October 2021 Issue:

• Government Is Funded, Debt Limit Is Raised, but Only Until Early December
• Negotiations on Reconciliation Bill Deal with Many Tax Increase Proposals
• Reconciliation Bill Could Contain Spending Programs that Impact NAIFA
• Key Senator Drops Worker Classification ABC Test from His Unemployment Compensation Reform Proposal
• Administration Releases Interim Final Surprise Billing Rule
• Bipartisan ACA Reporting Requirement Relief Bill Introduced
• ACA Open Enrollment Period Extended by 30 Days
• IRS Clarifies COBRA Extension Rules
• Senate HELP Committee Holds Nomination Hearing for EBSA Head
• House Passes Secure Notarization Legislation

Government Is Funded, Debt Limit Is Raised, but Only until Early December

Congress has passed, and the President has signed into law legislation to fund the government until December 3 and to raise the debt limit by $480 billion, enough for the government to continue paying its bills for about three months. Thus, the risk of a government shutdown and/or a default by the U.S. on its debt has been averted, at least for now. 

However, the legislation was hard-fought and left many lawmakers feeling bruised and battered, and many also contemplating revenge for what they viewed as hardball tactics that unnecessarily hurt the system and the economy.

Prospects: Both of these issues will come to a head again by early December. There is even less trust and goodwill among lawmakers now, and thus more bruising battles over both funding the government and increasing the debt limit are likely.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Negotiations on Reconciliation Bill Deal with Many Tax Increase Proposals

Against a background of time-sensitive needs to fund the government and increase the debt limit, Administration and Congressional negotiators are working to hammer out a deal on President Biden’s Build Back Better “human infrastructure” reconciliation bill. In-play is a wide range of adverse issues of concern to NAIFA.

On September 25, the House Budget Committee combined into one big reconciliation bill $3.5 trillion worth of “Build Back Better” provisions approved by 12 House committees of jurisdiction. The bill includes many provisions of concern to NAIFA members, but the entire bill is subject to negotiation between House and Senate Democrats (and between progressive and moderate Democrats in both the House and the Senate). 

Congressional and Administration negotiators are working towards a bicameral, but all-Democratic, agreement that can pass with all 50 Democratic votes in the Senate, and all but three Democratic votes in the House. Every Republican says he/she will vote against the bill. Further action in both chambers is on hold pending a successful conclusion to efforts to reach that bicameral agreement.

At the top of the long list of controversies is the size of the bill. Moderate Democrats say they cannot support a $3.5 trillion package (even though it is, at least on paper, fully offset). So, negotiators are working furiously towards shrinking the package while still retaining sufficient support for a slimmed-down version. So far, there is no agreement on how big the package should be. One key Senate moderate, Sen. Joe Manchin (D-WV), says he can support a fully paid-for package of around $1.5 trillion. A key progressive, Sen. Bernie Sanders (I-VT), says $3.5 trillion is already a compromise down from the $6 trillion he had advocated, and so he wants the final number to be as close to $3.5 trillion as possible. Both Senators have supporters of their positions. 

Most Washington insiders, on and off the Hill, think at the end of the day, the package will come in at around $2 trillion—but it could be higher or lower. And, as the spending side of the package shrinks, the tax increases needed to offset it also diminish. So, every provision and every issue are currently in flux.

The House reconciliation bill provides new programs and increases in funding for “human infrastructure” issues that include low-income housing assistance, a federal paid leave program, health care support (expanded Medicare benefits and enhanced Affordable Care Act (ACA) subsidies and Medicaid expansion), climate change provisions, education initiatives, elder and childcare support, and the tax increases that pay for these efforts to bolster the middle class. 

Below is a partial list of the House bill’s tax increases that could impact NAIFA members and their clients, along with a summary of where negotiations on those provisions are at this point. It is important to keep in mind that the situation is extraordinarily fluid. Each of these provisions has changed multiple times during the ongoing negotiations, and will without doubt change again before a final agreement is reached.

