Blogs

Summary: This applies to all employers offering medical plan coverage with a plan renewal date of January 1. The online disclosure must be completed by March 1, 2023 (assuming a calendar year medical plan contract).
 

Overview

Federal law requires that employers provide annual notification of the Medicare Part D Prescription Benefit "creditability" to employees prior to October 15th. However, that same law also requires plan sponsors to report creditability information directly to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the first day of the contract year if coverage is offered to Part D-eligible individuals. Many employers have a January 1 renewal plan year. So, for many employers, the deadline is in a couple of weeks! If your plan renews sometime other than January 1, you have 60 days after the start of your plan year to complete this disclosure.
 

Mandatory Online Creditable Coverage Disclosure 

Virtually all employers are required to complete the online questionnaire at the CMS website, with the only exception being employers who have been approved for the Retiree Drug Subsidy (RDS). This disclosure requirement also applies to individual health insurance, government assistance programs, military coverage, and Medicare supplement plans. There is no alternative method to comply with this requirement! Please remember that you must provide this disclosure annually.

The required Disclosure Notice is made through the completion of the disclosure form on the CMS Creditable Coverage Disclosure web page. Click on the following link: CMS Disclosure Form.

Employers must also update their questionnaire if there has been a change to the creditability status of their prescription drug plan or if they terminate prescription drug benefits altogether.
 

Detailed Instructions and Screenshots are Available

If you would like additional information on completing the online disclosure, a detailed instruction guide is available online. The instructions also include helpful screenshots so that you will know what data to have handy. More info here: CMS Notification Instruction Guide.

---

Helpful Tip for Vita's Clients

The Medicare Part D creditability status of your medical plans is outlined in the Welfare Summary Plan Description that we provide to all clients. Please refer to this document as you will need this information to complete the online disclosure. 

Shortly after the bipartisan SECURE Act was signed into law in December 2019, legislators began working on follow-up bills to further enhance participation in retirement plans. The result of these efforts is SECURE 2.0, which contains 90+ provisions aimed at further encouraging retirement savings. As a reminder, SECURE stands for Setting Every Community Up for Retirement Enhancement, essentially a clunky acronym for legislative efforts to improve retirement savings opportunities.
 

A Sectional Approach

In an effort to make our Ultimate Guide to Secure 2.0 as useful and effective as possible, we have divided the article into three distinct sections. The various provisions of the new law are divided into three categories which are loosely aligned with the relative frequency with which an employer would address them.

The idea is that you can read the sections that are relevant to you, depending on how deep you want to go into the material.

• The Everyone Section: Provisions that essentially all benefits professionals will want to understand.

• The Retirement Professional Section: Provisions reflecting the more detailed elements of the new law that people involved in retirement plans will need to know, but general benefits people can get away with not knowing.

• The Nerd Section: Provisions that are more nuanced (and sometimes obscure). For all you retirement nerds out there . . . this section is for you!

This summary focuses on the provisions that impact employer-sponsored retirement plans only. Provisions that do not directly impact 401(k) plans have been omitted.
 

Effective Dates

Most of the provisions of the law do not become effective until 2024 or later, so employers and retirement plan providers will have some time to work through implementation issues. Because the effective dates differ, this guide identifies the specific effective date for each provision.
 

Legislative References

For the Super Nerds, a summary by section of the actual legislation can be found here: SECURE 2.0. Code sections for the actual legislation are also included at the end of each provision for reference.


 

The Everyone Section

Mandatory Auto-Enrollment for New Plans

Employers establishing new plans are required to auto-enroll all eligible new hires into a 401(k) plan at a pre-tax rate of at least 3% of pay with an auto-escalation increase of 1% per year until the salary reduction reaches at least 10% (but no more than 15%). Employees have the option to opt-out or select a different contribution level, but the no-action default is required to be 3% pre-tax.

Existing plans are grandfathered. We expect that employers will amend existing plans to conform to the auto-enrollment default over time.

Certain employers are exempt from mandatory enrollment for new plans. These include small businesses with 10 or fewer employees, employers that have been in business for less than three years, churches, and governments.

This provision is effective for new plans starting after December 31, 2024. (Section 101)
 

Matching Contributions Can Now be Roth

Current law does not permit employer matching or nonelective contributions (NECs) to be made on a Roth basis (they must be made on a pre-tax basis). SECURE 2.0 allows employees to elect to have employer-matching contributions and/or NECs made on a Roth basis. Matching and NECs designated as Roth contributions are not excludable from the employee’s income and must be 100% vested when made.

This provision is effective for contributions made after enactment (2023 and beyond). However, it is expected that actual implementation will be delayed as it will take recordkeepers some time to develop the complex infrastructure required to support this flexibility. (Section 604)
 

Catch-up Contributions Enhanced

Current law allows for employees over age 50 to make catch-up contributions to increase the growth of their plans as they near retirement. The current catch-up contribution limit is $6,500 in 2022 ($7,500 in 2023). SECURE 2.0 increases the catch-up contribution amount as follows:

• Age 50-59: No change ($6,500 in 2022, $7,500 in 2023)
• Age 60-63: $10,000 or 150% of the regular catch-up amount for 2024, indexed for inflation

The increased limit applies for individuals who attain age 60, 61, 62, or 63 in that tax year.

