The Department of Labor (DOL), Health and Human Services (HHS), and Internal Revenue Service (IRS) jointly released an FAQ on August 26, 2019, that explain whether health plans should be including drug manufacturers’ coupons in determining the annual cost-sharing limits under the Affordable Care Act (ACA). HHS regulations that announced the 2020 benefit and payment parameters (including the maximum annual cost-sharing limits) indicated that plans and insurers may exclude the value of drug manufacturers’ coupons when determining the annual cost-sharing limits when a medically appropriate generic equivalent is available. This applies for plan years beginning on or after January 1, 2020.
Feedback received following the release of these regulations was that this provision implies that such coupon amounts must be counted toward the annual cost-sharing limit in any other circumstance, and that a requirement like this could lead to a conflict with the certain rules for high deductible health plans (HDHP) and the establishment of health savings accounts (HSA). IRS guidance surrounding HSA’s provide that drug manufacturer coupons would not affect an individual’s HSA eligibility as long as the plan did not apply the value of the coupon towards their deductible.
Since plan sponsors and insurers may not be able to comply with both the impending HHS rules and the existing IRS regulations simultaneously, the agencies jointly intend to address this conflict in the HHS regulations that announce the 2021 benefit and payment parameters. Until then, enforcement action will not be initiated in cases where a health plan excludes the value of drug manufacturers’ coupons from the annual limitation on cost sharing, including in circumstances in which there is no medically appropriate generic equivalent available.
The IRS has issued Notice 2019-49, guidance that extends existing nondiscrimination testing relief available to certain defined benefit (DB) pension plans that are closed to new participants. The guidance is intended to aid sponsoring employers that are maintaining a DB plan for certain current employees, but commonly offer only a defined contribution (DC) plan—such as a profit sharing-401(k) plan—to new employees. In the absence of such relief, these DB plans could fail nondiscrimination testing because of the limitations on participation. Notice 2019-49 extends the current relief to cover plan years that begin before 2021. (Permanent relief has been proposed in retirement enhancement legislation that has not yet been enacted.)
Several corrections to IRS proposed regulations on multiple employer plans (MEPs) were published in the Federal Register. Originally published on July 3, 2019, this proposed guidance would revise 1979 IRS final regulations on MEPs—arrangements under which several employers elect to participate in a common plan.
A key revision being proposed in these regulations addresses the so-called “bad apple” rule, under which an entire MEP could fail to meet qualification requirements because of a compliance failure by one employer. This is known formally as the “unified plan rule.” These regulations propose an exception to the unified plan rule and—if certain requirements are met—compliance failures by individual participating employers need not jeopardize the entire MEP.
Most of the corrections published in the Federal Register are of a grammatical or punctuation nature, or a minor omission, such as failing to precede an Internal Revenue Code citation with the word “Section.” However, one substantive change corrects an omission in the preamble (page 31788) to these proposed regulations. Added by the correction is the parenthetical reference “(and their beneficiaries”) to a proposed notification requirement.
Specifically—in the event of a compliance failure by a participating MEP employer—a notification must be sent by the MEP plan administrator to participants if that participating employer has proven unresponsive. The proposed regulation states that such notices must be provided to beneficiaries, as well. However, the preamble as published did not include a reference to beneficiaries. The correction now being made aligns the preamble with the regulation itself.
The Office of Management and Budget (OMB) has received for review proposed Treasury/IRS regulations that would update life expectancy and distribution period tables used when calculating required minimum distributions (RMDs) from retirement savings arrangements, including required distributions to beneficiaries. According to its website, the OMB reviewed the proposal on August 13. While no legal deadline for completing review of the guidance is listed, it is generally expected that OMB’s review would be completed within 60–90 days, after which the guidance would be expected to be published in the Federal Register.
This proposed update to the life expectancy and distribution period tables is in response to an Executive Order issued by President Trump in August 2018. In that Executive Order, the President directed the Treasury Department and the Department of Labor to seek regulatory avenues for enhancing retirement saving opportunities. Specifically recommended were updating the above-described distribution tables to reflect longer life expectancies (tables last updated in 2002), enhancing opportunities for employers to participate in multiple employer plans (MEPs), and simplifying retirement plan disclosure processes.
The IRS has issued Revenue Ruling 2019-19, which addresses the responsibilities of retirement plan administrators when a distribution check that represents a taxable amount is issued to a plan participant, but remains uncashed. The facts and circumstances described in the guidance define the distribution as not including designated Roth account (e.g., Roth 401(k)) amounts—which are potentially tax-exempt—or other amounts not subject to normal taxation.
The guidance notes the following.
- The check amount is taxable in the year received by the recipient, whether cashed or not.
- Plan administrator obligations for withholding—and remitting of withholding—are not altered by whether the check is cashed.
- The recipient’s failure to cash the check does not alter the plan administrator’s requirement to report the distribution on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (reporting is required for distributions of $10 or more).
On June 14, 2019, the U.S. Departments of Health and Human Services, Treasury, and Labor jointly issued final regulations entitled Health Reimbursement Arrangements and Other Account-Based Group Health Plans, as well as several accompanying items of guidance and general information. The final regulations are published in today’s Federal Register and will become effective August 19, 2019 (60 days from publication). The announced applicability date is for plan years beginning on or after January 1, 2020.
