hot topics in employee benefits: what every hr professional should know about benefit plans in...

SOCIETY FOR HUMAN RESOURCE MANAGEMENT CHAPTER MEETING

PRINCE WILLIAM • FAUQUIER • CULPEPER MARCH 6, 2013

ANDREA I. O’BRIENISLER DARE, P.C.(703) 748-2690

[email protected]

Hot Topics in Employee Benefits:

What Every HR Professional Should Know About Benefit Plans in 2013

Goals and Agenda 2

Identifying top 10 legal trends affecting benefit plans in 2013 and ways you can lead your organization’s response

1. Health reform compliance 2. Wellness programs3. Pay, play or redesign?4. Final HIPAA regulations5. Government audits – health plans6. Government audits and enforcement – retirement plans7. Retirement plan governance8. Investment options & fee disclosure9. Annuitization and retirement security10. Continued strategic role of nonqualified deferred

compensation

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2013’s Dominant Headline: Health Reform

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Trend #1: Health Reform Adds New Compliance Obligations in 2013

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What the Trend is All About Notice to employees about health insurance

exchanges Delayed until late summer/early fall Model language expected

PCOR filing – July 31 on Form 720 for calendar years $1.00 per covered life for 2012 year Alternative methods for counting “covered lives”

Actual count Snapshot Form 5500 Special transition rule for 2012: “reasonable method”

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What the Trend is All About (cont’d)

Plan amendments, SPDs, & SMMs FSA to $2,500 Preventive care without cost sharing Allocation of responsibility for PCOR fee among

controlled group members

Prepare for financial impact of reinsurance program fees in 2014 $63 per covered life

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Checklist of Steps You Can Take to Respond

√ Be prepared to send notice of health insurance exchanges Likely before open enrollment

√ Talk to your insurer/TPA or accounting department about IRS Form 720 for PCOR fee Fully insured plans: insurer pays Self-insured plans: employer pays

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Checklist of Steps You Can Take to Respond (cont’d)

√ Use 2013 to figure out which method you will use to count “covered lives” and minimize impact of PCOR fee & reinsurance program charges

√ Be proactive and talk to your broker, insurer, or TPA about how they will implement and pass through the reinsurance program fee, and keep your finance dept. in the loop Special surcharge? Embedded in higher premiums? Triggering new service agreement?

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√ Work with broker, insurer, TPA and legal counsel to put into place written amendments to your plan documents that take effect in 2013, and any required updates to SPDs and SMMs Reduction in FSAs to $2,500 Preventive care (women’s health & other changes) Allocation of controlled group responsibility for PCOR

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Trend #2: Health Reform Brings Renewed Focus & Expansion of Wellness Programs

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What the Trend is All About

Expansion of wellness programs to incentivize employees towards better health (and lower health care expenses)

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What the Trend is All About (cont’d) Wide range of programs

Stand alone vs. integrated into group health plan

Increased interest to contain costs, and because health insurers need to provide a “quality of care” report that must include information on whether wellness programs are provided

Participatory programs Must be available to all similarly-situated employees Examples: gym dues, non-contingent screening

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Health contingent programs (proposed regulations issued late 2012) – 5 criteria to meet HIPAA & health reform requirements (otherwise, deemed to violate HIPAA rules prohibiting discrimination on account of health status or condition)

Must be available to all similarly-situated individuals Must be able to qualify for reward at least 1x/year Reward cannot be more than 20% of cost of coverage

Increasing to 30% in 2014 Increasing to 50% for rewards designed to prevent or reduce

tobacco use Must be reasonably designed to prevent disease or promote health Must disclose alternatives that are available

Be cautious of ADA issues, too!

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√ Give your existing wellness program a check-up

√ Figure out your goals & budget Promoting health/reducing absenteeism Promoting good health Reducing health costs

√ Work with your broker or consultant to redesign and reinvigorate your wellness program to achieve your goals within legal parameters

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√ Meet with different vendors and compare services, costs, and ROI

√ From a compliance perspective, figure out what kind of program you will offer and understand what that means – i.e., is it a “group health plan” subject to ERISA, COBRA, HIPAA, & W-2 reporting?

