On June 19, 2020, the IRS published proposed regulations relating to the deduction of qualified transportation fringe (QTF) and commuting expenses. As background, the 2017 Tax Cuts and Jobs Act (TCJA) disallowed deductions for QTF expenses and deductions for certain expenses of transportation and commuting between an employee’s residence and place of employment (effective for amounts paid or incurred after December 31, 2017). (Importantly, QTFs, up to indexed monthly limits ($270 for 2020), are still excludable from employees’ income.) The TCJA also provided that a tax exempt organization’s unrelated business taxable income (UBTI) is increased by the amount of the QTF fringe expense that is non-deductible (for amounts paid or incurred after December 31, 2017).
Then, on December 20, 2019, Congress enacted the Further Consolidated Appropriations Act of 2020 (FCAA), which retroactively repeals those provisions of the 2017 TCJA back to the original TCJA enactment date. These proposed regulations address this retroactive elimination of the deduction for expenses relating to QTFs provided to employees, building off interim guidance published in 2018. Relevant topics are addressed below.
As with the interim guidance, the proposed regulations distinguish between qualified parking purchased from a third party and parking provided at an employer-owned or leased parking facility. When through a third party, the disallowed amount is generally the annual qualified parking cost paid to the third party. However, when through an employer-owned/leased facility, the disallowed amount may be determined using a general rule or via any of three simplified methods. Employers may choose the applicable method each year and for each parking facility.
Under the general rule, the employer calculates the disallowed deduction for each employee receiving qualified parking, using a reasonable interpretation of the statute. To be reasonable, the interpretation must: 1) be based on the expense paid/incurred, not on the benefit’s value to employees; 2) disallow deductions for reserved employee spaces; and 3) properly apply the exception for parking made available to the general public.
There are actually three simplified methods. The first is the “primary use” method, which requires the employer to calculate the disallowance for reserved employee spaces, determine if the exception for general public parking applies (and if not, calculate an allowance for reserved non-employee spaces), and allocate the remaining expense as nondeductible to the extent employees use them during peak demand period. The second is the “cost per space method” (multiplying the cost per space of the employer’s parking by the total number of spaces used by employees during peak demand). The third is the “qualified parking limit” method (multiplying the qualified parking exclusion limit by the total number of spaces used by employees during peak demand or the total number of employees).
Vanpooling and Transit Expenses as QTFs
The proposed rules also address vanpooling and transit expenses. Similar to qualified parking, where an employer pays a third party for qualified vanpooling or transit fringe benefits, the nondeductible amount is generally the amount paid. Conversely, if the employer provides these benefits in kind, the disallowed deduction must be calculated based on a reasonable interpretation of the statute (rather than on the value of the benefit to the employee).
Like so many rules, there are exceptions in certain circumstances that would preserve all or a portion of an employer’s deduction for QTFs. An employer’s deduction generally will not be disallowed to the extent the expenses are treated as taxable compensation for withholding and other purposes because they exceed the exclusion for QTFs. Also, expenses may be deductible if they are for transportation or parking made available to the general public. This exception does not apply to reserved employee parking, and is limited if the “primary use” of the parking (more than 50%) is not by the general public. Lastly, expenses may be deductible if the vanpooling, transit pass or parking is sold to customers (including employees) in a bona fide transaction for full consideration. Notably, this exception does not apply to benefits purchased under a compensation reduction agreement.
Tax-Exempt Organizations and UBTI
The TCJA also added a provision (Section 512(a)(7)) stating that a tax-exempt organization’s UBTI is increased by the amount of the QTF expense for which a deduction is not allowable under Sec. 274, effective for amounts paid or incurred after December 31, 2017. In December 2017, though, that TCJA provision was repealed, retroactive to the original date of enactment of the TCJA. Although Sec. 512(a)(7) was retroactively repealed, Sec. 274 and the proposed regulations still apply to a tax-exempt organization to the extent that the amount of the QTF expenses paid or incurred by an exempt organization is directly connected with an unrelated trade or business conducted by the exempt organization. In that case, the amount of the QTF expenses directly connected with the unrelated trade or business is subject to the disallowance, and thus disallowed as a deduction in calculating the UBTI attributable to that unrelated trade or business. Tax-exempt employers with questions on QTFs and UBTI should work with outside counsel.
Employers should be aware of the proposed regulations, and should work with their accounting team and/or outside tax counsel to determine appropriate next steps. Despite their complicated nature, the proposed regulations provide greater clarity on various QTF issues, and employers may find potentially meaningful opportunities to simplify the calculation of nondeductible expenses, which could result in cost savings. Comments on the proposed regulations are due by August 22, 2020, and we anticipate the regulations will be finalized soon thereafter.
On June 23, 2020, FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief and Economic Security Act Implementation Part 43 was issued by the DOL, HHS and Treasury providing clarification on certain topics related to the FFCRA and CARES Act and their impact on benefits administration. Highlights include:
The above list is not exhaustive; see the FAQs for additional clarifications and guidance. Employers should be aware of this guidance and be sure they are administering benefits accordingly.
On June 26, 2020, the DOL issued Field Assistance Bulletin No. 2020-04 for its investigators. The bulletin provides guidance for those investigators looking into cases in which an employer allegedly improperly denies an employee FFCRA leave when summer camps, summer enrichment programs or other summer programs are closed. It reiterates previous guidance regarding summer camps and FFCRA leave and adds a discussion of what investigators should look at when determining whether an employer appropriately denied FFCRA leave to an employee seeking it because a summer camp was unavailable for the child.
FFCRA provides up to 80 hours of emergency paid sick leave, and up to twelve weeks of expanded family and medical leave (10 of which may be paid), if an employee is unable to work or telework due to a need to care for their child because that child’s “place of care” is closed due to COVID-19 related reasons. In order to obtain this leave, the requesting employee must provide their employer with information to support this need for leave. This information includes an explanation of the reason for the leave, a statement that the employee cannot work due to that reason, the name of the affected child, the name of the place of care, and a statement that no other suitable person is available to care for the child.
The question is whether summer camps, summer enrichment programs and other summer programs count as places of care for this purpose. The bulletin focuses on whether a particular summer camp or program would have served as a place of care had it not closed for COVID-19 related reasons. Evidence of the employee’s intent to use the camp or program for this purpose should be considered. The bulletin suggests that the matter seems clear enough that summer camps or programs are places of care for this purpose when the employee actually enrolled their child in the camp or program before the camp opted to close due to COVID-19.
However, there are cases where the employee had not enrolled their child in the camp or program. The bulletin applies a preponderance of the evidence standard, under which it must appear that the employee would have more likely than not enrolled their child in the camp in question, when evaluating those cases. Steps taken by the employee short of actual enrollment may indicate that intent, such as paying a deposit, prior attendance in the camp or program or submitting an application to enroll. A mere statement of intent is likely not enough. Similarly, a camp or program that is available for 12-year-old children would not be appropriate for the 13-year-old child of an employee, so such a camp or program would not qualify as a place of care for that child.
Although the bulletin is intended for DOL investigators, it could be helpful for employers to keep this in mind when evaluating an employee request for FFCRA leave for this reason.
On June 23, 2020, the IRS announced in a press release that it will extend the deadline for tax filings for persons and businesses affected by tornados, storms and floods in parts of Mississippi, Tennessee and South Carolina. As of the date of the press release, this relief is extended to people living in the following counties: Clarke, Covington, Grenada, Jasper, Jefferson Davis, Jones, Lawrence, Panola and Walthall counties in Mississippi; Bradley and Hamilton counties in Tennessee; and Aiken, Barnwell, Berkeley, Colleton, Hampton, Marlboro, Oconee, Orangeburg and Pickens counties in South Carolina. This relief automatically extends to people and businesses in others areas designated by the Federal Emergency Management Agency (FEMA) as qualifying for such assistance. The deadline to file personal and business tax returns, and to pay taxes, will be extended from July 15, 2020, to October 15, 2020.
In addition to the tax deadlines, the extension applies to 2019 IRA contributions, estimated tax payments for the first two quarters of 2020, and the third quarter estimated tax payment normally due on September 15. It also includes the quarterly payroll and excise tax returns normally due on April 30 and July 31.
In addition, penalties on payroll and excise tax deposits due on or after April 12 and before April 27 will be abated as long as the deposits were made by April 27.
This extension will apply to various employee benefit filing requirements. For example, the Form 5500 due date for calendar-year plans could likely be extended. Employers in affected areas should be aware of these deadline extensions, and work with service providers to take advantage of the extension. Other employers should keep an eye on FEMA announcements in the event that their county is included in the list in the future.
The Departments of Labor, Treasury and HHS recently released their semi-annual regulatory agendas. The agencies highlight possible action on several different employee benefit plan issues and are meant to help employers plan sponsors and industry professionals prepare for potential changes in the benefits compliance world. The agendas do not provide a final timeline or publication dates, but they do provide insight into what could be on the horizon for the upcoming year. Here are some highlights from the agendas:
We will continue to follow and report on these rules in Compliance Corner as the departments go through the rulemaking process.
On June 8, 2020, the IRS proposed regulations regarding the tax treatment of amounts paid for certain medical care arrangements, including direct primary care arrangements and healthcare sharing ministries. The proposal would allow individuals who pay for these arrangements to deduct the amounts paid as medical expenses.
As background, on June 24, 2019, President Trump issued Executive Order 13877, “Improving Price and Quality Transparency in American Healthcare to put Patients First.” As part of this transparency effort, the order directed the IRS to propose regulations to treat expenses related to certain medical arrangements as eligible medical expenses under Code Section 213(d). Code Section 213(d) defines medical care broadly to include amounts paid for “the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,” as well as insurance covering such medical care.
The proposed regulations define a direct primary care arrangement as a contract between an individual and one or more primary care physicians who agree to provide medical care for a fixed annual or periodic fee without billing a third party. Although this definition currently encompasses contracts only with medical doctors specializing in family medicine, internal medicine, geriatric medicine or pediatric medicine, comments are requested as to whether to expand the definition to include other professionals such as nurse practitioners and physician assistants.
A healthcare sharing ministry is defined as a nonprofit organization under Code Section 501(c)(3) that is tax exempt under Section 501(a) in which members share medical expenses in accordance with a common set of ethical or religious beliefs without regard to state residency or employment. Such a ministry must have been in existence since December 31, 1999 (to be grandfathered from health reform requirements), and conduct an annual audit by an independent certified public accounting firm.
Upon analysis, the IRS concludes that payments for direct primary care arrangements could qualify as medical care (for example, for an annual exam or specified treatments) or medical insurance (i.e., similar to a premium to cover such exams or treatments) depending upon the structure of the particular arrangement. Regardless of the classification, the expense would qualify as a deductible medical expense under Code Section 213(d). By contrast, payments for membership in a healthcare sharing ministry would only be considered medical insurance as the ministry is not providing the medical care, but instead receiving and paying claims for such care.
Furthermore, the regulations clarify that amounts paid for coverage under certain government-sponsored healthcare programs are treated as amounts paid for medical insurance. These include Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), TRICARE and certain veterans’ insurance programs. Therefore, amounts paid for enrollment fees or premiums under these programs would be eligible for deduction as a medical expense.
Generally, HRAs can reimburse expenses for medical care as defined under Section 213(d). Accordingly, the proposal indicates that an HRA integrated with a traditional group health plan, an individual health insurance coverage or Medicare (i.e., an ICHRA), an excepted benefit HRA, or a qualified small employer health reimbursement arrangement (QSEHRA) could provide reimbursements for direct primary care arrangement or healthcare sharing ministry fees.
With respect to HSAs, eligibility to contribute is conditioned upon an individual being covered by a high deductible health plan (HDHP) and having no other impermissible coverage that would pay medical expenses prior to satisfaction of the statutory HDHP deductible. Certain types of other coverage can be disregarded for this purpose, such as accident, dental, vision and preventive care. Direct primary care arrangements typically provide a variety of services such as physical exams, vaccination, urgent care and laboratory testing and, therefore, would be providing impermissible coverage before the HDHP statutory deductible is met. As a result, an individual covered by a direct primary care arrangement or healthcare sharing ministry would generally be ineligible to contribute to an HSA. However, there may be exceptions for arrangements that provide limited coverage, such as preventive care only.
Additionally, if an employer pays direct primary care arrangement fees, whether directly or through payroll deductions, the payment arrangement would be a group health plan that would disqualify an individual from contributing to an HSA.
Employers should be aware of the proposed regulations, for which the IRS is currently accepting public comments. Although the guidance clarifies that direct primary care fees can qualify as deductible medical care expenses, questions remain as to how employers can incorporate direct primary care arrangements in a compliant health benefits program. Hopefully, these concerns will be addressed in the final regulations, once issued. Please stay tuned to Compliance Corner for further updates.
On June 5, 2020, CMS issued a letter providing COVID-19 guidance related to nonfederal governmental plan sponsors in light of the continued public health emergency. Highlights include:
Sponsors of nonfederal governmental plans should be aware of the letter’s guidance, and note that while some COVID-19 relief is required, some is merely encouraged. For any subsequent guidance related to COVID-19, CMS encourages plan sponsors to monitor the Center for Consumer Information and Insurance Oversight’s website.
The DOL recently took action against two employers who failed to comply with the leave provisions under the Families First Coronavirus Response Act (FFCRA).
The DOL’s Wage and Hour Division (WHD) conducted an investigation of a Miami-Dade County employer. An employee of the employer was instructed by a healthcare provider to quarantine for 14 days due to reasons related to COVID-19. The employer granted the employee only 40 hours of paid leave and required the use of accrued paid leave for the remainder. The local DOL Assistance Center worked with the employer to restore the used paid leave and to pay the employee the remaining time under the Emergency Paid Sick Leave under FFCRA. As a reminder, employees of employers with fewer than 500 employees are eligible for two weeks (up to 80 hours) of emergency paid sick leave for certain reasons related to COVID-19. The employer is then eligible for a tax credit equal to the paid leave provided.
Similarly, the WHD got involved with a second Florida employer who failed to comply with FFCRA’s emergency paid sick leave provisions. The employer failed to provide payment to an eligible employee who was absent from work pursuant to a healthcare provider’s instruction to quarantine for reasons related to COVID-19. The WHD worked with the employer to ensure that the employee received the paid leave benefits to which he was entitled.
The DOL encourages employers to contact them with any questions related to the FFCRA. NFP has a library of resources related to COVID-19 including summaries, archived presentations and frequently asked questions (including those discussing leave provisions under FFCRA).
The DOL’s Employee Benefits Security Administration (EBSA) investigated a Las Vegas, Nevada, employer who failed to forward employee contributions to the carrier providing the employer sponsored employee health insurance plan. The employer continued to deduct the employee contributions from employee paychecks. The employer did not timely forward those contributions to the insurance carrier; nor did the employer make any payment to the carrier. This resulted in a retroactive termination of the group health insurance plan.
As background, ERISA requires private employer plan sponsors, as an ERISA fiduciary, to operate the group health plan in the best interest of participants and beneficiaries. Plan assets, including employee contributions, must be used exclusively to provide plan benefits. The employer cannot profit from the plan.
The US District Court for the District of Nevada approved a default judgement against the employer requiring them to pay $99,807 to former participants and beneficiaries. This amount included outstanding medical claims and the employee contributions. Further, the employer’s former president is permanently barred from serving as a fiduciary to any ERISA health benefits plan.
On June 19, 2020, the DOL proposed changes to its Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) self-compliance tool. As background, MHPAEA requires that the financial requirements and treatment limitations imposed on mental health and substance use disorder benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. The self-compliance tool was created by the DOL to help group health plan sponsors determine whether their group health plan complies with MHPAEA.
The 2020 version of the self-compliance tool mostly adds additional illustrative examples of when a plan is or is not compliant with MHPAEA. It also adds a new section (Section H) and a new appendix (Appendix II). Section H discusses how employers can establish an internal MHPAEA compliance plan and Appendix II provides a tool for comparing plan reimbursement rates to Medicare.
The DOL is requesting public comments on the revisions to the self-compliance tool by July 24, 2020. Ultimately, this tool does not add any new compliance obligations. Instead, it provides assistance in evaluating compliance with MHPAEA’s requirements. Plan sponsors should review the self-compliance tool to ensure their compliance.
On May 20, 2020, the IRS released Revenue Procedure 2020-32, which provides the 2021 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2021 annual HSA contribution limit will increase to $3,600 for individuals with self-only HDHP coverage, up $50 from 2020, and to $7,200 for individuals with anything other than self-only HDHP coverage (family or self + 1, self + child(ren), or self + spouse coverage), up $100 from 2020.
For qualified HDHPs, the 2021 minimum statutory deductibles remain at $1,400 for self-only coverage and $2,800 for individuals with anything other than self-only coverage (the same as for 2020). The 2021 maximum out-of-pocket limits will increase to $7,000 for self-only coverage (up $100 from 2020) and up to $14,000 for anything other than self-only coverage (up $200 from 2020). For reference, out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums. Additionally, the catch-up contribution maximum remains $1,000 for individuals aged 55 years or older (this is a fixed amount not subject to inflation).
The 2020 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with 2021 limits.
On March 31, 2020, the IRS issued information letter Number 2020-0002 that addressed a question concerning whether a dependent care FSA under a Section 125 plan could reimburse an employee for expenses incurred before they became a participant in the plan.
The IRS reminded the employer that expenses incurred before an employee becomes a participant in the plan are not eligible for reimbursement under the plan. The plan can only pay or reimburse for substantiated expenses incurred on or after the date the employee enrolls in the plan.
Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. While the letter does not provide any new guidance, this letter does provide general information that may be helpful to employers with questions on this particular topic.
On May 4, 2020, the DOL and the Department of the Treasury (the Departments) issued guidance providing an extension of various compliance deadlines in its “Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak” final rule. Recognizing the potential difficulties for group health plans attempting to comply with certain notice obligations due to the COVID-19 public health crisis, and in effort to minimize the possibility of individuals losing benefits due to a failure to timely meet requirements, the Departments have extended certain timeframes for group health plans, disability and other welfare plans, and pension plans.
The relief provides that all group health plans, disability and other employee welfare benefit plans, and employee pension plans subject to ERISA or the Code must disregard the period from March 1, 2020, until 60 days after the end of the National Emergency (known as the “Outbreak Period”) for certain deadlines, including:
Notably, with this relief applying to deadlines for individuals to file claims for benefits, this may impact health FSA administration. For example: let’s say that under H Company’s health FSA, participants must submit claims incurred in the 2019 plan year by March 31, 2020 (also called the run-out period). Further, for purposes of this example, let’s say that the national emergency is proclaimed to be over on May 31, 2020. The health FSA participants would have until October 28, 2020, to submit claims (90 days following the end of the outbreak period). Note that this relief does not extend a date in which a claim can be incurred for health FSAs. Rather, it extends the time in which a claim can be submitted for reimbursement. This relief will impact health FSAs or even HRAs with a run-out period ending during the outbreak period, as described in the example. Importantly, this extension does not apply to Dependent Care FSAs.
In addition, there is relief for group health plans in furnishing participant notices. More specifically, plans (and responsible plan fiduciaries) will not be treated as having violated ERISA if they act in good faith and furnish any notices, disclosures or documents that would otherwise have to be furnished during the outbreak period (including those requested in writing by a participant or beneficiary) “as soon as administratively practicable under the circumstances.” Here, it’s important to note that acting in good faith includes sending documents electronically as long as the employer believes employees have effective access to electronic means of communications.
Employers should be aware of these developments and confirm with any vendors and administrators, as applicable, that the specified timelines are being administered in accordance with the DOL’s guidance. For more guidance on application, see the examples provided in the DOL’s final rule.
DOL News Release »
Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak Final Rule »
COVID-19 FAQs for Participants and Beneficiaries »
On April 29, 2020, the DOL’s EBSA issued Disaster Relief Notice 2020-01, which provides certain relief for group health plans, retirement plans, sponsors, fiduciaries, participants and service providers subject to ERISA. Due to the COVID-19 national emergency, parties will have additional time to comply with certain ERISA deadlines occurring on or after March 1, 2020, through the period ending 60 days after the termination of the national emergency. In the case that different regions of the country will have different end dates related to the national emergency, the DOL will issue future related guidance.
In addition to the relief provided separately for deadlines related to COBRA, HIPAA Special Enrollment Rights, claims processing and Form 5500, the new notice provides relief related to:
The guidance is effective immediately upon publication. In general, the DOL expects plans to act reasonably, prudently and in the interest of plan participants and beneficiaries. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits or undue delay in benefits payments in such cases and should attempt to minimize the possibility of individuals losing benefits because of a failure to comply with preestablished timeframes.
On May 7, 2020, the DOL updated questions and answers regarding the novel coronavirus (COVID-19) paid leave under the Families First Coronavirus Response Act (FFCRA). Specifically, the agency added five new questions and answers (#89-93).
As background, the FFCRA includes provisions mandating that employers with fewer than 500 employees provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. The DOL guidance serves to address commonly asked questions with respect to the paid sick leave and expanded family and medical leave requirements.
The newest additions address topics including domestic and temporary work arrangements, leave for childcare reasons and documentation requirements. Question 89 describes the facts and circumstances analysis for determining whether a domestic service worker is an employee (and thus entitled to paid leave) or a contractor. Question 90 explains that a business may be responsible for providing paid leave to a temporary worker hired through a staffing agency, if the business is deemed to be a joint employer of that worker.
Questions 91 through 93 focus upon qualifying reasons for paid leave and the related supporting information. Questions 91 and 92 address, respectively, the employer’s ability to request leave documentation for an employee’s claimed childcare needs or experience of COVID-19 symptoms. Finally, Question 93 explains which circumstances would permit childcare leave to be taken after the school season has ended.
Employers may find this additional guidance helpful in administering the FFCRA leave requirements.
On May 1, 2020, the DOL issued a series of questions and answers regarding COBRA, as well as a new set of model notices. As background, regulations governing COBRA require plan administrators to provide persons who enroll in the plan with an initial notice of their right to elect COBRA when they initially sign up for plan coverage. Plan administrators must also provide those persons who lost coverage after the occurrence of certain events with an election notice that explains their rights to coverage through COBRA and provides them with an opportunity to make that election. The agency updated these model notices.
The revisions to the model notices and the question and answer document focus on the interaction between COBRA and Medicare. They make clear that there are circumstances under which a person who is eligible for both Medicare and COBRA, and who chooses coverage through COBRA, may face penalties when they later enroll in Medicare. They also make clear that when a person is enrolled in both Medicare and COBRA coverage, Medicare is the primary payer and COBRA is the secondary payer.
Although certain deadlines in COBRA administration have been extended in response to the COVID-19 outbreak, the revisions to the COBRA materials do not mention them.
Plan administrators may use the model notices to comply with COBRA notice requirements, and they should familiarize themselves with the information provided in the revisions regarding the interaction between COBRA and Medicare.
On April 28, 2020, the DOL’s EBSA published COVID-19 FAQs for Participants and Beneficiaries, including information relating to both health and retirement plans. The FAQs are primarily addressed to participants and beneficiaries (individuals), but have helpful information for employers and plan sponsors.
On the health side, the FAQs include information and reminders on options for employees who may lose their coverage because the employer terminates its business, the plan or the employee’s employment. FAQ 3 outlines these options, including special enrollment in another group health plan (such as a spouse’s employer’s plan), COBRA, Medicaid, CHIP and special enrollment through the exchange (including loss of coverage due to a family member’s death or when an employer stops its COBRA contributions). The FAQs remind employees of the importance of maintaining and submitting documentation for special enrollment periods, and that the employee may have additional flexibility on the timing of notification during the COVID-19 outbreak period.
There are several FAQs relating to business closures. In situations where an employer or the vendor receiving COBRA or other premium payments is closed, or if the employer did not pay the insurance premium for group coverage, the FAQs direct employees to reach out to their employer, a benefit advisor with EBSA or the state insurance commissioner.
Several FAQs remind employees and retirees that employers are under no federal or state obligation to provide benefits and plans, and that employers can terminate benefits and plans at any time. The FAQs do say that such termination depends on the terms of the plan, that notice should be provided in advance (although some notice requirements have been relaxed), and that some benefits may be protected by contractual promise (pursuant to a collective bargaining or other employment agreement). The FAQs remind employees, though, that they have options once benefit eligibility is lost, including the ability to enroll in COBRA and special enrollment rights in another group health plan, a state health insurance exchange or state programs (Medicaid or CHIP). These FAQs point back to plan documents, SPDs, retiree benefit plans/promises and other employment agreements to determine exact benefit promises and obligations.
On the retirement side, FAQs 13 through 15 remind participants to contact their plan administrator regarding filing retirement plan claims, receiving payments and changing investment decisions, and that employees may have to anticipate delays as companies may be slower in processing claims, payments and investment changes. FAQs 16 and 17 relate to preretirement distributions, stating that employees may be able to take early distributions in certain situations (including adverse impact from COVID-19), but that they should remember that the distribution may be taxable and may impact the employee’s ability to qualify for unemployment compensation. FAQs 18 and 19 relate to timing and payment of distributions (which may be delayed), including a reminder that a retirement plan is not required to give an individual a lump-sum distribution. Other FAQs address the concerns relating to retirement plan distributions for a spouse of a deceased employee and to the consequences of a retirement plan termination (which depend heavily on whether the plan was a defined benefit plan or a defined contribution (e.g., 401(k)) plan.
Although directed at individuals, the FAQs contain helpful reminders for employers as plan sponsors. The FAQs also include references to the recently published rules relating to plan notice deadline extensions, which allow for relaxed deadlines for (among other notices) the COBRA and HIPAA SER notices. Employers should review the FAQs and implement processes and procedures to keep employees informed of plan/benefit and administrative changes during the COVID-19 pandemic.
On May 12, 2020, the IRS issued Notices 2020-29 and 2020-33, which provides guidance for Section 125 plans for calendar year 2020 and related HDHPs, as well as ICHRAs. Together, the two notices relax the rules relating to election changes for health plans offered under a section 125 plan, including health and dependent care FSAs.
Notice 2020-29 provides guidance for HDHPs and increased flexibility for mid-year elections made in calendar year 2020, as well as grace periods for applying unused amounts in health FSAs to medical care expenses incurred through December 31, 2020, and unused amounts in dependent care assistance programs to dependent care expenses incurred through December 31, 2020. Specifically:
This guidance may be applied on or after January 1, 2020, and on or before December 31, 2020, provided that any elections made in accordance with it apply only on a prospective basis.
Notice 2020-33 modifies the permissive carryover rule for health FSAs and clarifies how health plans reimburse premiums by ICHRAs, specifically:
The IRS intends to revise Prop. Treas. Reg. §§ 1.125-1(o) and 1.125-5(c) to reflect the guidance in this Notice 2020-33. Until then, the IRS states that taxpayers may rely upon the guidance provided in the notice.
The DOL has added nine additional questions and answers (Questions 80-88) to their guidance related to leaves taken under the Families First Coronavirus Response Act (FFCRA). Among other things, the new guidance provides clarification on the following issues:
As the DOL and IRS continue to update their FFCRA-related guidance, NFP’s Benefits Compliance Team will provide you with developments in future editions of Compliance Corner, webinars and the Insights from the Experts podcast.
On April 17, 2020, the IRS updated tax credit questions and answers regarding coronavirus (COVID-19) paid leave. Specifically, the agency added a question to address certain leave provided by employers of health care providers or emergency responders.
The Families First Coronavirus Response Act (FFCRA) included provisions mandating employers with less than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. Federal tax credits are available to fund the leave payments.
Employers of health care providers or emergency responders are permitted to exclude these employees from the paid sick leave and expanded family and medical leave requirements. The exclusions could be applied as to leave taken for certain qualifying reasons (e.g., to care for a family member under a quarantine or isolation order), but not other reasons (e.g., to care for employee’s own health upon experiencing symptoms of COVID-19 and seeking a medical diagnosis).
However, if an employer elects to allow a health care provider or emergency responder to take FFCRA paid leave for a specific COVID-19-related reason, it is subject to all other FFCRA requirements with respect to such leave. Accordingly, the new Question #67 clarifies that for a non-excluded employee and reason, the employer providing the paid leave for the health care provider or emergency responder is also entitled to the corresponding tax credit. The employer can claim the credit for the employee’s qualified sick leave wages, the employer’s share of Medicare tax on those wages, and any allocable qualified health plan expenses.
Employers of health care providers and/or emergency responders may find this additional guidance to be helpful.
