Plan Design and Compliance
Considerations When Moving from
a Defined Benefit to a De...
  Plan Design and Compliance Considerations | 2
 
 
 
CONTENTS
The Private Exchange and Defined Contribution Model 3 
Core...
  Plan Design and Compliance Considerations | 3
 
 
 
What is a
private
exchange?
The Private Exchange and Defined Contrib...
  Plan Design and Compliance Considerations | 4
 
 
 
Plan Design & Compliance Considerations When Moving
from a Defined B...
  Plan Design and Compliance Considerations | 5
 
 
 
 Summary of Plan Description & Summary of Material Modification
Ens...
  Plan Design and Compliance Considerations | 6
 
 
 
Discrimination Rules
 Section 125 Rules, Health Reimbursement Arran...
  Plan Design and Compliance Considerations | 7
 
 
 
Next Steps
SMART Planning: Finding fitting solutions in an age of ch...
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Should You Consider a Defined Contribution Model?

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This whitepaper discusses the consideration of shiftng from a defined benefit model to a defined contribution model, specifically a private exchange.

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Should You Consider a Defined Contribution Model?

  1. 1.                                       Plan Design and Compliance Considerations When Moving from a Defined Benefit to a Defined Contribution Employee Benefit Model A Whitepaper prepared by
  2. 2.   Plan Design and Compliance Considerations | 2       CONTENTS The Private Exchange and Defined Contribution Model 3  Core Components of a Private Exchange  3  The Shift to Defined Contribution  3  Plan Design & Compliance Considerations When Moving from a Defined Benefit to a Defined Contribution Employee Benefits Model 4  Determine non‐elective versus elective contributions.  4  Determine cash out.  4  ERISA disclosure requirements, including Plan Documents (wrap), Summary Plan Descriptions (SPD) & Summary  of Material Modification  4  Plan Documents  4  Summary of Plan Description & Summary of Material Modification  5  ERISA Reporting Requirements  5  Form 5500 Reporting  5  Form M‐1 (if Multiple Employer Welfare Arrangement [MEWA])  5  ACA Disclosure Requirements  5  HIPAA Disclosure Notices & Requirements  5  HIPAA Notice of Privacy Practices  5  Other Disclosure Requirements  5  Discrimination Rules  6  ACA Employer Shared Responsibility Requirements ‐ Minimum Essential Health Coverage providing Minimum  Value at an Affordable Rate  6  Fiduciary Responsibilities  6  Medicare Secondary Payer Rules  6  Be aware that Medicare secondary payer rules will apply to a defined contribution and private exchange model.  6  Next Steps 7  SMART Planning: Finding fitting solutions in an age of change  7   
  3. 3.   Plan Design and Compliance Considerations | 3       What is a private exchange? The Private Exchange and Defined Contribution Model A private exchange is a non-government run marketplace or store that specializes in offering health insurance, ancillary, voluntary and non-health insurance products and services through an online electronic platform. Employers select the vendors and products offered through the private exchange, enabling employees to shop from a wide variety of health plan options to best meet their individual needs. Some exchanges offer coverage beyond core medical to allow employees greater choice in a portfolio of products to best protect their health and wealth. Core Components of a Private Exchange An exchange allows employers to distance themselves from traditional plan management  obligations (financial and administrative) and shift from making a benefits decision to a financial decision. The Shift to Defined Contribution A defined contribution or fixed contribution model works particularly well in a private exchange setting. The employer determines how much it will spend on health insurance and other benefit offerings each year and then gives employees a fixed contribution amount with which to purchase benefits. The private exchange model allows an employer to commit a specific amount of money for health care benefits while potentially offering employees more choice in the purchase of coverage. Unlike a defined benefit approach, the defined contribution strategy facilitates transparency in full employee compensation and allows employers to gain predictability in setting its health care cost at a desired threshold. A successful defined contribution strategy can:      Offer lower and more predictable health care costs  Reduce the administrative burden on employers  Simplify the complex administrative work that goes along with offering health benefits  Give employees the power to choose a health insurance plan that works best for their needs Core Components CHOICE of two or more health insurance options ADVICE & DECISION-SUPPORT TOOLS to help determine health insurance needs AUTOMATED BILLING for the chosen health insurance premiums ONGOING SUPPORT & INTERACTIVE EDUCATION for the employee on the chosen health plan