• Corporate Tax Rate: The top corporate tax rate—the House bill puts the top corporate rate at 26.5 percent, up from current law’s 21. Key Senate Democrats want the rate no higher than 25 percent, and there are reports that one or more want it even lower than that.
• Individual Tax Rate: The House bill increases the top individual tax rate to 39.6 percent, up from the current law’s top rate of 37 percent. There is some discussion about whether to modify or eliminate this tax rate increase, but generally, the 39.6 percent rate seems acceptable to most Democrats and something that its objectors can be persuaded to accept. 
• Capital Gains: Under the House bill, the top capital gains tax rate (applicable only to those earning more than $400,000) would go up to 25 percent. This would apply to gains realized in the year after the date of introduction (so, likely in 2022). Negotiators are looking at a 28 percent capital gains rate, but no decision on this (or any other provision) has yet been made.
• Non-corporate Business Income Deduction: The House bill would cap the Section 199A deduction for non-corporate income at $400,000 ($500,000 for joint filers). A Senate proposal would expand the number of pass-through businesses eligible for the deduction but would lower the amount of income eligible for the deduction to $400,000. Influencing a final decision will be where the top corporate rate winds up—negotiators are aware that Section 199A was enacted as a way to equalize the 2017 tax cut law’s benefits between C-corporations and pass-through entity businesses. 
• Mega-IRAs: Seemingly mostly not controversial are the potential changes to IRA rules to shut down what some are calling “mega-IRAs.” The rule changes would prohibit further contributions once IRA account levels and defined contribution account balances combined exceed $10 million. They would also force taxable distributions from mega-IRAs and defined contribution plan account balances once those balances exceed $2.5 billion. These provisions were fashioned jointly by House and Senate tax writers and do not at this point seem to be among the provisions most likely to change. However, there has been considerable push-back on the provision that restricts the kinds of assets an IRA can hold, and so changes to that provision may emerge.
• Estate Tax: The expiration of the current law’s estate tax exemption ($24 million for married taxpayers) would be accelerated by the House bill—currently, it expires at the end of 2025; the proposal moves the expiration date to the end of 2021. Thus, under this proposal, the estate and gift tax exemption would revert to its 2010 level of $5 million/individual (indexed). This is a key issue for progressive Democrats, but one that gives some moderate Democrats heartburn. It may change.
• Grantor Trusts: There are grantor trust law changes that could gut the use of these trusts in estate planning situations by resulting in life insurance and other trust assets being included in the decedent’s taxable estate. Of particular concern is the provision that would apply the rule to new contributions to existing trusts (existing trusts that do not get new contributions would be grandfathered). The rules would adversely impact many irrevocable life insurance trusts, including existing trusts that contemplate continuing premium payments for the life insurance contained in the trusts. So far, there have been no reports of discussions among negotiators on these provisions. Likely, such discussion awaits the resolution of some of the bigger-ticket issues. 
• Wealth Taxes: The net investment tax would be expanded to cover net business income for single taxpayers earning more than $400,000 ($500,000/joint filers). There is also a provision in the House bill that would impose a three percent surtax on individual income in excess of $5 million/married. While these provisions have not generated much of any controversy, they are among several “tax the rich” provisions, and there is discussion underway about whether the combined total of these “tax the rich” provisions might have gone too far. Consequently, there may be changes to these provisions.

There are other major tax increase provisions that do not directly impact NAIFA members that are also under negotiation. These include climate change provisions, international tax rules, and others. All contribute to the total of just about $2 billion in new taxes contained in the House reconciliation bill, and all are subject to change as the negotiations progress. 

Prospects: As the size of the reconciliation bill decreases, so too will the tax increase provisions that provide the offsets to the bill’s costs. However, at this stage of the process, it is too soon to tell which tax increases will be dropped or modified, although early indications are that negotiators are looking first at the individual tax provisions. NAIFA’s Advocacy Action Center has a letter discussing a few of the most problematic provisions of the reconciliation bill that you can send to your lawmakers if you would like to engage. We will keep you informed.