The IRS recently published Notice 2020-23, which extends the due date for some governmental filings as a result of the COVID-19 pandemic. As background, in March the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due. Notice 2020-23 expands this relief to additional returns, tax payments and other actions. As a result, the previously announced extensions generally now apply to all taxpayers who have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.
For Form 5500, this means that Form 5500 filings that would otherwise be due on or after April 1 and before July 15, 2020, are now due on July 15, 2020. This extension is automatic — plan sponsors do not need to file an extension request, form or other letter. This automatic extension to July 15, 2020, would apply to plan years that ended in September, October or November 2019. Normally, Form 5500 would be due for those plan years on April 30, June 1 (since May 31 is a Sunday) and June 30, 2020, respectively. An extension beyond July 15, 2020, would still be available, although the 2.5 month extension would be measured from the regular due date (not the July 15, 2020, due date).
The automatic extension also applies to Form 5500 deadlines that fall within the relief window due to a previously filed extension. For example, if a plan year ended June 30, 2019, and the employer timely filed a Form 5558 extension extending the due date to April 15, 2020 (from January 30, 2020), then the Form 5500 would be due on July 15, 2020.
Importantly, the extension does not apply for calendar year plans (which is the majority of plans). Thus, the deadline for 2019 Form 5500 filings for calendar year plans is July 31, 2020. Because that due date falls outside the special COVID-19-related extension, the July 31, 2020, filing date is not extended. Those plans may obtain a regular 2.5 month extension by timely filing Form 5558.
NFP Benefits Compliance will continue to monitor the situation in case other extensions are granted relating to COVID-19 or other circumstances.
On April 6, 2020, the DOL published the final rule regarding paid leave under the Families First Coronavirus Response Act (FFCRA). These temporary regulations provide guidance and implement the emergency family and medical leave (under Title 1 of the FMLA) and emergency paid sick leave provided by the FFCRA and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in light of the COVID-19 global pandemic. The final rule is in effect April 2, 2020, through December 31, 2020; however it became operational on April 1, 2020.
In the final rule, the DOL addresses many details around administering emergency paid sick leave (EPSL) and emergency FMLA (EFMLA) due to COVID-19 related reasons. Highlights include provisions:
The final rule also address related employer recordkeeping requirements to document the exemption. As explained, the employer must document the facts and circumstances that meet the criteria described in the regulations to justify such denial. The employer should not send such material or documentation to the DOL, but rather should retain such records for its own files. (Under the FFCRA, an employer is required to maintain such records for at least four years.)
The above highlights are not exhaustive; the final rule provides the formal regulatory basis for the FFCRA Q&A publication the DOL has previously issued. In addition, it should also be noted that on April 10, 2020, the DOL published a correction to the final rule. These revisions are primarily technical corrections (e.g., to correct spelling and to ensure a consistent style throughout the new regulations).
Employers subject to the FFCRA (i.e., private employers with fewer than 500 employees and public employers of all sizes) should follow the guidance in the final rule when providing emergency FMLA or emergency paid sick leave to employees.
See our previous Compliance Corner articles on the CARES Act (March 31) and the FFCRA (March 17) for additional information.
The DOL has published a series of questions and answers related to the FFCRA. The guidance was revised to reflect the clarifications provided in the final rules. Additionally, the DOL frequently revises the information and adds additional questions and answers as it deems necessary.
In the last two weeks, the DOL’s revisions to the Q&A include the following:
On April 11, 2020, the DOL, HHS and the Treasury issued joint guidance on the FFCRA and CARES Act. Specifically, the 14 frequently asked questions provide additional guidance for plans implementing the requirement to provide coverage of COVID-19 testing to participants with no cost sharing.
The guidance includes clarifications of the following:
On April 1, 2020, the IRS released questions and answers regarding the tax credits for coronavirus (COVID-19) paid leave. The guidance was designed to assist small and midsize employers in claiming tax credits for emergency paid sick and family leave wage payments to employees.
As background, the Families First Coronavirus Response Act (FFCRA) includes provisions requiring employers with fewer than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. The provisions are intended to enable employees affected by the pandemic to remain on the employer’s payroll. To offset the financial burden to covered employers, the FFCRA provides for federal tax credits to fund the leave payments.
The credits apply to qualified leave payments made between April 1, 2020, and December 31, 2020. “Per employee” daily and aggregate maximums apply, depending upon the reason for and type of leave.
Specifically, the guidance explains that covered employers are entitled to refundable tax credits for the FFCRA paid leave amounts (termed “qualified leave wages”) in addition to health plan expenses and the employer’s share of Medicare tax allocable to the qualified leave wages. To claim the credit for these amounts, employers are able to retain an equal amount of all federal employment taxes, rather than depositing this sum with the IRS. The federal employment taxes available for retention by employers include federal income taxes withheld from employees, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes with respect to all employees. If the federal employment taxes yet to be deposited are not sufficient to cover the full credit amount to which the employer is entitled, the employer will be able to file a Form 7200 to request an advance payment from the IRS.
Employers claiming the credits must retain records and documentation to support each employee’s leave and the corresponding credit amount. Additionally, the employer should retain copies of the applicable IRS filings, including Form 941, Employer's Quarterly Federal Tax Return, and as applicable, Form 7200, Advance of Employer Credits Due To COVID-19.
Employers may find these questions and answers valuable in determining the amount of the credit for the leave wages and allocable health plan expenses, as well as the process for claiming the credit. The guidance also addresses related special issues, including the taxation and deductibility aspects. These IRS questions and answers are accessible at the below link:
On April 1, 2020, the IRS issued instructions for Form 7200, Advance Payment of Employer Credits Due to COVID-19, which is a new form that employers file in order to receive the refundable tax credits available under the FFCRA and the CARES Act.
As background, the FFCRA provides a tax credit that reimburses employers dollar-for-dollar for certain costs associated with providing employees with required paid sick leave and expanded family and medical leave related to COVID-19, from April 1, 2020, through December 31, 2020. The CARES Act provides a tax credit to refund employers 50 percent of wages paid to employees after March 12, 2020, and before January 1, 2021, while experiencing hardship due to COVID-19.
The IRS encourages employers to utilize the credits by retaining the amount of employment taxes equal to the amount of qualified sick and family leave wages (plus certain related health plan expenses and the employer’s share of the Medicare taxes on the qualified leave wages) and their employee retention credit, rather than depositing these amounts with the IRS. If that amount isn’t enough to cover the cost of qualified sick and family leave wages (plus the qualified health expenses and the employer share of Medicare tax on the qualified leave wages) and the employee retention credit, employers can file Form 7200 to request an advance payment from the IRS.
Employers can file the form for an advance payment of the credits anticipated for a quarter at any time before the end of the month following the quarter in which they paid the qualified wages. If necessary, they can file Form 7200 several times during each quarter. However, Form 7200 should not be filed after Form 941 for the fourth quarter of 2020 is filed, or filed after filing Form 943, 944, or CT-1 for 2020. In addition, the form should not be filed in order to request an advance payment for any anticipated credit for which the employer already reduced its deposits.
Employers should work with their accountant to determine if they are eligible to claim the credits and to file Forms 7200.
On March 27, 2020, Congress enacted and the president signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act is a comprehensive economic stimulus package, which (among many other things) includes loans to small businesses attempting to navigate the COVID-19 pandemic and an expansion of unemployment benefits available through states (backed by federal funding). The CARES Act also has several provisions relating to employee benefits, both on the health side and the retirement side, as well as a few miscellaneous provisions on fringe benefits (student loan repayment).
Health Plans: Telehealth
Expanding on the IRS’s prior notice stating that an HDHP can cover COVID-19-related tests and coverage absent cost-sharing without adversely affecting HSA eligibility, the CARES act permits (but does not require) HDHPs to waive deductibles for all telehealth or remote care services without adversely impacting HSA eligibility. This allows HDHPs to cover telehealth with no cost-sharing, whether or not the telehealth relates to COVID-19, without impacting the plan’s status as an HDHP and without impacting the HSA eligibility of those covered under the HDHP. The CARES Act does not mandate telehealth coverage (although laws in some states have been enacted recently to provide additional telehealth coverage, at least for fully insured plans in those states). This expansion on telehealth is temporary — applying to plan years beginning on or before December 31, 2021.
HSAs/HRAs/FSAs: Over-the-Counter Drugs and Menstrual Products
The CARES Act eliminates the ACA rule that employees/individuals cannot be reimbursed from their HSAs, HRAs and FSAs for over-the-counter (OTC) drugs unless the drug was accompanied by a prescription. Under the CARES Act, effective January 1, 2020, employees/individuals can reimburse themselves from those accounts for non-prescribed OTC drugs. Similarly, menstrual care products (defined to include tampons, pads, liners, cups, sponges or similar products) will be considered qualified medical expenses payable from those accounts.
Health Plans: Expansion of COVID-19 Tests Covered Under the FFCRA
The CARES Act amends the recently enacted Families First Coronavirus Response Act (FFCRA) by expanding the types of COVID-19 tests that group health plans/carriers must cover without cost sharing, prior authorization, and other medical management requirements. Specifically, the new tests that must be covered without such restrictions include tests for which the developer has requested “emergency use authorization” under the Federal Food, Drugs, and Cosmetics Act, and tests authorized and used by a state to diagnose patients.
Health Plans: Coverage of Qualifying COVID-19 Preventive Services and Vaccines
The CARES Act also directs the relevant agencies (HHS, DOL and Treasury) to require health plans/carriers to cover any COVID-19 preventive services without cost sharing. That would include vaccines and immunizations, or any other item or service, that are determined by the CDC or the U.S. Preventive Services Task Force to prevent or mitigate COVID-19. This is a preemptive move to ensure that any immunizations and vaccines that are developed will be covered by the group health plan without any participant cost sharing.
Health Plans: Transparency in COVID-19 Test Pricing
The CARES Act attempts to address transparency in pricing by generally requiring providers to publicize the prices of COVID-19 tests. Group health plans and carriers, which are required to pay for the tests under the Families First Coronavirus Response Act (FFCRA), are required to reimburse the provider in accordance with the negotiated rate that it had with the provider before the COVID-19 public health emergency. If there is no negotiated rate, then it will be the publicized cash price. This relates more to the carrier and the provider, but employers may be interested in understanding the pricing of the COVID-19 tests, and how that will be handled.
Fringe Benefits: Student Loan Repayment
The CARES Act adds “eligible student loan repayments” to the list of items that can be reimbursed under an educational assistance program under IRC Section 127. “Eligible student loan repayments” are payments made by the employer, whether paid to the employee or a lender, of principle or interest on any qualified higher education loan (including undergraduate and graduate school) for the education of the employee (but not of a spouse, domestic partner or other dependent).
Student loan repayments are limited to $5,250 (and are combined with other educational assistance provided under the Section 127 program sponsored by the employer — an employer cannot provide student loan repayment and other educational assistance in a combined amount over $5,250). Prior to the CARES Act, Section 127 applied only to educational assistance programs (current employee education, not student loans previously incurred). Also, employees may not double dip on tax benefits — an employee may not deduct student loan repayment amounts that are reimbursed or paid by the employer. This provision is temporary, as it’s effective for payments made after March 27, 2020, and before January 1, 2021. Employers interested in this provision will need to adopt or amend a Section 127 plan document.
Retirement Plans: Increased Hardship Distributions Available
The CARES Act allows “qualified individuals” to take hardship distributions of up to $100,000 from their retirement plan or IRA, without being assessed the 10% early withdrawal penalty tax. They can also pay the tax on this income over a three-year period. For these purposes, plan participants are “qualified individuals” if they:
Retirement Plans: Plan Loan Changes
The CARES Act increases the amount that “qualified individuals” may request in plan loans to twice the amount of what is normally allowed, meaning participants can request loans for the lesser of $100,000 or 100% of their vested balance in the plan. (Here, qualified individuals has the same meaning as was described for hardship distributions.) Additionally, participants who currently have loans with repayments due between March 27, 2020, and December 31, 2020, may delay their repayment for up to a year without defaulting.
Retirement Plans: Required Minimum Distributions Temporarily Waived
The CARES Act waives the required minimum distribution (RMD) rules for the 2020 calendar year. As background, individuals must generally begin to take RMDs from their defined contribution plan or IRA when they turn 72. This provision allows participants to keep funds in their retirement account.
Retirement Plans: Plan Administration Changes
The CARES Act allows plan sponsors to adopt these changes immediately, as long as they amend the plan on or before the last day of the first plan year beginning on or after January 1, 2022. The Act also allows the DOL to potentially postpone certain deadlines under ERISA. This could allow the DOL to postpone certain obligations such as the annual Form 5500 filing requirement.
Small Business Loans and Health Insurance Premiums
NOTE: A full analysis of small business loans is beyond our scope; but employers may be interested in understanding how health insurance premiums might be addressed through small business loans.
The CARES Act includes a small business loan program (with loan forgiveness under certain circumstances) which specifically allows employers to use loan amounts for payroll support, including employee salaries (up to $100,000); paid sick or medical leave; insurance premiums; and mortgage, rent and utility payments. Although qualifications, loan forgiveness, and other details of the loan program are beyond the benefits compliance scope, employers may be interested (and should consult outside counsel) in better understanding the loan provisions, as loans could be a source for health insurance-related premium payments during a furlough.
Unemployment Expansion: Potential Impact on Furloughed Employees
NOTE: A full analysis of unemployment benefits is beyond our scope; but employers may be interested in understanding how a furlough may impact employees with respect to unemployment benefits.
The CARES Act creates a temporary Pandemic Unemployment Assistance program (through December 31, 2020), which is intended to provide unemployment benefits to those that have not traditionally been eligible (including furloughed employees). The Act expands benefits from 26 weeks (in most states) to 39 weeks, increases the state benefit level by $600 for up to four months, and waives the usual one-week waiting period for unemployment benefits.
Individuals are not eligible for these expanded benefits if they have the ability to telework with pay or are receiving paid sick leave (including that provided under the recently enacted FFCRA) or other paid leave benefits (under a state law or through the employer’s PTO/leave policy). An individual can qualify for the expanded benefits if they are unemployed or partially unemployed and if one or more of the following is true:
The CARES Act provides flexibility for plan sponsors to assist their employees during this pandemic. We will continue to monitor any developments in the law, including agency guidance. Employers should consult with their advisor about any changes that they wish to make to their plan as a result of the law.
On Wednesday, March 18, 2020, the president signed HR 6201, the Families First Coronavirus Response Act (FFCRA), into law. The law contains several different provisions (also called Acts) that significantly impact employer benefits and leave policies.
In short, the FFCRA: 1) Extends and expands FMLA protections in certain situations; 2) provides a new paid sick leave entitlement for work absences related to the coronavirus (COVID-19); 3) provides tax credits for employers to help address related employer costs of these benefits; and 4) requires group health plans to cover COVID-19 related tests, services and other items without cost sharing. Generally, the first three provisions apply to employers with fewer than 500 employees. They take effect April 1, 2020, and will be in effect through 2020. The fourth applies to any group health plan, takes effect immediately, and will expire when HHS determines that the public health emergency has expired. Importantly, the paid sick leave and expansions to FMLA do not apply to employers with 500 or more employees.
Since the FFCRA passed, the DOL and IRS have provided additional guidance to clarify and answer questions about the Act. Below is a discussion of the FFCRA provisions and the subsequent guidance provided by the federal government.
The Emergency Family and Medical Leave Expansion Act:
This provision modifies the FMLA by expanding the circumstances under which an employee is entitled to take leave. Specifically, employees can take FMLA-protected leave if they have a “qualifying need,” which means the employee is unable to work or telework due to a need to care for their child (under age 18) if the child’s school or daycare has closed because of a public health emergency (defined as a COVID-19 emergency declared by a federal, state or local authority).
The first 10 days of this expanded FMLA leave is unpaid, although the employee may utilize accrued vacation, PTO or sick leave during that time (in accordance with the employer’s leave policy). During the first 10 days, the employee may also qualify for paid leave under the Emergency Paid Sick Leave Act (discussed below), in certain circumstances. For each day of FMLA leave taken thereafter, employers are obligated to pay employees at the rate of two-thirds of the employee’s regular pay rate. The amount of paid leave is capped at $200 per day and $10,000 in the aggregate.
Importantly, all employers with fewer than 500 employees must comply with the expanded leave entitlements (a change to the 50-employee threshold that currently applies under FMLA). That said, the law gives the DOL authority to exempt employers with fewer than 50 employees if the paid FMLA provisions would jeopardize the viability of the business.
To help with the expanded FMLA-related tax burden, employers may claim a tax credit of 100% of qualified FMLA wages paid to employees, capped at $200 per day and $10,000 per quarter per employee.
Emergency Paid Sick Leave Act:
This provision applies to employers with fewer than 500 employees and requires employers to provide up to 80 hours of paid sick time to individuals who are:
This provision applies to all employees (regardless of how long they’ve been employed). Full-time employees may use up to 80 hours of sick time, while part-time employees may use proportionally less time, based on the average number of hours the employee works over a two-week period. An employee may not carry this sick time over into the next year, nor is an employee entitled to payment of unused sick time upon separation from employment. Emergency paid sick leave does not diminish the rights and benefits to which an employee is entitled under state or local law (such as a state sick leave or paid family and medical leave law), a collective bargaining agreement, or an existing employer leave policy.
During sick leave relating to an employee’s own condition, employers are obligated to pay employees the higher of their regular rate of pay or the applicable minimum wage. That amount is capped at $511 per day and $5,110 in the aggregate. For sick leave taken to care for a family member, the rate of pay is reduced to two-thirds of the employee’s regular rate of pay. That amount is capped at $200 per day and $2,000 in the aggregate.
To help employers shoulder the financial burden, employers can claim a tax credit equal to 100% of qualified sick leave wages paid to employees. These credits, however, are limited to $200 or $511 per day, depending on the qualifying leave event. Employers can claim a full credit for employees earning up to $132,860 in income and a partial credit for higher earners.
Employers must post a notice relating to the Emergency Paid Sick Leave Act in their workplace.
Mandated COVID-19 Coverage for Employer-Sponsored Group Health Plans:
Under this provision, group health plans of any size (insured and self-insured, including grandfathered plans) and health insurers in the group and individual market are required to cover COVID-19 tests and related services without cost sharing or prior authorization requirements. Excepted benefits and retiree-only plans are exempt. (Separately, most states have published guidance that requires COVID-19 coverage without cost sharing as well, which would apply to fully insured plans in each state.) Employers should work with their carriers and plan administrators to ensure COVID-19 coverage is provided.
The tests and services include in vitro diagnostic tests (cleared by the FDA) and items and services furnished during an in-office visit, urgent care visit or emergency room visit that result in an order for an in vitro diagnostic test. Thus, an individual visiting an ER who is given several lab tests, an MRI and a chest x-ray may be swept into this “no cost” requirement as there is no qualifier that the other items and services relate to the relevant evaluation.
Additional Guidance Provided by the DOL and IRS:
As these issues are rapidly developing, NFP Benefits Compliance will continue to monitor developments on this new legislation, including any additional guidance issued by the DOL or other regulatory agency. In the meantime, please reach out to your NFP advisor with any questions.
On March 25, 2020, the IRS released a set of questions and answers on the recently-extended federal income tax filing and payment deadline. The release was designed to assist taxpayers and tax professionals in understanding the scope and impact of the extension.
As background, in Notice 2020-18, the IRS announced special federal income tax return filing and payment relief in response to the ongoing coronavirus (COVID-19) emergency. This relief extended the federal income tax filing deadline from April 15, 2020, to July 15, 2020.
The new guidance explains that any type of taxpayer, such as an individual, a trust, an estate, a corporation, or any type of unincorporated business entity, with a return or payment due on April 15, 2020, is eligible for the relief. (The taxpayer does not need to have been impacted by COVID-19 in any particular way.) Additionally, the relief extends to both 2019 federal income tax payments (including payments of tax on self-employment income) and 2020 estimated federal income tax payments due on April 15, 2020. However, normal filing, payment, and deposit due dates continue to apply to both payroll and excise taxes.
As a result of the extended filing deadline, taxpayers now also have until July 15, 2020, to make 2019 contributions to their HSAs and IRAs. Employers with April 15, 2020, filing deadlines may also have additional time to make 2019 contributions to certain workplace retirement plans.
Employers may find these questions and answers helpful in understanding the details and effects of the available tax relief. The IRS has indicated the material will be updated periodically in this changing environment. These questions and answers are accessible at the below link:
On March 18, 2020, CMS provided a set of FAQs that discusses the coverage of COVID-19 treatment in catastrophic plans. As background, insurers are generally not permitted to modify the health insurance coverage for a product midyear.
The FAQs address two questions:
Employers should consider this guidance as they provide coverage to participants who may be diagnosed with and treated for COVID-19.
Effective March 15, 2020, HHS Secretary Azar issued a waiver of sanctions and penalties against certain entities that do not comply with the following provisions of the HIPAA Privacy Rule:
The waiver only applies: 1) in the emergency area identified in the recent presidential public health emergency declaration regarding the COVID-19 outbreak; 2) to hospitals that have instituted a disaster protocol as a result of that declaration; and 3) for up to 72 hours from the time the hospital implements its disaster protocol.
The bulletin also reminds providers that even without a waiver, the HIPAA Privacy Rule already allows patient information to be shared for several reasons, including: when necessary for the treatment of the patient or another patient; when necessary for public health authorities to carry out their public health mission; to the extent necessary to prevent or lessen a serious and imminent threat; and to a patient’s family, friends, and others as identified by the patient as being involved in the patient’s care. However, the bulletin warns that affirmative reporting to the media or the public about an identifiable patient, or about specific information about the treatment of an identifiable patient, may not be done without the written authorization of the patient or the patient’s personal representative.
The HIPAA Privacy Rule applies to disclosures made by employees, volunteers and other members of a covered entity’s or business associate’s workforce. However, employers should consider this guidance as they provide coverage to participants who may be diagnosed with and treated for COVID-19.
EBSA released a report of its efforts and CMS’ efforts to enforce the MHPAEA during fiscal year 2019. During that year, EBSA investigated and closed 186 health plan investigations, 183 of which involved plans subject to MHPAEA that were reviewed for compliance with the law. These investigations resulted in 12 citations for MHPAEA violations in 9 of those investigations.
As background, MHPAEA requires plans that provide coverage for mental health and substance use disorders to provide them in parity with medical/surgical benefits. The cost sharing and treatment limitations imposed on the mental health and substance use disorders coverage cannot be higher or more restrictive than the limitations imposed on the medical/surgical benefits.
Cases may stem from complaints submitted by participants who believe their mental health or substance use disorder benefits were denied. The agency’s benefits advisors may refer these complaints to investigators where the facts suggest that the problems are systemic and may adversely impact other participants and beneficiaries. In the report, EBSA stated that it investigated alleged violations of annual dollar limits, aggregate lifetime dollar limits, benefit classifications, financial requirements, treatment limitations and cumulative financial requirements. Generally, if violations are found by an EBSA investigator, the investigator requires the plan to remove any noncompliant plan provisions and pay any improperly denied benefits.
Employers should be aware of the EBSA’s efforts to make sure that benefit plans comply with the MHPAEA.
On March 11, 2020, the IRS issued Notice 2020-15, which makes it clear that until further guidance is issued HDHP participants who receive COVID-19 testing or treatment without cost sharing will not lose HSA eligibility.
As background, HDHP participants are ineligible for HSA contributions if they receive first-dollar coverage for any health care that is not a preventive service. The agency recognizes that, under the circumstances, this prohibition could create administrative delays or financial disincentives to offer COVID-19 testing or treatment to HDHP participants.
To avoid those barriers, the IRS’ Notice has the effect of declaring that COVID-19 testing and treatment will not, alone, cause participants to be deemed HSA-ineligible. The notice also confirmed that any COVID-19 vaccination that is formulated will be considered preventive care like other vaccinations. Because of this guidance, employers and group health plans can proceed in offering these benefits to employees without being concerned about the HSA-eligibility of their participants.
Note that this guidance does not modify any other previous guidance regarding HDHP requirements.
On March 9, 2020, the DOL issued guidance on the application of the FMLA during a public health emergency. The release was in the form of questions and answers designed to assist employers with preparing workplaces for the coronavirus crisis.
As background, the FMLA requires covered employers to provide job-protected unpaid leave to employees for specified family and medical reasons. Under the FMLA, employees are entitled to the continuation of group health insurance coverage under the same terms as existed prior to the leave.
The guidance explains that an employee who is sick or whose family members are sick may be entitled to FMLA leave under certain circumstances. Such circumstances may include a viral illness, where complications arise that create a serious health condition. However, FMLA leave does not apply to employees who stay home from work to avoid exposure to a virus or to care for healthy children who have been dismissed from school as a preventive measure.
The release further emphasizes the importance of developing a plan of action for the workplace in the event of a pandemic outbreak, and communicating the plan to employees. Such plan may permit employees showing symptoms of pandemic disease to be sent home, or require certifications that inflicted employees are able to resume work. Any such policy would need to comply with applicable non-discrimination laws. Although paid leave is generally not required by the FMLA or other federal laws, an employer would need to take state and local laws and other obligations (e.g., employment contracts) into account.
Employers may find these questions and answers helpful in addressing various workplace situations and contingencies resulting from the coronavirus pandemic. The complete release is accessible at the below link:
In February 2020, the IRS released an updated version of Publication 5137, Fringe Benefit Guide. This publication was created by the IRS to help determine the correct tax treatment of employee fringe benefits, including using the appropriate withholding and reporting procedures.
As background, in late 2019 the IRS released the 2020 IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits (see our January 22, 2020 Compliance Corner article). Publication 15-B provides an overview of the taxation and exclusion rules applicable to employee benefits such as accident and health benefits, dependent care assistance, HSAs and group term life insurance coverage. (The guide also includes the related valuation, withholding and reporting rules.)
The updated Publication 5137 Fringe Benefit Guide incorporates any changes from the most recent Publication 15-B (as described in our prior Compliance Corner article). Importantly, it is an additional tool for employers and covers topics such as:
Employers should be aware of the availability of the updated publication for guidance when administering fringe benefits.
On February 18, 2020, CMS issued proposed regulations that clarify how and when the agency will calculate and impose civil monetary penalties upon responsible reporting entities (RREs) that fail to report information concerning participants in group health plans who are also entitled to Medicare. RREs are usually insurers or TPAs, and CMS uses this data in order to determine when a group health plan must pay claims before Medicare is required to pay.
The proposed regulations describe what violations will be subject to civil monetary penalties and how CMS will calculate them. Under statute, the penalty for noncompliance with this reporting requirement is $1,000 per day, as adjusted annually. Violations subject to the penalties include the failure to report, inaccurate reporting, and the submission of poor quality data. The proposed regulations would have CMS assess this penalty for every RRE that fails to report required information within one year of the effective coverage date. RREs that report timely, but inaccurate reports will be assessed the penalty for every day the RRE fails to correct the errors. Penalties for these violations will be capped at $365,000. Data that exceeds an error tolerance threshold of 20% will face penalties that will be assessed depending upon the type of reporting entity.
The deadline for submitting comments is April 20, 2020. Although these proposed regulations will not directly affect most employers, employers may be asked to help insurers and TPAs gather the information needed to complete required reporting. Any sponsor of a self-funded, self-administered plan would also need to complete this reporting. Accordingly, employers should be aware of these proposed rules and the potential penalties for failing to report.
On February 6, 2020, HHS issued the proposed annual Notice of Benefit and Payment Parameters Rule for 2021. This Notice is issued annually, and once final adopts certain changes for the next plan year. While the proposed rule primarily impacts the individual market and the Exchange, it also addresses certain ACA provisions and related topics that impact employer-sponsored group health plans. Highlights include:
Once final, employers should review the regulations and implement any changes needed for their 2021 plan year.
On January 21, 2020, the IRS released the updated version of Publication 502 (Medical and Dental Expenses). The publication has been updated for use in preparing taxpayers’ 2019 federal income tax returns.
Publication 502 describes which medical expenses are deductible on taxpayers’ federal income tax returns. For employers, Publication 502 provides valuable guidance on which expenses might qualify as IRC Section 213(d) medical expenses, which is helpful in identifying expenses that may be reimbursed or paid by a health FSA, HRA (or other employer-sponsored group health plan), or an HSA. However, employers should understand that Publication 502 does not include all of the rules for reimbursing expenses under those plans.
The recently released Publication 502 is substantially similar to prior versions. Dollar amounts have been updated where appropriate to account for inflation (e.g. the standard mileage rate for use of an automobile to obtain medical care).