  4. 4.   Plan Design and Compliance Considerations | 4       Plan Design & Compliance Considerations When Moving from a Defined Benefit to a Defined Contribution Employee Benefits Model When moving from a defined benefit to a defined contribution model, it is important to review the compliance requirements for health plans with your CBIZ consultant. Just because you may be providing a dollar amount instead of a defined benefit, your responsibilities do not end with the decision on how much money to provide. Here are some important issues to consider: Determine non-elective versus elective contributions. You determine what offerings will be mandatory versus those that will be elective. You determine what amount is strictly for medical benefits. You have the option to contribute additional dollars toward other offerings; however, you are not required to contribute to additional options. Determine cash out. Is there a portion that can be taken as a cash-out? This becomes even more important with items such as flexible medical spending accounts (FSAs). To be compliant, a flexible medical spending account must be an “excepted” plan. What that means is there can’t be a significant non-elective employer contribution into the FSA in order for this to be an “excepted” benefit and be in compliance with the ACA’s recently released guidelines on FSAs. This means you need to work closely with your benefits consultant when putting your strategy together to be sure you have the specifics on what amount you will contribute to the FSA and what amounts can be taken in cash in order to remain compliant. ERISA disclosure requirements, including Plan Documents (wrap), Summary Plan Descriptions (SPD) & Summary of Material Modification Make sure you are meeting all the plan documentation requirements. This is particularly important for plans subject to ERISA but also important for plans not subject to ERISA, particularly if a Section 125 plan is going to be used. All of these opportunities to use money through the terms of a Section 125 plan have to be documented very carefully. You need to ensure your plans (medical, critical care, life insurance in Section 125 elections, etc.) are documented carefully in order to be tax favored. Some services should not be part of the Section 125 cafeteria plan, such as pet insurance and legal services. Although disability plans may be offered as part of the Section 125 plan, consideration should be given to the taxability of the benefit before making a final decision whether or not to do so.  Plan Documents In the area of plan documentation, particularly around offering more options, you need to ensure you provide correct plan documents. With the defined contribution approach, you may offer more choices than you do currently. What’s important is that you remain the sponsor of all of those plan options. This means that all of the plan options offered to employees need to be described in your plan documentation. ERISA requires that all components must be included in plan documents. A wrap document, which takes each of the components and lists them separately to create one document, can be used, but it is very important not to forget about plan documentation.
  5. 5.   Plan Design and Compliance Considerations | 5        Summary of Plan Description & Summary of Material Modification Ensure your plan is compliant in providing this plan documentation on each component offered and determine who is responsible for providing this information to your employees. Follow up to ensure this takes place as you may be liable as the plan sponsor if this is not being done on all components offered through the private exchange. ERISA Reporting Requirements  Form 5500 Reporting You may have reporting mechanisms already in place and some newly required for health care reform. Your 5500 reporting requirements may be expanded due to increased plan offerings, so you will receive more Schedule As from insurers which will result in greater reporting requirements. You just need to make sure that all reporting is addressed.  Form M-1 (if Multiple Employer Welfare Arrangement [MEWA]) If any of the elective plans being offered are part of a Multiple Employer Welfare Arrangement (MEWA), an M-1 needs to be completed to ensure these are HIPAA and ACA compliant. ACA Disclosure Requirements You need to be aware of the Affordable Care Act disclosure requirements and check to be sure who will provide these to your employees. These include Summary of Benefits and Coverage (SBC) and the Notice of Marketplace/Exchange Option HIPAA Disclosure Notices & Requirements  Statement of HIPAA Portability Rights, which includes the Certificate of Creditable Coverage While this disclosure requirement may be eliminated based on the ACA provision that all pre- existing conditions must be covered on health plans in 2014, it is still a current requirement until the regulation changes.  HIPAA Notice of Privacy Practices A health plan must provide a Notice of Privacy Practices to covered individuals, which includes the individual’s rights with regard to their health information, how a health plan may use that information and how an individual may access their health information. While it is the health plan’s responsibility to provide this information, it is important for you as an employer to ensure you know who is responsible for providing this information to the employee and in what fashion it will be provided (i.e. web posting, email, hard-copy mailed to employee’s home, etc.). Other Disclosure Requirements Whether other notices are provided by the health plan (carrier) or the plan sponsor, be sure to review other Notices that may be required of the health plan, such as Special Enrollment notices (birth of a child, death of a spouse, loss of a job, etc.) and COBRA model notices.
