The Vita Blog

During the COVID-19 Public Health Emergency (PHE) and National Emergency (NE) periods, the government issued various forms of temporary relief to employers and plan participants. They also required employers to make certain health plan design changes during these emergency periods, such as covering COVID-19 testing and extending many health plan-related deadlines.

• Public Health Emergency: The Health and Human Services (HHS) first established the Public Health Emergency for COVID-19 (PHE) in January 2020. This PHE has been extended multiple times in 90-day increments.
• National Emergency: On March 13, 2020, the COVID-19 National Emergency was declared by former President Trump and was subsequently continued by both President Trump and President Biden. A National Emergency declaration is in effect until it is terminated by the President, through a joint resolution of Congress, or is not continued by the President.

The Biden administration announced earlier in 2023 that it planned to end both emergencies on May 11, 2023. However, Congress acted to pass a joint resolution to terminate the National Emergency sooner (on April 10, 2023). It was signed into law by President Biden, formally ending the National Emergency. Note that the Public Health Emergency is still slated to end on May 11, 2023.

In the interim, the DOL, HHS, and the Treasury collectively issued guidance in the form of FAQs, which provide important information to assist plan sponsors in unwinding the requirements of the emergency declarations. (Link to FAQs here.)

With the end of the emergency periods fast approaching, employers should begin evaluating decisions and action items that are required pursuant to this change. This article provides an overview of each issue as well as a summary of Action Items for employers.
 

Important Interim Update

On April 14, 2023, the Department of Labor provided informal comments that the tolling period for benefit plan deadlines will still end on July 10, 2023. While the legislation that was signed ending the National Emergency on April 10, 2023, would have moved the deadline a month earlier, the DOL is considering changing a rule so that it will still end on July 10 as previously scheduled. The final deadline tolling date will be confirmed upon the information being confirmed and formalized by the DOL.
 

COVID-19 Testing

• During the PHE: Under the FFCRA and the CARES Act, health plans are currently required to cover COVID-19 tests and testing-related services without cost-sharing, prior authorization, or other medical management techniques. Health plans are also required to cover up to eight OTC tests per person per month without cost-sharing.
• After the PHE Ends: After the end of the PHE, health plans will no longer be required to cover COVID-19 tests and testing-related services for free, and health plans may impose cost-sharing, prior authorization, or other medical management requirements for such services.

Decision Point: It should be noted that the joint Departments encourage plan sponsors to retain coverage for COVID-19 testing. That said, Plan Sponsors need to decide whether to amend their health plans to:

1. Stop providing any coverage for COVID-19 tests at the end of the PHE
2. Continue offering coverage for COVID-19 testing but impose requirements on this testing (such as cost-sharing)
3. Continue offering coverage for a certain period of time, for example, through the end of the plan year, and then eliminate coverage.

 

COVID-19 Vaccines

• During the PHE: The CARES Act required plans to cover COVID-19 vaccines and boosters without cost-sharing. This CARES Act requirement will end as of May 11, 2023.
• After the PHE Ends: Plans will no longer be required to cover vaccines and boosters without cost sharing. However, note that non-grandfathered health plans (most plans) will still be required to cover in-network COVID-19 vaccines without cost-sharing as part of the ACA preventive services mandate that applies indefinitely for certain in-network immunizations.

Decision Point: Plan sponsors of non-grandfathered plans (most plans) will need to decide whether to amend health plans to cover only in-network COVID-19 vaccines without cost-sharing or to continue covering both in-network and out-of-network COVID-19 vaccines (but to apply cost-sharing for out-of-network COVID-19 vaccines).
 

Plan Deadline Extensions

• Before the NE: At the outset of the National Emergency period, the government recognized that employers and employees might have difficulty meeting certain plan deadlines due to the pandemic.
• During the NE: The Departments issued guidance extending certain ERISA plan deadlines. Plans were required to disregard the period beginning March 1, 2020, and ending 60 days after the National Emergency period terminates (the “Outbreak Period”) in determining deadlines for:

1. HIPAA special enrollment
2. COBRA 60-day election period
3. COBRA premium payment 
4. COBRA notification to the plan by an individual of a qualifying event or determination of disability
5. Filing a claim for benefits
6. Filing an appeal of a claim denial 
7. External review request for a final claim denial by a health plan
8. External review filing of information to perfect an external review request

• After the NE Ends: All deadlines will revert to the standard statutory deadlines.

 

Mental Health Parity

• During the PHE: Group health plans were able to disregard benefits for COVID-19 diagnostic testing and related services, required to be covered at no cost sharing for purposes of parity under the Mental Health Parity and Addiction Equity Act (MHPAEA).
• After the PHE Ends: This relief was not extended after the end of the PHE. Therefore, plans must now ensure that coverage of COVID-19 diagnostic testing and related services complies with MHPAEA.

