Benefits Bryan Cave

Benefits BCLP

Commentary/Opinions/Views

Main Content

Deep Dive: Association Health Plans, Part 5: The Final AHP Rule

On October 12, 2017, President Trump signed a “Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States” (the “Executive Order”) to “facilitate the purchase of insurance across state lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American people.” One of the stated goals in the Executive Order is to expand access to and allow more employers to form Association Health Plans (“AHPs”). In furtherance of this goal, the Executive Order directed the Department of Labor to consider proposing new rules to expand the definition of “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Department of Labor issued its proposed rule on January 5, 2018 and its final rule on June 19, 2018.

In Part 1 of this “Deep Dive” series, we examined the history of AHPs and the effects of the changes proposed by the Trump Administration by providing a high-level, summary overview of the three types of arrangements that fall under the umbrella of health arrangements sponsored by associations, which include Affinity Arrangements, Group Insurance Arrangements and AHPs. In Part 2 of this “Deep Dive” series, we compared plan features of the three types of arrangements under current law. In Part 3 of this “Deep Dive” series, we examined the qualification requirements for AHPs under current law. In Part 4 of this Deep

Deep Dive: Association Health Plans, Part 3

On October 12, 2017, President Trump signed a “Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States” (the “Executive Order”) to “facilitate the purchase of insurance across state lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American people.” One of the stated goals in the Executive Order is to expand access to and allow more employers to form Association Health Plans (“AHPs”). In furtherance of this goal, the Executive Order directed the Department of Labor to consider proposing new rules to expand the definition of “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Department of Labor issued its proposed rule on January 5, 2018.

In Part 1 of this “Deep Dive” series, we examined the history of AHPs and the effects of the changes proposed by the Trump Administration by providing a high-level, summary overview of the three types of arrangements that fall under the umbrella of health arrangements sponsored by associations, which include Affinity Arrangements, Group Insurance Arrangements (“GIAs”), and AHPs. In Part 2 of this “Deep Dive” series, we compared plan features of the three types of arrangements under current law.  In this installment of the “Deep Dive” series, we will examine the qualification requirements for AHPs under current law.

Current Qualification Requirements for AHPs

ERISA provides that an employee benefit plan may be maintained by an association of

The Good, the Bad, and the Tax-Exempt Organization: The New Tax Bill’s Effect on Benefits and Compensation Offered by Institutions of Higher Education

On December 22, President Trump signed “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (“Bill”) into law. The Bill was previously named the much-shorter “Tax Cuts and Jobs Act,” but was changed after a senator pointed out that the name violated an obscure Senate rule.

The new employee benefit and executive compensation provisions in the Bill affect both individuals and employers. The good news for colleges and universities is that the harshest employee benefit provisions directed at colleges and universities were not included in the final Bill. The bad news is that the executive compensation and fringe benefit changes directed at tax-exempt organizations are unfavorable to institutions of higher education.

THE GOOD: CHANGES EXCLUDED FROM THE FINAL BILL

The House passed a version of the Bill that would have repealed the exclusion from income for qualified tuition reductions provided by educational institutions to (i) employees and their spouses or dependents and (ii) graduate teaching assistants.  The House’s version of the Bill also eliminated the exclusion for education assistance (up to $5,250 per year per employee) that was available to all employers.

Fortunately, both of these changes were eliminated in the final Bill.

THE BAD: EXCISE TAX ON EXCESS COMPENSATION PAID TO COVERED EMPLOYEES

The Bill places a 21% excise tax on the amount of annual compensation in excess of $1,000,000 paid to covered employees of most tax-exempt organizations, including tax-exempt institutions of higher education.

Covered

Will the ACA Get Trumped?

Will the ACA Get Trumped?

November 9, 2016

Authored by: Chris Rylands and Richard Arenburg

Now that the historic election between the two most unpopular candidates in recent memory has been called for Donald Trump, the questions (of which there are many) now facing the President-Elect and the rest of us are how a President Trump will govern.  One of his campaign promises (and a favorite Republican talking point) was the repeal of the Affordable Care Act and replacing it with something else.  (Its recent premium hikes were even cited by his campaign manager as a reason voters would choose him.)  So is that going to happen?

