Here’s a quick roundup of recent legislative and regulatory developments relating to employee benefits and compensation.
- Health Insurer Tax set to return in 2020: The Affordable Care Act’s Health Insurance Providers Fee, also known as the Health Insurer Tax (HIT), is set to return in 2020 unless Congress acts to suspend it again. According to IRS Notice 2019-50, the total HIT for 2020 will be $15,522,820,037, which will be allocated among all Covered Entities in proportion to their relative market share by premium income. The HIT generally does not apply to self-insured group health plans, although it does apply to self-insured multiple employer welfare arrangements (MEWAs). Even though the HIT does not directly apply to employer group health plans that are fully insured, some or all of the fee likely will be passed through to plans in the form of higher premiums. Congress imposed a moratorium on the HIT for 2017, and suspended it again for 2019. There is a pending legislative proposal to suspend the HIT through 2021, but it is not clear if or when Congress will act on it.
- DOL announces final rule on Association Retirement Plans (ARPs): According to a 2018 survey, only 53 percent of workers at private-sector establishments with fewer than 100 workers had access to retirement plans. Under the new Department of Labor rule announced on July 29, 2019, small and mid-size businesses will gain access to retirement plans through ARPs. An ARP will offer the option to cover employers in the same geographic area (even if they are in different industries) and allows sole proprietors to participate. The goal of the rule is to give participating businesses the ability to lower administrative costs due to economies of scale. More details can be found here.
- DOL Issues final overtime rule: The Department of Labor (DOL) has issued a final rule to update the salary threshold for determining if an employee can be classified as “exempt” from the Fair Labor Standards Act’s (FLSA’s) overtime rules. Under current rules, an employee otherwise meeting the requirements for exempt status must nonetheless be categorized as non-exempt if his or her annual salary is less than $23,660—the threshold that has been in effect since 2004. During the Obama Administration, the DOL proposed increasing the salary threshold to $47,476 per year, but a Federal court struck down the proposed change just before it took effect. The new rule will increase the threshold to $35,568 per year, effective January 1, 2020.
- Employer cannot delay start of FMLA leave even if required to do so by a CBA, DOL opinion says. An employee of a local government agency wrote to the Department of Labor challenging its employer’s policy of immediately designating eligible leave as FMLA leave even though the relevant collective bargaining agreement (CBA) required that CBA-protected paid leave be exhausted before FMLA leave could begin. According to the DOL, “Once an eligible employee communicates a need to take leave for an FMLA-qualifying reason, neither the employee nor the employer may decline FMLA protection for that leave.” The full text of the DOL’s opinion is available here.
- Pension Benefit Guaranty Corporation (PBGC) releases 2018 projections report. The PBGC, which insures the pension benefits of private sector sponsors, has released its 2018 long-term financial projections for both the Single Employer and Multiemployer systems. The Multiemployer system shows deficits much larger than those ever seen in the Single-Employer system, with the deficits expected to continue to grow. The most recent projections by the PBGC show a high likelihood of insolvency by FY2025 and almost certain insolvency by FY2026. The Single-Employer system is likely to remain deficit free for the next decade, driven by increasing interest factors and premium collections. The PBGC report indicates that the average (mean) projected value of the deficit grows to $90.0 billion for FY 2028 for the Multiemployer system. While improvements in the Single-Employer program is noted as likely over the next 10 years, certain risks remain. Those risks include uncertainty related to how much the PBGC will need to cover for plans that do fail, how much PBGC will owe participants they are currently responsible for beyond FY 2028, return on PBGC assets, and premiums that the PBGC will receive. Additional details of the projections report can be found at FY 2018 Projections Report.
- Recent litigation over pension actuarial equivalence. Some defined benefit plan sponsors are facing legal challenges to the actuarial assumptions used to determine early retirement benefits or optional forms of payment. In general, plaintiffs in these cases are looking to be paid the difference between benefits determined under the plan document assumptions (interest and mortality) and allegedly more current assumptions. In one such case, the District Court of Minnesota recently denied a plan sponsor’s motion to dismiss the participants’ claims. While limited to the specific facts in that case and having no precedential value, the District Court’s decision supports the viability of these types of claims.
is a managing director in Deloitte Consulting LLP and leads the Washington Rewards Policy Center of Excellence, dedicated to informing practitioners and clients about legislative and regulatory developments relating to employer-sponsored rewards programs.
Christine Drager is a specialist leader in the Human Capital practice of Deloitte Consulting LLP focusing on pension actuarial consulting and assisting employers with the design, valuation, and financial management of pension and other postretirement benefit plans.