Employee Benefits Developments: the Good, the Bad and the Ugly
Key Recent Developments
Despite the much maligned gridlock in Washington, a number of laws were passed in late 2015 that have a current, direct impact on employee benefits, as follows:
“PATH Act”: retroactively extended and made permanent certain so-called “extenders” in order to effectuate parity (for income exclusion) between employer-provided mass transit and parking benefits, allow up to $100,000 of nontaxable IRA transfers to charities, and permit rollovers from retirement plans to SIMPLE accounts; also implemented several other rules affecting employee benefits.
“Consolidated Appropriations Act”: delayed until 2020 the application of the 40% “Cadillac” excise tax on high-cost health plans under the Affordable Care Act (“ACA”), and ordered a study on more appropriate benchmarks for age and gender adjustments of the Cadillac tax.
“FAST Act”: retained the 2 ½ month automatic extension for filing Forms 5500.
“Bipartisan Budget Act of 2015”: repealed the ACA automatic enrollment provision and changed rules relating to single employer plan PBGC premium rates, pension payment acceleration, and mortality tables, and extended until 2018 and 2019 current funding stabilization percentages.
“Protecting Affordable Coverage for Employees Act”: revised the definition of small and large employers under the ACA and modified the rule permitting certain qualified health plans to be offered through cafeteria plans.
In addition, the deadlines for reporting and disclosure on IRS Forms 1095-B and 1095-C for providers of “minimal essential coverage” under the ACA (e.g., insurers and self-insured employers) have been extended until the end of March, 2016.
For 2016 and Beyond
Keep an eye out for these current and potential developments:
An increase in class action litigation by employees claiming a breach under ERISA for failure of plan fiduciaries to reduce plan investment and administrative fees (e.g., by leveraging plan asset size or providing plan participants with “institutional” rather than “retail” investment funds; a proposed class of Anthem Inc. employees is litigating for just that purpose.)
Expansion of the definition of “fiduciary” under ERISA (and heightened fiduciary liability) applicable to investment advisors who offer plan participants and IRA owners a choice of investment options. The Department of Labor has published proposed rules vociferously opposed by brokers and other advisors (and their Congressional allies), and to date has sent these rules to a sympathetic White House (Office of Management and Budget) for comment.
Restrictions on a plan’s ability to recover paid health benefits pursuant to an agreement with the covered individual to reimburse the plan from proceeds of a related lawsuit: recently the Supreme Court has held that a plan is basically out of luck if the covered individual has already spent the proceeds. (Montanile vs. Board of Trustees of the National Elevator Industry Health Plan, 577 U.S. __ 2016).
A ban on replacing lifetime annuities with lump sum distributions under defined benefit plans.
Repeated attempts to repeal or replace certain provisions of the ACA (if not the entire statute), and challenges to the ACA birth control mandate.
Proposals to provide for more portability and accessibility under retirement plans (including proposed pooled, or “open multiple employer plans,” tax credits for small employers offering retirement plans, retirement savings arrangements for long-term part-time employees and automatic enrollment of employees in IRAs by employers without workplace retirement plans).
Effective January 1, 2017, elimination of the staggered five-year remedial amendment cycles for obtaining IRS determination letters on behalf of individually designed plans; the IRS will be issuing determination letters for individually designed plans only upon plan establishment and termination, effectively encouraging employer plan sponsors to adopt so-called “canned” (prototype or volume submitter) plans.