[Federal Register Volume 65, Number 249 (Wednesday, December 27, 2000)]
[Rules and Regulations]
[Pages 82127-82153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32411]



[[Page 82127]]

-----------------------------------------------------------------------

Part IV





Department of Labor





-----------------------------------------------------------------------



Pension and Welfare Benefits Administration



-----------------------------------------------------------------------





Department of Health and Human Services





-----------------------------------------------------------------------



Office of Child Support Enforcement



-----------------------------------------------------------------------



29 CFR Part 2590

45 CFR Part 303



National Medical Support Notice; Final Rule

Federal Register / Vol. 65, No. 249 / Wednesday, December 27, 2000 / 
Rules and Regulations

[[Page 82128]]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2590

RIN 1210-AA72


National Medical Support Notice

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This document contains a final rule that promulgates a 
National Medical Support Notice to be issued by State agencies as a 
means of enforcing the health care coverage provisions in a child 
support order, and to be treated by plan administrators of group health 
plans as a qualified medical child support order under section 609(a) 
of Title I of the Employee Retirement Income Security Act (ERISA). 
Through this regulation, the Department of Labor (the Department) is 
implementing an amendment to section 609 (a) of ERISA, made by section 
401 of the Child Support Performance and Incentive Act of 1998 (CSPIA), 
Pub. L. 105-200. This rule will affect group health plans, participants 
in group health plans, noncustodial children of such participants, and 
State agencies that administer child support enforcement programs.

DATES: The regulation is effective January 26, 2001.

FOR FURTHER INFORMATION CONTACT: David Lurie or Susan Rees, Office of 
Regulations and Interpretations, Pension and Welfare Benefits 
Administration, (202) 219-8671 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

1. Background

    Under section 609(a) of the Employee Retirement Income Security Act 
of 1974, as amended (ERISA), each group health plan, as defined in 
ERISA section 607(1), shall provide benefits in accordance with the 
applicable requirements of any ``qualified medical child support 
order'' (QMCSO). A QMCSO is a medical child support order issued under 
State law that creates or recognizes the existence of an ``alternate 
recipient's'' right to receive benefits for which a participant or 
beneficiary is eligible under a group health plan, and which satisfies 
certain additional requirements contained in ERISA section 609(a). An 
``alternate recipient'' is any child of a participant (including a 
child adopted by or placed for adoption with a participant in a group 
health plan) who is recognized under a medical child support order as 
having a right to enrollment under a group health plan with respect to 
such participant. Upon receipt, the administrator of a group health 
plan is required to determine, within a reasonable period of time, 
whether a medical child support order is qualified, and to administer 
benefits in accordance with the applicable terms of each order that is 
qualified. Section 514(b)(7) of ERISA also provides that ERISA 
preemption of State laws does not apply to QMCSOs and provisions of 
State law described in section 1908 of the Social Security Act (SSA) to 
the extent that they apply to a QMCSO.\1\
---------------------------------------------------------------------------

    \1\ Section 1908 of the SSA, 42 U.S.C. 1396g-1, conditions State 
eligibility for Medicaid matching funds on the enactment of certain 
specified State laws relating to medical child support. Under 
section 1908 States must enact laws under which insurers (including 
group health plans) may not deny enrollment of a child under the 
health coverage of the child's parent on the ground that the child 
is born out of wedlock, not claimed as a dependent on the parent's 
tax return, or not in residence with the parent or in the insurer's 
service area. Section 1908 also sets out rules for States to require 
of employers and insurers when a parent is ordered by a court or 
administrative agency to provide health coverage for a child and the 
parent is eligible for health coverage from that insurer or 
employer, including a provision which permits the custodial parent 
or the State agency to apply for available coverage for the child, 
without regard to open season restrictions.
---------------------------------------------------------------------------

2. The Child Support Performance and Incentive Act

    Congress enacted section 401 of the Child Support Performance and 
Incentive Act of 1998 (CSPIA) to amend both ERISA and the SSA. Section 
401(b) of CSPIA directed the Secretaries of Labor and Health and Human 
Services to jointly develop and promulgate the Notice.
    Section 401(c) of CSPIA amended section 466(a)(19) of the SSA 
(contained in part D of Title IV of the SSA) to require States to enact 
laws requiring the use of the Notice to enforce medical child support 
obligations of parents.\2\ A State agency that administers a child 
support enforcement program pursuant to such laws (IV-D Agency or 
Issuing Agency) will be required to use the Notice to notify the 
employer of the noncustodial parent that a State court or 
administrative agency has issued a child support order providing for 
health care coverage. Under these laws, employers will be required to 
forward a portion of the Notice to the appropriate group health plan 
administrator and to withhold any necessary employee contributions.
---------------------------------------------------------------------------

    \2\ This requirement is effective for each State on or after the 
later of October 1, 2001, or the effective date of laws enacted by 
the legislature of such State implementing the amendments to the SSA 
made by section 401 of CSPIA, but in no event later than the first 
day of the first calendar quarter beginning after the close of the 
first regular session of the State legislature that begins after 
October 1, 2001. In the case of a State that has a 2-year 
legislative session, each year of such session shall be deemed to be 
a separate regular session of the State legislature. Some States, 
therefore, may not have laws mandating the use of the Notice until 
2003. Until that time, such States may continue to use medical child 
support orders other than the Notice.
---------------------------------------------------------------------------

    Section 401(d) of CSPIA added a new subparagraph (C) to section 
609(a)(5) of ERISA. Section 609(a)(5)(C) provides that if an 
administrator of a group health plan which is maintained by the 
employer of a noncustodial parent of a child, or to which such employer 
contributes, receives an appropriately completed Notice in the case of 
such child, and the Notice satisfies the conditions of paragraphs (3) 
and (4) of ERISA section 609(a), the Notice shall be deemed to be a 
QMCSO in the case of such child.
    Section 401(a) of CSPIA mandated that the Secretaries of Labor and 
Health and Human Services jointly establish a Medical Child Support 
Working Group (the Working Group or MCSWG) whose purpose was to 
identify the impediments to the effective enforcement of medical 
support by IV-D Agencies and to submit a report to the Secretaries 
containing recommendations for appropriate measures to address such 
impediments. CSPIA section 401(a) requires the Secretaries to submit a 
report to Congress within two months of receipt of the Working Group's 
report that addresses the recommendations contained in the Working 
Group's report. CSPIA section 401(g) further requires the two 
Secretaries to submit a second report to Congress eight months later, 
regarding possible legislative changes.

3. The Medical Child Support Working Group

    CSPIA specifically directed the Working Group, among other things, 
to make recommendations based on assessments of the form and content of 
the Notice as developed by the two Departments. The Working Group was 
composed of 30 members, who represented the Department and the 
Department of Health and Human Services (HHS), directors of State IV-D 
and Medicaid agencies, employers (including owners of small businesses) 
and their trade or industry representatives and certified human 
resource and payroll professionals, administrators and sponsors of 
group health plans (as defined in section 607(1) of ERISA), children 
potentially eligible for medical support, State medical child support 
programs, and

[[Page 82129]]

organizations representing State child support programs.
    The Working Group held a series of nine meetings beginning in March 
of 1999. The initial meetings of the Working Group led the Departments 
to a more complete appreciation of the complexity of the issues 
involved in the development of the Notice. In the interest of 
developing a more useful Notice, the Departments decided to obtain 
additional input from the Working Group, which necessitated taking 
additional time in developing the Notice. Comments from the Working 
Group proved very helpful in the development of the proposed 
regulations issued by the Secretaries on November 15, 1999 (64 FR 
62054, 62074).\3\ In a meeting held June 8, 2000, the Working Group 
formally approved a Report to be submitted to the Secretaries. The 
Report contains 76 recommendations relating to medical child support 
enforcement, including recommendations concerning the proposed 
Notice.\4\
---------------------------------------------------------------------------

    \3\ In an effort to ensure that the statutorily mandated Notice 
facilitated IV-D Agency efforts to secure health care coverage for 
children, consistent with Congressional intent, and taking into 
account the views of the Working Group, the Department first 
promulgated the Notice as a proposed rulemaking rather than as an 
interim regulation as provided for in section 401(b)(5) of CSPIA.
    \4\ A copy of the Report is available in the Department's Public 
Disclosure Room for the Pension and Welfare Benefits Administration 
(PWBA), Room N5638, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. The Report is also available at www.pwba.dol.gov.
---------------------------------------------------------------------------

4. The National Medical Support Notice

A. General

    The Departments of Labor and HHS are jointly promulgating the 
Notice. The Notice has two parts, Part A, the ``Notice to Withhold for 
Health Care Coverage,'' and Part B, the ``Medical Support Notice to 
Plan Administrator.'' Also being published in the Federal Register 
today is a parallel regulation issued by the Office of Child Support 
Enforcement (OCSE), HHS, under sections 452(f) and 466(a)(19) of the 
SSA, 42 U.S.C. 652(f) and 666(a)(19), as amended by section 401 of 
CSPIA. That regulation, at 45 C.F.R. 303.32, in addition to 
promulgating the Notice, provides guidance to States on implementing 
the laws required by such sections. These laws describe the duties and 
obligations of employers and State agencies generally with respect to 
Part A of the Notice. The Department of Labor's regulation promulgated 
herein provides guidance to plan administrators for processing Part B 
of the Notice.

B. Part A--Notice to Withhold for Health Care Coverage

    As described in the OCSE regulation, a State IV-D agency will issue 
the two-part Notice to an employer who maintains or contributes to a 
group health plan, and employs a noncustodial parent obligated by a 
child support order to provide medical support for his or her children. 
Part A, the ``Notice to Withhold for Health Care Coverage'' identifies 
the obligated employee as well as the child(ren) to whom the order 
applies. The Instructions to Employer inform the employer of its 
obligations (i) to transfer Part B of the Notice to the administrator 
of each group health plan to which the Notice applies within 20-
business days of the date of the Notice, (ii) if the Notice is 
determined to be a QMCSO by the plan administrator, to determine 
whether Federal or State withholding limitations or prioritization 
rules permit the withholding from the employee's income of the amount 
required to obtain coverage for the children under the terms of the 
plan, (iii) if appropriate, to withhold from the income of the employee 
any contributions required under the group health plan for such 
coverage, and (iv) to transmit those amounts to the group health plan. 
Part A also includes an Employer Response, which the employer would use 
to notify the Issuing Agency if the employer does not maintain or 
contribute to a group health plan that offers family health care 
coverage or that the employee is among a class of employees that is not 
eligible for family health coverage under any plan maintained by the 
employer or to which the employer contributes, or if the individual is 
no longer employed by the employer.
    The Instructions to Employer in Part A also notify the employer (i) 
of Federal and State limitations on withholding, (ii) of the obligation 
to comply with any applicable withholding prioritization law 
established by the State of the employee's principal place of 
employment and to notify the State agency which issued the Notice of 
the employee's termination of employment, (iii) of the duration of the 
withholding obligation, (iv) of sanctions that the employer might be 
subject to for failure to withhold as required by the Notice, and (v) 
that the employee is liable for any employee contributions required by 
the terms of the plan.

