Failure to follow 401(k) plan regulations can be costly

Internal process for plan administration is critical.
By David Stofer, Principal, Sageview Advisory Group

A recent decision by a U.S. District Court in Missouri* regarding fiduciary responsibilities for 401(k) plan administration can serve as a warning to others.  The warning? Understand your obligations, establish a process and be diligent in your execution.

The court found the company violated five areas of fiduciary responsibility:

1. Failure to monitor record keeping costs.
2. Failure to negotiate rebates for the Plan from investment companies chosen to be on its platform.
3. Selecting more expensive share classes when less expensive share classes were available.
4. Removing one fund and replacing it with another fund in violation of the Investment Policy Statement.
5. Agreeing to pay the record keeper for the two 401(k) plans an amount that exceeded the market costs for plan services in order to subsidize non-plan corporate services (including payroll and record keeping for the health and welfare and the defined benefit plans.)

Because of the subjective nature of many fiduciary decisions, process is a paramount consideration. In exercising its decision, the Court faulted the company for its lack of process - failing to follow established plan documents, not implementing a full and prudent review of fees and expenses and ignoring issues that should have reasonably been scrutinized.

What steps can you take to reduce your risk of violating the many regulations that exist in regards to 401(k) plan management?

• Work with your financial and/or benefits advisor to make sure you understand the extent of your responsibilities;
• Establish procedures and processes that ensure compliance;
• Consider outsourcing plan management and/or providing other investment options to your employees. New options exist that you may not be familiar with. 

Providing attractive investment options to employees is an important benefit to attract and retain top-notch workers. Knowing your options and being knowledgeable of your fiduciary responsibilities in administering these benefits is fundamental to your success.

*Tussey vs. ABB, Inc.

Supreme Court Ruling Requires Action

Take one issue at a time and stay on track.

By David Wetzler, President and Benefits Consultant

In a 5-4 decision authored by Chief Justice Roberts, the Supreme Court upheld the Affordable Care Act (ACA).  While there are many fine points to the ruling that are still being reviewed, the June 28 ruling makes it clear that the individual mandate is constitutional.

Here are a few things you need to understand about how this impacts many businesses right now.

1. The Medical Loss Ratio rebates will be forthcoming, and many companies will see some kind of financial reimbursement from their carriers.   It will be your responsibility to determine what to do with these funds, keeping in mind compliance guidelines related to your specific situation.
2. The Summary of Benefits and Coverage (SBC) mandate will take effect starting with renewals beginning after September 23, 2012.  
3. The new regulations for reporting aggregate cost of health coverage for the 2012 reporting year on W-2s will take effect in January of 2013.  Employers should begin preparing for this now. 
4. You will need to amend flexible medical spending account plans to comply with the $2,500 cap, applicable for plan years beginning on or after January 1, 2013;
5. Prepare to begin the additional Medicare tax withholding for certain high income earners which is effective in 2013; and
6. For employers with 50 or more full-time employees, you must begin to look down the road to 2014; with an eye on what impact the shared responsibility tax may have on your business and employee population.
7. Health plans must include the the expanded list of no-cost sharing services for Women’s Preventive Health Care.
8. For those businesses with self-insured plans, a Comparative Effectiveness Research Fee as outlined in the Internal Revenue Code (section 4376) will be required.

SRA Benefits has anticipated this moment for many months and is ready to advise companies on what needs to be done in each of these areas to keep ensure compliance.  Contact us today for further information: info@srabenefits.com.

New “Partnership” LTC Policies Help Protect Your Assets

Medicare and Medicaid may not deliver what you think.
By Mike Ashley, Senior Benefits Consultants, Inc.

According to AARP, long-term care (LTC) expenses represent the single biggest threat to your retirement nest egg. This is driven, in large part, by statistics that show 70% of those over the age of 65 will require some sort of "care" in their lifetime. Most care will be received at home or in an assisted living facility. Medicare covers only short-term rehabilitative care in a nursing home or at home leaving a big gap for funding long-term expenses.

Currently, over 50% of nursing home residents are on Medicaid.  It is certainly possible to qualify for Medicaid, but not until you have spent almost every penny of your own money (leaving only $2,000 in Kansas, or $999.00 in Missouri). After that, Medicaid can pay for nursing home care, provided you are in a nursing home that accepts Medicaid.  Forget home care.  And here’s the kicker!  If you qualify for, and receive funds from Medicaid, the state will try to recover these funds from your estate at your death.

The cost to Medicaid of paying for this care has the program teetering on the brink of insolvency.  In an effort to alleviate some of this burden,  and encourage people to take some responsibility for their own care, most states, including Kansas and Missouri, have approved the use of “State Partnership Long Term Care Policies”.  These policies are available from a variety of insurance companies and they must meet certain criteria set forth by the Federal Government.

