Industry & Regulatory News

DOL Proposes a Safe Harbor for Electronic Delivery of Employee Benefit Plan Disclosures

The Department of Labor (DOL) has issued proposed regulations which—if adopted—would provide a safe harbor for electronic delivery as the primary or default means to provide ERISA benefit plan disclosures to participants and beneficiaries. The DOL has also provided a fact sheet and posted a news release about the proposed regulations.

Under conditions prescribed in this guidance, plan administrators may inform participants and beneficiaries that these disclosures will be made available on a website. Participants and beneficiaries may, however, request the information in paper form, and may opt out of electronic delivery altogether.

This guidance also contains a DOL request-for-information (RFI) seeking input on additional changes to the “design, delivery and content” of ERISA benefit plan disclosures, changes that could “further improve the effectiveness of ERISA disclosures.”

Comments on the proposed regulations and responses to the RFI are due 30 days from publication in the Federal Register, which is scheduled for tomorrow. The guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register.

President’s Executive Orders Could Affect Agency Guidance and Enforcement

President Trump on October 9, signed two executive orders that could have an impact on retirement, health and welfare, and comparable guidance issued by agencies that are part of the executive branch of our federal government. Among these agencies are the Treasury Department and IRS, the Department of Labor’s Employee Benefit Security Administration (EBSA), the Department of Health and Human Services (HHS), and the Department of Education.

The ultimate effects of these executive orders have yet to be determined, but they seem clearly intended to limit the issuance, the effect, and the enforcement of certain types of guidance below the level of formal regulations. These executive orders are consistent with the Trump administration’s stated intent to limit regulatory burden, and, in particular, to limit certain kinds of nonregulation guidance that have the effect or force of law.


Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents

This executive order is intended to establish a policy limiting the issuance of agency guidance other than formal regulations that have been subject to public notice, comment, and approval procedures. Furthermore, existing guidance of this kind—called “sub-regulatory” guidance—is to undergo review by the Office of Management and Budget (OMB) if the affected agencies wish to have that guidance remain in effect.


Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication

This executive order would appear to limit compliance enforcement to violations of statutes or approved regulations. Furthermore, if an agency wishes to cite its own understanding of what is necessary to comply with a statute or regulation, then any guidance expressing that agency’s understanding must first have been made publicly available, either by publishing in the Federal Register, or made available in a searchable database of that agency.


What Next?

It is difficult to predict the extent to which these executive orders may affect reliance on past guidance, the issuance of new guidance, and the enforcement of past or future guidance.

Washington Pulse: New Guidance Simplifies Affordability Determination for ICHRAs

The IRS has issued proposed regulations that provide additional guidance to employers intending to offer an Individual Coverage HRA (ICHRA) for 2020 and beyond. The guidance confirms and clarifies the safe harbor provisions that were initially outlined in IRS Notice 2018-88. The proposed regulations are meant to 1) help employers determine whether their ICHRA is affordable, and 2) clarify the ICHRA nondiscrimination testing requirements.



There are several reasons why an ICHRA may appeal to employers. For example, an ICHRA allows an employer to contribute a set amount to employees while reducing the employer’s risk of incurring unknown costs that may arise with traditional group health insurance plans.

A unique feature of the ICHRA is that it is flexible: there are no minimum or maximum contribution limits, so an employer can contribute any amount it chooses. But there are some restrictions. For example, an applicable large employer (ALE) that offers ICHRAs to its full-time employees must ensure that it is offering an “affordable” ICHRA. If the ICHRA is not affordable, then the employer must make a shared responsibility payment under Internal Revenue Code Section (IRC Sec.) 4980H(b). The payment is determined on a month-by-month basis. The monthly penalty amount is 1/12 of $3,860 for each full-time employee who receives a premium tax credit (PTC).

An ALE is defined as an employer who had an average of 50 or more full-time employees (including full-time equivalent employees) during the preceding calendar year. If an ALE offers an ICHRA to part-time employees only, the ALE will not be subject to the IRC Sec. 4980H(b) penalty if the ICHRA is not affordable. (The ALE must still offer affordable health coverage to its full-time employees or it could owe a penalty under IRC Sec. 4980H(a) or (b).) If the employer is not classified as an ALE, it will not be subject to the IRC Sec. 4980H(b) penalty, regardless of whether the ICHRA is considered affordable for employees.