C. Part B--Notice to Plan Administrator

    Part B of the Notice, the ``Medical Support Notice to Plan 
Administrator,'' includes the same information as is contained in Part 
A. Part B and its Instructions to Plan Administrator were developed to 
meet the requirements of CSPIA, as well as coordinate those 
requirements with the existing QMCSO requirements of ERISA section 
609(a), because receipt by a plan administrator of Part B of this 
Notice is considered receipt of a medical child support order as 
defined in ERISA section 609(a)(2)(B). Part B was also developed to 
comply with the requirements placed on group health plans under State 
laws described in SSA section 1908, and to accommodate the requirements 
for State agencies to use automated processing of medical child support 
orders where possible.
    Receipt of Part B of the Notice from the employer notifies the 
administrator of the group health plan that the named employee is 
obligated by a court or administrative child support order to provide 
medical support coverage for the named child(ren), and that the named 
employee is enrolled or eligible for enrollment under the plan 
maintained by or contributed to by the employer. The Notice is to be 
treated as an application by the Issuing Agency for health coverage for 
the child(ren) to the extent such application is required by the plan.
    The Notice is designed to provide the information necessary for the 
plan administrator to determine, as required by section 609(a)(5)(A), 
whether the Notice is a QMCSO under section 609(a) of ERISA, and to 
enroll the child(ren) as dependent(s) in the group health plan. ERISA 
section 609(a)(5)(C) provides that if a plan administrator receives an 
appropriately completed Notice that satisfies the conditions of 
paragraphs (3) and (4) of section 609(a), the Notice shall be deemed to 
be a QMCSO.
    The Plan Administrator Response of Part B is to be completed by the 
plan administrator and returned to the Issuing Agency and/or the 
parties, as appropriate, to inform them whether the Notice constitutes 
a QMCSO. If the Notice is qualified, the plan administrator is required 
to notify the Issuing Agency either that the child(ren) is/are 
currently or will be enrolled in coverage offered by the plan, and the 
date of enrollment, or, if the employee is not enrolled and there is 
more than one option available, inform the Agency of the options from 
which to elect coverage. Part B is also to be used to notify the 
Issuing Agency and the parties of certain waiting periods. In addition, 
Part B is to be used to notify the employer to determine whether any 
employee contribution necessary for coverage can be withheld from the 
employee's income. If the plan administrator determines that a Notice

[[Page 82130]]

received by the plan is not qualified, he or she is to complete the 
Response and identify the specific reason(s) why the Notice is not 
qualified, and is to notify the Issuing Agency and the parties.

Discussion of the Comments

1. General Responsibilities of the Parties

A. Time Periods
    The Department received several comments related to the 40-business 
day period from the date of the Notice within which the employer and 
the plan administrator are to act on the Notice. Several expressed the 
view that the respective time periods are too long, and suggested that 
they should be shortened. One of these commenters explained that under 
State law, an employer or insurance carrier is required to enroll a 
child immediately upon receipt of a court order requiring such 
enrollment. One comment requested clarification regarding whether the 
40-business day period to run from the date of receipt of a complete 
Notice by a plan administrator, or from the mailing date of the Notice.
    In response, the time periods are specified in CSPIA. However, in 
order to coordinate the requirements contained in ERISA section 
609(a)(5)(A)(ii) and section 609(a)(5)(C)(ii), the Notice also 
indicates that the plan administrator would be required to respond more 
quickly, if reasonable. The Department understands that there may be 
State insurance laws that will apply in medical child support 
enforcement with respect to insured plans, and assumes that both 
Federal and State law will be given effect wherever possible. In 
response to the last comment, under CSPIA, the period runs from the 
``date of the Notice.'' HHS has recommended, and the Department has 
adopted, the rule used for income withholding notices. Under this 
interpretation, the period runs from the date the Notice is issued by 
the IV-D Agency.
B. Confidentiality of Personal Information
    Several commenters suggested that the Notice should include general 
language that warns the employer and plan administrator to safeguard 
confidential information. Commenters also suggested that the 
notification responsibilities described in the respective instructions 
should be drafted in a manner that would prevent any confidential 
information from being disclosed to either the custodial or 
noncustodial parent. With respect to the specific information content 
of the Notice, a commenter suggested that the item in the Notice 
requiring the address of the custodial parent should instead 
automatically require the address of a substituted State official. 
Another suggested that the Notice should not include the addresses of 
either the custodial or noncustodial parent.
    The Department believes the need for confidentiality, although 
arising in only a small proportion of medical child support enforcement 
cases, is a serious matter. However, the Notice is designed to put the 
State court issuing the support order or the IV-D Agency issuing the 
Notice in control of confidentiality, by permitting either to 
substitute the name and address of a State official for that of the 
child and/or custodial parent, where appropriate. Plan administrators 
are required to honor such substitutions by ERISA section 609(a)(3)(A), 
and the Department assumes that the employer and the plan administrator 
will respect this substitution, without specific instruction of the 
Notice to do so. Later arising confidentiality concerns may also be 
addressed by section 609(a)(5)(B)(iii) of ERISA, which permits the 
child to name a representative for receipt of notice from the plan.
    The Department believes that these mechanisms work best with the 
countervailing considerations under ERISA--that the plan administrator 
is required to send notification of various events to the noncustodial 
parent whose eligibility for coverage is the basis of the Notice and 
from whose income any necessary employee contribution will be withheld. 
Further, absent circumstances that warrant confidentiality, it will be 
more efficient for both the plan administrator and the custodial parent 
to be in direct communication on matters such as updated plan 
information, resolution of benefit claims, reimbursement and other 
matters of ongoing plan administration.
C. Notification Requirements
    Commenters requested guidance that would clarify how the Employer 
Response and the Plan Administrator Response would be used to satisfy 
the employer's and plan administrator's notification requirements to 
the Issuing Agency and the custodial and noncustodial parents. 
Commenters specifically suggested that the Employer Response and the 
Plan Administrator Response should be sent only to the Issuing Agency. 
One commenter expressed the view that notification to the custodial 
parent duplicates the State's duty to inform the custodial parent that 
coverage is obtained.
    In response, the Department believes that the responsibilities of 
the employer and plan administrator to provide notifications to the 
Issuing Agency and the custodial and noncustodial parents as described 
in the Instructions to the Notice are based on the statutory 
requirements of CSPIA and ERISA. In implementing the Notice, the 
Department attempted to integrate overlapping notification requirements 
in order to make processing as efficient as possible. Therefore, Part A 
of the Notice provides that the employer need notify only the Issuing 
Agency if coverage is not available for one of the enumerated reasons 
on Part A, or, if, after the Notice is qualified, the employer 
determines that coverage is prevented because of State or Federal 
withholding limitations. In these instances, the Department understands 
that the Issuing Agency is responsible for notifying the child and/or 
parents.
    In the draft Notice submitted by the Working Group to the 
Departments as part of its comments and included in an appendix in its 
Report to the Secretaries, it was suggested that other notification 
requirements based on CSPIA or section 609(a) of ERISA, such as of the 
receipt by the plan administrator of a medical child support order (or 
Notice) and of the qualification decision and basis, can be met by the 
plan administrator by sending Part B of the Notice to the parties as 
well as the Issuing Agency. Although this may be permissible, some 
members of the Working Group were concerned about confidentiality, and 
about whether use of Part B as a means of providing notifications would 
satisfy all other statutory obligations. Therefore the Notice as 
published herein does not provide that Part B can necessarily be used 
for all purposes.
D. Disclosure of Plan Information
    Commenters suggested that the Notice should specify the employer's 
and the plan administrator's responsibilities with respect to 
disclosure of information related to the group health plan or plans 
covered by a Notice. Another commenter suggested that the regulation 
and Notice should clarify which disclosure requirements related to the 
Notice can be satisfied by use of separate documents such as a summary 
plan description (SPD). Another suggested that the plan administrator 
should be required to send the description of coverage only to the 
custodial parent (or substituted official, as appropriate), and not to 
the Issuing Agency. Several commenters noted that the space on the Plan 
Administrator Response allocated for a plan

[[Page 82131]]

administrator, following qualification, to provide certain information 
to the Issuing Agency is inadequate.
    The Department believes that information on group health plans, 
including options available under such plans covered by a Notice, may 
routinely become available to the parties and the Issuing Agency 
earlier in the process than at the present. The Department understands 
that under State laws described in section 466(c)(1)(C) of the SSA, 
employers are required to provide plan information to a IV-D Agency in 
response to its request for such information. Further, after the 
issuance of the underlying support order, the Agency or the custodial 
parent or other representative of the child may request, and is 
entitled to receive from the plan administrator, sufficient information 
to understand the options available and to assist in appropriately 
completing the Notice. Further, upon receipt of Part B from the 
employer, the plan administrator is obligated to provide plan 
information to the child/custodial parent because receipt of the Notice 
triggers the plan administrator's obligation under ERISA section 
609(a)(5)(A) to provide the plan's QMCSO procedures and any other 
information related to the qualification process to the parties. 
Lastly, under Part B of the Notice, the plan administrator may be 
obligated to provide information on options under the plan directly to 
the Issuing Agency if the employee is not enrolled in any option.
    In response to the comments above, the Department has amended the 
Instructions to Plan Administrator in Part B to clarify that the plan 
administrator may fulfill the obligation to provide plan information by 
forwarding copies of the plan's SPD, provided that the SPD includes 
sufficient information concerning required contributions, benefit 
levels, and limitations (including geographic or service area 
limitations) of the plan or plan options. In general, in order to 
satisfy the requirements of CSPIA and ERISA section 609(a), information 
about the plan or plan options must be sent to the IV-D Agency as well 
as the child and custodial parent if requested. This clarification is 
intended to preserve the flexibility of the plan administrator to 
satisfy the requirement to provide adequate information in the most 
efficient and cost effective manner available based on the specific 
circumstances of the plan administrator. While this revision clarifies 
that the SPD may be used, it is not intended to prescribe or restrict 
the types of documents that may be used to satisfy the objective of 
providing adequate information about the plan or plan options.
    Other commenters requested that the Notice contain additional 
information. Several commenters suggested that the Plan Administrator 
Response in Part B should be modified so that when a plan administrator 
provides information following enrollment, it will include the group 
policy number and any other relevant information. Another commenter 
suggested that the Response should contain an item for the plan 
administrator to inform the Issuing Agency that enrollment forms have 
not been returned to the plan. Another commenter suggested that the 
Notice include an explicit coordination of benefits provision. Another 
commenter suggested that the Employer Response in Part A should be 
modified so that it can be used by an employer to notify the Issuing 
Agency if coverage pursuant to the Notice has lapsed for reasons such 
as termination of the employee's employment or elimination of family 
coverage by the employer.
    The Department has determined that the Notice has as its purpose 
the establishment of a qualified order under which group health 
coverage will be provided to a child. Subsequent changes in enrollment 
or terminations, while perhaps events subject to notification 
requirements under Federal or State law, are beyond the scope of this 
Notice. The Department also recognizes that the Notice does not contain 
all information that may be useful to the parties. Rather, the Notice 
has been designed to alert the parties to new obligations and 
procedures, and to remain as streamlined as possible.

