PPI in the News Compliance Corner - March 2, 2023 Archive
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On February 23, 2023, the DOL, HHS and IRS (the departments) released FAQs regarding implementing certain transparency requirements under the Consolidated Appropriations Act, 2021 (CAA, 2021). Specifically, the guidance addresses the annual attestation of compliance with the CAA, 2021 prohibition against gag clauses.

The FAQs explain that a “gag clause” in the healthcare context refers to a contractual term that directly or indirectly restricts information that a group health plan or insurer can access or make available to another party. Effective December 27, 2020, the CAA, 2021 generally prohibited plans and insurers from entering into agreements with providers, TPAs and other service providers that include gag clauses that restrict:

1. Disclosure of provider-specific cost or quality of care information to the plan sponsor, participants, beneficiaries or referring providers.
2. Electronic access to de-identified claims and encounter information for each participant or beneficiary upon request, consistent with privacy regulations under the ADA, GINA and HIPAA.
3. Sharing information described in (1) and (2) or directing that such information be shared with a business associate, consistent with applicable privacy regulations.

Plans and insurers must submit an annual attestation of compliance with these gag clause prohibitions. The FAQs specify that the first “Gag Clause Prohibition Compliance Attestation” is due no later than December 31, 2023, covering the period beginning December 27, 2020 (or the effective date of the group health plan if later), through the date of attestation. Subsequent attestations, covering the period since the last preceding attestation, are due by December 31 of each year thereafter. The attestation must be submitted to CMS through the Gag Clause Prohibition Compliance Attestation System. Instructions, a system user manual and an Excel template are available for review on the CMS website. Plans and insurers that do not submit the required attestation may be subject to enforcement action.

The gag clause prohibitions and compliance attestations apply to fully insured and self-insured plans (including level-funded plans), regardless of grandmothered or grandfathered plan status. However, the requirements do not apply to plans offering only excepted benefits and will not be enforced with respect to HRAs integrated with a group health plan or insurance. For fully insured plans, the plan and the insurer are each required to annually submit the attestation. However, the insurer’s submission of the attestation on behalf of the plan will satisfy the attestation requirements for both the plan and insurer. Self-insured and level-funded plans may enter a written agreement with a TPA or service provider to attest on the plan’s behalf, but the plans remain ultimately responsible for satisfying the requirements.

Group health plan sponsors should be aware of this new guidance and ensure that their contracts with providers do not reflect any prohibited gag clauses. Sponsors should contact and coordinate with their insurers, TPAs, PBMs and other service providers to ensure the required attestations are submitted by December 31, 2023.

FAQs Part 57 »
Gag Clause Prohibition Compliance Attestation System »
Instructions »
User Manual »
Template »

On February 21, 2023, the IRS published final regulations ( T.D.9972), significantly expanding the electronic filing mandate for various returns, including Forms 1094 and 1095-C, 1099-series and Forms W-2 beginning in 2024. The final regulations reflect changes made by the Taxpayer First Act of 2019 to increase electronic filing requirements. The reason for the delayed application date to 2024 is to give sufficient time for impacted filers and vendors to prepare for an increase in electronic filing.

Form 1094 Series; Forms 1095-B and 1095-C; Form 1099 Series; and Form 5498 Series
Under current regulations, the 250-return threshold applies separately to each type of information return covered under the regulations. The final regulations reduce the 250-return threshold to 10 or more returns in a calendar year. Furthermore, filers must aggregate almost all return types covered by the regulation to determine whether a filer meets the 10-return threshold rather than applying the 10-return threshold separately to each type of form. These new changes will take effect for returns filed on or after January 1, 2024. The proposed regulations issued in 2021 reduced the threshold to 100 returns for calendar year 2022 before the threshold decreases significantly to 10; however, the final regulations didn’t adopt this transition period.

For specific rules for other forms, please refer to the final regulations.

Additionally, the final regulations instruct that filing any corrected information returns must be filed in the same manner as the original formats (electronic or paper).

The final regulations generally provide hardship waivers for filers who would experience hardship complying with the electronic filing requirements, such as religious reasons.

