Understanding Employee Benefits and key developments in the employee benefits field and items of interest to our clients. MORE

On December 23, 2022, the Departments of Labor, Health and Human Services and Treasury (the “Departments”) issued FAQs providing relief from prescription drug and health care spending reporting requirements. The FAQs are available here: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-56.

As part of the Consolidated Appropriations Act, 2021, group health plans and issuers must annually report to the Departments certain prescription drug and health care information, including but not limited to the:

  • 50 most frequently dispensed brand prescription drugs and the total number of paid claims for each such drug;
  • 50 most costly prescription drugs by total annual spending, and the annual amount spent by the plan or coverage for each such drug;
  • 50 prescription drugs with the greatest increase in plan or coverage expenditures from the previous plan year;
  • total spending on health care services by the plan or coverage broken down by the type of costs; and
  • impact on premiums and out of pocket costs from rebates, fees, and any other remuneration paid by drug manufacturers to the plan or its administrators or service providers, including the amount paid for therapeutic classes of drugs and amounts paid for each of the 25 drugs that yield the highest amounts of rebates and other remuneration from drug manufactures during the plan year. 

According to the FAQs, the Departments will not take enforcement action against a plan or issuer that uses a good faith, reasonable interpretation of the regulations and reporting instructions. In addition, plans and issuers now have until January 31, 2023 to provide a good faith submission of 2020 and 2021 data through the Health Insurance Oversight System. The deadline for 2020 and 2021 submissions were previously December 27, 2022.

The prescription drug and health care spending reporting obligation falls on the group health plan. Insured plans may satisfy the reporting requirements by entering into a contract with the carrier to provide the required information. If the carrier fails to meet the reporting requirements, the carrier, not the insured plan, violates the reporting obligations. Self-insured plans, on the other hand, cannot contract around the reporting obligations. While a self-insured plan may contract with a third-party to report the data, if the third-party fails to do so, the self-insured plan is ultimately liable for the reporting failure. 

Plan sponsors should continue working with their service providers to ensure required reporting for 2020 and 2021 is completed by the January 31, 2023 deadline. The Departments indicated they will continue to monitor stakeholder efforts to comply with reporting requirements to determine whether additional guidance is needed before future submission deadlines.  The deadline for submitting 2022 prescription and health care spending data is June 1, 2023.  

Recently Congress passed the Consolidated Appropriations Act of 2023 (“2023 CAA”). Among other things, the 2023 CAA extends, for a second time, the telehealth relief provided under the CARES Act. The CARES Act permitted high deductible health plans (“HDHP”) to provide first-dollar telehealth services or other remote care services. This allowed individuals covered under a HDHP that waived the deductible for telehealth services or other remote care to maintain HSA eligibility.  Under the CARES Act, this relief was available for plan years beginning on or before December 31, 2021, meaning the relief expired for calendar year plans at the end of 2021. The Consolidated Appropriations Act of 2022 extended the telehealth relief for the months of April 2022 through December 2022.

Under the 2023 CCA, HDHPs may, but are not required to, continue to provide first-dollar telehealth and other remote services for plan years beginning after December 31, 2022 and before January 1, 2025, without running afoul of the HSA eligibility rules (“Extended Telehealth Relief”). In other words, this relief is available for the 2023 and 2024 plan years if the plan has a calendar plan year.  However, if a plan has a non-calendar plan year, the Extended Telehealth Relief will not be available from January 1, 2023 until the first day of the plan year which begins in 2023 (the “Gap Period”). If the plan does not impose the minimum deductible for telehealth or other remote services during the Gap Period, the plan may not be a HDHP during the Gap Period, meaning that participants would be ineligible for HSA contributions during that period.

As mentioned above, the Extended Telehealth Relief is optional.  If a plan sponsor decides to implement the Extended Telehealth Relief, it should take the following steps:

  • If the HDPH is fully insured, the plan sponsor should contact its HDHP carrier to ascertain whether the carrier’s plans will adopt the Extended Telehealth Relief. If the Extended Telehealth Relief is adopted, the plan sponsor should also ensure that the changes are made to its plan documents and are communicated to HDHP participants.
  • If the HDHP is self-insured, the plan sponsor should consult with its stop-loss carrier and third party administrator regarding the Telehealth Relief Extension. It should also ensure that the changes are made in its plan documents and that HDHP participants are notified of such changes.

