Current developments in employee benefits and pensions.

• Author: Walker, Deborah
• Position: Part 2

This two-part article covers significant developments in late 2010 and 2011 in employee benefits, including executive compensation, health and welfare benefits, qualified plans, and employment taxes. Part I, in the November 2011 issue, covered updates on employment taxes and executive compensation. Part II focuses on guidance released under the Patient Protection and Affordable Care Act of 2010 (PPACA) (1) and changes to the rules for qualified plans.

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PPACA Provisions Repealed

The "free choice" voucher program that was set to become effective in 2014 under PPACA was repealed. (2) Under the program, employers offering coverage would have been required to provide a voucher to certain employees, allowing the amount the employer would have paid toward the employee's coverage under the employer's plan to be used to purchase coverage through a state affordable insurance exchange (see below).

In addition, the expanded Form 1099 reporting requirement that had been included as a revenue-raising item in PPACA was repealed. (3) Beginning with payments made after December 31, 2011, reporting on Form 1099-MISC, Miscellaneous Income, would have been expanded to include amounts paid to corporations. (4)

Proposed Regs. on Uniform Summary of Benefits and Coverage for Health Plans

Beginning March 23, 2012, group health plans and issuers will be required to provide a standardized summary of benefits and coverage (SBC) that describes the key features of the health coverage in a clear and uniform manner to enable an apples-to-apples comparison by the Consumer -- that is, in the case of group health plans, by the plan sponsor who selects the policy and the participants and beneficiaries who enroll. (5) A uniform glossary of terms commonly used in health insurance coverage must also be provided. (6)

The proposed regulations (7) explain that the duty to provide the SBC and glossary applies across the board -- to issuers in the group and individual markets as well as to self-insured group health plans, including those that are grandfathered. Applicants, enrollees, and policy or certificate holders are entitled to the new disclosure. The duty to provide the SBC falls on the issuer, although in the case of self-insured group health plans, the plan sponsor or designated plan administrator is obligated to provide the disclosure.

The SBC and glossary are to be provided free of charge. Generally, they can be provided in paper or electronic format. While the proposed regulations would allow the uniform glossary to be posted on an internet site, group health plans covered by the Employee Retirement Income Security Act of 1974 (ERISA) may provide the SBC electronically only if the Department of Labor's (DOL) requirements for electronic disclosure are met. In certain counties (where 10% or more of the population is literate only in the same non-English language), the plans and issuers must provide interpretive services and written translations of the SBC in the non-English language on request. The English version of the SBC must also disclose the availability of the language services in the relevant language.

In the case of disclosure from the issuer to the plan, the SBC must be provided on application and in connection with a request for information (although there are provisions that avoid redundant disclosure). The disclosure must also be provided on renewal, and in the case of automatic renewal, it must be provided at least 30 days before the first day of the new policy year. In the case of disclosures from the issuer or plan to participants, the SBC must be provided in connection with the enrollment materials, within seven days after a request for special enrollment, when coverage is renewed (or 30 days before the first day of the new plan year if renewal is automatic), and within seven days of a request for the information. Notice must be given of material modifications that affect the SBC's content at least 60 days before the change becomes effective. The SBC must be provided as a stand-alone document. However, comments are requested on whether and how the SBC might be coordinated with the summary plan description and other group health plan disclosure materials.

The plan or issuer must make available a uniform glossary within seven days of a request. This requirement can be satisfied by providing an internet address where consumers can obtain the glossary. The address must be either on the plan's or issuer's website or on a website of the DOL or Department of Health and Human Services (DHHS), and the plan or issuer must provide a paper copy on request. A draft uniform glossary has been proposed, and additional terms are expected to be added, but generally only on a prospective basis. A fine of up to $1,000 can be imposed on the issuer, plan sponsor, or designated plan administrator for each willful failure to provide the SBC or glossary. For this purpose, a separate fine may be imposed for each individual or entity for whom there is a failure to provide the information.

Premium Tax Credits to Purchase Coverage Through State Exchanges

The IRS proposed regulations on new Sec. 36B, which was added by PPACA to provide refundable "premium tax credits" to qualifying individuals who purchase health coverage through a state affordable insurance exchange beginning in 2014.

The proposed regulations (8) clarify who will be eligible for the tax credit, how the credit is computed, the availability of the credit to employees whose employers offer health coverage, and an individual's obligation to reconcile the advance credit payments with the actual credit as eventually calculated on the individual's federal income tax return. (Individuals who receive advance payments must file a federal income tax return even if they are not otherwise required to file.) The regulations are proposed to be effective for tax years ending after December 31, 2013.

Exchanges Will Make Advance Determination of Eligibility for the Credit

An individual's eligibility for the tax credit is determined by the exchange at the time the individual enrolls for coverage through the exchange. This advance determination of eligibility is based on the individual's income and other requirements. If the individual qualifies for the credit, an advance payment of the credit is made monthly to the issuer of the qualified health plan in which the individual enrolls. The individual is responsible for paying the difference between the advance payment and the premium amount for the plan actually chosen. An individual is not eligible for the credit for any month in which he or she is eligible for minimum essential coverage other than coverage offered in the individual market. Minimum essential health coverage includes government-sponsored coverage (e.g., Medicare, Medicaid, and TRICARE) and employer-sponsored health plans if that coverage is affordable and provides minimum value. Coverage is affordable if the employee's required contribution does not exceed 9.5% of household income for the tax year. Minimum value is provided if the plan's share of the total allowed costs of benefits provided under the plan is at least 60% of those costs.

Sec. 36B(c)(1) provides the credit to an applicable taxpayer, which is one:

* Whose household income for the year is between 100% and 400% of the federal poverty line (FPL) (lower-income individuals will be eligible for assistance through...