At this point, we cannot know for sure (and given the beating that prognosticators took this election cycle, we’re not sure we want to guess).  However, we can identify a few hurdles that might make it harder.

Republicans Need a Plan First.  One of the major hurdles is Republicans themselves have yet to completely agree on a coherent alternative.  Speaker Ryan released a thumbnail sketch of a proposal in June which looked more like “pick and choose” than “repeal and replace.”  However, it is often said the devil is in the details and that will certainly prove true here.

And Then They Have to Agree On It. The other challenge is getting enough Republican votes to get the plan through (and maybe some Democratic ones as well).  As of now, the GOP is still projected to retain majorities in both the House and Senate.  However, some races are

Using Public Policy to Create IRA Irony

Using Public Policy to Create IRA Irony

October 26, 2016

Authored by: benefitsbclp

confusionYou might recall that the Department of Labor (DOL) took the position earlier this year that it had to protect individual retirement accounts and annuities as well as IRA owners by extending certain ERISA protections to them. In its promulgation of the amended investment advice regulation (otherwise known as the fiduciary rule) and the related prohibited transaction exemptions, it extended its reach deep into parts of the individual retirement plan structure where it had not ventured before.  (Its authority to do so is presently the subject of numerous lawsuits.)   It did so contending that public policy requires it to protect the IRAs and IRA owners from its perceived conflicts of interest emanating from the investment advisory and sales arms of financial services organizations.

Now, the DOL has done an about face, seemingly in furtherance of a different public policy goal. The policy this time is to enhance savings opportunities for American workers who do not have access to ERISA-protected employer-sponsored qualified retirement plans.  By creating a “safe harbor” that allows states to mandate payroll deduction IRAs for these workers, the DOL fails to provide the protections afforded by ERISA to participants in these State-sponsored IRA plans (other than, presumably, the investment advice rule).  The irony (and intellectual inconsistency) is patent:  IRAs are important enough to be caught within the ambit of

Kübler-Ross and IRS Announcement 2016-32

griefWhen the IRS announced that it would virtually eliminate the determination letter program for individually designed retirement plans, many practitioners moved through the classic Kübler-Ross five stages of grief (see the picture at the right).  Some have yet to finish.  In Announcement 2016-32, the IRS requested comments on how these plans can maintain compliance going forward since determination letters are no longer available.

As a general rule, the IRS used to deny plans the ability to incorporate tax code provisions by reference (rather than reciting them wholesale in the plan), except for a very short list available here.  The IRS is asking if there are additional provisions that would also be appropriate to incorporate by reference.  This would avoid the need to reproduce these provisions wholesale and run the risk of a minor foot fault if the language did not line up.  It would also help avoid the need to update plans for law changes, in some cases.

Additionally, much to the anger of many practitioners, the IRS has historically sometimes required a plan to include provisions that were not applicable to the plan.  For example, there are special diversification requirements for plans that hold publicly-traded employer stock, yet the IRS has required them even for private companies.  One wonders if the IRS actually observed numerous situations where privately held corporations became public companies and then failed to amend those of

Good News! New 409A Regulations (Yes, Really!) – Part 1: Firing Squad

Good NewsOn the TV show Futurama, the aged proprietor of the delivery company Planet Express, Professor Hubert J. Farnsworth, had a habit of entering a room where the other characters were gathered and sharing his trademark line, “Good news, everyone!”  Of course, his news was rarely good.  More often, it was the beginning of some misadventure through which the other characters would inevitably suffer, often to great comedic effect.  So we can forgive you for thinking that we may be standing in his shoes when we tell you that new 409A regulations are good news, but really, hear us (read us?) out.

The IRS released proposed changes to both the existing final regulations and the proposed income inclusion regulations.  And the news is mostly good.

The changes are legion, so we are breaking up our coverage into a series of blog posts. This first post is all about the changes related to the end of the service relationship.  Check back for future posts discussing other aspects of these proposed regulations.

