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The last of the employee benefits annual limits have now been released by the IRS. This summary includes recently released limits for Health FSAs, Dependent Care FSAs, Commute, and QSEHRA plans. Following is a recap comparing the 2023 numbers with the finalized 2024 numbers.

References

IRS Rev. Proc. 2023-23 (Covering HSA, HDHP, and EBHRA limits)

IRS Notice 2023-75 (Covering Retirement plan limits)

IRS Rev. Proc. 2023-xx (Covering FSAs, QSEHRAs, and Commute Plans)

Terms

HSA

The HSA is an individual Health Savings Account that is owned by the employee and may be used for the payment of medical expenses that are not covered by a qualified High Deductible Health Plan (HDHP), including expenses that go toward satisfying the deductible. This maximum is inclusive of employer and employee contributions.
 

FSA

A Health or Dependent Care Flexible Spending Account (FSA) allows participating employees to reduce their earnings on a pre-tax basis to pay for certain qualified expenses. Salary reductions provide significant tax savings to both the employee and the employer.
 

FSA Rollover (Carryover)

Employers may offer employees the option of rolling over a portion of their remaining Health FSA balance each year to be used in the same type of plan during the following plan year. The final balance that is available for rollover will be determined after the current plan year’s claim submission deadline.
 

Transit

The Transit Plan allows employees to set money aside on a pre-tax basis for mass transit expenses. Employees get to use tax-free money for their commuting expenses when traveling to and from work.
 

Parking 

The Parking Plan allows employees to set money aside on a pre-tax basis for work-related parking expenses. Employees get to use tax-free money for parking at or near an office location or mass transit hub.
 

Educational Assistance

Funds received through Employer-sponsored tuition assistance plans and educational assistance programs (EAPs) allow employees to generally exclude such amounts from their income when the funds are used to finance employee education-related expenses.

A new California law (SB 951) made two significant changes to the State Disability Insurance (SDI) and Paid Family Leave (PFL) programs.

1. Increased Benefit Levels: SDI and PFL benefit percentages are increased as follows. Unlike previous benefit increases, these benefit increases do not include a sunset provision.

• In 2024: Benefit levels of 60%-70% of Average Weekly Wages (AWW), which were initially effective in 2018, have been extended through the end of 2024. These increases would have reverted absent this legislation.
• In 2025: Benefit levels will be further increased to 70%-90%.

2. Elimination of Wage Cap: These benefit enhancements are funded by the elimination of the taxable wage limit on individual wages subject to the annual SDI withholding rate, effective January 1, 2024. The wage cap in 2023 was $153,164. In 2024, there will be no cap. 

Higher Benefits for Lower Wage Earners in 2025

The new program retains the current structure that reflects two tiers of benefits based on wages earned by employees. Higher benefit percentage levels are provided to workers who earn lower wages. The specific calculation is based on an employee’s quarterly wages compared to the average state wages. The formula is a bit convoluted, but a simplistic summary of the calculation can be expressed as follows: 

• Employees Earning Less than 70% of Average Weekly Wage: Benefits will increase up to 90% income replacement under both the PFL and SDI programs (up from the current 70%).
• Employees Earning More than 70% of Average Weekly Wage: Benefits will increase up to 63% income replacement under both the PFL and SDI programs (up from the current 60%).

The average wage figure is calculated based on employees covered by unemployment insurance in California, as reported to the Department of Labor. For context, in 2021, the average wage figure was approximately $70,000 (based on Bureau of Labor Statistics OEWS reporting). Currently, low-wage earners are eligible for 70% income replacement of their regular wages under the programs.
 

How does all this work in real life?

Frankly, the minimum benefit of 63% of AWW can be a bit confusing. It exists to protect people from getting a lower benefit if their income is just slightly over the 70% of AWW level.

The best way to understand this is to look at examples at various income levels. The following examples assume the AWW for 2025 is $1,642. This happens to be the 2024 AWW. This number will change in 2025, but we will use it for the purpose of these examples.

Note that the minimum benefit level of 63% of AWW creates a floor of benefits for individuals earning between 70%-90% of AWW. In short, it assures that no one will be financially penalized if their wages fall in the gap between the 90% and 70% benefit levels. Note the row in blue highlights the “crossover point” between the two benefit levels.

For reference, the average wage figure is calculated based on employees covered by unemployment insurance in California as reported to the Department of Labor. For context, in 2021, the average wage figure was approximately $70,000 (based on Bureau of Labor Statistics OEWS reporting). Currently, low-wage earners are eligible for 70% income replacement of their regular wages under the programs.
 

How is this funded?

SDI is funded by employee payroll contributions at a rate that varies each year. The required contribution has historically applied only up to a specific wage threshold (for example, in 2023, the wage limit is set at $153,164). To pay for the increase in benefits, SB 951 repeals the wage ceiling for contributions. This change makes all earned income subject to SDI contributions.
 

Effective Dates

January 1, 2024: For employee contribution increases (via repeal of wage ceiling).

