The Washington Report
December 18, 2019
A Note to Washington Report Subscribers—Holiday Publication Schedule
The Washington Report will not be published on Wednesday, December 25, 2019, or Wednesday, January 1, 2019. Publication will resume on Wednesday, January 8, 2020. Happy holidays and New Year!
Congress Unveils Budget Proposal; Includes Retirement Incentives and Repeals Three ACA Taxes—Passage Likely by End of Week
Congress unveiled a sweeping budget proposal on December 16, 2019, which not only provides funding for the various government agencies, but also includes a number of provisions impacting the Affordable Care Act (ACA) and retirement plans. The bill includes language that permanently repeals three major health taxes meant to help finance the ACA. The provisions being repealed include the “Cadillac” tax on employer plans, the 2.3% medical device tax, and a health insurance tax. Measures addressing surprise medical bills or lower prescription drug costs are not currently included in the bill language. On the retirement front, the bill provides tax incentives for retirement plans, including rewarding businesses with tax credits for creating new 401(k) savings accounts and allowing employees to wait until the age of 72 before drawing down retirement funds. Provisions bolstering the retirement benefits for coal miners is also consolidated into the legislation.
The House passed the measure on Tuesday. The Senate is expected to approve the legislation this week to send to the President for enactment, thus avoiding a government shutdown by December 20..
Please note that this summary provides a high-level overview of the numerous provisions found in the legislation and is not meant to offer specific analysis or include all measures found in the bill text. Legislative happenings can develop and change rapidly.
Congress Scheduled to Recess for Holiday Break
Congress is expected to recess for its holiday break beginning this Friday, December 20. The second session of the 116th Congress is scheduled to reconvene on Tuesday, January 7, 2020. However, due to legislative happenings, including a possible impeachment trial, the reconvening date could be adjusted.
House Passes Drug Pricing Bill; Further Progress Unlikely
On December 12, 2019, the House approved with a 230–192 vote the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3). The bill would establish several programs and requirements relating to the prices of prescription drugs. The bill would require the Centers for Medicare & Medicaid Services (CMS) to negotiate prices for certain drugs (current law prohibits the CMS from doing so). Specifically, the CMS would negotiate maximum prices for 1) insulin products; and 2) at least 25 single-source, brand-name drugs that do not have generic competition and that are among the 125 drugs that account for the greatest national spending or the 125 drugs that account for the greatest spending under the Medicare prescription drug benefit and Medicare Advantage (MA). The negotiated prices would be offered under Medicare and MA, and would also be offered under private health insurance unless the insurer opts out. The bill would also make a series of additional changes to Medicare prescription drug coverage and pricing.
The measure is not likely to be brought to a Senate vote and the White House also announced it would veto the legislation.
The full text of H.R. 3 is available here.
Six-Year Remedial Amendment Cycle for Pre-Approved Defined Benefit Plans Begins May 1, 2020; Submission Period for Providers to Submit Applications for Opinion Letters for Pre-Approved Defined Benefit Plans Begins August 1, 2020
On December 16, 2019, the Internal Revenue Service (IRS) released Revenue Procedure 2020-10, which provides that the third six-year remedial amendment cycle for pre-approved defined benefit plans begins on May 1, 2020, and ends on January 31, 2025. It also provides that the on-cycle submission period for providers to submit opinion letter applications begins on August 1, 2020, and ends on July 31, 2021. Revenue Procedure 2017-41, 2017-29 I.R.B 92, sets forth procedures for providers of pre-approved plans to obtain opinion letters, once every six years, for qualified pre-approved plans submitted with respect to the third (and subsequent) six-year remedial amendment cycles. Defined benefit and defined contribution pre-approved plans are under different six-year remedial amendment cycles.
Revenue Procedure 2020-10 is available here.
IRS Releases Revenue Procedure on Amendments Treated as Integral to Pension Plan Provisions
On December 12, 2019, the IRS released Revenue Procedure 2020-09, which clarifies which amendments are treated as integral to a plan provision that fails to satisfy the qualification requirements of the Internal Revenue Code by reason of a change to those requirements made by the recently published regulations under Sections 401(k) and 401(m) relating to hardship distributions of elective deferrals. Revenue Procedure 2020-09 also extends the deadline, applicable to pre-approved plans, for adopting an interim amendment relating to those regulations. The deadline is extended to December 31, 2021.
IRS Revenue Procedure 2020-09 is available here.
PBGC Publishes Notice Approving Alternative Arbitration Procedures for Multiemployer Plans
On December 10, 2019, the Pension Benefit Guaranty Corporation (PBGC) published a Notice approving, effective January 1, 2020, a request from the American Arbitration Association (AAA) for approval of an alternative arbitration procedure (AAA Rules). The AAA Rules address, among other things, arbitration initiation fees, apportionment of fees, and the arbitrator selection process.
The Notice is available here.
Additional information from the PBGC is available here.
The AAA Rules are available here.
IRS Releases 2021 Mortality Improvement Rates and Static Mortality Tables for Defined Benefit Pension Plans
On December 10, 2019, the IRS released Notice 2019-67, which specifies updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans under Section 430(h)(3)(A) of the Internal Revenue Code (Code) and Section 303(h)(3)(A) of ERISA, as amended. These updated mortality improvement rates and static tables, which are being issued pursuant to the regulations under Section 430(h)(3)(A), apply for purposes of calculating the funding target and other items for valuation dates occurring during the 2021 calendar year. The Notice also includes a modified unisex version of the mortality tables for use in determining minimum present value under Section 417(e)(3) of the Code and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2021 calendar year. Additionally, the Notice requests comments on possible regulations to modify the basis for determining these mortality tables. Comments on Notice 2019-67 must be received by February 28, 2020.
IRS Notice 2019-67 is available here.
DOL Publishes Final Rule Updating Regular Rate Requirements Under FLSA
On December 12, 2019, the Department of Labor (DOL) published a final rule which clarifies and updates a number of the regulations interpreting the regular rate requirements under the Fair Labor Standards Act (FLSA). The regular rate determines how much nonexempt employees covered by the FLSA receive in overtime pay, as the law generally requires overtime pay of at least one and one-half times the regular rate for time worked in excess of 40 hours per workweek. Regular rate requirements define what forms of payment employers include and exclude in the “time and one-half” calculation when determining workers’ overtime rates. According to the DOL, the final rule “focuses primarily on clarifying whether certain kinds of benefits or ‘perks,’ and other miscellaneous items must be included in the regular rate. Because these regulations have not been updated in decades, the final rule will better define the regular rate for today’s workplace practices and will allow employers to more easily offer perks and benefits to their employees.”
Specifically, the final rule clarifies that employers may offer the following perks and benefits to employees without risk of additional overtime liability:
- The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
- Payments for unused paid leave, including paid sick leave or paid time off;
- Payments of certain penalties required under state and local scheduling laws;
- Reimbursed expenses including cell phone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred "solely" for the employer's benefit, and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se "reasonable payments";
- Certain sign-on bonuses and certain longevity bonuses;
- The cost of office coffee and snacks to employees as gifts;
- Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples and;
- Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
The final rule also includes additional clarification about other forms of compensation, including payment for meal periods and "call back" pay. The final rule becomes effective January 15, 2020.
The final rule is available here
The (corrected) news release is available here
A fact sheet is available here
Frequently asked questions are available here
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