This provision is effective for taxable years beginning after December 31, 2024. (Section 109)
 

Required Roth Catchup Contributions for High-Income Earners

SECURE 2.0 creates a requirement that catchup contributions made by employees whose wages exceed $145,000 (indexed for inflation) must be made on a Roth basis (after tax). This provision is mandatory for any plan that makes catch-up contributions available. Guidance will be necessary to clarify how this provision will apply to plans that allow catch-up contributions but which do not currently include a Roth deferral option. On its face, it would appear that HCEs would not be able to make catch-up contributions if a Roth option was not added to the plan.

This is one of the primary revenue raisers of the SECURE 2.0 legislation. The funds garnered from converting these contributions to after-tax help to balance the other provisions of the bill, which generate additional government spending.

This provision is effective for tax years beginning after December 31, 2023. (Section 603)
 

Lost and Found Database

One of the challenges employers face is not having current contact information for former retirement plan participants after they leave the company. Similarly, individuals often can’t locate or don’t know where to look to find old accounts left in former employer plans.  

The new law directs the DOL to create a nationwide, online, searchable “Lost and Found” database that maintains information on benefits owed to missing, lost, or non-responsive participants and beneficiaries in retirement plans. The goal of this provision is to create a tool to assist plan participants and beneficiaries in locating monies that may have been left in accounts under a former employer plan. Note that this provision comes with obvious reporting requirements for employers where they will need to report such information to the DOL so that it can be included in the database. The specifics of these reporting requirements have yet to be spelled out.

This provision requires the creation of the Lost and Found database no later than two years after the date of enactment of SECURE 2.0. (Section 303)
 

Paper Notification Requirements

SECURE 2.0 brings modifications to the retirement plan benefit statements requirement. The new rules generally require that retirement plans provide:

• Defined Contribution Plans: at least one paper statement each calendar year
• Defined Benefit Plans: at least one paper statement every three years

The other three quarterly statements required under ERISA are not subject to this rule (meaning they can be provided electronically).

Importantly, exceptions are allowed for plans that follow the DOL’s electronic delivery rules or for participants or beneficiaries who have opted into e-delivery according to the 2002 safe harbor.

This provision is effective for plan years beginning after December 31, 2025. (Section 338)
 

Emergency Savings Accounts (ESAs)

This provision introduces a new element to retirement plan accounts. It permits plan sponsors to amend their plans to allow for emergency savings accounts (ESAs). These accounts have been dubbed “side-car” accounts as they sit next to a regular 401(k) account under a retirement plan. Employee ESA contributions must be made on a Roth (post-tax) basis, and they must be eligible for matching contributions at the same matching rate established under the plan for retirement plan elective deferrals. Matching contributions are not made to the emergency savings account. Rather, they are made to the participant’s 401(k) account. Employers may auto-enroll participants into ESAs at a rate of up to 3% of compensation. Contributions are capped at $2,500 (indexed for inflation after 2024) or a lower amount determined by the plan sponsor. Only non-highly compensated employees are eligible for ESAs.

Employees can withdraw from the ESA on a penalty-free basis at any time. In addition, they must be able to take up to four withdrawals on a no-fee basis at a frequency of at least once per month. Minimum contribution or balance requirements are prohibited. At separation, employees may take their ESAs as cash or roll it onto their Roth 401(k) or IRA (if they have one). Participants must be allowed to invest ESA funds in cash, interest-bearing deposit accounts, and principal preservation accounts. There is also a fiduciary safe harbor for automatic enrollment. Lastly, this provision includes the preemption of state anti-garnishment laws.

This provision is effective for distributions made after December 31, 2023. However, the infrastructure required to implement this provision will be incredibly complex for recordkeepers to develop. Therefore, 2024 is probably optimistic. (Section 127)
 

Emergency Withdrawals

SECURE 2.0 changes the law to allow one withdrawal of up to $1,000 per year for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Such withdrawals are not subject to the federal 10% penalty for early withdrawal (for individuals under age 59½). The withdrawal may be repaid within three years. Further withdrawals are limited within the three-year repayment period if the first withdrawal has not been repaid.

This provision is effective for distributions made after December 31, 2023. (Section 115)
 

Increase in Mandatory Cash-Out Threshold

Under current law, employers may immediately distribute a former employees’ retirement plan account and transfer it into an IRA if their plan balance does not exceed $5,000. This can be done without the participant’s consent or involvement. The SECURE 2.0 law increases the involuntary cash-out limit to $7,000.

The law also paves the way for retirement plans and recordkeepers to offer automatic portability provisions for amounts transferred to a default IRA. These automatic portability provisions are designed to enable default IRA balances to be automatically transferred into the retirement plan of an employee's new employer without the employee needing to take any action.

This provision is effective for distributions after December 31, 2023. (Section 304)
 

Employee Self-Certification for Hardship Distribution

Current regulations provide that hardship distributions may be made due to an immediate and heavy financial need or an unforeseeable emergency. These needs must be individually evaluated using facts and circumstances, but certain events can be deemed hardship events under a safe harbor. In general, current hardship rules require that employees must submit records documenting a safe harbor event that constitutes a hardship, specifically that the employee has insufficient cash or liquid assets reasonably available to satisfy the hardship need.

