October 29, 2015
Bipartisan Budget Act of 2015: Items of Interest for Plan Sponsors
On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015.
Of Note for Health Plan Sponsors
- Medicare 2016 Premiums: The Budget Act, if enacted, would adjust the Medicare Part B premium to reflect the fact that about 30 percent of Medicare beneficiaries are scheduled to face a significant premium hike in 2016. Generally, the 2016 Medicare Part B premium is predicted to be $159.30. Under current law, most Medicare beneficiaries are “held harmless” from Part B premium increases because there is no increase in Social Security payments for 2016, so their premium will remain at the current rate of $104.90. For those who are not “held harmless,” because either they do not have their Part B premiums withheld from Social Security, their Part B premiums are paid by Medicaid, they are high-income beneficiaries, or they are new enrollees, the Budget Act would set a new 2016 Part B premium at $120 instead of $159.30. However, to make up the shortfall from a lower premium increase for this group, the general Treasury would loan money to the Supplemental Medical Insurance (SMI) Trust Fund. Consequently, Medicare beneficiaries who are paying $120 would pay an additional monthly surcharge of $3 until the loan is repaid. For high-income Medicare beneficiaries, the amount of the surcharge would be slightly higher. If there is no Social Security COLA in 2017, the law would repeat this process. The exact amounts of the Medicare premiums will likely be published by the Federal Government after the law is enacted.
- Repeal of the Affordable Care Act’s Auto-Enrollment Rule: The Affordable Care Act amended the Fair Labor Standards Act to require employers with more than 200 employees to automatically enroll new full-time equivalents into one of the employer’s health plans, and to automatically continue enrollment of current employees. Implementation of the provision has been indefinitely delayed by the Department of Labor, and many commentators had raised concerns as to whether it was administratively feasible. The Budget Act would repeal the auto-enrollment rule in its entirety.
Of Note for Retirement Plan Sponsors
Except for the accelerated payment of 2025 PBGC premiums, which appears to apply to multiemployer plans as well, these proposed changes relate only to single-employer DB plans.
- Single-Employer PBGC Premium Increase: As mentioned below, the Budget Act would raise the single-employer flat-rate premium to $69 for 2017, $74 for 2018, and $80 for 2019, after which the rate would be indexed for inflation. The variable rate premium would continue to be indexed for inflation, but also would be increased by an additional $3 in 2017, an additional $4 in 2018, and an additional $4 in 2019.
- PBGC Premium Payment Acceleration: The premium payment due date for plan years beginning in 2025 (only) would be the 15th day of the 9th calendar month, not the 10th calendar month as is currently the case, beginning on or after the first day of the premium payment year. This one-year acceleration, which appears to be for the purpose of including the 2025 premium revenue within the 10-year budget window, appears to apply to multiemployer premiums as well as single-employer premiums.
- Plan-Specific Substitute Mortality Tables: For purposes of determining pension liabilities, single-employer DB plans that wish to use plan-specific substitute mortality tables (tables not prescribed by Treasury) must obtain Treasury approval to do so. The proposed tables must satisfy certain requirements, including the requirement that the table is based on credible information. Under the Budget Act, the credible information determination “shall be made in accordance with established actuarial credibility theory, which is materially different from the current rules.” In addition, under the Budget Act, a plan may use tables that are adjusted from the Treasury tables if such adjustments are based on the plan’s experience.
- Extension of Single-Employer Funding Stabilization Percentages: The interest rate corridors put in place in 2012 by the Moving Ahead for Progress in the 21st Century Act (MAP-21) and revised in 2014 by the Highway and Transportation Funding Act (HATFA) are further revised in the Budget Act as follows: The 90 percent to 110 percent interest rate corridor, currently in effect through 2017, would remain in effect through 2020. The corridor would then increase by 5 percent each year through 2023 and, for years after 2023, it widens to 70 percent to 130 percent, where it will remain.
The text of the Budget Act as provided in the October 28, 2015 Congressional Record is here, beginning on page H7286.
We will be providing additional information on this proposed legislation upon enactment.