√ Obtain legal review of structure of any wellness plan (and any services contract with your wellness vendor) if you implement a health contingent program to ensure it conforms to regulations

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Trend #3: Health Reform Requires You to Pay, Play or Redesign

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2014: Employer shared responsibility mandate (a/k/a “pay or play”) takes effect for employers with more than 50 employees

If do not provide minimum essential health coverage to substantially all (at least 95%) of FTEs, and at least 1 FTE obtains subsidized coverage through an exchange, annual penalty = $2,000 per FTE

If do provide minimum essential coverage to substantially all FTEs, but at least 1 FTE obtains subsidized coverage through an exchange, annual penalty = lesser of $3,000 per subsidized FTE or $2,000 per FTE

1st 30 FTEs are excluded from penalty computations

Some delays and additional flexibility for fiscal year health plansISLER DARE, P.C.


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Since late Fall 2012, a flood of regulations and other guidance

How to determine if you are a “large employer” subject to the penalties

How the penalties will work if you are part of a controlled group

How to determine who is an FTE (at least 30 hours per week) Concepts of “measurement periods”, “stability periods”, and

“administrative periods” Variable or seasonal employees Special rules for employees who terminate and then are rehired

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How the 90-day maximum waiting period works

How you determine whether the plan you offer provides minimum essential coverage in 10 required categories

Benchmark plans, by state, and sample online calculators have been provided

How you determine whether care is affordable (less than 9.5% of employee wages)

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√ Develop preliminary benchmark about whether the penalty will apply and how much the penalties may total

√ Gather information about your workers – determine how many FTEs you have If you have seasonal or variable workers, determine how you will

measure and track hours

If you have rehired workers, determine whether you will be able to exclude prior service or not

√ Work with your broker, consultant or insurer to determine if your plan provides “minimum essential coverage” and whether the cost is less than 9.5% of employee wages

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√ If you decide to “pay”, consider redesigning your total rewards strategy, using funds that were previously dedicated to medical coverage for other purposes, such as increasing base pay, providing performance or incentive compensation, and using nonqualified deferred compensation plans

√ If you decide to “play”, work with your broker or consultant to redesign your plan to ensure you are providing minimum essential coverage but containing costs. Possibilities include:

Monitoring/restructuring work force so that you maximize part-time positions (but be careful of government anti-abuse standards that are likely to come)

Redesigning plan to impose maximum 90-day waiting period

Providing a standard option that provides minimum essential coverage and value, at affordable ratios, to all FTEs, with buy-up choices available to participants if they choose

Restructuring premium costs for spousal/family coverage

Restructuring plan offerings, to provide for fixed indemnity or specified disease options that are exempt from health reform requirements

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Trend #4: Final HIPAA Regulations Demand Compliance by September

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Final regulations have been issued, which make a number of key changes Business associates are directly responsible

Revised standard for determining whether a “breach” has occurred that must be reported Eliminates notion of harm Focuses on individualized assessment of whether there

is a low risk probability of improper use or disclosure

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New rules regarding access to electronic health records

Prohibitions on sale or marketing of data

Restrictions on use of genetic information

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√ Inventory your plans – understand how many plans you have, and whether they are fully-insured or self-funded Don’t forget EAPs, wellness programs, on-site clinics Review voluntary plans, too, to determine their status Remember that health FSAs are covered

√ Update your Notice of Privacy Practices by September 23, 2013 (likely before next open enrollment, so plan your mailings)

Notice Notice

ofof

PrivacPrivacy y

PracticPracticeessISLER DARE, P.C.


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√ Update your written HIPAA Privacy & Security Policies and Procedures Coordinate with your privacy and IT security staff and existing

protocols

√ Identify all of your HIPAA business associates; work with brokers and legal counsel to update (or put into place) appropriate HIPAA business associate agreements with each of them New model language provided

http://www.hhs.gov/ocr/privacy/hipaa/understanding/coveredentities/contractprov.html

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√ Identify appropriate personnel who handle “Protected Health Information” (PHI), and provide updated training

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Trend #5: Increased Government Audits of Health Plans

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What the Trend is All About #1: COBRA (IRS and DOL)

DOL – part of overall review of plan documentation or in response to specific complaints

IRS requests documentation on Procedures Data about qualifying events, especially if COBRA has not been made

available because of a “gross misconduct” determination Elections and payments

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Audit-Techniques-and-Tax-Law-to-Examine-COBRA-Cases-(Continuation-of-Employee-Health-Care-Coverage)

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What the Trend is All About (cont’d)#2: HIPAA (by HHS Office of Civil Rights)

In response to complaints, breach notifications or through audits

Pilot program of audits just concluded

http://www.hhs.gov/ocr/privacy/hipaa/enforcement/audit/protocol.html

#3: Other Federal laws (by DOL) GINA Women’s Health & Cancer Rights Mental Health Parity Newborns’ and Mothers’ Health Protection