How do “Partnership” policies work?  If you exhaust your benefits of, lets say, $400,000 and still need care, the “Partnership” policy allows you to exempt $400,000 from Medicaid spend down and still qualify. This is a far better plan than relying totally on Medicaid. Under most projected scenarios, Medicaid will be out of funds in the near future.

Long Term Care Insurance that covers home care, assisted living, and nursing home care is not for everyone. It is, however, important to at least consider it as part of your retirement planning.  Contact your SRA Benefits representative for more information.

Don't use it? Don't lose it!

IRS Open to Comments on FSA Use-or-Lose Rule

by David Wetzler, Senior Business Consultant

It’s a fact. If you never use the muscles in your biceps, they’ll eventually disappear.   Use It or Lose It, as the saying goes.  With a little help from the IRS, however, the Use It or Lose It rule may not be a universal truth.

On May 30, 2012, the Internal Revenue Service issued Notice 2012-40 providing guidance on the $2,500 Health Flexible Spending Account (FSA) requirements. In the notice, the IRS requested comments on whether the "use-or-lose" rule should be modifed in light of the $2,500 limit. 

Currently, employees who participate in FSAs must estimate the amount of money they will need in the coming year to cover healthcare-related expenses not covered by their health plans.  They can stash away a maximum of $2,500 per year to pay for things such as  co-pays, deductibles, eye glasses, braces, etc. -  items not covered under their other insurance plans.  The money contributed to their Flexible Savings Accounts is tax exempt, thereby reducing the employee’s taxable salary.  That’s the good news.  But there’s a downside as well:  the Use-or-Lose requirement. Employees must accurately project what they think they will spend or lose the unspent amount in the account every plan year.

Not only does this rule inhibit employee participation, it creates spending behaviors in the last month of each plan year that may or may not be the best use of an employee’s money.  

So now’s your chance to let the IRS know what you think.  Written comments about the Use-or-Lose Rule are being requested by  August 17, 2012.   Refer to page 10 of Notice 2012-40 to find out how and where to submit your comments. 

For a summary of all the requirements on Notice 2012-40 regarding FSAs, check out Healthcare Reform on the SRA Benefits web site.  And contact an SRA Benefits consultant about how FSAs may be a great addition to your employee benefit plan offerings.

Is This Test Really Necessary?

New lists help guide medical discussions

by David Wetzler, Senior Benefits Consultant
  

At a time when the health care and health insurance industries are under intense scrutiny, nine U.S. medical societies have developed lists of "Five Things Physicians and Patients Should Question" to improve care and eliminate unnecessary tests and procedures.

The intent of the initiative is to help patients choose care that is supported by evidence showing that it works for patients like them; is not duplicative of other tests or procedures already received; won’t harm them; and is truly necessary. The effort has been championed by the Choosing Wisely initiative of the American Board of Internal Medicine (ABIM) Foundation*, as well as Consumer Reports.

For example, number one on the list of The American Academy of Family Physicians is:

• Don't do imaging for low back pain within the first six weeks, unless red flags are present. Red flags include, but are not limited to severe or progressive neurological deficits or when serious underlying conditions such as osteomyelitis are suspected. Imaging of the lower spine before six weeks does not improve outcomes, but does increase costs. Low back pain is the fifth most common reason for all physician visits.

Choosing Wisely is part of a multi-year effort of the ABIM Foundation to help physicians be better stewards of finite health care resources. It continues the principles and commitments of promoting justice in the health care system through a fair distribution of resources set forth in "Medical Professionalism in the New Millennium: A Physician Charter.”

The new lists are being issued at a time when many payers (employers, Medicare, Medicaid, states and local governments) are struggling to reduce their health insurance costs. But such efforts run the risk of the payer being accused of rationing care. Such a charge was leveled at Medicare in 2010 when it opened a National Coverage Determination on the prostate cancer therapy Provenge (sipuleucel-T).  And many questioned the FDA’s late 2011 decision to revoke the breast cancer indication for Avastin (bevacizumab). 

We would love to hear what you think about these lists.

1. Do you agree that certain tests and procedures are, in fact, overused and unnecessary?
2. Do you think accusations of rationing may follow from publication of these lists, or is this a rational step to reduce costs and promote meaningful conversations with our physicians?
3. Should employers make these lists available to their plan participants?

Feel free to email me your thoughts, at dwetzler@SRABenefits.com. 

*To learn more about the ABIM Foundation, visit www.abimfoundation.org.

Medical Loss Ratio Rebates a Messy Game

Refunds due in August - but don't hold your breath
by SRA Benefits

The Kaiser Family Foundation just released a study estimating that insurers will provide policyholders close to $1.3 billion in medical loss ratio (MLR) rebates in August of this year. SRA Benefits studies of Missouri and Kansas insurers suggest that several carriers will be issuing rebates in our markets but some policyholders expecting refunds might be surprised when no money arrives.