These regulations considerably expand the electronic filing requirements to smaller employers and other filers. Employers who are filing returns in paper form should determine whether they will be subject to the electronic filing requirement in 2024. Further, affected employers should consult with their legal or tax advisor and consider engaging with an appropriate tax filing (or ACA reporting) vendor or implementing appropriate software to meet the new electronic filing requirements.

Final Regulations »
Press Release »

On January 26, 2023, the US Court of Appeals for the Ninth Circuit released an opinion that expands upon its previously released memorandum disposition reversing a district court’s judgment that United Behavioral Health (UBH) wrongfully denied benefits to plaintiffs by using overly restrictive criteria for administering claims for treatment of mental health and substance abuse disorders.

Plaintiffs initially filed suit against UBH in 2014, bringing claims under ERISA against the insurer for breach of fiduciary duty and improper denial of benefits. Plaintiffs alleged that UBH improperly developed and relied on internal guidelines that were inconsistent with the plans’ terms and with state-mandated criteria. Plaintiffs also alleged the plans’ provided coverage for treatment was consistent with generally accepted standards of care (GASC) but that UBH’s guidelines for making benefit determinations were more restrictive than GASC.

After a bench trial, the district court ruled in March 2019 that UBH had breached its fiduciary duties and wrongfully denied benefits because its guidelines impermissibly deviated from GASC and state-mandated criteria. Notably, the district court based its analysis in part on UBH’s dual role as both plan administrator and insurer, which it deemed a structural conflict of interest, as well as the incentivization for UBH to keep its expenses down, which it deemed a financial conflict of interest.

As a result, in November 2020, the district court directed the implementation of court-determined claims processing guidelines, ordered the “reprocessing” of all plaintiff class members’ claims under these guidelines and appointed a special master to oversee compliance for a 10-year period.

UBH appealed the district court’s decision to the Ninth Circuit on the following grounds:

• The court erred in concluding the insurer’s guidelines impermissibly deviated from GASC.
• The court did not apply the appropriate level of deference to the insurer’s interpretation of the plans.
• The unnamed plaintiffs in the “class” certified by the district court failed to exhaust their claims administratively in accordance with plan requirements. (UBH did not appeal the district court’s determination that the guidelines were impermissibly inconsistent with state-mandated criteria.)

The Ninth Circuit agreed with UBH on each of these points, holding that the district court misapplied the usual (and largely deferential) “abuse of discretion” standard of review afforded to plan administrators by substituting its own plan interpretations for those of UBH without regard to whether UBH abused its discretionary authority when it denied these claims. In the panel’s view, UBH did not abuse its discretionary authority, even when considering both the structural and financial conflicts of interest.

In the panel’s view, ERISA does not mandate what kind of benefits employers must provide but instead concerns itself with the written terms of benefit plans. Nor does ERISA necessarily mandate consistency with GASC; rather, ERISA mandates that a plan administrator (UBH, in this case) properly administers plans pursuant to the terms of those plans.

On these grounds, the panel reversed the district court’s judgment that UBH wrongfully denied benefits to the named plaintiffs based upon the court’s finding that the plan guidelines impermissibly deviated from GASC. Furthermore, the panel held that the district court should not have excused unnamed class members from demonstrating compliance with the plans’ administrative review exhaustion requirement because doing so conflicted with the written terms of the plan.

Wit v. UBH »

On January 19, 2023, the federal Office of Child Support Enforcement (OCSE) issued updates to the National Medical Support Notice (NMSN) and the instructions for the form. OCSE is the federal government agency that oversees the national child support program. It maintains the NMSN, which is the official form child support agencies send to employers to ensure that children receive healthcare coverage when available and required as part of a child support order.

The NMSN has two parts, Part A and Part B. Part A is the Notice to Withhold for Health Care Coverage and includes the employer response form and instructions. Part B is the Medical Support Notice to the Plan Administrator and includes the Plan Administrator response form and instructions. Significant changes to the NMSN Parts A and B form and instructions include:

• Added sample Part A
• Increased fields for children from six to eight
• Converted instructions into a stand-alone attachment
• Added addendum to Part B

Additional questions and answers on the State Medical Support Contacts and Program Requirements matrix are available on OCSE’s website.

