Congress Passes Federal Spending Bill with Important Employee Benefit Provisions

On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023 (CAA 2023) into law. The $1.7 trillion-dollar annual federal spending bill includes several bipartisan provisions that affect group health plans and adopts important retirement plan proposals known as SECURE 2.0.

The CAA 2023 provisions applicable to group health plans include the following:

• Telehealth Relief Extension. The CAA 2023 provides a two-year extension of relief that allows high deductible health plans (HDHPs) to provide first-dollar telehealth coverage without negatively impacting HSA eligibility. Generally, coverage provided without cost-sharing before the HDHP statutory minimum deductible is met is considered impermissible coverage for HSA eligibility purposes. However, under the CARES Act COVID-19 legislation from 2020, telehealth services could be treated as disregarded coverage (i.e., not causing a loss of HSA eligibility) for plan years beginning on or before December 31, 2021. The Consolidated Appropriates Act of 2022 (CAA 2022) included a temporary extension of this relief from April 1, 2022, to December 31, 2022. The CAA 2023 further extends the optional telehealth relief for plan years beginning after December 31, 2022, and before January 1, 2025.
• Sunset of the MHPAEA Opt-Out for Self-Funded Non-Federal Governmental Plans. The CAA 2023 eliminates the annual opt-out provision from the Mental Health Parity and Addiction Equity Act (MHPAEA) currently available to many state and local governmental self-funded group health plans. Generally, new opt-out elections will not be permitted after the enactment of CAA 2023, and existing elections that are expiring 180 days or later after such enactment will not be permitted to be renewed. A limited exception applies for certain collectively bargained plans.
• Grants to Support MHPAEA Enforcement. The CAA 2023 authorizes five years of CMS grants totaling $10,000,000 annually to be awarded among states that agree to request and review health insurers’ non-quantitative treatment limitation comparative analyses required under the CAA 2021. The purpose of the grants is to increase MHPAEA enforcement in fully insured group and individual health plans. Accordingly, MHPAEA enforcement is expected to remain a priority of state and federal regulatory authorities.

The inclusion of the SECURE 2.0 Act in the CAA 2023 significantly impacts retirement plans. The SECURE 2.0 Act follows the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and incorporates aspects of recent House and Senate bills. A primary goal of the SECURE 2.0 Act is to expand employee access to retirement plans and encourage greater savings. Noteworthy SECURE 2.0 Act provisions include the following:

• Automatic Enrollment (Section 101). Effective for plan years beginning in 2025, most new 401(k) and 403(b) plans would be required to automatically enroll participants upon their becoming eligible. (Employees may affirmatively opt out.) The initial automatic enrollment deferral rate is at least 3% but not more than 10%. Each year thereafter, that amount is increased by 1% until it reaches at least 10%, but not more than 15%. All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., in existence less than three years), church plans and governmental plans.
• Increase in Age for Required Minimum Distributions (Section 107). The required minimum distribution age will increase to 73 for a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, and to 75 for a participant who attains age 74 after December 31, 2032. (Under current law, as established by the SECURE Act 2019, participants are generally required to begin taking distributions from their retirement plans at age 72.) The provision is effective for distributions made after December 31, 2022, for participants who attain age 72 after this date.
• Greater Catch-Up Contribution Limit for Participants Ages 60 through 63 (Section 109). Participants aged 50 or older are currently allowed to make a catch-up contribution (i.e., a contribution in excess of the otherwise applicable deferral limit) up to the annual indexed amount. The 2022 limit on catch-up contributions is $6,500 ($3,000 for SIMPLE plans). Under SECURE 2.0, for participants who have attained ages 60, 61, 62 and 63, these limits increase in 2025 to the greater of $10,000 or 50% more than the regular catch-up amount for non-SIMPLE plans and the greater of $5,000 or 50% more than the regular catch-up amount for SIMPLE plans. The increased amounts are indexed for inflation after 2025.
• Further Expansion of Part-Time Worker Eligibility (Section 125). The SECURE Act of 2019 requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans if they have either completed one year of service (with 1,000 hours of service) or three consecutive years of service (with at least 500 hours of service). SECURE 2.0 reduces the three-year rule to two years, effective for plan years beginning after December 31, 2024. Additionally, these long-term part-time coverage rules are extended to 403(b) plans that are subject to ERISA.

We will continue to review and report on the CAA 2023 in upcoming editions of Compliance Corner.