2. Specific Responsibilities To Be Satisfied Within Statutory Time 
Periods

A. The Employer
    In general, the responsibilities of employers are described in the 
final regulation published today by OCSE. However one commenter asked 
the Department to reconsider the provision in the proposed regulation 
that only after a Notice is determined to be a QMCSO by the plan 
administrator would the employer test withholding limits and initiate 
withholding for contribution to the plan. Several comments suggested 
that the employer should test whether withholding limits would be 
exceeded prior to forwarding Part B to the plan administrator. 
According to these commenters, if withholding limits would be exceeded, 
the employer should notify the Issuing Agency and the custodial parent 
of the inability to withhold, and should not send Part B to the plan 
administrator. These commenters expressed the view that this would 
result in more efficient administration of a Notice. Other commenters 
expressed concern that notification that coverage is available when 
amounts cannot be withheld to pay for such coverage may place a burden 
on plan administrators and, in some cases, certain State agencies. One 
commenter suggested that the plan administrator test for withholding as 
part of the qualification process.
    In response to the last comment, the Department concluded that the 
plan administrator does not have the information or the authority to 
make income withholding or prioritization determinations. Further, the 
Departments, as well as the Working Group, also considered and rejected 
having the employer determine permissible income withholding within the 
40-business day period, and prior to forwarding part B of the Notice to 
the plan administrator for qualification. It is the understanding of 
the Departments that it may not be feasible for the employer to attempt 
to determine whether the necessary withholding is possible prior to the 
time the plan administrator determines that the Notice is a QMCSO 
because the employer's payroll office or agent, which usually makes 
such determinations, often does not have information relating to the 
amount of employee contribution necessary to extend coverage to the 
child (ren). Also, where group health plans provide different options 
for coverage, not all options require the same participant 
contribution. If the employee is not enrolled, the plan administrator 
may be required to qualify a Notice before an option is selected by the 
Issuing Agency. In those cases, the employer initially may not have 
enough information on the amount of withholding required for coverage.
    Although the Department recognizes that the procedure in the Notice 
may result in some delay between qualification and actual enrollment, 
the Department believes that qualification of the Notice as a QMCSO at 
the earliest possible time is most likely to result in more coverage 
for children. Further, with QMCSOs enforced outside the IV-D system 
(private QMCSOs), the determination concerning income withholding will 
necessarily take place after an order is qualified, because the order 
generally is relayed directly from the court or administrative agency 
to the plan administrator. Therefore, under the final regulation, as 
under the proposal, the employer's withholding determination takes 
place after the qualification of the Notice.

[[Page 82132]]

B. The Plan Administrator
    One commenter suggested that the regulation should specify or 
clarify what responsibilities the plan administrator must fulfill 
within the applicable 40-business day period. This commenter expressed 
the view that such clarification would assist IV-D Agencies in 
developing automated systems for sending inquiries to those plan 
administrators who do not fulfill their duties in a timely manner. One 
commenter suggested that the regulation should provide that the 40-
business day period shall not run while a plan administrator does not 
have ``complete'' information. A commenter also suggested that to 
correspond with such guidance, the Notice should be modified to contain 
a space for the plan administrator to inform the Issuing Agency that it 
cannot satisfy its obligations within the 40-business day period 
because Part B is incomplete or there is insufficient information for 
it to determine if the named child can be covered by the plan. This 
commenter explained that some plans verify that a named child is 
eligible under the terms of the plan before qualifying an order.
    In response, the Department believes that an appropriately 
completed Notice will have sufficient information for it to be deemed a 
QMCSO, although additional steps may need to be taken before the 
enrollment is effective. If a plan administrator receives Part B from 
the employer, the employer has already confirmed that group health 
coverage is available and that the employee who is the noncustodial 
parent is enrolled or eligible for enrollment, and, therefore, that the 
child is eligible under the Notice for enrollment under the plan 
(unless over the age limit for dependent coverage under the plan). In 
addition, both ERISA section 609(a) and State laws described in section 
1908 of the SSA have eliminated a number of eligibility criteria that 
may have been an issue in the past, such as exclusions of children on 
Medicaid or Medicaid eligible or born out of wedlock, from the 
definition of ``dependent.'' Therefore, the Department believes that 
qualification of the Notice can be accomplished well within the 40-
business days provided by CSPIA.

3. Qualification by the Plan Administrator

A. Description of Coverage Provided in the Notice
    The proposed regulation at section 2590.609-2(a) provided, as 
required by section 609(a)(5)(C) of ERISA, that an ``appropriately 
completed'' Notice that also satisfies the requirements of paragraphs 
(3) and (4) of section 609(a) is deemed to be a QMCSO. The proposal 
provided in relevant part that a Notice is appropriately completed if 
it contains the name of an Issuing Agency, the name and mailing address 
of an employee who is a participant under the plan, the name and 
mailing address of one or more alternate recipient(s), and if the 
family group health care coverage required by the child support order 
is identified and available. One commenter expressed concern that the 
language in the proposal requiring that family group health care 
coverage must be ``identified and available'' might be interpreted as 
requiring the Issuing Agency to include the name and address of the 
plan. This commenter suggested that the Department substitute language 
that would lessen the likelihood of such a misinterpretation.
    Several other comments were made regarding the identification of 
the type of coverage required in the proposed Notice. Commenters 
generally requested clarification that a ``reasonable description'' of 
the type of coverage as required by ERISA 609(a)(3)(B) would be 
satisfied by a description consisting of ``any coverage available under 
the plan,'' and that the ``type of coverage'' provision in the Notice 
should be modified accordingly. Other commenters suggested that the 
``type of coverage'' provision should be expanded so that an Issuing 
Agency may enforce orders that provide more specific types of coverage. 
Commenters suggested that this could be done by providing an exhaustive 
list of boxed-items that could be checked by the Issuing Agency or by 
providing empty lines for this purpose.
    In response to these comments, the Department has clarified in the 
final regulation that a Notice is appropriately completed within the 
meaning of section 609(a)(5)(C) if it identifies an Issuing Agency and 
an employee of an employer, enrolled or eligible for enrollment in a 
group health plan sponsored by the employer or to which the employer 
contributes, who is a noncustodial parent obligated by a State court or 
administrative order to provide medical child support for one or more 
children named in the Notice, and also identifies the underlying 
support order. However, the Issuing Agency is not required to provide 
the name and address of a group health plan on a Notice because a 
Notice can be used to enforce a child support order that establishes a 
general obligation to provide health care coverage. In recognition, the 
Department has changed the Notice to provide a box to be checked by the 
Issuing Agency for any available coverage. In addition, the Notice 
provides boxes for the Agency to select a particular type of coverage, 
although the number has not been increased from the proposal.
    The Department also has added clarification in the final regulation 
as to how the Notice will satisfy the requirements of ERISA section 
609(a)(3) and (a)(4). Under subparagraph (A) of section 609(a)(3) a 
QMCSO must include information identifying the employee and child. 
Subparagraph (B) requires a reasonable description of the type of 
coverage to be provided or the manner in which such coverage is to be 
determined, and subparagraph (C) requires a description of the period 
to which such order applies.
    It is the view of the Department that the Notice satisfies ERISA 
section 609(a)(3)(A) by including the necessary identifying information 
in Part B that also satisfies the CSPIA requirement contained in 
section 609(a)(5)(C) of being ``appropriately completed.'' The 
Department interprets ERISA section 609(a)(3)(B) as being met initially 
by having the Issuing Agency identify on the Notice some or all of the 
group health plan options to be considered. Upon receipt of the Notice, 
the employer will identify whether group health coverage with dependent 
coverage is available to this employee prior to forwarding part B of 
the Notice to the plan administrator. The final regulation now provides 
that if an employer offers a number of different types of benefits 
(e.g., dental, prescription) through separate plans and receives a 
Notice on which the Issuing Agency has not specified which or all are 
covered by the Notice, the employer should assume all, and forward 
copies of Part B of the Notice to each plan administrator. Further, if 
a Notice is received by the administrator of a group health plan with 
several options (e.g., a fee for services option and a managed care 
option) and the employee is not enrolled, the ERISA section 
609(a)(3)(B) requirement will be satisfied because the Notice directs 
the plan administrator to obtain an election from the Issuing Agency 
after the Notice is qualified. Finally, ERISA section 609(a)(3)(C) is 
satisfied by the Notice specifying that the period of coverage may only 
end for the child(ren) when similarly situated dependents are no longer 
eligible for coverage under the terms of the plan, or upon the 
occurrence of certain specified events.\5\
---------------------------------------------------------------------------

    \5\ Section 1908(a)(2)(C) and (3)(C) of the SSA sets out rules 
for States to require that, when a child is provided health care 
coverage by an parent's insurer pursuant to a court or 
administrative order, the child may only be disenrolled if the 
employer or insurer is provided satisfactory evidence that the order 
is no longer in effect, the child is or will be enrolled in 
comparable coverage which will take effect no later than the 
effective date of disenrollment, or the employer eliminates family 
health coverage for all of its employees.

---------------------------------------------------------------------------

[[Page 82133]]

    Under ERISA section 609(a)(4), a QMCSO cannot require a plan to 
provide new types or forms of benefits not otherwise provided under the 
plan, except to the extent necessary to meet the requirements of a 
State law described in section 1908 of the SSA. The Notice satisfies 
this section because it provides that the child(ren) will only be 
covered as dependents, or be enrolled only in an option provided under 
the plan available to other dependents, and the Instructions inform the 
plan administrator of the restrictions relating to section 1908 of the 
SSA.
    The Department has made several small changes in the final 
regulation consistent with this discussion, as well as other small 
changes to simplify the Notice by removing guidance available to the 
parties elsewhere.
B. Other Qualification Matters
    A commenter requested that the Notice should indicate which items 
to be completed by the Issuing Agency are essential for the 
effectiveness of the Notice with respect to the plan administrator. 
This commenter explained that an Issuing Agency might hesitate to 
provide some items of information listed in the Notice, such as child's 
social security number, or might not have an employer's EIN. Another 
suggested that the Department provide guidance regarding the omission 
of information that a plan administrator can reasonably obtain or 
determine. Another commenter suggested that, consistent with ERISA 
section 609(a)(3)(A), the Notice should clarify that a plan 
administrator may not fail to qualify a Notice solely because the 
address of a substituted official is entered in place of the address of 
the child (alternate recipient). Another commenter suggested that the 
Notice should include a statement that it serves as evidence of the 
underlying child support order. This commenter explained that including 
this statement is necessary to ensure that the medical support 
provisions of the underlying child support order can be implemented 
upon the receipt of the Notice without requiring any additional 
documentation.
    Although the Notice provides for information designed to assist the 
parties, such as the EIN of the employer and social security numbers of 
the parties, not all of these items are necessary for the Notice to be 
recognized as a QMCSO. As described above, the only information 
necessary on the Notice is the identity of the Issuing Agency, the 
identification of an underlying order providing for medical child 
support, and the names and addresses of the employee and the child(ren) 
(or substitutes where appropriate). It is the view of the Department 
that identification of the order on the Notice is sufficient evidence 
of the existence of the underlying support order. The plan 
administrator may take Part B of the Notice at face value, and is not 
obligated (nor should undertake under normal circumstances) to make an 
inquiry into the bona fides of a Notice or Order under state law. In 
addition, if any of the necessary information has been omitted but is 
reasonably available to the plan administrator, the Notice should not 
fail to be qualified solely because of such omission.
    A commenter suggested that the final regulation should provide that 
a plan administrator would be deemed to have not breached its duties if 
such plan administrator has acted in good faith to comply with the 
regulation.
    Under ERISA section 609(a)(6), if a plan administrator acts in 
accordance with the fiduciary standard of conduct in treating a medical 
child support order as being (or not being) a qualified medical child 
support order, then the plan's obligation to the participant and each 
alternate recipient shall be discharged to the extent of any payment 
made pursuant to such act of the fiduciary. In addition, the Department 
believes that the Notice is designed to be presumptively qualified when 
it reaches the plan administrator. Therefore, in most cases, a plan 
administrator must pay benefits in accordance with the applicable 
requirements of an appropriately completed Notice.
C. Waiting Periods
    The proposed Notice did not specifically address how the 
application of a waiting period would affect qualification and 
enrollment. The preamble accompanying the proposal provided in relevant 
part that ``if Part B is appropriately completed, the plan 
administrator must treat the Notice as a QMCSO, even if there is a 
waiting period to enroll in the plan.'' Several commenters suggested 
that the regulations and the Notice should provide guidance regarding 
the responsibilities of the respective parties following notification 
to the Issuing Agency that enrollment is subject to a waiting period. 
Several commenters suggested that the Employer Response should contain 
spaces for the employer to inform the Issuing Agency that the named 
employee is not eligible for coverage because of a waiting period, and 
to describe such waiting period.
    Under section 701(b)(4) of ERISA, as added by the Health Insurance 
Portability and Accountability Act (HIPAA), a waiting period is the 
period that must pass with respect to an individual before the 
individual is eligible to be covered for benefits under the terms of 
the group health plan. The Department believes that under some 
circumstances, such as when an employer receives a Notice for a newly 
hired employee, or where the Notice requires enrollment of the employee 
for enrollment of the child, such waiting periods will apply to the 
employee and child. As under the proposed regulation, the Department 
believes that a Notice should be qualified regardless of the 
applicability of a waiting period. The MCSWG in Recommendation #39 of 
its Report suggested that the employer should be responsible for 
applications subject to a waiting period of 90 days or more, or if the 
waiting period is ascertained by some other means such as hours worked.
    In response to public comments and concerns of the Working Group, 
the Notice clarifies that if more than ninety days remain of the 
waiting period, or if it is measured by some other means, the plan 
administrator qualifies the Notice, and returns Part B to the employer 
and the Issuing Agency without completing the enrollment. Upon 
notification from the employer of satisfaction of the period, the plan 
administrator completes the enrollment process. However, if the plan 
provides a waiting period of ninety days or less, or if ninety days or 
less remain of a longer waiting period, the plan administrator 
qualifies the Notice, and processes the enrollment, notifying the 
parties, including the Issuing Agency, of the effective date.
D. Notification to Issuing Agency of Multiple Enrollment Options
    The proposed Notice provided that, following qualification, in the 
event that more than one enrollment option would be available to an 
alternate recipient, the plan administrator would use the Plan 
Administrator Response to notify the Issuing Agency of these options. 
The Agency would then choose the option in which the child(ren) would 
be enrolled.
    Several commenters suggested that the Plan Administrator Response 
(and any corresponding Instructions) should be modified so that the 
notification to the Issuing Agency regarding multiple enrollment 
options also includes the