The IRS recently released an information letter that reiterates the election change rules under Section 125 of the IRC, which applies if employees are allowed to pay premiums on a pre-tax basis. The IRS letter responds to an inquiry concerning a DCAP participant who wanted to make an election change due to “a disrupted or unforeseeable childcare environment” that occurred outside of the plan’s open enrollment. Although the letter doesn’t go into any greater detail on the inquiry, the IRS does reiterate the Section 125 rules.
Specifically, they confirm that election changes must be made before the start of the plan year, and participants may not change their election mid-year unless they experience a qualifying event. Additionally, the letter explains that the plan may allow employees to change their election mid-year if the participant experiences a significant change in coverage or a significant increase or decrease in the cost of coverage. However, the plan is not required to do so, and the plan must be operated in accordance with plan terms.
This letter does not provide any new or updated information, but it does serve as a good reminder to employers that they must follow Section 125’s qualifying event rules. They may choose whether to recognize the IRS’ permissible qualifying events, but it’s important that the events they recognize be reflected in the plan document and that the employer not allow for employees to make mid-year changes without experiencing one of the plan’s permissible events.
On December 26, 2019, the IRS released the 2020 IRS Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation and exclusion rules applicable to employee benefits such as accident and health benefits, dependent care assistance, health savings accounts, and group term life insurance coverage. The guide also includes the related valuation, withholding, and reporting rules.
As background, the IRS updates Publication 15-B each year to incorporate any recent administrative, reporting, or regulatory changes. The revisions also include applicable dollar maximums for certain tax-favored benefits for the current year.
The 2020 updates include the introduction of a new Form 1099-NEC for reporting non-employee compensation paid in 2020. Employers reporting non-employee compensation paid in 2019 should continue to use Form 1099-MISC, which is due January 31, 2020.
The business mileage rate for 2020 is 57.5 cents per mile, which can be used to reimburse an employee for business use of a personal vehicle, and under certain conditions, to value the personal use of a vehicle provided to an employee. The 2020 monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. For plan years beginning in 2020, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,750.
Employers should be aware of the availability of the updated publication and most recent modifications.
On January 15, 2020, the DOL published a final rule adjusting civil monetary penalties under ERISA. As background, the annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer-price index-urban (CPI-U) from October of the preceding year. The DOL last adjusted certain penalties under ERISA in January of 2019.
Highlights of the penalties that may be levied against sponsors of ERISA-covered plans include:
These adjusted amounts are effective for penalties assessed after January 15, 2020, for violations that occurred after November 2, 2015. The DOL will continue to adjust the penalties no later than January 15 of each year and will post any changes to penalties on their website.
To avoid the imposition of penalties, employers should ensure ERISA compliance for all benefit plans and stay updated on ERISA’s requirements. For more information on the new penalties, including the complete listing of changed penalties, please consult the final rule below.
On December 31, 2019, the IRS issued Notice 2020-05, which provides the 2020 standard mileage rate for use of an automobile to obtain medical care. The 2020 mileage rate is 17 cents per mile (a 3 cent decrease from the 2019 rate). Mileage costs may be deductible under Code §213 if the mileage is primarily for, and essential to, receiving medical care.
Generally, use of the standard mileage rate is optional, but it can be used instead of calculating variable expenses (e.g., gas and oil) incurred when a car is used to attain medical care. Parking fees and tolls related to use of an automobile for medical expense purposes may be deductible as separate items. However, fixed costs (such as depreciation, lease payments, insurance, and license and registration fees) are not deductible for these purposes and are not reflected in the standard mileage rate for medical care expenses.
In addition, transportation costs that are qualified medical expenses under Code § 213 generally can be reimbursed on a tax-free basis by a health FSA, HRA, or HSA, assuming the plan document allows for it.
On January 3, 2020, the HHS extended the comment period for the proposed “Transparency in Coverage” rule that was published on November 27, 2019. The comment period was originally scheduled to close on January 14, 2020. Due to considerable interest and stakeholder requests for additional time, the comment period will remain open an additional 15 days to January 29, 2020.
As background, the proposed rule imposes new cost-sharing disclosure requirements upon employer sponsored group health plans, including self-insured plans, and health insurance issuers. Further details regarding the proposed rule can be found in the November 26, 2019 edition of Compliance Corner.
Comments are sought on all facets of the proposed rule, including technological aspects. Opinions are also requested as to whether health care provider quality information should be included in the disclosure requirements. Comments can be submitted to HHS electronically, or by regular or express/overnight mail in accordance with the specified instructions. All submissions are made available to the public in their entirety.
Employers should be aware of the proposed rule and comment period extension. Those wishing to submit comments to HHS can do so through January 29, 2020. The submission should not include any personally identifiable information or confidential business information that the employer does not want publicly disclosed.
Please check in with Compliance Corner for further updates on this cost transparency initiative.
The IRS recently released the 2019 Instructions for Form 8994: Employer Credit for Paid Family and Medical Leave. Employers who provide family and medical leave to their employees may complete Form 8994 in order to claim a credit for tax years 2018 and 2019. In order to claim the leave, employers must have a written policy that provides at least two weeks of paid leave to full-time employees (prorated for part-time employees), and the paid leave must be at least 50% of the wages normally paid to the employee.
Family and medical leave, for purposes of this credit, is leave granted by the employer in accordance with written policy for one or more of the following reasons:
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The applicable percentage falls within a range from 12.5% to 25%. In certain cases, an additional limit may apply. An employer can claim credit only for leave taken after the written policy is in place, and the credit is scheduled to expire for tax years beginning after 2019.
Employers seeking to claim this credit should work with their accountants or tax professionals to do so.
On November 26, 2019, the IRS provided an early release draft of the 2020 IRS Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation of fringe benefits and applicable exclusion, valuation, withholding, and reporting rules.
As background, the IRS modifies Publication 15-B each year to reflect any recent legislative and regulatory developments. Additionally, the revised version provides the applicable dollar limits for various benefits for the upcoming year. As standard procedure, the IRS releases a preliminary draft of the updated guide prior to final publication.
Among the changes for 2020 is a new Form 1099-NEC. The Form 1099-NEC will be used to report nonemployee compensation paid in 2020 and will be due on February 1, 2021. However, employers reporting nonemployee compensation paid in 2019 should continue to use Form 1099-MISC, which is due January 31, 2020.
With respect to 2020 annual limits, the monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. For plan years beginning in 2020, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,750.
Employers should be aware of the changes reflected in the early release of the fringe benefits guide. The IRS is accepting comments regarding the proposed publication. Accordingly, employers should also recognize that some changes to the released draft may occur prior to finalization.
The DOL recently released model disclosures in relation to the proposed Transparency in Coverage rule, which was issued on November 15, 2019. (We discussed this rule in the November 26, 2019, edition of Compliance Corner.) These model disclosures are designed to assist employer sponsored group health plans (including self-insured plans) and issuers in meeting the new cost-sharing disclosure requirements.
As explained in our previous article, the proposed rule involves two new approaches to promote greater price transparency in the health care system. First, a plan or issuer would be required to provide an individualized estimate of a participant’s cost sharing responsibility for a covered item or service. Second, these entities would be required to publicly disclose negotiated rates for in-network providers and historical out-of-network allowed amounts in standardized files on their website.
The Transparency in Coverage Model Notice (Appendix 1) is designed to illustrate the first obligation to provide a customized participant cost summary upon request. The proposed format includes sections for key terms and explanations of prerequisites or limitations applicable to the cost-sharing estimate. The model language is designed to be incorporated in a website self-service tool or in paper format. Although use of the model is encouraged, modifications and additions are permissible. However, any changes must be consistent with the proposed rule’s content and plain language requirements.
With respect to the second approach, the Negotiated Rate Machine-Readable File Data Elements (Appendix 2) provides a model for posting in-network provider negotiated rates through a machine readable file on the internet. The proposed data elements to be included on the file include the publishing entity, plan and provider information, and specifics regarding the negotiated rates and covered services. Similarly, the Allowed Amount Machine-Readable File Data Elements (Appendix 3) is intended as an example for the required disclosure of out-of-network allowed amounts. The proposed data elements would include detailed historical information, such as a list of the allowed dollar amount for each unique out-of-network covered item or service during a 90 day period beginning 180 days prior to the file’s publication date.
Employers may want to review these model disclosures in conjunction with the underlying proposed Transparency in Coverage rules. However, it is important to recognize that the rules are not currently in effect. Accordingly, changes may occur (which could also affect the model disclosures) prior to finalization.
On November 15, 2019, the Departments of Health and Human Services (HHS), Treasury, and Labor (the "Departments") released the Transparency in Coverage proposed rule that imposes new cost-sharing disclosure requirements upon employer sponsored group health plans and health insurers. The proposal followed Executive Order 13877, issued on June 24, 2019, which instructed the Departments to determine how health plans, insurers, and providers should make information regarding out-of-pocket health care costs more accessible to consumers.
As background, the Trump administration has focused on promoting greater price transparency in order to provide individuals with necessary cost-sharing data to make informed health care decisions. Under recently issued final rules effective in 2021, hospitals will soon be required to disclose standard charges for products and services, including negotiated rates with insurers. The Transparency in Coverage proposed rule builds upon these regulatory initiatives and is applicable to non-grandfathered group health plans (including self-insured plans) and health insurance issuers. Account-based plans such as health reimbursement arrangements and flexible spending accounts would not be subject to the new requirements.
The proposed rule encompasses two approaches. First, the health plans and issuers would be required to make personalized out-of-pocket cost information for all covered health care items and services available through an online self-service tool and in paper format (upon request). This individualized disclosure is designed to provide participants with estimates of their cost-sharing liability with different providers, allowing them to better understand and compare health care costs prior to receiving care. The format could be similar to an Explanation of Benefits and would include actual negotiated rates, out-of-network allowed amounts, real-time accumulated amounts towards deductibles and out-of-pocket maximums and treatment limitations. Any prerequisites for coverage, such as prior authorization, would also need to be referenced. The rules do not require disclosure of balance billing amounts for out-of-network providers, but provide for a disclaimer to alert participants of a potential balance bill.
Second, these entities would be required to publicly disclose negotiated rates for in-network providers and historical out-of-network allowed amounts in standardized files on their website. These machine-readable files would need to be updated regularly, and are intended to encourage price comparison and innovation.
Additionally, the proposal offers medical loss ratio (MLR) credits to insurers that offer new plans that encourage participants to shop for lower-cost, higher-value providers and share in the resulting savings. According to HHS, this provision was included to ensure that issuers would not be required to pay rebates for innovative plan designs that benefit participants, but are not currently factored into the MLR calculation.
The Departments are seeking public comments regarding all aspects of the proposed rule. They are also formally requesting information on whether to require price and cost-sharing information to be included in a publicly available forum through the use of certain technology that enables software to connect and exchange information. In addition, feedback is sought regarding whether provider quality measurements should be required with the cost-sharing information.
These disclosure obligations are proposed to apply to plan years beginning one year from or following finalization of the rule. However, the MLR provision would be applicable beginning with the 2020 MLR reporting year.
Employers should be aware of the proposed rules and new requirements. They also may want to discuss the potential disclosure obligations with their insurance carriers and/or third party administrators. However, it is important to understand that no immediate changes are necessary because the proposed rule is not currently in effect and may be modified prior to finalization. Additionally, some carriers may challenge the requirement to disclose negotiated rates, which they consider to be confidential information.
On November 18, 2019, several agencies (DOL, IRS, and PBGC) published advance copies of the 2019 Forms 5500, and several related schedules. There are no major changes to the forms or schedules, but there are some modifications that are worth noting:
Importantly, the advance copies are informational only, and they cannot be used to file a 2019 Form 5500 or schedule. The agencies will eventually finalize the forms for actual use; when those forms are finalized, we will announce it in Compliance Corner. So, for now, there is nothing for employers to do other than familiarize themselves with the advance copy forms and changes.
On November 6, 2019, the IRS published Revenue Procedure 2019-44, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), penalties for ACA reporting, the small business tax credit, and other adjustments for tax year 2020. Those changes are outlined below.
Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits, and adoption assistance) will need to determine whether their plan documents automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
On October 17, 2019, the IRS issued a Program Letter outlining its compliance strategies and priorities for fiscal year 2020. Employee benefits-related issues they will focus on include:
While it may be helpful for employers to see the areas where the IRS will focus their enforcement efforts in fiscal year 2020, compliance in all areas related to employer-sponsored plans should always be a priority. If you have any questions related to your plan’s compliance, please contact your advisor for assistance and resources.
On September 30, 2019, the IRS proposed regulations regarding the application of the ACA’s employer shared responsibility provisions (also known as the employer mandate) to HRAs integrated with individual health insurance coverage or Medicare, known as individual coverage HRAs (ICHRAs). The guidance also addressed the application of the self-insured plan (Section 105(h)) non-discrimination rules to ICHRAs. The proposed rules supplement the June 2019 final regulations, which permitted the use of ICHRAs effective January 1, 2020, and subsequent related guidance under IRS Notice 2018-88.
As background, an HRA is an employer-funded, account-based group health plan that allows for payment of employee medical expenses on a tax-advantaged basis (the HRA reimbursements are not included in the employee’s gross income). In order to comply with the ACA mandates applicable to group health plans, such as the prohibition against annual or lifetime limits for essential health benefits and the provision of preventive care without cost sharing, HRAs previously needed to be integrated with an ACA compliant group health plan. This meant that stand-alone HRAs were generally prohibited. However, the June 2019 final rules introduced the ICHRA, which allowed for the integration of HRAs with individual health insurance coverage, provided certain conditions are satisfied.
Applicable large employers (those with 50 or more full-time employees, including full time equivalents) during the preceding calendar year) that sponsor ICHRAs must still satisfy the ACA employer shared responsibility mandates to avoid tax penalties. The penalties can arise if an employee receives a premium tax credit through the ACA marketplace because he or she was not offered employer-sponsored MEC that is of MV and is affordable. To avoid penalties, the employers must offer such coverage to at least 95% of full-time employees and their children until age 26. The IRS has indicated that an employer’s offer of an ICHRA is an offer of MEC. Satisfying the affordability condition is more challenging.
Prior IRS guidance provided that an ICHRA is deemed affordable if the benefit makes the lowest cost individual silver policy in an ACA exchange rating area affordable to an employee who resides there. By definition, the silver plan would cover at least 70% of required costs and thus also meet the minimum value standard. ICHRA coverage is considered affordable if the employee's required monthly contribution (that is, premium cost-HRA benefit) does not exceed 9.78% (for 2020) of the employee's household income. When determining affordability for employer mandate purposes, an employer can use any of the previously established safe harbors (specifically, Form W-2 wages, rate of pay, and federal poverty line), provided that the application is uniform and consistent for any acceptable classification of employees.
However, the previous guidance failed to adequately address the inherent complexities of applying the affordability requirement to a diverse employee group, whose members would be purchasing individual coverage. For example, employees could reside in different rating areas, so premiums for the lowest cost silver plan could vary dramatically. Costs could also differ based upon ages of the employees themselves. Additionally, the premiums for the lowest cost silver plan on the exchange are typically not known until October, which makes it difficult for employers to plan and fund for ICHRAs prior to the start of the plan year.
In an effort to address these concerns, the new proposed regulations provide optional safe harbors and clarification regarding the affordability determination. First, the guidance provides a location safe harbor for ascertaining the lowest cost silver plan. This safe harbor allows an employer to use the ACA rating area for an employee’s primary site of employment instead of the employee’s residence. The primary site of employment is the location where the employer reasonably expects the employee to perform services as of the first day of the ICHRA plan year (or coverage date, if later). For remote workers, the location would be the site from which they actually work, unless they are required to periodically report to the employer’s work site, which would then be considered the employee’s primary site. A permanent change in employee work sites must be taken into account for affordability purposes by the first day of the second month following the employee’s relocation.
Second, the IRS declined to provide an age-based safe harbor. The IRS was concerned that employees older than a set safe harbor age may not find their cost of coverage affordable and receive tax credits on the exchange, although the employer would be deemed to have satisfied the affordability mandate. However, for a particular rating area, an employer is permitted to use the lowest cost silver plan for employees in the lowest age bracket as the base plan for determining affordability. For older employees, the employer could then use the price of that plan for the applicable age bracket to determine affordability (regardless of whether a less expensive silver plan was available for the age group). The guidance also clarifies that for affordability purposes, an employer should use the employee’s age on the first day of the plan year (or his or her date of coverage, if later).
Third, the proposed rules introduce a look-back month safe harbor that allow employers with calendar year ICHRAs to base the monthly cost of the cheapest silver policy for a year on the cost of that policy as of the first day of the previous year. So, an employer offering an ICHRA with a plan year beginning January 1, 2020, could use the exchange rates as of January 1, 2019. Non-calendar year plans could use the rates as of January 1 of the current year.
Fourth, the IRS emphasizes that an employer electing to use any of the optional safe harbors must apply the chosen method uniformly and consistently for all employees in a class. The permitted classes are as specified in the June 2019 final ICHRA rules, which include salaried vs. hourly; full time vs. part time; bargaining unit vs. non-bargaining unit; seasonal vs. regular; and employees in one rating area, state, or region vs. another. The guidance also confirms that employers can report employee required contributions (for Forms 1094-C and 1095-C) based upon the safe harbors and that premiums for affordability purposes do not need to reflect tobacco surcharges or wellness incentives, unless the wellness program incentive relates exclusively to tobacco use, in which case the incentive is treated as earned. Additionally, the proposed rules allow employers to rely upon the accuracy of the premium information made available by the government marketplace.
Finally, the IRS provides clarification regarding the application of the Section 105(h) nondiscrimination rules to ICHRAs. These rules generally apply to self-insured health plans and prohibit discrimination in favor of highly compensated individuals (HCIs), which include the five highest paid officers, more-than-10% shareholders/owners and the highest-paid 25% of all employees. However, if an ICHRA only reimburses insurance premiums (and not other medical expenses), it is treated as an insured plan and not subject to the Section 105(h) rules. The rules propose two nondiscrimination safe harbors. First, the maximum ICHRA contribution can vary within a class of employees if the variation applies under the same terms to all within the class, and between classes if each class is a permitted class under the ICHRA rules. Second, ICHRA designs can vary contributions based upon family size and age (provided the maximum contribution for the oldest participant does not exceed three times the amount for the youngest participant), without the plan automatically being deemed as discriminatory. However, the guidance notes that an ICHRA that is not discriminatory in design could still fail the Section 105(h) test, if HCIs actually benefit disproportionately to non-HCIs.
Employers who are considering adopting ICHRAs should review the new guidance and speak with their benefit consultants. Organizations planning to offer ICHRAs effective January 1, 2020, can use the 2019 exchange rates – as outlined above – for purposes of setting contribution and funding levels.
Some large employers may find the new safe harbors helpful in satisfying the ACA shared responsibility provisions. In particular, the rules provide some simplifications for determining affordability for employees that reside in diverse geographic locations. However, it is unclear if the proposed regulations adequately address the administrative concerns of potential ICHRA plan sponsors.
The IRS has requested comments on the proposed rules by late December. However, employers can generally rely on the guidance in designing ICHRA options for 2020. The proposed rules will remain effective for any plan year that begins at least six months prior to the publication of final rules. Please stay tuned to Compliance Corner for further updates on this topic.
On September 9, 2019, the HHS’s Office for Civil Rights (OCR) announced an enforcement action and settlement resolving an investigation of Bayfront Health St. Petersburg (Bayfront). Bayfront is a Level II trauma and tertiary care center licensed as a 480-bed hospital with over 550 affiliated physicians. As a result of the settlement, Bayfront paid $85,000 to OCR and adopted a corrective action plan to settle a potential violation of the right of access provision of the HIPAA rules.
As background, the OCR began an investigation when a mother filed a complaint alleging that Bayfront provided personal health information relating to her unborn child to her more than nine months after her request. HIPAA generally requires that health care providers provide personal health information relating to the requestor within 30 days of the request. The right of access to these records extends to parents of minor children, such as an unborn child.
In addition to the $85,000 paid pursuant to the settlement, the resolution agreement requires Bayfront to comply with a corrective action plan that requires them to develop, maintain, and revise, as necessary, written access policies and procedures that comply with federal standards that govern the privacy of individually identifiable health information. Those policies must be reviewed by OCR and, upon approval, distributed to Bayfront employees and business associates. Bayfront must also revise its training materials and, subject to approval by OCR, train its employees and business associates on its policies and procedures regarding federal standards that govern the privacy of individually identifiable health information. Bayfront is obliged to report to OCR any information regarding an employee or business associate that may have failed to comply with those policies and procedures and to submit reports of its progress to OCR.
In summary, this investigation and resolution agreement provides employers with a great example of conduct that violates the right of access provision of the HIPAA privacy and security rules. Although this settlement relates to a health care provider, employers that sponsor group health plans (particularly those with self-insured plans), should provide plan participants, upon request, with their health information, and do so in a timely manner.
On September 5, 2019, the DOL, IRS, and HHS (the Departments) released a number of documents concerning mental health parity compliance, including a finalized FAQ. As background, the Mental Health Parity and Addiction Equity Act (MHPAEA) requires that the financial requirements and treatment limitations imposed on mental health and substance use disorder (MH/SUD) benefits be no more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. MHPAEA also imposes several disclosure requirements on group health plans and health insurance issuers.
In addition to finalizing FAQs About Mental Health and Substance Use Disorder Parity Implementation and the 21st Century Cures Act Part 39, the Departments also released a claims form that individuals can use to request documentation about their plan’s mental health treatment limitations, and three documents highlighting the DOL’s 2018 enforcement of MHPAEA. See below for a recap on each of those resources.
FAQs About Mental Health and Substance Use Disorder Parity Implementation and the 21st Century Cures Act Part 39
This document provides additional guidance to employers and individuals about the application of the law. The finalized rules make slight changes to the proposed version by providing certain clarifications and adding additional examples. Here is an overview of the 11 questions addressed in this document:
Model Mental Health and Substance Use Disorder Parity Disclosure Request Form
The Departments provided this form as an example of a MHPAEA disclosure request form. Participants can use this form to request information from their employer-sponsored health plan or insurer regarding MH/SUD limitations or denials in benefits.
2018 MHPAEA Enforcement Fact Sheet
This fact sheet highlights the MHPAEA enforcement results pursued by the DOL. It specifically breaks down the number of cases concerning MHPAEA violations and discusses some of the results achieved through the DOL’s voluntary compliance program. This year, they included an introduction to the fact sheet and a compendium of guidance pertaining to the violations they found.
Notably, the DOL closed 115 cases involving a review of MHPAEA compliance, and 21 MHPAEA violations were cited in those cases. Additionally, the DOL’s benefits advisors addressed 127 public inquiries related to mental health parity.
On September 10, 2019, the DOL issued opinion letter FMLA2019-3-A, addressing the relationship between FMLA and the leave provisions of a collective bargaining agreement (CBA). As background, the person requesting the opinion is an employee of a local government agency and is subject to CBAs under which employees may delay taking unpaid leave, including unpaid FMLA leave, until after CBA-protected accrued paid leave is exhausted. The CBAs also provide that accrued paid leave taken by employees is treated as continuous employment that does not affect employees’ seniority status under the relevant state civil service rules.
The employee asked the DOL for an opinion after their employer updated its leave policy to designate leave as FMLA leave when the employer learns that an employee needs leave for an FMLA-qualifying reason. The policy was also updated to require that FMLA leave be taken concurrently with CBA-protected paid leave. The employee wanted to know if the employer must designate FMLA-qualifying leave as FMLA leave when the employee would prefer to delay taking FMLA leave until after taking CBA-protected paid leave. The employee was also concerned that taking FMLA leave first would negatively impact their seniority status under the CBAs and state civil service rules.
The DOL notes that employers cannot delay designating FMLA-qualifying leave as FMLA leave, once the employer learns of the FMLA-qualifying reason for the leave. Specifically, within five days of learning of an FMLA-qualifying leave, the employer must designate the leave as such and provide the employee with certain critical information.
FMLA also allows the employer to designate, or the employee to elect, to substitute accrued paid leave to cover any part of the unpaid FMLA entitlement period. In addition, FMLA provides that FMLA leave does not interfere with an employee’s entitlement to other benefits consistent with the employer’s policies regarding those benefits. If the employer’s policies allow for the accrual of seniority during a paid leave of absence, then the employee can accrue seniority during paid leave under FMLA.
Accordingly, the DOL opined that the employee’s right to take CBA-protected paid leave, and the right to count that paid leave time towards the employee’s seniority status, is not undercut by FMLA leave or the employer’s policies concerning such leave.
The letter provides the DOL’s opinion regarding the interaction between FMLA and other employer-provided leave. As with any opinion letter, the response is an application of the law to the specific circumstances presented by the requester. However, employers should take note that there is no discretion to delay designating leave as FMLA leave once the employer determines that the leave qualifies as such. Employers should also take note that FMLA applies in addition to or along with the employer’s policies (or CBAs, as is the case here), so that employer policies concerning such leave should be crafted so that neither the employee’s FMLA rights nor other rights are denied.
On September 10, 2019, the DOL's Wage and Hour Division (WHD) issued opinion letter CCPA2019-1 to address whether employer contributions to HSAs are considered earnings for wage garnishment purposes under the Consumer Credit Protection Act (CCPA). The letter was in response to an inquiry submitted by a firm providing human resources and payroll services to employers.
An HSA is a type of trust established to pay the qualified medical expenses of the account holder. Specifically, HSAs allow employees enrolled in HDHPs to set aside funds pre-tax to pay for future medical expenses. Employers can also contribute to employees' HSAs and are allowed a tax deduction for these amounts. Contributed amounts are generally considered non-forfeitable.
The CCPA limits the amount of an employee's earnings (after required withholding) that may be garnished to satisfy a debt. Earnings for this purpose are defined as "compensation paid or payable for personal services" and include wages, salary, commission, bonuses, and certain periodic retirement payments. The concern raised here is whether some employers were erroneously classifying their HSA contributions as earnings, and thus incorrectly inflating the amounts subject to wage garnishment.
Upon review of the facts provided, WHD determined that employer contributions to HSAs are not earnings under the CCPA. In reaching this opinion, the agency focused upon several factors. First, contributions already received by an HSA were viewed as similar to earnings deposited in an employee's bank account, which are not subject to CCPA garnishment limitations. Second, WHD did not view the employer contributions as amounts paid for employees' services because the amounts were not calculated or varied by the value of each individual's service. Rather, the typical employer contribution was a fixed annual amount or based upon a match formula. The agency also recognized that unlike other types of earnings, HSA employer contributions did not require protection for garnishment purposes because the employee could not access the amounts other than for qualified medical expenses without being subject to income taxes and penalties.
As a result, the WHD concluded that employers should not include HSA contributions when determining an employee's earnings subject to wage garnishment. However, this opinion may not be applicable if the employer bases the individual contribution amounts on the value of each employee's services or offers an option for employees to receive the contributions in cash.
The letter provides a reasoned opinion regarding the classification of employer HSA contributions under the CCPA. As with any opinion letter, the response is an application of the law to the specific circumstances presented by the requester. However, the content can be insightful in terms of how the agency may view other employers' HSA contributions under similar circumstances. Employers who contribute to their employees' HSAs may want to consult counsel and review their payroll practices following this opinion.
On August 5, 2019, the DOL’s Wage and Hour Division published revised FMLA forms. The changes have only been proposed and are not yet final. The DOL is soliciting comments on the proposed changes through October 4, 2019.
The purpose of the changes is to simplify the forms in a manner that would minimize the current burden on employees and health care providers completing the forms. The DOL also stated a desire to improve the quality and clarity of the information collected.
Proposed Form WH-380-E, Certification of Health Care Provider for Employee’s Serious Health Condition, would request the health care provider’s email address, the date that the form must be returned to the employer (15 calendar days), and the date that the employer first learned of the employee’s need for leave. The health care provider is not asked to provide details of treatment and is specifically advised that treatment and diagnosis is not required to be provided and is actually not permissible in some states. The definition for serious health condition (inpatient care, continuing treatment, pregnancy, chronic condition, permanent/long-term condition, and multiple treatment conditions) is included in the form to assist employees and health care providers.
Proposed Form WH-381 will require the employer to enter hours worked by an employee if they are denying the request based on the fact that the employee has not met the 1,250 hour service requirement. The form requires the employer to indicate whether FMLA is being used at the same time as short-term disability, long-term disability, workers’ compensation, or state-required family leave.