An ICHRA is considered affordable for full-time employees if the monthly premium for single coverage under the lowest-cost silver plan offered on the Exchange in their rating area (where the employee lives) minus the monthly allowance is less than 9.78 percent of their household income. (On average, silver plans pay 70 percent of the costs for benefits that the plan covers.)

Determining affordability on this basis is difficult for employers: they may not know an employee’s household income and may not know where the employee currently lives. As a result, the IRS has provided safe harbors to ease the calculation for employers.


Safe Harbors

Instead of using individual employee calculations, employers may use the safe harbors when determining ICHRA affordability. Employers are not required to use all of the safe harbors when determining affordability. For example, employers could use the look-back month safe harbor and the affordability safe harbor, but disregard the location safe harbor when calculating affordability. Employers may also use the safe harbors when calculating affordability for all employees, or just when calculating affordability for a reasonable category of employees (as specified in the ICHRA final regulations). Employers must, however, always apply the safe harbors on a uniform and consistent basis for all the employees in a category.

Look-back month safe harbor

Although the ICHRA may appeal to some employers, there are a few drawbacks—including not knowing how much to contribute to an ICHRA. The Exchange generally does not determine premium costs until shortly before open enrollment begins on November 1 of each year. Employers must usually make benefit decisions well before this date. To help employers determine how much they will have to contribute before the beginning of the plan year, the IRS has developed the look-back safe harbor.

To determine the ICHRA’s affordability for the current year, this safe harbor allows a calendar-year ICHRA to use the cost of the lowest-cost silver plan offered on the Exchange in the employee’s rating area during January of the prior year (known as the look-back month). Employers maintaining noncalendar-year ICHRAs may also use this safe harbor, but the look-back month will be January of the current year.

Affordability safe harbor

When determining ICHRA affordability, employers must also take into account the employee’s household income. Prior guidance on affordability calculations has recognized that employers will not have this information—and have permitted an employer to use either a safe harbor based on the employee’s Form W-2 income, the employee’s rate of pay, or the federal poverty line.

When looking at the affordability safe harbors, remember that ICHRAs are funded solely by employer contributions. The term “HRA employee contributions” refers to what employees must pay for their insurance premiums in addition to what the employer must provide as an ICHRA contribution.

Form W-2 wages safe harbor: Under the Form W-2 wages safe harbor, the ICHRA is deemed affordable if the required HRA contribution for the employee does not exceed 9.78 percent (subject to cost-of-living adjustments) of that employee’s W-2 wages for the calendar year. This safe harbor allows an employer to use the employee’s wages entered in Box 1 of Form W-2.

The proposed regulations state that employers should not add back any W-2 reductions under IRC Sec. 36B (e.g., 401(k) or IRC Sec. 125 cafeteria plan contributions). When determining affordability, employers may not use Form W-2 wages from a prior year. They must use the current calendar year Form W-2 wages when determining affordability. This will require the employer to project the W-2 wages for each employee at the beginning of the current calendar year. If this proves to be to administratively difficult for the employer, the employer can use either the rate-of-pay or the poverty-line safe harbor described below.

Rate-of-Pay safe harbor: Under the rate-of-pay safe harbor, the ICHRA is deemed affordable for a calendar month if the required HRA contribution for the employee does not exceed 9.78 percent (subject to cost-of-living adjustments) of an amount equal to 130 hours multiplied by the lesser of 1) the employee’s hourly rate of pay as of the first day of the coverage period (generally the first day of the plan year), or 2) the employee’s lowest hourly rate of pay during the calendar month.

Example: If an employee earns $15 per hour, the employer should perform the following calculation.

$15 x 130 hours = $1,950

$1,950 x .0978 = $190.71

In this example, for the ICHRA to be deemed affordable, the required HRA contribution for the employee must be less than $190.71.

