference the pages or identify the sections where the core limitations and exceptions are described in the applicable plan document that does fully describe such core limitations and exceptions (, such as the SPD or the insurance policy document).

  • Added disclosure language about minimum essential coverage and minimum value. Plans and issuers must now indicate in the SBC whether the plan provides minimum essential coverage, and whether the plan meets “minimum value” standards.
  • Added a third coverage example. The Departments added a third coverage example –, a simple fracture (including an in-network emergency room visit, as well as follow-up care) –, to the existing coverage examples (e.g.,  having a baby and managing type 2 diabetes).

Effective Dates. Health plans and insurers with an annual open enrollment period must provide SBCs that comply with the requirements set forth in the Final SBC Materials, beginning on the first day of the first open enrollment period that begins on or after April 1, 2017 (with respect to coverage for plan years beginning on or after April 1, 2017). Therefore, most group health plans operating on a calendar year will be required to update their SBCs to reflect the Final SBC Materials in time to distribute those updated SBCs during open enrollment in the fall of 2017 (for the 2018 plan year). For plans and insurers that do not use an annual open enrollment period, the Final SBC Materials apply beginning on the first day of the first plan year that begins on or after April 1, 2017.

Conclusion. In light of the required changes to the SBC necessitated by the Final SBC Materials, insurers and plan sponsors should carefully review the Final SBC Materials to determine how existing SBCs are affected. Noncompliance with the Final SBC Materials can not only trigger penalties against the plan administrator and/or the insurer under the ACA’s market reform rules, it can also expose the sponsoring employer to excise tax penalties under the Internal Revenue Code. As always, King & Spalding LLP would be happy to assist you in your compliance efforts.

How the New FLSA Regulations May Affect Employee Benefit Programs

Author, James P. Cowles

On May 18, 2016 the Department of Labor (the “DOL”) released final rules updating the overtime exemptions under the Fair Labor Standards Act (“FLSA”).  These rules are effective December 1, 2016 and will affect employees who currently fall under the often used white collar exemptions to the FLSA overtime requirement, including the exemptions for executive, administrative, and professional employees.  The DOL estimates that 4.2 million employees not currently eligible for overtime pay will become eligible for overtime pay on December 1, 2016 under the new rules.

This article focuses on the affect the new FLSA overtime rules may have on your employee benefit programs.  First, a brief overview of the current FLSA overtime rules. 

Currently, employers are generally not required to pay overtime (for service in excess of 40 hours per workweek) to employees who meet all of the following requirements (referred to as “Exempt Employees” for this article): 

1.         Duties – Employee must perform job duties that satisfy the duties test (generally, his or her position is considered to be executive, administrative or professional); 

2.         Compensation basis – Employee must be paid on a salaried basis (subject to some exceptions); and

3.         Compensation level – Employee must be paid at or above the minimum compensation level established by the DOL (with certain exceptions, for example outside sales persons, licensed professionals and teachers).  The current minimum compensation level is $23,660.

Employees who do not meet the requirements to be an Exempt Employee (i.e. an employee exempt from receiving overtime payments) are “non-exempt employees” (referred to as “Hourly Employees” for this article).  Hourly Employees must be paid overtime wages at the rate of 1.5 times the employee’s regular hourly rate for any hours of service in excess of 40 hours per workweek.

What has Changed?

The most significant change in the FLSA rules is the increase in the minimum compensation level for Exempt Employees.  Effective December 1, 2016, the minimum annual compensation level will increase from $23,660 ($445 per week) to $47,476 ($913 per week).  This means that employers will need to make a decision with regard to any Exempt Employee with annual compensation between $27,660 and $47,476.  The employer must choose between:

1.         Increasing his or her compensation to at least $47,476 ($913/week) in order to maintain his or her Exempt Employee status (i.e. exempt from overtime payments); or

2.         Reclassifying him or her as an Hourly Employee and start paying overtime to the extent he or she works in excess of 40 hours in a single workweek.

Depending on employee demographics, the labor cost involved in increasing the compensation of some, or all, currently Exempt Employees to $47,476 annually may be significant, and in many instances, cost prohibitive.  Because of the significant labor cost increase that may be involved, we anticipate many employers will elect to “reclassify” certain Exempt Employees as Hourly Employees to comply with the new FLSA rules. 

Effect on Employee Benefit Programs   

The new FLSA regulations place employers in the unusual position of potentially having to reclassify a significant number of employees from one employment status to another, i.e., Exempt Employee to Hourly Employee, in order to address a change in the law.  Because employee benefit programs often define which employees are eligible for the programs by reference to employment status, reclassifying employees in response to the new FLSA rules may affect the benefit programs for which such employees are eligible.