Prospects: Both of these issues will come to a head again by early December. There is even less trust and goodwill among lawmakers now, and thus more bruising battles over both funding the government and increasing the debt limit are likely.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Reconciliation Bill Could Contain Spending Programs that Impact NAIFA

The reconciliation “Build Back Better” bill currently in negotiation among Administration and Congressional Democrats could contain a number of spending programs that impact NAIFA members and their clients. They include: 

• Retirement Savings: The House bill contains two new retirement savings programs—a refundable Saver’s Tax Credit, and a mandate that almost all employers offer a retirement program and automatically enroll their workers in either a 401(k)-type plan or a payroll deduction IRA. Employees could opt-out of the program. Employers would not be required to contribute to the employees’ retirement savings. There is also a rule that would require (subject to employee opt-out) automatic escalation of the percentage of compensation the employee defers/contributes. There would be a tax penalty for failure to offer an automatic enrollment/escalation plan. Negotiators may be eyeing these provisions as among those that could be dropped from the final package due to the need to shrink the reconciliation bill’s size.
• Federal Paid Leave: The House bill contains a federal paid leave program that would provide a federal payment for sick and parental leave for up to 12 weeks. The amount of the payment is on a sliding scale based on the recipient’s income level. This proposal is very controversial. There are many issues surrounding how the program is constructed, whether it would incentivize private employers to drop most, if not all, of their paid leave benefits programs, and a lot of concern about the program’s projected $550+ billion cost. There are also “Byrd Rule” problems—issues about whether this paid leave program would pass muster under the reconciliation bill’s procedural rules. So, at this point, this program is at significant risk.
• Medicare Expansion/ACA Subsidies: Health care issues are also in play—the House bill expands Medicare to include vision, hearing, and dental benefits; expands subsidies for Affordable Care Act (ACA) health insurance; and provides health coverage support for low-income individuals in states that did not expand their Medicaid programs under the ACA. There is intense controversy over these issues, due largely to their cost. These issues are a big part of the ongoing negotiations.
• Worker Classification: Worker classification is also an issue due to progressive Democrats’ support for including the PRO Act’s union-friendly provisions in the reconciliation bill, including the “ABC test” for determining when a worker is an employee rather than an independent contractor. The issues are part of the negotiations, but most insiders believe they ultimately will be left out of a final agreement. This is because these provisions cannot comply with the procedural rules of a reconciliation bill and, also due to the fact that not all Democrats support the PRO Act—and the reconciliation bill requires near-unanimous Democratic support in order to pass.

Negotiators want to craft an agreement by the end of October, although many Hill and private sector people working on this bill think that date will slip, possibly by quite a lot. 

Another proposal of significant impact, though not related specifically to spending, is a requirement for financial institutions to track and submit to the IRS information on the inflows and outflows of every account above a de minimis threshold of $600 during the year. Intended to help the IRS target wealthy tax dodgers, the unintended consequence is the overly broad proposal will directly impact almost every American and small business with an account at a financial institution. Negotiators are considering an increase in the de minimus as high as $10,000. Although increasing the de minimus to $10,000 is less objectionable, it is still a flawed assumption and will not significantly reduce the scale or scope of this new IRS program.  

Prospects: The reconciliation bill contains many additional provisions that are hotly controversial but do not directly impact NAIFA interests. These include climate change provisions, education, childcare, housing, elder care, and other issues. Any of them could impact whether Democrats will succeed in fashioning a bill that can win 50 votes in the Senate and 218 votes in the House. We will keep you informed.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Key Senator Drops Worker Classification ABC Test from Unemployment Compensation Reform Proposal

The chairman of the Senate Finance Committee, Sen. Ron Wyden (D-OR), has proposed reforms to the nation’s unemployment compensation system. The proposal would require states to provide at least 26 weeks of unemployment benefits but drops the previous version’s requirement that states use the ABC test to determine eligibility as an employee. This positive development reflects NAIFA’s hard work.

The latest version of the Wyden unemployment proposal was released on September 27. Sen. Wyden says he will work to include his unemployment reform plan in the “Build Back Better” reconciliation bill that lawmakers are currently negotiating. 

Prospects: NAIFA worked hard with Sen. Wyden, a key negotiator on the Build Back Better reconciliation bill, to keep the ABC test out of his unemployment compensation system proposal. The ABC test, whether or not it is limited in its applicability (as it would have been under the Wyden proposal to only unemployment compensation), could adversely impact many NAIFA members who work as independent contractors for their carriers.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Administration Releases Interim Final Surprise Billing Rule

On September 30, four government agencies jointly released an interim final surprise billing rule implementing the “No Surprises Act” enacted into earlier this year. The rule focuses on the independent dispute resolution process by which disagreements over out-of-network medical care charges will be resolved.