SECURE 2.0 allows a plan administrator to rely on an employee’s self-certification that an event qualifies as a hardship for the purposes of taking a hardship withdrawal from a 401(k) plan. The administrator can also rely on the employee’s self-certification that the distribution is not in excess of the amount required to satisfy the financial need and that the employee has no alternative means reasonably available to satisfy the financial need. This is a welcome relief from an otherwise burdensome administrative process for employers and a natural extension of the self-certification procedures that have been authorized as a result of COVID-19.

This provision is effective for plan years beginning after the date of enactment. (Section 312)

 

The Retirement Professional Section

De Minimus Financial Incentives Okay

Under current law, employees are prohibited from receiving incentives for participating in a retirement plan (other than employer matching contributions). The new law allows participants to receive de minimis financial incentives (not paid for with plan assets) for contributing to a 401(k) plan. These incentives could be items such as gift cards for small amounts. No specific guidance was provided in terms of what constitutes “de minimis financial incentive.” Presumably, the IRS will provide guidance to employers on this matter.

This provision is effective for plan years beginning after the date of enactment. (Section 113)
 

Top Heavy Testing

Generally, for defined contribution plans, the top-heavy minimum contribution is 3% of the participant’s compensation. A plan is top-heavy if the aggregate account balance for key employees exceeds 60% of the aggregate account balance for non-key employees. If a plan is top-heavy, the 3% minimum contribution must be provided for non-key employees, and, in some cases, faster vesting is required. This can be very costly for small employers who more frequently struggle with having top-heavy plans.

Other 401(k) plan discrimination tests allow employers to test otherwise excludable employees (under age 21 and have less than one year of service) separately. This allows employers to permit excludable employees to defer earlier and to know that doing so won’t compromise passing discrimination tests. This separate testing has never been allowed for the top-heavy test.

SECURE 2.0 allows a top-heavy plan that covers excludable employees to perform top-heavy testing for excludable and non-excludable employees separately. This change removes the financial incentive to exclude employees from a 401(k) plan and allows workers who might otherwise be excluded access to save for retirement.

This provision is effective for plan years beginning after December 31, 2023. (Section 310)
 

Part-Time Worker Eligibility Enhancement

The law reduces the maximum years of service (from three years to two years) required for a part-time employee to be eligible for a 401(k) plan. The 500 hours per year threshold remains. Pre-2021 service is disregarded for employer contribution vesting purposes, and pre-2023 service is disregarded for eligibility and vesting purposes under this new provision.

This provision is generally effective for plan years beginning after December 31, 2024. The clarification that pre-2021 service may be disregarded for vesting purposes is effective as if included in the 2019 SECURE Act, so effective for plan years beginning after December 31, 2020. (Section 125)
 

Student Loan Matching

The SECURE 2.0 legislation authorizes employers to contribute to an employee’s retirement plan based on an employee’s student loan payments. This provision is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt and thus are missing out on available matching contributions under a retirement plan.

Employer student loan match contributions would be treated as a regular matching contribution for discrimination testing purposes, and employers also are permitted to test employees receiving student loan matching separately. Employees can also designate student loan matching contributions to be made as Roth contributions.

The arrangement of matching student loan payments is not new but has only been available to those employers who have sought and received an IRS ruling for this type of contribution. This provision expands the applicability to all employers and eliminates questions about both the legality of the practice and how it impacts discrimination testing.

This provision is effective for plan years beginning after December 31, 2023. (Section 110)
 

Unenrolled Participant Notifications Streamlined

Under current rules, employees who choose not to participate in an employer-sponsored plan (unenrolled participants) are required to receive numerous communications from the plan sponsor that are not applicable (since they didn’t enroll). SECURE 2.0 streamlines the requirements for plan sponsor notices to unenrolled participants to consist solely of an annual notice of eligibility to participate during the annual enrollment period (and providing any requested documentation to which they are otherwise entitled).

This provision is effective for plan years beginning after December 31, 2022. (Section 320)
 

Safe Harbor for Correcting Deferral Errors

The IRS has a process to allow plans to correct errors, including errors relating to missed deferrals under automatic enrollment or automatic escalation features. Currently, there is a safe harbor for correcting automatic enrollment failures, but it is set to expire on December 31, 2023.

SECURE 2.0 creates a safe harbor that assures a plan will not fail to be a qualified plan merely because of a corrected error. Following are the required elements of a correction under the new safe harbor:

• Must be a reasonable administrative error made in implementing automatic enrollment, automatic escalation features, or by failing to offer an affirmative election due to the employee’s improper exclusion from the plan
• Must be corrected within 9 ½ months of the end of the plan year in which the error occurred (or the date on which the employee notifies the plan sponsor of the error, if earlier)
• Must be resolved favorably toward the participant and without discrimination toward similarly situated participants
• Notice must be provided to the affected participant within 45 days of the date on which correct deferrals begin. 

This new safe harbor does not require a corrective contribution for missed deferrals. However, the plan sponsor must contribute any missed matching contributions, plus earnings, that would have been made if the error had not occurred.

This provision is effective for any errors occurring after December 31, 2023. (Section 350)
 

Plan Amendment Timing

Current law generally requires plan amendments to reflect legal changes to be made by the tax filing deadline for the employer’s taxable year in which the change in law occurs (including extensions). The IRS Code and ERISA provide that, in general, accrued benefits cannot be reduced by a plan amendment. This is designed to protect plan participants.

