Monthly Benefits Update - October 2014 [pdf]
Health & Welfare Plans
IRS Announces 2015 Dollar Limits for Health FSAs and Transportation Benefits
The Internal Revenue Service (IRS) announced the 2015 dollar limits applicable to contributions to health flexible spending accounts (health FSAs) and excludable amounts for qualified transportation fringe benefits under Internal Revenue Code (the “Code”) Section 132(f). The health FSA contribution limit is increasing from $2,500 to $2,550 for 2015. The excludable dollar amounts under a transportation fringe benefit arrangement remain unchanged from 2014; the monthly limit remains $130 for transportation in a commuter highway vehicle and any transit pass, and $250 for qualified parking.
EEOC Files Lawsuit Challenging Biometric Testing in Wellness Programs
The Equal Employment Opportunity Commission (EEOC) has filed a petition in the federal district court in Minnesota against Honeywell, International Inc. challenging the legality of the biometric testing requirements in Honeywell’s wellness program. The EEOC’s complaint claims that the biometric testing violates Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA) because the wellness program imposes penalties on employees who refuse to undergo the biometric testing. The EEOC was initially seeking to enjoin Honeywell from implementing the biometric testing in the first place, but the judge ruled against the EEOC’s petition for a temporary restraining order on November 3, 2014.
This is the third such lawsuit brought by the EEOC in the past few weeks. Two other suits have been filed by the EEOC, one against Orion Energy Systems, Inc. and the other against Flambeau, Inc., both in Wisconsin. These lawsuits are a somewhat surprising development, given the EEOC’s lack of clear guidance on and until now, lack of enforcement action regarding whether wellness programs that are compliant with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Affordable Care Act (ACA) also comply with the ADA and GINA.
Agencies Say Plans Not Providing Hospitalization, Physician Services Likely Do Not Satisfy ACA Minimum Value Requirements
The Departments of Labor, Health and Human Services (HHS), and Treasury (collectively, the “Agencies”) issued a notice stating that they believe that group health plans that do not cover in-patient hospitalization services and/or physician services (also known as “skinny” plans) do not comply with the ACA employer mandate’s “minimum value” requirement.
Whether a plan provides minimum value for ACA purposes can be determined through use of the online MV calculator. However, the Agencies expressed concern as to whether the continuance tables underlying the MV calculator produce valid actuarial results for unconventional plan designs that exclude substantial coverage for in-patient hospitalization services. For instance, the standard population and other underlying assumptions used in developing the MV calculator are based on self-insured employer-sponsored plans, which have typically included hospitalization coverage. The Agencies also stated that designing a plan to exclude hospitalization coverage could substantially affect a plan’s covered population by discouraging enrollment by employees who have, or think they might develop, significant health issues.
The Agencies intend to propose regulations that address skinny plans’ compliance with the ACA’s minimum value requirement. Employers will not be able to rely solely on the MV calculator, the Agencies said, to determine whether a skinny plan satisfies the minimum value requirement after such regulations have been finalized. For employers that have already entered into a binding agreement to adopt a skinny plan or that have started enrolling participants into such a plan on or before November 4, 2014, the Agencies stated that they anticipate that the regulations will not apply to such employers’ skinny plans before the end of any plan year that begins before March 1, 2015.
The notice also provides that employers offering skinny plans must correct any disclosures made to employees that stated or implied that receiving an offer of coverage from a skinny plan will prevent employees from obtaining a premium tax credit for marketplace-based insurance coverage.
CMS Delays Enforcement of Health Plan ID Requirements
The Center for Medicare and Medicaid Services (CMS) announced on October 31, 2014 that it is delaying enforcement of the regulations regarding the use of HIPAA health plan identifiers (HPIDs) “until further notice.” The delay applies to all covered entities under HIPAA, including health providers, health plans, and healthcare clearinghouses.
The HPID regulations require group health plans to begin using a unique 10-digit identifier in all standard HIPAA transactions, including claim processing, beginning November 7, 2016. Prior to the enforcement delay, large group plans were required to obtain an HPID from CMS by November 5, 2014; small group health plans (plans with annual receipts of $5 million or less) had until November 5, 2015 to obtain an HPID.