Employers and plan administrators must review Part A of the NMSN and either return a completed Part A to the issuing agency or forward Part B to the appropriate plan administrator (if different from the employer) within 20 business days after the date of the NMSN.

National Medical Support Notice Forms and Instructions »

The IRS has released updated versions of Publications 502 and 503 for the 2022 tax year. Publication 502 describes medical expenses taxpayers can deduct on the 2022 federal tax returns, while Publication 503 explains the requirements necessary for taxpayers to claim the dependent care tax credit for child and dependent care expenses.

The updated version of Publication 502 is virtually identical to that of 2021, with two substantive changes:

• The standard mileage rate for the use of a vehicle for medical reasons in 2022 is 18 cents a mile from January 1 through June 30 and 22 cents a mile from July 1 through December 31. (The rate was 16 cents a mile for all of 2021.)
• References to the health coverage tax credit, a premium subsidy previously available to certain displaced workers and retirees since 2003 but expired at the end of 2021, have been removed.

Notably, masks, hand sanitizer and hand sanitizing wipes for the primary purpose of preventing the spread of COVID-19 (collectively, “personal protective equipment”) remain deductible for the 2022 tax year, just as they were for 2021, pursuant to IRS Announcement 2021-7.

Updates to Publication 503 reflect the expiration of the temporary enhancements to dependent care benefits made available under the American Rescue Plan Act of 2021 (e.g., the maximum excludable amount increased to $10,500 from $5,000 for most taxpayers in 2021). The updated version also references the COVID-19-related relief allowing for the carryover of unused DCAP amounts from 2021 to 2022 without counting toward the maximum exclusion amount to other DCAP benefits available in 2022.

While Publication 502 can be broadly instructive on the subject of medical expenses that can be reimbursed or paid for by tax-favored accounts such as health FSAs, HRAs and HSAs, its actual purpose is to explain the itemized deduction for medical expenses that individuals can claim on their income tax returns.

Accordingly, benefit plan administrators should exercise caution when using Publication 502 as a resource, given the differences among the rules specifically applicable to health FSAs, HRAs and HSAs, and the medical expense deduction (e.g., the treatment of insurance premiums). Publication 502 also has limitations when applied to plan designs with more restrictive reimbursement policies than Publication 502 might otherwise allow. For instance, many expenses deemed “deductible” by Publication 502 would not be reimbursable by an HRA integrated with a major medical plan because reimbursable expenses under an integrated HRA would (by definition) be limited only to those covered by the major medical plan.

2022 Publication 502 »
2022 Publication 503 »

On February 13, 2023, in American Securities Association v. DOL, a Florida district court struck down portions of 2021 DOL interpretive guidance regarding Prohibited Transaction Exemption (PTE) 2020-02 that expanded the circumstances in which an investment advisor is subject to fiduciary duties under ERISA.

Under a 1975 DOL regulation, an ERISA retirement plan fiduciary includes a person who, pursuant to a mutual agreement, renders individualized investment advice to the plan “on a regular basis,” where the advice will serve “as a primary basis” for investment decisions with respect to plan assets. PTE 2020-02 permits financial professionals who provide fiduciary investment advice to retirement investors to receive compensation otherwise prohibited by ERISA and extends to rollover transactions arising from a plan to an IRA. The 2021 guidance, which was in the form of FAQs, addressed the question of when a recommendation to roll over plan assets into an IRA was considered “on a regular basis” under the fiduciary rule. Specifically, DOL FAQ #7 indicated that if the rollover recommendation were part of an ongoing relationship or the beginning of an intended future relationship, then it would trigger fiduciary duties under ERISA.

The lawsuit was brought by the American Securities Association (ASA), a trade association of regional financial services firms, whose members were concerned that a single rollover recommendation by an advisor could result in significant additional compliance costs and obligations to qualify for PTE 2020-02. ASA argued that the policy referenced in FAQ #7 was a legislative rule rather than an interpretive rule that improperly amended the existing DOL rule without the required notice and comment period.