  6. 6.   Plan Design and Compliance Considerations | 6       Discrimination Rules  Section 125 Rules, Health Reimbursement Arrangements (HRAs), Flexible Medical Spending Accounts (FSAs), Self-funded Medical Plans & Fully-Insured Health Plans (although delayed by ACA until sometime in the future) Ensure your health plan meets all discrimination rules found in IRS Section 125(H) for Section 125 plans, Flexible Medical Spending Accounts, Health Reimbursement Arrangements, as well as all self-funded health plans. The ACA imposes discrimination rules on fully-insured health plans, although that provision has been delayed and we haven’t received information as to when that will go into effect. However, it is very important that you reserve the right to modify or change your health plan, should you need to, in order to comply with those requirements when they come into play. ACA Employer Shared Responsibility Requirements - Minimum Essential Health Coverage providing Minimum Value at an Affordable Rate When you are determining your defined contribution strategy it is vitally important to think through your ACA obligations and the potential excise tax risks if you have 50 or more employees. Employers must provide minimum essential coverage of minimum value at an affordable rate for employees working 30 or more hours per week or risk being subject to excise tax penalties in 2015 and beyond. In order to avoid penalties, you and your consultant need to review the requirements and develop a defined contribution strategy that will meet minimum value standards at an affordable rate to the employee. As final implementation regulations have not yet been released for 2015, that strategy may need to be re-addressed as regulations become clearer. Fiduciary Responsibilities If you sponsor programs and plans for your employees, you have a certain level of fiduciary responsibility. If you are subject to ERISA, you have an expressed fiduciary responsibility. If you are not subject to ERISA, you may not have an expressed responsibility to comply with fiduciary standards but probably a common-law responsibility to comply with fiduciary standards. What that means is that as you have more insurers or vendors with whom you work, it is important they meet certain standards of prudence so your employee doesn’t have issues later with an insurer or vendor who is unethical or not providing the coverage outlined in the plan documents. As a plan sponsor it is your responsibility to vet the offeror(s) of products and services being provided to your employees through the defined contribution platform, just as you do today with traditional benefit offerings. Medicare Secondary Payer Rules Be aware that Medicare secondary payer rules will apply to a defined contribution and private exchange model.    
  7. 7.   Plan Design and Compliance Considerations | 7       Next Steps SMART Planning: Finding fitting solutions in an age of change What are the new market dynamics today? What does all of this mean to you and your employees? And, how do you consider these new options for your organization’s total rewards strategy? The process of evaluating the solutions isn't much different from what you do today, but the solutions might be. CBIZ will actively engage with you to help determine the best strategy for your organization. In planning near and long- term benefit strategies, employers need to ask a variety of questions. The right strategy is dependent on the individual company's culture and philosophy, benefits policy and the demographics of the workforce. We will consider who you are and what makes you unique including: Your culture – understanding your population and what motivates them. What percentage of your employees is full time? How can incentives help align company and employee needs and goals? Does your population need greater personalized health and wellness? Next, as plans are designed for your employee population, what do you consider key to the culture of your organization? What types of plans and how rich of benefits do you want to offer? Have you considered the affordability of your plans? Does your plan drive engagement and produce results? Are you willing to make incremental changes and/or use engagement in health and wellness to change employee behavior and control costs? What is your appetite for change? And finally, where are you on the health care continuum? Are employee benefit programs a core component of your business strategy? Would you like to continue to be highly engaged in all decisions relative to your benefit offerings? So, which solution is best for your organization? CBIZ will help you find the answer. For more information, contact your local CBIZ Advisor or call our toll-free help line, 1-800-ASK-CBIZ (1-800-275- 2249). The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.  The best solutions are truly unique for each employer.

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