Revised January 11, 2023

Congress made several changes to retirement plans as part of the Consolidated Appropriations Act of 2023, which recently passed both the House and Senate. The final bill contains several provisions affecting retirement plans under Division T of the bill titled “Secure 2.0 Act of 2022.” An official summary of all of the provisions is available here. SECURE 2.0 builds on the Setting Every Community Up for Retirement Act (the “SECURE Act”), which passed in 2019.

Below is a high level summary of some of the key provisions that affect plan sponsors of retirement plans.

  • Increased Age for Required Beginning Date on Required Minimum Distributions. The age for required minimum distributions is increased to age 73 beginning on January 1, 2023, and further increased to age 75 on January 1, 2033.
  • Waiver of Required Minimum Distributions for Roth Accounts. The requirement of pre-death distributions from Roth designated accounts in an employer retirement plan are eliminated, effective for taxable years beginning after December 31, 2023.
  • Higher Catch-Up Limit at Ages 60-63. For plan years after December 31, 2024, the catch-up contribution limitation is increased to the greater of $10,000 or 50% of the regular catch-up contribution amount for individuals who have attained ages 60, 61, 62, and 63. Currently, the catch-up contribution amount is generally $7,500, so the provision would increase the catch-up contribution amount to $11,250. This increase is adjusted for inflation after 2025. Catch-up contributions will now be subject to Roth after-tax treatment for those earning more than $145,000 in the prior year.
  • Increase in Cash-out Limit.  Effective January 1, 2024, the Act increases the cash-out limit for involuntary distributions from $5,000 to $7,000.
  • Early Distributions for Emergency Expenses. Effective for distributions made after December 31, 2023, the 10% tax on early distributions does not apply for distributions related to certain emergency expenses (unforeseeable or immediate financial needs relating to personal or family emergency expenses). Participants would be allowed one distribution per year up to $1,000, and the employee would have the option to repay the distribution within 3 years. No further emergency distributions are permissible during the 3-year repayment period unless repayment occurs.
  • Early Distributions for Domestic Abuse Survivors. Effective for distributions made after December 31, 2023, the 10% tax on early distributions does not apply for distributions for domestic abuse survivors. The participant can self-certify that they have experienced domestic abuse, and can withdraw the lesser of $10,000 (indexed for inflation) or 50% of the participant’s account.
  • Saver’s Matching Contribution. Effective for tax years beginning after December 31, 2026, the Act replaces the existing tax credit for participant contributions to IRAs or retirement plans with a federal matching contribution that must be deposited into the taxpayer’s IRA or retirement plan. The match is 50% of the IRA or retirement plan contribution up to $2,000 per individual, and phases out between $41,000 and $71,000 for taxpayers filing a joint return ($20,500 to $35,500 for single taxpayers).
  • Improved Coverage for Part–Time Workers. The SECURE Act added a requirement that employers needed to allow long-term part-time employees to participate in the 401(k) plan if the long-term part-time employee completes either 1 year of service at 1,000 hours or 3 consecutive years of service at 500 hours. The 3-year requirement is reduced to 2 years effective for plan years beginning after December 31, 2024. The 3-year requirement is still effective for plan years prior to the effective date.
  • Rainy Day Roth Accounts. In an effort to increase savings, employers may allow non-highly compensated employees to establish emergency savings accounts under qualified plans. Employers may automatically enroll employees into these accounts at no more than 3% of salary, and the amount is capped at $2,500. The contributions are made on a Roth-like basis, and are treated as elective deferrals for purposes of matching contributions with an annual cap set at the maximum account balance. Generally, withdrawals from the account are not subject to any fees or charges on the basis of the withdrawal. On separation from service, employees may cash out the savings accounts or roll it into a Roth IRA or other defined contribution plan.
  • Retirement Savings Lost and Found. The Department of Labor will create a national online searchable lost and found database for Americans’ retirement plan accounts. The Act directs the Department of Labor to create the database no later than 2 years after the enactment of the Act.
  • Expansion of EPCRS and Recover of Retirement Plan Overpayments. The Act directs the IRS to update the Employee Plans Compliance Resolution System (“EPCRS”) to, among other things, allow for more types of errors to be corrected under the self-correction program and to exempt certain failures to make required minimum distributions from the excise tax. The Act also gives plan fiduciaries latitude to decide not to recoup overpayments that were mistakenly made to retirees, and, if the fiduciaries choose to recoup overpayments, certain limitations and protections are put in place to safeguard innocent retirees.
  • Optional Employer Roth Contributions. The Act allows employers to make employer matching or non-elective contributions on a Roth basis, effective on the date of the Act.
  • Student Loan Payment Matching Contributions. The Act allows employers to make matching contributions to retirement plans based on employees’ student loan payments, effective January 1, 2024.
  • Enhanced Investments in 403(b) Plans. The Act amends the Internal Revenue Code to allow 403(b) custodial accounts to participate in group/collective investment trusts with other tax-preferred savings plans and IRAs, effective as of the date of the Act. However, even with this change, collective investment trusts are still effectively unavailable to most 403(b) plans until amendments are made to securities laws.
  • Pooled Employer 403(b) Plans. The Act expanded the pooled employer plan concept from the SECURE Act to 403(b) plans, and directs the Department of Treasury to issue regulations providing relief from the “one bad apple” rule for 403(b) plans.
  • Mandatory Automatic Enrollment in New 401(k) & 403(b) Plans. Effective for plan years beginning after December 31, 2024, any new 401(k) or 403(b) plan are required to automatically enroll participants upon becoming eligible (and the employees may opt out of coverage). The initial percentage must be at least 3% and no more than 10%, and is increased by 1% annually up to a plan-set maximum of at least 10% but no more than 15%. This requirement does not apply to current 401(k) and 403(b) plans, small businesses with 10 or fewer employees, new employers that have been in existence for fewer than 3 years, church plans, and governmental plans.

