[Federal Register Volume 71, Number 239 (Wednesday, December 13, 2006)]
[Rules and Regulations]
[Pages 75055-75057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9558]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9299]
RIN 1545-AY33


Exception to the HIPAA Nondiscrimination Requirements for Certain 
Grandfathered Church Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that provide guidance 
under section 9802(c) of the Internal Revenue Code relating to the 
exception for certain grandfathered church plans from the 
nondiscrimination requirements applicable to group health plans under 
section 9802(a) and (b). Final regulations relating to the 
nondiscrimination requirements under section 9802(a) and (b) are being 
published elsewhere in this issue of the Federal Register. The 
regulations will generally affect sponsors of and participants in 
certain self-funded church plans that are group health plans, and the 
regulations provide plan sponsors and plan administrators with guidance 
necessary to comply with the law.

DATES: Effective Date: These regulations are effective February 12, 
2007.
    Applicability Date: These regulations apply for plan years 
beginning on or after July 1, 2007.

FOR FURTHER INFORMATION CONTACT: Russ Weinheimer at 202-622-6080 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Miscellaneous Excise Tax 
Regulations (26 CFR part 54) relating to the exception for certain 
grandfathered church plans from the nondiscrimination requirements 
applicable to group health plans. The nondiscrimination requirements 
applicable to group health plans were added to the Internal Revenue 
Code (Code), in section 9802, by the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA), Public Law 104-191 (110 Stat. 
1936). HIPAA also added similar nondiscrimination provisions applicable 
to group health plans and health insurance issuers (such as health 
insurance companies and health maintenance organizations) under the 
Employee Retirement Income Security Act of 1974 (ERISA), administered 
by the U.S. Department of Labor, and the Public Health Service Act (PHS 
Act), administered by the U.S. Department of Health and Human Services.
    Final regulations relating to the HIPAA nondiscrimination 
requirements in paragraphs (a) and (b) of section 9802 of the Code are 
being published elsewhere in this issue of the Federal Register. Those 
regulations are similar to, and have been developed in coordination 
with, final regulations also being published today by the Departments 
of Labor and of Health and Human Services. Guidance under the HIPAA 
nondiscrimination requirements is summarized in a joint preamble to the 
final regulations.
    The exception for certain grandfathered church plans was added to 
section 9802, in subsection (c), by section 1532 of the Taxpayer Relief 
Act of 1997, Public Law 105-34 (111 Stat. 788). A notice of proposed 
rulemaking on the exception for certain grandfathered church plans and 
a request for comments (REG-114083-00) was published in the Federal 
Register of January 8, 2001. Two written comments were received. After 
consideration of the comments, the proposed regulations are adopted as 
amended by this Treasury decision.

[[Page 75056]]

Explanation and Summary of Comments

    One comment was pleased with the guidance in the proposed rules and 
asked that they be published as final rules as soon as possible. The 
other comment explained why the statute needed this exception and 
suggested that the proposed regulations did nothing more than 
paraphrase the statute. Neither comment asked for any change in the 
proposed regulations.
    These final regulations make no significant substantive change to 
the proposed regulations. An effective date has been supplied and 
references to the supplanted temporary regulations have been deleted, 
but otherwise no change has been made in the final regulations.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because the 
regulations do not impose a collection of information requirement on 
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
does not apply. Therefore, a Regulatory Flexibility Analysis is not 
required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding these regulations was submitted to the 
Small Business Administration for comment on its impact on small 
business.

Drafting Information

    The principal author of these regulations is Russ Weinheimer, 
Office of the Operating Division Counsel/Associate Chief Counsel (Tax 
Exempt and Government Entities). However, other personnel from the IRS 
and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 54 is amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 is amended by adding an 
entry in numerical order to read, in part, as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 54.9802-2 also issued under 26 U.S.C. 9833. * * *


0
Par. 2. In Sec.  54.9801-1, paragraph (a) is revised to read as 
follows:


Sec.  54.9801-1  Basis and scope.

    (a) Statutory basis. Sections 54.9801-1 through 54.9801-6, 54.9802-
1, 54.9802-2, 54.9811-1T, 54.9812-1T, 54.9831-1, and 54.9833-1 
(portability sections) implement Chapter 100 of Subtitle K of the 
Internal Revenue Code of 1986.
* * * * *

0
Par. 3. In Sec.  54.9801-2, the introductory text is revised to read as 
follows:


Sec.  54.9801-2  Definitions.

    Unless otherwise provided, the definitions in this section govern 
in applying the provisions of Sec. Sec.  54.9801-1 through 54.9801-6, 
54.9802-1, 54.9802-2, 54.9811-1T, 54.9812-1T, 54.9831-1, and 54.9833-1.
* * * * *

0
Par. 4. Section 54.9802-2 is added to read as follows:


Sec.  54.9802-2  Special rules for certain church plans.

