ACA News & Publications

Delayed Fully‐Insured Group Health Plan Non‐Discrimination Requirement

December 28, 2010

The health care reform law prohibits fully‐insured group health plans from discriminating in favor of highly compensated individuals. If a fully‐insured plan loses grandfather status, it will have to comply with “rules similar” to the non‐discrimination rules found in Section 105(h) of the Internal Revenue Code applicable to self‐funded plans. Under the law, this requirement took effect on the first day of the first plan year on or after September 23, 2010.

In the health care reform law, enacted in March 2010, there was minimal guidance and many questions regarding how employers were to implement the non‐discrimination requirements. As such, employers have been awaiting further assistance. On December 22, 2010, the IRS issued Notice 2011‐1 stating that there would be delayed implementation of the non‐discrimination provisions. Fully‐insured plans will not have to comply with the non‐discrimination provisions until after guidance is issued by the regulators.

In Notice 2011‐1, the IRS first noted that there were “fundamental concerns about plan sponsors’ ability to comply [with the non‐discrimination provisions] without regulatory guidance.” The IRS then stated that “compliance with [the non‐discrimination provisions] should not be required (and thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability has been issued.” Furthermore, in order to provide sufficient time to implement the guidance once it is issued, the IRS anticipates that the guidance “will not apply until plan years beginning a specified period after issuance.” Finally, until the effective date of the future guidance, a plan sponsor will not have to file a Form 8928 if it is not in compliance with the non‐discrimination rules in the health care reform law. The Department of Labor and the Department of Health and Human Services are in agreement with the IRS notice.

Notice 2011‐1 also included a request for comments on various issues relating to the implementation of the non‐discrimination provisions. Comments have been requested until March 11, 2011.

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This ACA Pathways is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

The information contained in this ACA Pathways includes emerging health care news from a limited perspective and does not encompass all views. The information was selected from a wide range of sources selected on the basis of their potential impact on employers and/or their employee benefit plans. For more information, please contact Burnham Benefits.

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