Final regulations and compliance guidance, issued jointly by the Internal Revenue Service, Department of Labor, and Department of Health and Human Services on February 14, 2012, require group health plans and health insurers to provide participants and beneficiaries with a summary of benefits and coverage (“SBC”), as well as a uniform glossary of coverage terms and notice of modifications to the SBC. These requirements find their origin in the Patient Protection and Affordable Care Act (“PPACA”), enacted approximately two years ago.
The SBC requirement applies to grandfathered plans under PPACA but not to excepted benefits such as stand-alone dental and vision plans. An SBC must be furnished to plan participants and beneficiaries in addition to a summary plan description (“SPD”) under ERISA.
An SBC must be provided to enrolling or re-enrolling participants and beneficiaries as of the first day of the first open enrollment period that begins on or after September 23, 2012. For participants and beneficiaries who enroll other than through open enrollment (including those who are newly eligible and special enrollees), this requirement must be satisfied by the first day of the first plan year that begins on or after September 23, 2012.
SBCs must be provided free of charge to participants and beneficiaries on several additional occasions: 1) automatically as part of written application materials; 2) by the first day of coverage if there are any changes; 3) upon renewal; and 4) upon request. An SBC must be provided for each benefit option for which a participant or beneficiary is eligible. An SBC must be provided to a special enrollee no later than the date that a SPD must be provided (90 days from enrollment).
Who Provides the SBCs
For self-insured plans, the plan is required to provide the SBC. For insured plans, both the insurer and the plan are responsible for providing the SBC, but if either the insurer or the plan properly provides the SBC, then the requirement is satisfied for the other entity as well. Therefore, insurers and plans should make contractual arrangements for sending the SBCs.
Content and Format Requirements
In addition to specific content that is required to be included in an SBC, SBCs must be in a uniform format, use terminology understandable by the average plan enrollee, and be provided in a “culturally and linguistically appropriate manner.” SBCs cannot be longer than four double-sided pages or include print smaller than 12-point font. SBCs may be furnished in either paper form or electronically if the DOL’s electronic disclosure rules are satisfied.
Accompanying the regulations, the agencies published SBC templates and instructions for group health plans and health insurers. The templates contain sample SBCs, both completed and blank, and a uniform glossary of coverage and medical terms. The templates and instructions are posted online at the DOL’s website http://www.dol.gov/ebsa/healthreform/.
Notice of Modifications
If a group health plan or health insurer makes any material modification to the plan or coverage that would affect the content of the SBC, other than in connection with a renewal or reissuance, the plan or issuer must provide notice of the modification to plan participants and beneficiaries no later than 60 days prior to the date the modification is to become effective.
Fines for Failure to Provide
A group health plan that willfully fails to provide the required information will be subject to a fine of not more than $1,000 for each failure. A failure with respect to each participant or beneficiary constitutes a separate offense for purposes of this fine.
As discussed in our Fall 2010 Newsletter, the Department of Labor previously issued interim final regulations detailing certain service and fee-related disclosures that a plan’s service providers must make to plan fiduciaries. Those rules were finalized on February 3, 2012. The guidance in the interim final regulations was adopted largely intact, although a few technical changes were made in the final regulations. An overview of the specific changes made in the final rules can be accessed at the DOL’s website here. In short, though, the following basic tenets survived: the service provider’s disclosures must (1) be made in writing, (2) set forth a detailed description of the services that will be provided and (3) disclose the direct and indirect compensation that will be received by the service provider (or its affiliates or subcontractors) from the plan.
For existing contracts or arrangements, service providers must make their initial disclosures to plan fiduciaries no later than July 1, 2012. For any new arrangements entered into with service providers on or after July 1, 2012, disclosures must be made prior to the effective date of the new contract or arrangement. Whenever there are changes to any previously disclosed information, the service provider must disclose those changes to plan fiduciaries within 60 days after learning of the changes.
The issuance of these final service provider fee disclosure regulations also impacts the timing of disclosures under existing participant-level fee disclosures (previously discussed in our Winter 2011 Newsletter). Those disclosures are now required to be made to plan participants no later than August 30, 2012.
It is very important that plan fiduciaries carefully review the disclosures made by service providers, with particular attention paid to the scope and quality of the disclosures themselves. If proper disclosures are not made or if information is missing or inaccurate, a “prohibited transaction” may occur (and could result in excise taxes) because it will be deemed that more than reasonable compensation was paid for the services. In the event a plan fiduciary discovers that disclosures were not made or that information is missing or inaccurate, the plan fiduciary must request – in writing – that the service provider make the required disclosure. If the service provider fails to do so within 90 days, the plan fiduciary must notify the Department of Labor of the failure and the fiduciary must consider whether it should terminate the contract or arrangement with the service provider. Most significantly, if the requested disclosure relates to future services (which will very often be the case), the plan fiduciary must terminate the contract or arrangement as soon as possible after the end of the 90-day period.
