Alert / Retirement, Risk Management, Employee Benefits
Summary of year-end spending package

On Friday, Dec. 20, the president signed into law a $1.4 trillion spending package that ensures government funding through Sept. 30, 2020. Among the over 2,000 pages were several provisions that impact Lockton and our clients. Below is a quick rundown of what the legislation contains:

Property and casualty provisions

  • Extension of the Terrorism Risk Insurance Program (TRIA): The program was extended for an additional seven years, through Dec. 31, 2027. This means policies issued with effective dates beginning in 2020 will not have conditional endorsements that could have altered the policy for the remaining term had TRIA not been renewed.

    No substantive changes were made to the program, but two new studies were commissioned. One on the vulnerabilities and potential costs of cyber terrorism and adequacy of coverage under the program. The other study will be on the availability and affordability of terrorism risk insurance (including for places of worship, specifically). It is expected Congress will consider the recommendations of these studies and could make additional changes to TRIA over the next year or two.
  • Extension of the National Flood Insurance Program (NFIP): The new law provides the most recent in a seemingly endless string of short-term extensions of the NFIP. This one is through Sept. 30, 2020. Like prior extensions, this extension shows Congress understands the need to continue the NFIP but there are disagreements about how to reform the NFIP. Discussions about reforms in both the House and Senate are ongoing, but the timeline for sorting out various disagreements remains uncertain.

Retirement

After several years of failed attempts, the Setting Every Community Up for Retirement Enhancement (SECURE) Act has been passed into law as part of the year-end spending bill. The SECURE Act represents the most comprehensive piece of retirement legislation since 2006. With more than 30 provisions that expand retirement savings access, encourage lifetime savings, and alleviate many of the current roadblocks in retirement plans, SECURE is a win for both plan sponsors and participants. The major provisions of SECURE Act will do the following:

  • Allow unrelated employers to join a single retirement plan.
  • Simplify the 401(k) safe harbor rules. 
  • Expand portability of lifetime income options.
  • Allow long-term, part-time workers to participate in 401(k) plans.
  • Allow businesses to adopt plans by their tax filing due dates and treat them as effective as of the close of the plan year.
  • Provide a fiduciary safe harbor for selection of a lifetime income provider.
  • Extend the current required minimum distribution requirements to age 72. 
  • Require disclosures regarding lifetime income.
  • Modify nondiscrimination rules to protect longer-service participants in certain closed defined-benefit plans.

For a more detailed explanation of how SECURE impacts retirement plans, see Lockton’s Client Alert (INSERT LINK). Obviously, there is a lot of work to be done to bring plans into compliance with the new law, notably with many provisions being effective Jan. 1, 2020. There will certainly be guidance and clarification from both the IRS and Department of Labor forthcoming, but in the interim, employers should begin discussions with their advisors and plan service providers to establish a course of action. 

Healthcare

The spending package also includes many provisions impacting healthcare law and employee benefits programs. Among the highlights are the following:

  • Repeal of Affordable Care Act (ACA) taxes: The new law repeals the Cadillac tax (a 40% tax on health plans with a high total cost), medical device tax and the health insurer tax (HIT). The first two taxes were successfully repealed before ever going into effect. The HIT, which adds around 3% to insured group health plan premiums, will remain in effect for 2020, but it will be eliminated beginning in 2021.
  • Extension of Patient Centered Outcomes Research Institute (PCORI) fee: The PCORI fee, which is currently $2.45 per covered life, was extended another 10 years (for plan years ending before Oct. 1, 2029). The fee, paid by insurers for insured plans and the plan sponsor for self-insured plans, had expired for calendar year plans and was about to expire for all other plans. Sponsors of self-funded plans will need to pay the next installment of the fee by Jul. 31, just as they have since 2013. Insurers will want to pass along the fee to sponsors of insured plans as they did in the past, but it remains unclear how carriers will seek to do that for contract years beginning in late 2019 or early 2020 where the rates have already been negotiated. Presumably the contracts will allow the carrier to pass along taxes and fees imposed after the contract is signed.

For more information about impacts to healthcare, see our Alert from Lockton Compliance Services. 

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