[[Page 82134]]

cost of dependent coverage for each option. These commenters explained 
that, in the event that limitations on withholding would prevent an 
employer from withholding sufficient amounts for contribution to a 
plan, information regarding cost of coverage would permit an Issuing 
Agency to address this problem by modifying the amount withheld for 
cash support or selecting an option that requires employee contribution 
within the limitations.
    Additionally, some of these commenters suggested that the Plan 
Administrator Response (and any corresponding Instructions) should be 
modified so that notification regarding multiple enrollment options 
also includes a description of any service area limitations. Such 
information would permit the Issuing Agency to choose an option that 
could provide benefits to an alternate recipient.
    The MCSWG in Recommendation #36 suggested that if some or all 
options under the plan are limited to specific geographic service 
areas, then (in addition to sending the Plan Administrator Response to 
the Issuing Agency) the plan administrator should provide information 
to the Agency that would allow that Agency to determine whether the 
coverage would be accessible to the child, although if the child is 
outside the plan's service area, the plan administrator should be 
instructed to enroll the child in the plan unless the Agency notifies 
the plan otherwise. The MCSWG suggested in Recommendation #37 that if 
the plan administrator cannot determine the child's zip code or 
location from the Notice, the plan administrator should be instructed 
to contact the Issuing Agency to obtain sufficient information to 
determine which options would be accessible to the child or to provide 
sufficient information to the Agency to make such a determination.
    In response, the Department believes that the majority of these 
concerns will be alleviated because the addition of automatic 
enrollments in the final Notice decreases the likelihood that the 
Issuing Agency will need to select coverage. Furthermore, as discussed 
previously, the Department assumes that the parties, including the 
Issuing Agency, will have received adequate information regarding the 
required contributions, benefit levels, and limitations (including 
geographic limitations) of the plan or plan options, in the form of an 
SPD or other documents provided by the plan administrator. In general, 
the Department believes that the Notice will be used most efficiently 
when it remains as short and simple as possible, and where the plan 
administrator has the flexibility to provide the needed information by 
supplying the appropriate existing documents rather than adding 
information to the Notice. Therefore, the Department believes that 
procedures in the final regulation and Notice will satisfy the concern 
of the Working Group, although the suggestion in Recommendation #36 was 
not specifically implemented.
    With respect to Recommendation #37 of the MCSWG, the Department 
recognizes the need for information to be exchanged if an option is to 
be selected, but is reluctant to require the plan administrator to make 
a determination regarding accessible enrollment options. This 
determination is better placed with the Agency. Therefore the 
Department believes it is not appropriate to implement Recommendation 
#37 of the MCSWG.
E. Issuing Agency Responsibility To Choose Enrollment Option
    The Department received several comments that expressed concern 
regarding the requirement that the Issuing Agency choose from among 
available options. Some of these comments explained that there may be 
inadequate staff to carry out this function, that such interaction may 
cause delays in enrollment, and that such interaction may hinder 
automation of the child support enforcement system. One commenter 
requested that the Issuing Agency not be made responsible for requiring 
the non-custodial parent to change coverage, unless Federal legislation 
is passed that would require States to include this requirement in the 
State child support enforcement plans. Several commenters suggested, as 
an alternative, that in the event multiple options are available, the 
plan administrator should contact one or both parents to choose an 
enrollment option. Another suggested alternative was that, in the event 
multiple options are available, the employer would provide the plan 
administrator with information regarding withholding limits (in this 
respect, Part A should be revised so that the Issuing Agency clarifies 
the limit) and costs of options, and the Notice should instruct the 
plan administrator to enroll the named child in the option that can be 
accommodated by the amounts that may be withheld in accordance with 
applicable withholding limits.
    Others recommended that if the named employee is already enrolled 
in family coverage and the named child is in the plan's service area, 
then the plan administrator should be instructed to enroll the child in 
such coverage without any further action by the Issuing Agency. There 
was also a recommendation that if a plan has a ``default option'' that 
it applies with respect to enrollment pursuant to a qualified medical 
child support order, then it should be permitted to follow that option 
if the Issuing Agency does not respond within 20-business days 
regarding its choice from among the available options.
    Another commenter recommended that if the named child is currently 
enrolled as a dependent under the terms of the plan, but other options 
are available, the plan administrator would use the Plan Administrator 
Response to notify the Issuing Agency of the availability of options, 
and the child's enrollment would not change unless the Agency directs 
otherwise by returning enrollment forms.
    In response, the Department understands that some medical child 
support orders are general in nature, in part because such orders may 
be used to obtain coverage from a succession of employers and/or group 
health plans. However, where a plan has only one option, there will be 
no need to make a selection. This is reflected in the final regulation. 
Further, in response to comments, under the final regulation, even if 
there are multiple options under the plan (e.g., a fee for services 
option and a managed care option), if the child is already enrolled, 
enrollment will continue unchanged. Also, based on the concerns 
expressed by State agencies, the final Notice does not provide the 
Issuing Agency with the opportunity to change the noncustodial parent's 
existing coverage. Therefore, if the employee is already enrolled in an 
option with dependent coverage, or with dependent coverage available, 
the plan administrator should enroll the child with no further action 
by the Issuing Agency. Thus, in most cases, coverage will be provided 
automatically, with no further involvement by the Issuing IV-D agency.
    The Department recognized, however, that there needed to be some 
mechanism to implement Notices that are QMCSOs where the employee is 
not enrolled, the employer provides options under a group health plan, 
and no option is specified in the Notice. Because the Issuing Agency is 
enforcing one parent's child support obligations, the Department 
believes that it is not appropriate to permit either parent alone to 
choose the coverage. The Department also does not believe it is 
feasible to adopt the suggestion that the plan administrator choose the 
enrollment option because the

[[Page 82135]]

Department does not believe that the plan administrator should be 
required to make such discretionary choices regarding coverage. The 
Department, therefore, concluded that the choice should be made by the 
Issuing Agency on behalf of the child. Placing the decision with the 
Issuing Agency also may give that Agency the opportunity to adjust the 
cash/medical obligation, in order to make appropriate coverage 
available, and to take into account any assignment of rights to the 
Medicaid agency.
    Lastly, the Notice now provides that if a group health plan offers 
options, and the employee is not enrolled, and the plan has a default 
option, the child should be placed in that option if the IV-D agency 
does not respond to the plan administrator within 20 business days. 
Even if the plan does not provide a default option, the Department 
understands that the OCSE regulations, also published today, are 
designed to ensure that the Issuing Agency will select an option 
promptly. However, in the event that the Issuing Agency does not, the 
plan administrator may wish to contact the Agency to ensure that each 
child is placed in appropriate coverage as soon as reasonably possible.
    The Department recognizes that, under these procedures, delays 
after the Notice is deemed to be a QMCSO may occur in the rare instance 
that a plan does not have a default option and the Issuing Agency does 
not respond promptly. The Department also recognizes that this part of 
the process is not necessarily amenable to automation. This process 
nonetheless provides a child at least as great a chance of obtaining 
coverage as a child covered by a private QMCSO, or as a child receiving 
enforcement services under the State child support enforcement system 
that existed before CSPIA. With a private QMCSO, there is no mechanism, 
unless the parents agree, short of returning to the state court or 
administrative agency that issued the order, to choose between 
available options. Prior to CSPIA, furthermore, State agencies often 
had difficulty obtaining medical child support at all. Nevertheless, 
the Department is soliciting comments regarding approaches by which any 
remaining delays in providing coverage may be reduced or avoided.

