IRS Notice 2011-1 (the “Notice”) postpones the provisions of the Affordable Care Act which prohibits an insured group health plans from discriminating in favor of highly compensated individuals. In general, the Affordable Care Act requires that an insured group health plan must satisfy the nondiscrimination requirements of section 105(h)(2) of the Internal Revenue Code (the “Code”), and that rules similar to the rules in paragraphs (3) (nondiscriminatory eligibility classifications), (4) (nondiscriminatory benefits), and (8) (certain controlled groups) of section 105(h) will apply. The term “highly compensated individual” is defined in section 105(h)(5).
An insured group health plan which fails to meet these new nondiscrimination requirements and rules may generally be subject to: (a) an excise tax of up to $100 for each day of failure, per each affected participant, under section 4980D of the Code, or (b) a civil action to enjoin the noncompliant act or practice, or for other appropriate equitable relief, under part 5 of ERISA. The new requirements and rules do not apply to an insured grandfathered health plan.
The Notice states that, since regulatory or administrative guidance is needed to apply the new nondiscrimination requirements and rules, those requirements and rules will not become effective until the plan year beginning after a specified period following the date on which the guidance is issued. The applicable departments-namely the Treasury, Department of Labor and the Department of Health and Human Services- will not seek to enforce the new requirements and rules until they become effective. The Notice asks for public comments on the issues pertaining to the new requirements and rules.