SECURE 2.0 allows plan amendments made pursuant to this law to be made by the end of the 2025 plan year as long as the plan operates in accordance with such amendments as of the effective date of a bill requirement or amendment. This provision also conforms the plan amendment dates under the SECURE Act, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 to the 2025 date.

This provision is effective upon enactment. (Section 501)

 
 

The Nerd Section

RMD Age Raised

Currently, taxpayers are required to start taking Required Minimum Distributions (RMD) from their retirement accounts at age 72. The intention behind this policy is to ensure that individuals spend their retirement savings during their lifetime and do not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries.

SECURE 2.0 increased the age for RMDs as follows:

• Effective January 1, 2023, the RMD age is raised to 73
• Effective January 1, 2033, the RMD age is raised to 75.

Practically, this means that taxpayers who turn 72 in 2022 must take an RMD by April 1, 2023. Taxpayers who turn 72 in 2023 do not need to take an RMD until the following year, the year in which age 73 is reached.

This provision is effective for distributions made after December 31, 2022, for individuals who attain age 72 after that date. (Section 107)
 

RMD Penalty Lowered

Individuals who do not take an RMD are subject to an excise tax penalty. Under prior law, the penalty was a 50% excise tax. SECURE 2.0 reduces that penalty to 25%. In addition, the penalty can be further reduced to 10% if the individual corrects the shortfall within a two-year correction window. 

This provision is effective for taxable years beginning after the date of enactment. (Section 302)
 

Updated Performance Benchmarks for Asset Allocation Funds

Existing participant disclosure regulations require that each investment alternative’s historical performance be compared to an appropriate broad-based securities market index. However, the rule does not adequately address increasingly popular investments like target date funds that include a mix of asset classes.

SECURE 2.0 requires the DOL to modify existing regulation so that an investment that uses a mix of asset classes can be benchmarked against a blend of broad-based securities market indices, provided:

• The index blend reasonably matches the fund’s asset allocation over time
• The index blend is reset at least once a year
• The underlying indices are appropriate for the investment’s component asset classes and otherwise meet the rule’s conditions for index benchmarks.

This change in the disclosure rule allows better comparisons and aids participant decision-making. These changes are permissive for plan administrators, not mandatory. The DOL is directed to update the regulations no later than two years after enactment of this Act.

This provision is effective upon enactment. (Section 318)
 

529 Plan Rollovers to IRA

Section 529 qualified tuition programs permit contributions to tax-advantaged accounts that can be invested and used to pay for the qualified education expenses of a designated beneficiary. There have long been concerns about leftover funds being “trapped” in 529 accounts, with the only option being to take a non-qualified withdrawal and pay the penalty.

SECURE 2.0 provides new IRA rollover flexibility for assets maintained in a 529 account. To qualify, assets must have been maintained in a 529 account for a designated beneficiary for 15 years. After that time, unspent assets may be rolled over on a tax-free basis to a Roth IRA in the name of the beneficiary. Permitted rollovers are limited to:

• The aggregate amount of contributions to the account (and earnings thereon) before the 5-year period ending on the date of the rollover.
• A lifetime limit of $35,000.

The rollover is treated as a contribution towards the annual Roth IRA contribution limit. In addition, the Roth IRA owner must have includible compensation at least equal to the amount of the rollover.

This provision is effective for distributions after December 31, 2023. (Section 126)
 

Distributions for Long-Term Care Premiums

The new law permits retirement plans to make distributions for certain long-term care insurance contracts. The maximum amount per year that can be distributed is the lowest of:

• The amount paid by or assessed to the employee during the year for long-term care insurance
• 10% of the employee’s vested accrued benefit in the plan
• $2,500 (indexed for inflation beginning in 2025).

Distributions from plans would be exempt from the federal 10% penalty on early distributions if used to pay premiums for qualified long-term care insurance.

This provision is effective beginning with distributions three years after the date of enactment. (Section 334)
 

Penalty-Free Withdrawal in Case of Domestic Abuse

The new law permits plans to allow penalty-free withdrawals in the case of domestic abuse. Participants may self-certify that they have experienced domestic abuse within the past year to be eligible to withdraw a portion of their retirement plan account without an early withdrawal penalty. The maximum withdrawal is limited to the lesser of:

• $10,000 (indexed)
• 50% of the value of the employee’s vested account under the plan.

Participants have the opportunity to repay the withdrawn amount over a 3-year period. To the extent repayment is made, the participant will receive a refund of taxes paid on the distributed funds.

This provision is effective for distributions made after December 31, 2023. (Section 314)
 

Savers Match for Lower-Income Individuals

In a change to the existing Saver’s Credit program, the new Saver’s Match program provides that lower-income retirement savers will be eligible to receive a government-funded matching contribution to their individual retirement account (IRA) or employer-sponsored retirement plan. Contributions are matched at 50% up to $2,000 per individual. Matching contributions are phased out as income increases, between $41,000 and $71,000 (for joint filers).

This provision is effective for tax years beginning after 2026. (Section 103)
 

Administration Credit for New Plans

Existing law provides for an employer credit for administrative costs incurred when setting up a new 401(k) plan. The credit is currently available for small employers with fewer than 100 employees and consists of a three-year start-up credit of up to 50% of administrative costs, with a maximum annual cap of $5,000.