4. Enrollment in Coverage and Types of Benefits

A. Type of Coverage
    One commenter requested guidance regarding whether a Notice would 
require a plan to provide dependent-only coverage if it otherwise would 
not provide such coverage. Another requested clarification regarding 
whether a Notice could require enrollment of an employee and an 
alternate recipient in two separate plans. That commenter expressed the 
view that a Notice could require enrollment in only one plan.
    Under ERISA section 609(a)(4), a QMCSO cannot require a group 
health plan to offer a type or form of benefit not otherwise provided 
under the plan, except as required by a State law enacted pursuant to 
section 1908 of SSA. Therefore, a plan is not required to provide 
dependent-only coverage if the plan does not otherwise provide such 
coverage, or offer enrollment in different plans, unless one plan 
offers dependent-only coverage. However, the Department believes that 
it is clear from the passage of ERISA section 609(a) and SSA section 
1908 that Congress intended plans to enroll children covered by medical 
child support orders, if the parent is eligible, whether or not the 
parent is currently enrolled. Therefore, if a plan does not provide 
dependent-only coverage, it must enroll, without regard to open season 
restrictions, the child and the parent covered by the Notice if 
otherwise qualified.
B. Optional Enrollment
    Several commenters suggested that the regulation and the Notice 
should clarify that an employee may be enrolled involuntarily if this 
is necessary for the enrollment of a named child pursuant to a Notice. 
In contrast, other commenters objected to the requirement that an 
employee may be enrolled involuntarily in a plan if this is necessary 
for enrollment of an alternate recipient. Under such circumstances, one 
commenter suggested that the employee instead should be given the right 
to enroll voluntarily, but should not be forced to enroll.
    The Department has carefully considered these comments and has 
decided to publish the final regulation as proposed. The QMCSO 
provisions clearly were enacted under the assumption that the employee 
involved might not be enrolled in the applicable coverage. The 
Department does not believe that Congress intended QMCSOs to be given 
effect only where the employee consents to enrollment. Rather, it is 
the Department's interpretation that the underlying order establishing 
the medical child support obligation requires the plan administrator to 
provide benefits in accordance with its terms. In addition, State laws 
described in section 1908 of the SSA require plans and employers to 
permit the custodial parent to enroll the child, with the implication 
that the court ordered group health coverage is not dependent on the 
acquiescence of the employee, the noncustodial parent.
    Another commenter expressed the view that requiring an employee who 
is presently enrolled in a plan to change options from individual 
coverage to include dependent coverage might be inconsistent with 
Treasury regulations regarding permissible election changes in 
``cafeteria'' plans.
    In response, the Department understands that final Treasury 
regulations under section 125 of the Internal Revenue Code (IRC) permit 
a section 125 ``cafeteria'' plan to change an employee's election to 
provide coverage for a child who is a dependent of the employee 
(including a child of either divorced parent \6\ if a medical child 
support order requires coverage for the child).\7\ Likewise, a section 
125 ``cafeteria'' plan may permit a participant to make an election 
change to cancel coverage for such a child if a medical child support 
order requires another individual to provide coverage for such 
child.\8\
---------------------------------------------------------------------------

    \6\ See section 105(b) of the IRC.
    \7\ The Department notes that a flexible spending arrangement 
(as defined in IRS proposed regulation 26 CFR 1.125-2 Q&A 7(c), 54 
FR 9460) or medical savings account (as defined in section 220 of 
the IRC), which may be offered as part of a section 125 
``cafeteria'' plan, that is subject to Title I of ERISA is a group 
health plan as defined under ERISA section 607(a), and thus is 
subject to the requirements of ERISA section 609(a).
    \8\ See 65 FR 15548, 15552 (March 23, 2000).
---------------------------------------------------------------------------

C. ``Unlawful refusal to enroll'' Provision
    The Department received several comments regarding the ``unlawful 
refusal to enroll'' provision in the proposed Notice. One commenter 
requested that the regulation clarify whether open enrollment 
restrictions, such as those imposed by HMOs, could be applied to 
enrollment pursuant to a Notice. Another suggested that the provision 
should further provide that enrollment cannot be denied on the ground 
that a child has a preexisting condition that would otherwise make the 
child ineligible for coverage.
    In response, the Department notes that enrollments pursuant to a 
Notice are to be made without regard to open season restrictions (which 
generally are limited periodic opportunities to enroll in the plan). 
This requirement is derived from SSA section 1908(a)(2) and (3).

[[Page 82136]]

However, new enrollees may be subject to pre-existing condition 
limitations.\9\
---------------------------------------------------------------------------

    \9\ Under section 702 of ERISA, as added by HIPAA, enrollment 
cannot be denied because of a preexisting condition, and section 701 
of ERISA limits the period for which such conditions can affect 
eligibility for benefits.
---------------------------------------------------------------------------

D. Period of Coverage
    A commenter suggested that language should be added to the ``period 
of coverage'' provision so that the disenrollment of a child upon 
provision of evidence that the order is no longer in effect would be 
permitted only when such evidence is provided by the Issuing Agency. 
Another commenter requested guidance on the meaning of ``comparable 
coverage'' in this provision.
    The Department recognizes the concern raised by these comments. The 
relevant provisions of the Notice require that coverage may only be 
terminated if the plan administrator is provided ``satisfactory'' 
written evidence that the support order is no longer in effect. In 
response to the second comment on this section, it is the Department's 
view that ``comparable coverage'' as used in the ``period of coverage'' 
does not mean identical, but generally means coverage that is similar 
in scope to the current coverage and that would provide approximately 
the same type and extent of coverage to the child or children. The term 
``comparable coverage'' appears in section 1908 of the SSA, but is not 
defined. The Health Care Financing Administration (HCFA) is responsible 
for interpretations of those provisions of the SSA, and it is the 
understanding of the Department that HCFA intends to promulgate 
regulations that will include a discussion of the term ``comparable 
coverage.''
E. Other Termination Matters
    The Department received several comments related to the employee 
contributions necessary for coverage. Commenters requested guidance 
regarding whether a plan would be required to provide benefits if an 
employer cannot withhold a sufficient amount because of the application 
of withholding limits.
    It is the Department's view that if the necessary employee 
contributions cannot be made because of income withholding limitations, 
the plan is under no obligation to continue coverage.

5. Challenges

    A number of comments requested clarification regarding how an 
employee could contest income withholding or could challenge certain 
aspects of the Notice qualification process.
    In response to the comment regarding income withholding, the 
Instructions to the employer on Part A of the Notice explain that the 
employee may contest the wage withholding based on a mistake of fact 
(such as the identity of the obligor), and that to contest such 
enforcement, the employee should contact the Issuing Agency. State law 
governs the circumstances under which the employee may challenge the 
underlying State court order that establishes the support obligation. 
Lastly, in response to the comment regarding the qualification process, 
it is the Department's view that the plan's QMCSO procedures should 
explain the employee's ERISA remedies, including the information that 
the plan administrator's determination whether a notice is a QMCSO is a 
fiduciary act that is subject to challenge in Federal court under 
ERISA.

6. Effective Date and Use

A. General use of the Notice
    Several commenters suggested that the Notice should contain 
language clarifying that, pursuant to sections 401(e) and (f) of CSPIA, 
it is intended to effect enrollment in plans established or maintained 
by state and local governments and churches, which are generally exempt 
from ERISA, as well as group health plans subject to ERISA. These 
commenters note that, in accordance with section 466(a)(19) of the 
Social Security Act, State child support enforcement agencies will be 
required to send the Notice to an employer regardless of whether the 
group health plan maintained by that employer is subject to ERISA. 
These commenters express concern that because the Notice refers 
specifically to ERISA, it may be misinterpreted as applicable only to 
ERISA-covered plans.
    The Department agrees with this comment. The Notice has been 
revised to clarify its use with respect to church plans and plans of 
state and local governments.
    A commenter asked whether a Notice would be effective for 
enrollment purposes if sent directly to a plan administrator by an 
Issuing Agency.
    The Department believes that most, if not all, States will continue 
the practice of sending medical child support orders, including, when 
adopted by each State, the Notice, to employers for enforcement, as is 
required under CSPIA. However, if a plan administrator receives a 
Notice directly from an Issuing Agency, it should be administered as if 
it were a medical child support order under ERISA section 609(a), to 
the extent possible.
    Commenters requested guidance regarding what entity constitutes an 
``issuing agency'' that is permitted to issue a Notice. One suggested 
that ``issuing agency'' means the courts and IV-D or child support 
enforcement agencies; others suggested that it means only IV-D or child 
support enforcement agencies. Commenters, including the MCSWG in 
Recommendation #27 of its Report, reasoned that the relevant statutory 
provisions contemplate an ``issuing agency'' that is a child support 
enforcement agency, and that such guidance will clarify that the 
specific requirements contained in section 609(a)(5)(C) of ERISA will 
not apply with respect to a Notice that is not issued by IV-D Agency, 
and that only Notices issued by IV-D Agencies will be deemed QMCSOs.
    In response, the Department notes that it is clear that CSPIA 
contemplates that the Notice is to be issued by State IV-D agencies. It 
is also clear, however, that Congress did not intend to invalidate 
existing or alternative child support enforcement efforts outside of 
the IV-D system. The obligations imposed by section 609(a)(5)(C) of 
ERISA apply only with respect to those Notices issued by State IV-D 
agencies. However, a Notice received from a source other than a IV-D 
Agency may be valid for purposes of enrolling a child. Plan 
administrators are advised that such orders are ``medical child support 
orders'' as defined in ERISA section 609(a)(2)(B), that the procedures 
mandated by section ERISA 609(a)(5)(A) and (B) remain applicable with 
respect to such orders, and that if such orders satisfy the ERISA 
requirements, they are QMCSOs.
B. Effective Date
    The NPRM proposed an October 1, 2001, effective date for the final 
regulation, which coincides with the earliest date on which States, 
under section 401(c)(3) of CSPIA (as amended by section 4(b) of Pub. L. 
105-306), will be required to use the Notice to enforce the health care 
coverage provisions of child support orders.
    The Department received a number of comments related to the 
effective date of the regulation. One commenter requested clarification 
as to when use of the Notice may begin. This commenter noted that some 
States may begin to use the Notice prior to the proposed effective date 
of the Labor regulation. Commenters also requested guidance regarding 
whether the promulgation of the Notice would invalidate orders being 
treated as qualified medical child

[[Page 82137]]

support orders prior to the effective date, and, in any case, whether a 
Notice would need to be issued with respect to these orders. These 
commenters also questioned whether a Notice may be used to enforce only 
those child support orders issued after the effective date of the final 
Notice regulation.
    Section 401(d) of CSPIA, which added section 609(a)(5)(C) to ERISA, 
did not contain a delayed effective date as section 401(c)(3) does. The 
Department understands that some States will begin to use the Notice 
upon its final publication. The Department believes such use is 
permissible and has therefore amended the effective date provision for 
the regulation to be effective 30 days after publication. After that 
date, if a plan administrator receives Part B from the employer, the 
plan administrator must operate in accordance with section 609(a)(5)(C) 
of ERISA and 29 CFR 2590.609-2. The Department also believes that 
Congress did not intend to invalidate previously issued and qualified 
medical child support orders, and that Congress intended that the 
Notice could be used to enforce orders issued prior to the passage of 
CSPIA.

Economic Analysis Under Executive Order 12866

    Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the 
Department must determine whether a regulatory action is 
``significant'' and therefore subject to review by the Office of 
Management and Budget (OMB). Section 3(f) of the Executive Order 
defines a ``significant regulatory action'' as an action that is likely 
to result in a rule (1) having an annual effect on the economy of $100 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it has been 
determined that this regulation raises novel legal or policy issues 
arising out of legal mandates. Therefore, this regulation is 
``significant'' and subject to review under section 3(f)(4) of the 
Executive Order. Consistent with the Executive Order, the Department 
has undertaken an assessment of the costs and benefits of this 
regulatory action. The analysis is detailed below, following a 
description of the medical child support process and its relationship 
to this regulation.

