Keeping Up with the New Administration – Action Roundup
From an executive compensation and employee benefits perspective, the first two weeks of the new administration have provided generalities and few specifics. This alert brings you key highlights from the fast and furious beginning of the new presidential administration.
Fiduciary Duty Rule (no delay yet) – In response to a Presidential Memorandum issued on Friday February 3rd, the Department of Labor is considering its legal options to delay the implementation of its Fiduciary Duty Rule which is currently scheduled to take effect April 10, 2017. The timing of any delay has not yet been announced. In the Memorandum, the White House directed the DOL to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of plan participants to gain access to retirement information and financial advice. As part of this examination, the DOL is to prepare an updated economic and legal analysis and consider, among other things,
- likely harm to investors due to a reduction of access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
- dislocations or disruptions within the retirement services industry; and
- likely increases in litigation, and increases in the prices that investors and retirees must pay to gain access to retirement services.
ACA – The first Executive Order issued by the new administration on January 20th provides that it is administration policy to seek the repeal and replacement of ACA and directs relevant agencies to use their authority under ACA as follows:
"To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications."
No action has specifically been taken yet.
General Regulation Delay – The White House issued a memorandum on January 20, 2017 directing federal agencies to delay the effective date, for at least 60 days, of published regulations that had not yet taken effect as of the date of the memorandum, and to review such regulations for “questions of fact, law and policy.”
Proposed IRS Reg In Under the Wire (maybe) –The IRS issued proposed regulations on January 18, 2017 that would allow the use of forfeitures in a 401(k) plan account to fund QNECs, QMACs and safe harbor 401(k) contributions. Under the new proposed regulations, allocations of prior contributions which have been forfeited under the terms of a plan can be made and will qualify as QNECs, QMACs or safe harbor 401(k) contributions as long as they are nonforfeitable (100% vested) and unavailable for hardship withdrawals or distribution prior to death, disability, severance from employment, age 59-1/2, or plan termination at the time such amounts are allocated to participants’ accounts. As QNECs and QMACs are often used to correct failed nondiscrimination tests and other operational errors, the increased flexibility in the use of plan forfeiture accounts is welcome. The proposed regulations are generally effective for taxable years beginning on or after the date the regulations are finalized, but the IRS has informally indicated that the proposed regulations can be relied upon retroactively to the issuance of the proposed regulations. It is not clear how the "general regulation delay" described above will affect reliance on this proposed regulation.
Fixed Indemnity Health Plan (lost in the shuffle) – Obscured by the inauguration, an IRS Office of Chief Counsel Memorandum (No. 201703013) was issued which provides that fixed indemnity health plans that are employer-paid or purchased on a pre-tax basis through a cafeteria plan will result in taxable income to the participant equal to the amount of any benefits paid under the plan. These types of plans work by paying the participant a fixed dollar amount for certain health-related events such as a doctor’s office visit or time spent in the hospital. The amounts paid bear no relationship to the amount of medical expenses actually incurred by the participant. The Memorandum confirms that when such a plan is employer-paid or purchased on a pre-tax basis, the usual tax free treatment of benefits paid under Internal Revenue Code section 105 is not available because the amount paid is not an actual reimbursement of medical care incurred under Code section 213(d). All amounts paid under such a fixed indemnity health plan are included in the participant's taxable gross income. Note, however, that payments from a fixed indemnity health plan remain tax free under Code section 104 to the extent that all of the premiums for such coverage are paid by the employee on an after-tax basis. Buried within the memo, though, is a fascinating tidbit: The Memorandum specifies that under an employer's wellness program that pays a fixed dollar amount for wellness activities, such amounts are to be included in the employee’s taxable gross income. This concept would apply to any wellness program which requires an employee pre-tax premium to participate in the wellness program. We have seen some new wellness program "products" being offered by third parties to employers which may be affected by this memorandum.
Nelson Mullins Executive Compensation and Employee Benefits attorneys are ready to assist with your compensation and benefits related matters in a cost-effective and responsive manner. Please contact one of our Executive Compensation and Employee Benefits partners or the Nelson Mullins attorney with whom you work.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.