 

Special Enrollment Period for Loss of Medicaid or CHIP Coverage

• During the NE: Since the beginning of the NE, many state Medicaid agencies have not terminated enrollment of Medicaid beneficiaries who enrolled on or after March 18, 2020, through March 31, 2023 (referred to as the “Continuous Enrollment Condition”).
• After the NE Ends: Many individuals will lose Medicaid and CHIP coverage as state agencies resume their regular eligibility and enrollment practices. Accordingly, these individuals will need to transition to other coverage, including employer-sponsored group health plan coverage. To help facilitate this transition, if an employee loses eligibility for Medicaid or CHIP coverage, they will have a HIPAA special enrollment period to enroll in employer-sponsored coverage mid-year. The election window must be at least 60 days long (running through the end of the deadline tolling period).

 

HDHP/HSA - COVID-19 Treatment, Testing, and Telehealth Still Permitted

• Before the PHE: Standard IRS HSA rules require that individuals must be covered under an HDHP to be HSA-eligible. Generally, the HDHP must not provide reimbursement for any expenses until after the statutory deductible has been met, with the exception of preventive care.
• During the PHE: The IRS announced that HDHPs could provide COVID-19 testing and treatment for HDHP participants who had not met their deductible without impacting the individual’s HSA eligibility. In addition, to promote the use of telehealth services dur­ing the pandemic, the government passed legislation allowing HDHPs to offer telehealth coverage on a first-dollar basis (without compromising an individual’s ability to contribute to an HSA).
• After the PHE Ends: At the beginning of the pandemic, the IRS issued Notice 2020-15, which permits an HDHP to provide first-dollar coverage for COVID testing and treatment without causing a participant to be ineligible to contribute to an HSA. Although this notice was issued due to the PHE, it applies until further guidance. Therefore, this relief will continue past the end of the PHE. For telehealth services, the relief applies for the 2023 and 2024 plan years and is not impacted by the end of the emergency periods.

Decision Point: Plan sponsors will need to decide whether to amend health plans to cover only in-network COVID-19 vaccines without cost-sharing or to continue covering both in-network and out-of-network COVID-19 vaccines (but to apply cost-sharing for out-of-network COVID-19 vaccines). In addition, plan sponsors may choose to continue to waive the deductible for telehealth services through 2024.
 

Participant Communication

It is always best practice to notify participants of any plan changes. The joint Departments strongly encourage plan sponsors to notify plan participants of changes to COVID-19 coverage pursuant to the end of the NE. However, special rules apply such that Summaries of Benefits and Coverage (SBCs) need not be amended mid-year.

Following is an overview of potential participant communications:

• COVID-19 Testing: If coverage is eliminated from the health plan, plan sponsors should notify plan participants. In addition, plan sponsors may choose to remind participants that COVID-19 tests purchased by an individual may be reimbursed through an FSA, HRA, or HSA.
• COVID-19 Vaccines: If copays are added for COVID vaccines, plan sponsors should communicate the change to plan participants.
• Plan Deadline Extensions: Participants and COBRA Qualified Beneficiaries should be sent communications to clarify that applicable deadlines have reverted to “normal” and that any personal 12-month “tolling periods” will end 60 days after the National Emergency Ends.
• Special OE for Medicaid/CHIP: Employers should reach out to employees who have waived group health plan coverage in favor of Medicaid or CHIP to encourage these employees to update their contact information with the state Medicaid or CHIP agency and to respond promptly to any communication from the state. The Department of Labor has provided a flyer that employers may use when communicating to their employees about their healthcare options upon losing Medicaid or CHIP coverage. (Link to flyer here)
• HDHP/HSA Coverage Provisions: If continued, confirmation for plan participants that HSA contributions will not be adversely affected by continued coverage of COVID testing, COVID treatment, or telehealth services would be welcome for plan participants. If not continued, notification should be provided to clarify the coverage change.

 

Action Items for Employers

Employers should consider how the end of the emergency periods will impact their plans and take stock of necessary action items.

1. Plan Decisions: Employers should evaluate whether to keep their plan designs in place through the end of the plan year (or longer) or amend their plans for the end of the emergency periods (as outlined above).
2. Plan Amendments: To the extent changes in plan coverage will affect plan language, plan contracts, and certificates will need to be amended.
3. Update SPDs, SMMs, and SBCs: To the extent the plan is amended, updated SPDs will need to be issued. In addition, if the changes affect the content on the SBCs, revised SBCs must be issued.
4. Coordinate with Insurance Carriers: Employers will need to coordinate any new plan design changes with insurance carriers and TPAs.
5. Coordinate with COBRA Administrator: Employers will want to coordinate communication with Qualified Beneficiaries for notification of end-of-deadline extensions.
6. Participant Communication: Employers should provide notice to participants regarding any coverage changes. To the extent coverage changes could be but are not made, it may be useful to provide proactive communication to affirm the COVID-related plan provisions that will remain. (See the summary of potential communication items above.) Communications should be distributed reasonably in advance of any plan design changes.

On March 30, 2023, a Texas federal court released a ruling that challenges the constitutionality of the ACA’s requirement for health plans to cover certain preventive care with no cost sharing. Judge Reed O’Connor’s decision invalidates certain provisions of the Affordable Care Act’s preventive care mandate (indicating those provisions were unconstitutional). The ruling prevents the government from enforcing the ACA requirement that insurers cover certain preventive care services on a zero-cost basis.