Overview

    The medical child support process requires that a State child 
support enforcement agency (State agency) issue a notice to the 
employer of a noncustodial parent, who is subject to a child support 
order issued by a court or administrative agency, informing the 
employer of the parent's obligation to provide health care coverage for 
the child(ren). The employer must then determine whether family health 
care coverage is available for which the dependent child(ren) may be 
eligible, and if so, the employer must notify the administrator of each 
plan covered by the Notice. The plan administrator is then required to 
determine whether the dependent child(ren) are eligible for coverage 
under a plan. If eligible, the plan administrator is required to enroll 
the dependent child(ren) in an appropriate plan.
    Even with a medical child support process in place, State agencies 
and administrators of group health plans have experienced difficulties 
in obtaining medical coverage for children of noncustodial parents due 
to problems encountered in establishing what constitutes a qualified 
medical child support order (QMCSO). In response to these and other 
problems affecting the child support process, the Child Support 
Performance Incentive Act of 1998 (CSPIA) was enacted.
    As required by CSPIA, the Department and HHS are jointly 
promulgating a uniform National Medical Support Notice (Notice) to be 
used throughout the child support process by State agencies, employers, 
and plan administrators. This Notice is intended to simplify the 
issuance and processing of medical child support orders, provide 
standardized communication between State agencies, employers, and plan 
administrators, and create a uniform process for the enforcement of 
medical child support.
    The Notice has two parts, Part A, the ``Notice to Withhold for 
Health Care Coverage,'' and Part B, the ``Medical Support Notice to 
Plan Administrator.'' The HHS regulation establishes procedures that 
would be followed once the Notice has been transmitted by the State to 
the employer and by the employer to the plan administrator. Thus, the 
Department's regulation provides guidance to plan administrators once 
Part B has been transmitted to a plan administrator. Part B 
incorporates the provisions of the CSPIA as it pertains to the 
Employment Retirement Income Security Act (ERISA). Specifically, Part B 
would implement section 609(a)(5)(C) of Title I of ERISA, which was 
added by section 401(d) of CSPIA to provide specific rules for plan 
administrators to follow upon receipt from an employer of Part B.
    For purposes of this economic analysis, the Department estimated 
the benefits and costs of the regulation relative to the costs of 
processing child support orders in the current environment. The 
benefits and costs of the rights conferred by the statute and current 
practices for processing medical child support orders are included in 
the baseline and are therefore not considered benefits or costs of the 
regulation. These include the rights for enrollment in a plan, as well 
as increased health care coverage and the attendant increases in claims 
costs faced by employee benefit plans. The Department is not aware of 
any analysis presently available that seeks to quantify the costs and 
benefits of the medical support order provisions of CSPIA and, 
therefore, is not presenting estimates of the costs and benefits of the 
statute in conjunction with evaluating the incremental cost and 
benefits of discretion exercised in the regulation.
    The Department's analysis indicates that the benefits of the 
regulation substantially exceed the costs. There are two types of 
economic effects of the regulation: (1) The more general and primarily 
indirect societal welfare gains associated with facilitating access to 
health care for dependent children, and (2) the direct administrative 
benefits and costs associated with implementing standardized Notices. 
The new procedures will promote timeliness in processing medical child 
support orders and accuracy in identifying a medical child support 
order as a QMCSO, thus, providing dependent children greater access to 
health care on a regular and timely basis. The new procedures will also 
increase efficiency and decrease administrative costs per Notice that 
arise when a non-standardized notice system is replaced by a 
standardized notice system.
    The Department's analysis relies on the basic assumption that plans 
incur a baseline cost to process notices in the current manner. Each 
notice is assumed to be unique, requiring individualized effort. The 
first standardized Notice received by a plan administrator is expected 
to require the same time as the

[[Page 82138]]

unique notices previously received. In addition, however, it is assumed 
that many plan administrators will invest in establishing new 
procedures upon receiving the first Notice in anticipation of 
offsetting this start-up cost in future savings associated with 
standardization. The processing time for each second and subsequent 
Notice is assumed to be significantly reduced. Plan administrators who 
do not have a reasonable expectation of receiving subsequent Notices 
are assumed to simply continue to process Notices as before and 
therefore to be unaffected by the regulation.
    Based on its analysis, the Department believes that significant net 
benefits will derive from the direct costs and benefits of the 
administrative efficiencies which will result from standardization. The 
degree of the net benefit is a function of the size of the plan. All 
large plans (those with at least 100 participants) are expected to 
benefit almost immediately, as they are expected to receive multiple 
notices the first year, thereby recovering their costs to implement new 
procedures through decreases in time spent handling subsequent Notices.
    An aggregate net benefit is also expected for smaller plans (those 
with 10-99 participants) although the initial costs associated with 
procedural changes will be repaid through savings over a longer period 
of time. The benefits for this group is shown to grow progressively 
larger over time. Very small plans (those with fewer than 10 
participants) are not expected to be affected in the aggregate by the 
regulation due to the relative infrequency of their receiving medical 
child support notices.
    The estimated net benefits and costs of the regulation in the first 
three years of implementation are summarized in the table which 
follows. As shown, the regulation is estimated to result in savings of 
$26.6 million in the first year, reducing total processing costs by 
nearly one-half. The savings which accrue to plans will increase over 
the years as a progressively greater proportion of the Notices yield 
savings. The analysis indicates a net savings of $31.4 million in the 
second year increasing to $34.3 million by year three with a total 
aggregate savings of $92.3 million over the period.

----------------------------------------------------------------------------------------------------------------
                                                                      Cost of         Cost of
                                                                    investment      processing      Net savings
                                                   Baseline cost       under           under           under
                                                    (millions)      regulation      regulation      regulation
                                                                    (millions)      (millions)      (millions)
----------------------------------------------------------------------------------------------------------------
Year 1..........................................           $62.3            $5.7           $30.0           $26.6
Year 2..........................................            62.3             3.5            27.4            31.4
Year 3..........................................            62.3             3.1            24.9            34.3
Years 1-3.......................................           186.9            12.3            82.3            92.3
----------------------------------------------------------------------------------------------------------------

    The more general societal welfare gains that are expected to arise 
from improvements in the economic security and health of children are 
not taken into account in the summary of net benefits because they 
cannot be specifically quantified. A detailed discussion of the 
development of estimated costs and benefits follows.

Discussion of the Comments

    As mentioned above, the Department made changes to the Notice to 
incorporate the public's comments. These changes to the Notice, 
however, did not significantly decrease or increase the costs or 
benefits under the regulation.
    The Department did receive one comment about the assumptions used 
in calculating the economic analysis. The commenter believed that, 
unlike other health plans, multiemployer health plans would have 
outside counsel review the notices. Multiemployer health plans are 
maintained pursuant to bona fide collective bargaining agreements and 
for the benefit of employees represented by a union in the collective 
bargaining process. Based on the current practice of having outside 
counsel reviewing qualified domestic relations orders (QDROs), the 
commenter believed that plan administrators for multiemployer plans 
would have outside counsel review the notices for multiemployer plans. 
In response to this comment, it is the Department's view that plan 
fiduciaries must take appropriate steps to ensure that plan procedures 
are designed to be cost effective and to minimize expenses associated 
with the administration of medical child support orders.\10\ The 
Department believes the cost of contracting out legal services, when it 
is cost effective and reasonable to do so, to be a baseline cost. If 
multiemployer plans contract out legal services, they are currently 
incurring the cost when processing medical child support orders. As 
such, any legal costs associated with the processing of such an order 
that are reasonably and prudently incurred should be included in the 
baseline cost. Assuming that multiemployer health plans continue the 
current practice of contracting out legal services to review the Notice 
when it is cost effective and reasonable, this also will be a cost 
under the regulation. Thus, increasing the cost under the regulation 
will offset any net savings that would result from increasing the 
baseline cost. The result would be a net change of zero. Therefore, for 
the economic analysis, the Department has decided not to calculate 
multiemployer health plan costs separately at higher hourly rates.
---------------------------------------------------------------------------

    \10\ See Advisory Opinion 94-32, August 4, 1994, footnote 4.
---------------------------------------------------------------------------

Costs of the Regulation

    The only cost of this regulation is the start-up cost incurred by 
ERISA-covered plans to set up procedures to conform with the format of 
the Notice.\11\ This start-up process is assumed to require one hour of 
a professional's time at an hourly rate of $45. It is assumed that plan 
administrators will complete this work themselves, rather than purchase 
services. The cost is incurred the first time a plan receives a medical 
child support order under the standardized Notice format. For plans 
with 100 or more participants, this start-up cost is incurred entirely 
in the first year, since every one of these plans receives its first 
standardized Notice in year one. The start-up cost for these plans is 
$1.7 million. Among plans with 10 to 99 participants, each year a 
fraction receives a medical child support order and incurs a start-up 
cost in response. As a result, their aggregate start-up cost, estimated 
at $4.0 million in year one, falls over time. Plans with fewer than 10 
participants receive these Notices too infrequently to make the 
investment in establishing cost effective procedures

[[Page 82139]]

and will be unaffected by the standardized Notice.
---------------------------------------------------------------------------

    \11\ Plans sponsored or maintained by State and local 
governments and by churches are not subject to Title I of ERISA 
pursuant to section 4(b)(1) and (2) of ERISA. However, such plans 
may be required to comply with the Notice under section 401(e) or 
(f) of CSPIA.
---------------------------------------------------------------------------

Benefits of the Regulation

    The introduction of a uniform notice with clear instructions may 
improve health care quality for children by preventing delays and 
denials of enrollment in group health care plans, thereby encouraging 
early intervention in the treatment of disease and illness. The social 
welfare loss resulting from uninsured children is well documented in 
economic literature. Based on analysis of the March 1999 Current 
Population Survey conducted by the Bureau of the Census, 15 percent of 
all children (or 11.1 million) are currently uninsured. The lack of 
private insurance generally increases the likelihood that needed 
medical treatment will be delayed or forgone, and that the ultimate 
costs of medical treatment will be shifted to public funding sources.
    The link between uninsured children and the deficiencies of the 
existing child support process is demonstrated in the legislative 
history of CSPIA.\12\ The legislative history indicates that there is a 
lack of effective communication of medical child support information 
between the State agencies and plan administrators. State agencies 
typically send employers an administrative notice (that varies from 
State to State, and sometimes among different counties or courts within 
a State) of an employee's medical child support obligations, which many 
plan administrators contend do not comply with current ERISA 
requirements. Although all child support orders are required to have a 
medical support component, only a reported 60 percent of all child 
support orders actually have this medical support component.
---------------------------------------------------------------------------

    \12\ 144 Cong. Reg. S7318 (daily ed. June 26, 1998) (Legislative 
History of Senate and House Amendemnts to the Child Support 
Performance and Incentive Act of 1998, ub. L. No. 105-200).
---------------------------------------------------------------------------