SECURE 2.0 increases the credit to 100% of qualified start-up costs for employers. It also provides for an additional tax credit for five years of a set percentage of the amount contributed by the employer for employees up to a per-employee cap of $1,000. The tax credit percentage is 100% for the year the plan is established and year two, 75% for year three, 50% for year four, 25% for year five, and 0% thereafter. Contributions to employees with compensation in excess of $100,000 (indexed) are excluded.

The credit applies to employers with up to 50 employees (this reflects a phase-out for employers with between 51 and 100 employees). The practical effect of this provision is that small employers may be able to implement a retirement plan on a near-fully-subsidized basis.

This provision is effective for tax years beginning after December 31, 2022. (Section 102)
 

Rollover Simplification Forthcoming

The new law requires the Treasury to simplify and standardize the rollover process and issue sample forms to facilitate and expedite processing no later than January 1, 2025. The focus of the simplification effort is rollovers of eligible distributions from employer-sponsored retirement plans to another such plan or IRA.

This provision is effective upon enactment. (Section 324)
 

Repayment of Birth/Adoption Distributions

Current law does not limit the period during which a qualified birth or adoption distribution (QBAD) may be repaid. The distributions may be repaid at any time and are treated as rollovers. This created a problem for anyone who repays such a distribution after three years because the ability to amend a tax return and secure a tax refund is limited after that period.

SECURE 2.0 requires qualified birth or adoption distributions to be recontributed within three years of the distribution to qualify as a rollover contribution. This aligns with a similar rule for disaster relief repayments.

This provision is effective for distributions made after the date of the enactment and retroactively to the 3-year period beginning on the day after the distribution was received. (Section 311)
 

Disaster Distribution Rules Made Permanent

In recent years, Congress has eased plan distribution and loan rules in the case of certain federal disasters. SECURE 2.0 establishes permanent rules for governing plan distributions and loans in cases of qualified federally declared disasters. This means Congress no longer needs to pass special relief for each disaster. The following are key elements:

• Up to $22,000 may be distributed to a participant per disaster
• The distribution amount is exempt from the federal 10% early withdrawal fee (any state penalty would still apply)
• Inclusion in gross income may be spread over a 3-year period
• Amounts may be recontributed to a plan or account during the 3-year period beginning on the day after the date of the distribution
• Allows certain home purchase distributions to be recontributed to a plan or account if those funds were to be used to purchase a home in a disaster area and were not so used because of the disaster
• Increases the maximum loan amount for qualified individuals experiencing a qualified disaster to $100,000 (or 100% of the participant’s account balance)
• Allows for a one-year extension of any loan repayment period.

This provision is effective for disasters occurring on or after January 26, 2021. (Section 331)
 

Roth Plan RMD Distributions

Under current law, RMDs are not required to begin prior to the death of the owner of the Roth IRA. By contrast, pre-death RMDs are required in the case of Roth monies in an employer 401(k) plan. SECURE 2.0 extends the pre-death RMD exemption to Roth amounts in 401(k) plans.

This provision is effective generally for taxable years beginning after December 31, 2023. However, it does not apply to distributions required before January 1, 2024. (Section 325)
 

No Penalty Terminal Illness Distributions

Current law imposes a 10% tax penalty on early distributions from tax-preferred retirement accounts unless certain exceptions apply, but terminal illness is not one of them. SECURE 2.0 creates an exception to the 10% early withdrawal penalty for distributions to individuals whose physician certifies that they have a terminal illness. Terminal illness is defined as an illness or condition that is reasonably expected to result in death in 84 months or less. Note that any state withdrawal penalties would still apply.

This provision is effective upon enactment. (Section 326)
 

Starter Plans

The law creates two new “starter plan” designs for employers that do not currently sponsor a retirement plan:

• Starter 401(k) Plan: Deferral-only arrangement
• Safe Harbor 403(b) Plan: Safe harbor plan

These new “starter plans” are structured as simple, deferral-only plans. The plans would generally require that all employees be enrolled in the plan with a deferral rate of 3% to 15% of compensation. The limit on annual deferrals is $6,000 (in 2022), with an additional $1,000 catch-up beginning at age 50 (both limits indexed for inflation). No employer contributions would be required.

This provision is effective for plan years beginning after December 31, 2023. (Section 121)

 

 

Vita Planning Group is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

The IRS and Treasury department have released Notice 2022-41 which corrects an inconsistency in the regulations for non-calendar year plans. This inconsistency follows along with the regulatory corrections of the “family glitch” for ACA coverage that were just finalized by the DOL. 
 

Which employers does the change apply to?

The change is only relevant for employers with non-calendar year Section 125 plans. Employers who have a calendar year Section 125 plan do not need to pay attention to this.
 

What is the change?

The newly permitted election change applies to individuals covered under a non-calendar year cafeteria plan who have elected family coverage and have dependents who become newly eligible to enroll in a Qualified Health Plan under an Exchange. The new guidance allows plans to allow participants to revoke family coverage under the group health plan to enroll dependents in coverage through the Exchange (thus changing their own election to self-only coverage under the plan.) Note that the change only applies to health plan election changes; it does not allow participants to make a change in a health FSA plan.
 

Why was this necessary?

Existing regulations allow for this election change opportunity for calendar year plans; however, the wording of the regulations constricted a parallel election change opportunity for participants in non-calendar year plans. The issue here is that, when dependents become newly eligible for Exchange coverage, the tax credit available to the family may make it more advantageous for the participant to opt dependents off of the group health plan in favor of Exchange coverage. This type of election change was previously prohibited under non-calendar year plans. The newly issued regulations conform to this type of election change for non-calendar year plans.
 

