Budget Agreement Includes Provisions Affecting Employer-Provided Benefits
The congressional budget deal (the Bipartisan Budget Act of 2015, P.L 114-74) that was signed into law by President Barack Obama on Nov. 2 includes repeal of the Affordable Care Act’s (ACA’s) auto-enrollment provision for large employers, increases premiums for the Pension Benefit Guaranty Corp. (PBGC), and addresses the impending inability for the Social Security Disability Insurance fund to meet its obligations to participants.
Within the budget are several provisions that affect employer-provided benefits, as well as a two-year agreement that adjusts spending caps for Fiscal Years 2016 and 2017, equally divided between defense and nondefense spending. The budgetary increases provided by the agreement are fully offset by mandatory spending cuts and other savings, and provide a debt ceiling increase through March 2017.
Specific provisions of interest to the HR profession include:
· Repeal of ACA Automatic Enrollment for Employees of Large Employers - The ACA requires that employers with 200 or more full-time employees automatically enroll each new full-time employee into a qualifying health plan (if one is offered by that employer) by the employee’s 91st day of employment and that employers automatically continue enrollment of current employees unless the employees choose to opt out. Employers that are subjected to this requirement are already bound by the health care law’s shared responsibility for employers’ provision, which requires an offer of coverage to these same employees. SHRM supported repeal of the ACA auto-enrollment provision because the requirement could be confusing and cause complications for employees and employers alike. In particular, if employees are automatically enrolled in an employer-sponsored health plan but have coverage elsewhere (such as under a spouse’s plan), they may find themselves in a plan they do not need, a situation that could result in unnecessary financial hardship. In addition, new employees could potentially lose access to health care providers they have long depended on, who may not be participants under the employer-sponsored health plan. Furthermore, for employers who have seasonal workers or workers with variable hours, automatic enrollment creates the administrative headache of determining which employees are considered full-time and eligible for coverage.
· Increase in PBGC Premiums - The agreement increases both the flat- and variable-rate premiums for single-employer plans. Flat-rate premiums will increase 22 percent, while variable-rate premiums will increase 24 percent from 2016 levels. It is important to note that these premium increases do not flow to the PBGC to ensure plan solvency. Rather these increases will be used to offset the cost of the budget agreement.
· Change in PBGC Premium Payment Deadline - The agreement changes the PBGC premium payment deadline for 2025 and beyond, moving it forward one month. The purpose of moving the date is to include one additional year within the 10-year budget window, thereby increasing the amount of revenue generated to the Treasury. Employers generally are required to make a premium payment by Oct. 15 of each plan year. The legislation would move the payment date to Sept. 15.
· Extends Defined Benefit Funding Stabilization (“Pension Smoothing”) - The agreement extends fund stabilization rates through 2019, with rates decreasing thereafter. These rates dictate the levels at which a plan must be funded. Expansions of these rates allow an employer to reduce its funding liability and, therefore, to increase its overall general revenues. With the increase in revenue comes greater tax liability and, thus, more money for the U.S. Treasury.
· Allows Mortality Tables for Pension Plan Projections - The agreement allows more retirement plans to use their own mortality tables for plan projections. Normally, the Internal Revenue Service approves plan-specific tables once a plan has a sufficient number of participants to justify the table. This has generally benefited very large plans with many participants. The legislation would expand how a plan sponsor can demonstrate credible information in order to use its own mortality table, thereby increasing the number of plans that use their own tables. Theoretically, this could raise a small amount of revenue by reducing some plan liability and reducing an employer’s pension contributions—thus increasing an employer’s tax liability through the pension smoothing process.
· Reallocation of Social Security Disability Insurance (SSDI) Reforms - The agreement reallocates funds among the Social Security program trust funds to ensure solvency of the disability insurance (DI) program for seven more years (through 2022). This prevents the automatic 19 percent cut in DI benefits that would have otherwise occurred when the reserves run out next year. Of interest to employers employing individuals on DI, the bill requires the Social Security Administration (SSA) to test different strategies for incentivizing work for individuals on disability benefits who may fear losing these benefits if their income is too high. The bill also includes new requirements that all disability cases be reviewed by a medical expert before benefits can be awarded.