Compliance November 21, 2012

Regulators Issue Guidance About Wellness Programs

November 21, 2012 (PLANSPONSOR.com) – The Departments of Health and Human Services (HHS), Labor and the Treasury jointly released proposed rules about employer wellness programs.
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The proposed rules reflect the changes to existing wellness provisions made by the Affordable Care Act and encourage appropriately designed, consumer-protective wellness programs in group health coverage. The proposed rules would be effective for plan years starting on or after January 1, 2014.

The guidance continues to support workplace wellness programs, including “participatory wellness programs” which generally are available without regard to an individual’s health status. These include, for example, programs that reimburse for the cost of membership in a fitness center; that provide a reward to employees for attending a monthly, no-cost health education seminar; or that provides a reward to employees who complete a health risk assessment without requiring them to take further action.  

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The rules also outline amended standards for nondiscriminatory “health-contingent wellness programs,” which generally require individuals to meet a specific standard related to their health to obtain a reward. Examples of health-contingent wellness programs include programs that provide a reward to those who do not use, or decrease their use of, tobacco, or programs that provide a reward to those who achieve a specified cholesterol level or weight as well as to those who fail to meet that biometric target but take certain additional required actions.

In order to protect consumers from unfair practices, the proposed regulations would require health-contingent wellness programs to follow certain rules, including: 

  • Programs must be reasonably designed to promote health or prevent disease. To be considered such, a program would have to offer a different, reasonable means of qualifying for the reward to any individual who does not meet the standard based on the measurement, test or screening. Programs must have a reasonable chance of improving health or preventing disease and not be overly burdensome for individuals. 
  • Programs must be reasonably designed to be available to all similarly situated individuals. Reasonable alternative means of qualifying for the reward would have to be offered to individuals whose medical conditions make it  unreasonably difficult, or for whom it is medically inadvisable, to meet the specified health-related standard. 
  • Individuals must be given notice of the opportunity to qualify for the same reward through other means. These proposed rules provide new sample language intended to be simpler for individuals to understand and to increase the likelihood that those who qualify for a different means of obtaining a reward will contact the plan or issuer to request it. 

 

The proposed rules also implement changes in the Affordable Care Act that increase the maximum permissible reward under a health-contingent wellness program from 20% to 30% of the cost of health coverage, and that further increase the maximum reward to as much as 50% for programs designed to prevent or reduce tobacco use.  

The proposed rules can be viewed here.
Administration November 21, 2012

DB Sponsors Should Consider Borrowing to Fund Contributions

November 21, 2012 (PLANSPONSOR.com) - Choosing to accelerate plan contributions, financed through borrowing, could benefit many defined benefit (DB) plan sponsors.
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A research paper from Towers Watson contends borrowing to fund can lessen the risk of near-term interest rate movements and provide more security for sponsors during the continued turbulence of global financial markets. In addition, taking action now to reduce risk exposure can alleviate some of the worry about future volatility and allow sponsors to focus more attention on their core business operations.  

Many plan sponsors are looking to manage plan costs, and the idea of accelerating cash contributions may seem counterintuitive, especially with the passage of funding relief (also known as the Moving Ahead for Progress in the 21st Century Act, or MAP-21), which lowers near-term cash contribution requirements, Towers Watson concedes. However, many plan sponsors are no longer willing or able to bear annual cost volatility—cash or accounting. 

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De-risking actions can reduce this volatility, but often this can only be done at a point of relatively strong funded status, the report noted. As a result, sponsors have considered accelerating contributions beyond required minimum levels—sourced from current resources or capital markets—to help reduce the ongoing risk exposure of the plan and increase the predictability of plan costs.

According to the report, “Accelerating contributions can help sponsors get to the point of being able to significantly lessen the ongoing financial impact of the pension plan on the organization’s performance.”  

Once the decision to accelerate contributions is made, borrowing has appealed to sponsors because of historically low interest rates and, as a result, much lower borrowing costs, Towers Watson said. Falling interest rates have served to increase plan size and deficits. In what many continue to consider an artificially low interest rate environment, taking de-risking actions has been compared with buying when prices are highest. Lower borrowing cost is one protection against this concern.   

Borrowing to fund and de-risk a pension makes a sponsor less susceptible to regret should rates rise. If rates rise, the debt value (assuming a fixed rate) is lessened; if they do not, pension costs stabilize.  

Plan sponsors have unique situations, so several issues must be considered when deciding whether to borrow to fund, Towers Watson notes.  

The report can be downloaded from http://www.towerswatson.com/research/8395.

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