January 1, 2025: For increased benefits for disability or family leaves.
 

When can this benefit be used?

Employees can apply for PFL or SDI benefits during an otherwise unpaid leave. This includes leaves for disability or medical needs, as well as leaves under California’s Pregnancy Disability Leave law, the California Family Rights Act, and the Family Medical Leave Act (FMLA) leave.
 

Contributions and Benefits by Year

The current benefit structure remains in place for 2023. Following are the updated wage and benefit thresholds. 

Impact of No Cap on High-Income Earners

The elimination of the wage cap will have a significant impact on high-income earners. Consider the following example:

Voluntary Disability Insurance (VDI) Plan Option

The California Employment Development Department (EDD) allows employers to opt out of the mandatory state program and offer a self-funded, voluntary disability and paid family leave program (VDI) to its California employees. This serves as a legal alternative to the mandatory SDI coverage (which includes paid family leave).

The EDD has created the Employer’s Guide to Voluntary Plan Procedures, which outlines the VDI process and considerations for employers. VDI plans must meet the following requirements: 

• Plans require written approval (a vote) from the majority of employees eligible for coverage.
• It cannot cost employees more than SDI.
• Provide all the same benefits as SDI plus at least one element that provides a benefit enhancement. (It should be noted that the EDD is approving what can only be called “micro-enhancements” to plans as acceptable enhancements.)
• Employees can reject the VDI and choose SDI coverage.
• Covered employees must be given a written document that outlines their benefits.
• Must be offered to all eligible California employees of the employer.
• Must be updated to match any increase in benefits that SDI implements due to legislation or approved regulation.

Employer Considerations

Employers will want to be aware of the elimination of the wage cap, noting the impact on higher wage earners and the payroll processing changesrequired. Additionally, larger employers will want to consider whether implementing a VDI program may be a suitable option moving forward. From a marketplace perspective, SDI administration vendors are focused on employers with more than 500 California employees. Careful consideration will need to be given to both EDD’s requirements and marketplace availability of VDI options.  Consideration will include a feasibility study which would include calculation of the security deposit and quarterly assessment paid by the employer to the EDD as the EDD still has oversight on VDI plans.

References

California SB951

EDD Voluntary Plan Procedures

Several years ago, the Department of Labor (DOL) investigated Prudential Life Insurance Company’s practices involving voluntary, supplemental group life insurance coverage. The issue was that premiums were paid by plan participants (via salary reduction) for extended periods of time, but after participants died, claims were denied on the grounds that the participants failed to provide evidence of insurability at the time they applied for the insurance.

Parallel investigations found that other life insurers also engaged in similar practices. The marketplace reality is that, absent this recent spotlight on these issues, many insurance companies have been guilty of varying degrees of sloppiness in syncing payroll deductions with underwriting approvals.
 

Settlement

In the settlement agreement, Prudential agreed to revise this practice and ensure that beneficiaries are not harmed in the event employers fail to verify that participants’ evidence of insurability was approved prior to collecting premiums. The specifics of the settlement prohibit Prudential from denying a beneficiary’s claim based on the lack of evidence of insurability when premiums were collected for more than three (3) months. In addition, formerly denied claims based on lack of evidence of insurability have been reprocessed.
 

Forward Guidance to All Insurance Companies

The DOL encouraged all insurers to examine their practices to ensure they are not engaged in similar conduct. Practically, it’s more correct to say the DOL issued a stern warning as they are greatly concerned about protecting participants and curtailing these types of practices.
 

Roadmap for Employers

This activity signals the DOL’s clear interest in protecting beneficiaries and presents an outline of DOL expectations for insurers and plan sponsors/employers in their administration of voluntary life insurance benefits. 

Importantly, what is at issue here is not that insurance companies have the right to deny applications for supplemental, voluntary life insurance (if a participant does not pass the insurability requirements). Rather, it is a problem when employees perceive that they have insurance (because they are paying premiums via salary deductions), but their coverage is not really in force because their evidence of insurance documentation was not submitted.
 

The Often-Missed Step: Split Salary Deductions Into Two Parts

Historically, errors were made by simply starting premium salary deductions for the entire life insurance benefit and the employer forwarding the full premium to the insurance company rather than withholding and forwarding just the premium amount due for the Guaranteed Issue (GI) benefit level. This simple administrative error created a disparity in how much insurance an employee was paying for – and believed they owned - vs. how much had been approved by the insurance company. 

The lesson for employers administering voluntary life insurance plans is that salary deductions must be split into two parts:

• The premium/salary deduction associated with any Guaranteed Issue (GI) insurance coverage, and
• The premium/salary deduction associated with any coverage that requires Evidence of Insurability (EOI). The following graphic illustrates the steps in the process for administration of this portion of the insurance coverage.

