[Code of Federal Regulations]
[Title 26, Volume 17]
[Revised as of April 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR54.9812-1T]

[Page 399-407]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 54_PENSION EXCISE TAXES--Table of Contents
 
Sec. 54.9812-1T  Parity in the application of certain limits to 
mental health benefits (temporary).

    (a) Definitions. For purposes of this section, except where the 
context clearly indicates otherwise, the following definitions apply:
    Aggregate lifetime limit means a dollar limitation on the total 
amount of specified benefits that may be paid under a group health plan 
for an individual (or for a group of individuals considered a

[[Page 400]]

single unit in applying this dollar limitation, such as a family or an 
employee plus spouse).
    Annual limit means a dollar limitation on the total amount of 
specified benefits that may be paid in a 12-month period under a plan 
for an individual (or for a group of individuals considered a single 
unit in applying this dollar limitation, such as a family or an employee 
plus spouse).
    Medical/surgical benefits means benefits for medical or surgical 
services, as defined under the terms of the plan, but does not include 
mental health benefits.
    Mental health benefits means benefits for mental health services, as 
defined under the terms of the plan, but does not include benefits for 
treatment of substance abuse or chemical dependency.
    (b) Requirements regarding limits on benefits--(1) In general--(i) 
General parity requirement. A group health plan that provides both 
medical/surgical benefits and mental health benefits must comply with 
paragraph (b) (2), (3), or (6) of this section.
    (ii) Exception. The rule in paragraph (b)(1)(i) of this section does 
not apply if a plan satisfies the requirements of paragraph (e) or (f) 
of this section.
    (2) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a plan does not include an aggregate 
lifetime or annual limit on any medical/surgical benefits or includes 
aggregate lifetime or annual limits that apply to less than one-third of 
all medical/surgical benefits, it may not impose an aggregate lifetime 
or annual limit, respectively, on mental health benefits.
    (3) Plan with a limit on at least two-thirds of all medical/surgical 
benefits. If a plan includes an aggregate lifetime or annual limit on at 
least two-thirds of all medical/surgical benefits, it must either--
    (i) Apply the aggregate lifetime or annual limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health benefits in a manner that does not distinguish between 
the medical/surgical and mental health benefits; or
    (ii) Not include an aggregate lifetime or annual limit on mental 
health benefits that is less than the aggregate lifetime or annual 
limit, respectively, on the medical/surgical benefits.
    (4) Examples. The rules of paragraphs (b)(2) and (3) of this section 
are illustrated by the following examples:

    Example 1. (i) Prior to the effective date of the mental health 
parity provisions, a group health plan had no annual limit on medical/
surgical benefits and had a $10,000 annual limit on mental health 
benefits. To comply with the parity requirements of this paragraph (b), 
the plan sponsor is considering each of the following options:
    (A) Eliminating the plan's annual limit on mental health benefits;
    (B) Replacing the plan's previous annual limit on mental health 
benefits with a $500,000 annual limit on all benefits (including 
medical/surgical and mental health benefits); and
    (C) Replacing the plan's previous annual limit on mental health 
benefits with a $250,000 annual limit on medical/surgical benefits and a 
$250,000 annual limit on mental health benefits.
    (ii) In this Example 1, each of the three options being considered 
by the plan sponsor would comply with the requirements of this section 
because they offer parity in the dollar limits placed on medical/
surgical and mental health benefits.
    Example 2. (i) Prior to the effective date of the mental health 
parity provisions, a group health plan had a $100,000 annual limit on 
medical/surgical inpatient benefits, a $50,000 annual limit on medical/
surgical outpatient benefits, and a $100,000 annual limit on all mental 
health benefits. To comply with the parity requirements of this 
paragraph (b), the plan sponsor is considering each of the following 
options:
    (A) Replacing the plan's previous annual limit on mental health 
benefits with a $150,000 annual limit on mental health benefits; and
    (B) Replacing the plan's previous annual limit on mental health 
benefits with a $100,000 annual limit on mental health inpatient 
benefits and a $50,000 annual limit on mental health outpatient 
benefits.
    (ii) In this Example 2, each option under consideration by the plan 
sponsor would comply with the requirements of this section because they 
offer parity in the dollar limits placed on medical/surgical and mental 
health benefits.
    Example 3. (i) A group health plan that is subject to the 
requirements of this section has no aggregate lifetime or annual limit 
for either medical/surgical benefits or mental health benefits. While 
the plan provides medical/surgical benefits with respect to both network 
and out-of-network providers, it