The preventive care provision of the ACA is arguably one of the most popular provisions of the ACA. It is also long-heralded as one of the best and most cost-effective investments in American health.
 

Background

The lawsuit stems from the desire to curb payment for certain preventive care services, not a general dislike of the concept of paying for preventive care services in general. However, in order to make the legal argument work, the lawsuit had to use a broad brush and challenge the requirement to all preventive care services.

The lawsuit was filed in Texas by Dr. Steven Hotze, who owns a wellness center that employs about 70 people. Dr. Hotze is a Christian and, because of his religious beliefs, is opposed to the ACA requirement that the insurance that he offers to his employees cover preventive care services, specifically pre-exposure prophylaxis (PrEP) drugs that prevent transmission of HIV. In his view, the drugs “facilitate behaviors such as homosexual sodomy, prostitution, and intravenous drug use.” Because this conflicts with his religious beliefs, it is a violation of the Religious Freedom Restoration Act.

Following is a summary of some interesting facts about the case and the circumstances surrounding it:

• Judge O’Connor is the same judge who previously issued the ruling that the ACA was unconstitutional on the grounds that the then-zeroed-out individual mandate penalty was not a tax. That ruling was later overturned by the Supreme Court.
• Hotze’s lawyer is Jonathan Mitchell. Mitchell is the legal mastermind behind S.B. 8, the Texas law that effectively banned abortion in Texas even before the U.S. Supreme Court overruled Roe v. Wade.
• Hotze filed suit before Judge O’Connor in the name of the management company, Braidwood, that employs his workers. Thus, the case name is Braidwood v. U.S. Department of Health and Human Services.
• PrEP is a daily pill that has proven effective in helping to prevent HIV. The annual cost runs between $13,000–$20,000 per person. The U.S. Preventive Services Task Force (USPSTF) has given it a grade of “A.” This means it is “Strongly Recommended” as a preventive care measure and that health plans must cover it without any cost share under the ACA.

 

What is the legal argument?

Braidwood’s main legal claim rests on an obscure but significant provision of the U.S. Constitution called the Appointments Clause. In simple terms, the Appointments Clause says that legally significant government decisions must be made by federal officers who are appointed by the president or by a department head. This legal challenge argues that the members of the U.S. Preventive Services Task Force aren’t appointed and therefore are not federal officers. As such, the decisions they make on which treatments qualify as preventive care under the ACA aren’t valid.

Effectively, the judge found the members of the USPSTF were unlawfully appointed, which then voided any of their recommendations over the past 10+ years.

Following are some additional facts that are interesting:

• The U.S. Preventive Services Task Force is the entity that “grades” medical treatments. A grade of A or B determines that the service must be covered by insurance companies under the no-cost preventive care services under the ACA.
• It is true that the members of the U.S. Preventive Services Task Force are not federal officers appointed by the president or a department head.
• In September, Judge O’Connor sided with Braidwood, holding that it was unconstitutional for the Task Force to make legally significant choices about free preventive services.
• However, he held off on issuing a final ruling until he could get a further briefing on the proper scope of relief.

 

This happened in Texas. Why does it matter to me?

In the final ruling, Judge O’Connor held that the decision reaches across the entire country. It should not be limited just to Braidwood and not just to Texas.

This determination is effective immediately and retroactive to March 23, 2010.
 

What about mammograms and well-baby exams?

The ruling was limited to only preventive care recommendations made by the U.S. Preventive Services Task Force, which dates back to March 23, 2010. Any care deemed preventive prior to the Task Force making decisions would not be impacted. While the vast majority of preventive care items have been added since 2010, age-old preventive care services such as mammograms, contraception, immunizations, and well-baby/child exams were adopted prior to 2010 and, therefore, would not be negatively impacted.
 

Why are people concerned about contraception?

Pundits have pondered that the lawsuit may be expanded to threaten a related part of the ACA that requires coverage of preventive services for women, including contraception. In an earlier ruling, Judge O’Connor held that the contraception mandate passed constitutional muster because a properly appointed federal officer (Secretary of Health and Human Services Xavier Becerra) approved it.

However, that argument is not airtight, and the Fifth Circuit, the very conservative appeals court that covers Texas, could go further and challenge that element of the mandate, as well.
 

What does the future hold?

This is a significant lawsuit and an important challenge to the ACA. The ultimate outcome of this decision remains to be seen. In the meantime, it will certainly create some confusion for employers sponsoring group health plans. Following is a short summary of some potential actions we may see:

Future Appeal: The ruling will most certainly be appealed by the HHS.

Interim Request for Stay to Judge: The HHS will appeal and request that Judge O’Connor enter a stay while the case is on appeal. If the judge denies the stay, a request can be made directly to the Fifth Circuit Court.

Interim Request for Stay to Fifth Circuit Court: The Biden administration has already filed a Notice of Appeal and will presumably seek a stay of this decision from the Fifth Circuit Court. A stay would prevent the decision from going into effect until a decision on the case’s merits is issued by the Fifth Circuit or potentially the U.S. Supreme Court.

Supreme Court Appeal: It is very likely that this case will be appealed and make its way all the way to the Supreme Court.