Employer Action Item

Employers should review their internal procedures as well as how they coordinate with their voluntary life insurance company. Specifically, employers should confirm that the following process elements are defined and implemented:

1. Split Premium: Split voluntary life premium into two parts. Commence salary deductions for the guaranteed issue portion only and delay salary deductions for any portion of the premium attributed to insurance that requires evidence of insurability.
2. Coordinate with Payroll: Coordination and communication between benefits and payroll departments are critical in defining and implementing processes.
3. Confirm Insurance Decision: Obtain documentation of insurance approval (or denial).
4. Commence Additional Deductions: Upon insurance approval, commence additional salary deductions.

References

 The settlement agreement can be referenced here.

There is a lot of noise in the news about long-term care. Some individuals, especially high-income earners, are urgently purchasing personal long-term care (LTC) policies. Some employers are considering implementing LTC policy offerings to aid employees who want to purchase individual policies. Still, others are suggesting that employers and individuals alike take a “wait and see” approach. So . . . what is going on, and why are there so many conflicting recommendations?
 

Let’s Start at the Very Beginning

Starting at the very beginning means understanding the long-term care problem in the United States. The problem is caused by a convergence of multiple social, economic, and financial challenges.

• The Cost of LTC Services: The cost for long-term care of all types has increased significantly over the past decades. In fact, costs have risen to levels that are not affordable for many, if not most individuals. While the actual cost of long-term care can be very location-specific, approximate costs fall as follows:

$7,600 per month for care in a long-term care facility (a.k.a. nursing home)

$3,600 per month for care in an assisted living facility

$68 per day for adult daycare

$20 per hour for home health aide

• Aging Population: There is a significant demographic shift in the population. The baby boomer generation is entering the stage where they begin needing long-term care services. The increasing percentage of elderly leads to concerns about the sustainability of care systems.
• Health Insurance Does Not Cover: Traditional health insurance plans do not provide coverage for long-term care services, because long-term care services are defined as custodial in nature, not medical in nature. Since services for long-term care are not considered medically necessary, they are not covered by health insurance or Medicare.
• Inadequate Home Care Infrastructure: While there is a decided preference for “aging in place,” there aren’t always sufficient resources or infrastructure to support this. The ultra-mobility of our society often means that families are spread far apart, a reality that does not lend itself easily to family care. In addition, for families with young children or career-focused individuals, changing lifestyles to care for a parent (as may have been the custom in prior generations) is not often considered a realistic solution.
• Financial Strain on Families: Families often bear the financial burden when institutional care is needed. This can lead to significant financial strain, forcing families to dip into savings or retirement funds.
• Lack of Awareness of Issues: Many people are unaware of the costs and needs associated with long-term care. As such, families are frequently unprepared for both the social and financial realities when a family member needs long-term care services.
• Lack of Funding for Social Services: Medicaid does provide long-term care services for individuals who have no assets and extremely limited income (and for many who have spent down the assets they did have paying for care). However, state budgets are also constrained and with LTC future cost projections rising, state governments are going to have to be creative in how they find ways to both pay for necessary long-term care services (for those on Medicaid) and ensure that facilities are available to meet the need.

Collectively, these challenges paint a bleak picture of the long-term care horizon. This is why there is a problem. This is why many people and states are seeking solutions. This is why you are hearing so much “noise” about long-term care in the news!
 

What happened in Washington state?

To solve their long-term care problem, Washington passed legislation that created the WA Cares Program. It is a mandatory long-term care program established to help residents afford long-term care services. Requiring mandatory participation helps to promote a broad coverage base.

• Funding: Funded by a payroll tax on employees. The tax is currently set at 0.58%. There is no wage cap, thus all earned income is taxed under the program.
• Benefits: $36,500 lifetime benefit to pay for long-term care services.
• Criticisms: Some actuarial projections indicate that the program will not remain solvent over the long-term given the aging population. There are also concerns about the adequacy of the lifetime benefit, given the rising costs of care. Lastly, there are design criticisms given that the tax must be paid by all residents. However, benefits are not available for residents who have paid the tax but later move out of state.
• Opt-Out Provision: The law allowed residents to opt out of paying the payroll tax if they purchased and maintain an “equivalent” individual LTC policy. The law allowed a six-month window in which to purchase an individual policy prior to the effective date of the program. The effect of the purchase window caused a run on policy purchases. Over 500,000 Washington residents purchased policies during the six-month window to opt out of the payroll tax. Who were those individuals? As a rule, they were residents with high incomes . . . for whom the payroll tax would typically be higher than the cost of the LTC policy premium. The knock-on effect of the mass opt-out is that many high-income earners will not be paying into the WA Cares program, thus, the program is at some risk of being underfunded or needing to raise the premium in the future.

What is happening now?

Many states across the country are considering following in Washinton’s footsteps and implementing a state-sponsored, mandated long-term care program. There are currently twelve (12) states considering such a program. These include Alaska, California, Colorado, Hawaii, Oregon, Illinois, Michigan, Minnesota, New York, North Carolina, Pennsylvania, and Utah.

