Common Questions Updated On Early Retiree Reimbursement Program Website

New common questions about reporting and correcting data inaccuracies, use of reimbursement, and sending the Early Retiree Reinsurance Program (ERRP) form notice to plan participants, have been added to the use of reimbursement and miscellaneous common question sections of http://www.errp.gov.

Health benefit premium cost increases. The new common questions clarify that a plan sponsor may use the ERRP funds it receives during a given plan year to retroactively offset health benefit or health benefit premium cost increases it already experienced during that same plan year. A plan sponsor may do this either by actually applying the ERRP funds during that same year or by retroactively applying the ERRP funds during the subsequent plan year.

As an example of the former approach, a plan sponsor may, in its 2012 plan year, offset cost increases it already experienced in its 2012 plan year, with ERRP reimbursement it received in its 2012 plan year. As an example of the latter approach, a plan sponsor may, in its 2013 plan year, offset cost increases it experienced in its 2012 plan year, with ERRP reimbursement it received in its 2012 plan year. According to the common questions, the latter approach may be particularly suitable for sponsors of self-funded plans because, by waiting until 2013 to apply the funds, the sponsor might know with more certainty what its actual costs were for 2012, which could reduce or eliminate the burden of reconciling its estimate with actual costs.

Plan sponsors applying ERRP funds to their own costs are only permitted to use ERRP funds to offset increases to their health benefit or health benefit premium costs, and sponsors may not use ERRP funds as general revenue. A plan sponsor applying ERRP funds to plan participants’ costs, which is another option for the use of funds, may retroactively reduce, or offset increases to, such costs for any prior plan year in which the sponsor participated in ERRP.

Per capita increases. According to the common questions, a plan sponsor may use ERRP reimbursements to offset per capita increases to its health benefit and/or health benefit premium costs, even if the sponsor’s aggregate plan-wide health benefit and/or health benefit premium costs decreased when compared with the sponsor’s baseline costs. The plan sponsor must satisfy the maintenance of contribution requirement solely through the Per Capita Spending Trend, Total Dollars Methodology specified in the Guidance on Complying with the Prohibition on Using Early Retiree Reinsurance Program Reimbursements as General Revenue.

For example, in its baseline period, a plan sponsor had 100 plan participants and spent $150,000 ($1,500 per capita) on health benefits. In a given ERRP plan year, the plan sponsor had 80 plan participants and spent $136,000 of its own funds ($2,000 per capita) on health benefits. The sponsor could use ERRP funds to offset the $500 per capita cost increase for the number of plan participants it has in its ERRP plan year (i.e., the difference between $1,500 and $2,000, which is $500 per participant, multiplied by 80 plan participants in the given ERRP plan year, which is $40,000), even though the sponsors’ aggregate plan-wide spending on health benefits declined, according to the common questions.

Percentage increases. The common questions also explain that a plan sponsor may use ERRP reimbursements to offset percentage increases to its health benefit and/or health premium costs, even if the sponsor’s aggregate plan-wide health benefit and/or health premium costs decreased when compared with the sponsor’s baseline costs if the plan sponsor satisfies the maintenance of contribution requirement solely through the Aggregate Spending Trend, Percentage Methodology specified in the Guidance on Complying with the Prohibition on Using Early Retiree Reinsurance Program Reimbursements as General Revenue.

For example, in its baseline period, a sponsor spent $700,000 of its own funds in health benefit premium costs and total health benefit premium costs (including plan participant contribution) were $1 million (70 percent). In a given ERRP year, the plan sponsor spent $600,000 of its own funds in health benefit premium costs, and total health benefit premium costs were $800,000 (75 percent). Maintenance of contribution rules allow the plan to spend only 70 percent of total costs, or $560,000 (70 percent of $800,000 is $560,000), so the plan sponsor could use ERRP funds to offset the 5 percentage point cost increase (i.e., the difference between 70 percent and 75 percent of $800,000, which is $40,000) even though the plan sponsors’ aggregate plan-wide health benefit premium spending declined.

Self-funded plans. A self-funded plan sponsor may estimate its expected amount of health benefit costs for a given plan year, and apply ERRP funds received during that same plan year to offset expected cost increases, according to the common questions. However, if the sponsor determines that its estimate of the expected increase was higher than its actual amount of health benefit cost increase, the sponsor must conduct a “reconciliation” of the estimate and actual health benefit costs, and return to its “ERRP account” any amount of ERRP funds it spent that exceeded its actual cost increases. This reconciliation ensures that plan sponsors are using funds as permitted, to offset cost increases to their plan, and not using ERRP funds as general revenue.

The plan sponsor would be able to apply the remaining amount in future years. To the extent a plan sponsor applies ERRP funds to reduce (or offset increases to) plan participants’ costs, the “reconciliation” process would not apply to such use of ERRP funds.

ERRP notices. The common questions also indicate that a plan sponsor may cease sending the form “Notice About the Early Retiree Reinsurance Program,” to new plan participants when the sponsor no longer possesses any ERRP funds. For example, a plan sponsor is not required to send the notice to new plan participants after the sponsor has used all its ERRP funds for the permissible purposes specified in the statute, regulation, and other guidance. If a sponsor no longer possesses any ERRP funds, but subsequently receives additional ERRP funds, the requirement to provide the notice to new plan participants resumes. Specifically, the sponsor would need to send the notice to all participants who had joined the plan on any date after the sponsor had previously spent all its ERRP funds, according to the common questions.

For more information, visit http://www.errp.gov.

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