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► Cadillac Tax Repeal Among Benefit Changes In Budget Bill

The long, slow demise of the Affordable Care Act’s (ACA) “Cadillac Tax” concluded December 20 with President Trump’s signing of the Further Consolidated Appropriations Act of 2020 (H.R. 1865). The budget bill also repealed other ACA taxes and included many tweaks to retirement plan requirements as well.

The Cadillac Tax, a 40% excise tax on health plans exceeding a certain cost threshold, was originally set to take in effect in 2018 but had been postponed repeatedly amid substantial bipartisan opposition. Division N, Section 503 of H.R. 1865 dealt the final blow by repealing Section 4980I of the Internal Revenue Code (IRC). That section’s definition of “applicable employer-sponsored coverage” was moved to IRC Section 6051, where it still applies for purposes of reporting on Form W-2.

The budget bill also repealed the ACA health insurance tax (HIT), which applied strictly to insurance carriers but was generally passed on to sponsors of fully insured plans, as well as an excise tax on medical devices. The HIT repeal does not take effect until 2021, unlike the device and Cadillac tax repeals, which take effect in 2020.

One ACA tax was actually extended—the fee that funds the Patient-Centered Outcomes Research Institute (PCORI). This fee, imposed on health insurers and self-funded plans, was to expire for plan years ending October 1, 2019, or later, but H.R. 1865 reinstated it for another 10 years—for plan years ending before October 1, 2029. The PCORI fee is based on the average number of lives covered under the policy or plan.

Retirement Plan Changes

Division O of the budget bill made many changes to retirement plan rules that were originally in the separate Setting Every Community Up for Retirement Enhancement (SECURE) Act. These include:

•    Pushing back the starting age of required minimum distributions (RMDs) from 70 1/2 to 72, for participants who turn 70 1/2 in 2020 or later;

•    “Lifetime income” disclosure provisions requiring plan sponsors to quantify the payments a defined contribution (401(k) or 403(b)) plan would yield if structured as a lifetime annuity, and a fiduciary safe harbor for plan sponsors that actually offer such an annuity;

•    An option for plans to allow a distribution of up to $5,000 within 1 year after a child is born to, or adopted by, the plan participant;

•   Changes to the notice and contribution requirements for “safe harbor” 401(k) plans.

•   A requirement that certain “long-term part-time employees” be allowed to participate, for plan years beginning in 2021 and thereafter; and

•   Beginning in 2021, a new type of arrangement called the “pooled employer plan” that unrelated small employers can sponsor jointly.

[1/2020]

 

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