All of the forms have been reworded and reformatted to make them easier to understand. Most entry fields have been changed to check boxes. Also, all forms include a hyperlink to the DOL’s FMLA website.
Again, these forms are not yet finalized. Until further notice, employers should continue to use the version of forms with an expiration date of August 31, 2021.
On August 8, 2019, the DOL’s Wage and Hour Division released opinion letter FMLA2019-2-A. The requester asked whether a parent’s attendance at a school’s Committee on Special Education (CSE) meeting to discuss a child’s Individualized Education Program (IEP) was covered under FMLA as intermittent leave. The DOL agreed that it was indeed a qualifying reason for leave under FMLA. However, the opinion was based on very specific facts.
The party requesting the opinion letter had two children with serious health conditions. The employee had a certification from a health care provider indicating her need to take intermittent leave to care for the children and take them to medical appointments. The children received pediatrician-prescribed occupational, speech, and physical therapy provided by their school district. Four times annually, the school holds a CSE/IEP meeting to review the children’s educational and medical needs, well-being, and progress. In attendance at those meetings are a speech pathologist, school psychologist, occupational therapist, physical therapist, teachers and school administrators.
The opinion was based on the fact that FMLA provides for leave to care for a family member with a serious health condition and that includes making arrangements for change in care.
It’s important to remember that opinion letters are based on specific facts presented by an inquiring party. This letter does not extend to all parent/teacher school meetings. In application, employers should review requests for leave related to CSE/IEP meetings with careful consideration. If the facts are similar to the ones in the opinion letter, the leave is likely covered under FMLA. This would include the child having a serious health condition, the employee having a certification from the child’s health care provider, and certification of the meeting.
On July 24, 2019, in Dawson-Murdock v. National Counseling Group, the US Court of Appeals for the Fourth Circuit set aside a district court’s dismissal of a spouse’s fiduciary breach claims against her deceased husband’s employer. The case was remanded back to the lower court for further proceedings.
As background, there are generally two types of fiduciaries under ERISA. The first are those fiduciaries specified in the plan document, such as the "Plan Administrator" and "named fiduciary." These individuals or entities are fiduciaries by definition. The second type are functional fiduciaries, i.e., those not necessarily named in the plan documents, but who assume fiduciary roles by their actions. Such actions (or omissions) typically involve the exercise of discretionary authority (e.g., interpreting ambiguous plan terms or making final determinations regarding benefits eligibility), as opposed to performing purely ministerial duties. The two fiduciary types are not mutually exclusive, and either can be subject to fiduciary breach claims.
In this case, a widow asserted that her husband’s employer breached fiduciary duties in relation to its group life insurance plan. The insurance company had denied the spouse’s claim for benefits on the basis of ineligibility due to her husband’s transition to part-time employment status. However, the employer, which was responsible for eligibility determinations, had never informed the employee of the effect of his reduction in hours or the options to maintain coverage, and continued to collect premium payments from the employee. Furthermore, the employer’s VP of Human Resources instructed the widow not to file an appeal of the claim denial because the company would pay the claim and work the issue out with the insurer. Notwithstanding, the VP eventually informed the spouse that the employer would not pay the claim. By the time she received such notice, the ninety-day timeframe for filing an appeal had passed. The spouse then sued the employer for breach of fiduciary duties.
The trial court held that the employer had not acted in a fiduciary capacity with respect to its actions regarding the group life insurance coverage and claim. The fiduciary breach claims were dismissed, despite the employer being specified in the plan documents as both the "Plan Administrator" and "named fiduciary."
The Fourth Circuit clearly disagreed, reinforcing the ERISA principle that the individual(s) or entity identified as "Plan Administrator" and "named fiduciary" in the plan document are "automatic" fiduciaries. In other words, these parties cannot disclaim fiduciary status on the basis of a lack of discretionary actions. Furthermore, the court held that the employer’s actions and omissions were sufficient to support a functional fiduciary claim. Specifically, the VP had acted as a fiduciary in failing to notify the employee of his ineligibility and provide other options for coverage continuation. The VP had also assumed a discretionary role when advising the spouse not to appeal the claim denial. In finding a sufficient basis for the breach of fiduciary claims, the Fourth Circuit rejected the dismissal and sent the case back to the trial level for further proceedings.
This case serves as a reminder that the parties named in the plan document as "Plan Administrator" and "named fiduciary" are automatic ERISA fiduciaries against whom breach claims can be asserted. Accordingly, these individuals or entities should be selected with careful consideration and educated regarding their fiduciary duties and possible liabilities. Additionally, those parties not designated in the document, but who may perform discretionary plan responsibilities, should be aware of their potential functional fiduciary status.
On July 31, 2019, the DOL updated its Employer CHIP Model Notice that employers with group health plans may use to notify eligible employees about premium assistance available through their state Medicaid or Children's Health Insurance Program (CHIP). Since its initial release in 2010, the DOL has been updating the notice twice annually, on or around January 31 and July 31 of each year. The updates generally reflect any changes to contact information for the list of states offering premium assistance programs.
Employers creating their own notices, rather than the DOL’s model notice, should pay special attention to ensure the most recent information is used. Employees residing in one of the states identified on the notice must receive this information automatically, before the start of the plan year, and free of charge.
On July 17, 2019, the IRS published Notice 2019-45, which expands the preventive care benefits that can be provided by a HDHP without affecting the HDHP participants’ HSA eligibility. As background, to be eligible to establish and contribute to an HSA, an individual must have qualifying HDHP coverage and no impermissible coverage. A qualified HDHP is one that does not provide benefits for any year until the minimum deductible for that year is satisfied. However, there is a safe harbor for the absence of a deductible for preventive care — so an HDHP can provide preventive care without causing an individual to lose HSA eligibility.
Previously, preventive care generally was not defined as including services or benefits aimed at treating existing illnesses, injuries, or conditions. However, a June 2019 executive order called for the IRS to amend those rules and allow for a change to that definition to include such existing illnesses, injuries, and conditions. One reason for this expansion is that failure to address these types of chronic conditions has been demonstrated to lead to consequences, such as amputation, blindness, heart attacks, and strokes, that require considerably more extensive medical intervention.
As a result of the executive order, the IRS published the new notice, which states that certain services and items that are used for chronic conditions are considered preventive care for purposes of HSA eligibility, when they are prescribed to prevent exacerbation of the diagnosed condition or the development of a secondary condition. The notice includes an appendix that lists 14 medical services or items for individuals with 11 specific chronic conditions (asthma, congestive heart failure, diabetes, coronary artery disease, osteoporosis and/or osteopenia, liver disease, depression, hypertension, bleeding disorders, and heart disease).
For example, insulin and other glucose lowering agents, retinopathy screening, glucometer and Hemoglobin A1c testing are now considered preventive care for individuals diagnosed with diabetes. Similarly, inhaled corticosteroids and peak flow meters are considered preventive care for individuals diagnosed with asthma.
The notice is clear that the listed services/items are considered preventive care only to the extent that they are used to treat the chronic conditions specified; if they are used to treat other conditions, then they are not considered preventive care. Also, the notice does not impact or change the definition of preventive care for purposes of the ACA’s preventive care mandate (the requirement to cover preventive care without cost-sharing).
The notice is effective immediately. The notice does not require HDHPs to cover all the conditions and treatments listed; but if they do, those services will be considered preventive care (and therefore wouldn’t adversely impact HSA eligibility). Employers will want to review any HDHP/HSA offerings to determine if changes are necessary.
Employers can wait until the next plan year to implement any changes (since it would require an amendment to the plan documents and employee communications). Employers should consider whether they want to cover all the conditions and treatments listed in the guidance, and whether they want to cover them at 100% (or add in cost-sharing, such as copayments or coinsurance). With those considerations in mind, employers should work with their advisor in determining next steps.
On June 24, 2019, the White House published Executive Order 13877, Improving Price and Quality Transparency in American Healthcare To Put Patients First. The executive order directs the Treasury, HHS, and DOL to adopt guidance and rules that will help improve price and quality transparency in health care generally. While the primary purpose of the order is geared toward price and quality transparency, the order also addresses HDHPs, health FSA carryovers, and medical expenses.
On transparency, the order directs the regulatory agencies to, within 90 days, request comments on a proposal to require providers, insurers, and self-insured health plans to provide information to patients (prior to receiving care) on expected out-of-pocket expenses. The order also directs the agencies to, within 180 days, adopt rules directed at increasing access for researchers, innovators, and others to de-identified claims data from group health plans. The rules must do so in a way that complies with HIPAA and other laws that ensure patient privacy and security.
On HDHPs, the order directs the Treasury to, within 120 days, publish guidance that allows HDHPs to be more compatible with HSAs. Specifically, the order asks for a rule that makes HDHPs compatible with HSAs, even where the HDHP covers medical care for chronic conditions before the statutory deductible has been met.
On health FSA carryovers, the order directs the Treasury to, within 180 days, propose regulations that would increase the amount that an employee can carryover from one health FSA plan year to the next.
On medical expenses, the order directs the Treasury to, within 180 days, propose regulations that would treat certain arrangements as eligible expenses under IRC Section 213(d). Those arrangements could potentially include direct primary care arrangements and health care sharing ministries.
The order is not a change in law — so employers do not have to do anything with regard to immediate changes on compliance efforts. The order is an indication that some of the above changes could be coming, depending on how the agencies respond and develop their guidance. The regulatory agencies must first publish proposed rules and go through a comment period, so any changes would not likely take effect until late 2020 at the earliest (and even then, there would likely be a grace period for plan years that have already begun). NFP Benefits Compliance will continue to monitor developments on this and report in future editions of Compliance Corner.
On June 26, 2019, HHS posted two FAQs to its website related to the use and disclosure of protected health information (PHI). The first answers whether one health plan is permitted to share PHI with a second health plan for care coordination purposes without the individual’s authorization. As background, the HIPAA privacy rules permit a covered entity (including a health plan) to disclose PHI for its own health care operation purposes. HHS clarified that disclosing PHI for those purposes includes a health plan disclosing PHI of a former participant to a new health plan for care coordination purposes.
The second question answers whether a covered entity may use a participant’s PHI to inform them about other available health plan options that it offers without the individual’s authorization. The HIPAA privacy rules prohibit using PHI for marketing purposes. However, there is an exception for communications to individuals regarding replacements to, or enhancements of, existing health plans, so long as the covered entity is not receiving financial remuneration for the communications. Thus, an insurer is permitted to market its other health plan options to participants as long as they do not receive financial compensation for sending the communication and they are in compliance with any business associate agreement in place.
While these FAQs do not present a new compliance requirement, they do provide additional clarification on how HIPAA applies to certain situations. Covered entities should familiarize themselves with this guidance.
On June 13, 2019, the Treasury Department, DOL, and HHS finalized rules to allow employees to use their employers’ HRA to pay for individual health coverage. The rules also create a new excepted benefit HRA. The rules, which are effective for plan years starting on or after January 1, 2020, follow through on Pres. Trump’s 2017 executive order directing the DOL and HHS to implement rules that would allow for the expanded use of HRAs. The final rules largely follow the October 2018 proposed rules with some clarifying changes (see our previous Compliance Corner article).
As background, the ACA previously required that HRAs be integrated with group health coverage; this is the only way the HRA could be deemed to meet many of the ACA’s market reforms, such as the prohibition on annual and lifetime limits. As such, employers could not reimburse employees for individual coverage.
These new HRA rules significantly change that requirement by allowing employees to be reimbursed for the cost of individual coverage through what is known as an individual coverage HRA (ICHRA). The employee and any dependent for which the HRA would reimburse must actually be enrolled in individual coverage. That individual coverage can be offered on or off the exchange and includes fully insured student health coverage, catastrophic policies, grandmothered plans, and plans offered in states with a Section 1332 waiver. It does not include self-insured student health coverage, short-term limited duration insurance, a spouse’s group health coverage, health care sharing ministries, multiple employer welfare arrangements, or TRICARE.
An ICHRA may also be integrated with Medicare. The participant must be enrolled in Parts A and B or C. The arrangement may reimburse premiums for Parts A, B, C, or D as well as for Medigap policies. Reimbursement cannot be limited only to out-of-pocket expenses not covered by Medicare. The employer must substantiate the participant’s enrollment in individual coverage or Medicare annually prior to the coverage effective date and before each reimbursement. Sample attestation language is provided in the Fact Sheet (link provided below).
Generally, an employer cannot offer a traditional health plan and ICHRA to the same class of employees. However, an employer may choose to offer the traditional plan to current employees and offer an ICHRA to new employees hired on or after a certain date (which must be on or after January 1, 2020). Additionally, the HRA must be offered on the same terms to each participant in the class (with limited exceptions). Additional reimbursement may be provided to older participants, but no more than three times the funds available to younger participants.
The rules allow the following classes of employees:
(The proposed rules included an additional classification of employees under age 25, which was eliminated from the final rules.)
There are minimum class size rules based on the employer’s size that apply to the first five classifications listed above. The applicable class size minimum is: 1) ten, for an employer with fewer than 100 employees; 2) 10% of the total number of employees, for an employer with 100 to 200 employees; and 3) 20, for an employer that has more than 200 employees.
Employers sponsoring an ICHRA must distribute a notice to eligible employees 90 days before the start of the HRA plan year (or by the date of eligibility if someone becomes eligible for the HRA after the start of the plan year). The notice must describe the terms of the HRA, discuss the HRA’s interaction with premium tax credits, describe the substantiation requirements, and notify the person that the individual health coverage integrated with the HRA isn’t subject to ERISA. There is model language included in the Fact Sheet.
Further, the final rules also allow employers to offer an excepted benefit HRA that isn’t integrated with any health coverage, as long as certain conditions are met. Specifically, the employer must ensure that they offer other traditional coverage, limit the benefit to $1,800 per plan year (indexed for inflation), only reimburse for premiums of excepted benefit plans, and make the HRA uniformly available. These rules are largely the same as the proposed rules.
As it pertains to ERISA, the rule clarifies that individual coverage paid for through the HRA would not be subject to ERISA as long as the employer doesn’t take an active role in endorsing or choosing the individual coverage. In this way, the rules for having individual coverage avoid being subject to ERISA are similar to the safe harbor for voluntary plans. However, the HRA itself is generally considered a health plan and must comply with the Summary of Benefits and Coverage notice requirement and ERISA requirements.
As it pertains to the ACA, individuals who are covered by an HRA that’s integrated with affordable, minimum value individual health insurance coverage are ineligible for a premium tax credit. However, employees can waive the ICHRA so that they can retain their premium tax credit eligibility.
Employers that are subject to the employer mandate (or applicable large employers) may use an ICHRA to satisfy their obligation to offer coverage under the mandate. However, the HRA amount offered must be an amount that would be considered affordable. Notably, though, these final regulations don’t describe how employers will go about determining if their individual coverage HRA is affordable. The Treasury has been tasked with identifying this guidance in a later proposed rule.
Employers with questions on how these rules will impact health coverage options available to them are encouraged to contact their consultant.
On June 17, 2019, the IRS released its third quarter priority guidance plan. As background, the IRS uses the Priority Guidance Plan each year to identify and prioritize the tax issues that will be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance.
Some notable employee-benefits related issues that the IRS is working on include:
While this guidance doesn’t necessitate any action on the part of employers, it does give good insight into the rules the IRS may publish in the next several months.
On May 29, 2019, the IRS released Rev. Proc. 2019-25, which provides the 2020 inflation-adjusted limits for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2020 annual HSA contribution limit will increase to $3,550 for individuals with self-only HDHP coverage (up $50 from 2019) and to $7,100 for individuals with anything other than self-only HDHP coverage (family or self+1, self+child(ren), or self + spouse coverage) (up $100 from 2019).
For qualified HDHPs, the 2020 minimum statutory deductibles increase to $1,400 for self-only coverage (up $50 from 2019) and $2,800 for individuals with anything other than self-only coverage (up $100 from 2019). The 2019 maximum out-of-pocket limits increased to $6,900 for self-only coverage (up $150 from 2019) and up to $13,800 for anything other than self-only coverage (up $300 from 2019). Out-of-pocket limits on expenses include deductibles, copayments, and coinsurance, but not premiums.
The 2020 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with 2020 limits.
On May 30, 2019, the DOL updated the model Summary Annual Report (SAR) for Welfare Plans. The changes were not substantial, but they appear to include updated contact information for the DOL. As a reminder, SARs summarize the annual Form 5500 and are required to be distributed by large insured health plans. Unfunded self-funded plans of any size are exempt from the requirement to distribute SARs.
While the updated version of the SAR doesn’t result in any substantial changes, employers should utilize the new DOL model.
Effective May 15, 2019, the DOL has changed the address to which Delinquent Filer Voluntary Compliance Program (DFVCP) submissions should be mailed. As background, the DFVCP is a correction program for plan administrators who are delinquent in filing a plan’s Form 5500. The program provides reduced penalties and is open to those who have not been notified in writing by the DOL of the delinquency.
The address plan sponsors should now use for submission is:
PO Box 6200-35
Portland, OR 97228-6200
The DOL is also making an address available for overnight delivery service. That address is:
Attn: DFVC 6200-35
17650 NE Sandy Boulevard
Portland, OR 97230
As a reminder, submissions may also be sent electronically.
Plan sponsors that seek to file a DFVCP submission should keep this change in mind.
On March 29, 2019, the IRS released Information Letter 2019-0005, which responded to an inquiry about whether menstrual care products may be categorized as qualified medical expenses under Code Section 213 and expensed under health savings accounts (HSAs), flexible spending accounts (FSAs), and other tax-preferred accounts.
As background, Code Section 213 allows taxpayers to deduct medical care expenses when made for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of a structure or function of the body.” Alternatively, personal, family or living expenses that are merely beneficial to the general health of the individual likely do not qualify as “medical care” under 213. However, personal expenses can be considered “medical care” if the taxpayer would not have incurred the expense but for the disease or illness.
The IRS does not say whether menstrual care products can be “medical care,” but provides a list of objective factors to use when determining whether an expense that is typically personal in nature was, in a specific instance, a qualified medical expense. The factors include:
Applying these objective factors to menstrual products, some things to consider are whether the menstrual products are purchased for treating, mitigating, or diagnosing the taxpayer’s disease; whether the costs are merely beneficial to the taxpayer’s general health such that they might be considered the taxpayer’s personal expense; and whether the expense would be incurred but for the medical condition.
Please note that this letter is intended only for informational purposes, but serves as a good reminder that HSA, FSA, and other tax-preferred accounts can only be used for certain expenses. Administrators must consider when approving an expense as qualified under Code Section 213 whether it would typically be personal in nature. If you have additional questions regarding Code Section 213, please contact your adviser.
On May 6, 2019, HHS’s Office of Civil Rights (OCR) announced a $3 million settlement with Touchstone Medical Imaging, a diagnostic medical imaging services company, relating to violations of HIPAA’s privacy, security and breach notification requirements. According to an HHS press release, in May 2014, the FBI and OCR notified Touchstone that one of its servers allowed uncontrolled access to its patients’ protected health information (PHI). Both the FBI and OCR confirmed that PHI from many patients, including some Social Security numbers, was visible through a basic Google search even after the server was taken offline. Touchstone initially claimed that it had not breached or exposed any patient’s PHI. However, after an investigation, OCR concluded (and Touchstone subsequently admitted) that the PHI of more than 300,000 patients was exposed. Some of the exposed information included names, birth dates, social security numbers, and addresses.
OCR’s investigation also found that Touchstone had not thoroughly investigated the security incident until several months after the FBI and OCR notified Touchstone of the security incident (availability of the information on the internet). As a result, Touchstone’s notification to affected individuals regarding the breach was considered untimely. OCR further concluded that Touchstone failed to conduct an accurate and thorough risk analysis of potential risk and vulnerabilities relating to the availability and confidentiality of its electronic PHI and failed to have business associate agreements in place with its vendors, as required by HIPAA.
The settlement serves as a reminder to covered entities, particularly employers with self-insured plans, regarding HIPAA privacy, security, and breach requirements. This case resulted in a significant penalty for several reasons, including the number of affected individuals, the failure to conduct a risk analysis and to implement business associate agreements, the failure to respond to two federal law enforcement agencies, and the failure to timely notify impacted individuals regarding the breach. Employers should review their HIPAA obligations with their advisers and outside counsel in developing a comprehensive strategy for adhering to the privacy, security, and breach notification requirements.
On May 13, 2019, the DOL issued Part Two in a series of questions and answers they’ve provided after a federal district court invalidated their final AHP rules. As background, in New York v. DOL, the U.S. District Court for the District of Columbia invalidated the DOL’s rules relating to association health plans (AHPs). Since then, the DOL has issued a statement indicating that they intend to appeal the decision. They also provided a set of questions and answers that essentially reiterates the information they provided in their statement.
Part Two of those questions and answers provides additional clarification on the DOL’s stance. Specifically the questions and answers provide the following:
As we mentioned in previous articles on this subject, NFP Benefits Compliance will continue to monitor the lawsuit and any related developments.
On April 30, 2019, HHS exercised its discretion in how it applies the regulations related to HIPAA privacy and security violations. As background, in 2009, the HITECH Act set penalty limits based on four tiers of knowledge and intention. Each tier had a maximum penalty of $1.5 million per calendar year when the violations were of an identical requirement or prohibition. The new guidance, found in the Federal Register, reduces the maximum annual penalty to the following amounts per tier:
The changes are effective immediately. HHS expects to issue revised regulations in the future.
On April 29, 2019, the DOL published a statement regarding the March 28, 2019, district court ruling that invalidated major provisions of the DOL’s final rules on association health plans (AHPs). See our article on the ruling in the April 2, 2019, issue of Compliance Corner. In that decision, the U.S. District Court for the District of Columbia held that the DOL’s AHP rules violated ERISA by impermissibly expanding the scope of AHPs (which are considered multiple employer welfare arrangements, or MEWAs, under ERISA). Until recently, the DOL had not indicated whether it would appeal the decision or request a stay on the holding (meaning the court’s ruling would be on hold pending the appeal — this is a common request made to prevent a court’s ruling from taking effect while issues are still being litigated in court).
The DOL now indicates that it has appealed the ruling. However, at this point there’s no indication that the DOL has requested or that the court has granted a stay. As a result, the court’s ruling is in effect, meaning associations cannot form self-insured AHPs under the new rule. In addition, AHPs that had already formed pursuant to the DOL’s final AHP rules should be paying claims but, going forward, should not be marketing to new enrollees (particularly sole proprietors as so-called “working owners”). According to the DOL’s statement, employers participating in insured AHPs can generally maintain that coverage through the end of the plan year or, if later, the contract term; this is meant to help employees keep their coverage in force. That intention seems to indicate the DOL’s focus on ensuring that participants and beneficiaries are paid health benefit claims as promised.
To that end, the statement also indicates that carriers must generally continue the coverage in force for each participating employer and its covered employees at the employer’s option through the end of the plan year. Then, at the end of the plan year, the carrier would only be able to renew the coverage for an employer member of an AHP if the coverage complies with the relevant market requirements for that employer’s size. This would revert the rating rules to the old DOL rules — making it much more difficult for AHPs to have large group status for ERISA application (ERISA would apply at the individual employer level) and for large/small group rating purposes. Thus, coverage sold to a sole proprietor AHP participant would have to comply with individual market/rating rules, and coverage sold to a small employer AHP participant would have to comply with small group market/rating rules.
States may also have a say in reacting to the district court ruling and DOL appeal. At least one state (Vermont) has published guidance stating that the state won’t be approving new AHPs, and that current AHPs should stop advertising and enrolling new employer groups. We anticipate more states weighing in, and will continue to monitor developments on this issue.
CMS recently updated its guidance that provides an overview of the federal market requirements applicable to non-federal governmental plans, including self-funded and fully insured plans. As background, CMS is the entity that oversees compliance and enforcement of the Public Health Service Act (PHSA) and applicable provisions of the ACA for group health plans related to municipal governments, school districts, fire departments, and funds that pool together a number of smaller municipalities.
The guidance gives a general overview of the laws that apply to non-federal governmental plans, including the ACA and PHSA. They also discuss which of these laws don’t apply to these plans.
There is also helpful information regarding the assistance that CMS makes available to help plans remain compliant, including technical assistance, website resources and information, and access to subject matter experts within CMS that have specialized knowledge.
The guidance also discusses CMS’ investigative process. Specifically, investigations into plan compliance generally begin through inquiries or complaints from enrollees or representatives. If CMS discovers a plan is non-compliant, they will initiate enforcement action and work to create a corrective action plan to bring the areas identified into compliance and, if necessary, require that the plan compensate enrollees who did not receive the benefits or processes to which they were entitled. Once the plan documents and processes are fully compliant, CMS will approve notices to enrollees and the appropriate method for compensation (if necessary, for both). CMS will end the investigation only upon confirmation that all steps within the corrective action plan are carried out (usually, this includes compensated enrollees).
While this information is not new, it does serve as a reminder of the importance of compliance for non-federal governmental plans.
On March 25, 2019, HHS announced the launch of the Compliance Review Program. In April 2019, HHS will randomly select nine covered entities (five health plans and four clearinghouses) for a review of their compliance with the HIPAA administrative simplification rules for electronic health care transactions. This is a follow-up to the 2018 pilot program, which included health plan and clearinghouse volunteers.
Specifically, the program will review compliance with the rules related to electronic transactions, code sets, unique identifiers, and operating rules. If the entity is not in compliance, HHS will work with the entity to resolve. If the noncompliance continues, HHS may increase enforcement action. If there is willful and egregious noncompliance, monetary penalties may be assessed.
The announcement shows the continued efforts of HHS to enforce the HIPAA privacy and security rules. Employers who sponsor a group health plan, whether fully insured or self-insured, have responsibilities under those rules including identifying a privacy official, conducting a risk analysis, training workforce members, maintaining written policies and procedures, and safeguarding protected health information.
To learn more about a plan sponsor’s responsibilities, please view the NFP archived webinar entitled “Make a Resolution to Comply with HIPAA.”
On April 1, 2019, CMS released the 2020 parameters for the Medicare Part D prescription drug benefit. This information is used by employers to determine whether the prescription drug coverage offered by their group coverage is creditable or non-creditable. To be creditable, the actuarial value of the coverage must equal or exceed the value-defined standard Medicare part D coverage provides.
For 2020, the defined standard Medicare Part D prescription drug benefit is:
Employers should use these 2020 parameters for the actuarial determination of whether their plans’ prescription drug coverage continues to be creditable for 2020. For additional information, please consult with your adviser.
The IRS recently published IRS Chief Counsel Memorandum 201912001, which is dated December 21, 2018, and relates to health insurance costs of employee family members of 2 percent S corporation shareholders. The memo addresses an individual who owns 100 percent of an S corporation, where the S corporation employs one of the individual’s family members. Under the IRC’s Sec. 318 family attribution rules, the family member is considered to be a 2 percent shareholder of the S corporation. The S corporation provides a group health plan for all employees, and the amounts paid by the S corporation under the plan are generally included in the family member’s gross income. The question presented in the memo is whether the family member is entitled to a deduction for the amounts paid by the S corporation under the group health plan.
According to the memo, an individual who is a 2 percent shareholder of an S corporation pursuant to the Sec. 318 ownership attribution rules is entitled to a deduction for amounts paid by the S corporation under a group health plan for all employees and included in the individual’s gross income. In order for an employee who is a 2 percent shareholder to deduct the amount of the premiums, the S corporation must report the group health plan insurance premiums paid or reimbursed on the 2 percent shareholder’s Form W-2 in that same year, and the shareholder must report the premium payments/reimbursements on their Form 1040 for that year.
For employers, the memo has limited application. IRS memos are informational only and generally cannot be relied upon as direct guidance. However, this memo does serve as some indicator on how the IRS may position themselves on a particular issue. Because the memo relates to federal income taxation and deductions, employers should seek outside counsel for any direct questions.
On March 28, 2019, in New York v. DOL, the U.S. District Court for the District of Columbia invalidated the DOL’s rules relating to association health plans (AHPs). As background, prior to 2018, AHPs (which are considered multiple employer welfare arrangements, or MEWAs, under ERISA) could only be sponsored by employer groups or associations whose members shared a “commonality of interest” that was unrelated to benefits. That meant employers within the association had to be in the same trade, industry, or profession and could not just be in the same geographic location. The DOL’s rules also prohibited AHPs from forming solely for the purpose of providing benefits; AHPs had to show that their association was primarily for business purposes, with benefits being an afterthought.