Potential Congressional Action: Congress could act and pass legislation to ensure access to preventive care services. The legislation would be relatively straightforward and redirect final authority for preventive care services to HHS Secretary Becerra. This solution would require a bipartisan effort.

From a timing perspective, an appeal is likely to take at least a year. If the case moves to the Supreme Court, it will likely be two years before an ultimate decision is made. In the interim, we can expect uncertainty and unrest while the issue plays out in the courts.
 

Action Items

Many Employers Won’t Make Changes: Many, if not most, employers will not implement changes to how preventive care is covered under their health plans, regardless of the ruling that indicates it is no longer required to be covered at 100%.

HDHP Coverage: Employers sponsoring HDHP plans will want to consider the impact of maintaining no cost-sharing coverage for the USPSTF-mandated preventive care benefits. The concern here is that if previously covered preventive care services continue to be covered at 100%, this could potentially compromise participants’ ability to contribute to their HSAs. Recall that a requirement of HDHP plans is that “only” preventive care can be covered on a first-dollar basis, and the ruling now brings into question what constitutes federally approved preventive care. For reference, the IRS has previously interpreted the definition of preventive care for HSA purposes to include any preventive health services mandated by the ACA. This ruling obviously changes what is included under that definition.

The San Francisco Health Care Security Ordinance (SF HCSO) requires covered employers to make a minimum healthcare expenditure on a quarterly basis on behalf of all covered employees. While the ordinance has been in place for many years (since 2008), it has taken on a new dynamic due to the increased popularity of remote work. The annual reporting requirement is due next month (May 1 since April 30 falls on a Sunday), so now is a good time to be reminded of the requirements under the SF HCSO.
 

Covered Employers

Generally, employers are subject if they have 20+ employees with one or more working in the geographic boundary of San Francisco. In addition, employers are required to obtain a San Francisco business registration certificate. The threshold for non-profits is 50+ employees. Small employers with 0-19 employees (0-49 for non-profits) are exempt.

Tip: The headcount for determining your company size under HCSO – both for determining applicability and expenditure rate – includes ALL employees, regardless of status, classification, or contract status. That means even temp or contract employees that are 1099 or through an agency still count!
 

Covered Employees

Employees working an average of eight (8) or more hours per week within the San Francisco city limits and entitled to be paid minimum wage. There is a waiting period of 90 days.

Tip: Look at the exemption criteria closely. The manager/supervisor exemption is coupled with the salary exemption amount, meaning the two are not separate. An employee needs to make more than the salary exemption (2023: $114,141 annually) AND be considered a manager/supervisor/confidential employee per HCSO.

Reminder: Remember that the definition of a covered employee under HCSO hinges on where work is performed. Given the move to remote work, you will need to count and confirm expenditures for employees who live/work in San Francisco.
 

Calculating Expenditure Rate (Updated for 2022-2023)

Rates are based on employer size and are calculated based on the per hour rate payable to covered employees.

Medium Employer

• Size Threshold: 20-99 (50-99 for non-profits)
• 2022 HCSO Rate: $2.20 per hour
• 2023 HCSO Rate: $2.27 per hour

Large Employer

• Size Threshold: 100+
• 2022 HCSO Rate: $3.30 per hour
• 2023 HCSO Rate: $3.40 per hour

The reporting due on May 1 is for the 2022 plan year.

Tip: Hours worked include both paid hours and entitled hours. Specifically, PTO hours that an employee is entitled to must be included in the hours worked calculation. Maximum hours for the calculation are capped at 172 per month.
 

Making Expenditures

For full-time, benefit-eligible employees, average costs for medical, dental, and vision can be used in determining the employer's contribution to health care. Most employers will easily reach the minimum expenditure for employees who are provided health insurance benefits. A large employer would need to spend approximately $568 per month in 2022 or $585 per month in 2023 for an exempt or 40-hour non-exempt employee. Most medical, dental, and vision premiums, when combined, exceed that amount. Remember that employee contributions cannot be included in the calculation (only the employer contribution may be counted).

For non-benefit-eligible employees, the expenditure must be made quarterly. The simplest method for making an expenditure is via the San Francisco City Option, and most employers use this option for non-benefited employees.

Tip: Being benefit eligible does not immediately mean that HCSO requirements are met, and expenditures do not need to be made. If a benefit-eligible employee waives the employer-sponsored health plan, the employer is still required to make a minimum expenditure on behalf of that employee. That means employers must pay into the City Option for employees that have waived (similar to non-benefit eligible employees) UNLESS the employee voluntarily signs an HCSO Waiver Form. Employers are prohibited from coercing employees to sign the form and the form language dissuades individuals from signing it. Due diligence would mean sending the Waiver Form to any employees who waived coverage, and. if the employee chooses not to sign, make the required quarterly expenditure.
 

Due Dates - Regular

Quarterly expenditures are due 30 days following the end of the quarter. First-quarter expenditures are due April 30^th. Annual Reporting to HCSO of covered employees and expenditures made are also due April 30^th. Submission is completed online. The online form will be posted to the OLSE HCSO website no later than April 1.
 

