Breaking News: Benefits Implications of the Omnibus Bill
Buried in its 2,000+ pages, the Consolidated Appropriations Act of 2016 that continues funding for the federal government contains a holiday gift for the sponsors of group health plans and a proverbial lump of coal for the financial services industry. The holiday gift is a delay in implementation of the Cadillac tax, which is a 40% nondeductible excise tax imposed on the amount by which the cost of group health plan and other "applicable coverage" exceeds specified threshold amounts ($10,200 single/$27,500 family). The omnibus bill, which delays the effective date of the Cadillac tax from 2018 until 2020 and makes the tax deductible, raises further doubts as to whether the Cadillac tax will ever actually take effect. Although President Obama previously had threatened to veto any bill that would delay the imposition of the Cadillac tax, the White House has indicated that President Obama will not veto the omnibus bill.
The lump of coal for the financial services industry is the absence of a provision in the omnibus bill to defund, or at least delay, final implementation of the Department of Labor’s new fiduciary regulations. These proposed regulations, which are scheduled to become final in the spring of 2016, redefine who qualifies as a fiduciary investment advisor for an ERISA plan and its participants. The new rules also prohibit conflicts of interests by generally requiring investment advisers to act solely in the best interests of their clients. Proponents of the controversial regulations argue that new rules are necessary to prevent plans and their participants from being steered to financial products that pay higher commissions and are not in their best interests. Opponents of the regulations argue that the new rules will increase the cost of investment advice and may prevent participants from receiving expert advice at retirement when rolling their retirement benefits from an employer’s plan to an IRA. The absence of a provision in the omnibus bill effectively ensures that the new fiduciary regulations will become final as scheduled.