In 2018, pursuant to a White House executive order, the DOL published new rules (in proposed form in January 2018 and in finalized form in June 2018) that allow AHPs to include employers without a commonality of interest if they are located in the same state or metropolitan area (for example, DC/MD/VA or NY/NJ/CT). Further, AHPs can now form for the primary purpose of providing benefits (something that was prohibited before 2018), as long as they can show a “substantial business purpose,” which includes fairly minimal proof — anything from setting business standards and practices to publishing a newsletter. Importantly, the 2018 rules also allow an AHP to cover non-employees (sole proprietors, independent contractors, partners, and other businesses without any employees). The 2018 rules have staggered applicability dates — they applied to fully insured AHPs on September 1, 2018, existing self-insured AHPs on January 1, 2019, and newly-formed self-insured AHPs on April 1, 2019. Finally, the 2018 rules did not address state enforcement of MEWAs; ERISA generally allows (and the 2018 rules explicitly allow) states to enforce their own rules with regard to MEWAs. Many states have a particular interest in regulating self-insured MEWAs as a way to protect against consumer fraud and misrepresentation regarding the MEWAs’ ability to pay benefits.
Following the finalization of the 2018 rules, a coalition of state attorneys general (AGs) — led by New York and Massachusetts — filed a lawsuit challenging the 2018 rules, stating that the DOL violated the Administrative Procedure Act by overreaching on its regulatory authority. The other states involved include California, Delaware, District of Columbia, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia, and Washington. The AGs’ lawsuit claimed that the DOL’s new interpretation of “employer” was inconsistent with the purpose and language of ERISA, and that the 2018 rules allowed businesses (some without employees) to form AHPs and avoid the ACA’s consumer protections (those that apply to individual and small group plans). Self-insured AHPs could also avoid certain state insurance laws, including benefit and other mandates meant to protect the residents of that particular state. Finally, the AGs’ lawsuit claimed that the 2018 rules increased the risk for consumer fraud and harm and jeopardized states’ ability to add stronger consumer protections and protect against consumer fraud and harm.
The court agreed with the state AGs. After concluding that the states had standing, the court concluded that the DOL did not reasonably interpret ERISA and that the primary provisions of the 2018 rules must be invalidated. Those primary provisions are the expanded definition of “commonality of interest” and the inclusion of working owners. Specifically, the court stated that the commonality of interest expansion in the 2018 rules failed to meaningfully limit the types of associations that could qualify as sponsors of an ERISA plan. The judge concluded that the 2018 rules establish “such a low bar that virtually no association could fail to meet it.” In addition, because ERISA is meant to regulate benefit plans that arise from employment relationships, the inclusion of working owners impermissibly expanded ERISA’s regulation to plans outside of such employment relationships. The judge concluded that the outcome would be “absurd,” since it ignores ERISA’s definitions and structure, case law, and ERISA’s 40-year history of excluding employers without employees.
In the opinion, the court invalidated the major provisions of the AHP rule and remanded the rule back to the DOL to determine if any remaining portions of the rules (relating to nondiscrimination and organizational structure) are severable. On that, the court noted its opinion that the remaining portions, were “collateral” to the more major portions which it held invalid. Additionally, in his order, the judge did not issue a stay. That leaves the DOL with a few options. First, the DOL could seek a stay (meaning the decision would not go into effect) and appeal the decision, sending the case to the Court of Appeals for the D.C. Circuit. Second, the DOL could try and find a way to re-craft the rule in a way that meets the district court ruling. Third, the DOL could rescind the rule altogether.
The ruling leaves associations and AHPs in a difficult spot. The ruling prevents the formation of self-insured AHPs under the 2018 rules – those rules would’ve gone into effect on April 1, 2019 – that effective date is clearly after the decision, and prevents the formation of other AHPs that rely on the 2018 rules. The ruling’s impact is much trickier to discern for those AHPs that have already formed pursuant to the new rule. The status of the AHP as an ERISA plan could be in jeopardy, meaning the AHP would have to comply with the ACA’s individual and small group protections, and any working owners (sole proprietors, etc.) would have to exit the AHP (they could potentially qualify for a special enrollment in the exchange). Some of that impact, however, depends on the next steps in the lawsuit. Since the decision could potentially be placed on hold pending an appeal, AHPs that have formed under the 2018 rules could wait and see what happens before making any decisions on the future. However, they should likely consult with legal counsel to determine their next steps.
One thing is for certain, though: AHPs formed under the old AHP rules (those that have a commonality of interest, exclude sole proprietors, and exercise control over the AHP) are not impacted by the 2018 DOL rules or by the court’s ruling here. So, if an AHP formed under that older ERISA definition, they can continue to operate as they have been. On April 2, 2019, the DOL published an FAQ document in response to the court ruling, wherein the DOL stated that “Participants in AHPs affected by the District Court’s decision have a right to benefits as provided by the plan or policy. Plans and health insurance issuers must keep their promises in accordance with the policies and pay valid claims.” The DOL also reiterated that its considering its options for appealing the decision, with more to come on that.
NFP Benefits Compliance will continue to monitor the lawsuit and any related developments.
The DOL recently updated their Fact Sheet detailing the 2019 inflation adjustments of ERISA’s civil monetary penalties that can be imposed on employer-sponsored plans. This fact sheet provides the penalty amounts that are enforceable by the EBSA for penalties assessed after January 22, 2019 and for violations that occurred after November 2, 2015.
As background, the annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer-price index-urban (CPI-U) from October of the preceding year. For 2019, the penalties were published on January 23, 2019, and the amounts were based on a cost-of-living increase of 1.03 percent.
To avoid the imposition of penalties, employers should ensure ERISA compliance for all benefit plans and stay updated on ERISA’s requirements.
In March 2019, the IRS and DOL issued notices of possible tax relief and ERISA relief for certain counties in Ohio and Nebraska that were declared disaster areas due to serious weather events. The relief is available to individuals that reside or work in the following counties:
The guidance describes the ability of the IRS to postpone certain deadlines for taxpayers who reside or have business in the impacted areas, including the April 15, 2019, deadline for income tax returns and payments and the quarterly estimated income tax payments due on April 15, 2019, and June 17, 2019. Eligible taxpayers also have until July 31, 2019, to make 2018 IRA contributions. Penalties on payroll and excise tax deposits due on or after March 9, 2019, and before March 25, 2019, will be abated as long as the deposits were made by March 25, 2019.
Separately, the DOL recognized that plan fiduciaries, employers, labor organizations, service providers, and participants and beneficiaries located in the declared disaster areas may have difficulty in complying with ERISA over the coming months. Relief is available regarding verification procedures for pension plan loans and distributions as well as the time restrictions for participant contributions and loan repayments. There is also relief extended to ERISA claims compliance as long as plans act reasonably, prudently, and in the interest of the workers and their families who rely on their health, retirement, and other employee benefit plans for their physical and economic well-being.
On March 14, 2019, the Wage and Hour Division (WHD) of the DOL issued Opinion Letter FMLA 2019-1-A. Opinion letters are not considered formal guidance. They are only intended for the party submitting the inquiry. However, they do provide insight into how the DOL would view a similar set of facts and circumstances.
The requester asked the DOL if an eligible employee’s use of paid leave extends or delays an employee’s entitlement to 12 weeks of unpaid leave under FMLA. The WHD responded that the use of paid leave would neither delay nor extend an eligible employee’s FMLA leave entitlement. This is based on the DOL regulations that require an employer to provide a notice designating leave as FMLA within five business days, absent extenuating circumstances, after the employer has enough information to determine whether the leave is being taken for a FMLA-qualifying reason.
The regulations further provide that paid leave provided by the employer runs concurrently with FMLA. An employer may choose to be more generous than FMLA requires and provide additional paid or unpaid leave to an employee, but an employer may not designate more than 12 weeks of leave (or more than 26 weeks of military caregiver leave) as FMLA-protected.
The letter does not change an employer’s existing obligations under FMLA. However, it does serve as a good reminder that as soon as an employer has knowledge that an employee is absent for an FMLA qualifying reason, then they should send the designation notice within five business days regardless of whether the employee is using paid time off, receiving workers compensation benefits or other paid leave benefits.
On Feb. 27, 2019, the DOL released an information letter provided to the Justus Group, L3C (Justus). Justus is a patient advocate and health care claim recovery expert for plan participants both at the initial application stage and at the appeals stages. As background, DOL information letters call attention to established principals under ERISA. This letter confirms participants’ right to have an authorized representative communicate with the plan on their behalf.
As background, ERISA’s claims procedure regulations allow claimants to designate an authorized representative that will act on behalf of the claimant. The authorized representative should receive any notifications concerning the initial claim determination or appeal. The letter makes it clear that any procedure established for determining whether an individual is authorized to act on behalf of a claim cannot prevent claimants from choosing their representative or from designating whether the representative will act on their behalf for the initial claim or the appeal of an adverse benefit determination, or both.
The letter also reminds plan sponsors to include the procedure for designating an authorized representative in the plan documents (including the SPD).
Plan sponsors should consider this guidance when operating their plan. Their plan documents should clearly state the process by which participants can designate an authorized representative and they should not preclude participants from doing so.
On March 1, 2018, the IRS released an updated version of Publication 969 for use in preparing 2018 individual federal income tax returns. While there are no major changes to the 2018 version (as compared to the 2017 version), the publication provides a general overview of HSAs, HRAs and health FSAs, including brief descriptions of benefits, eligibility requirements, contribution limits and distribution issues.
Minor changes include the 2018 limits for HSA contributions (the single-only contribution limit increased to $3,450 and the family contribution limit increased to $6,900). A note explains that the 2018 HSA contribution maximum for individuals with family coverage was lowered to $6,850 and then restored to $6,900. Taxpayers who received distributions of excess contributions because of the temporary limit reduction are informed that they may recontribute those distributions without adverse tax consequences.
Further, regarding the updated annual deductible and out-of-pocket maximums for HSA-qualifying HDHPs, the deductible limit increased to $1,350 for single-only coverage and $2,700 for family coverage, and the out-of-pocket maximum limit increased to $6,650 for single-only coverage and remained at $13,300 for family coverage. The publication also reminds employers that for plan years beginning in 2018, salary reduction contributions to a health FSA cannot be more than $2,650 per year.
The publication serves as a helpful guide for employers with these types of consumer reimbursement arrangements, particularly for employees that may have questions in preparing their 2018 individual federal income tax returns.
On Feb. 7, 2019, HHS announced that its final settlement of the year occurred in December 2018, when Cottage Health agreed to pay $3,000,000 and to adopt a substantial corrective action plan to settle potential violations of HIPAA.
As background, Cottage Health operates Santa Barbara Cottage Hospital, Santa Ynez Cottage Hospital, Goleta Valley Cottage Hospital and Cottage Rehabilitation Hospital, in California. The HHS Office for Civil Rights (OCR) received two notifications from Cottage Health regarding breaches of unsecured electronic protected health information (ePHI) affecting over 62,500 individuals, one in December 2013 and another in December 2015. OCR is responsible for HIPAA enforcement and investigated the two reported breaches.
The first breach arose when ePHI on a Cottage Health server was accessible from the internet. OCR’s investigation determined that security configuration settings of the Windows operating system permitted access to files containing ePHI without requiring a username and password. As a result, patient names, addresses, dates of birth, diagnoses, conditions, lab results and other treatment information were available to anyone with access to Cottage Health’s server.
The second breach occurred when a server was misconfigured following an IT response to a troubleshooting ticket, exposing unsecured ePHI over the internet. This ePHI included patient names, addresses, dates of birth, social security numbers, diagnoses, conditions and other treatment information.
OCR’s investigation into Cottage Health found that they failed to:
For employers, this decision is a great reminder that the OCR is actively pursuing HIPAA violations, especially those issues related to data security. Employers should conduct routine risk assessments and address any discovered vulnerabilities. When a company is investigated, the OCR will likely impose penalties if a company fails to implement effective safeguards, such as data encryption, as required to protect sensitive information.
Finally, OCR concluded an all-time record year in HIPAA enforcement activity. In 2018, OCR settled 10 cases and was granted summary judgment in a case before an Administrative Law Judge, together totaling $28.7 million from enforcement actions. This total surpassed the previous record of $23.5 million, set in 2016, by 22 percent. In addition, OCR achieved the single largest individual HIPAA settlement in history of $16 million with Anthem, Inc., representing a nearly three-fold increase over the previous record settlement of $5.5 million in 2016. A summary of all 2018 OCR HIPAA settlements and judgments may be found at on the HHS website’s Health Information Privacy page.
The IRS Office of the Chief Counsel recently re-issued an information letter related to contributions mistakenly made to an employee’s HSA. The guidance is in response to a taxpayer’s letter dated September 2015 requesting clarification on circumstances under which an employer may recoup contributions to an employee’s HSA. Generally, such information letters cannot be relied upon as official guidance. However, they do provide insight as to how an IRS representative may view similar circumstances.
As background, contributions to an employee’s HSA are generally non-forfeitable, which means once the contribution has been made to the account, the employer can’t recoup it. There are two exceptions provided in official IRS guidance. The first involves an individual who was never HSA eligible. If they were never HSA eligible, they were not eligible to open the account or receive the contributions. Under those circumstances, the employer may work with the HSA trustee to recoup the contributions.
The second exception to the non-forfeitable contribution rule involves an individual who has contributed more than the annual statutory maximum limit set by the IRS. For example, if an employer’s contribution to an employee with self-only coverage in 2019 resulted in the employee exceeding the $3,500 statutory limit, the employer could work with the HSA trustee to recoup the amount that exceeds the limit.
In Information Letter 2018-0033, the IRS informally indicates that an HSA contribution amount could be recouped if there is clear documentary evidence of an administrative or process error. This is consistent with corrective actions under other laws that require that the parties be placed back in the same position as if the error had not occurred. The letter provides some examples that might fall under this standard:
Again, the letter cannot be relied upon as official guidance. If circumstances are similar to one of the identified events above, it may be possible for an employer to recoup the payment. The employer would want to discuss with outside counsel and the HSA trustee to determine options.
The IRS recently issued 2018 Form 8994 and the corresponding instructions intended for employers to determine the tax credit available to them for providing paid family and medical leave.
As background, the Tax Cut and Jobs Act of 2017 created a new employer credit available for those that offer qualifying paid family and medical leave for tax years beginning after 2017 and before 2020. To claim the credit, eligible employers must have a written program that pays at least 50 percent of wages paid for up to 12 weeks of family and medical leave a year, with the credit ranging from 12.5 to 25 percent.
Form 8994 requires employers to confirm four statements:
Form 8994 also provides the lines to calculate the appropriate credit amount.
Employers that provided qualifying paid family and medical leave during the 2018 tax year should work with their tax advisers to properly complete this form. If an employer didn’t offer paid family and medical leave during 2018, but is considering the opportunity for 2019, then this Form can be used as a guide. The IRS has indicated that it intends to issue proposed regulations on this tax credit, so we will continue to monitor and update as needed.
On Jan. 15, 2019, the DOL published a pre-publication version of the final rule adjusting for inflation of civil monetary penalties under ERISA. (They were unable to publish an official version due to the lapse in funding for certain government agencies.) The pre-published version of the final rule is for informational purposes only until the official rule is published in the Federal Register. Thus, until the official version is published in the Federal Register, the effective date of the 2019 final rule is delayed.
As background, federal law requires agencies to adjust their civil monetary penalties for inflation on an annual basis. The DOL last adjusted certain penalties under ERISA in January 2018 (as discussed in the Jan. 9, 2018, article here).
Among other changes, the EBSA is increasing the following penalties that may be levied against sponsors of ERISA-covered plans:
These new amounts will go into effect following official publication in the Federal Register. Until then, employers should familiarize themselves with these unofficial penalty amounts for 2019.
For more information on the new penalties, including the complete listing of changed penalties, please review the pre-publication version of the final rule below. Additionally, consult with your advisor if you have questions about the imposition of these penalties.
The IRS recently released the updated version of Publication 502 (Medical and Dental Expenses). The publication has been updated for use in preparing taxpayers’ 2018 federal income tax returns.
Publication 502 describes which medical expenses are deductible. For employers, Publication 502 provides valuable guidance on which expenses might qualify as IRC Section 213(d) medical expenses, which is helpful in identifying expenses that may be reimbursed or paid by a health FSA, HRA (or other employer-sponsored group health plan) or an HSA. However, employers should understand that Publication 502 does not include all of the rules for reimbursing expenses under those plans.
The recently released Publication 502 is substantially similar to prior versions. Dollar amounts have been updated, where appropriate, to account for inflation (e.g. the standard mileage rate for use of an automobile to obtain medical care).
As expected, the part of the final ADA wellness rules related to incentives has been removed from the regulations. The rules were originally effective for plan years starting on or after Jan. 1, 2017. They limited the amount of a reward or incentive offered through an employer sponsored wellness program to 30 percent of the premium cost if the program involved a disability related inquiry or medical examination. The AARP then challenged the incentive part of the regulations arguing that the incentive differential was too high considering the high cost of health coverage and lead to discrimination against older Americans. As discussed in the Jan. 8, 2018, edition of Compliance Corner, the U.S. District Court for the District of Columbia ruled in December 2017 that the relevant section of the regulations would be vacated effective 2019.
The EEOC had an opportunity to reconsider their regulations and issue revised rules. They have not done so to date. Thus, the incentive portion of the regulations are no longer in effect and are removed effective Jan. 1, 2019.
Importantly, the HIPAA rules related to wellness programs (including a limitation on reward amounts, requirement to provide a reasonable alternative standard, and an additional notice requirement) aren’t impacted by this action and remain applicable to employer-sponsored wellness programs.
Additionally, the EEOC Wellness Notice requirement was not impacted and is still required for employer sponsored programs involving a disability related inquiry (such as a health risk assessment) or medical examination (including a biometric screening). Employers who continue to impose a penalty or provide an incentive for such programs should work with outside counsel to determine next steps and guidance for their program.
The IRS recently published updated versions of Forms 5498-SA and 1099-SA and combined instructions for 2019.
As background, the IRS requires HSA trustees and custodians to report certain information to the IRS and to the HSA holder regarding contributions, distributions, the return of excess contributions and other matters the IRS deems appropriate. Form 5498-SA is used by trustees and custodians of HSAs and Archer MSAs to report contributions and any administration or account maintenance fees. Form 1099-SA is used to report distributions, including any curative distributions in the event of excess contributions. HSA account holders report contributions and distributions on Form 8889.
Other than updated filing and delivery deadlines, the 2019 forms and related instructions are largely unchanged from the 2018 versions.
Forms 1099-SA and 5498-SA generally apply only to HSA trustees and custodians. However, employers that offer an HSA may want to familiarize themselves with these forms, particularly in the event of any excess contributions.
On Dec. 10, 2018, the IRS published two notices (2018-99 and 2018-100) and a news release relating to tax-exempt organizations, nondeductible parking expenses and limited unrelated business taxable income (UBTI) relief. As background, the Tax Cuts and Jobs Act of 2017, enacted in December 2017, makes qualified transportation benefit expenses nondeductible (for 2018 and beyond). If such expenses are incurred by a tax-exempt organization, those expenses are treated as UBTI. The two 2018 notices provide guidance on nondeductible parking expenses and UBTI.
On nondeductible parking expenses (under Notice 2018-99), the amount of parking expenses that will be treated as nondeductible business expenses (and therefore UBTI for a tax-exempt organization) depends on how those parking expenses are provided — as payments to a third party or through employer-owned or leased parking facilities. On payments to a third party, the process is straightforward: the nondeductible expense is the amount paid to the third party (up to the monthly limit for qualified parking benefits (which was $260 for 2018). Since payments above the monthly limit are not excludable from an employee’s income, those payments are unaffected by the rule that disallows deductions for qualified transportation fringe benefits. Instead, they are treated as employee compensation (subject to employment and income tax withholding, the same as any other taxable compensation).
On employer-owned or leased facilities, the process is less clear: the employer should use any reasonable method to determine the nondeductible expense. The notice outlines a four-step process that would be deemed reasonable; the process looks at several factors relating to the employee’s use of the employer-owned parking facility, and whether that use is a primary use for employees versus the general public.
Notice 2018-99 also addresses UBTI. Specifically, the notice confirms the general notion that rules for determining UBTI attributable to qualified transportation fringe benefits provided by a tax-exempt organization mirror the rules for other taxpayers. In addition, though, the notice clarifies that tax-exempt organizations that have only one unrelated business or trade may reduce UBTI by the amount of any unused deductions that exceed the gross income of that trade or business. The notice also explains that tax-exempt organizations with less than $1,000 in UBTI do not need to file Form 990-T (Exempt Organization Business Income Tax Return) or pay UBTI tax.
Lastly, Notice 2018-100 provides a waiver for certain tax-exempt organizations. As background, tax-exempt organizations that underpay their estimated taxes are normally assessed a penalty. The notice provides a waiver from that penalty if the underpayment results from changes to the tax treatment of qualified transportation fringe benefits. In other words, if the employer otherwise reported and paid UBTI for all unrelated business income except that relating to qualified transportation fringe benefits, the underpayment penalty will be waived. The notice provides details on how tax-exempt organizations would claim that waiver.
Overall, because tax-exempt organizations face many challenges with regard to federal taxation and filings, and because UBTI is really outside the scope of employee benefits, employers should work with their accountant or tax counsel in understanding and applying the above IRS guidance.
On Nov. 30, 2018, the DOL announced that it has entered into a settlement to resolve its lawsuit against Dorel Juvenile Group, Inc., a Massachusetts based juvenile products company with thirty-four locations worldwide. The DOL challenged Dorel’s wellness program under ERISA by alleging that the employer breached their fiduciary responsibilities and discriminated against employees from 2013 to 2017 by requiring them to pay health premium surcharges through the imposition of an impermissible wellness program.
Specifically, the DOL filed its lawsuit in U.S. District Court for the Southern District of Indiana and contended that Dorel instituted a wellness program that unlawfully required employees to pay a tobacco use surcharge without the availability of the required reasonable alternative standard or waiver.
As background, if a wellness program provides a reward (premium reduction) for individuals satisfying a standard related to a health factor (in this case, the health factor being nicotine-free), then this is called an outcomes-based health contingent wellness program and the program must meet five requirements in order to comply with the HIPAA nondiscrimination rules.
First, the premium differential may not exceed 30 percent. If the program is designed to eliminate or reduce tobacco usage, the reward may be up to 50 percent of the premium cost. This means that the amount of the reward (or premium reduction) given for being nicotine free cannot be more than 50 percent of the total premium cost. The cost is based on the employer and employee contributions for self-only coverage. If the spouse and dependents are also included in the wellness program, then the reward may be based on the cost of the applicable premium.
Second, the program should be designed to "promote health and prevent disease." The employer should have written documents explaining the program and its purpose.
Third, participants must be offered an opportunity at least once annually to meet the standard and thus qualify for the reward.
Fourth, the employer must offer a reasonable alternative standard for obtaining the reward. In other words, the employer must provide an alternative way for an employee (spouse or child) to receive the reward other than being tobacco free. A reasonable alternative must be provided to all individuals who do not meet the requirement of being tobacco free. For example, many employers choose to require a smoking cessation program as the reasonable alternative standard.
So, the employer can require the employees to meet this standard each plan year. However, the employer has to give the employee the entire plan year to complete the reasonable alternative standard. Additionally, the employer would have to make the reward retroactive to the beginning of the plan year.
Fifth and finally, all program materials must include information on the availability of a reasonable alternative standard.
As part of the settlement Dorel must revise the tobacco surcharge contained in its wellness program to comply with HIPAA, which prohibits group health plans from discriminating against individuals in eligibility and continued eligibility for benefits and in individual premium or contribution rates on the basis of any health status-related factor. Dorel must also ensure that participants who utilize a reasonable alternative standard earn the same reward as non-tobacco users and cannot require plan participants to submit a tobacco use certification more than once per year.
Additionally, under the settlement Dorel agreed to pay restitution of $145,635 to 596 employees of their California, Indiana, and Massachusetts facilities who paid a tobacco use surcharge as part of their medical insurance premium during the period 2013 to 2017.
Finally, Dorel was also assessed a civil penalty under ERISA for breach of fiduciary duty totaling $29,127, which is twenty percent of the applicable recovery amount. The DOL agreed to compromise and reduce the amount of the penalty to $14,563.50, which is a fifty percent reduction, if Dorel waived certain notice rights regarding the penalty and its right to seek any further reduction of the penalty under ERISA.
Employers sponsoring a wellness program should consider the consequences of failing to do so in a HIPAA-compliant manner. Contact your advisor for more detailed information on the HIPAA wellness requirements.
On Dec. 14, 2018, the IRS issued Notice 2019-02 which provides the 2019 standard mileage rate for use of an automobile to obtain medical care. The 2019 mileage rate increased to 20 cents per mile, which is up two cents from the 2018 rate. Mileage costs may be deductible under Code § 213 if it is primarily for, and essential to, receiving medical care.
Generally, use of the standard mileage rate is optional, but it can be used instead of calculating variable expenses (e.g., gas and oil) incurred when a car is used to attain medical care. Parking fees and tolls related to use of an automobile for medical expense purposes may be deductible as separate items. However, fixed costs (such as depreciation, lease payments, insurance, and license and registration fees) are not deductible for these purposes and are not reflected in the standard mileage rate for medical care expenses.
In addition, transportation costs that are qualified medical expenses under Code § 213 generally can be reimbursed on a tax-free basis by a health FSA, HRA, or HSA, assuming the plan document allows for it.
The DOL recently issued the 2018 version of Form M-1. As background, Form M-1 must be filed by multiple employer welfare arrangements (MEWAs) and certain entities claiming exception (ECEs). The Form M-1 allows those entities to report that they complied with ERISA’s group health plan mandates.
While minimal changes to the Form M-1 have been made, this year’s Form M-1 instructions have been updated to reflect changes brought about by the final regulations on association health plans (AHPs). As a reminder, AHPs are MEWAs and, as a result, must file Form M-1 annually and following certain events. Thus, in an effort to provide additional guidance, the DOL has issued a list of Form M-1 filing tips for MEWA administrators. Here are some highlights:
The filing tips and additions to the instructions appear to indicate the DOL’s expectation of an increase in Form M-1 filings due to the final AHP regulations (see June 26, 2018 edition of Compliance Corner). Therefore, MEWAs (AHPs are MEWAs) should work with their advisor and service vendors to ensure compliance with ERISA and Form M-1 filing obligations.
The Departments of Labor, Treasury (IRS) and HHS recently released their semi-annual regulatory agendas. The agencies highlight possible action on several different employee benefit plan issues and are meant to help employers as plan sponsors and industry professionals prepare for potential changes in the benefits compliance world. The agendas do not provide a final timeline or publication dates, but they do provide insight into what could be on the horizon for the upcoming year. Here are some highlights from the agendas:
Treasury Rule List
On Nov. 19, 2018, the IRS released IRS Notice 2018-88, which provides guidance on the proposed regulations related to HRAs. The regulations, which were released Oct. 23, 2018, provide for two separate arrangements called individual coverage HRAs (ICHRAs) and excepted benefit HRAs. The new notice focuses on ICHRAs, which are employer-sponsored HRAs integrated with individual health insurance policies. The notice specifically discusses how the IRC Section 105, employer mandate and premium tax eligibility rules apply to ICHRAs.
IRC Section 105 generally requires employer contributions to be uniform for all participants. Otherwise, the HRA is at risk for discrimination. The Department of the Treasury and IRS anticipate releasing guidance providing that employer ICHRA contributions may vary by class as long as all participants in a class receive uniform contributions.
IRC Section 105 also prohibits the variance of contributions based on age. However, the cost of individual health coverage increases with age. It is reasonable that older employees may require increased ICHRA contributions in order to pay for the increased premium cost. To resolve this issue, the Treasury and IRS expect to issue future guidance permitting employer contributions to increase based on participant age.
The employer mandate requires an applicable large employer (or ALE, an employer with 50 or more full-time employees including equivalents) to offer minimum essential employer-sponsored coverage to at least 95 percent of full-time employees (known as Penalty A). If an ALE offers an ICHRA to at least 95 percent of full-time employees, it will comply with Penalty A.
As a reminder, individuals are not eligible for a premium tax credit (PTC) for any month they are covered by an employer-sponsored plan, which includes an HRA. Thus, any participants covered by an ICHRA will not be eligible for a PTC.