Penalties

There are no insignificant penalties for non-compliance. The penalties are up to $100 per employee per quarter for failure to make expenditures and up to $500 per quarter if the annual reporting is not submitted. There are also other penalties as well for retaliation, failure to provide records to OLSE, and failure to post the required notice. However, while there is no guarantee, the OLSE generally does not fine an employer that has been out-of-compliance that now comes into compliance. The bigger risk is if an employee complains, as that is generally when the OLSE would act and penalize an employer for non-compliance.

During the Public Health Emergency, the Drug Enforcement Agency (DEA) and Health and Human Services (HHS) adopted policies to waive the in-person exam requirement for prescribing controlled substances as required by the Ryan Haight Act. This enabled registered DEA practitioners to prescribe Schedule II-V controlled substances to patients without in-person interaction. This action was taken in order to ensure that patients (both established and new) were able to receive medically necessary prescriptions via telemedicine.

At the conclusion of the COVID-19 Public Health Emergency, this flexibility will expire, and the Ryan Haight Act provisions that require an in-person visit for prescribing controlled substances will, once again, be the rule.
 

Potential Action to Extend

There have been efforts to amend the Ryan Haight Act, and HHS has announced that the DEA is planning to establish rules so that the ability to prescribe controlled substances via telemedicine in certain circumstances would be retained. To do so, the DEA will need to activate a telemedicine special registration rule. Many are hoping this can be achieved prior to the expiration of the Public Health Emergency, slated to end on May 11, 2023. However, to date, pending legislation to amend the Ryan Haight Act has not passed, and the DEA has not activated the telemedicine special registration rule.
 

Current Status

As matters currently stand, when the Public Health Emergency expires on May 11th, without further action on the part of the legislature or the DEA, the in-person requirement will revert to being the rule.

This means that, after May 11^th, providers will be prohibited from prescribing any controlled substance for any patients for whom only telehealth visits have occurred because the special COVID provisions will have expired. Patients requiring controlled substance prescriptions will need to be seen by an in-person provider.
 

Point of Awareness for Employers

If DEA action is not formalized to extend the telehealth flexibility rule, participants who are prescribed controlled substances will experience a significant change in the process when filling their prescriptions. Health plan and pharmacy benefits managers will revert to the prior rules, and participants may be caught off-guard by this change in the process. Employers should be aware of this possibility, watch for further updates, and be prepared to communicate to plan participants should the emergency rule not be extended.

As of February 21, 2023, it has been confirmed that group health plans and health insurance issuers will not be required to submit required reports on air ambulance services by March 31, 2023. CMS has informally confirmed that since final regulations have not yet been issued, no reporting is required in 2023.

The proposed regulations had indicated that the initial reporting deadline would be March 31, 2023 (for 2022 calendar-year reporting). However, that deadline assumed final regulations would be issued before the end of the calendar year 2021. As it stands, final regulations have not yet been issued.

If the final regulations are issued in 2023, the first report would be due 90 days after the end of 2024 (March 31, 2025) for the 2024 calendar year.

The originally published article has been updated to reflect this change. (See below.)
 

Overview

Proposed regulatory guidance for the No Surprises Act requires health plans, issuers, and providers to report certain air ambulance data for calendar years 2022 and 2023. Reporting for these plan years assumed that regulations would be finalized in 2021. Given that they were not, the first reporting year will now be 2024.

The data will be used by the HHS and the Department of Transportation to produce a comprehensive public report on air ambulance services. The goal is to help increase transparency on the cost for these services.
 

Employer Responsibility

Technically, employers hold joint responsibility for reporting the data. In practice, employers/plan sponsors don’t hold or have access to the data that is required for reporting purposes. As such, the responsibility will fall to insurers (for fully insured plans) and ASO providers (for self-funded plans).
 

Fully Insured Employers

Employers with fully insured plans are exempt from reporting, but only to the extent that they have a written agreement with their insurer to report the information.

Employer Action Item: Execute a written agreement with the insurer confirming that all reporting obligations are transferred to the insurer and that filings will be made by the insurer on behalf of the employer.
 

Self-Funded Employers

Employers with self-funded plans may utilize a third-party administrator (TPA) to assist with reporting, but employers would remain legally responsible for any reporting failures. While executing an agreement to transfer reporting obligations is likely to be the norm, self-funded plans will remain legally responsible for any noncompliance regardless of whether their TPA agrees to complete the reporting. Of course, parties are free to negotiate indemnification contractually, but the legal obligation will remain with the self-funded employer.

Employer Action Item: Execute a written agreement with TPA confirming that reporting obligations will be completed by the TPA and that filings will be made by the TPA on behalf of the employer.
 

Timing

The regulations have not yet been finalized, and HHS has yet to establish a method for submitting the reports. Nonetheless, health insurance issuers and TPAs should be looking forward and preparing systems to enable reporting in the future. Reports must be submitted to the HHS by the dates indicated below:

• Reports for the 2024 calendar year are due by March 30, 2025.
• Reports for the 2025 calendar year are due by March 30, 2026.

 

Required Data to Report

The regulatory guidance requires group health plans and issuers to report the following data elements for each claim for air ambulance services. Reporting must reflect claims received or paid for each of the two calendar years required.