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What the Trend is All About (cont’d)#4: Health Reform (by DOL)

For all plans• Notices about dependent enrollment for those under 27• Information about elimination of lifetime limits and changes to

annual dollar limits If plan elected to be “grandfathered”

• Required notices to employees• Analysis that cost sharing, contributions and benefits have

remained within parameters If plan did not elect to be “grandfathered”

• Full scope of preventive care services without cost sharing• External claims review and contract with independent reviewer

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Checklist of Steps You Can Take To Respond

√ Be “audit ready” – do an internal review of your documentation to make sure that you have copies of all plan documents, notices, election forms, and analyses

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Trend #6: Increased Government Audits and Enforcement of Retirement Plans

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Regulators are increasing the scrutiny of plan sponsors in the operations and day-to-day management of their qualified retirement plans

Internal Revenue Service – 3 major enforcement initiatives 401(k) compliance: top errors found through checks of 5500s LESE projects (“Learn, Educate, Self-Correct, Enforce”): top-heavy

requirements, 402(g) excesses Targeted industries

Department of Labor 2010: 3,112 investigations with fines of $1.05B 2011: 3,472 investigations with fines of $1.39B 2012: 100 additional investigators (total enforcement staff of over 1,000

personnel); statistics not yet released

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Checklist of Steps You Can Take To Respond

√ Inventory all plan documents – be sure you have the most current and executed versions Plan and trust documents IRS approval/determination letter Vendor/service agreements SPDs, SMMs, 5500s, SARs Required notices (Safe harbor; QDIA; fee disclosures)

√ Review your plan operations against your plan documents, and fix any mistakes that you find, promptly and thoroughly, consistent with IRS and DOL guidelines Eligibility : classification; age & service requirements Definition of compensation : what is in/out; conform to payroll system Contributions: sources; limits; timeliness & frequency of funding Vesting calculations Distribution rights Nondiscrimination testing results

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Checklist of Steps You Can Take To Respond (cont’d)

√ Review informal plan documents and benefit summaries against plan terms to be sure they are consistent

√ Provide all required materials and notices, to all of the right people, on time (being sure to comply with limitations on electronic disclosures)

√ File a complete Form 5500 on time Coordinate audit and timely requests for extensions Promptly amend if schedules or audit are missing, or if subsequent filings identify errors in prior

returns

Additional resources:“Meeting Your Fiduciary Responsibilities” - DOLhttp://www.dol.gov/ebsa/pdf/meetingyourfiduciaryresponsibilities.pdf

“401(k) Plan Fix-It Guide – IRShttp://www.irs.gov/pub/irs-tege/401k_mistakes.pdf

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http://www.dol.gov/ebsa/pdf/meetingyourfiduciaryresponsibilities.pdf

http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf

Trend #7: Implement Appropriate Plan Governance Structures and Processes to Manage Fiduciary

Responsibility

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What The Trend is All About

Establish the right plan governance structure, with a clear delegation of authority and responsibility, to manage fiduciary duties (and minimize fiduciary risks) appropriately

ISLER DARE, P.C.

Plan Governance StructureBoard of Directors

Of Plan Sponsor

Retirement Plan

Committee

Third Party

Service

Providers

Red=Fiduciary

Blue=Non-Fiduciary

Green=typically Non-Fiduciary

Trustees and

Investment

Managers

Employees

CEO/President

Voting Members:

(Chairperson)

(Secretary)

Non-Voting Members:

(Benefits Manager)

Plan Administrative

Sub CommitteeStaff

Investment

Sub Committee

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Responsibility

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√ Have duties delegated from Board or Comp Committee, and memorialize that in writing Oversight of plan investments, expenses and administration Recommendations regarding changes with non-material

economic impact Coordination of audit and other compliance functions

√ Establish the right Committee Adopt a Charter or Bylaws for Committee functions Adopt Investment Policy Statement, and keep it updated as

necessary

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Responsibility

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Checklist of Steps You Can Take to Respond (cont’d)√ Implement good procedures for Committee decision-making

Regular meetings (quarterly preferred) Agendas & minutes – keep good records and follow up on open

items from prior meetings Fiduciary training Disciplined and frequent review of plan investments, fees,

operations (including compliance testing), and vendor performance Particular attention to “watch” lists and changes in investment options

Updates on new developments Interactive, engaged, deliberative decision-making

Avoid having a “clean heart but empty head”

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Trend #8: Scrutinize Investment Performance and Fees, and Make Changes When Appropriate