This is only a summary of some of the provisions in the Act that may affect plan sponsors. These changes will likely impact most retirement plans, so plan sponsors and administrators will need to monitor future developments from the Department of Treasury and the IRS. If you have specific questions on any of these provisions, contact the author or any member of the Stinson LLP Employee Benefits Group. Employee Benefits Practice: Stinson LLP Law Firm

On October 21, 2022, the Internal Revenue Service (IRS) released Notice 2022-55, which sets forth the 2023 cost-of-living adjustments affecting dollar limits on benefits and contributions for qualified retirement plans. Earlier this year, the health savings account (HSA) and high deductible health plan (HDHP) annual deductible and out-of-pocket expense adjustments were announced in Revenue Procedure 2022-24, and the health care FSA adjustments were announced in Revenue Procedure 2022-38. In addition, the Social Security Administration announced its cost-of-living adjustments for 2023 in October 2022, which includes a change to the taxable wage base.

The following chart summarizes the 2023 limits for benefit plans. The 2022 limits are provided for reference.

  2022 2023
Elective Deferral Limit 401(k), 403(b), 457(b) $20,500 $22,500
Catch-up Limit (age 50+) $6,500 $7,500
Defined Benefit Limit $245,000 $265,000
Defined Contribution Limit $61,000 $66,000
Dollar Limit – Highly Compensated Employees $135,000 $150,000
Officer – Key Employee $200,000 $215,000
Annual Compensation Limit $305,000 $330,000
SEP Eligibility Compensation Limit $650 $750
SIMPLE Deferral Limit $14,000 $15,500
SIMPLE Catch-up Limit (age 50+) $3,000 $3,500
Social Security Taxable Wage Base $147,000 $160,200
ESOP 5 Year Distribution Extension Account Minimum $1,230,000 $1,330,000
Additional Amount for 1-Year Extension $245,000 $265,000
HSA (Self/Family) Maximum Annual Contribution $3,650/$7,300 $3,850/$7,750
HDHP Minimum Deductible Limits $1,400/$2,800 $1,500/$3,000
Out-of-pocket Expense Annual Maximum $7,050/$14,100 $7,500/$15,000
Medical FSA Maximum Annual Contribution $2,850 $3,050

For more information on the 2023 cost-of-living adjustments, please contact Lisa Rippey, Jeff Cairns, or the Stinson LLP contact with whom you regularly work.