A health reimbursement arrangement (HRA) is an employer-funded account to be used for paying unreimbursed medical expenses, with variations that include both a pre-retirement and post-retirement HRA. The account generally cannot be used to pay most health insurance premiums.
The final regulations identify new employer-funded HRA variations. The “individual coverage HRA” would allow a member of a group of employees that is not offered a group health plan to use this HRA’s funds to purchase health insurance coverage in the individual market, including public exchanges under the Affordable Care Act.
The “excepted benefit HRA” would allow employees to use a limited amount each year from this HRA to cover certain specified expenses—including premiums for vision, dental, and what is known as short-term/limited duration health insurance.
Watch Ascensus.com for any further information about this extensive guidance.
The U.S. Departments’ of Health and Human Services, Treasury, and Labor have jointly issued final regulations, entitled Health Reimbursements and Other Account-Based Group Health Plans, as well as several accompanying items of guidance and general information. These other items include a news release, frequently-asked-questions (FAQ), model notice, and model attestation.
Health reimbursement arrangements (HRAs) are employer-funded accounts to be used unreimbursed medical expenses, with variations that include both pre-retirement and post-retirement HRAs. In general, these accounts cannot be used to pay most health insurance premiums.
The final regulations identify new employer-funded HRA variations. The Individual Coverage HRA would allow a member of a group of employees that is not offered a group health plan to use this HRA’s funds to purchase health insurance coverage in the individual market, including public exchanges under the Affordable Care Act (ACA).
The Excepted Benefit HRA would allow employees to use a limited amount each year from this HRA to cover certain specified expenses—including premiums for vision, dental, and what is known as short-term/limited duration insurance coverage.
Published in today’s Federal Register are IRS proposed regulations that would govern tax withholding from certain payments from retirement savings arrangements and commercial annuities, when a payment is to be sent to a destination outside the United States. The regulations also address withholding when a payment is be delivered to a financial organization within the U.S. if the recipient has no U.S. residence address, and certain other situations—including payments sent to military or diplomatic postal destinations.
If finalized, the regulations would apply to IRAs and to employer-sponsored retirement plans governed by Internal Revenue Code Section 401(a)—which includes profit sharing/401(k), defined benefit, money purchase pension, and certain other “qualified plans”—as well as 403(b), governmental 457(b), SEP, and SIMPLE plans.
Further details can be found in the May 30, 2019, Latest News article.
The Federal Register-published IRS document can be found here.
Published in today’s Federal Register is an IRS request for continued authority to collect information with respect to its Employee Plans Compliance Resolution System (EPCRS), the program under which certain retirement plan operational or document compliance failures can be resolved. Agencies like the IRS are limited by the federal Paperwork Reduction Act as to the length of time they are allowed to contact employers or taxpayers to request information pertaining to a program, an administrative form, etc.
Such authority must generally be renewed every three years, and—while usually a formality—requests for continuing authority must be published in the Federal Register and the public must have an opportunity to comment. This IRS information collection authority request pertaining to the EPCRS program can be found here.
Scheduled for publication in tomorrow’s Federal Register are proposed IRS regulations on circumstances when income tax withholding must be applied to certain payments from retirement arrangements and commercial annuities.
Specifically, these regulations address required withholding for payments made to destinations outside the United States, or made to a U.S. financial institution by a person with no U.S. address. The proposed regulations are intended to replace IRS Notice 87-7, the primary guidance currently governing such withholding.
The proposed regulations are not intended to replace rules that apply to an eligible rollover distribution (ERD) from an employer-sponsored retirement plan; a mandatory 20 percent withholding rate generally applies to such payments (other than distributions from IRA-based employer plans). Also, these regulations do not alter the general rule that withholding may be waived for employer plan payments that are not ERDs (e.g., required minimum distributions); the regulations—in general—apply to IRA distributions.
Key provisions of these proposed regulations include the following.
- As with Notice 87-7, the guidance would apply to both periodic—annuity, or similar—payments and nonperiodic payments.
- In general, the proposed regulations would not apply to foreign nationals (those who are not U.S. citizens); other rules apply to these persons.
- As before, a recipient who furnishes a payor with a U.S. residence address could generally waive the standard 10 percent withholding rate if the payment is not subject to mandatory withholding (e.g., an ERD).
- A recipient who furnishes a U.S. residence address but requests that a payment be directed outside the U.S would not be permitted to waive withholding (this is a major change from Notice 87-7).
- A recipient with a foreign address who requests that a payment be made to a financial institution within the U.S. also would not be permitted to waive withholding; the IRS cited “the ease with which funds deposited with a financial institution within the United States can be withdrawn by a person outside the United States” as the reason for this regulatory position.
- Consistent with Notice 87-7, a recipient with a non-U.S. address only, or who does not furnish the payor with a residence address, may not waive withholding.
- Recipients who furnish a military or diplomatic post office address (APO, FPO, or DPO) would be treated as having a U.S. residence address. A payment to such an address would be treated as being delivered to a U.S. address; therefore, the recipient could waive withholding on such payment if the payment was not subject to mandatory withholding (e.g., an ERD).
These proposed regulations would officially apply upon their approval in final form; until such time the guidance in Notice 87-7 would continue to apply. However, the regulations’ proposed recognition of military and diplomatic post office addresses as U.S. addresses may be relied upon in the interim.
Public comments must be received within 90 days of publication in the Federal Register; a public hearing will be held if requested in such public comments.
A pre-publication version of the proposed regulations can be found here.