Generally, the rule requires that the first step in resolving a dispute of the cost of the patient’s care is a 30-day negotiation aimed at achieving an agreement between the payor (usually, an insurer or self-insured employer) and the care provider. If the negotiation fails, each party submits its bid on who pays how much to an independent arbitrator who would determine the winning bid. The winning bid “should typically” be the offer closest to the median in-network rate for the procedure, unless one side can prove the value of the procedure was significantly different from the norm.

HHS is currently seeking applicants to serve as arbitrators (“mediators”) in the process, the interim final rule stated. The agency anticipates that around 50 entities will apply to serve as mediators, and that about 17,000 claims/year will be submitted to the dispute resolution process. 

The interim final rule also addresses how to resolve medical charge disputes between care providers and uninsured patients. Providers will have to give uninsured patients an estimate of their costs prior to performing the procedure. If the actual charges are more than $400 and determined by HHS to be higher than a good faith estimate, the uninsured patient can use an outside arbitrator to challenge the allegedly excessive charge.

The interim final rule takes effect on January 1, 2022.

The rule was issued by the Department of Health and Human Services (HHS’s) Centers for Medicare and Medicaid (CMS), the Department of Labor (DOL), the Treasury, and the Office of Personnel Management (OPM). 

CMS posted a fact sheet on the interim final rule. It can be found at 

https://www.cms.gov/newsroom/fact-sheets/requirements-related-surprise-billing-part-ii-interim-final-rule-comment-period. 

Prospects: As an interim final rule, this regulation has the force of law now. However, it is controversial, subject to comments, and could change in the future.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Bipartisan ACA Reporting Requirement Relief Bill Introduced

On September 21, Reps. Mike Thompson (D-CA) and Adrian Smith (R-NE) introduced legislation to simplify Affordable Care Act (ACA) reporting requirements. The bill, H.R. 5318, seeks to streamline and unconfuse currently complicated ACA reporting rules. NAIFA believes the passage of this legislation would greatly assist in addressing new challenges employers face under the health reform law.

The Department of the Treasury and the IRS finalized ACA reporting requirements in March 2014. From the beginning, concern focused on the confusing and complicated nature of filing requirements for all businesses.

H.R. 5318 will ease the compliance reporting requirements for employers offering health insurance coverage to their employees. The bill clarifies that any information regarding health insurance that is communicated to employees must be aligned with the processes that are already in place by employer or employee, including the use of electronic notification for all notification forms.

Specifically, the legislation would:

• Establish a new voluntary reporting system for employers to report to the Internal Revenue Service (IRS) information about their health plans. Exchanges will use the federal data hub to access this data for individual verification for tax credits.
• Require that employers report to the IRS only those employees (and/or their dependents) who are not receiving healthcare from their employer, greatly simplifying the requirement that all employees be reported.
• Specify that information that would be reported would include name and employer identification, who has been extended an offer of minimum essential coverage, whether coverage meets minimum value and the affordability safe harbor, and months that coverage is available without waiting periods.
• Allow employers to deliver reports to employees electronically without another consent form.
• Instruct the Government Accountability Office (GAO) to conduct a study on the notifications, HHS appeals process, and the prospective reporting system.
• Require the Department of Health and Human Services (HHS) to review the most recent tax filing for individuals automatically re-enrolled in exchange-based coverage and adjust their tax credits accordingly.

This bipartisan legislation would provide much-needed relief for employers trying to comply with the reporting requirements under Sections 6055 and 6056 of the Affordable Care Act (ACA), NAIFA believes. NAIFA supports the bill.

Prospects: H.R.5318 is not currently in play in the reconciliation bill negotiations but could find a home in year-end government funding legislation. Or it could get Congressional attention next year.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

ACA Open Enrollment Period Extended by 30 Days

On September 17, the Centers for Medicare & Medicaid Services (CMS) issued a final rule (RIN 0938-AU60) that extends the Affordable Care Act (ACA) marketplace open enrollment period from November 1 to January 15, 2022, for states that use the HealthCare.gov website. Prior to the extension, open enrollment would have ended on December 15, 2021.

State-operated ACA marketplaces can establish different end dates for the annual open enrollment period, so long as they conclude on or after December 15, 2021, CMS said. The rule also requires navigators to inform the people they’re assisting with their health insurance coverage choices about such issues as marketplace eligibility appeals processes, and the basic concepts and rights of health coverage, and how to use it.