If the employee is paid on a salary basis, the ICHRA is still deemed affordable if the employee’s required HRA contribution for the calendar month does not exceed 9.78 percent of the employee’s monthly salary.

Federal poverty-line safe harbor: Under the federal poverty-line safe harbor, an applicable large employer member’s offer of ICHRA coverage to an employee is treated as affordable if the employee’s required ICHRA contribution for the calendar month does not exceed 9.78 percent of a monthly amount. This amount equals 1/12 of the federal poverty line for a single individual for the applicable calendar year.

Location safe harbor

When determining an ICHRA’s affordability, an employer must use the lowest-cost silver plan in the employee’s rating area. This requires the employer to know where the individual lives.

The IRS initially proposed a location-based safe harbor in Notice 2018-88, which allowed employers to use the employee’s primary work location for the area of residence. The IRS received numerous suggestions on how to simplify the calculation for employers while ensuring that employees would not be disadvantaged if premium costs varied widely in a small geographical area that was composed of different rating areas.

The proposed regulations conclude that the employer may generally use the primary site of employment where the employee will be reasonably expected to perform services on the first day of the plan year. The proposed regulations also address issues related to employees that change worksites midyear, who regularly work from home or in other remote locations, or who work only remotely.


Nondiscrimination Testing

The proposed regulations also provide more information on nondiscrimination testing.

The guidance found under IRC Sec. 105(h) prohibits discrimination in relation to benefits, in both plan design and plan operation.  To be nondiscriminatory in design, employers must provide uniform contributions to all participants, and amounts cannot vary based on age or length of service. If the plan fails this nondiscrimination requirement, the excess reimbursements become taxable to the highly compensated individuals (HCIs).

The ICHRA rules, however, provide certain exceptions to this nondiscrimination requirement. Contributions may increase based on the number of dependents covered and based on the participant’s age—as long as the oldest participants do not receive an amount greater than three times what the youngest participants receive. An ICHRA that follows these exceptions within each class of employees (as specified in the ICHRA final regulations) will not fail to meet the requirement to provide nondiscriminatory benefits as a matter of plan design.

Even if an ICHRA follows these exceptions, it may still be considered discriminatory in operation. If an ICHRA is discriminatory in operation and too many HCIs use the maximum ICHRA benefit, the excess reimbursements will become taxable to the HCIs.

Employers that have a large number of older employees who are HCIs may be concerned about failing nondiscrimination testing in relation to plan operations. Limiting ICHRA reimbursements may be a practical solution to testing concerns. This is because HRAs that reimburse only for premium costs (and are not permitted to reimburse for other 213(d) medical expenses) are excluded from the testing requirements of IRC Sec. 105(h).


The Take Away

The proposed regulations are consistent with the President’s goal of expanding HRAs in order to give employers and employees more options when purchasing health insurance. This guidance should simplify determining an ICHRA’s affordability and help employers avoid the shared responsibility payment. In light of the new proposed regulations, it is clear that the IRS is expecting employers of all sizes—including ALEs—to use the new ICHRA.

Ascensus will closely monitor any new developments regarding this guidance. Visit for future updates.


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Student Loan and Retirement Plan Guidance on IRS Priority List

The IRS has released its fiscal year 2019-2020 Priority Guidance Plan (PGP). Employee benefit-related items on the list include “Guidance on student loan payments and qualified retirement plans and 403(b) plans.”

Both employers and federal lawmakers have made student loans a high-profile issue, due in part to debt burdens that are said to be limiting employees’ ability to participate fully in their employers’ retirement plans, and in the U.S. economy.

Employers have individually requested IRS approval of benefit arrangements that link student loan repayment and retirement plans. There have been calls for the IRS to issue guidance that other employers could avail themselves of without seeking IRS guidance or approval individually.

Similarly, many bills that have a student loan dimension have been introduced. Some address such elements as disclosure, financing options, and debt forgiveness, but several have linked student loan payments with employer-sponsored retirement plans. For example, the Retirement Parity for Student Loans Act, introduced in December 2018 by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD), would allow employer retirement plan contributions on behalf of employees that are based on their higher education student loan payments.