The following are a few employee benefit plan design and administrative considerations that employers should keep in mind when determining how best to comply with the new FLSA rules:

(1)        Eligibility –  Plan documents should be reviewed to determine if revisions are necessary to implement the employers intentions and avoid inadvertently changing employees eligibility for employee benefit programs.  Plans may require amending to grandfather certain benefits for reclassified employees.

Additionally, employers should review employee benefit plan automatic enrollment features and consider whether a reclassified group will be subject to such features if they are newly eligible for a different plan.

(2)        Funding –  Reclassifying employees and increases in salary and/or overtime payments may affect employee benefit plan funding requirements due to increased benefit accruals, profit sharing contributions, 401(k) matching contributions and the employers portion of health and welfare plan premiums.

(3)        Non-discrimination Testing – Reclassification of groups of employees may impact non-discrimination testing results for 2016 and future years.

(4)        Optics of Reclassification – Employees may view an employment status reclassification (exempt to hourly) as negative, especially if they continue to perform the same job.  Employee communications may be necessary addressing the potential negative connotation. 

(5)        Vendor / Payroll Capacity – If reclassification results in a change in employee benefit program eligibility for a large group of employees, stakeholders such as the plan’s vendors and internal payroll and HR departments should be consulted to confirm they have the capacity to handle administrative requirements.

(6)        New Employee Class – Employers may need to revise current plans or adopt new plans for a new employee class.  For example, employers in certain industries may have only Exempt Employees and collectively bargained employees.

King & Spalding is available to assist you with questions that may arise in connection with the new FLSA rules. 

July and August 2016 Filing and Notice Deadlines for Qualified Retirement and Health and Welfare Plans

Author, Ryan Gorman

Employers and plan sponsors must comply with numerous filing and notice deadlines for their retirement and health and welfare plans. Failure to comply with these deadlines can result in costly penalties.  To avoid such penalties, employers should remain informed with respect to the filing and notice deadlines associated with their plans.

The filing and notice deadline table below provides key filing and notice deadlines common to calendar year plans for the next two months. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is generally delayed until the next business day.  Please note that the deadlines will generally be different if your plan year is not the calendar year. Please also note that the table is not a complete list of all applicable filing and notice deadlines (including any available exceptions and/or extensions), just the most common ones. King & Spalding is happy to assist you with any questions you may have regarding compliance with the filing and notice requirements for your employee benefit plans. 

 

Item

Action

Affected Plans

July 28 (no later than 210 days after the end of the plan year in which the change was effective)

Summary of Material Modifications

Deadline for plan administrator to distribute summary of material modifications reflecting any changes to the summary plan description (SPD) arising from any plan amendments adopted during prior year (unless a revised SPD is distributed that contains the modification).

 

 

Retirement Plans

 

Health & Welfare Plans

July 31

 

(the last day of the 7th month following the plan year)

DOL Form 5500

Deadline for plan administrator to file Form 5500 (Annual Return/Report of Employee Benefit Plan) for prior year. This deadline is extended 2 ½ months if the plan administrator files Form 5558.

 

 

Retirement Plans

 

Health and Welfare Plans

 

IRS Form 8955-SSA

 

Deadline for plan administrator to file Form 8955-SSA (Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits). This deadline is extended by 2 ½ months if the plan administrator files a Form 5558.

 

Retirement Plans

July 31

 

 

Patient Centered Outcomes Research Institute (PCORI) Fee

Deadline for self-insured health plans to pay a fee for 2015 plan year using IRS Form 720. Note that the fee is not tax deductible. Insurers are responsible for paying the fee on behalf of insured plans.

 

Self-Insured Group Health Plans (including retiree plans)

 

August 14 (within 45 days after the close of the second quarter of plan year)

Benefit Statements for Participant-Directed Plans

Deadline for plan administrator to send benefit statement for the second quarter of the plan year to participants in participant-directed defined contribution plans.

 

 

Defined Contribution Plans with participant-directed investments

 

Quarterly Fee Disclosure

Deadline for plan administrator to disclose fees and administrative expenses deducted from participant accounts during the second quarter of the plan year. Note that the quarterly fee disclosure may be included in the quarterly benefit statement or as a stand-alone document.

 

August 15

(the 15th day of the 8th month after the end of the plan year)

IRS Forms 990 and 990-EZ

Deadline for tax-exempt trusts associated with qualified retirement plans and voluntary employee beneficiary associations (VEBAs) to file Forms 990 or 990-EZ with the IRS for prior year if the trustee obtained a 3-month extension by filing a Form 8868.

 

Qualified Retirement Plans*

 

Voluntary Employee Beneficiary Associations

August 30

Comparative Chart of Investment Alternatives

Deadline for plan administrator to furnish the 2016 comparative chart of investment alternatives.

 

Defined Contribution Plans with participant-directed investments

*Qualified Retirement Plans include all defined benefit and defined contribution plans that are intended to satisfy Internal Revenue Code §401(a). 

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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