Archived Insight | December 18, 2019

Congress Set to Repeal 40 Percent Excise Tax on High-Cost Health Plans; Pass SECURE Act

Late on December 16, 2019, Congress released the text of legislation approved by negotiators to keep the federal government funded past the current deadline of December 20, 2019. This legislation, which is in two bills, passed the House of Representatives today, December 17. It now heads to the Senate where it is also expected to pass. President Trump is expected to sign the bill into law before December 20.

One of the two bills (HR 1865) contains important provisions affecting employee benefit plans.

40 Percent Excise Tax

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Provisions Affecting Health Plans

This bill would permanently repeal three taxes included in the Affordable Care Act (ACA):

  • The 40 percent excise tax on high-cost health plans (the “Cadillac tax”);
  • The tax on health insurance providers (for calendar years starting after December 31, 2020); and
  • The medical device tax (for sales after December 31, 2019).

Under the bill, the excise tax on high-cost health plans, which was scheduled to go into effect January 1, 2022, would never take effect. The health insurance tax was suspended for 2019, but would be in effect for 2020, as currently scheduled, and repealed after that. The medical device tax has been suspended but was scheduled to be reinstated in 2020.

The bill would also reauthorize funding for the Patient-Centered Outcomes Research Institute (PCORI) for another 10 years, thus requiring self-insured group health plans and health insurers to continue to pay fees to fund this institute. Under the ACA as enacted, fees would not have been owed for plan years ending after September 30, 2019. This bill changes “2019” to “2029,” extending the requirement to pay these fees for another 10 years. For example, calendar-year plans would have to pay fees for the 2019 plan year by the usual deadline (i.e., by July 31, 2020). For 2018, the fee was $2.45 per covered life, and that amount would continue to be indexed under rules set in the ACA.

Provisions Affecting Pension Plans

The legislation includes the long-awaited pension bill, the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act passed the House on May 23, 2019 by a 417-3 vote but was held up in the Senate. The SECURE Act makes numerous changes to the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) to encourage savings. Among other changes, it would:

  • Provide relief from the nondiscrimination rules for closed defined benefit plans, effective as of the date of enactment and various retroactive dates;
  • Increase the age for the required beginning date for mandatory distributions from age 70½ to age 72, effective for distributions required to be made after December 31, 2019, for individuals who attain age 70½ after that date; and
  • Require individual account plans to include lifetime income disclosures in their annual periodic benefit statements, effective for statements furnished more than 12 months after DOL has issued the last piece of necessary guidance. Although public plans are not subject to ERISA, this requirement might be of interest to you or have an impact on best practices for your plan.

The bill provides relief to the United Mine Workers of America (UMWA) pension plan by transferring funds from the coal fund under Section 402 of the Surface Mining Control and Reclamation Act of 1977. The bill also increases the amount transferred to the UMWA health fund from the coal fund.

The bill does not address the concerns of other multiemployer funds or the Pension Benefit Guaranty Corporation’s multiemployer fund.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.