States typically start with a “Feasibility Study” to review plan designs, actuarial cost projections, various taxation structures, and overall feasibility. The next step is to propose a bill for consideration by the legislative body. As an example of the process, California recently completed their Feasibility Study and Actuarial Analysis. No legislation has been proposed, but it is expected that a bill will be submitted in the 2024 legislative session. Then, there is the issue of the passability of the legislation. This is a matter that is unique to each state, where social needs, financial/tax cost, and political realities must be balanced in the various branches of state legislature. For most states, this process may take years. For some, it is possible that legislation may move quickly, intending to learn from Washington’s experiment and act swiftly to get a jump on the problem.
 

Will my state have an opt-out provision?

The one lesson most states will surely learn from Washington is that providing a future window to purchase a policy and secure an opt-out from taxation is not viable because of the potential to compromise the funding base for the program. In lieu of a future window, states will likely consider three potential options:

• No opt-out
• Opt-out if the private policy is in force prior to law passage
• Opt-out if the private policy is in force during the lookback period (12 months)

The reality is that no one knows which option may or may not be included in the legislation for any given state. This is why we see some recommendations to purchase a policy (just in case) and others that suggest a wait and see approach.
 

Why does income level matter?

The higher the income, the higher the payroll tax payment if your state passes a mandatory LTC program. Thus, the higher the income, the more advantageous it will be to purchase an individual policy that will allow an individual to opt out of the payroll tax.
 

Individual Considerations

What should I do? There is a high likelihood that, at some point, most people are likely to need long-term care services. The question is, how are you going to deal with that? There are multiple strategies to consider:

• Kick the Can: You can kick the can down the road and decide to simply deal with it later in life. The negative consequence of this strategy is that for too many people, “later” never really comes, and you end up not really having a solution. Also, LTC policies are significantly cheaper for younger people, so the kick-the-can-down-the-road strategy means that if you do choose to purchase a policy later, it will be more expensive.
• Run the Risk: You can wait to see if your state passes a mandatory LTC program and run the risk that enough pre-information will be available to make an informed decision before any deadline in your state.
• Bite the Bullet: The bite-the-bullet option means recognizing the reality that you will likely benefit from purchasing a private policy, both to protect your assets and to avoid any potential taxation from a mandated program. It entails considering your long-term risk and needs, reviewing policy options, and purchasing a personal LTC policy sooner rather than later. This strategy will put in place financial protection against future long-term care expenses. Depending on policy provisions and timing of purchase, this option may also allow you to opt out of taxation for a state program (depending on what the state program allows).

How much should I buy? Here, our recommendation is to purchase all that you NEED . . . and NO MORE. We are fans of “corridor insurance,” meaning purchase insurance for a portion of your expected need and plan to pay out of pocket for some portion of it as well. This keeps the policy premium lower and allows you to self-insure a portion of the risk. As an example, if you project that you will need a LTC services that cost $6,000 per month, you might consider purchasing a policy that covers $3,000 or $4,000 per month and then know that when you need LTC services, you will pay the balance out of your savings or assets. If you never need the services, then you save on premiums. If you do need the services, you have insurance for a portion of the expenses, and the remainder can more easily be taken from savings or assets without compromising the long-term viability of your financial profile.

Where should I buy LTC? The very first place to look is through your employer. If your employer offers a group option (either partially funded by your employer or fully paid by employees), this is usually the best place to start. Policies offered in the group marketplace are often more competitively priced (and they are portable when you leave your employer).
 

Employer Considerations

Depending on the phase of state legislative consideration, employers that are considering adding LTC to their benefits offering may want to do so sooner rather than later, as private LTC plans will likely need to be in place prior to the effective date of any state-wide program (if not sooner) for employees to opt-out of the state program (if opt-outs will be permitted). There also may be some concern over carrier capacity if there is a rush to implement a private plan, like what happened with the WA Cares program. 

There are multiple ways employers can implement LTC coverage.

• Sponsored Benefit: Employers can offer coverage with a subsidized base benefit and the option for individuals to buy-up to a more comprehensive policy (for themselves or their family members).
• Carve-Out Benefit: Employers can offer coverage with a subsidized base benefit for a subset of their population. For example, management or executive-level employees. Most insurance carriers require a minimum number of employees in the carve-out to offer coverage.
• Voluntary Benefit: Employers can launch a fully voluntary LTC benefit offering for their employees. This allows their employees to hop onto a group policy at the employees’ own expense. However, in all cases, insurance carriers require a minimum level of participation to offer any guaranteed issue coverage; otherwise, the policies would be fully underwritten individually. All such policies would be fully portable for employees upon termination.

It should be noted that there is no requirement for employers to offer LTC coverage to employees.
 

California Current State

In 2019, the California Assembly passed A.B. 567, which established a Long-Term Care Task Force within the California Department of Insurance to assess the feasibility of developing and implementing a culturally competent statewide insurance program for long-term care in California.

The Feasibility Report summarizes the program recommendations made by the Task Force and outlines the financial, administrative, and political feasibility considerations.