 

On August 3, 2022, the IRS published Notice 2022-33, which extends the deadlines for amending retirement plans and IRAs to reflect certain changes to the law made by the SECURE Act; the Bipartisan American Miners Act; and section 2203 (allowing waiver of 2020 required minimum distributions) of the CARES Act.  Before the IRS released Notice 2022-33, retirement plans with a calendar year plan year and IRAs generally were required to amend their plan documents to reflect those law changes by December 31, 2022 (although governmental plans and collectively bargains plans were subject to a later deadline); now, that deadline generally is December 31, 2025.  This new amendment deadline varies based on the type of retirement plan and the sponsor of such retirement plan.  The table below shows the original and revised amendment adoption deadlines for IRAs and various types of retirement plans.  Plan sponsors will notice that under Notice 2022-33, the amendment deadline for the applicable SECURE Act, Miners Act, and CARES Act provisions is the same.  The IRS anticipates that this will allow plan sponsors to adopt a single amendment that covers all three pieces of legislation, as applicable.

One key thing for the retirement plan sponsors to remember is that if they operationally implemented any of the other retirement plan provisions from the CARES Act, such as allowing coronavirus-related distributions or increasing the amount that participants could borrow from a retirement plan during 2020 or extending the repayment due date of plan loans outstanding during 2020, the deadline to adopt an amendment reflecting a retirement plan’s implementation of those provisions has not been extended by Notice 2022-33.  This means that sponsors of nongovernmental, calendar-year plans still have a December 31, 2022 deadline for those amendments.

The extended deadlines apply to both individually designed retirement plans and retirement plans using pre-approved plan documents.  Notice 2022-33 does not provide any relief for retirement plans that are terminated before the extended deadline – those plans are still required to be amended for all law changes in connection with their termination.  Nor did Notice 2022-33 extend the deadline for plan sponsors using pre-approved plan documents to adopt a cycle 3 restatement.  If a plan sponsor failed to adopt a cycle 3 restatement by July 31, 2022, it may correct this error using the IRS Voluntary Correction Program (“VCP”).

Please feel free to contact any member of Stinson’s Employee Benefits practice if you any questions about the deadline to amend a retirement plan or using VCP to correct a failure to timely adopt a cycle 3 restatement.

table

Employers sponsoring 401(k) or other types of defined contribution plans “pre-approved” by the Internal Revenue Service (IRS) should be aware that the restatement deadline is quickly approaching. The IRS requires pre-approved plans to be amended and restated every six years to incorporate recent law changes. The deadline for the current restatement cycle, “Cycle 3,” is July 31, 2022. You should have received one or more notices from your current document provider. Failing to timely adopt a Cycle 3 restatement may jeopardize a plan’s favorable tax status.

Employers should also be aware that due to the timing of the IRS’s review and approval of pre-approved plan documents, Cycle 3 plan documents only includes law changes prior to February 1, 2017. Therefore, employers must separately adopt good-faith interim amendments for more recent law changes, for example the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Stinson sponsors pre-approved defined contribution plan documents. Please contact any member of the Stinson Employee Benefits Group about timely updating of your defined contribution plan document. Contacts for the Minneapolis, Minnesota office are: Jeff Cairns and Audrey Fenske. Contacts for the Kansas City, Missouri office are: Phil McKnight, Tom Dowling, Sam Butler, and Elizabeth Delagardelle.

On March 15, 2022, the Consolidated Appropriations Act of 2022 (“2022 CAA”) was signed into law. Among other things, the 2022 CAA temporarily restores the telehealth relief provided under the CARES Act. The CARES Act permitted high deductible health plans (“HDHP”) to provide telehealth services or other remote care services without applying a deductible. This allowed individuals covered under a HDHP that waived the deductible for telehealth services or other remote care to maintain HSA eligibility.  Under the CARES Act, this relief was available for plan years beginning on or before December 31, 2021, meaning it expired for calendar year plans at the end of 2021.