1. Identifying information for the group health plan, plan sponsor, or issuer, and any entity reporting on behalf of the plan or issuer
2. Market type for the plan or coverage (fully insured, self-funded, individual, large group, small group, etc.)
3. Date of service
4. Billing National Provider Identifier (NPI) information
5. Current Procedural Terminology (CPT) code or Healthcare Common Procedure Coding System (HCPCS) code information
6. Transport information, including the type of aircraft, loaded miles, pick-up, and drop-off zip codes, whether the transport was emergent or non-emergent, whether the transport was an inter-facility transport, and, if applicable, the service delivery model of the provider (e.g., government-sponsored, public-private partnership, hospital-sponsored, etc.)
7. Whether the provider had a contract with the plan or issuer
8. Claim adjudication information, including whether the claim was paid, denied or appealed, the denial reason, and appeal outcome
9. Claim payment information, including submitted charges, amounts paid by each payor, and cost-sharing amounts.

 

Employer Action Item

Execute an agreement or an amendment to a current service agreement to transfer responsibility for required air ambulance data filings to the insurance carrier or TPA.

With the extension of the deadline, employers will have additional time to ensure that written agreements are in place with carriers and TPAs. That said, we recommend that employers keep the momentum of getting written agreements in place at this time. This will create smoother sailing once the new deadline approaches in a few years.

Which States Have Requirements?

Four states currently have separate state ACA reporting requirements in addition to the federal Form 1095-C. These states are:

• California
• Massachusetts
• New Jersey
• Rhode Island
• District of Columbia

 

Employer Action

For fully insured plans, these obligations are generally fulfilled by the insurer. 

For self-funded plans, the employer bears the responsibility to satisfy the state reporting obligations. 
 

Deadlines to Furnish Notice to Individuals

The timing of the requirements to provide notices to individuals also vary for some states (compared to the current ACA deadlines).

• CA and MA: Must be provided by January 31, 2023
• DC, NJ, and RI: Must be provided by March 02, 2023

If an employer missed the dates to furnish the California or Massachusetts notices, the recommendation action is to promptly furnish the requisite notices to individuals and then complete the necessary filing with the states in a timely manner. 
 

Deadlines to File Notices with State

The four states (California, Massachusetts, New Jersey, and Rhode Island) have a filing deadline of March 31, 2023, which is in line with the ACA filing deadline with the IRS.

The filing deadline for the District of Columbia is 30 days after the federal filing date. For 2023, it is May 1^st as a result of April 30, 2023, falling on a Sunday.
 

Overview of State Requirements

The state requirements largely follow the federal Form 1094-1095 reporting requirements. Following is an overview of the specifics for each state: 

• California: Self-funded employers must report all employees and dependents who had health coverage at any point during the year. The penalty for failure to report timely is $50 per covered individual who was provided health coverage.
• Massachusetts: State filings do not need to contain employee-level details as is required under the ACA filings to the IRS and are generally completed by insurance carriers on behalf of individual employers. Employers must also issue Form 1099-HC to their employees and report information to the state Department of Revenue. The filing deadline for the 1099-HC is January 31, 2023. Organizations that fail to comply with 1099-HC requirements could be subject to a penalty of $50 per employee, up to a maximum of $50,000.
• New Jersey: ALEs use the same IRS form 1094-C/1095-C to report health insurance information to the state. No additional or "special" forms are required.
• Rhode Island: Rhode Island maintains an individual penalty for residents not maintaining health insurance. Furnishing federal Form 1095s to employees satisfies the requirement to furnish notice to employees. However, employers must also submit these returns to the state’s Division of Taxation (DOT) to fully meet the notice requirements.
• District of Columbia: Applicable entities must submit an information return regarding MEC coverage provided to the Office of Tax and Revenue (OTR). Information regarding the individuals’ type of coverage must also be submitted. While similar, it should be noted that these filing requirements are not the same as ACA requirements.

 

Potential Future State Reporting

A number of additional state legislatures are either in the process of passing or have already passed ACA reporting requirements. This includes Connecticut, Hawaii, Maryland, Minnesota, and Washington. Employers in these states should anticipate additional responsibilities with regard to state reporting and watch for details on required forms and filing procedures.
 

Conclusion

In addition to federal reporting, a patchwork of state-level ACA reporting has developed over recent years. This creates a myriad of complexities for employers, especially for employers with operations in multiple states.

As a final reminder, enforcement efforts at the federal level are ramping up, and employers can no longer rely on the comfort of “good faith effort” in their federal 1095 reporting.

Employers have long struggled with the issue of not having SSNs for certain dependents on their health plans and/or getting bounce backs on 1095-C filings due to incorrect dependent SSNs.

In the early years of 1095 filings, employers were protected by regulatory guidance, providing that if a “good faith effort” could be shown, penalties for non-compliance would not be applied. However, seven years have passed since the first filings were required, and the IRS now presumes that enough grace was provided to “work out the kinks”. Therefore, the IRS has expressly removed the “good faith effort” protection for filing 1095s beginning with filings for the 2022 plan year that have just been completed.

While the good faith protection is gone, issues with missing or incorrect SSNs still remain. This leaves employers with the reality that they must properly document their outreach efforts to obtain SSNs or face potential penalties for these errors.
 

