With its “employer mandate”—i.e., the requirement that applicable large employers make an offer of group health coverage to substantially all full-time employees or face the prospect of a penalty—the Affordable Care Act (ACA) opened a fault line in the previously monolithic market for group health insurance. There is large cohort of American workers who, before the ACA, were not offered major medical coverage under an employer-sponsored group health plan. These employees are sometimes referred to as the “contingent” workforce. They include part-time, seasonal and temporary employees, as well as employees whose work schedules are generally irregular or intermittent. Found predominantly though not exclusively in industries such as staffing, restaurants, media and advertising, transportation and hospitality, among others, these workers tend to be on the lower end of the pay scale. They also often have significant “deferred” health issues (a euphemism for undiagnosed conditions owing to lack of previous access to health care). The ACA provided “applicable large employers” (those with 50 or more full-time and full-time equivalent employees) with an incentive to cover these workers.
In an effort to make up for a funding shortfall in the Commonwealth of Massachusetts’ Medicaid program, state policymakers have proposed solutions that include a “play-or-pay” option under which employers who fail to offer major medical coverage, or who offer coverage but have low take-up rates, would be required to pay an additional “employer contribution” to the Commonwealth based on multiple factors and complex computations. Another option would make up the shortfall with an across-the-board increase, similar to a payroll tax increase, in the Employer Medical Assistance Contribution (or “EMAC”), which helps defray Medicaid financing.
This post argues in favor of the latter option. We are of the view that an across-the-board increase in EMAC payments, would be vastly preferable because of its simplicity and ease of administration. The “play-or-pay” option would not only be extremely complicated to comply with and enforce, but, as we explain below, it may be preempted by federal law, i.e., the Employee Retirement Income Security Act of 1974 (ERISA).
The recent Republican election victories appear to ensure that the Affordable Care Act’s (ACA) days are numbered. But with nearly a fifth of the U.S. economy, and the health care coverage for some tens of millions of U.S. citizens, at stake, the law will not simply be repealed. Something will be enacted to take its place. And some popular features of the law (e.g., protection for those with pre-existing conditions) are likely to survive.
Our previous posts have attempted to outline the alternatives and to handicap their odds. Last week we looked that the Trump/Pence transition plan, “Healthcare Reform to Make America Great Again.” This week we turn our attention to particulars of the program offered by House Speaker Paul Ryan entitled A Better Way. In the next two weeks, we will look at legislative proposals offered by Representative Tom Price (R-Georgia), who is President-elect Trump’s nominee to head the Department of Health and Human Services, and by Senator Orrin Hatch (R-Utah). In future posts, we will speculate on the process by which the various policy prescriptions might become law—including whether the repeal of the ACA will be done quickly (we expect it will), whether there will be a transition period (we expect that the answer is “yes”), and if so how long (anywhere from two to four years).
Unlike the Trump/Pence plan, which consists of a series of high-level bullet points, the Ryan plan is a fairly detailed policy proposal. Hence, while not in actual legislative form, it provides a good sense of some of the likely features of the ACA’s replacement.
In April of this year, the Department of Labor issued a suite of rules (i) expanding the class of persons and entities who are fiduciaries for purposes of ERISA and the Internal Revenue Code; (ii) providing two new prohibited transaction exemptions (or PTEs); and (iii) amending a handful of existing PTEs to conform to the new regulatory regime. (For a list of, and links to, the suite of final rules, please see our post of April 11, 2016.) The fiduciary definition, exemptions and amendments, and their respective preambles, occupy in total almost 1,000 pages of the Federal Register. Collectively, these items enact a sea-change in the regulation of investment advice provided to ERISA-covered retirement plans and Individual Retirement Accounts (IRAs). When the Department promulgated these rules, it promised to provide subsequent guidance—including Frequently Asked Questions (FAQs)—in response to questions that would inevitably arise.