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What The Trend is All About 2012 focus was on fee disclosure

2013 focusing on fiduciary duties, responding to participant inertia To select and monitoring investment performance over short and long-term To review investment fees and determine that they are reasonable To make changes, when appropriate

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Checklist of Steps You Can Take to Respond√ Maximize 404(c) protection from self-directed investments, recognizing that plan fiduciaries are still

responsible for selecting and monitoring investment options At least 3 different options; special consideration with self-directed brokerage windows Participants must get sufficient information to make informed decisions, including disclosures of

fees and investment performance Enhanced protection with use of “qualified default investment alternatives”, such as target date or

lifecycle funds

√ Be wary of inertia and trendy options, but consider alternatives that can blunt or smooth out volatility in markets Know yourself and your organization—not every trend is right for you Engage professionals to assess fees, diversification, and asset allocation strategies

√ Implement changes when appropriate

Avoid being reactionary or paralyzed by fear Consider consolidation of investment menu (best practices: 15-20 choices, with TDF counting as

“1”) Consider asset allocation classes for greater diversification and investment hedges (TIPs, REITs,

short-term bond funds, etc.) Implement changes methodically

Timing Decisions to freeze an option just to new money or liquidate entirely Mapping to new investment options

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√ Scrutinize fees and determine reasonableness Review information from your vendors

Analyze fee information & draw on expertise of qualified experts Consider an independent fee analysis/benchmarking study to provide input (and

support) for your determination regarding the “reasonableness” of fees

Review and approve notices to your participants

Prepare to answer questions about your processes of selecting and monitoring investments and their related fees

Review the terms of your investment policy statement and the revenue sharing arrangements/ERISA budgets you have established with your vendors; revise/renegotiate them, as appropriate

Document—in Committee minutes or otherwise—your review of fee information, deliberations of relevant criteria, and determination about the “reasonableness” of fees to demonstrate your prudent, diligent process

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Trend #9: Annuitization of Portion of 401(k) Benefits for Enhanced Retirement Readiness

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Auto enrollment and auto escalation have helped to increase savings rates

Now, focus is turning on lifetime distribution options since people are living longer in retirement

Initiatives by Congress/IRS: In-plan Roth conversions as part of “fiscal cliff” legislation

Legislative proposals for mandatory, automatic IRAs (at 3% of pay) for employers with at least 10 employees who do not sponsor qualified plans

Proposed regulations encourage 401(k) plans to implement lifetime income options, including “qualified longevity” annuities for up to 25% of their 401(k) benefits (up to $100,000) beginning between ages 80-85

2012 IRS ruling, relieving some of the burdensome spousal consent requirements for annuity options offered in 401(k) plans

Possible changes to rules for required minimum distributions at age 70-1/2

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Trend #9: Annuitization of Portion of 401(k) Benefits for Enhanced Retirement Readiness

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√ Work with consultant and recordkeeper to mine participation and contribution data specific to your plan, so communication strategies and plan design options can be targeted to drive up participation and savings rates while managing costs and budget effectively Consultants and legal counsel can analyze pros, cons and costs of

adding auto enrollment, auto escalation and Roth features to your plan

√ Discuss with vendor whether their systems are ready to handle the new in-plan conversions of existing accounts to Roth accounts

√ Stay tuned for more information about qualified longevity annuity options

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Trend #10: Continuing Strategic Role of Nonqualified Deferred Compensation Programs

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What the Trend is All About Total rewards are being restructured, with continued (and growing)

emphasis on performance-based pay (short-term and long-term)

Due to IRS limits on amounts that can be sheltered in qualified retirement plans, but higher payroll taxes, nonqualified deferred compensation programs continue to play a strategic role for executives Can be “excess” plans, that restore benefits to levels that would

have been achieved in qualified plans but for IRS limits

Can be purely supplemental plans – funded only by employees and/or by employers

Includes synthetic equity programs, like phantom stock

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Trend #10: Continuing Strategic Role of Nonqualified Deferred Compensation Programs

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√ Assess existing compensation and rewards structure

√ Identify goals and your budgeto Recruitment?o Retention?o Equity-like participation?o Additional retirement savings opportunities?

√ Work with brokers, consultants and legal counsel to design and implement an appropriate nonqualified plan to achieve your goals, including plan documents, fiduciary oversight, effective communications outreach, and administrative support for plan operations

ISLER DARE, P.C.

ANDREA I. O’BRIEN703-748-2690

[email protected]

Questions?

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hot topics in employee benefits: what every hr professional should know about benefit plans in...

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