What are the penalties?

Information reporting penalties are outlined in the IRS document Instructions for Forms 1094-C and 1095-C.

Applicable Large Employers are subject to the employer-shared responsibility penalty payments of the ACA. These penalties are both well-established and well-known. However, they are not the only penalties that may be levied. Employers that fail to comply with the information reporting requirements may also be subject to reporting penalties for failure to file correct information returns and failure to furnish correct payee statements (1095-Cs).

For the 2022 tax year, the following penalties apply for failing to file/provide correct information returns:

• Failure to File: This means failure to file a return or failure to file a correct return (meaning filing an incorrect return). This applies to Form 1094-C and the accompanying Form 1095-Cs. The penalty is $290 for each return for which the failure occurs. The total penalty for a calendar year is capped at $3,532,500.
• Failure to Provide: This means failing to provide a return to plan participants or failure to provide a correct return (meaning providing an incorrect return). This applies to the Form 1095-Cs that must be provided to plan participants. The penalty for failure to provide a correct payee statement is $290 for each statement for which the failure occurs. The total penalty for a calendar year is capped at $3,532,500.
• Intentional Disregard: Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to file the returns and furnish the required statements.

Penalties may be waived if the failure was due to reasonable cause and not willful neglect.
 

Getting the Penalties Waived

Notice the last sentence above: “Penalties may be waived if the failure was due to reasonable cause and not willful neglect.”

In a world where missing and incorrect SSNs for dependents remain a reality that many employers struggle with, this sentence is our friend! While compliance will not be nearly as easy as the former “good faith effort” standard, understanding the requirements for avoiding the penalties is an important first step for employers. In short, it all comes down to understanding the definition of Reasonable Cause. If the reasonable cause criteria are met, the authorities have indicated that the penalties will be waived.
 

What is Reasonable Cause?

The IRS has a very specific definition of Reasonable Cause. The IRS regulations outline a complex and layered definition of Reasonable Cause . . . with five different layers. Following are the key elements thinned down for how they apply to these troublesome SSN issues for 1095 filings:

General Rule: The penalty for a failure relating to an information reporting requirement is waived if the failure is due to Reasonable Cause and is not due to willful neglect.

Reasonable Cause: The relevant, reasonable cause elements require that the failure must arise from events beyond the filer's control. Here the IRS presents several possibilities for such impediments, but the relevant section can be paraphrased: Certain Actions of a person providing necessary information with respect to the return or statement.

Certain Actions: The relevant certain action elements require that the person who must provide the information to the employer either does not provide the information or provides incorrect information upon which the filer relied in good faith. To substantiate, the employer, upon request of the IRS, showing that the failure was attributable to the person who was supposed to provide the information. documentary evidence upon request of the IRS showing that the failure was attributable to the person who was supposed to provide the information.

Special Rules for SSNs: There are special rules relating to the availability of a waiver of penalties where the filer's failure relates to an SSN, and the failure is attributable to the actions of the person. Specifically, the employer must act in a Responsible Manner.

Responsible Manner: Employers will be deemed to have acted in a responsible manner only if they satisfy the requirements of the Special Rules for Missing/Incorrect SSNs.

After all these layers are outlined, it comes down to this: If an employee does not provide an SSN or provides an incorrect SSN, the baseline criteria for Reasonable Cause is triggered. However, In order to avoid penalties, employers must also respond by acting in a Responsible Manner. This means following and documenting a 3-Step Process for trying to obtain the requisite SSNs.
 

The 3-Step Process for SSN Outreach

A Reasonable Cause penalty waiver requires the employer to make one initial solicitation and two annual solicitations for the SSN (if the prior solicitations did not yield results).

1. Initial Solicitation. Must occur at the time an employee first elects coverage under the benefit plans or first adds a dependent without an SSN.
2. First Annual Solicitation. Must be made on or before December 31 of the year in which the initial coverage election becomes effective (or by January 31 of the following year for elections in the preceding December).
3. Second Annual Solicitation. Must generally be made by December 31 of the year immediately following the calendar year in which the coverage becomes effective.

 

Upon Receipt of an SSN

Upon receiving an SSN or a corrected SSN as a result of one of the solicitations, employers must then include that SSN on any information returns filed after the date that the employer receives the SSN.
 

Makeup Solicitations

What if initial and subsequent annual solicitations haven’t been made? An employer who has previously not made any solicitations may rectify this by:

• Making two consecutive annual solicitations in subsequent years (make-up solicitations) AND
• If an SSN is received, include that SSN on any information returns due after the date the employer receives the SSN.

While this action protects employers on a go-forward basis, penalties may still apply for years prior to which the make-up solicitations were made.
 

Method of Solicitation

The regulations specify a detailed process for satisfying solicitation requirements. Following is a summary of the key elements of the solicitation standards set by the IRS.

If solicitation is via mail, the following elements must be included:

• Notification must inform the individual that he or she must provide the required SSN
• Notification must inform the individual that a $50 penalty may be imposed by the IRS if he or she fails to furnish the required SSN
• Notification must include a Form W-9 or an acceptable substitute form on which the payee may provide the SSN
• Notification must include a return envelope for the payee to provide the SSN, which may be, but is not required to be, postage prepaid.