Under the 2022 CCA, HDHPs may, but are not required to, provide telehealth and other remote services without applying a deductible for the months of April 2022 through December 2022 without running afoul of the HSA eligibility rules (“Extended Telehealth Relief”). This means, however, that if a plan year started between January 1, 2022 and March 31, 2022 (the “Gap Period”), such as a calendar year plan, the Extended Telehealth Relief was not available for the plan for the Gap Period. If the plan did not impose the minimum deductible for telehealth or other remote services during the Gap Period, the plan may not be a HDHP during the Gap Period, meaning that participants would be ineligible for HSA contributions during that period.

As mentioned above, the Extended Telehealth Relief is optional.  If a plan sponsor decides to implement the Extended Telehealth Relief, it should take the following steps:

  • If the HDPH is fully insured, the plan sponsor should contact its HDHP carrier to ascertain whether the carrier’s plans will adopt the Extended Telehealth Relief from April 2022 to December 2022. If the Extended Telehealth Relief is adopted, the plan sponsor should also ensure that the changes are made to its plan documents and are communicated to HDHP participants.
  • If the HDHP is self-insured, the plan sponsor should consult with its stop-loss carrier and third party administrator regarding the telehealth relief extension. It should also ensure that the changes are made in its plan documents and that HDHP participants are notified of such changes.

Additionally, if a plan sponsor of a calendar year HDHP (or other plan year beginning before April 1) did not impose the minimum deductible for telehealth or other remote services during the Gap Period, it should contact experienced benefits counsel to determine the appropriate course of action.

As indicated in our January 11, 2022 blog post and alert, the Department of Labor, the Department of Health and Human Services, and the Treasury (the “Agencies”) issued FAQs Part 51 on January 10, 2022, requiring group health plans to cover over-the-counter (“OTC”) COVID-19 tests without participant cost-sharing, preauthorization, or medical management.  In response to stakeholder feed-back regarding FAQs 51, the Agencies released FAQs 52 on February 4, 2022. The new guidance provides additional flexibility for complying with the safe harbor that allows plans providing direct coverage of tests obtained from network pharmacies and a direct-to-consumer shipping program to limit reimbursement for tests purchased from non-preferred pharmacies or retailers to $12 per test (“$12 Safe Harbor”), and answers other questions from stakeholders regarding the mandated OTC COVID-19 test coverage.

Guidance Related to the $12 Safe Harbor

Effective February 4, 2022, the $12 Safe Harbor has been clarified as follows:

  • To comply with the safe harbor’s requirement that the direct coverage program provide adequate access (based on facts and circumstances), OTC COVID-19 tests must generally be made available through “at least one direct-to-consumer shipping mechanism and at least one in-person mechanism.” The Agencies did, however, recognize that there may be some limited circumstances in which a direct program could provide adequate access without providing both a direct-to-customer shipping mechanism and an in-person mechanism.
  • A “direct-to-consumer shipping mechanism” includes programs that provide direct coverage of tests without requiring plan members to procure the OTC COVID-19 test at an in-person location. Examples include online or telephone ordering, and may be provided through a pharmacy or retailer, the plan or health insurance issuer directly, or any other entity on behalf of the plan.
  • Reasonable shipping costs related to the OTC COVID-19 tests must be covered by the plan or issuer. The shipping costs are included in the $12 reimbursement limit.
  • A plan or insurance issuer will not fail to comply with the $12 Safe Harbor if it is temporarily unable to provide adequate access to OTC COVID-19 tests through its direct coverage program because of a supply shortage.
  • The plan or issuer is not required to cover all FDA-approved OTC COVID-19 tests under its direct coverage program to satisfy the adequate access requirement.

Additional Guidance

The February 4, 2022 guidance also provided the following clarifications:

  • The requirement to provide OTC tests without participant cost-sharing, preauthorization, or medical management, described in FAQs Part 51 and Part 52, does not apply to at-home OTC COVID-19 tests that require a laboratory or other healthcare provider to process the results.
  • A plan or insurance issuer may disallow reimbursement for tests purchased from private individuals or on-line auctions, limit reimbursement to established retailers who typically sell OTC COVID-19 tests, and establish other reasonable policies to prevent fraud and problematic behaviors that could limit access to tests.
  • A participant may not double dip by having the medical plan reimburse the participant for the costs of the OTC COVID-19 tests and being reimbursed from a health flexible spending account (FSA), health savings account (HSA), or health reimbursement account (HRA). If a participant is reimbursed by both the medical plan and an FSA or HRA, the participant should contact the plan administrator regarding correction procedures.