Other elements of the new open enrollment rule include repeal of the requirement that marketplace plans send a separate bill for the policyholder’s portion of the premium attributable to abortion service coverage; repeal of option that allowed state-based marketplaces to facilitate enrollment “primarily through private sector direct enrollment entities, including web brokers, agents, and brokers;” and an increase in the federal marketplace user fee rate to 2.75 percent of premiums and the state-based marketplace user fee rate to 2.25 percent of the premium.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

IRS Clarifies COBRA Extension Rules

On October 6, the Internal Revenue Service (IRS) issued Notice 2021-58, clarification of the application of the extensions of COBRA election and premium payment deadlines. Generally, the Notice says that the extensions for electing COBRA coverage and for paying COBRA premiums can run concurrently.

The American Rescue Plan (ARP), enacted earlier this year, provided premium relief for laid-off workers for premiums payable between April 1 and September 30. The relief allows laid-off workers up to an extra year in determining the due dates for individuals to elect COBRA coverage and to pay premiums during the pandemic.

According to Notice 2021-58, an individual electing COBRA coverage outside the usual 60-day eligibility window will have one year and 105 days after the date the COBRA notice was provided to make an initial premium payment. If the election is made within the initial 60-day window, the individual will have one year and 45 days after electing COBRA coverage to make the initial premium payment.

Prospects: Notice 2021-58 provides clarity on an issue that has sparked numerous questions about how the ARP relief would work. The relief is part of a package of pandemic-related relief measures enacted by Congress over the course of the pandemic.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Senate HELP Committee Holds Nomination Hearing for EBSA Head

Lisa Gomez, President Trump’s nominee to head the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA), had her confirmation hearing before the Senate Health, Education, Labor and Pensions (HELP) Committee on October 7. Gomez told the committee she would “bring an equitable, worker-focused philosophy” to EBSA programs.

Gomez is a partner in a New York law firm who has represented unions and labor, with considerable experience with multi-employer pension plans. She spent much of her hearing defending the Biden Administration’s stance on employee benefits issues against GOP attacks. She ducked GOP questions about how she would approach the ongoing EBSA initiative to revamp its fiduciary rules, saying only that financial advisors and their companies must act in the best interests of investors.

Prospects: The HELP Committee is expected to send the Gomez nomination to the full Senate for a confirmation vote in the near future, although a date has not yet been set for either the committee vote or the full Senate vote. She is likely to be confirmed, although it may well be on party-line votes.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org

House Passes Secure Notarization Legislation

On September 23, the House of Representatives passed its version of the fiscal year 2022 National Defense Authorization Act by a bipartisan 316-113 margin. Legislators inserted the Secure Notarization language in an attempt to ease the remote notarization burden on members of the military. NAIFA worked with legislators on an amendment to broaden the scope of the legislation to include all Americans. 

The bill package—which sets defense spending at $740 billion, $24 billion over what was requested by the Biden administration—now heads to the Senate, where changes undoubtedly await.

 On September 15, NAIFA joined with industry partners in a letter to express strong support for National Defense Authorization Act (NDAA) amendment #445 offered by Representative Dean (D-PA), with the support of Representatives Armstrong (R-ND), Turner (R-OH), Perlmutter (D-CO), and Reschenthaler (R-PA).

This amendment provides all Americans additional flexibilities and options for executing critical life documents, including for real estate transactions, wills, and health care directives using remote online notarization (RON). The text of the amendment is taken from H.R. 3962, the SECURE Notarization Act, which had the strong, bipartisan support of 53 cosponsors, and it builds upon language included in the underlying bill by Representative Turner to modernize military notary services.

The last year has demonstrated how technology can be leveraged to modernize services across a variety of markets. Notarizations are widely used for real estate, financial services, and other legal documents. Remote Online Notarization (RON) allows the consumer, notary, and other parties to a transaction to be in different locations using two-way audio-visual communication to securely notarize documents. This process provides assured consumer access to notarization, allows for flexible scheduling, and affords consumers time to review documents and proceed when they are ready to sign.

Prospects: The bill passed the House with bipartisan support, and it is now up to the Senate to act. There will likely be numerous changes made to the legislation as it is over budget and contains many provisions. NAIFA and industry partners are focused on informing members of the Senate of the importance of including the secure notarization language in any final package presented by the Senate.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org