The ERISA Industry Committee

1. The ERISA Industry Committee Washington Update March 10, 2014

2. Participation Procedure • Procedure for audience participation • Audience will be in a “listen-only” mode • If you wish to ask a question or make a comment, press *6 on your telephone to “un-mute” your telephone • After speaking, please press *6 again to re-enter “listen-only” mode

3. Washington Update Agenda Welcoming Remarks Hill Briefing: Dani Kehoe Retirement Update Health Update Legal Update Concluding Remarks/Questions

4. ERIC on Social Media • ERIC is on Twitter and Facebook and has a blog! • Please follow us (and tell your friends and colleagues). https://twitter.com/ERISAIndCmte https://www.facebook.com/ERISAIndCmte http://erisaindustrycommittee.blogspot.com/ • More information is available at http://www.eric.org/about/eric-social-media/.

5. Retirement

6. Retirement – Legislative Update Congress/Tax Reform Camp Releases Tax Reform “Discussion Draft” • Limit pre-tax contributions to 401(k) plans to half of the current deferral limit - $8,750 • Require Roth Accounts for ER > 100 employees; allow Roth contributions up to $8,750 • Include benefits in income for “35% tax bracket” • RMDs- 5 year distribution requirement for non-spousal beneficiary • Distributions of Employer Stock: eliminates the exclusion of basis; requires taxation of value of stock • Tax nonqualified deferred compensation when there is no substantial risk of forfeiture

7. Retirement – Obama Administration FY 2015 Budget • Limit on itemized deductions for those starting to 28% on “wealthy” • Cap on accumulations in retirement savings plan to DB plan limit ($3.2 million) • PBGC- allow PBGC Board to set variable premium rate

8. Retirement – Obama Administration FY 2015 Budget, continued • 5 year distribution requirement for non-spousal beneficiaries for 401(k) plans & IRAs • RMD fixes: eliminate rule for account balances $100,000 or less; harmonize for Roths • MyRA • Payroll deduction IRAs • Worker misclassification efforts

9. Retirement – Regulatory Update, cont. Treasury Department/IRS • More guidance on DOMA – retroactive effect – to be released “soon” • Hybrid Plan Regulations meeting with Treasury • DB Plan De-Risking Issues

10. Retirement – Regulatory Update, cont. Treasury Department/IRS • ERIC Letter on Notice 2014-5- frozen defined benefit plans & nondiscrimination testing (filed 2/28/14) • Agencies should issue guidance permanent relief ASAP • Additional relief needed for benefits, rights & features • Additional options for soft frozen plans are needed • DC plans with enhanced benefits for former DB participants should be treated differently • Contributory plan issues

11. Retirement – Regulatory Update, cont ERIC Spring Meetings Retirement • Various DOL speakers • PBGC Plan Participant & Plan Sponsor Advocate • Ask the Regulators panel • Congressional panel

12. Health

13. New policies on Obamacare • If you like your health policy, you can keep it for two more years • Stretches out to 10/1/16 “de-cancellation” policy that originally ended 10/1/14 • Must be permitted by insurers and states • Exchange subsidies available retroactively for individuals facing difficulty in buying insurance in states struggling with running Exchanges

14. Assault on the employee exclusion for health care • Proposals to scale back the federal tax-favored treatment of the employee exclusion for employer-provided health care • Obama budget • 28% cap on itemized deductions and exclusions • Camp proposal • Limits tax-favored treatment for higher-paid • Senate Republican alternative to the ACA • Would limit employee exclusion for health care to 65% of an “average plan’s cost”

15. Shared Responsibility for employers • Final rules for determining assessment of employer penalties under 4980H • Structure of proposed regs largely intact • Hours to determine “full-time employees” may be determined on monthly basis or through use of “look-back” measurement and stability periods • Eased rules for breaks in service, determining seasonal employees

16. Shared Responsibility, cont. • Definition of dependents now does not include step children and foster children • Better transition relief for fiscal year plans • Penalty further relaxed for 2015 • Not applicable to small employers (with 50-99 employees) until 2016 • Large employers also get relief for 4980H(a) penalty only: 95% threshold lowered to 70% • Applicable to 2015 only

17. Reporting under IRC 6055 and 6056

18. 6055 and 6056 ACA reporting, cont. • Voluminous, detailed reporting required • 6055 reporting used to determine applicability of individual mandate • 6056 reporting used to determine applicability of employer penalty and whether individual employee is eligible for subsidized coverage on Exchange • ACA reports delayed, along with shared responsibility penalty • First year of coverage: 2015 • First reports due: early 2016

19. 6055 and 6056 ACA reporting, cont. • Electronic transmission OK if employee consents • Report to employees by January 31 of following year; to IRS by March 31 • “Simplification” is not so simple • Can use one combined reporting form (1095-C) for both 6055 and 6056, but information required has not really been streamlined • 6055 required reporting • Name, address, SSN of employees and covered dependents • Calendar months of coverage for each covered individual

20. 6055 and 6056 ACA reporting, cont. • 6056 reporting general method • Employer contact info • Specific info about offer of coverage to each FTE for each calendar month • Relies on use of “indicator codes” • 6056 simplified methods • Qualifying offer certification avoids detailed reporting for FTEs employed all year • Applies only if cost to employee does not exceed 9.5% of FPL for year and coverage offered to spouse and dependents • Simplification for not identifying FTEs • May be used only if employer offers coverage to 98% of all employees and their dependents

