On December 22, 2010, the IRS published Notice 2011-1 (the "Notice"), which provides that non-grandfathered fully insured group health plans need not comply with nondiscrimination rules imposed under health care reform until further regulatory guidance is issued. The Notice indicates that the Departments of Labor and Health and Human Services agree with the Notice. The nondiscrimination rules under Health Care Reform do not apply to grandfathered fully insured plans.

Health Care Reform requires non-grandfathered fully insured plans to comply with nondiscrimination requirements similar to those currently imposed on self-insured plans. These nondiscrimination rules prohibit plans from discriminating in favor of highly-compensated individuals. Prior to the release of the Notice, the only guidance issued regarding the new requirements for fully insured plans related to the penalties for noncompliance. The penalties may take three forms: (1) an excise tax of $100 per day for noncompliance, (2) civil money penalties of up to $100 per day per individual for each day the plan is out of compliance, or (3) a civil action to enjoin a noncompliant act or practice or for other appropriate equitable relief under ERISA.

In light of the lack of guidance on application of the new nondiscrimination rules, the Notice provides that non-grandfathered fully insured group health plans need not comply with the nondiscrimination rules under Health Care Reform until further regulatory guidance is issued. Compliance will not be required until "plan years beginning a specified period after issuance" of the guidance in order to allow plan sponsors time to amend their plans and implement changes required for compliance. 

As a result of the Notice, until further regulatory guidance is issued, plan sponsors of non-grandfathered fully insured group health plans do not need to bring their plans into compliance with the nondiscrimination rules introduced under Health Care Reform.