The Task Force proposed a progressive payroll tax, but declined to provide definitive direction on whether it would be imposed on employees, employers, or shared. Five (5) potential plan designs were defined, from basic coverage with a $36,000 benefit level to a very robust option with a $144,000 benefit level. The projected tax ranged from 0.50% to 2.4% of payroll for the plan design options outlined by the Task Force.

Various opt-out provision possibilities were addressed in the feasibility study, from none, to partial, to full. Timing options considered for the potential opt-out provision include a requirement to have private coverage in place prior to the law passing or having private coverage in place during a 12-month lookback period. In addition, consideration was given to a partial opt-out for individuals purchasing private coverage after the law was passed.

Importantly, whether there is sufficient political incentive to pass a law implementing a mandated LTC program (once proposed) is an entirely different matter. Pundits disagree on whether the political will and focus will exist to pass such legislation in the 2024 legislative session.
 

References

California AB 567
Feasibility Report
Feasibility Report FAQ
CA DOL Long Term Care Task Force


 

The Department of Health and Human Services has announced adjustments of civil monetary penalties for statutes within its jurisdiction. The latest adjustments are based on a cost-of-living increase of 1.07745%. These adjustments are effective for penalties assessed on or after October 6, 2023, for violations occurring on or after November 2, 2015. Following are highlights of the adjustments potentially affecting employee benefit health plans.
 

HIPAA

The HIPAA administrative simplification provisions encompass standards for privacy, security, breach notification, and electronic health care transactions. HIPAA has four tiers of violations that reflect increasing levels of culpability, with minimum and maximum penalty amounts outlined within each tier and an annual cap on penalties for multiple violations of an identical provision. The newly indexed penalty amounts for each violation of a HIPAA administrative simplification provision are as follows:
 

Medicare Secondary Payer 

The Medicare Secondary Payer statute prohibits a group health plan from “taking into account” the Medicare entitlement of a current employee or a current employee’s spouse or family member and imposes penalties for violations. The indexed amounts for violations applicable to employer-sponsored health plans are as follows:
 

Summary of Benefits and Coverage (SBC)

An SBC generally must be provided to participants and beneficiaries before enrollment or re-enrollment in a group health plan.
 

Timing of Penalty Changes

The annual adjustments to penalties are designed to preserve their deterrent effect in the face of inflation. The HHS’s “annual” adjustments are supposed to be made by January 15 of each year, but in practice have come at irregular intervals. The last adjustment was made on March 17, 2022.
 

Employer Action

These monetary penalties are significant; thus, we recommend that employers assess their group health plan HIPAA compliance program and confirm that policies and procedures are effectively deployed and that HIPAA training is in place for all employees with access to PHI.

As a reminder, Vita provides a HIPAA Compliance Program for group health plans. In addition, a 20-minute Critical HIPAA Training video is available on demand for employees who have access to PHI and need to be trained.
 

Reference

HHS, Annual Civil Monetary Penalties Inflation Adjustment, 45 CFR Part 102, 88 Fed. Reg.69531 (Oct. 6, 2023)



 

Definitions 

• Elective Deferral Limit means the maximum contribution that an employee can make to all 401(k) and 403(b) plans during the calendar year (IRC section 402(g)(1)).
• Catch-up Contributions refers to the additional contribution amount that individuals age 50 or over can make above the Elective Deferral and Annual Contribution limits if permitted by the company’s retirement plan.
• Annual Contribution Limit means the maximum annual contribution amount that can be made to a participant's account (IRC section 415). This limit is expressed as the lesser of the dollar limit or 100% of the participant's compensation and is applied to the combination of employee contributions, employer contributions, and forfeitures allocated to a participant's account.
• Annual Compensation Limit means the maximum compensation amount that can be considered in calculating contribution allocations and nondiscrimination tests. A plan cannot consider compensation in excess of this amount (IRC Section 401(a)(17)).
• Highly Compensated Employee Threshold means the minimum compensation level established to determine highly compensated employees for purposes of non-discrimination testing (IRC Section 414(q)(1)(B)).
• Social Security Wage Base is the maximum amount of earnings subject to Social Security payroll taxes.

The COVID era brought multiple deadline extensions for participants of employee benefit plans. Employers are all too aware of these changes and of the many special communications and administrative procedure changes that they require.

The special COVID rules extended certain ERISA deadlines as well as COBRA, HIPAA Special Enrollment, and benefits claims and appeals timelines. These changes were effective March 1, 2020. 

With the end of the COVID national emergency, those deadline extensions ended. Specifically, they terminated at the end of the Outbreak Period, which is the earlier of 60 days after the end of the National Emergency (May 11 + 60 days = July 10, 2023) or one year from the date an individual first became eligible for the extension.
 