Speaking at a trade association meeting in Boston at the end of October, a senior Department of Labor official reported that the Department was hard at work on its first set of FAQs. He said that the FAQs would reinforce some of the rule’s basic concepts that questioners seemed to struggle with and add some gloss to particular aspects of the rule that the Department felt needed additional attention. His predictions proved accurate. In this post we provide a sampling of some of the highlights of the recently issued FAQs. We have chosen three topics that fall under the heading of “basic concepts,” and three topics that elucidate particular aspects of these rules. There is, of course, a measure of editorial discretion at work in our selection to topics. Other practitioners might choose differently based on their particular needs and interests. For anyone who works with or needs to comply with these rules, we recommend reading the FAQs in their entirety.
The Department of Labor’s new overtime rules take effect December 1, 2016, and employers across the country are carefully reviewing and modifying their compensation and payroll practices in anticipation. As part of this preparation, employers must consider whether and how any changes to their compensation structures will affect their employee benefit plans. This post examines some of the employee benefits issues that employers should be considering as the December 1 deadline approaches.
This post continues our examination of the Department of Labor’s suite of final fiduciary and conflict of interest regulations. Our previous posts discussed the newly expanded definition of “investment advice fiduciary”; the “best interest contract” (or BIC) exemption; and the new class exemption for principal transactions. Collectively, these rules vastly expand the definition of an “investment advice fiduciary” while at the same time providing new prohibited transaction class exemptions intended to preserve many of the commission-based compensation arrangements that would otherwise be imperiled under the new fiduciary standard. In this and the next three posts, we will examine how the Department has amended certain existing Prohibited Transaction Exemptions to come into alignment with its new fiduciary and conflict of interest standards.
This post explains the changes to Prohibited Transaction Exemption (PTE) 84-24 relating to insurance agents and brokers.
Continue Reading The Department of Labor’s 2016 Final Fiduciary and Conflict of Interest Regulations: Amendments to Prohibited Transaction Exemption 84-24 for Transactions Involving Insurance Agents and Brokers (and Others)
This post continues our examination of the Department of Labor’s suite of final fiduciary and conflict of interest regulations. Our prior posts discussed the newly expanded definition of “investment advice fiduciary” and the “best interest contract” (or BIC) exemption. In this post we explain the suite’s second new prohibited transaction class exemption entitled: “Class Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs”. This exemption generally permits the trading of debt instruments in principal and riskless principal transactions involving Employee Retirement Income Security Act (ERISA)-regulated retirement plans and Individual Retirement Accounts (IRAs).
Last month the U.S. Department of Labor published a suite of final regulations governing the fiduciary status of, and prescribing conflict of interest rules that apply to, persons who provide investment advice to ERISA-covered retirement plans and Individual Retirement Accounts (IRAs). (For a list of, and links to, these final regulations, please see our April 11, 2016 post). As we explained previously, the final regulations will have important and far reaching consequences for financial advisors of all stripes (e.g., broker-dealers/registered representatives, Registered Investment Advisors (RIAs), and insurance agents and brokers, among others) who advise retirement plans and IRA investors.
In an earlier post we examined the new and greatly expanded definition of an “investment advice fiduciary,” which is of central importance to the Department’s new regulatory scheme. In this post, we explain the “Best Interest Contract” (or “BIC”) exemption, which allows advisors to receive commission-based compensation that would be barred under the new fiduciary standard, subject to strict new rules intended to protect investors.
My colleague Patricia Moran, wrote a Law360 article entitled In The ACA Age, Employee Handbooks Can Help — Or Hurt as a follow up to her latest post, Have You Reviewed your Employee Handbook for Affordable Care Act Compliance? In the article, Moran urges employers to review their health and welfare benefit documentation for ACA compliance. Given the anticipated increase in IRS audits, she notes that an employee handbook can be great tool to ensure compliance with the ERISA and the ACA. In addition to outlining the value of an ACA compliant handbook, Moran also examines common noncompliance issues.
With this post, we begin our substantive explanation of the Department of Labor’s suite of final fiduciary and conflict of interest regulations. For the financial services industry, and for the retirement plans and IRAs, there are game-changing rules. This post covers the definition of what constitutes and “investment advice fiduciary.” Future posts will examine the remaining regulations (dealing principally with conflicts of interest) and their impact on stakeholders.