[[Page 401]]

does not provide mental health benefits with respect to out-of-network 
providers.
    (ii) In this Example 3, the plan complies with the requirements of 
this section because they offer parity in the dollar limits placed on 
medical/surgical and mental health benefits.
    Example 4. (i) Prior to the effective date of the mental health 
parity provisions, a group health plan had an annual limit on medical/
surgical benefits and a separate but identical annual limit on mental 
health benefits. The plan included benefits for treatment of substance 
abuse and chemical dependency in its definition of mental health 
benefits. Accordingly, claims paid for treatment of substance abuse and 
chemical dependency were counted in applying the annual limit on mental 
health benefits. To comply with the parity requirements of this 
paragraph (b), the plan sponsor is considering each of the following 
options:
    (A) Making no change in the plan so that claims paid for treatment 
of substance abuse and chemical dependency continue to count in applying 
the annual limit on mental health benefits;
    (B) Amending the plan to count claims paid for treatment of 
substance abuse and chemical dependency in applying the annual limit on 
medical/surgical benefits (rather than counting those claims in applying 
the annual limit on mental health benefits);
    (C) Amending the plan to provide a new category of benefits for 
treatment of chemical dependency and substance abuse that is subject to 
a separate, lower limit and under which claims paid for treatment of 
substance abuse and chemical dependency are counted only in applying the 
annual limit on this separate category; and
    (D) Amending the plan to eliminate distinctions between medical/
surgical benefits and mental health benefits and establishing an overall 
limit on benefits offered under the plan under which claims paid for 
treatment of substance abuse and chemical dependency are counted with 
medical/surgical benefits and mental health benefits in applying the 
overall limit.
    (ii) In this Example 4, the group health plan is described in 
paragraph (b)(3) of this section. Because mental health benefits are 
defined in paragraph (a) of this section as excluding benefits for 
treatment of substance abuse and chemical dependency, the inclusion of 
benefits for treatment of substance abuse and chemical dependency in 
applying an aggregate lifetime limit or annual limit on mental health 
benefits under option (A) of this Example 4 would not comply with the 
requirements of paragraph (b)(3) of this section. However, options (B), 
(C), and (D) of this Example 4. Would comply with the requirements of 
paragraph (b)(3) of this section because they offer parity in the dollar 
limits placed on medical/surgical and mental health benefits.

    (5) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (b), the determination of 
whether the portion of medical/surgical benefits subject to a limit 
represents one-third or two-thirds of all medical/surgical benefits is 
based on the dollar amount of all plan payments for medical/surgical 
benefits expected to be paid under the plan for the plan year (or for 
the portion of the plan year after a change in plan benefits that 
affects the applicability of the aggregate lifetime or annual limits). 
Any reasonable method may be used to determine whether the dollar 
amounts expected to be paid under the plan will constitute one-third or 
two-thirds of the dollar amount of all plan payments for medical/
surgical benefits.
    (6) Plan not described in paragraph (b)(2) or (3) of this section--
(i) In general. A group health plan that is not described in paragraph 
(b)(2) or (3) of this section, must either--
    (A) Impose no aggregate lifetime or annual limit, as appropriate, on 
mental health benefits; or
    (B) Impose an aggregate lifetime or annual limit on mental health 
benefits that is no less than an average limit for medical/surgical 
benefits calculated in the following manner. The average limit is 
calculated by taking into account the weighted average of the aggregate 
lifetime or annual limits, as appropriate, that are applicable to the 
categories of medical/surgical benefits. Limits based on delivery 
systems, such as inpatient/outpatient treatment or normal treatment of 
common, low-cost conditions (such as treatment of normal births), do not 
constitute categories for purposes of this paragraph (b)(6)(i)(B). In 
addition, for purposes of determining weighted averages, any benefits 
that are not within a category that is subject to a separately-
designated limit under the plan are taken into account as a single 
separate category by using an estimate of the upper limit on the dollar 
amount that a plan may reasonably be expected to incur with respect to 
such benefits, taking into account any other applicable restrictions 
under the plan.