Encouragement to Extend Special OE Period

A joint letter from the Center for Medicare and Medicaid Services (CMS), Treasury, and DOL dated July 20, 2023, was issued to employers, plan sponsors, and issuers. In it, the Biden Administration encouraged entities to extend the 60-day special enrollment period required by HIPAA for individuals losing Medicaid and CHIP and to offer additional enrollment opportunities in group health plans for employees and their dependents who are losing coverage under Medicaid and CHIP. Ideally, this extension would match the temporary special enrollment period on HealthCare.gov that runs from March 31, 2023 – July 31, 2024.
 

Why This? Why Now?

During the COVID-19 Public Health Emergency, Medicaid programs paused coverage verifications and eligibility terminations to provide continuous coverage subsidized by enhanced federal funding. The continuous enrollment provision ended on March 31, 2023, and Medicaid is now resuming regular eligibility operations, including terminating coverage for those who are no longer eligible.

As a result of this, it is projected that millions of individuals will lose Medicaid and CHIP coverage. Importantly, the HHS projects that 3.8 million of these individuals will be eligible for employer-sponsored coverage. To encourage maintaining health coverage, the Biden Administration wants employers to assist these employees, specifically by easing the process of enrolling in group health plan coverage.

Medicaid is administered by each state, and there is no uniform enrollment process or required notice to individuals when they lose Medicaid coverage. In fact, individuals may not even know they have lost coverage until they seek health care. Given this unfortunate reality, they will not know to seek other coverage within the standard 60-day window to apply for new coverage (either through an Exchange or under a group health plan) after losing Medicaid or CHIP coverage.
 

Extended Special Enrollment Period for Enrolling in Exchange

Recognizing this predicament, the CMS created a temporary special enrollment period for the federal Exchange. Individuals who lose Medicaid or CHIP coverage and apply for coverage under HealthCare.gov between March 31, 2023, and July 31, 2024, will be able to enroll under the extended Special Enrollment period.
 

Recommendation for Employers to Follow Suit

The joint letter to employers encourages them to follow suit by temporarily expanding the special enrollment periods for individuals to enroll in group health plan coverage after losing Medicaid or CHIP coverage. As with Exchange coverage, enrollment would be on a prospective basis only; there would be no retroactive coverage opportunity.
 

Employer Decision Overview

Employers must decide whether or not to adopt an extended Open Enrollment period to align with the Marketplace Special OE period. The decision is voluntary. If adopted, it will require plan amendment and approval from the insurance carrier as well as communication to plan participants. If not adopted, no such special enrollment opportunities can be allowed under the plan, as plan provisions must be administered uniformly. Following is a decision-tree visual:


 

Vita Defaults

Vita will take the action of assuming clients will NOT adopt this temporary expansion of Special Enrollment rights. This means that customizations to welfare and pre-tax Plan Documents/SPDs will not need to be made. 

However, to the extent that employers want to amend their plans to include this provision, document updates will be made. In this case, since the expansion of rights is temporary, we will make document changes using a Summary of Material Modification (SMM), rather than making updates to the documents themselves (and then having to remove the provision in July 2024). This will allow for a “clean” update to the documentation with minimal processing. It will mean, however, that the SMM document will need to be distributed along with the SPD during the period when the special enrollment rights expansion is in effect.
 

Employer Action Item

For employers wishing to NOT ADOPT the provision, no action is necessary.

For employers wishing to ADOPT the provision, please email your Vita Account Team to advise them of this election. This will activate the process of Vita creating a Summary of Material Modification document to reflect this change in your plan.
 

References

CMS Letter to Employers



 

Year-End Participant Notifications

As we wrap up 2023, we would like to remind you of some important annual notices that may need to be delivered to Plan participants, depending on the provisions of your Plan. Below is an outline of these notices, along with the corresponding due dates, based on a calendar-year Plan.

To be distributed to eligible participants by December 1, 2023:

• Qualified Default Investment Alternative Notice (applicable to Plans that have a QDIA)
• 2024 Safe Harbor Notice (applicable to Plans with a Safe Harbor feature)
• Automatic Enrollment Notice (applicable to Plans using Automatic Enrollment)

To be distributed to eligible participants by December 15, 2023*:

• 2022 Summary Annual Report

(*This is the extended due date for Plans that filed a Form 5558.)

Download our Compliance Calendar online to see what other important dates may be approaching.
 

Anticipated IRS Retirement Plan Deferral Limits

In September, the IRS released its 2024 employee benefits annual limits for Health Savings Accounts (HSAs), High Deductible Health Plans (HDHPs), and Excepted Benefits Health Reimbursement Arrangements (EBHRAs).

The limits for these benefits were raised in line with the rise in the Consumer Price Index (CPI), and we expect the limits for retirement plans to be raised similarly. See the 2024 Retirement Plan Limits [Released November 1, 2023].

 

SECURE Act 2.0 Implementation

As we highlighted in our webinar “Navigating SECURE 2.0 – Next Steps for Plan Sponsors” on September 27, 2023, many of the provisions of the SECURE Act 2.0 have still not been put into practice. Further administrative guidance is expected over the coming months as retirement plan recordkeepers endeavor to put processes in place to operationalize all the provisions of the Act. 

