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Hot Topics in Employee Benefits: What Every HR Professional Should Know About Benefit Plans in 2013

Hot Topics in Employee Benefits: What Every HR Professional Should Know About Benefit Plans in 2013. Society for human resource management chapter meeting Prince william • Fauquier • Culpeper March 6, 2013 Andrea I. O’Brien Isler Dare, P.C. (703) 748-2690 aobrien@islerdare.com.

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Hot Topics in Employee Benefits: What Every HR Professional Should Know About Benefit Plans in 2013

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  1. Hot Topics in Employee Benefits: What Every HR Professional Should Know About Benefit Plans in 2013 Society for human resource management chapter meeting Prince william• Fauquier • Culpeper March 6, 2013 Andrea I. O’Brien Isler Dare, P.C. (703) 748-2690 aobrien@islerdare.com

  2. Goals and Agenda • Identifying top 10 legal trends affecting benefit plans in 2013 and ways you can lead your organization’s response • Health reform compliance • Wellness programs • Pay, play or redesign? • Final HIPAA regulations • Government audits – health plans • Government audits and enforcement – retirement plans • Retirement plan governance • Investment options & fee disclosure • Annuitization and retirement security • Continued strategic role of nonqualified deferred compensation Isler Dare, P.C.

  3. 2013’s Dominant Headline: Health Reform Isler Dare, P.C.

  4. Trend #1: Health Reform Adds New Compliance Obligations in 2013 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” Isler Dare, P.C.

  5. Trend #1: Health Reform Adds New Compliance Obligations in 2013 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 Isler Dare, P.C.

  6. Trend #1: Health Reform Adds New Compliance Obligations in 2013 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 Isler Dare, P.C.

  7. Trend #1: Health Reform Adds New Compliance Obligations in 2013 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? Isler Dare, P.C.

  8. Trend #1: Health Reform Adds New Compliance Obligations in 2013 Checklist of Steps You Can Take to Respond (cont’d) √ 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 Isler Dare, P.C.

  9. Trend #2: Health Reform Brings Renewed Focus & Expansion of Wellness Programs What the Trend is All About • Expansion of wellness programs to incentivize employees towards better health (and lower health care expenses) Isler Dare, P.C.

  10. Trend #2: Health Reform Brings Renewed Focus & Expansion of Wellness Programs 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 Isler Dare, P.C.

  11. Trend #2: Health Reform Brings Renewed Focus & Expansion of Wellness Programs What the Trend is All About (cont’d) • 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! Isler Dare, P.C.

  12. Trend #2: Health Reform Brings Renewed Focus & Expansion of Wellness Programs Checklist of Steps You Can Take to Respond √ 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 Isler Dare, P.C.

  13. Trend #2: Health Reform Brings Renewed Focus & Expansion of Wellness Programs Checklist of Steps You Can Take to Respond (cont’d) √ 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 Isler Dare, P.C.

  14. Trend #3: Health Reform Requires You to Pay, Play or Redesign What the Trend is All About • 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 plans Isler Dare, P.C.

  15. Trend #3: Health Reform Requires You to Pay, Play or Redesign What the Trend is All About (cont’d) • 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 Isler Dare, P.C.

  16. Trend #3: Health Reform Requires You to Pay, Play or Redesign What the Trend is All About (cont’d) • 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) Isler Dare, P.C.

  17. Trend #3: Health Reform Requires You to Pay, Play or Redesign Checklist of Steps You Can Take to Respond √ 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 Isler Dare, P.C.

  18. Trend #3: Health Reform Requires You to Pay, Play or Redesign Checklist of Steps You Can Take to Respond (cont’d) √ 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 Isler Dare, P.C.

  19. Trend #4: Final HIPAA Regulations Demand Compliance by September Isler Dare, P.C.

  20. Trend #4: Final HIPAA Regulations Demand Compliance by September What the Trend is All About • 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 Isler Dare, P.C.