[[Page 402]]

    (ii) Weighting. For purposes of this paragraph (b)(6), the weighting 
applicable to any category of medical/surgical benefits is determined in 
the manner set forth in paragraph (b)(5) of this section for determining 
one-third or two-thirds of all medical/surgical benefits.
    (iii) Example. The rules of this paragraph (b)(6) are illustrated by 
the following example:

    Example. (i) A group health plan that is subject to the requirements 
of this section includes a $100,000 annual limit on medical/surgical 
benefits related to cardio-pulmonary diseases. The plan does not include 
an annual limit on any other category of medical/surgical benefits. The 
plan determines that 40% of the dollar amount of plan payments for 
medical/surgical benefits are related to cardio-pulmonary diseases. The 
plan determines that $1,000,000 is a reasonable estimate of the upper 
limit on the dollar amount that the plan may incur with respect to the 
other 60% of payments for medical/surgical benefits.
    (ii) In this Example, the plan is not described in paragraph (b)(3) 
of this section because there is not one annual limit that applies to at 
least two-thirds of all medical/surgical benefits. Further, the plan is 
not described in paragraph (b)(2) of this section because more than one-
third of all medical/surgical benefits are subject to an annual limit. 
Under this paragraph (b)(6), the plan sponsor can choose either to 
include no annual limit on mental health benefits, or to include an 
annual limit on mental health benefits that is not less than the 
weighted average of the annual limits applicable to each category of 
medical/surgical benefits. In this example, the minimum weighted average 
annual limit that can be applied to mental health benefits is $640,000 
(40% x $100,000 + 60% x $1,000,000 = $640,000).

    (c) Rule in the case of separate benefit packages. If a group health 
plan offers two or more benefit packages, the requirements of this 
section, including the exemption provisions in paragraph (f) of this 
section, apply separately to each benefit package. Examples of a group 
health plan that offers two or more benefit packages include a group 
health plan that offers employees a choice between indemnity coverage or 
HMO coverage, and a group health plan that provides one benefit package 
for retirees and a different benefit package for current employees.
    (d) Applicability--(1) Group health plans. The requirements of this 
section apply to a group health plan offering both medical/surgical 
benefits and mental health benefits regardless of whether the mental 
health benefits are administered separately under the plan.
    (2) Health insurance issuers. See 29 CFR 2590.712(d)(2) and 45 CFR 
146.136(d)(2), which provide that health insurance issuers offering 
health insurance coverage for both medical/surgical benefits and mental 
health benefits in connection with a group health plan are subject to 
rules similar to those applicable to group health plans under this 
section.
    (3) Scope. This section does not--
    (i) Require a group health plan to provide any mental health 
benefits; or
    (ii) Affect the terms and conditions (including cost sharing, limits 
on the number of visits or days of coverage, requirements relating to 
medical necessity, requiring prior authorization for treatment, or 
requiring primary care physicians' referrals for treatment) relating to 
the amount, duration, or scope of the mental health benefits under the 
plan except as specifically provided in paragraph (b) of this section.
    (e) Small employer exemption--(1) In general. The requirements of 
this section do not apply to a group health plan for a plan year of a 
small employer. For purposes of this paragraph (e), the term small 
employer means, in connection with a group health plan with respect to a 
calendar year and a plan year, an employer who employed an average of at 
least two but not more than 50 employees on business days during the 
preceding calendar year and who employs at least two employees on the 
first day of the plan year. See section 9831(a) and Sec. 54.9831-1T(a), 
which provide that this section (and certain other sections) does not 
apply to any group health plan for any plan year if, on the first day of 
the plan year, the plan has fewer than two participants who are current 
employees.
    (2) Rules in determining employer size. For purposes of paragraph 
(e)(1) of this section--
    (i) All persons treated as a single employer under subsections (b), 
(c), (m), and (o) of section 414 are treated as one employer;