If solicitation is via phone, the procedure must be reasonably designed and carried out in a manner that is conducive to obtaining the SSN.

• Caller must speak to an adult member of the household
• Caller must verbally request the SSN
• Caller must inform the individual that they must provide the required SSN
• Caller must inform the individual that a $50 penalty may be imposed by the IRS if he or she fails to furnish the required SSN.

If solicitation is via email or other electronic means, the following elements must be included:

• Same written requirements as via mail (above)
• Must follow standard IRS electronic notification procedures.

 

If It Isn’t Documented, It Didn’t Happen

The IRS requires that the employer maintain contemporaneous records showing that the solicitation was properly made. In addition, the employer must be able to provide such records to the IRS upon request.

Employers are urged to keep detailed documentation on solicitation attempts. It is the combination of the actual solicitation AND the documentation of the solicitation that will shield an employer from a potential penalty.
 

What about the dreaded name mismatch?

Employers experience frustration when 1095 bounce back notifications indicate an error in the SSN, but the number actually appears to be correct by all their records. This common problem usually indicates a name mismatch issue. Examples include:

• An employee gets married (or divorced) and changes their name with the Social Security Administration from Susan Archer to Susan Barclay, but Susan hasn’t yet notified you, the employer, of the change.
• Or vice versa, where Susan has notified you, the employer, but the change hasn’t been filed or completed processing with the Social Security Administration.
• An employee’s employment record indicates Harry Houdini. However, the SSN records read Harold Houdini.
• An employee’s payroll records read Carson Polansky, but his SSN record indicates Carson S. Polansky.
• There are three (3) John Smiths in your employ, and the SSNs have somehow gotten mixed up between the employees.

All of these situations will likely result in a 1095 bounce back and will require manual intervention to discover and correct. If any such errors are not corrected for the specific filing year, the standard solicitation rules outlined above should be followed.
 

Is reasonable cause a new thing?

No. The Reasonable Cause and Responsible Action processes have been in place for some time as they apply to the process of securing Tax ID numbers of all sorts from many different types of companies and for many different purposes. For example, banks for people opening accounts, employers needing to secure SSN for payroll purposes, etc.

With the removal of the “good faith effort” compliance rule, the filing and providing of Form 1095 documents simply became subject to the standard process that has been in existence for other information returns and tax filings.
 

Reference

The information filer penalties, Reasonable Cause framework, and solicitation rules are outlined in 26 CFR § 301.6724-1.

On Jan 30, 2023, the HHS and the DOL proposed a new rule to strengthen access to birth control coverage under the Affordable Care Act (ACA). Under the ACA, most plans are required to offer coverage of birth control with no out-of-pocket cost. The goal of the proposed rule is to expand and strengthen access to this coverage, specifically for women whose employers exclude this coverage because of a moral or religious objection. The action is the latest effort by the Biden-Harris Administration to bolster access to birth control at no cost.
 

Current Status

The ACA guarantees coverage of women’s preventive services, including birth control and contraceptive counseling, at no cost for women who are enrolled in group health plans. However, in 2018, final regulations expanded exemptions for religious beliefs and moral convictions allowing private health plans and insurers to exclude coverage of contraceptive services based on moral or religious objection.
 

What is Changing?

The proposed rules would remove the moral exemption and retain the existing religious exemption.

The 2018 rules include an optional accommodation that allows objecting employers to completely remove themselves from providing birth control coverage while ensuring women and covered dependents enrolled in their plans can access contraceptive services at no additional charge. Under the 2018 rules, these women and covered dependents would get this contraceptive access only if their employer, college, or university voluntarily elects the accommodation—leaving many without access to no-cost contraceptives. 

The proposed rules seek to ensure broader access to contraceptive services by creating an independent pathway for individuals enrolled in plans arranged or offered by objecting entities to make their own choice to access contraceptive services directly through a willing contraceptive provider without any cost. This would allow women and covered dependents to navigate their own care and still obtain birth control at no cost in the event their plan or insurer has a religious exemption and, if eligible, has not elected the optional accommodation. The proposed rules leave in place the existing religious exemption for entities and individuals with objections, as well as the optional accommodation for coverage.
 

How Will it Work?

The proposal creates a new “individual contraceptive arrangement” through which individuals enrolled in plans sponsored by employers with religious objections could access no-cost contraceptive services without the involvement of their employer, group health plan, plan sponsor, or insurer. A provider or facility that furnishes contraceptive services in accordance with the individual contraceptive arrangement would be reimbursed through an arrangement with an Exchange insurer, which would request an Exchange user fee adjustment to cover the costs. The practical details of this arrangement will obviously need to be worked out over time.
 

More Information

The U.S. Supreme Court’s decision in Dobbs, overturning Roe v. Wade, has placed a heightened importance on access to contraceptive services nationwide. HHS released a report in August on actions taken to ensure access to reproductive health care, including contraception, following the Supreme Court’s ruling, with further details on future actions and commitments. Following is a link to the report: Reproductive Care Report

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.