More Details on the Non Discrimination Testing Delay

By Ric Joyner

Last night I posted the news about the delay in NDT (as some call it). The synopsis is this; The IRS/Treasury/HHS/DOL will work on the guidance in 2011 for plans starting after 2012. My gut is telling me that the delay has many causes. One of which may be that 2 federal judges have ruled against the health care individual mandate and now faces a conservative Supreme Court (5 conservative judges to 4 liberal) and parts or all of the PPACA could be ruled unconstitutional. Another was addressed in the latest alert from our attorney firm that many employers were dropping health insurance (my assumption is smaller employers) and this was causing employees to lose coverage which is what PPACA was designed to prevent. Either way, we were under the impression that section 105 testing was what the IRS were looking for us to use in testing health insurance. Thus, I find this delay odd to say the least.

Another item that has come forward is what type of non discrimination testing am I referring to. It is those that are required for Health Insurance. It does not affect flex or HRA non-discrimination testing. This is a comment from our compliance department; “Let me clarify – the 105(h) testing for fully insured plans have been delayed.  However, the 105(h) testing on self-insured medical, dental, vision, Health FSA, HRA are still applicable and required.”


From the KS Health and Welfare Team:

This evening the IRS released Notice 2011-1, exempting insured plans from the new nondiscrimination rules in the Affordable Care Act (and related penalties for non-compliance) until regulations are issued. Further, the notice provides that the regulations are expected to apply to plan years beginning after issuance. Meaning that for calendar year plans, the earliest the nondiscrimination rules should apply is January 1, 2012. It could even be later than that depending on when the IRS issues the nondiscrimination regulations, which is currently expected in Q2 or Q3 of 2011. (The new nondiscrimination rules do not apply to insured grandfathered plans.)

By way of background, the Affordable Care Act provides that a group health plan (other than a self-insured plan) must satisfy certain nondiscrimination rules and that rules similar to the rules contained in Section 105(h) of the Code shall apply. The Affordable Care Act provides this new nondiscrimination rule to be effective as of January 1, 2011. An insured group health plan that fails to comply with these rules may be subject to an excise tax of $100 per day per participant, subject to certain limitations and maximums. Because the Affordable Care Act provides that rules “similar to” the Code Section 105(h) rules apply, the IRS notes that the IRS must issue guidance specifying in what respects insured plans are subject to the same statutory provisions that apply to self-insured plans under Code Section 105(h), and in what respects insured plans are subject to rules reflecting a different (although “similar”) application of those statutory provisions.

The IRS and Treasury in recent months have held meetings with certain interest groups, who were concerned about the fact that a penalty would apply without any guidance on how to avoid the penalty. This Notice is certainly a response to these concerns and allows plan sponsors to continue to sponsor their insured plans for the time being without fear of the Affordable Care Act nondiscrimination penalty.

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Mark L. Stember
Kilpatrick Stockton LLP
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