Further, individuals are not eligible for a PTC if they are eligible for an employer-sponsored plan that is affordable and meets minimum value. The notice provides guidance on how affordability will be calculated on an ICHRA. The employee’s required contribution is the premium amount for self-only coverage under the lowest cost silver plan offered by the Exchange for the rating area in which the employee resides minus the employer’s ICHRA contribution.
The Treasury and IRS recognize the burden on an employer to determine affordability for each individual employee, considering separate rating areas. For this reason, they anticipate proposing a location safe harbor that would permit an employer to base affordability on the cost of coverage in the worksite’s rating area (as opposed to each employee’s residential location).
Additionally, because of the late date on which individual policy premium rates are typically released each year, the Treasury and IRS are requesting comments related to a safe harbor that would permit an employer to base affordability on the previous year’s cost of exchange coverage.
An ICHRA that is determined to be affordable would also be considered to provide minimum value. Thus, an employee who is offered coverage in an affordable ICHRA would not be eligible for a PTC, even if they waived coverage.
Comments on the proposed guidance are due by Dec. 28, 2018.
On Nov. 15, 2018, the IRS issued Revenue Procedure 2018-57, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including transportation benefits, qualified parking benefits, health FSAs, QSEHRAs and other limitations for tax year 2019.
According to the revenue procedure, the annual limit on employee contributions to a health FSA will be $2,700 for plan years beginning in 2019 (up $50 from 2018).
Some changes impact the small business health care tax credit, since the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. For 2019, the average annual wage level at which the credit phases out for small employers is $27,100 (up $400 from 2018).
One option for certain small employers is the Qualified Small Employer HRA (QSEHRA). For 2019, the maximum amount of reimbursements under a QSEHRA may not exceed $5,150 for self-only coverage and $10,450 for family coverage (an increase from $5,050 and $10,250 in 2018).
Another change is that the maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $14,080 for 2019 (a $240 increase from the 2018 maximum of $13,840).
Regarding qualified transportation fringe benefits, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits increases to $265 in 2019 (from $260 in 2018). The combined monthly limit for transit passes and vanpooling expenses also increases to $265 in 2019 (up from $260 in 2018).
Sponsors and administrators of benefits with limits that are changing (adoption assistance plans, health FSA, transportation fringe benefits) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
NFP has updated the Employee Benefits Annual Limits white paper to reflect 2019 changes. Please ask your advisor for a copy.
On Nov. 19, 2018, the IRS issued Notice 2018-89 to provide guidance on the treatment of leave-based donation programs to aid victims of Hurricane Michael. Under the special tax-relief program, employers may choose to give employees the opportunity to forgo vacation, sick, or personal leave in exchange for cash payments that the employer then uses to make donations to charitable organizations related to victims of Hurricane Michael (pursuant to IRC Section 170(C)). This notice provides additional detail for employers that have adopted or are considering adopting leave-based donation programs with a specific exception to the general rule that such cash donations are excluded as taxable income for the employee. Similar relief has been previously provided by the IRS after disastrous hurricanes or wildfires.
Generally, making a cash donation to a charitable organization through an employer program would result in an employee’s constructive receipt of the cash. Under this notice, however, the treatment of cash payments for income and employment tax purposes when an employee makes a charitable contribution in exchange for vacation, sick or personal leave will not constitute gross income or wages as long as the payments are made to a charitable organization for the relief of Hurricane Michael victims and the money is paid before Jan. 1, 2020.
Please note that employees that elect to donate the leave may not claim a charitable contribution deduction on their income tax returns (to avoid “double dipping”). For the employer, such cash donations provided by the employee shouldn’t be included in Box 1, 3 (if applicable) or 5 of Form W-2.
Employers that seek to offer a leave-based donation program for victims of Hurricane Michael should review the notice and provide employee notifications of the program. Donations can be made through Dec. 31, 2019.
On Nov. 13, 2018, the DOL published advance information copies of the 2018 Form 5500 return/report, which includes Form 5500-SF and corresponding instructions. These advance copies are only for informational purposes and may not be used for 2018 Form 5500 or 5500-SF filings, but employers should familiarize themselves with the changes in preparation for 2018 plan year filings.
The DOL appears to have only made minor changes to this year’s forms. For example, the forms reflect the changes to the plan characteristics and principal business codes. They also reflect the updated penalties that employers could face for failing to file a Form 5500.
Additionally, the instructions clarify how a welfare plan sponsor would complete Line 6, which reflects the number of plan participants.
The instructions also highlight changes to Schedule R, which provides certain retirement plan information. Specifically, those instructions provide another circumstance under which Schedule R would not be required.
While many employers outsource the preparation and filing of these forms, employers should also familiarize themselves with the new requirements and work closely with outside vendors to collect the applicable information.
The IRS recently published guidance containing certain relief for individuals and businesses affected by the 2018 California wildfires. Specifically, the IRS offered extensions in relation to certain tax filing deadlines. The extensions apply automatically to any individual or business in an area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance.
Specifically, in California, individuals and businesses that reside in Butte, Los Angeles and Ventura counties may qualify for tax relief.
As a result of this relief, individuals or businesses that had forms due on or after Nov. 8, 2018 and before April 30, 2019 have additional time to file the form through April 30, 2019. The relief would apply to quarterly payroll, employment and excise tax filings due, as well as to any employers that may have previously applied for a Form 5500 filing extension.
Impacted employers should discuss their filing obligations with their CPA or tax professional, with this relief in mind.
On Nov. 20, 2018, the Employee Benefits Security Administration of the DOL (the Department) released compliance guidance (which includes limited relief) and participant FAQs addressing California wildfire issues. The Department recognizes that many parties may encounter compliance-related issues in the coming months related to their ERISA-covered plans. Specifically, the compliance guidance is meant to help employee benefit plans, plan sponsors, employers and employees that are located in counties identified as a covered disaster area due to the California wildfires. The guidance is as follows:
If an employee pension benefit plan fails to follow procedural requirements for plan loans or distributions imposed by the terms of the plan, the Department will not treat it as a failure if it satisfies all of the following conditions:
In addition, the Department will not seek to enforce plan asset timing rules provided the failure is attributable to the California wildfires. (Note that participant contributions and loan repayments must be forwarded to the plan as soon as possible, but no later than the 15th business day of the month following the month they were transferred to the employer.)
Normally, an administrator of an individual account plan is required to provide 30 days advance notice to participants whose rights will be temporarily suspended or limited by a period of at least three business days when they cannot direct investments, obtain loans or other distributions. Natural disasters, like the California wildfires, are beyond the control of a plan administrator. Therefore, if the lack of notice is attributable to the wildfires, then it would not be an ERISA violation.
The Department recognizes that plan participants may encounter difficulties meeting deadlines for filing benefit claims and COBRA elections due to wildfires. Plan sponsors are to act reasonably, prudently and in the interest of the workers and their families. Reasonable accommodations should be made to minimize loss of benefits due to timing failures.
Finally, the Department understands that timely compliance by group health plans may not be possible. Therefore, the Department’s enforcement emphasis will be on compliance assistance and will include grace periods and other appropriate relief.
The Department also provides FAQs for participants and beneficiaries related to health and retirement plans. It addresses issues participants may face (e.g., having an employer close, being unable to contact the plan administrator, or wishing to withdraw retirement funds without penalty due to the fires).
On Oct. 29, 2018, the IRS, DOL and HHS (the Departments) published a proposed rule which will allow employees to use their employers’ HRA to pay for individual health coverage. This rule comes after Pres. Trump issued an executive order directing the agencies to promulgate rules that would allow for the expanded use of HRAs.
Specifically, the proposed rule allows an employer to offer an HRA that can be integrated with individual health insurance coverage. As background, the ACA required that HRAs be integrated with group health coverage; this is the only way the HRA could be deemed to meet many of the ACA’s market reforms, such as the prohibition on annual and lifetime limits. As such, employers could not reimburse employees for individual coverage.
This rule would change that requirement by allowing employees to be reimbursed for the cost of individual coverage as long as the employee and any dependent for which the HRA would reimburse are actually enrolled in individual coverage. That individual coverage can be offered on or off the exchange and can include student health insurance coverage.
In order to deter adverse selection, the rule prohibits an employer from offering the HRA and a traditional health plan to the same class of employees. Additionally, the HRA must be offered on the same terms to each participant in the class (with limited exceptions). The rule allows the following classes of employees:
So, as an example, an employer could choose to offer a traditional group health plan to its full-time employees and an HRA integrated with individual coverage for its part-time employees. But that employer could not offer both a traditional group health plan and an HRA integrated with individual coverage for its full-time employees. This should make it more difficult for employers to shift high-cost individuals to the individual market.
In order to reimburse the individual coverage, employers must substantiate the employee’s coverage at the beginning of the HRA plan year and either prior to or in conjunction with any reimbursement. This can be done through third-party documentation of the coverage or an attestation from the employee. However, the attestation can only be relied upon as long as the employer doesn’t have specific knowledge that the individual is not enrolled in individual health coverage.
The proposed rule also would allow for employers to offer an excepted benefit HRA that isn’t integrated with any health coverage, as long as certain conditions are met. Specifically, to be considered a limited excepted benefit HRA, the employer must ensure that they offer other traditional coverage, limit the benefit to $1,800 per plan year (indexed for inflation), only reimburse for premiums of excepted benefit plans and make the HRA uniformly available.
The proposed rule also requires employers to distribute a notice to eligible employees 90 days before the start of the HRA plan year (or by the date of eligibility if someone becomes eligible for the HRA after the start of the plan year). The notice must describe the terms of the HRA, discuss the HRA’s interaction with premium tax credits, describe the substantiation requirements and notify the person that the individual health coverage integrated with the HRA isn’t subject to ERISA.
The rule also discusses the interaction of these HRAs with the Section 125 cafeteria plan regulations, the ACA and ERISA. As it pertains to the cafeteria plan regulations, the rule would allow an employee to take a pre-tax salary reduction to pay for the remainder of their individual policy as long as the individual coverage is offered outside of the exchange.
As it pertains to the ACA, the rule makes it clear that individuals who are covered by an HRA that’s integrated with affordable, minimum value individual health insurance coverage are ineligible for a premium tax credit. However, employees can waive the HRA so that they can retain their premium tax credit eligibility. The rule also states that an applicable large employer that offers a minimum value, affordable HRA or other employer-sponsored plan to at least 95 percent of its full-time employees and their dependents wouldn’t be liable for an employer mandate penalty.
As it pertains to ERISA, the rule makes it clear that individual coverage paid for through the HRA would not be subject to ERISA as long as the employer doesn’t take an active role in endorsing or choosing the individual coverage. In this way, the rules for having individual coverage avoid being subject to ERISA are similar to the rules for voluntary plans. However, the HRA itself would be subject to ERISA.
This rule would become effective on the first of the plan year beginning on or after Jan. 1, 2020. The Departments are requesting comments on the rule; those are due on or before Dec. 28, 2018.
While these rules could present additional options for smaller employers to offer coverage to their employees, the fact that there is no size limitation means that employers of all sizes could consider offering an HRA to certain classes of employees. Employers that want to do so will need to work with their service providers to implement the plan.
The IRS recently published guidance containing certain relief for individuals and businesses affected by Hurricane Michael. Specifically, the IRS offered extensions in relation to certain tax filing deadlines. The extensions apply automatically to any individual or business in an area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance.
Specifically, in Florida, individuals and businesses that reside in Bay, Calhoun, Franklin, Gadsden, Gulf, Hamilton, Holmes, Jackson, Jefferson, Leon, Liberty, Madison, Suwannee, Taylor, Wakulla and Washington counties may qualify for tax relief. In addition, deadlines were also extended in Georgia counties of Baker, Bleckley, Burke, Calhoun, Clay, Colquitt, Crisp, Decatur, Dodge, Dooly, Dougherty, Early, Emanuel, Grady, Houston, Jefferson, Jenkins, Johnson, Laurens, Lee, Macon, Miller, Mitchell, Randolph, Pulaski, Seminole, Sumter, Terrell, Thomas, Tift, Treutlen, Turner, Wilcox and Worth.
As a result of this relief, individuals or businesses that had forms due on or after Oct. 9, 2018 and before Feb. 28, 2019 have additional time to file the form through Feb. 28, 2019. The relief would apply to quarterly payroll, employment and excise tax filings due, as well as to any employers that may have previously applied for a Form 5500 filing extension.
Impacted employers should discuss their filing obligations with their CPA or tax professional, with this relief in mind.
On Oct. 15, 2018, the HHS and OCR issued a press release describing a $16M penalty against Anthem (an independent licensee of the Blue Cross Blue Shield association) for a HIPAA breach that occurred on Jan. 29, 2015. This breach is the largest in US history and involved a series of cyberattacks resulting in the exposure of electronic protected health information (ePHI) of nearly 79 million people. Anthem must pay the imposed $16 million civil monetary penalty, which is the largest settlement imposed by HHS for a HIPAA breach, and take substantial corrective action to avoid future HIPAA breaches.
Anthem self-reported the breach to HHS on March 23, 2015 explaining that a cyberattack initially occurred on Jan. 29, 2015 as a result of at least one employee responding to a malicious spear-phishing email sent by hackers. The attackers gained access to Anthem’s IT system and opened the door for further attacks. This type of attack is known as an advanced persistent threat. The cyber attackers stole the ePHI of 79 million people including their names, social security numbers, medical identification numbers, addresses, dates of birth, email addresses and employment information.
In the press release, HHS indicated that Anthem failed to implement appropriate measures for detecting hackers. The investigation revealed that Anthem did not conduct a sufficient enterprise-wide risk analysis, had insufficient procedures to regularly review information system activity, failed to identify and respond to suspected or known security incidents, and failed to implement adequate minimum access controls to prevent cyber attackers from accessing sensitive ePHI, beginning as early as Feb. 18, 2014. “Healthcare entities are attractive targets for hackers, which is why they are expected to have strong password policies and to monitor and respond to security incidents in a timely fashion or risk enforcement by OCR.”
Anthem entered into a resolution agreement with the OCR that, in addition to the penalty, requires Anthem to undertake a corrective active plan to comply with the HIPAA rules. While the agreement isn’t an admission or a concession that Anthem was in violation of the HIPAA rules, it does describe the investigation results that found Anthem had not:
The corrective action plan requires Anthem to conduct a company-wide risk analysis of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of ePHI held by Anthem. Anthem must also develop policies and procedures for the regular review of records of information system activity collected by Anthem and the processes for evaluating when the collection of new or different records needs to be included in the review. Access controls, such as network or portal segmentation and password management requirements, must also be created to protect the access between Anthem systems containing ePHI.
Anthem must submit an annual report to clarify the status of any findings and to ensure ongoing compliance with the corrective action plan. If HHS determines that Anthem hasn’t complied with the corrective action plan, it may impose additional civil monetary penalties.
This is another example of the ongoing diligence required for employers to comply with HIPAA policies and procedures to both prevent a breach and to respond once a breach occurs.
On Oct. 4, 2018, the IRS issued a Program Letter outlining its compliance strategies and priorities for fiscal year 2019. They include:
While it may be helpful for employers to see the areas where the IRS will focus their enforcement efforts in fiscal year 2019, compliance in all areas related to employer sponsored plans should always be a priority. If you have any questions related to your plan’s compliance, please contact your advisor for assistance and resources.
On Sept. 20, 2018, the HHS and OCR announced a settlement with the Boston Medical Center, Brigham Women’s Hospital and Massachusetts General Hospital totaling $999,000 in penalties for compromising the privacy of protected health information (PHI) during the filming of a documentary. In this breach, OCR alleged that these hospitals allowed ABC television network to film a documentary series without first obtaining authorization from patients. As part of the settlements, each hospital must create a corrective action plan that includes implementing a staff training on the topic and developing policies and procedures around photography, video and audio recording. The policies must include how to evaluate and approve requests from the media to film areas that aren’t otherwise open to the public.
As background, OCR guidance doesn’t allow health care providers to invite or allow media personnel into treatment or other areas of their facilities where patients’ PHI will be accessible in written, electronic, oral, or other visual or audio form, or to otherwise make PHI accessible to the media, without prior written authorization from each individual who is or will be in the area of whose PHI otherwise will be accessible to the media. Only in very limited circumstances does the HIPAA privacy rule permit health care providers to disclose PHI to members of the media without prior authorization signed by the individual. A similar (but more substantial) fine was imposed by OCR against New York Presbyterian hospital back in 2016 for a similar TV series with the same network.
Though each hospital denied wrongdoing and argued that they did receive consent from the patients, the OCR disagreed and stated that they will not permit covered entities to compromise their patients’ privacy by allowing news or television crews to film the patients without their authorization.
While employers don’t need to take any action based on this new assessed penalty, it’s a good reminder that PHI can come in many forms and all covered entities should be diligent to ensure HIPAA compliance.
The IRS recently published guidance containing certain relief for those individuals and businesses affected by Hurricane Florence. Specifically, the IRS offered extensions in relation to certain tax filing deadlines. The extensions apply automatically to any individual or business in an area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance.
Specifically, in North Carolina, individuals and businesses that reside in Beaufort, Bladen, Brunswick, Carteret, Columbus, Craven, Cumberland, Duplin, Greene, Harnett, Hoke, Hyde, Johnson, Lee, Lenoir, Jones, Moore, New Hanover, Onslow, Pamlico, Pender, Pitt, Richmond, Robeson, Sampson, Scotland, Wayne and Wilson counties may qualify for tax relief. In South Carolina, individuals who reside or have a business in Chesterfield, Dillon, Georgetown, Horry, Marion and Marlboro counties may qualify for tax relief.
As a result of this relief, individuals or businesses that had forms due on or after Sept. 8, 2018, and before Jan. 31, 2019, have additional time to file the form through Jan. 31, 2019. The relief would apply to quarterly payroll/employment/excise tax filings due, as well as for any employers that may have previously applied for a Form 5500 filing extension.
Affected employers should discuss their filing obligations with their accountant, with this relief in mind.
On Sept. 24, 2018, the IRS released Notice 2018-71 which provides 34 FAQs on the tax credit available to employers who offer paid family and medical leave. As background, the 2017 Tax Cuts and Jobs Act (2017 Tax Reform) added Section 45S to the Internal Revenue Code to establish a new temporary tax credit for employers that voluntarily offer paid family and medical leave to employees.
Section 45S is intended to incentivize employers to offer family and medical leave on a paid basis. To be eligible for the new federal tax credit, an employer must have a written policy that offers at least two weeks (annually) of paid family and medical leave to full-time employees and a proportionate amount to part-time employees that’s based on the employee’s expected work hours. The paid leave must be available to all employees who have been employed by the employer for at least one year and who, for the prior year, had compensation of not more than 60 percent of the highly compensated employee threshold for the preceding year — for 2018, this means employees making more than $72,000. Extending the offer of paid family leave to employees with compensation above this threshold is allowable, but the credit would not be available.
A previous set of FAQs explained how to calculate the general business credit, which is equal to 12.5 percent of the amount of wages paid to a qualifying employee while on family and medical leave when the employer provides at least 50 percent of normal wages for up to 12 weeks per taxable year. The credit increases incrementally up to a maximum of 25 percent for employers that offer 100 percent of normal wages during a qualifying leave and is currently available for wages paid in taxable years beginning after Dec. 31, 2017.
Here are some highlights from IRS Notice 2018-71:
Notice 2018-71 also provides guidance on other topics – including who may claim the credit, and how to calculate and claim the credit – and provides several helpful examples. It also mentions that the IRS intends to issue proposed regulations on the credit, although a specific timeframe isn’t provided.
Employers that currently offer paid leave to full- and part-time employees should review the FAQs to determine if the current leave program qualifies for the tax credit. If an employer currently does not offer a paid leave program or the program offered does not meet the standard established under Section 45S, they should consider the tax benefits of a paid family and medical leave policy, keeping in mind that this program is temporary (at least currently). Employers may also want to work with outside counsel, since a review of current leave policies and written procedures would be required.
The HHS Office of Civil Rights (OCR) released its August 2018 Cyber Security Newsletter, which focuses on considerations for securing electronic media and devices. As a reminder, HIPAA-covered entities and business associates are required to implement policies and procedures to limit physical access to their electronic information systems and the facilities in which they are housed. Often, employer plan sponsors consider their HIPAA security obligations only in regards to their servers and office desktop computers. Consequently, they overlook the risks associated with devices such as laptops, smartphones and tablets as well as electronic media including hard drives, USB drives, CDs and DVDs, tapes and memory cards.
The newsletter offers practical recommendations to covered entities on how to safeguard electronic PHI (ePHI) stored on such devices and media. Covered entities should remember to:
Employer plan sponsors who are responsible for the safeguarding of ePHI for their group health plans should review the newsletter and revise their policies and procedures as necessary.
The IRS recently published an updated version of Form 5558, Application for Extension of Time To File Certain Employee Plan Returns (Rev. September 2018). As background, employers use Form 5558 to request an extension of time to file Form 5500, Annual Return/Report of Employee Benefit Plan, the short Form 5500-SF and Form 5500-EZ. If filed, Form 5558 provides a 2 1/2 month extension to the due date for those forms. Form 5558 can also be filed for extensions for Form 8555-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, and Form 5330, Return of Excise Taxes Related to Employee Benefit Plans.
According to the “What’s New” section of the updated Form 5558, separate Forms 5558 must be filed for each type of return for which an extension is being sought. Previously, employers could file one Form 5558 to request several different return filing extensions. The updated Form 5558 also states that no signature is required when filing extension forms for Forms 5500 and 8955-SSA, but that one is required when filing extensions forms for Form 5330.
Employers should review the updated Form 5558 and familiarize themselves with the changes, particularly where they may have been filing a single Form 5558 for multiple plans in the past. The updated form should be used for Form 5558 extensions filed in September 2018 and onward.
On Sep. 4, 2018, the DOL released the updated FMLA forms, signaling the Office of Management and Budget’s (OMB) three-year approval of the forms and notices used to manage the FMLA. As background, these forms were scheduled to expire on May 31, 2018. However, the DOL requested 30-day extensions until the OMB approved the forms. (We discussed the pending OMB approval in the June 12, 2018 edition of Compliance Corner.)
As we mentioned before, the DOL submitted the forms to the OMB back in April and requested a three-year extension to the forms in their current layout (that is, they requested no changes). Since the OMB has formally approved the forms, they are now set to expire on Aug. 31, 2021.
Employers should utilize the updated forms and notices.
On Aug. 28, 2018, the DOL issued two new opinion letters related to the FMLA. One opinion letter relates to an employer’s no-fault attendance policy during an employee’s FMLA leave and the second outlines how an organ donor may qualify for FMLA leave. As a quick reminder, an opinion letter is an official, written opinion on how an employer can maintain compliance in specific circumstances that are presented by the person or entity requesting the letter. An employer can use the provided guidance when handling similar situations.
No-Fault Attendance Policy Can Be Compliant Under the FMLA (FMLA2018-1-A)
Opinion letter FMLA 2018-1-A responds to a request for a ruling on whether an employer’s no-fault attendance policy violates the FMLA. The policy effectively freezes the number of attendance points that an employee accrues prior to taking FMLA leave. The DOL determined that, as long as the policy is nondiscriminatory, it doesn’t violate the FMLA.
FMLA generally prohibits employers from “interfering with, restraining, or denying” an employee’s exercise of FMLA rights. Further, an employer cannot discriminate or retaliate against an employee for having taken FMLA nor can the taking of FMLA be a negative factor in employment actions. As such, employers are required to provide an employee who takes FMLA leave with the same benefits that an employer on leave without pay would otherwise be entitled to receive. An employee’s entitlement to benefits is determined by the employer’s policy for providing benefits when the employee is on other forms of leave (paid or unpaid).
This opinion letter reviewed an employer’s attendance policy wherein employees accrue points for tardiness and absences and those that accrue eighteen points within a twelve month period of “active service” are automatically discharged. There are certain absences, including FMLA-protected leave, that don’t accrue points. Upon return from such a leave, employees each have the same number of points that they accrued prior to the leave. The leave essentially pauses “active service” and the points are extended for the duration of the FMLA leave. So, an employee returns from leave with the same number of points that he or she accrued prior to the leave. The employer’s policy is applied in this same manner for other types of leave, including leave related to workers’ compensation.
In the letter, the DOL points out that removal of absenteeism points is a reward for working and therefore an employment benefit under the FMLA. Under this employer policy, an employee neither loses a benefit that accrued prior to taking the leave nor accrues any additional benefit. So, as long as employees on equivalent types of leave receive the same treatment, the practice doesn’t violate FMLA.
This opinion letter is a good reminder for employers obligated to comply with FMLA that FMLA can interact with many different policies. Employers can take this opportunity to review existing policies to ensure that they don’t discriminate against any employee on FMLA leave.
Organ donation eligibility for FMLA (FMLA2018-2-A)
Opinion letter FMLA 2018-2-A responds to a request asking whether an organ-donation surgery can qualify for FMLA leave even though such an employee is choosing to donate the organ solely to improve someone else’s health. Secondarily, the letter addresses whether an organ donor can use FMLA leave for post-operative treatment. The DOL determines that both situations can qualify for FMLA leave.
As background, the FMLA allows an employee to take unpaid, job-protected leave for specific family and medical reasons, including leave for a “serious health condition” that renders the employee unable to perform the functions of their job. A “serious health condition” may include an illness, injury, impairment, or physical or mental condition that involves either inpatient care in a hospital, hospice or residential medical care facility. The regulations define “inpatient care” as an overnight stay in an above-mentioned facility or any subsequent treatment in connection with such inpatient care.
The DOL determines that an organ donation can qualify as a “serious health condition” under the FMLA when it involves either “inpatient care” or “continuing treatment.” The employer included a statement within the request that organ donation surgery typically requires an overnight hospital stay. The DOL opined that in such case, the organ donation surgery and any related post-operative treatment would be considered a “serious health condition” to qualify for FMLA leave.
This opinion letter provides guidance for employers that an otherwise healthy employee may use FMLA leave for a voluntary organ donation surgery. It also serves as a good reminder to employers that each FMLA leave request is fact-specific and can involve a facts and circumstances-based analysis.
On Aug. 20, 2018, the DOL and IRS released guidance on association health plans (AHPs). As background, in June 2018 the DOL published final regulations on AHPs. Those regulations allow more employer groups and associations to form AHPs by relaxing ERISA’s original rules on AHPs. Specifically, through the new AHP regulations, AHPs can now be offered to employers in a state, city, county or multi-state metro area, or to employers in a common trade, industry or profession. Additionally, the new regulations allow sole proprietors to join AHPs.
DOL Compliance Assistance
The DOL’s compliance assistance document features a discussion of the new regulations and provides answers to a number of questions pertaining to the administration of AHPs under the law. Specifically, the document confirms that AHPs are employee welfare benefit plans under ERISA, and therefore must meet ERISA’s reporting, disclosure and fiduciary requirements of plans and plan sponsors. This means that AHPs will still need to furnish SPDs, SMMs, and SBCs to employees covered by the plan. Likewise, both fully insured and self-insured AHPs will have to file Forms 5500 and M-1 (since AHPs are also MEWAs). AHPs must also comply with the benefits claims procedures, consumer health care protection provisions and fiduciary rules imposed on ERISA fiduciaries.
Notably, the Department discusses COBRA and points out that they anticipate future guidance on the application of COBRA to AHPs that provide coverage to employers that have less than 20 employees (which is the threshold of employees that makes an employer subject to COBRA).
The remaining questions and answers in the document discuss enforcement of AHPs. The DOL makes it clear that AHPs will also be able to avail themselves of any necessary prohibited transaction exemptions as well as the DOL’s Voluntary Fiduciary Correction Program (VFCP – which allows plan sponsors to self-correct certain violations of ERISA). However, they also reiterate the fact that ERISA allows the DOL to issue cease-and-desist orders or summary seizure orders to MEWAs that are fraudulent or create a risk of immediate danger or harm to the public. Additionally, the document reminds the public that state insurance regulators also have jurisdiction over AHPs, including self-insured AHPs.
The document ends by identifying the timeline under which AHPs can be established or operate under the DOL’s new rules, and echoes an earlier part of the document in stating that AHPs formed prior to the new rules can operate under the old regulations or elect to follow the new regulations.
IRS Q&A on Employer Mandate & AHPs
The IRS updated their Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act to discuss AHPs and the employer mandate. Specifically, in “Q&A 18,” the IRS states that the employer mandate does not apply to an employer participating in an AHP unless they are otherwise subject to the employer mandate. In other words, employers that are not an Applicable Large Employer (ALE) under the ACA will not become one by virtue of joining an AHP.
