The Bipartisan Budget Act (H.R.1892, P.L.115-123) relaxes some of the rules for hardship distributions,1 increases Medicare premiums for some, closes the Medicare Part D coverage gap a year ahead of schedule and makes other changes. The legislation was approved by the House and Senate and signed into law on February 9. The act also ended a brief government shutdown by funding federal government operations until March 23, raised the debt ceiling and made other changes.

Retirement: disaster relief distributions, hold-harmless provision and multiemployer plans

Disaster relief distributions: Recipients of retirement plan and IRA distributions due to the California wildfires are now eligible for the same tax relief provided last year for distributions arising from Hurricanes Harvey, Irma and Maria:

  • Distributions will not be subject to early withdrawal penalties.
  • Distributions may be repaid over three years.
  • The resulting income may be spread over three years.

The act also doubles the plan loan limit to $100,000 and eliminates the 50% of nonforfeitable assets limit for loans taken by qualified individuals between February 9 and December 31, 2018. Qualified individuals who had loans outstanding on October 8, 2017, are eligible for relief on repayments due between October 8, 2017, and December 31, 2018.

Hold harmless for improper IRS levies: Individuals who were subject to an improper IRS levy on a retirement plan distribution may now contribute the levied amount (and any related interest) to the plan or an IRA. This provision was discussed during the tax reform debate but was not included in the final law.

Special committee to address multiemployer plans: The act establishes a new committee — the Joint Select Committee on Solvency of Multiemployer Pension Plans — which is directed to make recommendations and draft legislation to improve the solvency of multiemployer plans and the Pension Benefit Guaranty Corporation (PBGC). House Speaker Paul Ryan (R-WI), House Minority Leader Nancy Pelosi (D-CA), Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) will each appoint members to the select committee. The committee’s recommendations are due by November 30, 2018.

Health care: IPAB and Medicare

The Bipartisan Budget Act repeals the Independent Payment Advisory Board (IPAB), which was created under the Affordable Care Act (ACA) to curb the growth in Medicare spending. Members were never appointed to the body, so it was never implemented.

The act also makes changes to Medicare Parts B and D.

Part B and D premiums: Individuals with incomes of $85,000 or more ($170,000 for joint filers) currently pay a higher share of the Part B premium. Beneficiaries with incomes below $85,000 pay 25% of program costs and those with higher incomes pay between 35% to 80% of program costs, depending on income. Starting in 2019, there will be a new 85% premium tier for those with incomes of $500,000 or more ($750,000 for married couples filing joint returns).

Part D coverage gap: The act closes the Part D coverage gap — or donut hole — in 2019 rather than 2020 as provided under the ACA. Starting in 2019, Part D beneficiaries who fall into the coverage gap will pay 25% of a drug’s cost. Also beginning in 2019, pharmaceutical manufacturers must give beneficiaries in the coverage gap a 70% discount (the current discount is 50%).

CHRONIC Care Act: The Creating High-Quality Results and Outcomes Necessary to Improve Chronic (CHRONIC) Care Act was incorporated into the budget act. Among other provisions, the CHRONIC Care Act eases the use of telemedicine services for Medicare Advantage plans and accountable care organizations (ACOs). It also provides greater flexibility for ACOs to coordinate care, and calls for Medicare to furnish prescription drug plans with claims data filed under Parts A and B to encourage the appropriate use of medications.


Endnote

1. The changes to the hardship distribution rules are addressed in “Tax reform and budget deal affect hardship distributions from 401(k) plans,” Willis Towers Watson Insider, March 2018.