    In addition, the legislative history cites a 1996 GAO review of 
State child support enforcement programs which determined that at least 
13 States were not petitioning to include a medical support component 
in their child support orders, and 20 States were not enforcing 
existing medical child support orders. The number of children who are 
uninsured as a direct result of failures of this medical child support 
process is unknown. However, any reduction in the number of uninsured 
children that can be accomplished by the regulation will produce 
substantial benefits for the health of those children, and preserve 
public resources for those without access to private coverage.
    Direct benefits of the Notice will accrue to plans, State agencies, 
employers, parents, and children. Part B will reduce the inefficiencies 
inherent in current practice, which often require plan administrators 
to work with medical child support notices that differ from State to 
State and from individual to individual. Consequently, confusion arises 
as to what constitutes a QMCSO, and often as a result, the medical 
support is not provided. Specifically, benefits will accrue to plan 
administrators because they will all receive a standardized Notice 
which is easy to comprehend and to administer. This will limit the 
plans' risk of exposure to errors in determining which orders are 
QMCSOs and lead to the accurate identification of the dependent 
children eligible for enrollment in a group health plan. Finally, Part 
B will promote one of the objectives of the child support process, 
which is to ensure access to medical care coverage for children.
    In the first year of a standardized Notice system, the total cost 
to private employer group health plans of processing medical child 
support orders is expected to drop from the current level of $62.3 
million to $35.7 million. This estimate is derived as follows.
    HHS projects that there will be 1.2 million new child support 
orders with collections each year. Adjusting this figure to exclude 
orders received by employers with no ERISA-covered plans or not 
offering family health coverage, and to add orders that are not new 
orders but that arise from job changes, the Department of Labor 
estimates that plan administrators of ERISA-covered group health plans 
will receive a total of 770,000 Notices annually. The baseline cost 
(absent this regulation) to handle these notices is estimated to be 
$62.3 million annually. This assumes 1 hour and 45 minutes processing 
time at a $45 hourly professional's rate, plus 2 minutes in 
photocopying time at a $15 clerical rate, and $0.37 for materials and 
postage per required response.
    The Department assumed that plans that invest in new procedures to 
process standardized Notices will cut their processing time to 35 
minutes. Whether or how quickly ongoing savings from faster processing 
will offset the one-time cost of establishing new procedures will 
depend on how many Notices a plan receives. The probability of a plan 
receiving a Notice in a given year is a function of the number of 
participants in the plan. The probability is low for very small plans, 
but high for large plans.
    Following this reasoning, the Department concluded that plans with 
fewer then 10 participants will not anticipate near-term savings and 
therefore will not invest in new procedures but will continue to incur 
baseline costs, estimated at $2.3 million annually on aggregate.
    Plans with 10 to 99 participants will invest in procedures when 
they receive their first Notice, and will recover their cost and 
realize net savings within a few years or less on average. On aggregate 
as a group, these plans will realize net savings beginning in year 
three. Their aggregate baseline processing costs are estimated at $7.6 
million annually. Under the regulation, their aggregate combined costs 
of processing and establishing new procedures will decline from $11.4 
million in year one to $7.4 million in year three, with savings 
increasing in subsequent years.
    Plans with 100 or more participants will invest in new procedures 
in the first year and will typically recover their cost and realize net 
savings in that same year. Their aggregate cost will fall from $52.4 
million annually under the baseline to $22.8 million under the 
regulation in year one and to $18.3 million in year two.
    Except where noted to the contrary, the assumptions and methods 
underlying these estimates are the same as those underlying the 
Department's estimates of the effects of its proposed Notice 
regulation. These assumptions and methods are detailed the Notice of 
Proposed Rulemaking (64 FR 62054, November 15,1999).

Alternative Approaches Considered

    A number of alternative approaches to this regulation were 
considered. The first drafts of the Notice presented to the MCSWG 
consisted of two parts and provided a number of defaults which 
decreased the discretion required in responding to the Notice and was 
particularly streamlined. This version was rejected after members of 
the MCSWG noted that feedback to the Issuing Agency regarding the 
nature of coverage available and its effective date was essential to 
the effective enforcement of medical child support obligations. A 
second version of the Notice was developed which included four parts 
and provided for more responses to the Issuing Agency. Again the MCSWG 
provided commentary, responding that this version was too complicated 
and cumbersome. A third version of the Notice was developed. This 
version provided feedback to the Issuing Agency, yet it was more 
streamlined and comprehensible. It enabled the Issuing Agency to select 
the coverage that would ultimately be provided to the child(ren) from 
the

[[Page 82140]]

options available to the participant/noncustodial parent. Enabling 
Issuing Agencies to make this selection, rather than having the child 
automatically placed in a default coverage option, ensured that the 
child would receive meaningful and accessible coverage from among the 
particular options available under the plan. The final version, as 
published here, reflects more streamlining. Also, some public comments 
to the proposed regulation and Notice have been incorporated. For 
example, the Department simplified the Notice by removing guidance 
available to the parties elsewhere. For a complete discussion of 
comments, see above.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520)(PRA 95), the Department submitted the information collection 
request (ICR) included in Part B, Medical Support Notice to Plan 
Administrator of the National Medical Support Notice (Notice) to the 
Office of Management and Budget (OMB) for review and clearance at the 
time the Notice of Proposed Rulemaking (NPRM) was published in the 
Federal Register (November 15, 1999, 64 FR 62054). OMB approved the 
Notice under OMB control number 1210-0113. The approval will expire on 
January 31, 2003.
    The Department solicited comments concerning the ICR in connection 
with the NPRM. The Department received only one comment addressing its 
burden estimates. Although the original burden estimates relied on the 
assumption that all Notices would be processed in-house by plan 
administrative staff, the commenter expressed the differing view that 
multiemployer health plans will use the services of outside counsel to 
process Notices, and incur greater costs as a result. The Department 
recognizes that in limited circumstances it may be cost-effective, and 
therefore reasonable, for multiemployer health plans to employ outside 
counsel to process medical child support orders. However, to the extent 
that the use of outside counsel may have been cost effective for a plan 
due to the fact that the plan received differing medical child support 
orders from different States, or from different counties or courts 
within a State, the uniformity introduced by use of the Notice should 
reduce the need to use outside counsel to determine whether any 
particular Notice is qualified. Because the number of multiemployer 
health plans is small relative to the total number of plans 
(approximately 2,000 of a total of 2.5 million), and because the number 
of instances among those plans in which it is reasonable for plans to 
use outside counsel to process the Notices is expected to be limited, 
the Department continues to consider its original hour and cost burden 
estimates to be appropriate.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA), 
imposes certain requirements with respect to Federal rules that are 
subject to the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless an agency certifies that a rule will not have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires the agency to present a final 
regulatory flexibility analysis at the time of the publication of the 
notice of final rulemaking describing the impact of the rule on small 
entities. Small entities include small businesses, organizations, and 
governmental jurisdictions.
    For purposes of analysis under the RFA, the Pension and Welfare 
Benefits Administration (PWBA) considers a small entity to be an 
employee benefit plan with fewer than 100 participants. The basis for 
this definition is found in section 104(a)(2) of ERISA, which permits 
the Secretary of Labor to prescribe simplified annual reports for 
pension plans which cover fewer than 100 participants. Under section 
104(a)(3), the Secretary may also provide for simplified annual 
reporting and disclosure if the statutory requirements of part 1 of 
Title I of ERISA would otherwise be inappropriate for welfare benefit 
plans. Pursuant to the authority of section 104(a)(3), the Department 
has previously issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 
2520.104-46 and 2520.104b-10 certain simplified reporting provisions 
and limited exemptions from reporting and disclosure requirements for 
small plans, including unfunded or insured welfare plans covering fewer 
than 100 participants and which satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general most small plans are maintained by small employers. Both small 
and large plans may enlist small third party service providers to 
perform administrative functions, but it is generally understood that 
third party service providers transfer their costs to their plan 
clients in the form of fees. Thus, PWBA believes that assessing the 
impact of this rule on small plans is an appropriate substitute for 
evaluating the effect on small entities. The definition of small entity 
considered appropriate for this purpose differs, however, from a 
definition of small business based on size standards promulgated by the 
Small Business Administration (SBA) (13 CFR 121.201) pursuant to the 
Small Business Act (5 U.S.C. 631 et seq.). PWBA solicited comments on 
the use of this standard for evaluating the effects of the proposal on 
small entities. No comments were received with respect to the standard. 
Therefore, a summary of the final regulatory flexibility analysis based 
on the 100 participant size standard is presented below.
    PWBA is promulgating this regulation because it is required to do 
so under section 401(b) of the Child Support Performance and Incentive 
Act of 1998 (CSPIA) (Pub. L. 105-200). CSPIA requires the Department of 
Labor and the Department of Health and Human Services (HHS) to jointly 
develop and promulgate by regulation a National Medical Support Notice 
(Notice). The content of the Notice is prescribed by the statute. Thus, 
as outlined in the economic analysis section of this preamble, the 
benefits and costs attributable to the regulation are those associated 
with the discretion exercised by the Department only in the format of 
the Notice. The statute affords no regulatory discretion with respect 
to application of the statutory requirements to entities of differing 
sizes. Nevertheless, analysis of the impact of the regulation indicates 
that in the aggregate, small plans with between 10 and 99 participants 
will benefit from standardization of medical support Notices, and that 
net benefits to these plans will grow progressively larger over time. 
Very small plans, those with fewer than 10 participants, are not 
expected to be affected by this rulemaking because it is assumed that 
due to the infrequency of their receipt of Notices, these plans will 
continue to handle medical child support notices as they do in the 
existing environment.
    The objective of the regulation is to introduce Part B--Medical 
Support Notice to Plan Administrator (Part B), which implements section 
609(a)(5)(C) of Title I of ERISA, which was added by section 401(d) of 
CSPIA. Section 609(a)(5)(C) of ERISA provides that a Notice is deemed 
to be a Qualified Medical Child Support Order (QMCSO) if the plan 
administrator of a group health plan which is maintained by the 
employer of a noncustodial parent or to which the employer contributes, 
receives an appropriately completed

[[Page 82141]]

Notice which meets the requirements for a qualified medical child 
support order under section 609(a)(3) and (4) of ERISA (which provides 
the informational requirements for a qualified order and restrictions 
on new types of benefits). New ERISA section 609(a)(5)(C) also 
establishes new requirements for plan administrators to enroll 
alternate recipient(s) in a group health plan and to notify the 
appropriate state agency, noncustodial parent, custodial parent and 
alternate recipient(s). Thus, the legal basis for the regulation is 
found in ERISA section 609(a)(5); an extensive list of authorities may 
be found in the Statutory Authority section, below.
    The direct impact of compliance with Part B of the Notice will fall 
upon ERISA-covered group health plans. Plans with 10 to 99 participants 
will benefit from a net aggregate reduction in costs under the 
standardized Notice system. Their baseline cost to process Notices is 
estimated at $7.6 million, or $85 per plan, annually. Under the 
regulation, the combined cost to process Notices and establish new 
procedures to process standardized Notices will decline from $11.4 
million, or $127 per plan, in year one to $7.4 million, or $83 per 
plan, in year three. The savings will increase in subsequent years as 
the start-up investment is recouped by more plans.
    Plans with fewer than 10 participants receive Notices infrequently 
and therefore would be unlikely to recoup start-up costs from future 
savings from processing subsequent Notices. These plans therefore are 
not expected to establish new procedures for processing standardized 
notices but will continue to incur baseline costs of $2.3 million, or 
$81 per plan, annually.
    The basis for these estimates is summarized in the discussion of 
Executive order 12866, presented above.
    No federal rules have been identified that duplicate, overlap, or 
conflict with this regulation. As discussed previously in the economic 
analysis under the Executive Order, a number of alternatives to this 
regulation were considered. At least three distinct versions of the 
Notice were developed prior to arriving at this final version. Prior 
drafts were critiqued by the Medical Child Support Working Group, which 
included representatives from the small business community. Based on 
commentary received from the Working Group and the general public, the 
Agencies feel that this version of the Notice provides the minimum 
information necessary to comply with section 609(a)(5)(C) of ERISA and 
imposes the least economic impact on small entities. The establishment 
of different compliance requirements or an exemption from compliance 
for small entities was not considered in light of the goal of this 
rulemaking. Differing compliance schemes for small entities would 
frustrate the objective of providing a nationally uniform medical child 
support notice to be used by all State Agencies and to be easily 
identified by employers, plan administrators and parents.