    (a) Exception for certain church plans--(1) Church plans in 
general. A church plan described in paragraph (b) of this section is 
not treated as failing to meet the requirements of section 9802 or 
Sec.  54.9802-1 solely because the plan requires evidence of good 
health for coverage of individuals under plan provisions described in 
paragraph (b)(2) or (3) of this section.
    (2) Health insurance issuers. See sections 2702 and 2721(b)(1)(B) 
of the Public Health Service Act (42 U.S.C. 300gg-2 and 300gg-
21(b)(1)(B)) and 45 CFR 146.121, which require health insurance issuers 
providing health insurance coverage under a church plan that is a group 
health plan to comply with nondiscrimination requirements similar to 
those that church plans are required to comply with under section 9802 
and Sec.  54.9802-1 except that those nondiscrimination requirements do 
not include an exception for health insurance issuers comparable to the 
exception for church plans under section 9802(c) and this section.
    (b) Church plans to which this section applies--(1) Church plans 
with certain coverage provisions in effect on July 15, 1997. This 
section applies to any church plan (as defined in section 414(e)) for a 
plan year if, on July 15, 1997 and at all times thereafter before the 
beginning of the plan year, the plan contains either the provisions 
described in paragraph (b)(2) of this section or the provisions 
described in paragraph (b)(3) of this section.
    (2) Plan provisions applicable to individuals employed by employers 
of 10 or fewer employees and self-employed individuals. (i) A plan 
contains the provisions described in this paragraph (b)(2) if it 
requires evidence of good health of both--
    (A) Any employee of an employer of 10 or fewer employees 
(determined without regard to section 414(e)(3)(C), under which a 
church or convention or association of churches is treated as the 
employer); and
    (B) Any self-employed individual.
    (ii) A plan does not contain the provisions described in this 
paragraph (b)(2) if the plan contains only one of the provisions 
described in this paragraph (b)(2). Thus, for example, a plan that 
requires evidence of good health of any self-employed individual, but 
not of any employee of an employer with 10 or fewer employees, does not 
contain the provisions described in this paragraph (b)(2). Moreover, a 
plan does not contain the provision described in paragraph (b)(2)(i)(A) 
of this section if the plan requires evidence of good health of any 
employee of an employer of fewer than 10 (or greater than 10) 
employees. Thus, for example, a plan does not contain the provision 
described in paragraph (b)(2)(i)(A) of this section if the plan 
requires evidence of good health of any employee of an employer with 
five or fewer employees.
    (3) Plan provisions applicable to individuals who enroll after the 
first 90 days of initial eligibility. (i) A plan contains the 
provisions described in this paragraph (b)(3) if it requires evidence 
of good health of any individual who enrolls after the first 90 days of 
initial eligibility under the plan.
    (ii) A plan does not contain the provisions described in this 
paragraph (b)(3) if it provides for a longer (or shorter) period than 
90 days. Thus, for example, a plan requiring evidence of good health of 
any individual who enrolls after the first 120 days of initial 
eligibility under the plan does not contain the provisions described in 
this paragraph (b)(3).
    (c) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1. (i) Facts. A church organization maintains two church 
plans for entities affiliated with the church. One plan is a group 
health plan that provides health coverage to all employees 
(including ministers and lay workers) of any affiliated church 
entity that has more than 10 employees. The other plan is Plan O, 
which is a group health plan that is not funded through insurance 
coverage and that provides

[[Page 75057]]

health coverage to any employee (including ministers and lay 
workers) of any affiliated church entity that has 10 or fewer 
employees and any self-employed individual affiliated with the 
church (including a self-employed minister of the church). Plan O 
requires evidence of good health in order for any individual of a 
church entity that has 10 or fewer employees to be covered and in 
order for any self-employed individual to be covered. On July 15, 
1997 and at all times thereafter before the beginning of the plan 
year, Plan O has contained all the preceding provisions.
    (ii) Conclusion. In this Example 1, because Plan O contains the 
plan provisions described in paragraph (b)(2) of this section and 
because those provisions were in the plan on July 15, 1997 and at 
all times thereafter before the beginning of the plan year, Plan O 
will not be treated as failing to meet the requirements of section 
9802 or Sec.  54.9802-1 for the plan year solely because the plan 
requires evidence of good health for coverage of the individuals 
described in those plan provisions.
    Example 2.  (i) Facts. A church organization maintains Plan P, 
which is a church plan that is not funded through insurance coverage 
and that is a group health plan providing health coverage to 
individuals employed by entities affiliated with the church and 
self-employed individuals affiliated with the church (such as 
ministers). On July 15, 1997 and at all times thereafter before the 
beginning of the plan year, Plan P has required evidence of good 
health for coverage of any individual who enrolls after the first 90 
days of initial eligibility under the plan.
    (ii) Conclusion. In this Example 2, because Plan P contains the 
plan provisions described in paragraph (b)(3) of this section and 
because those provisions were in the plan on July 15, 1997 and at 
all times thereafter before the beginning of the plan year, Plan P 
will not be treated as failing to meet the requirements of section 
9802 or Sec.  54.9802-1 for the plan year solely because the plan 
requires evidence of good health for coverage of individuals 
enrolling after the first 90 days of initial eligibility under the 
plan.

    (d) Applicability date. This section is applicable to plan years 
beginning on or after July 1, 2007.
0
Par. 5. Section 54.9831-1 is amended by revising paragraphs (b) and 
(c)(1) to read as follows:


Sec.  54.9831-1  Special rules relating to group health plans.

* * * * *
    (b) General exception for certain small group health plans. The 
requirements of Sec. Sec.  54.9801-1 through 54.9801-6, 54.9802-1, 
54.9802-2, 54.9811-1T, 54.9812-1T, and 54.9833-1 do not apply to any 
group health plan for any plan year if, on the first day of the plan 
year, the plan has fewer than two participants who are current 
employees.
    (c) Excepted benefits--(1) In general. The requirements of 
Sec. Sec.  54.9801-1 through 54.9801-6, 54.9802-1, 54.9802-2, 54.9811-
1T, 54.9812-1T, and 54.9833-1 do not apply to any group health plan in 
relation to its provision of the benefits described in paragraph 
(c)(2), (3), (4), or (5) of this section (or any combination of these 
benefits).
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Approved: June 22, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).

    Editorial Note: This document was received at the Office of the 
Federal Register on December 1, 2006.
[FR Doc. 06-9558 Filed 12-12-06; 8:45 am]
BILLING CODE 4830-01-P