  21. Trend #4: Final HIPAA Regulations Demand Compliance by September What the Trend is All About (cont’d) • New rules regarding access to electronic health records • Prohibitions on sale or marketing of data • Restrictions on use of genetic information Isler Dare, P.C.

  22. Trend #4: Final HIPAA Regulations Demand Compliance by September Checklist of Steps You Can Take to Respond √ 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 of Privacy Practices Isler Dare, P.C.

  23. Trend #4: Final HIPAA Regulations Demand Compliance by September Checklist of Steps You Can Take to Respond (cont’d) √ 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 Isler Dare, P.C.

  24. Trend #4: Final HIPAA Regulations Demand Compliance by September Checklist of Steps You Can Take to Respond (cont’d) √ Identify appropriate personnel who handle “Protected Health Information” (PHI), and provide updated training Isler Dare, P.C.

  25. Trend #5: Increased Government Audits of Health Plans 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) Isler Dare, P.C.

  26. Trend #5: Increased Government Audits of Health Plans 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 Isler Dare, P.C.

  27. Trend #5: Increased Government Audits of Health Plans 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 Isler Dare, P.C.

  28. Trend #5: Increased Government Audits of Health Plans 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 Isler Dare, P.C.

  29. Trend #6: Increased Government Audits and Enforcement of Retirement Plans What the Trend is All About • 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 Isler Dare, P.C.

  30. Trend #6: Increased Government Audits and Enforcement of Retirement Plans 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 Isler Dare, P.C.

  31. Trend #6: Increased Government Audits and Enforcement of Retirement Plans 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” - DOL http://www.dol.gov/ebsa/pdf/meetingyourfiduciaryresponsibilities.pdf “401(k) Plan Fix-It Guide – IRS http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf Isler Dare, P.C.

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

  33. Plan Governance Structure Board of Directors Of Plan Sponsor CEO/President Trustees and Investment Managers Third Party Service Providers Retirement Plan Committee Investment Sub Committee Plan Administrative Sub Committee Staff Voting Members: (Chairperson) (Secretary) Non-Voting Members: (Benefits Manager) Red=Fiduciary Blue=Non-Fiduciary Green=typically Non-Fiduciary Employees Isler Dare, P.C.

  34. Trend #7: Implement Appropriate Plan Governance Structures and Processes to Manage Fiduciary Responsibility Checklist of Steps You Can Take to Respond √ 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 Isler Dare, P.C.

  35. Trend #7: Implement Appropriate Plan Governance Structures and Processes to Manage Fiduciary Responsibility 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” Isler Dare, P.C.

  36. Trend #8: Scrutinize Investment Performance and Fees, and Make Changes When Appropriate 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 Isler Dare, P.C.

  37. Trend #8: Scrutinize Investment Performance and Fees, and Make Changes When Appropriate 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 Isler Dare, P.C.

  38. Trend #8: Scrutinize Investment Performance and Fees, and Make Changes When Appropriate Checklist of Steps You Can Take to Respond (cont’d) √ 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 Isler Dare, P.C.

  39. Trend #9: Annuitization of Portion of 401(k) Benefits for Enhanced Retirement Readiness What the Trend is All About • 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 Isler Dare, P.C.

  40. Trend #9: Annuitization of Portion of 401(k) Benefits for Enhanced Retirement Readiness Checklist of Steps You Can Take to Respond √ 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 Isler Dare, P.C.

  41. Trend #10: Continuing Strategic Role of Nonqualified Deferred Compensation Programs 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 Isler Dare, P.C.

  42. Trend #10: Continuing Strategic Role of Nonqualified Deferred Compensation Programs Checklist of Steps You Can Take to Respond • √ Assess existing compensation and rewards structure • √ Identify goals and your budget • Recruitment? • Retention? • Equity-like participation? • 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.

  43. Questions? Andrea I. O’Brien 703-748-2690 aobrien@islerdare.com

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