Although the guidance from the DOL and IRS does not present new information, entities seeking to establish an AHP should consider this guidance and familiarize themselves with the resources provided by the documents. We’ll continue to report on additional developments as the DOL and IRS provide them.
On July 17, 2018, the EEOC issued a press release announcing a settlement agreement resolving a lawsuit it filed against Estée Lauder. The company is a manufacturer and marketer of skin care, makeup, fragrance and hair care products. As a result of the settlement, Estée Lauder will pay $1,100,000 and provide other relief to resolve the lawsuit alleging sex discrimination against male employees.
As background, the EEOC alleged that Estée Lauder discriminated against a class of 210 male employees. Specifically, the lawsuit claims Estée Lauder provided new fathers two weeks paid leave to bond with a newborn, or with a newly adopted or fostered child, while it provided six weeks to new mothers. The parental leave at issue was separate from medical leave received by mothers for childbirth and related issues. The EEOC also alleged that the company unlawfully denied new fathers return-to-work benefits provided to new mothers, such as temporary modified work schedules, to ease the transition to work after the arrival of a new child and exhaustion of paid parental leave.
In addition to the money paid pursuant to the settlement, the agreement requires Estée Lauder to administer parental leave and related return-to-work benefits in a manner that ensures equal benefits for male and female employees and utilizes sex-neutral criteria, requirements and processes. Estée Lauder has already taken steps to address this requirement by implementing a revised parental leave policy that provides all eligible employees, regardless of gender or caregiver status, the same 20 weeks of paid leave for child bonding and the same six-week flexibility period upon returning to work. For biological mothers, these parental paid leave benefits begin after any period of medical leave received by mothers for childbirth and related issues. The benefits apply retroactively to all employees who experienced a qualifying event (birth, adoption or foster placement) since Jan. 1, 2018. Finally, the settlement also requires that Estée Lauder provide training on unlawful sex discrimination and allow monitoring by the EEOC.
In summary, this lawsuit and settlement agreement provides employers with a great example of conduct that violates the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964. Ultimately, this settlement demonstrates that employers must provide equal opportunities for time off to new dads and new moms for bonding with a new child, which is what federal law requires. Specifically, leave benefits related to pregnancy, childbirth or related medical conditions can be limited to women affected by those conditions. However, parental leave must be provided to similarly situated men and women on the same terms. The EEOC commended Estée Lauder for working cooperatively on a resolution that compensates male employees who received less paid leave for child-bonding as new fathers and for revising its parental leave policy.
On Aug. 13, 2018, in McMillan v. AT&T Umbrella Benefit Plan No. 1, No. 17-5111 (10th Circ. Aug. 13, 2018), the U.S. Court of Appeals for the Tenth Circuit affirmed a federal judge’s decision to reverse an AT&T benefit plan’s denial of short-term disability (STD) benefits to an employee. The issue in the case was whether the plaintiff, McMillan, was entitled to 26 weeks of STD benefits due under the plan due to his inability to perform “all of the essential functions of his job” as a Senior IT Client Consultant. The court highlighted the employer’s improper administration of the ERISA disability claim and upheld the district court judge’s award of 26 weeks of disability benefits.
As background, McMillan received STD insurance under AT&T’s income benefit program. He submitted an STD claim due to his sleep apnea, diabetes, stage III kidney disease, shortness of breath, chronic obstructive pulmonary disease, inability to stand or walk for long periods of time, and an inability to focus, concentrate and retain short-term memory. Upon review of the physician statements and conversations with McMillan regarding his job duties, the plan administrator denied the claim, asserting that his job duties were sedentary and, therefore, the medical findings were insufficient to conclude he was unable to perform his job duties. McMillan followed the appeal procedures and submitted additional medical substantiation but was denied again. He then sued for judicial review of the decision under ERISA, and the district court reversed the plan administrator’s denial of McMillan’s STD benefits.
Upon review, the Tenth Circuit first reviewed the plan document, which provided that an employee is totally disabled if “because of Illness or Injury, [he or she is] unable to perform all of the essential functions of [his or her] job.” Further, the court stated that an ERISA plan must consider whether the claimant can actually perform all the job requirements and that a denial is arbitrary and capricious if premised on medical reports that fail to consider one or more of the claimant’s essential job functions. Although the plan consulted with five doctors with different specialty areas, who all came to the conclusion that McMillan was not disabled, the court noted that none of them explained how McMillan could have a job which required some weeks of 100% travel when he had difficulty walking. As such, the court ruled that the plan failed to consider McMillan’s ability to perform the travel and cognitive requirements of his position and remanded McMillan’s claim back to the plan for further processing.
This case serves as a good reminder that employers should properly administer ERISA disability claims. Upon receipt of a claim, an employer should always review the plan terms to determine what steps are required and what specific evidence is necessary to review the claim. An employer should be very detailed in the claim review and follow the plan terms. Additionally, any doctors that are reviewing the claim on behalf of the plan administrator should be provided all pertinent information and encouraged to complete a thorough analysis of the participant’s claims. In the event of a denial, they should be very specific as to why the claim does not meet what’s required under the plan to receive the benefit. It’s also an important reminder that even when an employer turns to a third party to handle the administration of the plan, the employer remains ultimately responsible.
On July 11, 2018, the U.S. Court of Appeals for the Seventh Circuit ruled in Cehovic-Dixneuf v. Wong, No. 17-1532 (7th Cir. July 11, 2018), that a supplemental life insurance policy was subject to ERISA because it satisfied the five requirements for being an ERISA employee welfare benefit plan. The court reasoned that the policy wasn’t exempt from ERISA under the DOL's regulatory safe harbor for voluntary plans because it didn’t satisfy all four of the exception requirements. As a result, the policy's death benefits were payable to the designated beneficiary, the participant's sister and plaintiff, without regard to equitable arguments asserted by the participant's ex-wife, the defendant.
As background, this fully insured supplemental life insurance policy was offered by the participant's employer with a death benefit of $788,000. The participant listed his sister as the sole beneficiary for both the supplemental policy and a basic life insurance policy with a death benefit of $263,000. However, after the participant died, his ex-wife claimed that she and the child she had with the participant were entitled to the death benefits from the supplemental policy. The participant's sister sued the ex-wife, seeking a declaration that the sister was entitled to the death benefits.
The district court ruled in favor of the sister, and the Seventh Circuit affirmed that decision, finding that the supplemental life insurance policy was subject to ERISA and that the sister was entitled to death benefits under the policy. Any equitable arguments asserted by the defendant couldn’t succeed if the supplemental life insurance policy is covered by ERISA because ERISA generally requires plan administrators to manage plans according to the governing documents, including beneficiary designations.
To avoid ERISA application, the defendant argued that the court should sever the supplemental life insurance policy from the basic life insurance policy. They also argued that the plan was voluntary since the premiums were paid in full by participants with no employer contributions. However, the court explained that under Seventh Circuit precedent, ERISA covers a welfare arrangement that meets five elements based on ERISA's definition of "employee welfare benefit plan."
Quickly, here are the following five elements that must be present for ERISA to cover an employee welfare plan:
All of those criteria were deemed satisfied because the supplemental life insurance policy was part of a program established by the participant’s employer for the purpose of providing death benefits to participants or their beneficiaries.
Moreover, the Seventh Circuit noted that an arrangement isn’t excluded from ERISA under the DOL's voluntary plan safe harbor if it fails to satisfy any of the safe harbor's four requirements. Specifically, the safe harbor requires that:
The court’s opinion was pretty straightforward, as the Seventh Circuit concluded based on key information from the SPD that the policy failed the safe harbor's third requirement because the employer had performed all administrative functions associated with maintenance of the policy. In other words, the employer's functions exceeded the very limited ones permitted under the safe harbor. Specifically, the employer was listed as the policyholder of the supplemental life insurance policy and the SPD described the policy as being part of or related to the ERISA covered basic life policy.
In summary, employers should be aware of ERISA application of certain benefits and the compliance obligations that follow, such as SPD distribution. Ultimately, this case demonstrates that when ERISA applies to an arrangement, ERISA's broad preemption rule may supersede many state laws that would otherwise apply to the arrangement. In this case, the Seventh Circuit's conclusion that the supplemental life insurance policy was covered by ERISA meant that the ex-wife couldn’t make certain equitable arguments that might otherwise have been available.
The IRS recently published guidance containing certain relief for those individuals and businesses affected by the continuing Hawaii volcanic eruptions and earthquakes that started on May 3, 2018.
Specifically, the IRS offered extensions of certain tax filing deadlines because of this natural disaster. The extensions apply automatically to any individual or business in an area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. So, in Hawaii, individuals who reside or have a business in Hawaii County may qualify for tax relief. As a result, if a form was due on or after May 3, 2018, and before Sept. 17, 2018, additional time to file the form through Sept. 17, 2018, is available.
The relief would apply to quarterly payroll/employment/excise tax filings due. Additionally, employers in Hawaii County should also keep the relief in mind if they have difficulty gathering the documentation needed to complete their Form 5500. Some employers may still wish to file Form 5558 (Application for Extension of Time to File Certain Employee Returns), which, if timely filed, provides an automatic two-and-a-half months extension (i.e., to October 15 for calendar-year plans).
On June 18, 2018, HHS announced that a $4,348,000 penalty against The University of Texas MD Anderson Cancer Center (MD Anderson) was affirmed by an administrative law judge (ALJ). The penalty resulted from HIPAA privacy and security rule violations and represents the fourth largest amount awarded to OCR for a HIPAA violation.
As background, HHS’s Office for Civil Rights (OCR) is responsible for HIPAA enforcement and investigated MD Anderson after three separate data breaches were reported in 2012 and 2013. One breach involved the theft of an unencrypted laptop from the residence of an MD Anderson employee and the other two involved the loss of unencrypted universal serial bus (USB) thumb drives containing electronic protected health information (ePHI) of over 35,500 individuals.
OCR’s investigation into MD Anderson found that it was not following its own encryption policies and did not take action when an internal risk analysis discovered that the lack of device-level encryption posed a high risk to the security of ePHI. MD Anderson asserted three different claims as to why their breach was not an unauthorized disclosure. First, they argued that a disclosure had not occurred because there was no proof that a third party had received or viewed the PHI that was left on those devices. The ALJ rejected that argument as nothing in the HIPAA regulations requires that lost information must be viewed by unauthorized individuals in order to be disclosed. Instead, simply releasing PHI constitutes a disclosure for which OCR has the authority to impose a penalty.
Second, MD Anderson defended its actions by asserting that the obligation to encrypt did not exist, since the ePHI was being used for ‘research’ and was, therefore, not subject to HIPAA’s nondisclosure requirements. The ALJ rejected this argument because there is nothing in HIPAA that subjects that HIPAA rules do not apply to PHI that is disclosed in the course of research.
Third, MD Anderson claimed that the actions of employees were unsanctioned and the result of theft, and therefore their actions couldn’t be imputed to MD Anderson. However, the ALJ reasoned that HIPAA holds principals liable for the acts of their agents, including employees, when they act within the scope of their duties. In this case, the employees in question had access to the laptop and USB pursuant to their official capacity. So MD Anderson was not off the hook for the actions of its employees.
For employers, this decision is a great reminder that the OCR is pursuing HIPAA privacy violations, especially those issues related to risk management. Employers should conduct routine risk assessments and address any discovered vulnerabilities. When a company is investigated, the OCR will likely impose penalties if a company fails to implement effective safeguards, such as data encryption, as required to protect sensitive information.
On June 19, 2018, the EBSA issued final regulations related to the creation and maintenance of association health plans (AHPs) under ERISA. After considering over 900 public comments, the EBSA largely finalized the proposed regulations (see the Jan. 9, 2018, edition of Compliance Corner) with some clarification and a few modifications.
As a reminder, ERISA governs single-employer plans and multiple employer welfare arrangements (MEWAs). Prior to the final rule, ERISA would apply to a MEWA on the plan level, instead of on the individual employer level, only if all of the following criteria applied:
If the group met these criteria, it was considered a bona fide association, the group was rated collectively for insurance premium purposes, the plan was considered to be maintained at the plan level and the association complied with ERISA’s requirements, including providing a single Summary Plan Description (SPD) and filing the Form 5500 (if applicable). Alternatively, if the group didn’t satisfy the criteria, then the insurer could issue rates based on each separate employer member, the plan was considered to be maintained at the employer level, and each employer would be responsible for complying with ERISA and providing a separate SPD and Form 5500 (if applicable).
Importantly, the final regulations don’t replace the previous guidance. They provide an additional option for unrelated employers to come together to sponsor a single health plan. They expand the definition of an employer under ERISA and how employers may qualify as a single employer for group health plan purposes. Groups that previously qualified as bona fide associations under the previous guidance continue to qualify as AHPs. Further, if a group that otherwise qualifies to sponsor a single-group health plan under the new rules wishes to operate as separately sponsored employer plans, they may choose to do so with a description of such in the plan documents.
How AHPs Can Exist
In the proposed regulations, the requirement for the association to exist outside of the purpose of providing benefits was eliminated. The final regulations altered this provision slightly by adding a requirement that the association or group have at least one substantial business purpose unrelated to the provision of benefits, although the principal purpose may be the provision of benefits. This is in response to comments that claim that allowing associations to be formed solely for the purpose of providing benefits would result in:
While the rule doesn’t define “substantial business purpose,” it does include a safe harbor. A substantial business purpose is considered to exist where a group or association would be a viable entity even in the absence of sponsoring a benefit plan. For example, an association could offer members services such as conferences, classes or educational materials on business issues; be a standard-setting organization establishing business standards or practices; or simply advance the well-being of an industry through some substantial activity.
Similar to the proposed rule, the commonality of interest test will be satisfied if the employers are of the same industry, trade, line of business or profession OR same geographic location. The same geographic location includes the same state or metropolitan area (such as NY/NJ/CT, WA/DC/VA, and KS/MO). It could also include a Metropolitan Statistical Area or a Combined Statistical Area, as defined by OMB (and as used by U.S. government agencies for statistical purposes). This means that employers may come together on a national basis as long as they’re in the same industry, trade, line of business or profession and meet the other outlined requirements.
As with the proposed rule, member employers must exercise control over the plan. However, the final rule modified the control test slightly from the proposed version. Sufficient control is considered to be demonstrated if the employers regularly nominate a governing body for the association and plan, if employers have the authority to remove a director or officer without cause, and if employers have decision-making authority and opportunity related to formation, design, amendment and termination of the plan.
Who Can Join
ERISA generally doesn’t apply to an arrangement consisting only of a self-employed individual with no common-law employees. Participants must be employees, former employees or family members of such. However, the final rules permit sole proprietors and other self-employed individuals (called working owners) with no common law employees to join an AHP as member employers. Individuals must work at least 20 hours per week or 80 hours per month providing services to the trade or business (decreased from the proposed 30 and 120 hours, respectively) OR have earned income from such trade or business that at least equals the cost of coverage. The final regulations permit a working owner to self-certify their hours or income to the AHP, but they also permit an AHP to implement certification procedures as part of their ERISA fiduciary responsibility.
The final rule includes the proposed rule’s nondiscrimination provision, which is intended to limit adverse selection and apply the existing health nondiscrimination provisions under HIPAA. The HIPAA nondiscrimination rules generally prohibit discrimination based on a health factor as it pertains to eligibility, benefits or premiums within groups of similarly situated individuals. The rules don’t prohibit discrimination across different groups of “similarly-situated individuals” — defined as bona fide employment-based classifications consistent with the employer’s usual business practice. An employee classification is bona fide if the employer uses the classification for purposes independent of qualification for health coverage.
AHPs, like any other group health plan, cannot discriminate within a group of similarly situated individuals based on a health factor. This means that AHPs must comply with all of the following:
Notably, it’s common for existing AHPs to experience-rate employer-members. The final rule doesn’t require associations that meet prior AHP guidance to comply with the nondiscrimination provision (although the HIPAA nondiscrimination rules continue to apply).
When New Regulations Become Effective
The regulations are effective 60 days following the publication in the Federal Register. However, the applicability date varies by plan: Sept. 1, 2018, for fully insured AHPs, Jan. 1, 2019, for existing self-insured AHPs and April 1, 2019, for newly formed self-insured AHPs.
AHPs are generally subject to ERISA, HIPAA and ACA market reforms. The size of the group for premium rating purposes will be based on the total number of employees of all employer members of the association. The applicability of COBRA for a small employer who would otherwise be exempt except for participation in an AHP is an issue that EBSA has referred to the IRS and Treasury for future guidance.
The most common questions remaining after the proposed regulations relate to state regulation of AHPs. For example: What about a state law that prohibits self-insured AHPs, the participation of self-employed individuals without common law employees, or the formation of an association based primarily on the purchase of insurance? Would these laws be preempted by the federal regulations? Unfortunately, the final regulations provide little information as to that issue. In the preamble, the EBSA encourages state cooperation, but states:
“The Department declines the invitation of the commenters to opine on specific State laws…The final rule is not the appropriate vehicle to issue opinions on whether any specific State law or laws would be superseded because of the final rule.”
The expectation is that states will review the final regulations and begin issuing guidance in the coming weeks and months. The preamble also indicates that future action may be taken in regard to preemption against state insurance laws that “go too far in regulating non-fully-insured AHPs in ways that interfere with the important policy goals advanced by this final rule.” We’ll continue to report any developments.
Who Will Benefit
While any size employer may join an AHP, AHPs may only be attractive to small employers that would avoid the current member-level billing, modified community rating, essential health benefit package and limited plan choice. AHPs may also be an attractive option for self-employed individuals looking to get out of the individual market.
For more information on how the final AHP regulations may apply to your benefit options, please contact your advisor.
On May 18, 2018, the United States District Court for the Northern District of California granted an insurer’s motion to dismiss state law claims in Stolebarger v. The Prudential Insurance Company of America, 2018 WL 2287672 (N.D. Cal. 2018). As background, Stolebarger brought this case after Prudential denied his claims for long-term disability (LTD), which he was claiming due to suffering from mental illness. His LTD policy was provided through his employment with the Bryan Cave law firm. In bringing this case, Stolebarger claimed that Prudential had violated portions of California’s Unfair Competition Law (UCL), amongst other claims of breach of contract. In the alternative, Stolebarger asserted that they violated ERISA.
Interestingly, Stolebarger claimed that his LTD policy was a voluntary plan. In keeping with the requirements necessary for a plan to be a voluntary plan, he alleged the following:
While those are generally the requirements to be met for asserting that a plan is a voluntary plan – and, thus, exempt from ERISA – the court reviewed the plan documents and came to the decision that the LTD was, in fact, ERISA-covered. Specifically, Bryan Cave provided an SPD for the LTD, and that SPD stated that the LTD was governed by ERISA. Additionally, Bryan Cave identified itself as the plan sponsor, plan administrator, and agent for legal service of process. As such, the Court found that Bryan Cave had endorsed the LTD, which meant that the plan didn’t meet the requirements necessary to be a voluntary plan.
Since the Court decided that ERISA applied to the LTD, Stolebarger’s claims based on state law were preempted. Generally, in order for a state law to fall outside of ERISA’s express preemption provision, two requirements must be met: the state law must be specifically directed toward entities engaged in insurance, and the state law must substantially affect the risk pooling arrangement between the insurer and the insured. The Court found that neither of those standards had been met. Additionally, a state law is completely preempted if the claim could have been brought under ERISA and if there’s another legal duty, independent of ERISA, which is implicated by a defendant’s actions. The court found the state law to be preempted since Stolebarger’s assertion that his claim had been wrongly denied would be based squarely upon the terms of his ERISA-covered LTD policy.
So, the court essentially deemed the LTD plan to be an ERISA-covered plan and then ruled that ERISA preempted state law in this situation. Although we don’t normally report on federal district court cases, we thought it important to highlight how the issue of voluntary plans can arise in a court case. With this case in mind, employers should consider whether or not their plan documents line up with their desire for a certain plan to be voluntary. Specifically, they should be careful not to distribute documents that promise rights under ERISA where they don’t intend any to exist. They should also ensure that they meet the four requirements for sponsoring a voluntary plan, if that’s their goal.
The Office of Management and Budget’s (OMB’s) three-year approval for the FMLA forms and notices used to manage the program was scheduled to expire on May 31, 2018. However, the DOL requested a 30-day extension to June 30, 2018. So employers can (and should) continue to use the existing forms.
As background, the FMLA forms are used to notify an employee of their rights under the law and to certify that an employee is eligible to take FMLA leave. Pursuant to the Paper Reduction Act of 1995, the DOL is required to submit the FMLA forms and notices to the OMB for approval every three years.
The DOL submitted the forms to the OMB back in April and requested a three-year extension to the forms in their current form (meaning they requested no changes). The current review period expired May 31, 2018, but the OMB hasn’t yet approved the DOL’s request. Until the OMB formally approves the FMLA forms and notices, the DOL will automatically renew the existing forms on a month-by-month basis. So, the DOL has updated the forms to provide a June 30, 2018, expiration date and will continue to extend the expiration date every 30 days until the DOL receives the OMB’s approval.
In the meantime, employers can use the current forms and notices. Because the DOL didn’t request any modifications, it’s likely that the FMLA forms and notices will go unchanged for another three-year term.
In March 2018, the DOL issued its annual report to Congress related to self-insured group health plans. The report is based on data filed on the Forms 5500 (through 2015). The first such report was provided to Congress in March 2011.
Approximately 54,500 group health plans filed a Form 5500 in 2015, which is up 6 percent over 2014. Of those, 22,900 were self-insured, covering a total of 34 million participants with $84 billion in plan assets. Another 3,900 were mixed insured (including both fully insured and self-insured coverages) covering a total of 26 million participants with $135 billion in plan assets.
Interestingly, 1,100 of the self-insured plans were multiemployer plans (and 500 of the mixed insurance plans). The majority of self-insured and mixed insured plans are funded through general assets versus a trust.
Currently, small self-insured unfunded plans are exempt from filing a Form 5500 (along with small fully insured plans, church plans and governmental plans). The DOL estimates that in 2015 there were 2.2 million small self-insured plans. The report discusses the DOL's 2016 proposal to require ERISA plans of all sizes to file a Form 5500. Further, self-insured plans would be required to submit information regarding stop-loss coverage premiums and attachment points. The DOL states that this would "significantly enhance the department's ability to describe the full universe of self-insured plans and how they compare to fully-insured health plans."
Each year, government agencies provide semiannual regulatory agendas that outline the agencies’ goals for proposing and finalizing agency regulations. The IRS and the DOL’s Employee Benefits Security Administration (EBSA) annually provide such agendas, highlighting their possible action on a number of employee benefit plan issues. The regulatory agendas help plan sponsors and industry professionals prepare for potential changes in the employee benefits environment. The following is a preview of what the IRS and DOL have planned for the upcoming months.
Notably, the DOL is in the final rule stage for the following rules:
The IRS has several rules affecting employee benefits (more than 20) that they’re seeking to propose or adjust in the coming months. Here are a few that may be of special interest to employee benefit plan sponsors:
This appears to be another busy year for the IRS and the DOL. Interestingly, much of the regulatory action in the next 12 months seems to be aimed at clarifying requirements and providing additional ways for employers to comply with IRC and ERISA requirements. As with all years, the timing of this guidance is always subject to change.
On May 4, 2018, the IRS released IRS Tax Reform Tax Tip 2018-69, which provides employers with valuable facts about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Our April 17, 2018, Compliance Corner contained an article about the IRS FAQ guidance on the newly created tax credit for employers that choose to offer paid family and medical leave. Specifically, the tax tip identifies the requirements to claim the credit, who is a qualifying employee, and how it benefits employers.
Although this publication doesn’t convey new information, it is a helpful resource and reminder that this credit is currently available for wages paid in taxable years beginning after Dec. 31, 2017, and is scheduled to expire after Dec. 31, 2019. Essentially, it’s available for employers that offer paid family and medical leave in 2018 and 2019.
On May 11, 2018, the IRS published Rev. Proc. 2018-30, which provides the 2019 inflation-adjusted amounts for HSAs and HSA-qualifying HDHPs. According to the revenue procedure, the 2019 annual HSA contribution limit will increase to $3,500 (up $100 from 2018) for individuals with self-only HDHP coverage and to $7,000 (up $50 from 2018) for individuals with family HDHP coverage (i.e., anything other than self-only HDHP coverage).
For qualified HDHPs, the 2019 minimum statutory deductibles remain the same as compared to 2018 ($1,350 for self-only coverage and $2,700 for family coverage). The 2019 maximum out-of-pocket limits, however, increased to $6,750 (up $100 from 2018) for self-only HDHP coverage and $13,500 (up $200 from 2018) for family HDHP coverage (i.e., anything other than self-only HDHP coverage). Out-of-pocket limits on expenses include deductibles, copayments and coinsurance, but not premiums.
The 2019 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions and employer-sponsored qualified HDHPs are designed to comply with the 2019 limits.
On April 26, 2018, the IRS announced (through Rev. Proc. 2018-27) that the 2018 HSA maximum family contribution is reverting back to the original $6,900. As reported in the March 6, 2018, edition of Compliance Corner, the IRS had previously announced a decreased limit of $6,850 (Rev. Proc. 2018-18).
In restating the original limit of $6,900, the IRS shared many reasons for the decision, including taxpayer complaints that the $50 limit reduction imposed “numerous unanticipated administrative and financial burdens” for those that had already maxed out their contributions before the reduction was announced, and administrators who had to modify their systems to reflect the reduction. Most interestingly, some stakeholders had pointed out the fact that Section 223 of the IRC requires the IRS to publish the annual inflation adjustments by June 1 of the preceding calendar year.
As a result of the new announcement, HSA eligible individuals with family coverage may now contribute up to $6,900 for 2018. Employers wanting to take advantage of the increased limit will need to make the appropriate adjustments in their payroll and benefits administration systems, if they had previously change the systems to reflect the $6,850 limit.
A further complication comes with the new announcement: Some employees had already maxed out the $6,900 before the March 5, 2018, reduction announcement. To help the employees avoid the 6 percent excise penalty tax for excess contributions, the employers already completed the corrective action of distributing the excess $50. Now, with the limit back at $6,900, that $50 is no longer considered an excess contribution. If the $50 was associated with employer contributions or employee pretax contributions, it would now be considered a nonqualified distribution, subject to a 20 percent excise penalty tax (plus income tax). To avoid the tax, the employees will need to work with the employer and HSA bank/trustee to repay the $50 to the HSA. The repayment will need to take place by April 15, 2019. Again, this last complication only applies to those employees who maxed out their contribution prior to March 5, 2018, due to employer or employee pretax contributions and whose employers had already refunded the excess $50 to them.
On April 23, 2018, the DOL, HHS and Treasury (the Departments) released a number of documents concerning mental health parity compliance, including proposed FAQs. As background, the Mental Health Parity and Addiction Equity Act (MHPAEA) requires that the financial requirements and treatment limitations imposed on mental health and substance use disorder (MH/SUD) benefits be no more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. MHPAEA also imposes several disclosure requirements on group health plans and health insurance issuers.
In addition to releasing proposed FAQs About Mental Health and Substance Use Disorder Parity Implementation and the 21st Century Cures Act Part 39, the Departments also released a model Mental Health and Substance Use Disorder Parity Disclosure Request form, a MHPAEA self-compliance tool, the 2018 Report to Congress (entitled Pathway to Full Parity), the 2017 MHPAEA enforcement fact sheet and an action plan for enhanced enforcement. See below for a recap on each of those resources.
FAQs About Mental Health and Substance Use Disorder Parity Implementation and
the 21st Century Cures Act Part 39
These FAQs provide additional guidance to employers and individuals about the application of the law. Here are some highlights of the 12 FAQs provided in this document:
Model Mental Health and Substance Use Disorder Parity Disclosure Request Form
The Departments provided this form as an example of a MHPAEA disclosure request form. Participants can use this form to request information from their employer-sponsored health plan or insurer regarding MH/SUD limitations or denials in benefits.
This MHPAEA self-compliance tool is designed to assist employers in determining if their plan is compliant with MHPAEA’s requirements. The tool prompts employers to ask themselves a series of questions about mental health parity requirements and provides compliance tips along the way. This tool is similar to the DOL’s self-compliance tool for Title VII.
Pathway to Full Parity Report
This 2018 report to Congress outlines the various MHPAEA enforcement actions that were taken by the Departments in the last few years.