Other retirement benefit-related items on the 2019-2020 PGP are either new or carryovers from prior years’ lists, including the following.

  • Revisions to the IRS Employee Plans Compliance Resolution System program for correcting retirement arrangement defects
  • Revised life expectancy tables used to calculate required minimum distributions, taking into account longer life expectancies
  • Broad updated guidance on Traditional and Roth IRAs
  • Guidance on retirement plans of affiliated service groups
  • Guidance on church retirement plans

2020 Taxable Wage Base Announced

The U.S. Social Security Administration has announced several 2020 benefit amounts that increase according to a cost-of-living-adjustment (COLA) formula. The adjustment that applies to tax-advantaged retirement savings arrangements is the Social Security taxable wage base (TWB), which will rise from $132,900 to $137,700 for 2020.

The TWB is the income level above which amounts are not withheld from earnings for Social Security benefit purposes. The TWB is used in certain retirement plan allocation formulas, notably for the allocation of some profit sharing and simplified employee pension (SEP) plan contributions. Such formulas are often referred to as “integrated” or “permitted disparity” formulas. Their use allows an additional benefit based on employee compensation above an integration level; one of the permitted integration levels is the Social Security TWB.

Potentially significant for other savings arrangements is the fact that IRS COLA-adjusted amounts for IRAs and employer-sponsored retirement plans for the coming year are often released very shortly after the Social Security Administration announces the TWB.

DOL Issues Final Regulations on Overtime Pay and Exemptions for Certain Classes of Employees

The Department of Labor’s (DOL) Wage and Hour Division has issued final regulations on overtime pay, and, specifically, exemptions from overtime pay for certain “executive, administrative, professional, outside sales and computer employees.”

The Fair Labor Standards Act (FLSA) requires certain covered employees to be paid a minimum wage and—for employees who work more than 40 hours in a week—to receive “overtime premium pay that is at least 1.5 times the regular rate of pay.” Certain classes of employees—generally salaried employees—are exempt from this requirement, but there are salary levels below which an employee would nevertheless be considered eligible for overtime pay.

The Wage and Hour Division issued a request for information (RFI) in July 2017, seeking public input that might be helpful in rewriting previously issued final regulations regarding overtime pay and exemptions. Information gathered following this RFI led to the agency’s issuance of proposed regulations in March 2019, and now—six months later—their issuance in final form.

These final regulations address salary levels in the context of overtime pay eligibility, the inclusion of bonuses, incentive payments and commissions in salary level requirements, treatment of highly compensated employees, and future updates to earnings thresholds.

While employers or their plan administrators generally make compensation determinations for retirement plan purposes, some feel this DOL guidance could affect not only compensation for benefits purposes, but potentially plan design.

The effective date of these final regulations is January 1, 2020.

IRS Releases Guidance for Correcting Form Defects in 403(b) Plans

The IRS released Revenue Procedure (Rev. Proc.) 2019-39, which sets forth a system of recurring remedial amendment periods for correcting form defects in 403(b) plans. Rev. Proc. 2019-39 provides guidance for correcting form defects in both individually designed 403(b) and pre-approved 403(b) plans first occurring after March 31, 2020, which is the ending date for the initial remedial amendment period outlined in Rev. Procs. 2013-22 and 2013-18.

Rev. Proc. 2019-39 also provides a limited extension of the initial remedial amendment period for certain form defects, and establishes a system of 403(b) pre-approved plan cycles under which proposed pre-approved 403(b) plans may be submitted to the IRS for approval.

Additionally, this revenue procedure provides deadlines for both individually designed 403(b) plans and pre-approved 403(b) plans for the adoption of plan amendments.

IRS Proposed Regulations to Provide Additional HRA Guidance

Recently published in the Federal Register are IRS proposed regulations to help clarify the application of the employer-shared responsibility provisions and certain nondiscrimination rules pertaining to health reimbursement arrangements (HRAs) and other account-based group health plans that are integrated with individual health coverage or Medicare. The proposed regulations provide certain safe harbors with respect to the individual coverage HRA provisions. The IRS hopes these proposed regulations will spur adoption of individual coverage HRAs by employers.

