Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401(k) plans and, beginning in 2025, their 403(b) plans. When this occurs, certain special rules apply to such employees that impact whether they must be included in annual nondiscrimination testing or receive required top-heavy vesting and benefits. As a result, it is important for employers to understand these requirements, as they may impact how annual testing is performed and the results.
Under the SECURE Act and the SECURE 2.0 Act, employers must provide long-term, part-time employees – i.e., employees who complete at least 500 hours of service in three consecutive years (reduced to two years in 2025) and are at least 21 years old – the opportunity to make elective deferrals under their 401(k) plans and, beginning in 2025, their 403(b) plans. However, long-term, part-time employees are not required to be eligible for employer matching or profit-sharing contributions until they satisfy the regular plan rules. Despite this fact, one of the most salient issues surrounding the implementation of the new rule is how it impacts – and complicates – tracking when employees become vested in such contributions.
Multiple states – including Mississippi, New Jersey and Virginia – have been busy finalizing legislation and rulemaking to adopt interstate compacts and expand behavioral health access.
What else have these states been up to in recent weeks?
Following the SECURE Act and the SECURE 2.0 Act, employers must now offer employees who work at least 500 hours within three (reduced to two beginning January 1, 2025) consecutive 12-month periods an opportunity to make elective deferrals to their 401(k) plans and, beginning in 2025, their 403(b) plans. This new long-term, part-time employee rule modifies rules that previously allowed employers to exclude employees from plan participation until the employees completed 1,000 hours of service in a single 12-month measurement period.
In doing so, the new rule has generated questions about whether all employers will now be required to track the actual hours all employees work to ensure compliance with this rule. The recently proposed regulations released by the Internal Revenue Service (IRS) confirm, in what should be a relief to many employers, that the answer is no. Employers do not need to change how they count periods of service toward plan eligibility. However, employers should revisit how such service is currently counted under their plans and consider the impact that may have on if and how the long-term, part-time employee rules apply.
What does December 31, 2024, mean to you? New Year’s Eve? Post-2024 election? Too far away to know?
Our answer: December 31, 2024, is when we will go over a “telehealth cliff” if Congress fails to act before that date, directly impacting care and access for Medicare beneficiaries. What is this telehealth cliff?
Together, the SECURE Act and the SECURE 2.0 Act require employers to offer employees who work at least 500 hours within three (reduced to two beginning January 1, 2025) consecutive 12-month periods an opportunity to make elective deferrals to their 401(k) and, beginning in 2025, their 403(b) plans. In doing so, the new rule raises numerous questions about how the new service requirement should be tracked. This includes questions about what 12-consecutive month period (often referred to as a “computation period”) employers should use to determine if an employee has completed the requisite service to begin participating in the plan.
Comments submitted in response to the proposed regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) reflect a broad range of perspectives. Our previous MHPAEA content is available here.
A nontrivial subset of the comments single out a particular nonqualified treatment limitation (NQTL) for special treatment or scrutiny. An example of this trend is found in an October 16, 2023, comment letter submitted by the Legal Action Center. The letter asks the US Departments of Labor, Health and Human Services, and the Treasury (the Departments) to address the rule’s treatment of medical standards of care and medical necessity.
Under the 2013 final MHPAEA regulations, a plan or issuer may not impose an NQTL with respect to mental health/substance use disorder (MH/SUD) benefits in any classification unless the processes, strategies, evidentiary standards or other factors used in applying the NQTL in the classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards or other factors used in applying the limitation with respect to medical/surgical (M/S) benefits. (Classifications for this purpose include inpatient, in-network; inpatient, out-of-network; outpatient, in-network; outpatient, out-of-network; emergency care; and prescription drugs.)
The proposed regulation defines “strategies” as “practices, methods, or internal metrics that a plan or issuer considers, reviews, or uses to design an NQTL.” Compliance with and deviations from generally accepted standards of care are cited as examples. Strategies for this purpose include “the development of the clinical rationale used in approving or denying benefits,” which is the central purpose of medical necessity determinations.
Medical necessity criteria are considered NQTLs because the criteria have the capacity to limit a patient’s access to or duration of MH/SUD treatment that are not based on the frequency of treatment, number of visits, days of coverage or days in a waiting period (the latter are quantitative treatment limitations). The Legal Action Center claims that plans sometimes develop their own criteria for determining medical necessity for MH/SUD treatment or use criteria developed by nonprofit clinical specialty associations or industry entities, despite the law’s admonition that plans must treat the two comparably. Concerned that under the proposed regulation plans retain significant discretion to adopt overly restrictive medical necessity criteria, the Legal Action Center asks the Departments to revise the definition of “strategies” to include a definition of “generally accepted standards of care” that is tied to criteria and guidelines from the nonprofit clinical association for the relevant specialty.
One way to determine the quality of a medical necessity definition is to look at claims data, which offer a useful test of parity compliance. Current law does not require parity of outcomes, but the proposed regulation does. The proposed rule would require that plans collect and evaluate outcomes data for the express purpose of assessing the impact of the NQTL on access to MH/SUD benefits. Material differences in outcomes are viewed as a strong indicator of noncompliance. (For the network composition NQTL, a material difference in outcomes data [...]
In 2016, Inland Fresh Seafood Corporation of America established an employee stock ownership plan (ESOP), a type of defined contribution employee benefit plan. The ESOP then purchased 100% of Inland Fresh stock from Inland Fresh’s former shareholders.
Since the ESOP was founded, it has provided substantial benefits to Inland Fresh’s employee participants.
In November 2022, four former Inland Fresh employees filed an Employment Retirement Income Security Act of 1974 (ERISA) class action complaint against Inland Fresh, a number of its executives, its outside counsel, the ESOP Committee and the ESOP’s independent trustee.
The complaint alleged that the defendants breached their ERISA fiduciary duties, engaged in transactions prohibited by ERISA and ultimately caused the ESOP to pay more than fair market value for Inland Fresh stock during the initial transaction.
Under the SECURE Act and SECURE 2.0 Act, employers must provide long-term, part-time employees the opportunity to make elective deferrals under their 401(k) plans and, beginning in 2025, their 403(b) plans. Under the new rules, long-term, part-time employees include those employees who complete at least 500 hours of service in three consecutive years (reduced to two years in 2025), are at least 21 years old and enter the plan solely because they satisfy this requirement.
When this occurs, certain special rules apply to such employees, including rules that impact when employees become vested and whether such employees must be included in annual nondiscrimination testing or must receive top-heavy vesting and benefits. As a result, many employers have asked whether employees who enter the plan as long-term, part-time employees are always treated like long-term, part-time employees or if that can change throughout the course of their careers. The answer is, well, complicated, and the impact differs depending on whether the employer is applying the special vesting or nondiscrimination and top-heavy rules to such employees.
Multiple states – including Alaska, Wisconsin and New Jersey – have been busy finalizing legislation and rulemaking to adopt interstate compacts and amend and clarify telehealth-related standards of care.
What else have these states been up to over the last month?
Subscribe