The PPACA (National Healthcare Reform) provides that insurers must issue rebates to policyholders if their ratio between expenses and what they actually pay providers is better than the new law allows. For small group and individual plans insurers cannot keep excess premiums when they pay less than 80% of premiums to medical providers; they cannot keep excess premiums when they pay less than 85% of premiums for large groups. The rest must be refunded to policyholders. However, with this first round of rebates, what is counted and how it’s counted creates a confusing array of issues that each insurer’s actuaries and accountants must address.

Preliminary information and disclosures from insurers to the National Association of Insurance Commissioner (NAIC) show a wide range of results for our local markets by type of plan, insurance company and state. SRA also found a wide range of differences in how insurers are interpreting the regulations as well as significant challenges due to ways in which carriers are structured for tax and business purposes. This is not a reflection of insurers with evil intent but a reflection of very complicated accounting and legal issues. Because there are so many variables, each insurer will likely make different decisions as to the regulations based on their individual situation.  In addition, the information publicly available today through the NAIC is different than the actual forms and submissions that will ultimately be submitted to Health and Human Services (HHS). 

Insurers are scrambling to make last minute revisions before final submissions are due to the Federal government June 1, 2012. Once the announcements come out, the lucky policy owners will be waiting for their refunds in August of this year. 

Don’t hold your breath until you actually get a refund in the mail. With different rules between state and federal regulations, some policy holders may be excluded or in a different pool than they believe. As an example, you may have small group rates and benefits but be a large group under the law.  And insurers may choose to reduce future premiums in lieu of cash refunds. As your broker, SRA Benefits stands ready to help you understand the refund process and its implications to your company.

Why would you need advice?  If you happen to be a lucky employer and qualify for a refund it will be your turn to figure out what to do with it.   Once employers find out the options and requirement on what is to be done with the money, they will have a glimpse of the challenges insurers face.

IRS Issues New 2012 W-2 Reporting Requirements

For Many Companies, Cost of Health Care Coverage Must Be Included 

By David Wetzler, Benefit Consultant

Many employers will soon be required to report to employees the cost of their group health plan coverage. According to the IRS, the purpose of the reporting is to provide useful and comparable consumer information to employees on the cost of their coverage.

The IRS recently issued guidance (IRS Notice 2012-9) to help with the mandatory reporting that is scheduled to begin with 2012 W-2 forms. 

As the deadline gets closer, however, many employers are having trouble figuring out how they are supposed to calculate the reportable cost.

 Here are some highlights of the latest IRS guidance.

• If an employer issues W-2 forms for less than 250 employees in the preceding year, it is exempt from the W-2 reporting requirement. 
• Corporations which are wholly owned by federally recognized Indian tribal governments are exempt. 
• The aggregate reportable cost generally includes the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for it through pre-tax or after-tax contributions. 
• Employers who are subject to the reporting requirements include federal, state and local government entities, churches and other religious organizations. 
• The aggregate reportable cost will be reported on Form W-2 in box 12, using code DD. 
• For employees who are terminated during the year, an employer may "apply any reasonable method of reporting the cost of coverage provided under a group health plan" for the employee, provided that the method is used consistently for all employees receiving coverage under that plan who leave their jobs during the plan year and continue or otherwise receive coverage after the termination of employment. 
• An employer is not required to report any amount in box 12 using Code DD for a departing employee who has requested to receive a Form W-2 before the end of the calendar year. 
• An employer does not have to issue a W-2 reporting healthcare cost to retirees who are not otherwise required to receive a W-2. 
• An employer is not required to include the cost of coverage under a dental or vision plan if it satisfies the requirements for being excepted benefits under the Health Insurance Portability and Accountability Act (HIPAA). Generally, to be excepted benefits for this purpose, the dental or vision benefits must either:

 1. Be offered under a separate policy, certificate, or contract of insurance (that is, not offered under the same policy, certificate, or contract of insurance under which major medical or other health benefits are offered); or

  2. Participants must have the right not to elect the dental or vision benefits, and if they do elect the dental or vision benefits they must pay an additional premium or contribution for that coverage. 

• The amount of money placed in a healthcare flexible spending account is not required to be included in the reportable costs as long as the amount comes solely through employee contributions from salary. 

• Reporting requirements do not apply to amounts contributed to an Archer Medical Savings Account or to any health savings account of an employee or an employee's spouse. 
• Coverage of employee assistance programs (EAPs) is not required to be reported if no premium is charged. This also applies to wellness programs and onsite medical clinics for COBRA participants. If a premium is charged, then an employer must include the cost in W-2 reporting. 
• Other types of coverage NOT subject to the reporting requirement include: 
• Coverage only for accident, or disability income insurance, or any combination thereof; 
• Coverage issued as a supplement to liability insurance; 
• General liability insurance and automobile liability insurance; 
• Workers' Compensation or similar insurance; 
• Automobile medical payment insurance; 
• Credit-only insurance; and other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits. 

These are only some of the rules associated with the new healthcare reporting requirements. For more information, consult with your tax advisor or an SRA Benefits consultant.