Federalism Statement Under Executive Order 13132

    When an agency promulgates a regulation that has federalism 
implications, Executive Order 13132 (64 FR 43255, August 10, 1999) 
requires the agency to provide a federalism summary impact statement. 
Pursuant to section 6(c) of the Order, such a statement must include a 
description of the agency's consultation with State and local 
officials, a summary of their concerns and the agency's position 
supporting the need to issue the regulation, and a statement of the 
extent to which the regulation meets the concerns of State and local 
officials. This final regulation has been identified as having 
federalism implications within the meaning of the Order.
    This regulation is mandated by provisions of the Child Support 
Performance and Incentive Act (CSPIA) that were enacted in response to 
difficulties that State child support enforcement agencies had 
experienced in enforcing medical child support orders. In particular, 
many State agencies, as well as the National Child Support Enforcement 
Association, an organization representing State child support 
enforcement agencies, participated in the legislative process that 
resulted in CSPIA's passage. CSPIA provided specific guidance on the 
content of the National Medical Support Notice (Notice) and provided 
for the establishment of the Medical Child Support Working Group, which 
included seven representatives of State child support enforcement 
directors and State Medicaid/SCHIP directors. This group was tasked by 
statute to make recommendations based on assessments of the form and 
content of the Notice, which it provided both prior to its issuance in 
proposed form as well as during the comment period. In addition, 
approximately 15 State child support enforcement agencies submitted 
comments on the proposed regulation independently during the comment 
period. These recommendations proved very helpful to the Departments in 
developing the final regulation.
    State representatives generally supported the development of the 
Notice. They viewed the Notice as necessary to overcome difficulties 
that State agencies had previously experienced in securing medical 
child support from group health plans available to noncustodial 
parents. The Department agreed that the Notice was needed not only to 
comply with CSPIA's mandate to issue regulations, but also to maximize 
access to private group health insurance for children. The following 
discussion summarizes the major concerns of State agencies and the 
responses offered by the Department in the final regulation.
    Early in the development of the Notice, State representatives on 
the Working Group made recommendations which guided the Departments in 
developing the format of the Notice. State representatives expressed a 
strong preference that the Notice resemble to the extent possible the 
uniform Order/Notice to Withhold Income for Child Support currently 
used by State agencies to enforce child support orders. They noted that 
this standardized withholding form has facilitated child support income 
withholding and is already familiar to employers. Also, State 
representatives requested that the Notice include a feedback loop to 
the Issuing Agency in the event that coverage was not available to the 
noncustodial parent through the employer's group health plan. The 
Departments agreed that incorporating both features would ease the 
enforcement of medical child support obligations.
    In comments received following the publication of the proposal, 
State agencies generally objected to the requirement to choose from 
among the options available under the noncustodial parent's group 
health plan. They also objected to the possibility that selecting the 
most appropriate option for the child could entail changing the 
noncustodial parent's existing coverage. State representatives stated 
that they lacked the resources and expertise necessary to make such 
decisions and requested that the choice be either automatic or made by 
another party. In response, the Department included several default 
options intended to automate the selection as much as possible, 
minimizing the instances in which the Issuing Agency must choose. These 
default options have eliminated the possibility that a noncustodial 
parent's existing coverage would change based on a selection by the 
Issuing Agency. However, in cases where the group health plan offers 
multiple coverage options and the noncustodial

[[Page 82142]]

parent has not elected coverage, the Department determined that it was 
most appropriate for the Issuing Agency to make the selection. The 
Department concluded that, in this narrow range of cases, the Issuing 
Agency is in the best position to make the selection consistent with 
the best interests of the child.
    In addition, in cases where the Issuing Agency must choose a 
coverage option from several available under a group health plan, State 
agencies requested that the Plan Administrator Response of Part B of 
the Notice indicate whether the various options serve geographically 
limited areas, and the additional cost to the participant to enroll the 
child(ren) in each option. State agencies stated that this information 
would assist them in making coverage selections. After much 
deliberation, the Department decided not to require this information 
directly on the Plan Administrator Response. Instead the Department has 
included a requirement that the plan administrator provide descriptions 
of each option to the Issuing Agency which include this information, 
such as summary plan descriptions. In the interest of expediting the 
processing of Notices, reducing the length of the Notice, and easing 
the burden on plan administrators, the Department has not required plan 
administrators to duplicate this information on the Plan Administrator 
Response.
    State agencies requested that the Notice clarify that it applies 
both to ERISA-covered and non-ERISA plans as intended by CSPIA. They 
commented that non-ERISA plans may not honor the Notice because much of 
the language in the proposed Notice referred to ERISA. In response, the 
Department included language in the Notice clarifying its application 
to State and local government plans, as well as church plans, and 
eliminated some of the ERISA legal terminology.
    States requested that they be informed when a noncustodial parent 
is not eligible for coverage under the employer's group health plan due 
to a waiting period and that the Notice clarify the obligations of the 
parties when a waiting period applies. State agencies noted that in the 
case of a long waiting period, it may be in the best interest of the 
child to attempt to secure alternative coverage during such a waiting 
period. The Department responded by including in the Plan Administrator 
Response a mechanism for the plan administrator to notify the Issuing 
Agency that a long or indeterminate waiting period applies. In 
addition, the preamble and the instructions on Part B of the Notice 
clarify that, in any case in which such a waiting period applies, 
enrollment will be processed upon the satisfaction of the waiting 
period. When a shorter waiting period applies (less than 90 days) the 
Plan Administrator Response includes a space for the plan administrator 
to indicate when coverage will become effective, accounting for any 
remaining days in such a waiting period.
    Regarding the type of health care coverage selection on Parts A and 
B, several State agencies commented that many child support orders are 
general in nature and do not order specific types of coverage. They 
requested that this portion of the Notice include a general selection 
such as ``any health coverage available'' rather than requiring the 
Issuing Agency to select from a specific type of coverage. The 
Department included such a selection in the final Notice as well as 
guidance in the regulation directing plan administrators to provide all 
available coverage where the Issuing Agency has failed to indicate any 
type of coverage.

Small Business Regulatory Enforcement Fairness Act

    The rule in this action is subject to the provisions of the Small 
Business Regulatory Enforcement Act of 1996 (5 U.S.C. 801 et seq.) 
(SBREFA), and has been transmitted to Congress and the Comptroller 
General for review.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this rule does not include 
any Federal mandate that may result in the expenditure by state, local 
and tribal governments in the aggregate, or by the private sector, of 
$100,000,000 or more in any one year.

Statutory Authority

    Sections 505 and 609(e) of ERISA (Pub. L. 93-406, 88 Stat. 894, 29 
U.S.C. 1135 & 1169(e)). Section 401(b) of CSPIA (Pub. L. 105-200, 112 
Stat. 645).

List of Subjects in 29 CFR Part 2590

    Employee benefit plans, Health care, Medical child support, 
Pensions, Reporting and recordkeeping requirements.

    For the reasons set forth above, Part 2590 of Title 29 of the Code 
of Federal Regulations is amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLAN REQUIREMENTS

    1. The part heading is revised to read as shown above.
    2. The authority citation for part 2590 is revised to read as 
follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1171, 1194; Sec. 4301, 
Pub. L. 103-66, 107 Stat. 372 (29 U.S.C. 1169); Sec. 101, Pub. Law 
104-191, 101 Stat. 1936 (29 U.S.C. 1181); Secretary of Labor's Order 
No. 1-87, 52 FR 13139, April 21, 1987.


    3. Part 2590 is amended by redesignating Subparts A, B, and C as 
Subparts B, C, and D, respectively and a new Subpart A is added to read 
as follows:

Subpart A--Continuation Coverage, Qualified Medical Child Support 
Orders, Coverage for Adopted Children


Sec. 2590.609-1  [Reserved]


Sec. 2590.609-2  National Medical Support Notice.

    (a) This section promulgates the National Medical Support Notice 
(the Notice), as mandated by section 401(b) of the Child Support 
Performance and Incentive Act of 1998 (Pub. L. 105-200). If the Notice 
is appropriately completed and satisfies paragraphs (3) and (4) of 
section 609(a) of the Employee Retirement Income Security Act (ERISA), 
the Notice is deemed to be a qualified medical child support order 
(QMCSO) pursuant to ERISA section 609(a)(5)(C). Section 609(a) of ERISA 
delineates the rights and obligations of the alternate recipient 
(child), the participant, and the group health plan under a QMCSO. A 
copy of the Notice is available on the Internet at http://www.dol.gov/dol/pwba.
    (b) For purposes of this section, a plan administrator shall find 
that a Notice is appropriately completed if it contains the name of an 
Issuing Agency, the name and mailing address (if any) of an employee 
who is a participant under the plan, the name and mailing address of 
one or more alternate recipient(s) (child(ren) of the participant) (or 
the name and address of a substituted official or agency which has been 
substituted for the mailing address of the alternate recipient(s)), and 
identifies an underlying child support order.
    (c)(1) Under section 609(a)(3)(A) of ERISA, in order to be 
qualified, a medical child support order must clearly specify the name 
and the last known mailing address (if any) of the participant and the 
name and mailing address of each alternate recipient covered by the 
order, except that, to the extent provided in the order, the name and 
mailing address of an official of a State or a political subdivision 
thereof may be substituted for the mailing address of any such 
alternate recipient. Section 609(a)(3)(B) of ERISA requires a

[[Page 82143]]

reasonable description of the type of coverage to be provided to each 
such alternate recipient, or the manner in which such type of coverage 
is to be determined. Section 609(a)(3)(C) of ERISA requires that the 
order specify the period to which such order applies.
    (2) The Notice satisfies ERISA section 609(a)(3)(A) by including 
the necessary identifying information described in Sec. 2590.609-2(b).
    (3) The Notice satisfies ERISA section 609(a)(3)(B) by having the 
Issuing Agency identify either the specific type of coverage or all 
available group health coverage. If an employer receives a Notice that 
does not designate either specific type(s) of coverage or all available 
coverage, the employer and plan administrator should assume that all 
are designated. The Notice further satisfies ERISA section 609(a)(3)(B) 
by instructing the plan administrator that if a group health plan has 
multiple options and the participant is not enrolled, the Issuing 
Agency will make a selection after the Notice is qualified, and, if the 
Issuing Agency does not respond within 20 days, the child will be 
enrolled under the plan's default option (if any).
    (4) Section 609(a)(3)(C) of ERISA is satisfied because the Notice 
specifies that the period of coverage may only end for the alternate 
recipient(s) when similarly situated dependents are no longer eligible 
for coverage under the terms of the plan, or upon the occurrence of 
certain specified events.
    (d)(1) Under ERISA section 609(a)(4), a qualified medical child 
support order may not require a plan to provide any type or form of 
benefit, or any option, not otherwise provided under the plan, except 
to the extent necessary to meet the requirements of a law relating to 
medical child support described in section 1908 of the Social Security 
Act, 42 U.S.C. 1396g-1.
    (2) The Notice satisfies the conditions of ERISA section 609(a)(4) 
because it requires the plan to provide to an alternate recipient only 
those benefits that the plan provides to any dependent of a participant 
who is enrolled in the plan, and any other benefits that are necessary 
to meet the requirements of a State law described in such section 1908.
    (e) For the purposes of this section, an ``Issuing Agency'' is a 
State agency that administers the child support enforcement program 
under Part D of Title IV of the Social Security Act.

    Signed at Washington, DC this December 15, 2000.
Leslie Kramerich,
Acting Assistant Secretary, Pension and Welfare Benefits 
Administration, Department of Labor.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.


BILLING CODE 4510-29-P

[[Page 82144]]

[GRAPHIC] [TIFF OMITTED] TR27DE00.000


[[Page 82145]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.001


[[Page 82146]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.002


[[Page 82147]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.003


[[Page 82148]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.004


[[Page 82149]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.005


[[Page 82150]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.006


[[Page 82151]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.007


[[Page 82152]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.008


[[Page 82153]]


[GRAPHIC] [TIFF OMITTED] TR27DE00.009

[FR Doc. 00-32411 Filed 12-26-00; 8:45 am]
BILLING CODE 4510-29-C