ACAPresident Obama signed into law the Consolidated Appropriations Act on December 18, 2015, which among other things delayed the effective date of the Cadillac tax on high-cost employer sponsored health plans from 2018 to 2020.

The Affordable Care Act (ACA) imposed a 40 percent excise tax (commonly known as the Cadillac tax) on employer sponsored “excess benefits.” For purposes of determining “excess benefits,” all employer sponsored health plans must be aggregated, including not only insured and self-insured group health plans but also most wellness programs, FSAs, employer and employee pre-tax contributions to HSAs, HRAs, on-site medical clinics, executive physical programs, retiree health coverage, and other specified types of coverage. If the aggregated coverage exceeds specified thresholds, Cadillac taxes must be paid on the amount that exceeds the thresholds. The thresholds are currently $10,200 for self-only coverage and $27,500 for family coverage. These thresholds will be updated before the tax takes effect in 2020 and indexed for inflation in the years that follow.

Another important change is that the Consolidated Appropriations Act made the Cadillac taxes when paid deductible for federal tax purposes. Before, the taxes were not deductible.

Although the delay and making the Cadillac tax deductible are great news, the Cadillac tax continues to be of considerable concern in that some employers may decide to reduce the value of the health benefits they currently provide employees in order to avoid paying the taxes. Making the taxes deductible could help mitigate some of this concern, however.

desk-office-workspace-coworkingThe Department of Labor (DOL) published final rules on April 8, 2016, that define who is a fiduciary of an ERISA employee benefit plan as a result of giving investment advice to a plan or its participants or beneficiaries.

The purpose of the final rules is to protect investors by requiring anyone who gives retirement “investment advice” to plans to comply with a “fiduciary” standard that “puts their clients’ best interest before their own profits.” The rules define investment advice as a recommendation to a plan, plan fiduciary, direct or indirect, on whether to buy, hold, sell, or exchange securities or other investments, including recommendations after investments are rolled over or distributed from a plan or IRA. In addition, investment advice includes recommendations regarding the management of investments, investment policies, portfolio composition, selection of individuals or firms to provide investment advice, selection of investment account arrangements, or recommendations regarding rollovers, transfers, or distributions from a plan or IRA. Education and general communications are not considered to be fiduciary investment advice.

Certain types of relationships must exist for recommendations to give rise to fiduciary investment advice responsibilities. These relationships include persons who, in exchange for a fee or other compensation:

  • Acknowledge they are acting as a fiduciary
  • Give advice based on the particular investment needs of a recipient pursuant to a written or verbal agreement, arrangement, or understanding
  • Provide the advice to a specific recipient or recipients regarding a particular investment or management decision concerning securities or other investment vehicles of the plan or IRA

The final rules provide an exemption referred to as the “Best Interest Contract Exemption” (BICE). This provision allows investment advisors to continue to receive commission-based compensation as long as specific conditions are met. To meet the conditions, a financial institution must:

  • Acknowledge it and its advisors are a fiduciary
  • Comply with basic standards of impartial conduct
  • Have policies and procedures designed to mitigate harmful conflicts of interest and disclose basic information about their conflicts of interest and cost of advice

Although the effective date of the regulations is June 7, 2016, compliance with the final rules is not required until the “applicability date,” which is April 10, 2017. The DOL explained that “in light of the importance of the final rule’s changes, an applicability date of one year after publication of the final rule is appropriate and gives adequate time for plans and their affected financial services and other service providers to adjust to the change from non-fiduciary to fiduciary status.”

If your business provides retirement benefits, we recommend that you discuss the rules with your administrator, broker, and others providing services to the plan and assess the impact of the rules on your current arrangements.

For a copy of the DOL’s Final Rules and Fact Sheet, go to our Resource page.