[[Page 403]]

    (ii) If an employer was not in existence throughout the preceding 
calendar year, whether it is a small employer is determined based on the 
average number of employees the employer reasonably expects to employ on 
business days during the current calendar year; and
    (iii) Any reference to an employer for purposes of the small 
employer exemption includes a reference to a predecessor of the 
employer.
    (f) Increased cost exemption--(1) In general. A group health plan is 
not subject to the requirements of this section if the requirements of 
this paragraph (f) are satisfied. If a plan offers more than one benefit 
package, this paragraph (f) applies separately to each benefit package. 
Except as provided in paragraph (h) of this section, a plan must comply 
with the requirements of paragraph (b)(1)(i) of this section for the 
first plan year beginning on or after January 1, 1998, and must continue 
to comply with the requirements of paragraph (b)(1)(i) of this section 
until the plan satisfies the requirements in this paragraph (f). In no 
event is the exemption of this paragraph (f) effective until 30 days 
after the notice requirements in paragraph (f)(3) of this section are 
satisfied. If the requirements of this paragraph (f) are satisfied with 
respect to a plan, the exemption continues in effect (at the plan's 
discretion) until September 30, 2001, even if the plan subsequently 
purchases a different policy from the same or a different issuer and 
regardless of any other changes to the plan's benefit structure.
    (2) Calculation of the one-percent increase--(i) Ratio. A group 
health plan satisfies the requirements of this paragraph (f)(2) if the 
application of paragraph (b)(1)(i) of this section to the plan results 
in an increase in the cost under the plan of at least one percent. The 
application of paragraph (b)(1)(i) of this section results in an 
increased cost of at least one percent under a group health plan only if 
the ratio below equals or exceeds 1.01000. The ratio is determined as 
follows:
    (A) The incurred expenditures during the base period, divided by,
    (B) The incurred expenditures during the base period, reduced by--
    (1) The claims incurred during the base period that would have been 
denied under the terms of the plan absent plan amendments required to 
comply with this section; and
    (2) Administrative expenses attributable to complying with the 
requirements of this section.
    (ii) Formula. The ratio of paragraph (f)(2)(i) of this section is 
expressed mathematically as follows:
[GRAPHIC] [TIFF OMITTED] TR22DE97.005

    (A) IE means the incurred expenditures during the base period.
    (B) CE means the claims incurred during the base period that would 
have been denied under the terms of the plan absent plan amendments 
required to comply with this section.
    (C) AE means administrative costs related to claims in CE and other 
administrative costs attributable to complying with the requirements of 
this section.
    (iii) Incurred expenditures. Incurred expenditures means actual 
claims incurred during the base period and reported within two months 
following the base period, and administrative costs for all benefits 
under the group health plan, including mental health benefits and 
medical/surgical benefits, during the base period. Incurred expenditures 
do not include premiums.
    (iv) Base period. Base period means the period used to calculate 
whether the plan may claim the one-percent increased cost exemption in 
this paragraph (f). The base period must begin on the first day in any 
plan year that the plan complies with the requirements of paragraph 
(b)(1)(i) of this section and must extend for a period of at least six 
consecutive calendar months. However, in no event may the base period 
begin prior to September 26, 1996 (the date of enactment of the Mental 
Health Parity Act (Pub. L. 104-204, 110 Stat. 2944)).
    (v) Rating pools. For plans that are combined in a pool for rating 
purposes, the calculation under this paragraph (f)(2) for each plan in 
the pool for the base period is based on the incurred expenditures of 
the pool, whether or not

[[Page 404]]

all the plans in the pool have participated in the pool for the entire 
base period. (However, only the plans that have complied with paragraph 
(b)(1)(i) of this section for at least six months as a member of the 
pool satisfy the requirements of this paragraph (f)(2).) Otherwise, the 
calculation under this paragraph (f)(2) for each plan is calculated by 
the plan administrator based on the incurred expenditures of the plan.
    (vi) Examples. The rules of this paragraph (f)(2) are illustrated by 
the following examples:

    Example 1. (i) A group health plan has a plan year that is the 
calendar year. The plan satisfies the requirements of paragraph 
(b)(1)(i) of this section as of January 1, 1998. On September 15, 1998, 
the plan determines that $1,000,000 in claims have been incurred during 
the period between January 1, 1998 and June 30, 1998 and reported by 
August 30, 1998. The plan also determines that $100,000 in 
administrative costs have been incurred for all benefits under the group 
health plan, including mental health benefits. Thus, the plan determines 
that its incurred expenditures for the base period are $1,100,000. The 
plan also determines that the claims incurred during the base period 
that would have been denied under the terms of the plan absent plan 
amendments required to comply with this section are $40,000 and that 
administrative expenses attributable to complying with the requirements 
of this section are $10,000. Thus, the total amount of expenditures for 
the base period had the plan not been amended to comply with the 
requirements of paragraph (b)(1)(i) of this section are $1,050,000 
($1,100,000 - ($40,000 + $10,000) = $1,050,000).
    (ii) In this Example 1, the plan satisfies the requirements of this 
paragraph (f)(2) because the application of this section results in an 
increased cost of at least one percent under the terms of the plan 
($1,100,000/$1,050,000 = 1.04762).
    Example 2. (i) A health insurance issuer sells a group health 
insurance policy that is rated on a pooled basis and is sold to 30 group 
health plans. One of the group health plans inquires whether it 
qualifies for the one-percent increased cost exemption. The issuer 
performs the calculation for the pool as a whole and determines that the 
application of this section results in an increased cost of 0.500 
percent (for a ratio under this paragraph (f)(2) of 1.00500) for the 
pool. The issuer informs the requesting plan and the other plans in the 
pool of the calculation.
    (ii) In this Example 2, none of the plans satisfy the requirements 
of this paragraph (f)(2) and a plan that purchases a policy not 
complying with the requirements of paragraph (b)(1)(i) of this section 
violates the requirements of this section.
    Example 3. (i) A partially insured plan is collecting the 
information to determine whether it qualifies for the exemption. The 
plan administrator determines the incurred expenses for the base period 
for the self-funded portion of the plan to be $2,000,000 and the 
administrative expenses for the base period for the self-funded portion 
to be $200,000. For the insured portion of the plan, the plan 
administrator requests data from the insurer. For the insured portion of 
the plan, the plan's own incurred expenses for the base period are 
$1,000,000 and the administrative expenses for the base period are 
$100,000. The plan administrator determines that under the self-funded 
portion of the plan, the claims incurred for the base period that would 
have been denied under the terms of the plan absent the amendment are $0 
because the self-funded portion does not cover mental health benefits 
and the plan's administrative costs attributable to complying with the 
requirements of this section are $1,000. The issuer determines that 
under the insured portion of the plan, the claims incurred for the base 
period that would have been denied under the terms of the plan absent 
the amendment are $25,000 and the administrative costs attributable to 
complying with the requirements of this section are $1,000. Thus, the 
total incurred expenditures for the plan for the base period are 
$3,300,000 ($2,000,000 + $200,000 + $1,000,000 + $100,000 = $3,300,000) 
and the total amount of expenditures for the base period had the plan 
not been amended to comply with the requirements of paragraph (b)(1)(i) 
of this section are $3,273,000 ($3,300,000-($0 + $1,000 + $25,000 + 
$1,000) = $3,273,000).
    (ii) In this Example 3, the plan does not satisfy the requirements 
of this paragraph (f)(2) because the application of this section does 
not result in an increased cost of at least one percent under the terms 
of the plan ($3,300,000/$3,273,000 = 1.00825).