21. HHS Notice: Transitional risk reinsurance fee • 3-year fee to cover insurer risk in individual market 2014 – 2016 • Payable by issuers and self-insured plans • 2014 = $12B ($63 per covered life); • 2015 = $8B; ($44 per covered life); • 2016 = $5B • Applies to each covered life in major medical plan • Fees will be collected in two parts in year following year of payment • 2014 fee: $52.50 in January, 2015; $10.50 in 4th quarter of 2015 • Exemption from fee for self-administered, self-funded plans

22. HHS Notice, cont. • Annual open enrollment period for Exchange plans for 2015 • 11/15/2014 – 2/15/2015 • Increase in cost-sharing limits for health plans • 2015: $6600 for self-only coverage; $13,200 for family coverage

23. HIPAA • HHS issued a proposed rule that would require health plans to certify that they comply with certain electronic transaction requirements under HIPAA. • By December 31, 2015, self-insured health plans (including those that do not transmit protected health information) would need to: • provide HHS with a one-time “snapshot” of the plan’s compliance with certain HIPAA standards and operating rules; • provide information about the number of the plan’s covered lives on the date that the documentation is submitted; and • obtain a HIPAA credential or a Phase III CORE certification seal from the Council for Affordable Quality Healthcare’s (CAQH) , which is expect to cost up to $18,000. • FocusOn call on Monday, March 10, 2014, from 3:00 p.m. to 4:00 p.m. ET.

24. ERIC comment letter on EAPs • New proposed regulation provides relief starting in 2015 if certain conditions met: • EAP does not provide significant medical benefits • EAP benefits cannot be coordinated with another plan’s benefits • No employee contributions or premiums to participate • No cost-sharing in EAP

25. ERIC comment letter on EAPs, cont. • Government should provide a safe harbor definition of “excepted benefits” • 10-visit cap for safe harbor OK, provided limit applied per issue and not in aggregate • Disease management and other wellness programs should be eligible for EAP exclusion • EAPs that are excepted benefits should be exempt from COBRA • Self-insured dental and vision plans should be considered excepted benefits even if the participant is not required to contribute to the cost of the plan

26. Legal

27. Equitable Remedies • Among other claims, the participants alleged that the plan’s conversion from a traditional DB plan to a cash balance plan was not properly communicated to them. • The participants argue that they are entitled to equitable relief (including reformation of the plan document). • The 2nd Circuit (citing Amara v. Cigna and Frommert v. Conkright) found that courts should consider: • What remedy is appropriate; and • Whether plaintiffs have established the requisite level of harm as a result of the notice violations. • The 2nd Circuit held that this standard does not require the showing of “actual harm” for a reformation claim and remanded the case back to the lower court. • District court on remand must determine whether conditions for reformation are satisfied. • Court did not address surcharge. • ERIC had filed an amicus brief with the 2nd Circuit Court of Appeals. Osberg v. Foot Locker, Inc., No. 13-187-cv. (2nd Cir. 2014)

28. ERISA Preemption • A Vermont statute requires all “health insurers” (including self-insured plans) to file reports with the State that contain claims data and other “information relating to health care.” • Liberty Mutual sued to obtain a declaration that ERISA preempts the Vermont statute and regulation. • District Court upheld the Vermont law. • The 2nd Circuit held that: • ERISA’s preemption clause is intended to avoid a multiplicity of burdensome state plan requirements for ERISA plan administration; and • Reporting is a core ERISA administrative function. • The Court held that the Vermont law was preempted by ERISA. Liberty Mutual Insurance Co. v. Donegan, No. 12-4881-cv (2nd Cir. 2014)

29. Upcoming ERIC calls • FocusOn call on compliance with HIPAA electronic transaction rules • THIS AFTERNOON, March 10, 3– 4 p.m. EDT • Follow-up call with HHS on Thursday, March 13 • Amy Moore, Covington & Burling • FocusOn call on ACA Reporting (6055 & 6056) • Wednesday, March 12, 2:00 – 3:30 p.m. EDT • Rich Stover, Buck Consulting • Washington Update call • Monday, April 7, 11:00 a.m. – noon EDT

30. Upcoming ERIC meetings • ERIC Health and Retirement Committee meetings • Wednesday, April 9 (afternoon) • ERIC General Membership meeting • Thursday, April 10 (all day) • ERIC Legal Committee meeting • Thursday, May 8, 10:00 a.m. – 3:00 p.m. EDT

31. To receive ERIC updates • If you are an employee of an ERIC member company and would like to receive your own copy of our emails and notifications of future events, please let us know by writing to Adreanne Cooper at ERIC (acooper@eric.org.)   • In this email, please include your contact information or signature block, and please indicate whether you wish to receive information on retirement issues, health issues, legal issues, or all of the above.

32. For further information • Debra Davis, Vice President, Benefits • ddavis@eric.org • Direct dial: 202/627-1925 • Kathryn Ricard, Senior Vice President, Retirement Security • kricard@eric.org • Direct dial: 202/627-1930 • Gretchen Young, Senior Vice President, Health Policy • gyoung@eric.org • Direct dial: 202/627-1920 • ERIC main phone: 202/789-1400