Effective Date

The effective date of this guidance is January 1, 2023.
 

Vita Plans

Vita will amend all Vita-created Section 125 Plan Documents to reflect this updated guidance for medical plan election changes.

U.S. Department of Health and Human Services regulations require annual notice to all plan participants regarding the Medicare Part D Prescription benefit “creditability” of your group health plan. This notice must be provided by October 14 to coincide with the annual Medicare open enrollment period which runs from October 15 to December 7. This notification provides Medicare-eligible employees with important information to help determine whether they need to enroll in Medicare Part D.
 

Again?  Didn’t I just do this after my medical plan renewal? 

Not quite. Same law, different requirement. In addition to this annual employee disclosure requirement each fall, plan sponsors must report creditability information directly to the Centers for Medicare and Medicaid Services (CMS) within 60 days of the first day of the medical policy year. Many Vita clients have a January 1 plan renewal, so for many employers, the deadline is the end of March.
 

How Do We Know If Our Prescription Benefit Is “Creditable”?

A prescription drug plan is considered "creditable" if the prescription drug benefits are expected to pay as much as or more than standard Medicare Part D prescription drug coverage. If a plan will not pay out as much as Medicare prescription drug plans pay, it is considered "non-creditable".

If you are a Vita client, you can confirm the creditability of your own plan(s) by referring to your ERISA Welfare Plan Summary Plan Description (SPD).
 

Employer Action Item

The ERISA SPD that Vita provides to clients has been designed to incorporate all of the necessary disclosure language for the Medicare Part D Creditability requirement.  If you have distributed this SPD to your employees in 2022 (or since October 15 of last year), you are already in compliance with the annual disclosure requirement. Not a Vita client and need some help? Let's chat!

If you prefer to send a separate Medicare Part D creditability notice, you may use the sample documents (model notices) available through the Center for Medicare & Medicaid Services website. There you can find sample documents for plans that are creditable or non-creditable for Medicare Part D purposes. Please note that the vast majority of group health plans include prescription benefits that are creditable.

President Biden signed the Inflation Reduction Act into law this week. The bill’s primary focus is climate change and economic issues. However, there are important healthcare issues included, and pundits across the board characterize the healthcare provisions of the bill as the most significant changes in healthcare policy since the passage of the Affordable Care Act. Following is a short rundown on the healthcare provisions of the bill.
 

Rx Pricing Negotiation

The bill empowers the Centers for Medicare Services (CMS) to negotiate drug prices under Medicare. CMS will be able to negotiate prices for ten high-cost drugs starting in 2026 (15 in 2027 and 20 in 2029 and beyond). While considered a modest start, this approach will allow time to see whether price negotiation negatively affects drug development and stifles new drugs coming to the market (the major criticisms from the pharmaceutical industry).
 

$35 Cap on Insulin

The out-of-pocket cost of insulin will be capped at $35 for individuals under Medicare. The bill initially included a cap on the out-of-pocket cost of insulin for all Americans. However, expanding the cap to a greater commercial marketplace was stripped out of the bill by the Senate parliamentarian. In order to pass the bill by a simple majority, all provisions must relate directly to the federal budget, and it was determined the expanded cap did meet that standard, so it could not be part of a reconciliation-eligible (filibuster-proof) bill.
 

$2,000 Hard Cap on Medicare Part D

Redesigning Medicare Part D benefits to cap out-of-pocket costs has received wide support. The cap in the bill contains a $2,000 “hard” cap on out-of-pocket costs for prescription drugs under Medicare Part D. This provision becomes effective in 2025, and the cap will be indexed in future years.
 

Extension of ACA Premium Subsidies

Supplemental ACA premium subsidies for low-income individuals, which were implemented as part of the 2021 American Rescue Plan Act, were set to expire at the end of 2022. This would have increased out-of-pocket premium payments across the board for virtually all 13 million subsidized enrollees. The bill extended the enhanced premium subsidies for three years.
 

Impact on Employer Plans – Higher Costs

The healthcare provisions of the Inflation Reduction Act prompt a key question for employers: How will employer plan costs be impacted?

In short, the cost savings for Medicare and for individuals covered under Medicare will likely be borne by employer health plans (and individual health plans). As Medicare negotiates “savings” in drug costs for Medicare recipients and for the federal government, we can expect a cost shift where that savings will be to be shifted to employer plans, self-funded plans, and individual plans. Drug manufacturers will receive lower revenue on the Medicare side (due to the CMS negotiation power), so we can expect that higher prices will be charged to commercial plans to compensate for the lost revenue.

The San Francisco Family Friendly Workplace Ordinance (FFWO) has recently been amended and expanded. The new law gives certain employees the right to request flexible or predictable work arrangements to assist with caregiving responsibilities.
 

Covered Employers

Employers with 20 or more employees (anywhere in the world) are covered by the law. The business location must be within the geographic boundaries of the City of San Francisco and County of San Francisco. A business location is defined as any physical space used for the business to run its operations.
 

Covered Employees

Employees are covered by the law if they are:

• Employed in San Francisco
• Have been employed for six (6) months or more by the current employer, and
• Work at least eight (8) hours per week on a regular basis within the geographic boundaries of San Francisco

 

What about teleworking?