    (3) Notice of exemption--(i) Participants and beneficiaries--(A) In 
general. A group health plan must notify participants and beneficiaries 
of the plan's decision to claim the one-percent increased cost 
exemption. The notice must include the following information:
    (1) A statement that the plan is exempt from the requirements of 
this section and a description of the basis for the exemption;
    (2) The name and telephone number of the individual to contact for 
further information;

[[Page 405]]

    (3) The plan name and plan number (PN);
    (4) The plan administrator's name, address, and telephone number;
    (5) For single-employer plans, the plan sponsor's name, address, and 
telephone number (if different from paragraph (f)(3)(i)(A)(3) of this 
section) and the plan sponsor's employer identification number (EIN);
    (6) The effective date of the exemption;
    (7) The ability of participants and beneficiaries to contact the 
plan administrator to see how benefits may be affected as a result of 
the plan's claim of the exemption; and
    (8) The availability, upon request and free of charge, of a summary 
of the information required under paragraph (f)(4) of this section.
    (B) Use of summary of material reductions in covered services or 
benefits. A plan may satisfy the requirements of paragraph (f)(3)(i)(A) 
of this section by providing participants and beneficiaries (in 
accordance with paragraph (f)(3)(i)(C) of this section) with a summary 
of material reductions in covered services or benefits required under 29 
CFR 2520.104b-3(d) that also includes the information of this paragraph 
(f)(3)(i). However, in all cases, the exemption is not effective until 
30 days after notice has been sent.
    (C) Delivery. The notice described in this paragraph (f)(3)(i) is 
required to be provided to all participants and beneficiaries. The 
notice may be furnished by any method of delivery that satisfies the 
requirements of section 104(b)(1) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1024(b)(1)) (e.g., first-class mail). If 
the notice is provided to the participant at the participant's last 
known address, then the requirements of this paragraph (f)(3)(i) are 
satisfied with respect to the participant and all beneficiaries residing 
at that address. If a beneficiary's last known address is different from 
the participant's last known address, a separate notice is required to 
be provided to the beneficiary at the beneficiary's last known address.
    (D) Example. The rules of this paragraph (f)(3)(i) are illustrated 
by the following example:

    Example. (i) A group health plan has a plan year that is the 
calendar year and has an open enrollment period every November 1 through 
November 30. The plan determines on September 15 that it satisfies the 
requirements of paragraph (f)(2) of this section. As part of its open 
enrollment materials, the plan mails, on October 15, to all participants 
and beneficiaries a notice satisfying the requirements of this paragraph 
(f)(3)(i).
    (ii) In this Example, the plan has sent the notice in a manner that 
complies with this paragraph (f)(3)(i).

    (ii) Federal agencies. A group health plan that is a church plan (as 
defined in section 414(e)) claiming the exemption of this paragraph (f) 
for any benefit package must provide notice in accordance with the 
requirement of this paragraph (f)(3)(ii). This requirement is satisfied 
if the plan sends a copy, to the address designated by the Secretary in 
generally applicable guidance, of the notice described in paragraph 
(f)(3)(i) of this section identifying the benefit package to which the 
exemption applies. For any other group health plan, see 29 CFR 
2590.712(f)(3)(ii)(B).
    (4) Availability of documentation. The plan must make available to 
participants and beneficiaries (or their representatives), on request 
and at no charge, a summary of the information on which the exemption 
was based. An individual who is not a participant or beneficiary and who 
presents a notice described in paragraph (f)(3)(i) of this section is 
considered to be a representative. A representative may request the 
summary of information by providing the plan a copy of the notice 
provided to the participant under paragraph (f)(3)(i) of this section 
with any individually identifiable information redacted. The summary of 
information must include the incurred expenditures, the base period, the 
dollar amount of claims incurred during the base period that would have 
been denied under the terms of the plan absent amendments required to 
comply with paragraph (b)(1)(i) of this section, the administrative 
costs related to those claims, and other administrative costs 
attributable to complying with the requirements of this section. In no 
event should the summary of information include any individually 
identifiable information.