In early February, 2012, the Department of the Treasury issued a package of proposed guidance designed to provide retirees with new strategies for confronting the risk of outliving their assets (the so-called “longevity risk”). These strategies are important as our population ages, life expectancies increase, and our private retirement system shifts from lifetime payments under traditional defined benefit pensions to lump-sum distributions from 401(k) and other defined contribution plans. New strategies were proposed with respect to both defined benefit and defined contribution plans, although the strategies outlined for defined contribution plans—given the shift in favor of defined contribution plans--will likely be more popular and helpful to participants in the long run. The proposed guidance includes a new distribution form for defined contribution plans – qualifying longevity annuity contracts, or QLACs. A QLAC provides an income stream that begins at an advanced age, such as 80 or 85 and continues for the remainder of an individual’s life. The proposed guidance also contains exceptions to the required minimum distribution rules in the context of QLACs.
Because the guidance has been issued in proposed form and explicitly provides that it cannot be relied upon, plan sponsors should not take any action at this time. However, it is important that employers be aware of the proposals so that they can be ready to act when the rules are finalized. In the meantime, employers are encouraged to submit comments on the issues raised in the preamble to the proposed regulations, which can be found by clicking here.
- Church-Related Employers Get a Temporary “Reprieve” from Health Care Reform’s Contraception Coverage Requirement. Recently finalized regulations and related guidance require non-grandfathered group health plans to begin covering contraception for women beginning in the first plan year on or after August 1, 2012. The regulations include an exception for certain narrowly-defined “religious employers” (essentially, churches). A compliance and enforcement delay will be available for certain other employers that do not satisfy that narrow definition but that can nonetheless certify they are affiliated with a religious organization and object to the contraception coverage requirement on moral or religious grounds. Such employers must also provide notice to employees that contraception will not be covered under the plan during the relevant time period. The compliance and enforcement delay will apply until plan years beginning on or after August 1, 2013. Additional guidance is expected to be released prior to the end of that time period which should provide additional relief for those employers.
- Status of PPACA Constitutionality Lawsuits. As we’ve previously discussed, the constitutionality of the Patient Protection and Affordable Care Act (“PPACA”) is being challenged in court. The Supreme Court of the United States is scheduled to hear arguments regarding PPACA’s constitutionality on March 26-28, and a decision is expected early this summer.
- Cycle B Is Now Underway. The 5-year amendment cycle for “Cycle B” plans began on February 1, 2012 and will end on January 31, 2013. Cycle B plans include multiple employer plans as well as individually-designed qualified retirement plans of employers whose federal employer identification number (EIN) ends in 2 or 7. Employers that intend to request a determination letter must submit a restated plan document to the IRS no later than January 31, 2013.
- Illinois Department of Revenue Issues New Guidance on the Taxation of Benefits for Civil Union Partners.The Illinois Department of Revenue recently issued guidance clarifying that benefits provided under an employer-sponsored group health plan for an employee’s non-dependent civil union partner are not taxable at the state level. However, the fair market value of those benefits will continue to be subject to federal income tax.
We our pleased to announce that Thomas H. Mug has joined our employee benefits practice group. Tom concentrates his practice in the areas of tax law, with an emphasis on employee benefits and executive compensation, personal estate and financial planning, and closely-held and family businesses. In the field of employee benefits and executive compensation, Tom works with employers designing and developing employee benefit plans and programs, and has extensive experience working with employee stock ownership plans (ESOPs) and governmental retirement plans. Tom also counsels administrators on their fiduciary duties in connection with various administrative compliance issues under the Internal Revenue Code and ERISA. He can be reached at (314) 345-4732 or at email@example.com. For more information about Tom’s professional experience, click here. Please join us in welcoming Tom aboard!
- Dan Janich and Tom Mug will be speaking in April at the upcoming NCEO/Beyster Institute 2012 Employee Ownership Conference in Minneapolis. For more information about the conference, please click here. If you register online, you can receive a $35 discount for each attendee of the main conference by using code CONF12, or a $15 discount for each attendee of a pre-conference session by using code PEOPLEPRECON.
- Tom Mug and Doug Neville will be leading panel discussions at the St. Louis Spring Conference of the Heart of America Chapter of the ESOP Association on April 17, 2012. For more information, contact the ESOP Association at firstname.lastname@example.org.
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