An employee is covered if they are assigned to a San Francisco business location at the time the request is made regardless of where they are physically working. An employee is not covered if they were never assigned to the San Francisco office.

Example #1: The employer has offices in San Francisco, Burlingame, and Hayward. An employee works from their home in San Mateo. If they were to work “onsite,” they would be assigned to work in the Burlingame office. The employee is not covered by the FFWO even though they work for an Employer who has an office in San Francisco. 

Example #2: In 2019, Employee A works at the San Francisco office. In 2020, Employee A begins to telework from Oregon and is assigned to the SF office. Employee A is covered under FFWO. In 2021, Employee B lives in Nebraska and was hired into a telework position assigned to the New York Office. The employer has a business location in SF. Employee B is not covered under FFWO.
 

How is caregiving defined? 

Covered employees may request a flexible or predictable working arrangement to assist with care for any of the following:

• A child or children for whom the employee has assumed parental responsibility
• A person or persons with a serious health condition in a family relationship with the employee
• A person who is age 65 or older in a family relationship with the employee.

 

Family Relationship means a relationship in which a caregiver is related by blood, legal custody, marriage, or domestic partnership to another person as a spouse, domestic partner, child parent, sibling, grandchild, or grandparent.
 

Verification Rules

An employee’s attestation of caregiving duties may suffice, but employers can request verification within limits. Employers may ask the employee to provide a note confirming the obligation (e.g. medical appointment is on Tuesdays at 3:00 p.m.). Employers may not ask for confirmation about the reason for the appointment or extraneous verification, such as from the employee’s family members that they are unavailable to assist, when there is no basis to believe that the employee’s attestation is invalid.
 

Regular Schedule Request vs. FFWO Request

Example #3: An employee receives their schedule every two weeks and is required to make a scheduling request on the Friday before the schedule is posted. On the first of the month, the employee requests not to be scheduled for the night shift on the twelfth of the month. The manager hears from a co-worker that the employee’s request is to attend his son’s dance recital. Is this a valid FFWO request? Or is this a regular scheduling request?

The employee’s request is not considered a notice of need for a flexible or predictable working arrangement under the FFWO since he did not expressly disclose that his need is due to his ongoing caregiving responsibilities and rather it relates to a singular occasion. Also, the request was not made in a timely manner (i.e. it did not afford the employer 21 calendar days to respond). This request should be regarded and addressed as a regular scheduling request.
 

Effective Date

The changes to the ordinance are effective as of July 12, 2022. 

The IRS issued Revenue Procedure 2022-34 which announces the 2023 indexing adjustment percentage for determining the affordability threshold for employer-sponsored health insurance coverage under the ACA.

The percentage is adjusted annually for inflation, and the 2023 threshold decreased substantially from 9.61% to 9.12%. The new percentage applies for plan years beginning in 2023.
 

Impact on Employers

Recall that under the ACA provisions, employer-sponsored coverage will only be considered affordable if an employee’s required contribution of the lowest-cost self-only coverage does not exceed 9.12% of the employee’s household income for the tax year. The reduction in percentage will require higher employer contributions in order to keep plans affordable at the lower 9.12% rate. Neglecting to offer affordable, minimum value coverage to full-time employees could result in penalties under the Pay or Play provisions of the ACA.
 

How Does the Math Work?

There are two different safe harbor calculation methods that employers can use:

Federal Poverty Line Affordability Safe Harbor: Under the FPL method, the employee contribution for the lowest cost plan (for full-time employees) cannot exceed $103.28 per month. This reflects 9.12% of the Federal Poverty Level which is $13,590 in 2023 for one person. Using the FPL Affordability Safe Harbor automatically deems coverage affordable for all full-time employees and permits the employer to use the qualifying offer method for streamlined ACA reporting.

Rate of Pay Affordability Safe Harbor: Under the Rate of Pay method, employers must do the math to confirm that the employee contribution for lowest cost plan (for full-time employees) cannot exceed 9.12% of the lowest hourly rate of pay (x 30 hours per week) and the lowest monthly salary. States with higher minimum wage requirements will benefit from using the Rate of Pay method. For example, the California minimum wage of $15.00 creates a maximum contribution of $177.84 per month ($15/hour x 30 hours per week x 52 weeks x 9.12% ¸ 12).
 

Contribution Strategy

While the FPL method yields a lower required employee contribution, the calculation process is much simpler. The Rate of Pay method will often allow for a higher employee contribution (for the lowest cost plan). However, the calculations must be customized to actual employee rates of pay within each organization and within each region if different plans are made available to different populations. 

2023 Contribution Strategy Considerations: Consider the ACA affordability safe harbor requirements when designing 2023 employee contribution levels to avoid potential employer mandate “B Penalty” liability. Where possible within budgetary constraints, employers should prepare to offer at least one medical plan option to full-time employees in all regions with an employee share of the premium not exceeding $103.28/month for employee-only coverage to simplify affordability compliance under the federal poverty line safe harbor.

The Consolidated Appropriations Act, 2021 (CAA) adds a new annual reporting requirement that requires group health plans and health insurance issuers to submit an informational report on prescription drug and health care spending to the HHS, the Secretary of Labor, and the Secretary of the Treasury.

The reporting requirements are extensive, and the lift will be significant for health plans, insurers, and TPAs. Ultimately, the reported information will be aggregated by the departments and published on the internet, with the intention of offering plan sponsors and individuals insight into where their healthcare dollars are spent.
 