Please note the following required provisions are already in force:

• Required Minimum Distribution (“RMD”)
  • Initial distribution age is 73.
  • Excise tax for failure to take RMD has been lowered to 25%.

• Long-term Part-time Employee Eligibility:
  • Employers must track hours for part-time employees if they are not already eligible.
  • Employees who satisfied at least 500 hours in 2021, 2022, and 2023 would be eligible to participate in 2024.
  • Employees who satisfied at least 500 hours in 2022 and 2023 would be eligible to participate in 2025.

Please be on the lookout for communications from your retirement plan recordkeeper as other provisions of SECURE Act 2.0 are put into place or made available in the coming year.
 

Market Update¹

Both equity and bond markets in the US fell in Q3 as investors re-positioned to accommodate two emerging themes: a soft landing for the US economy in 2023 and higher interest rates for longer. The US S&P 500 Index was down -3.27% in the third quarter but remained up 13.1% for the year. Bond markets reversed their previous positive results, with the Bloomberg US Aggregate Bond Index down -3.23% in Q3; this wiped out previous gains, resulting in a YTD loss of -1.21%. International equity markets mirrored the movement of the US S&P 500: the MSCI EAFE was down -3.22% for the quarter but remained up 5.34% for the year. The Bloomberg Commodity Index was up 4.7% in Q3 2023, due primarily to higher oil prices, but remained down -7.1% YTD. The resilient US economy may avoid recession in 2023 but markets still have to deal with the prospect of higher interest rates well into 2024. 

The US Bureau of Economic Analysis (“BEA”) announced that the US economy grew at an annual rate of 2.1% in Q2 2023, on par with the growth rate of 2.2% in Q1.² The Philadelphia Federal Reserve Bank’s survey of forecasters median forecast for Q3 2023 GDP growth is up from 0.6% to 1.9%. The median forecast for the full-year 2023 has risen to 2.1% and for 2024, to 1.3%.³ The labor market continues to be strong, with US unemployment in September 2023 at 3.8% and non-farm payrolls at 336,000, almost double the forecast. The data would indicate that both American consumers and American businesses have been able to maintain consistent economic growth over the first nine months of the year and potentially into 2024, even in the face of continued high interest rates. 

Continued positive US economic growth allows the FED more leeway in determining its interest rate policy. The FED is still wary of the short-term impacts on inflation, such as OPEC production reductions that led to the rise of gasoline prices in Q3. The FED has stated that it may raise interest rates one more time before the end of the year but will possibly lower rates in 2024 should the need arise. In addition to the FED’s interest rate policy, markets are increasingly taking into account the funding of the US budget deficit. The US Government budget deficit is expected to be approximately $2.5 trillion for the government’s FY 2023/2024 (October 2023 to September 2024), up from $1.2 trillion in FY2018/2019. We’ve already seen the yield on the 10-year Treasury Note rise to 4.65% at the end of Q3, the highest level in 16 years. Increasingly, debt markets will look for higher returns in the face of this huge demand for capital from the US Government, which should essentially put a floor on how low real interest rates can go regardless of policy initiatives. All of this has led to the expectations of higher interest rates for longer.

While US economic news continued to be favorable in Q3 2023, we will likely see continued divergence between equity and bond prices as markets deal with continued positive economic growth with little prospect of interest rate relief through the end of 2023. 

 

Sources:

1. Unless otherwise indicated, data and commentary for the Market Update is sourced from two JPMorgan Asset Management sources: 1) Guide to the Markets – U.S. Economic and Market Update, 4Q 2023, September 30, 2023, and 2) the “4Q 2023 Guide to the Markets Webcast” on October 2, 2023.
2. https://www.bea.gov/data/gdp/gross-domestic-product
3. https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q3-2023
    

Disclosures:

This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.

+The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock's weight in the index proportionate to its market value.

++ Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.

The MSCI All Country World Index ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 23 Emerging Markets (EM) countries*. With 6,062 constituents, the index covers approximately 99% of the global equity opportunity set outside the US.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.

The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies.





 

The IRS released the 2023 update to the annual PCORI fee. As a reminder, the PCORI fee was initiated as part of the Affordable Care Act to fund patient-centered research relating to health care. Both fully insured and self-funded health plans are required to pay the PCORI fee.
 

Updated PCORI Fee

The new fee is $3.23 per covered person. This is an increase from $3.00 per covered person in the prior period.
 

The Calculation

The annual fee is calculated by multiplying the PCORI fee by the average number of lives covered on the health plan. There are multiple methods that can be used to calculate this average, including the Actual Count method, the Snapshot method, and the 5500 method.

Note: The calculation is based on average lives, not average employees. It is often referred to as the “belly button” tax since it is paid for every “belly button” (or person) covered by the plan, not just for employees.
 

Effective Date

The updated fees apply for policy years and plan years that end on or after October 1, 2023, and before October 1, 2024. For calendar year plans, this means January 1, 2024.
 

Which plans are covered?