[[Page 406]]

    (g) Special rules for group health insurance coverage--(1) Sale of 
nonparity policies. See 29 CFR 2590.712(g)(1) and 45 CFR 146.136(g)(1) 
for rules limiting the right of an issuer to sell a policy without 
parity (as described in 29 CFR 2590.712(b) and 45 CFR 146.136(b)) to a 
plan that meets the requirements of 29 CFR 2590.712 (e) or (f) and 45 
CFR 146.136 (e) or (f)).
    (2) Duration of exemption. After a plan meets the requirements of 
paragraph (f) of this section, the plan may change issuers without 
having to meet the requirements of paragraph (f) of this section again 
before September 30, 2001.
    (h) Effective dates--(1) In general. The requirements of this 
section are applicable for plan years beginning on or after January 1, 
1998.
    (2) Limitation on actions. (i) Except as provided in paragraph 
(h)(3) of this section, no enforcement action is to be taken by the 
Secretary against a group health plan that has sought to comply in good 
faith with the requirements of section 9812, with respect to a violation 
that occurs before the earlier of--
    (A) The first day of the first plan year beginning on or after April 
1, 1998; or
    (B) January 1, 1999.
    (ii) Compliance with the requirements of this section is deemed to 
be good faith compliance with the requirements of section 9812.
    (iii) The rules of this paragraph (h)(2) are illustrated by the 
following examples:

    Example 1. (i) A group health plan has a plan year that is the 
calendar year. The plan complies with section 9812 in good faith using 
assumptions inconsistent with paragraph (b)(6) of this section relating 
to weighted averages for categories of benefits.
    (ii) In this Example 1, no enforcement action may be taken against 
the plan with respect to a violation resulting solely from those 
assumptions and occurring before January 1, 1999.
    Example 2. (i) A group health plan has a plan year that is the 
calendar year. For the entire 1998 plan year, the plan applies a 
$1,000,000 annual limit on medical/surgical benefits and a $100,000 
annual limit on mental health benefits.
    (ii) In this Example 2, the plan has not sought to comply with the 
requirements of section 9812 in good faith, and this paragraph (h)(2) 
does not apply.

    (3) Transition period for increased cost exemption--(i) In general. 
No enforcement action will be taken against a group health plan that is 
subject to the requirements of this section based on a violation of this 
section that occurs before April 1, 1998 solely because the plan claims 
the increased cost exemption under section 9812(c)(2) based on 
assumptions inconsistent with the rules under paragraph (f) of this 
section, provided that a plan amendment that complies with the 
requirements of paragraph (b)(1)(i) of this section is adopted and 
effective no later than March 31, 1998 and the plan complies with the 
notice requirements in paragraph (h)(3)(ii) of this section.
    (ii) Notice of plan's use of transition period. (A) A group health 
plan satisfies the requirements of this paragraph (h)(3)(ii) only if the 
plan provides notice to the applicable federal agency and posts the 
notice at the location(s) where documents must be made available for 
examination by participants and beneficiaries under section 104(b)(2) of 
the Employee Retirement Income Security Act of 1974, and the regulations 
thereunder (29 CFR 2520.104b-1(b)(3)). The notice must indicate the 
plan's decision to use the transition period in paragraph (h)(3)(i) of 
this section by 30 days after the first day of the plan year beginning 
on or after January 1, 1998, but in no event later than March 31, 1998. 
For a group health plan that is a church plan (as defined in section 
414(e)), the applicable federal agency is the Department of the 
Treasury. For a group health plan that is not a church plan, see 29 CFR 
2590.712(h)(3)(ii). The notice must include--
    (1) The name of the plan and the plan number (PN);
    (2) The name, address, and telephone number of the plan 
administrator;
    (3) For single-employer plans, the name, address, and telephone 
number of the plan sponsor (if different from the plan administrator) 
and the plan sponsor's employer identification number (EIN);
    (4) The name and telephone number of the individual to contact for 
further information; and
    (5) The signature of the plan administrator and the date of the 
signature.

[[Page 407]]

    (B) The notice must be provided at no charge to participants or 
their representative within 15 days after receipt of a written or oral 
request for such notification, but in no event before the notice has 
been sent to the applicable federal agency.
    (i) Sunset. This section does not apply to benefits for services 
furnished on or after September 30, 2001.

[T.D. 8741, 62 FR 66953, Dec. 22, 1997]