Which Plans are Subject?

Essentially all health plans (group and individual) are subject to the new reporting requirements. This includes small and large plans, self-funded and fully insured plans, and both grandfathered and non-grandfathered plans. The reporting requirement does not apply to health reimbursement accounts (HRAs) other account-based group health plans or coverage consisting solely of excepted benefits such as dental or vision plans.
 

What Data Must Be Included in the Reports?

Data required to be included in the reports fall into two categories: data that is unique to each plan and thus cannot be aggregated and data that can be aggregated between plans. The required data elements are as follows:
 

Non-Aggregated Data

• General plan and reporting entity identifying information,
• Beginning and end dates of the plan’s plan year,
• Number of participants on the last day of the reference year, and
• Each state in which the plan is offered.

Aggregated Data

• 50 Most Frequently Dispensed Rx: The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan or coverage and the total number of paid claims for each such drug.
• 50 Most Costly Rx: The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending and the annual amount spent by the plan for each such drug.
• 50 Rx with Greatest Cost Increase: The 50 prescription drugs with the greatest increase in plan expenditures over the plan year preceding the plan year that is the subject of the report and, for each such drug, the change in amounts expended by the plan or coverage in each such plan year.
• Total Plan Spending: Total spending on healthcare services by the plan, broken down by the types of costs, including hospital, primary provider/clinic, specialty provider/clinic, drugs covered by pharmacy benefit, drugs covered by medical benefit, and other costs (such as wellness services).
• Rx Spend by Spender: Spending on prescription drugs is broken down by the health plan spend and the participant spend (copays and coinsurance).
• Premium Information: Average monthly premium, including total premium amount, amount paid by plan sponsor, and amount paid by participants. This category applies to total plan premiums, not just the Rx portion.
• Rebate Information: Prescription drug rebates, fees, and other compensation paid by drug manufacturers to the plan or its administrators or service providers, including the amounts paid for each therapeutic class of drugs, the amounts paid for each of the 25 drugs that yielded the highest amount of rebates, and any reduction in premiums and out-of-pocket costs associated with rebates, fees, or other compensation.

 

Deadlines for Annual Reports

Reporting runs on a calendar year basis with a reporting year referred to as a “reference year” (prior calendar year). Annual reports are due on June 1st following the reference year.

The initial deadline has been delayed such that reference years 2020 and 2021 are due by Dec. 27, 2022. The deadline for reference year 2022 will be due June 1, 2023.
 

Who is Responsible?

The plan or issuer is responsible for complying with the reporting requirements. Practically, this means that fully insured plans will rely on their insurance carrier for the reporting and self-funded plans will rely on their TPAs and PBM. However, such reliance must be accompanied by a written agreement to report the data on their behalf.
 

Employer Action

As a rule, employers will not be directly responsible for reporting the required data. However, as plan sponsors, employers will want to work with their insurance carriers, TPAs, and PBMs to ensure that a written agreement is in place to formally acknowledge the transfer of reporting responsibility to their health plan administration partners. If you are a Vita Benefits client, your account management team will reach out to your insurance carriers/TPAs/PBMs, try to obtain this written agreement, and provide confirmation of the process for you.

The Transparency in Coverage final rule was issued in October of 2020 by the HHS, DOL, and Department of the Treasury. These rules require non-grandfathered group health plans (both fully insured and self-insured) to disclose information regarding in-network and out-of-network allowed amounts for billed services. The ultimate goal of the legislation is to reveal in real time the cost of health care services.
 

Implemented in Phases

The first phase of compliance requires the posting of three Machine-Readable Files (MRF) that disclose the cost of healthcare services. These are files that can be imported and read by computer systems. The three files disclose the following data:
 

• In-Network Rate (negotiated rates with contracted providers)
• Out-of-Network Allowed Rates (billed charges and allowed amounts)
• In-Network Prescription Drug File

These files must be updated monthly and must be accessible without login credentials or fees to access the files. The In-Network and Out-of-Network files must be posted and accessible by July 1, 2022. The prescription drug file has been delayed until further notice. It should be noted that the format of these files is not something that is decipherable at the consumer level.

The second phase will include the rollout of an online cost estimator tool which will provide consumers with cost share estimates for all covered services. The first round of the consumer level disclosure requirement is effective January 1, 2023 and reflects a list of 500 designated services. The final phase will require costs for all services to be disclosed. This last phase is effective January 1, 2024.
 

Fully Insured Plans – No Action Required

For those employer groups with fully insured plans, it is the responsibility of the insurance carrier to comply with the MRF requirements. Vita is in the process of confirming that all insurance carriers will be in compliance with this requirement.
 

Self-Insured Plans – Action Required for July 1, 2022

Employers that offer self-insured health plans must take action to comply with these requirements. The specific requirement is to post somewhere on their public website a link to the MRF. Employers will be able to determine where, on their website, this file is posted as long as it is publicly facing and does not require login credentials. The requirements state that anyone in the United States should be able to locate this link.

Employers should start working with IT resources now to ensure compliance by the July 1 deadline.
 

Next Steps

Vita clients with self-insured plans will receive an email with additional instructions based on the specifics of the health plans in place and recommendations on verbiage to assist in the process.

Vita will continue to monitor the developments of the cost estimator tool and post further updates as information is solidified.