Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

Theresa Borzelli, a partner in our Roseland office, provides the following update on Medicare Part D notice requirements:

The November 15 deadline for providing the Medicare Part D creditable coverage notice is fast approaching. This annual Notice must be provided by an employer who sponsors a health plan with prescription drug coverage. The Notice explains the benefits provided under the prescription drug plan and whether the employer's plan is at least equal to the prescription drug benefits offered under Medicare Part D so the participant can make an informed decision as to whether to enroll in Medicare Part D. This November 15 deadline coordinates with the start of the annual Medicare Part D open enrollment.

This Notice of Creditable Coverage must be provided

--- at least annually before November 15;
--- whenever a Medicare-eligible employee enrolls in the employer's health plan;
--- whenever there is a change in the creditable or non-creditable status of the employer's health plan's prescription drug benefit coverage;
--- whenever an individual requests the Notice.

Employers who establish their own Part D comparable plan or who contract for such a plan do not have to provide the Notice.

The Centers for Medicare and Medicaid Services (CMS) includes sample Notices and guidance on its website.

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Interesting economic times create interesting problems for plan administrators.  Consider the possibility that a couple may get divorced solely for the purpose of withdrawing pension benefits from a pension plan.  Seem far fetched?  Well, not really.

In Brown v. Continental Airlines, the Court in the Southern District of Texas considered a case where pilots, concerned about the health of their pension plan, got divorced and had QDROs submitted that called for distribution of their pensions to their ex-spouses.  The plan administrator became concerned that the pilots were continuing to live with their ex-spouses as if no divorce had occurred or even remarried their ex-spouses after the distribution was made.  The plan administrator sought to have the distributions returned to the plan because it believed the divorces were "sham transactions."

The good news for plan administrators and sponsors is that the Court confirmed that the administrator could rely on the QDRO.  Orders have to be obeyed unless they fail under the specific terms of the statute. 

What information must a domestic relations order contain to qualify as a QDRO under ERISA?  QDROs must contain the following information:

1. The name and last known mailing address of the participant and each alternate payee
2. The name of each plan to which the order applies
3. The dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the alternate payee
4. The number of payments or time period to which the order applies

And there are certain provisions that a QDRO must not contain:

1. The order must not require a plan to provide an alternate payee or participant with any type or form of benefit, or any option, not otherwise provided under the plan
2. The order must not require a plan to provide for increased benefits (determined on the basis of actuarial value)
3. The order must not require a plan to pay benefits to an alternate payee that are required to be paid to another alternate payee under another order previously determined to be a QDRO
4. The order must not require a plan to pay benefits to an alternate payee in the form of a qualified joint and survivor annuity for the lives of the alternate payee and his or her subsequent spouse

But the administrator is not required to (nor apparently allowed to) divine the intent of the parties when creating the QDRO.  If the requirements are met, it must be treated as valid. 

So while the plan administrator in this case did not get the money back, for the rest of us it affirms that following your statutory duties and confirming that the QDRO meets the requirements of the law is enough.  Plan administrators do not have to evaluate whether the purpose of the QDRO (or the divorce) is to circumvent the other requirements of the plan.

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Susan Jordan, a partner in our Pittsburgh office, shares the following:

In a news release (IR-2009-94) on October 15, 2009, the IRS announced the cost-of-living adjustments to the various dollar limitations applicable to qualified retirement plans for 2010. Virtually all of the limitations remain unchanged from 2009.

1. LIMIT ON COMPENSATION: The maximum amount of compensation that may be counted for plan purposes remains at $245,000 for plan years beginning in 2010.
2. LIMITS ON CONTRIBUTIONS AND BENEFITS. The maximum limit on annual additions to a defined contribution plan is unchanged at $49,000. The maximum annual benefit which may be accrued under a defined benefit plan will remain $195,000 as in 2009.
3. 401(k) DEFERRAL LIMIT. For purposes of 401(k) plans, the maximum limitation on voluntary salary deferrals for calendar year 2010 is $16,500 as in 2009, while the limit on catch-up deferrals by those age 50 or older increases stays at $5,500.
4. IDENTIFICATION OF HIGHLY COMPENSATED AND KEY EMPLOYEES. Effective for plan years beginning in 2010, as in 2009, a Highly Compensated Employee is any employee who (a) was a 5% owner during the current or preceding year, or (b) who received compensation from the employer during the preceding year in excess of $110,000. The dollar limit used to define a key employee in a top heavy plan under IRC Section 416(i)(1)(A)(i) is preserved at $160,000.
5. SEP THRESHOLD. As in 2009, the compensation minimum for which coverage is required for a simplified employee pension plan (SEP) is $550.
6. TAXABLE WAGE BASE. As announced separately, for the first time since 1975, when the cost of living adjustments went into effect, Social Security and Supplemental Security Income benefits will not be increased for any cost of living adjustment. In such circumstances, the statute prohibits an increase in the maximum amount of earnings subject to the Social Security tax. Consequently, the Social Security taxable wage base for 2010 will be $106,800, as in 2008. For plan years which operate on a fiscal year basis, this wage base will be effective for plan years beginning in 2010.

* * * * * * * * *
We frequently are asked to provide the contribution formula needed to maximize contributions for an individual with compensation at or above the maximum limit. The formula remains the same as applicable in 2009, so for a calendar year profit sharing plan integrated at the Social Security wage base, the contribution formula needed to achieve the maximum permissible allocation for an individual with compensation of $245,000 or more is:
16.78473% up to $106,800, plus 22.48473% in excess of $106,800 (up to $245,000)

For a calendar year 401(k) plan integrated at the Social Security wage base and using the 3% safe harbor design, the profit sharing contribution formula which, in the aggregate (with a $16,500 deferral and $7,350 safe harbor contribution), will achieve the maximum permissible allocation for an individual with compensation of $245,000 or more is:
7.05004% up to $106,800, plus 12.75004% in excess of $106,800 (up to $245,000)

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In light of New York's recent adoption of coverage for individuals up to age-29, I thought it would be worthwhile to consider what other states have passed similar laws.  This is by no means intended to cover all of the specifics of each state, but I thought it was interesting to see the number of states that provide some insurance extension options to adult children.

1. Colorado: Adult can be eligible until the 25th birthday
2. Connecticut: Coverage up to age 26
3. Delaware: until they turn 24
4. Florida: up to age 25
5. Idaho: also until age 25
6. Illinois: until age 26, unless they are veterans and then to age 30
7. Indiana: until age 24
8. Iowa: under age 25
9. Maine: up to age 25
10. Maryland: also up to age 25
11. Massachusetts: age 25 again
12. Minnesota: unmarried children up to age 25
13. Montana: age 25
14. New Hampshire: until age 26
15. New Jersey: until age 30
16. New Mexico: age 25
17. Oregon: age 23
18. Pennsylvania: Age 29
19. Rhode Island: age 25
20. South Dakota: until their 29th birthday
21. Texas: up to their 25th birthday
22. Utah: until their 26th birthday
23. Virginia: under 25
24. Washington: up until age 25

Each of these states have specific rules for eligibility and age is not the only requirements.  Most require children to be unmarried, and some do have residency restrictions.  However, it does appear that all of these rules apply to insured policies issued specifically in those states, so self-insured or self-funded plans would not be impacted.  State rules vary with respect to whether an employer is required to provide the extension, has an option, or if it is strictly a requirement on the part of the insurance company.

So, in sum, don't assume that children automatically age off of the plan if they are "of age" and not a full time student.  Check with your benefit professional (or your attorney) to confirm that you are offering appropriate coverage to adult children.

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