Severance Safe Harbor Available for Bad Hires. Severance is, surprisingly to some, generally considered deferred compensation subject to 409A.  However, severance can be exempt from 409A if the severance is due to a truly involuntary separation under 409A and does not exceed two times the lesser of (1) the employee’s prior annual compensation or (2) the limit on compensation

Exceptional Plan Governance: Beat Back the Coming Litigation Onslaught

Gavel and ScalesIt was bound to happen. For several years, the plaintiffs’ bar has sued fiduciaries of large 401(k) plans asserting breach of their duties under ERISA by failing to exercise requisite prudence in permitting excessive administrative and investment fees.  It may be that the plaintiffs’ bar has come close to exhausting the low-hanging lineup of potential large plan defendants, and, if a recent case is any indication, the small and medium-sized plan fiduciaries are the next target.  See, Damberg v. LaMettry’s Collision Inc., et al. The allegations in this class action case parallel those that have been successful in the large plan fee dispute cases. Now that the lid is off, small and medium sized plan fiduciaries should be forewarned of the need to employ solid plan governance to avoid, or at least well defend, a suit aimed at them.

Exceptional plan governance means that, at a minimum, plan sponsors (and designated fiduciaries) should consider the following items to help demonstrate that they are primarily operating their plans to the benefit of participants and their beneficiaries and then to reduce liability exposure for themselves:

  • Understand and exercise procedural prudence – process, process, process
  • Identify plan fiduciaries and know their roles and duties
  • Seek and obtain fiduciary training for all plan fiduciaries
  • Adopt a proper plan committee charter or similar document
  • Appoint fiduciaries and retain service providers prudently

Education or Advice: The DOL Final Definition of Fiduciary; Conflict of Interest Rule

Changes AheadEarlier this month, the Department of Labor finally released the long-awaited “Definition of Fiduciary; Conflict of Interest Rule.”

This blog post is intended to do two things:

  1. Provide a brief history of the proposal, and
  2. Provide an overview of the key points of the final rule and how it differs from the 2015 proposal.

For additional materials and information on the Final Rule, visit the DOL webpage. In addition, you can access all 200 plus pages of the final rule here.

I.  The “Conflict of Interest” Rule’s History

Since the adoption of ERISA, the governing regulations have mandated use of a five-part test that dictates whether an individual will be considered an investment advice fiduciary. In order to rise to the level of an investment advice fiduciary, the five-part test required that a person give investment advice: (1) about the value or advisability of investing in securities or other property; (2) on a regular basis; (3) pursuant to an agreement with the plan; (4) individualized to the specific plan; and (5) with the mutual understanding that such advice will serve as a primary basis for investment decisions.

The DOL initially proposed rulemaking to change the definition of an investment advice fiduciary back in October of 2010. The 2010 proposal generally did the following:

  • suggested eliminating the five-part test and, more specifically, the

Undermining the Goal of Expanding Coverage for Nonhighly Compensated Employees

Piggy Bank in CrosshairsOne might be led to believe that the current administration is in favor of expanding retirement savings opportunities. After all, the DOL has somewhat apologetically subverted ERISA to allow the States to sponsor employer-based savings plans.  And the President’s recently proposed budget endeavors to provide a national retirement savings program. (See page 135 of the General Explanations of the Administration’s Fiscal Year 2017 Revenue Proposals) So why then would the IRS reverse two decades of regulation that favors cross-tested plans in small businesses, an action that might cause many small employers to terminate their qualified plans or amend them to reduce the employer contribution to employee’s accounts?

Some background may be in order. Cross-tested defined contribution plans are allowed to test equivalent benefit accrual rate (EBAR) groups separately using the ratio percentage test or the average benefits test. Unlike testing for coverage, application of the average benefits test here does not include testing for a reasonable business classification. This has permitted cross-tested plans to create small rate groups each of which meets the modified average benefits test and permits greater relative nonelective contribution (NEC) amounts for HCEs. Typically, the average benefits test for cross-testing finds that the EBARs for HCEs are the same or less than the EBARs for NHCEs.

The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.