The easy answer is all health plans . . . But it can be a bit more complicated when an HRA or FSA is added to the mix. HRA and FSA plans are both self-funded health plans, which means they are generally subject to PCORI fees unless an exception applies.

HRA Integrated with Insured Coverage: Employers that maintain a fully insured major medical plan along with an HRA must pay PCORI fees on the HRA. The carrier will pay the PCORI fees on the fully insured health plan component. The HRA count is calculated as one life per participant.

HRA Integrated with Self-Funded Coverage: There is a special PCORI rule that allows employers with multiple self-funded health plans to treat those plans as one. Therefore, employers that have a self-funded health plan and an integrated HRA may treat the two plans as a single plan for PCORI purposes (thus eliminating double fees for two plans). In this case, the employer would owe only one PCORI fee for participants covered under both self-funded plans. The participant count for fee calculation purposes would be based on the per-participant numbers of the underlying self-funded health plan, not the per-employee numbers of the integrated HRA. 

EBHRA Plans: Excepted benefits are not subject to healthcare reform’s mandates, which means that they are not subject to PCORI fees. Such plans must be offered alongside a traditional group health plan, have a benefit cap under the federal limit, and reimburse only expenses that are not essential health benefits (such as dental, vision, infertility, or state-mandated travel benefits).

FSA Plans: “Regular” FSA plans that are fully funded by participant salary reductions qualify as excepted benefits and thus are not subject to PCORI fees. FSA plans that do not qualify as excepted benefits, for example, plans with employer sponsorship of greater than $500 in the form of a match or seed funding, are subject to PCORI fees.

QSHRA Plans: An employer offering a QSHRA can’t, by definition, offer a group health plan. Therefore, a QSHRA is considered a standalone HRA plan and is subject to PCORI fees. The count is calculated as one life per participant.

Stop Loss Coverage: Stop Loss policies are not subject to PCORI fees.
 

Employer Action

Fully Insured Plans: Employers with fully insured plans do not need to take any action for PCORI fee filing as the fee is baked into the fully insured premium and paid by the carrier.

Self-Funded Plans: Employers with self-funded health must calculate fees and submit payment on the second quarter Form 720. The deadline is July 31st each year.

HRA/FSA Plans: Employers with HRA/FSA plans must first determine whether the plan is subject to PCORI fees (or exempted by the single plan rule or the excepted benefit rule). If subject, employers must calculate fees and submit payment on the second quarter Form 720. The deadline is July 31st each year.
 

References

IRS Notice 2023-70




 

On October 11, 2023, California Governor Gavin Newsom signed S.B. 848, which creates a new leave category for reproductive loss. The new law, which piggybacks onto California’s Bereavement Leave law, requires covered employers to grant eligible employees up to five days of leave following a reproductive loss event.
 

Reproductive Loss Events Defined

Reproductive Loss Events are defined as a failed adoption, failed surrogacy, miscarriage, stillbirth, or an unsuccessful assisted reproduction procedure.
 

Leave Provisions

5 Days per Event: The law allows for up to five days per reproductive loss event.

Annual Maximum: The law limits the amount of reproductive loss leave to a maximum of 20 days within a 12-month period. That means if an employee experiences multiple reproductive loss events within a 12-month period, up to five days per event must be provided, but there is a cap of 20 days within a 12-month period.

Time Window: While there are some narrow exceptions, generally, employees must take the leave within three months of the reproductive loss event.

Intermittent Leave: Employees need not take leave for a reproductive loss event on consecutive days.

Unpaid: Reproductive loss event leave is structured as unpaid leave. However, employees may choose to use any accrued and available sick leave, or other paid time off, for a reproductive loss leave. In addition, employers are free to provide all or a portion of the leave on a paid basis.

Documentation: The law does not contain any provision that permits employers to request documentation of a reproductive loss leave. In the absence of any such expressed permission, employers wishing to take a safe route should presume self-attestation to be sufficient.

Anti-Retaliation: SB 848 prohibits employers from retaliating against an employee for requesting or taking leave for a reproductive loss event.

Confidentiality: Employers are required to maintain the confidentiality of any employee requesting reproductive loss leave.
 

Covered Employers

California employers with five or more employees are covered under the law. 
 

Covered Employees

Employees who have worked for an employer for at least 30 days are eligible for reproductive loss leave.
 

Are Spouses/Partners Covered?

The law is clear that a spouse/partner of a person who directly experienced a reproductive loss event is also entitled to this leave. For each type of reproductive loss event, the law includes language that clarifies that a person who would be a parent but for the reproductive loss event is entitled to the leave.
 

Effective Date

This law becomes effective on January 1, 2024.
 

Employer Action Items

As with any new employee entitlement, employers should consider the following actions:

1. Update the employee handbook to include Reproductive Loss Events as eligible.
2. Consider whether reproductive loss leave will be included under any existing employer leave programs that may be paid (and update policies to that effect).
3. Train supervisors, managers, and HR teams in the new law, including the confidentiality provisions of the law.

References

S.B. 848