Departments Issue Guidance Regarding Use of Reference-Based Pricing under ACA
HHS and Treasury (collectively, the “Agencies”) issued joint FAQs regarding the reasonableness of a group health plan’s use of reference-based pricing for purposes of compliance with the Affordable Care Act’s (ACA’s) maximum out-of-pocket limits. Non-grandfathered self-insured and large group insurance market group health plans are subject to annual maximum out-of-pocket limitations ($6,600 for self-only coverage and $13,200 for coverage other than self-only for 2015); only costs paid to in-network providers are required to be counted towards the annual out-of-pocket maximum amounts.
Many plans use reference-based pricing, under which the plan pays health providers a fixed dollar amount for a particular procedure. Reference-based pricing is designed to encourage plans to negotiate treatments with high-quality providers for reduced costs. However, in the guidance, the Departments expressed concern that reference-based pricing could also be used as a subterfuge to impose otherwise prohibited limitations on coverage for participants without ensuring access to quality care and an adequate network of providers. Accordingly, the Departments articulated the following general standards that will be used to evaluate the reasonableness of a plan’s use of reference-based pricing pending the issuance of more detailed guidance in the future: (1) the type of service involved and the ability of the participant to choose the provider in advance for that type of service; (2) the number of providers available that accept the reference-based price as full payment; (3) the plan’s standards to ensure quality of care; (4) the accessibility of the plan’s exceptions process; and (5) level of disclosure to participants regarding the plan’s reference-based pricing.
Retirement Plans
IRS Announces Retirement Plan Dollar Limits for 2015
The IRS announced cost-of-living adjustments for 2015 to various dollar limits affecting qualified retirement plans. Although many dollar limits are unchanged from 2014, a few have notably increased: (1) the deferral limit for 401(k), 403(b), and 457(b) plans has increased from $17,500 to $18,000; (2) the highly compensated employee threshold has increased from $115,000 to $120,000; (3) the total contribution limit for defined contributions plans has increased from $52,000 to $53,000; and (4) the catch-up contribution limit (for participants age 50 and older) has increased from $5,500 to $6,000.
Please see the IRS announcement for a full list of the 2015 dollar limits applicable to qualified retirement plans.
IRS Issues Guidance Permitting Plans to Offer Target Date Funds with Longevity Annuities
The IRS released guidance permitting qualified defined contribution plans to offer target date funds (TDFs) that include longevity annuities (also known as deferred annuities) as investment options. As we previously mentioned, the IRS had modified the required minimum distribution rules applicable to defined contribution plans to permit plans to offer longevity annuities, which permit deferral of account balances up to an advanced age, such as 80 or 85, in an attempt to provide lifetime income options as life expectancies rise. Pursuant to the new guidance, plans can offer TDFs with longevity annuities, even those restricted to participants in particular age-bands, without violating the nondiscrimination rules of Code Section 401(a)(4), if certain requirements are satisfied.
According to the guidance, offering a TDF with a longevity annuity only to older participants may ordinarily violate the Code’s nondiscrimination rules because it may result in a right or feature of the plan being disproportionately offered to highly compensated employees (as a group, older employees are often higher paid than younger employees). However, the new rule states that the IRS will not consider such TDFs to violate the Code’s nondiscrimination rules if the following four conditions are satisfied: (1) the series of TDFs offered by the plan is designed to serve as a single integrated investment program under which the same investment manager manages each TDF and applies the same generally accepted investment theories across the series of TDFs; (2) some of the TDFs offered only to older participants contain longevity annuities and none of the longevity annuities provide a guaranteed lifetime withdrawal benefit or guaranteed minimum withdrawal benefit; (3) the TDFs do not hold employer securities that are not readily tradable on an established securities market; and (4) each TDF in the series is treated in the same manner with respect to rights or features other than the mix of assets (e.g. the fees and administrative expenses for each TDF are determined in a consistent manner).