Beginning January 15, 2022, and through the duration of the public health emergency, insurers and group health plans must cover at-home COVID-19 diagnostic tests available over-the-counter (OTC) without imposing cost-sharing, prior authorization, or other medical management requirements. This requirement stems from the latest guidance issued on January 10, 2022, by the Department of Health and Human Services, the Department of Labor, and the Treasury.

Group health plans will need to determine whether they will provide this coverage by reimbursing sellers of OTC COVID-19 tests directly (referred to as “direct coverage”) or by requiring participants to submit a claim for reimbursement. Plans that provide direct coverage may not limit coverage to preferred pharmacies or retailers. However, the guidance provides a safe harbor that allows plans to limit reimbursement for tests purchased from non-preferred pharmacies or retailers to $12 per test or the cost of the test, whichever is less.

Regardless of the reimbursement method used, plans may limit the number of OTC COVID-19 tests reimbursed to no less than eight tests per covered individual per 30-day period (or calendar month). The guidance also allows plans to take reasonable steps to address fraud and abuse. For example, plans can require an attestation that the test was purchased for personal use and not employment purposes, will not be reimbursed by another source, and is not for resale.

Given the short timeframe to implement this required coverage, group health plans will need to make reimbursement and limitation decisions quickly. In addition, plans will need to consider how best to communicate OTC COVID-19 testing coverage to participants.

Updated November 18, 2021

On November 4, 2021, the Internal Revenue Service (IRS) released Notice 2021-61, which sets forth the 2022 cost-of-living adjustments affecting dollar limits on benefits and contributions for qualified retirement plans.  The health savings account (HSA) and high deductible health plan (HDHP) annual deductible and out-of-pocket expense adjustments were announced earlier this year in Revenue Procedure 2021-25.  In addition, the Social Security Administration announced its cost-of-living adjustments for 2022 on October 13, 2021, which includes a change to the taxable wage base.

The IRS previously issued guidance on temporary COVID-19 relief for cafeteria plans provided in the Consolidated Appropriations Act.  Among other things, these temporary rules allow employers to amend their cafeteria plans to permit all unused balances at the end of the 2021 plan year in health or dependent care FSAs to be used for expenses in 2022.  For more information about these temporary rules, see Stinson’s previous blog: IRS Guidance on Coronavirus Relief for FSAs, DCAPs, and Cafeteria Plans: Almost Anything Goes.

The following chart summarizes the 2022 limits for benefit plans. The 2021 limits are provided for reference.

  2021 2022
Elective Deferral Limit 401(k), 403(b), 457(b) $19,500 $20,500
Catch-up Limit (age 50+) $6,500 $6,500
(no change)
Defined Benefit Limit $230,000 $245,000
Defined Contribution Limit $58,000 $61,000
Dollar Limit – Highly Compensated Employees $130,000 $135,000
Officer – Key Employee $185,000 $200,000
Annual Compensation Limit $290,000 $305,000
SEP Eligibility Compensation Limit $650 $650
(no change)
SIMPLE Deferral Limit $13,500 $14,000
SIMPLE Catch-up Limit (age 50+) $3,000 $3,000
(no change)
Social Security Taxable Wage Base $142,800 $147,000
ESOP 5 Year Distribution Extension Account Minimum $1,165,000 $1,230,000
Additional Amount for 1-Year Extension $230,000 $245,000
HSA (Self/Family) Maximum Annual Contribution $3,600/$7,200 $3,650/$7,300
HDHP Minimum Deductible Limits $1,400/$2,800 $1,400/$2,800
(no change)
Out-of-pocket Expense Annual Maximum $7,000/$14,000 $7,050/$14,100
Medical FSA $2,750 $2,850

 

For more information on the 2022 cost-of-living adjustments, please contact Jeff Cairns, Stephanie Schmid or the Stinson LLP contact with whom you regularly work.