The court did not agree that the guidance was a legislative rule. However, the court vacated parts of the rule due to inconsistency with ERISA. In the court’s view, because investment advice to a plan must be given on a regular basis to trigger fiduciary duties, the definition excludes one-time transactions like IRA rollovers. For example, the future provision of advice pertaining to an IRA would not fall within the definition of rendering investment advice to an employee benefit plan because assets kept in an IRA are no longer workplace plan assets.

Although other courts have ruled similarly on this issue, the final outcome is unknown. The DOL may appeal the decision to ensure that rollover transactions are properly regulated. Alternatively, the DOL might issue new guidance that considers the court’s ruling.

Retirement plan sponsors should be aware of the decision and monitor for additional developments.

American Securities Association v. DOL »

On February 24, 2023, the DOL, IRS and Pension Benefit Guaranty Corporation (collectively, “agencies”) released a final rule announcing changes to the Form 5500 and Form 5500-SF and related instructions. These changes will go into effect for the 2023 annual reports. The changes to the forms and instructions address the remaining changes originally proposed in September 2021 (see our September 28, 2021, Compliance Corner article). Some changes, mostly related to defined benefit plans, were previously implemented in 2022 (see our June 7, 2022, Compliance Corner article).

Highlights of the final set of changes include, but are not limited to:

• Creation of a new filing option for a defined contribution group (DCG), called a DCG reporting arrangement, and a new Schedule DCG (Individual Plan Information) to report individual plan information. Large plans in a DCG and small plans not meeting audit waiver conditions are subject to separate plan-level audits.
• Creation of a new Schedule MEP (Multiple-Employer Pension Plan Information) to report information specific to MEPs, including participating employer and aggregate account information.
• Changes to how defined contribution plan participants are counted by basing the count on the number of participants with account balances instead of the number of eligible participants.
• Amendments to Schedules H, R and SB to improve financial transparency and reporting.
• Addition of certain Code compliance questions to improve tax oversight and compliance of tax-qualified retirement plans, including plans in a DCG filing.

The notice provides illustrations of the changes to the forms and instructions. Advance copies of the 2023 forms and instructions will be released later this year.

Sponsors of retirement plans should be aware of the upcoming changes to Form 5500.

Federal Register: Annual Information Return/Reports »
Fact Sheet: Changes for the 2023 Form 5500 and Form 5500-SF Annual Return/Reports »

In 2019, the IRS issued final regulations on hardship distributions, as directed under the Bipartisan Budget Act of 2018. The regulations made several changes to the requirements plan sponsors must impose on participants seeking hardship distributions. The changes were effective for hardship distributions made on or after January 1, 2020.

Uniform Standard and Participant Representation of Need
The final regulations changed the previous rules by requiring plan sponsors to apply a uniform standard for determining that a hardship distribution is necessary to meet an immediate and necessary financial need. The regulations require participants seeking a hardship distribution to take any distribution available to them under the plan or any other employer-sponsored plan. The distribution also can be no more than is necessary to meet the need. Additionally, the participant must certify in writing that they have no available cash or liquid assets to meet the financial need. If those requirements are met, a participant may take a hardship distribution from the plan.

Taking a Plan Loan No Longer Required
Previously, participants had to take any available plan loan before taking a hardship distribution. The final regulations changed that requirement. While the employer may still choose to require that any potential plan loans be taken before allowing a hardship distribution, the IRS rules no longer impose this requirement.

Six-Month Contribution Suspension Eliminated
Similarly, the final regulations changed prior rules requiring participants to suspend contribution deferrals for the six months after they received a hardship distribution. Now, participants may continue deferring plan contributions following their hardship distribution.

Expanded Accounts from Which Participants May Take a Distribution
Retirement plan participants (who are not enrolled in custodial 403(b) plans) can now access hardship distributions from all the different funding sources, including:

• Employee contributions
• Vested matching and other employer contributions
• Safe harbor contributions
• Qualified matching contributions (QMACs)
• Qualified nonelective contributions (QNECs)
• Earnings on eligible sources

As employers continue to administer hardship distributions, they should familiarize themselves with the final regulations and continue to work with their service providers to ensure compliance.