The IRS proposes adding a location-based safe harbor to Internal Revenue Code Section (IRC Sec.) 4980H, Employer Shared Responsibility Provisions, which can be relied upon when determining affordability to its full-time employees (and their dependents) by an applicable large employer (ALE), who is defined as having an average of 50 or more full-time employees during the preceding calendar year. Under this safe harbor, an ALE would be allowed to use the lowest cost silver plan for self-only coverage offered through the Exchange in the rating area in which the employee’s primary site of employment is located, instead of the lowest cost silver plan in the rating area in which the employee resides. This safe harbor will help alleviate employer burden that could result from requiring that affordability be based on each employee’s place of residence, as employees may change residence locations from time to time, and maintaining up-to-date records may be difficult.

For purposes of this location safe harbor, the proposed regulations provide that an employee’s primary site of employment generally is the location at which the employer reasonably expects the employee to perform services on the first day of the plan year (or on the first day the individual coverage HRA may take effect, for an employee who is not eligible for the individual coverage HRA on the first day of the plan year). The employee’s primary site of employment is treated as changing if the location at which the employee performs services changes and the employer expects the change to be permanent.

The proposed regulations do not provide an age-based safe harbor under IRC Sec. 4980H for the age used to determine the premium of an employee’s affordability plan. Rather, the affordability needs to be based on each employee’s age. The IRS acknowledges that this can be burdensome to employers and is seeking comments on the administrative issues this may raise, as well as on safe harbors that would ease these burdens.

The proposed regulations also provide a safe harbor for the requirement to provide nondiscriminatory benefits under Treasury Regulation 1.105-11(c)(3)(i). This safe harbor states that an individual coverage HRA will not be treated as failing the aforementioned nondiscrimination requirements solely due to the benefits varying based on age—so long as the individual coverage HRA satisfies the age variation exemption under the same terms requirement (Treasury Regulation 54.9802-4(c)(3)(iii)(B)). However, this safe harbor does not automatically satisfy the prohibition on nondiscriminatory plan operation as a whole.


The proposed regulations under IRC Sec. 4980H are proposed to apply for periods beginning after December 31, 2019, and the proposed regulations under IRC Sec. 105(h) are proposed to apply for plan years after December 31, 2019.

The Treasury Department and the IRS are seeking public comments on these proposed regulations, which need to be submitted by December 29, 2019. Proposed regulations by the IRS generally may be relied upon by taxpayers in their proposed form.

Watch for any further information about this guidance.

PBGC Proposed Regulations to Clarify Defined Benefit Plan Guidance

The Pension Benefits Guaranty Corporation (PBGC) issued proposed regulations for the allocation of assets in defined benefit plans and for distributions from terminated plans. The changes clarify certain portions of the existing regulations, and formalize policies involving payments of lump sum and partial benefit distributions, changes to forms of benefits, and valuation of plan assets. PBGC will accept public comments through November 29, 2019.

These proposed regulations include the following changes.

  • Clarify that PBGC’s rules on lump-sum payment are unaffected by election of a lump-sum distribution before plan termination. PBGC does not pay benefits in a lump sum except in certain limited circumstances
  • Clarify that a de minimis benefit under the regulations is linked to the definition found in ERISA 203(e)(1), rather than a fixed amount of $5,000
  • Clarify that a de minimis benefit of a participant who dies after plan termination will be paid as an amount due a decedent, not as a qualified pre-retirement survivor annuity
  • Clarify that benefits will be paid to estates only as lump sums
  • Clarify that accumulated mandatory employee contributions may not be withdrawn if benefits are in pay status when a plan becomes trusteed by PBGC
  • Clarify that the form of benefit in pay status when a plan becomes trusteed by PBGC will not be changed
  • Clarify that pre-trusteeship partial distributions are considered in determining benefits
  • Require that fair market value be used for purposes of valuing assets to be allocated to participants’ benefits and in determining employer liability and net worth. The current regulations do not specify this requirement.

Watch for any further information about this guidance.