2017 MHPAEA Enforcement Fact Sheet
This fact sheet highlights the MHPAEA enforcement results pursued by the DOL. It specifically breaks down the number of cases concerning MHPAEA violations and discusses some of the results achieved through the DOL’s voluntary compliance program.
Notably, the DOL reviewed 187 plans for compliance with MHPAEA, and 92 of those plans were cited for violations of MHPAEA. Additionally, the DOL’s benefits advisors addressed 127 public inquiries related to mental health parity.
Action Plan for Enhanced Enforcement
This report discusses the planned actions following the Departments’ public listening session (in July 2017) and the solicitation and receipt of comments on MHPAEA enforcement in 2017. It also discusses the Departments’ recent and planned actions to maintain momentum on parity enforcement.
On April 2, 2018, CMS issued an announcement regarding the Medicare Part D benefit parameters for 2019. As background, employer plan sponsors that offer prescription drug coverage to Part D-eligible individuals must disclose to those individuals and to CMS whether the prescription plan coverage is creditable or non-creditable (as compared to Part D coverage). For coverage to be considered creditable, the actuarial value of the employer’s coverage must be, on average, at least as good as standard Medicare prescription drug coverage.
In the announcement, CMS released the following parameters for the defined standard Medicare Part D prescription drug benefit, which will assist plan sponsors in making that determination:
Employer plan sponsors will use these parameters to determine whether the plan’s prescription drug coverage is creditable for 2019. This information is necessary in order to provide the required disclosure to Medicare Part D-eligible individuals and also to CMS. As a reminder, the annual participant disclosure requirement can be satisfied by sending a single notice at the same time each year prior to October 15, but may also be required at other times (e.g., to newly eligible participants, upon a change in the plan’s creditable coverage status or upon request from a Medicare Part D-eligible individual).
On March 8, 2018, the United States District Court for the Northern District of Alabama (the court) ruled in favor of Blue Cross Blue Shield of Alabama (BCBS) in Birmingham Plumbers and Steamfitters Local Union No. 91 Health and Welfare Trust Fund v. Blue Cross Blue Shield of Alabama, 2018 WL 1210930 (N.D. Ala. 2018). In this case, the Union alleged that BCBS had breached their fiduciary and contractual duties by continuing to pay a participant’s claims on a primary basis after the participant had received 30 months of treatment for end stage renal disease (ESRD).
As background, Medicare generally becomes the primary payer once a participant has been receiving ESRD treatment through the plan for 30 months. In this situation, the Union claimed that BCBS knew that the participant was diagnosed with ESRD and subsequently treated for 30 months and should’ve known that he was eligible for Medicare. BCBS argued that while they were a fiduciary as the plan’s TPA, they were not a fiduciary for purposes of determining plan eligibility (and more specifically, eligibility for Medicare).
The court agreed, asserting that the Administrative Services Agreement (ASA) clearly made the employer the party that was responsible for ascertaining participant eligibility (under the plan and Medicare). As such, it was the employer who should’ve notified BCBS that this employee was eligible to enroll in Medicare coverage. Additionally, BCBS’ fiduciary duty of administering the plan’s claims was limited by the eligibility information provided by the employer. As a result, the court dismissed the Union’s claims against BCBS.
Although we don’t generally report on federal district court cases, we thought this was a good case to remind employers of their responsibilities in determining the eligibility of their participants. This would not only be important in the event that a participant is treated for ESRD, but could also occur if a dependent were to age out of the plan. Ultimately, employers should be aware of the responsibilities assigned to them through the ASA or any other plan documents, as those are the documents that a court would rely upon should a dispute arise.
On March 1, 2018, the IRS released an updated version of Publication 969 for use in preparing 2017 individual federal income tax returns. While there are no major changes to the 2017 version (as compared to the 2016 version), the publication provides a general overview of HSAs, HRAs and health FSAs, including brief descriptions of benefits, eligibility requirements, contribution limits and distribution issues.
Minor changes include the 2017 limits for HSA contributions (the single-only contribution limit increased to $3,400, while the family contribution limit remained at $6,750) and the updated annual deductible and out-of-pocket maximums for HSA-qualifying HDHPs. While the deductible limit remains $1,300 for single-only coverage and $2,600 for family coverage, the out-of-pocket maximum limit increased to $6,550 for single-only coverage and remained at $13,100 for family coverage. The publication also reminds employers that for plan years beginning in 2017, salary reduction contributions to a health FSA cannot be more than $2,600 per year. The publication serves as a helpful guide for employers with these types of consumer reimbursement arrangements, particularly for employees that may have questions in preparing their 2017 individual federal income tax returns.
The IRS recently published the 2018 version of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Publication 15-B contains information for employers on the tax treatment of certain fringe benefits, including accident and health coverage, employer assistance for adoption, dependent care and educational expenses, discount programs, group term life insurance, HSAs, FSAs and transportation benefits.
The 2018 version is similar to the 2017 version but includes the 2018 dollar amounts for various benefit limits and definitions, including the maximum out-of-pocket expenses for HSA-qualifying HDHPs, maximum contribution amounts for HSAs and the monthly limits under qualified transportation plans.
Specifically, for plan years beginning in 2018, salary reduction contributions to a health FSA are limited to $2,650 (it was $2,600 for plan years beginning in 2017). In addition, for 2018, the monthly exclusion for qualified parking is $260 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $260. Finally, the publication states that the business mileage rate for 2018 is 54.5 cents per mile (it was 53.5 cents per mile in 2017).
It has also been updated to include legislative changes. For example, employees cannot contribute to biking-related expenses on a pretax basis anymore under an employer-sponsored transportation program. To clarify, the Tax Cuts and Jobs Act (2017 tax reform) suspends the exclusion from gross income and wages for qualified bicycle commuting reimbursements for taxable years beginning after Dec. 31, 2017. Additionally, 2017 tax reform repealed the exclusion from gross income and wages for employment tax purposes of qualified moving expense reimbursements, except in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station.
Publication 15-B is a useful resource for employers on the tax treatment of fringe benefits. Employers should familiarize themselves with the publication, as well as other IRS notices and publications referenced in Publication 15-B, which further describe and define certain aspects of those benefits.
In the last edition of Compliance Corner, we announced that the IRS had decreased the maximum HSA contribution for family coverage in 2018 from $6,900 to $6,850. This was one of several adjustments needed to be made to inflation amounts due to changes made in the Tax Cuts and Jobs Act (2017 tax reform). Two of the other adjusted limits announced in Rev. Proc. 2018-18 (as part of Bulletin 2018-10) on March 5, 2018 were the adoption assistance exclusion/adoption credit and the small business health care tax credit.
Under an employer-sponsored adoption assistance program, an employee may exclude up to $13,810 from gross income in 2018 for the adoption of a child. This is a decrease from the previously announced amount of $13,840. Employers with such a program will need to revise program documentation and communicate the new limit to employees.
The small business health care tax credit is available to employers who have fewer than 25 full-time employees, including equivalents (FTEs), pay at least half of employee health insurance premiums and have an average annual wage below the maximum limit. The maximum limit for 2018 was previously $53,400 but is now $53,200. The revised limit shouldn't impact employer eligibility for the tax credit. This is because of the calculation used to determine an employer's average annual wage. After dividing the aggregate amount of wages paid by the employer by the number of FTEs, the employer is permitted to round down to the next lowest $1,000. Thus, regardless of whether the employer's average annual wage is $53,400 or $53,200, employers are permitted to round down to $53,000 and qualify.
On March 1, 2018, in Ariana M. v. Humana Health Plan of Tex., Inc., 2018 WL 1096980 (5th Cir. 2018), the U.S. Court of Appeals for the Fifth Circuit issued a landmark decision, changing how the court will review cases involving ERISA claims.
As background, there are generally two standards of review for ERISA benefit cases: de novo and deferential. With a de novo standard of review, the court examines the plan document and evidence to render a decision on merit. In contrast, a deferential standard of review gives preferential treatment to the plan administrator's decision. The court examines the plan administrator's decision to see if it's supported by substantial evidence and confirm it wasn't an abuse of discretionary authority. Under deferential treatment, a plan administrator's decision could be upheld even if it's technically in contradiction to the plan language, as long as it's supported by reasonable evidence and wasn't capricious or arbitrary.
The Fifth Circuit had previously used the de novo standard of review only for cases that involved issues of plan interpretation. If the case involved a factual determination (such as medical necessity), the court used the deferential standard regardless of whether the plan administrator had reserved discretionary authority in the plan document. This was based on prior precedent established over 25 years ago.
Other circuit courts already use the de novo standard for both factual determinations and plan interpretations if the plan administrator doesn't reserve discretionary authority or if the discretionary clause is unenforceable under state law. The Fifth Circuit will now decide cases applying the same standard as the other circuit courts.
At issue in this case was whether a participant's partial hospitalization was medically necessary as treatment for an eating disorder. The insurer had approved such treatment for a period of time and then denied continued hospitalization, ruling that it was no longer medically necessary for the patient. The district court reviewed the case using the deferential standard, as it involved a factual determination, not plan interpretation. The district court ruled that the plan hadn't abused its authority and thus ruled in favor of the plan. The participant appealed to the Fifth Circuit, which has now sent the case back to the district court to be reviewed using the de novo standard.
While this case is a bit technical in its facts, it serves as an important reminder for employer plan sponsors to carefully draft plan language with outside counsel, reserving discretionary authority for the plan administrator, where appropriate. Self-insured employers should also take care in establishing internal appeal procedures, including a reasonable review of appealed claims, in light of plan language.
On Feb. 26, 2018, the U.S. Court of Appeals for the Second Circuit held, in Zarda v. Altitude Express, Inc. (2018 WL 1040820), that discrimination on the basis of sexual orientation violates Title VII of the Civil Rights Act of 1964 (“Title VII”). As background, Title VII expressly prohibits discrimination on the basis of race, color, religion, sex or national origin. Although the EEOC currently agrees that sexual orientation discrimination violates Title VII, only one other appeals court (the Seventh Circuit) has ruled that discrimination due to sexual orientation also violates Title VII.
The plaintiff in this case was a skydiving instructor who was fired after indicating that he was a gay man. In addition to filing an EEOC complaint, he also sued the employer, claiming violations of New York state law and Title VII. The district court dismissed the portion of the complaint that alleged a Title VII violation, and the plaintiff ultimately appealed to the Second Circuit.
During the “en banc” hearing, the Second Circuit frequently referenced the Seventh Circuit decision that had previously come to the conclusion that discrimination based on sexual orientation violates Title VII. Specifically, the Second Circuit adopted the idea that sexual orientation discrimination is basically discrimination based on sex. As such, the case was remanded to the district court to determine if the employer did, indeed, discriminate in violation of New York state law and Title VII.
Although the Second and Seventh Circuits have now come to this conclusion, a panel of the Eleventh Circuit recently came to a contrary decision. Since there is a circuit split, the Supreme Court may ultimately have to decide this issue.
The unsettled federal law, as well as the fact that roughly 20 states have their own laws protecting citizens from discrimination based on sexual orientation, continues to make this issue an extremely litigious one. So employers should seek counsel if they’d like to pursue a policy that treats employees differently based on their sexual orientation.
On Feb. 20, 2018 the Supreme Court of the United States (the Court) reversed an opinion by the U.S. Court of Appeals for the Sixth Circuit, which held that the health care benefits for a class of retirees vested for life. The case involved CNH Industrial N.V., CNH Industrial America LLC and their corporate predecessors (collectively, CNH), which manufacture construction and agricultural equipment. In 1998, CNH and the United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) entered into a new collective bargaining agreement (CBA). The CBA provided health care benefits under a group benefit plan to certain retiring employees. The agreement also contained a clause stating that it would terminate in May 2004.
When it did expire in 2004, a class of CNH retirees and surviving spouses filed a lawsuit seeking a declaratory judgment that their health care benefits had vested for life and asked the district court to enjoin CNH from changing them. While that lawsuit was pending, the U.S. Supreme Court issued a decision in M&G Polymers USA, LLC v. Tackett, holding that CBAs must be interpreted according to ordinary principles of contract law.
The District Court initially granted summary judgment to CNH. After the retirees moved for reconsideration, the District Court reversed itself and entered summary judgment for the retirees. On appeal, the Sixth Circuit ruled that the CBAs were ambiguous and thus susceptible to interpretation based on extrinsic evidence about lifetime vesting. Ultimately, the Sixth Circuit concluded that the benefits were vested. CNH petitioned the Court on Oct. 3, 2017.
The question before the Court was whether the Sixth Circuit erred in using a series of inferences to conclude that a CBA was ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about whether retiree benefits were vested for life. The Court held that CBAs generally must be interpreted according to ordinary principles of contract law, which generally hold that a contract isn’t ambiguous unless it’s subject to more than one reasonable interpretation.
The Supreme Court held that the only reasonable interpretation of the 1998 agreement between retirees and their former employer is that the health care benefits expired when the CBA expired in May 2004. Thus, the Court reversed the Sixth Circuit and remanded the case for further proceedings.
This case serves as an important reminder that employers should work with outside counsel to draft plan documents and CBAs, where applicable, to carefully and specifically address terms of the plan.
On March 5, 2018, the IRS released Notice 2018-12, which addresses the impact of coverage for male sterilization and contraceptives on an individual’s eligibility for HSA contributions. This is an important issue, as policies issued or amended in Maryland on or after Jan. 1, 2018, must provide coverage for male sterilization without cost-sharing for participants. Illinois and Vermont already have similar mandates for such coverage, with Oregon implementing the mandate effective 2019.
As a reminder, participants with qualified HDHP coverage aren’t eligible for HSA contributions if they’re eligible to receive benefits before the statutory annual deductible has been met. There’s an exception for certain preventive care services, which may be covered without regard to the deductible without impacting an individual’s eligibility for an HSA.
On that idea of preventive services, there had been confusion on this issue, as female contraceptive services are considered preventive care. Qualified HDHP participants may be eligible for benefits related to female contraceptive services prior to meeting the statutory annual deductible — and still remain eligible for HSA contributions. The IRS has clarified that while female contraceptive services are considered preventive care for HSA eligibility purposes, male sterilization and contraception are not. Therefore, an HDHP participant who is eligible for male sterilization coverage prior to meeting the statutory annual deductible isn’t eligible to receive or make HSA contributions. In other words, the HDHP wouldn’t be considered qualified HDHP coverage.
Importantly, though, the IRS has provided transition relief until 2020 for participants who are, have been or become participants in a health plan that provides benefits for male sterilization or male contraceptives without a deductible. Such individuals will continue to be eligible for HSA contributions until 2020.
The transition period gives states time to amend their mandated coverage, if desired. It also gives the IRS time to consider the appropriate standards for preventive care in regards to HSA eligibility. It also allows continued HSA eligibility (at least until 2020) for those that have already enrolled in a HDHP plan that covers male sterilization and/or contraception without charging any cost-sharing. The IRS is receiving comments on this issue as well as ways to expand the use and flexibility of HSAs.
On March 5, 2018, the IRS released Rev. Proc. 2018-18 (as part of Bulletin 2018-10). Due to changes made in the Tax Cuts and Jobs Act (2017 tax reform), certain adjustments needed to be made to inflation amounts. One of those adjustments is to the annual family contribution for HSA's in 2018. The family max contribution is decreased from $6,900 to $6,850. The single contribution limit remains unchanged at $3,450.
As a result, employers and administrators will need to change the maximum limits set in their payroll and benefit systems to ensure that employees do not go over the maximum contribution limit. For any employees that have already maxed out their family contribution for 2018 up to $6,900, the employer should work with the administrator to refund the $50 excess contribution as soon as possible (this needs to be done by April 2019 to avoid an excise tax). This change was announced right before we went to press; we will provide additional detail in the next edition of Compliance Corner .
On Sept. 20, 2017, the IRS posted Informational Letter 2017-0027 to address an inquiry of whether the COBRA premium charged by a specific employer to a terminating employee for a health reimbursement arrangement (HRA) was excessive.
The employer sponsors an HDHP combined with an HRA for its active employees. The employer’s COBRA practice requires a COBRA Qualified Beneficiary (QB) to elect both the HDHP and the HRA.
An employee elected the COBRA coverage for the HDHP and HRA and now disputes (through his U.S. House Representative Ron DeSantis) the COBRA premium charged for the HRA, alleging that the employer was charging excessive premiums for the HRA portion of the COBRA coverage. The employee also claimed that the employer failed to notify him of an increase in the COBRA premium and failed to properly explain its open enrollment process in February 2016.
In its response, the IRS states that an employer can charge a QB an “applicable premium,” which is the cost to the plan of coverage for similarly situated beneficiaries for whom a qualified event has not occurred, plus a 2 percent administrative fee. The IRS reiterates previous guidance that: (i) HRAs are subject to COBRA; (ii) the applicable premium under an HRA may not be based on a QB’s reimbursement amounts available from the HRA; and (iii) the COBRA premium for an HRA is determined under existing COBRA rules. A plan administrator can calculate the COBRA premium for a self-funded plan using either an actuarial basis or on the basis of past costs to the plan.
The IRS didn’t make a determination of whether the employer’s charge for HRA premiums exceeded the permissible “applicable premium” or whether the employer was operating in good-faith compliance with a reasonable interpretation of COBRA.
Regarding the request for an employer audit, the IRS referred the employee to Form 3949-A (an information referral form to report suspected tax law violations by a person or business) and stated that the IRS can use a submitted Form 3949-A as basis for an examination or investigation of an employer. The IRS clarified, however, that an employee cannot be given any information concerning any action the IRS may or may not have taken with respect to a submitted Form 3949-A. Further, the IRS advised that concerns regarding COBRA notice requirements and disclosures should be directed to the DOL’s EBSA.
Please note: This Informational Letter is advisory only and has no binding effect on the IRS.
The IRS released Publication 974 for the 2017 tax year, which includes information on how qualified small employer HRAs (QSEHRAs) will affect an individual’s qualification for a premium tax credit (PTC) on coverage purchased through the exchange.
As a reminder, small employers with fewer than 50 full-time equivalent employees who aren’t subject to the employer mandate may implement a QSEHRA in lieu of a group health plan. A QSEHRA is 100-percent employer funded and is generally the only way that a small employer could reimburse or pay the cost of an individual policy for an employee.
Publication 974 provides helpful information for individuals, including a flowchart that helps determine whether an individual would be eligible for a PTC, guidelines to help determine whether health coverage is considered MEC, worksheets and instructions for individuals in special tax situations, and examples that illustrate when coverage is affordable. Specifically, if the QSEHRA is considered affordable coverage for a month, no PTC is allowed for that same month. Conversely, if the QSEHRA isn’t considered affordable coverage for a month, the individual might still be eligible for a PTC, but must reduce the monthly PTC by the monthly permitted QSEHRA benefit amount.
Additionally, Publication 974 explains that if an individual was provided a QSEHRA during 2017, their 2017 Form W-2 should have included the QSEHRA benefit in box 12 using code FF.
The information provided in Publication 974 is based on IRS guidance regarding QSEHRAs that was released back in October 2017 (see the QSEHRA article in the Nov. 14, 2017, edition of Compliance Corner). Therefore, while this publication is intended for individual taxpayers, employers offering a QSEHRA should also familiarize themselves with this information to ensure compliance.
CMS recently updated its Section 111 MSP Mandatory Reporting GHP User Guide. As background, the Medicare Secondary Payer (MSP) Section 111 reporting requirements require group health plans to report to CMS regarding the coverage they provide. The reporting is meant to assist CMS in determining coordination of benefit (COB) responsibilities between the plan and Medicare. The requirement to report is generally on the insurer (for fully insured plans) and on the TPA (for self-insured plans). If an employer sponsors and self-administers a self-insured plan, it’s the responsible party for Section 111 reporting.
In the updated MSP User Guide, CMS provides high-level guidance regarding the new Medicare Beneficiary Identifier (MBI). CMS has been in the midst of adding new Medicare cards that contain the MBI. The MBI is a unique number assigned by CMS to the individual and is meant to replace the current system, which uses Social Security-based numbers (which are known as Health Insurance Claim Numbers, or HICNs). Insurers and TPAs use the identifying number when reporting participant information via the Section 111 requirements. While CMS encourages the use of the new MBI, CMS will still accept a full Social Security number or an HICN for Section 111 reporting purposes. However, it’s important to note that all reporting fields that previously contained “HICN” have been changed to “Medicare ID” (although they’ll accept either an HICN or the new MBI). The related instructions have also been updated with information relating to the HICN.
The user guide contains no specific change regarding employers’ obligations. Employers with fully insured plans or with self-insured plans administered by a TPA can continue to rely on the carrier or TPA for Section 111 reporting. However, employers with self-insured, self-administered plans should review the user guide.
The DOL recently issued the 2017 version of Form M-1. As background, Form M-1 must be filed by multiple employer welfare arrangements (MEWAs) and certain entities claiming exception (ECEs). The Form M-1 allows those entities to report that they complied with ERISA’s group health plan mandates.
While few substantive changes to the Form M-1 have been made, this year’s Form M-1 instructions have been updated to reflect changes in the maximum per-day penalties that can be applied for failure to file (including late or inaccurate filings). Specifically, the maximum penalty for a MEWA administrator who fails to file a complete and accurate Form M-1 has been increased to $1,558 per day for penalties assessed after Jan. 2, 2018.
Therefore, MEWAs should work with their advisor and service vendors to ensure compliance with ERISA and M-1 filing obligations.
On Jan. 18, 2018, the U.S. District Court presiding over the AARP wellness case removed a deadline it recently imposed on the EEOC. As we discussed in the Jan. 9, 2018 edition of Compliance Corner, the court in this case issued a ruling that would set aside the EEOC’s wellness rules in 2019. Part of that ruling, though, required the EEOC to promulgate new proposed rules by Aug. 31, 2018.
The EEOC responded to the Court’s decision by objecting and arguing, among other things, that the Court didn’t have the jurisdiction to require the EEOC to issue proposed rules by a certain date. Instead, they posited that the rulemaking process is within the EEOC’s discretion and subject to the agency’s policy judgment. The Court agreed with that argument and removed the Aug. 31, 2018 deadline.
Unfortunately, this additional ruling doesn’t add much finality to this issue. Instead, the EEOC is still bound by the court’s decision to invalidate the rule on Jan. 1, 2019. So although the EEOC no longer has to issue proposed rules by August 2018, the current rules will still become unenforceable in early 2019.
Ultimately, this means that employers should comply with the EEOC’s rules for the time being and then analyze the issue when deciding how they’re going to proceed in 2019. We’ll continue to monitor this case and provide any additional information. Employers with specific questions should work with outside counsel to assist.
The IRS recently released the updated versions of Publications 502 (Medical and Dental Expenses) and 503 (Child and Dependent Care Expenses), as well as Form 2441 (Child and Dependent Care Expenses) and the related Instructions. The publications and forms have been updated for use in preparing taxpayers’ 2017 federal income tax returns.
Publication 502 describes which medical expenses are deductible. For employers, Publication 502 provides valuable guidance on which expenses might qualify as IRC Section 213(d) medical expenses, which is helpful in identifying expenses that may be reimbursed or paid by a health FSA, HRA (or other employer-sponsored group health plan) or an HSA. (However, employers should understand that Publication 502 does not include all of the rules for reimbursing expenses under those plans.)
Publication 503 describes the requirements relating to the dependent care tax credit (DCTC). It is directed primarily at taxpayers to help determine their eligibility for the DCTC. Importantly, employers should understand that the DCTC requirements are different from those relating to employer-sponsored dependent care assistance programs (DCAPs, or dependent care FSAs).
There are no major changes to the 2017 versions of Publications 502 and 503, as compared to the 2016 versions. But the 2017 versions contain updated dollar amounts (for example, the standard mileage rate for use of an automobile to obtain medical care) and other numbers.
The 2017 Form 2441 (and Instructions) would be filed with taxpayers’ Forms 1040 to determine the DCTC amount for which they are eligible. Employees that participate in a DCAP (dependent care FSA) must also file Form 2441 with their Form 1040 to substantiate the income exclusion for their DCAP reimbursements. So, while the Form 2441 is filed only by individuals, employers may get questions on the form from DCAP participating employees. As compared to 2016, there are no noteworthy changes to Form 2441 or the related Instructions.
In December 2017, HHS released a report on its enforcement of the mental health parity laws. As background, the Mental Health Parity and Addiction Equity Act (MHPAEA) requires that the financial requirements and treatment limitations imposed on mental health and substance use disorder (MH/SUD) benefits be no more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. MHPAEA also imposes several disclosure requirements on group health plans and health insurance issuers.
The report discusses CMS’s enforcement authority, explaining that CMS has primary enforcement authority with respect to MHPAEA only when a state elects not to enforce or fails to substantially enforce MHPAEA. Currently, CMS is enforcing MHPAEA with respect to issuers in four states: Missouri, Oklahoma, Texas and Wyoming. In these states, CMS reviews policy forms of issuers in the individual and group markets for compliance with MHPAEA prior to the products being offered for sale in the states.
Additionally, the report highlights five cases that CMS investigated for violations of MHPAEA. All of the cases were investigated in 2016 or later. Four of the five investigations revealed possible non-quantitative treatment limitations, while one investigation revealed a quantitative treatment limitation. The report states that the investigations arose from consumer and professional association complaints, consumer inquiries and plan review following a late MHPAEA opt-out submission, and the investigations involved both fully and self-insured plans.
Although this report does not offer any new information for employer plan sponsors, it does remind employers of the different ways that a plan can violate the MHPAEA. Employers with questions about how MHPAEA affects their compliance requirements should reach out to their advisors for more information.
On Jan. 5, 2018, the DOL issued a news release that sets the applicability date for the final disability claim regulations. In order to allow stakeholders more time to submit comments, the DOL delayed the originally scheduled applicability date by 90 days, which moved it up from Jan. 1, 2018 to April 1, 2018.
The final rules impose new procedural protections for employees whose disability benefit claims are denied. This means that disability claimants must receive a clear explanation of a denial, their rights to appeal a denial, and their right to review and respond to new information prior to a final decision. The final rules also require that claims and appeals are adjudicated in an impartial and independent manner, and require improvement to basic disclosure information. In addition, the final rules treat rescissions of coverage due to misrepresentation of fact as adverse benefit determinations, which would trigger the plan’s appeals procedures.
According to the news release, the final rules will apply to disability claims filed after (and not on) April 1, 2018. Therefore, employer plan sponsors will need to ensure that disability claims are administered according to the applicable rules, depending on when a claim is filed.
On Dec. 22, 2017, Pres. Trump signed H.R. 1, the Tax Cuts and Jobs Act, creating Public Law No. 115-97. The Tax Cuts and Jobs Act (2017 Tax Reform Law) made significant changes to the IRC, with its primary impact on corporate and individual tax rates and other non-benefits areas. This article is meant to summarize the changes that impact employers with respect to employee benefit offerings.
ACA Individual Mandate Penalty Repealed
First, beginning in 2019, the 2017 Tax Reform Law repeals the tax penalty under the ACA’s individual mandate — the requirement for all U.S. citizens to purchase health insurance or pay a tax penalty. While the exact impact of the mandate’s repeal is unknown, many people forecast this will lead to an increase in health insurance premiums (particularly in the individual market) and in the number of uninsured, which could further destabilize the health insurance marketplace. Others believe the current instability of the marketplace is evidence that the individual mandate hasn’t supported competition and growth, and therefore the repeal of it will have minimal impact. Regardless, with the penalty for failure to carry health insurance gone, employers may see a decline in their group health plan participation rates for employees that choose to forego coverage altogether.
Note that the 2017 Tax Reform Law doesn’t impact the ACA’s employer mandate. That means employers must still identify and offer affordable health insurance coverage to all full-time employees and their dependents. Similarly, the employer reporting obligations under IRC Sections 6055 and 6056 remain in place, meaning employers still must complete and file appropriate forms (Forms 1094/95-B or 1094/95-C) with the IRS each year and distribute a copy of Form 1095-C (or a substitute statement) to employees.
Changes to Commuter Benefits
Beginning in 2018, the 2017 Tax Reform Law repeals the employer business deduction for qualified mass transit and parking benefits (with an exception for certain situations involving the safety of the employee). Specifically, employers may no longer deduct the cost of providing qualified transit passes, parking expenses, commuter highway and bicycle commuter reimbursement costs. The 2017 Tax Reform Law also repeals the exclusion for gross income and wages for qualified bicycle commuting costs and reimbursements (beginning in 2018 and running through the end of 2025). This means employees must recognize as income any employer payment or reimbursement for bicycle commuter costs.
Because IRC Section 132 was not changed, though, employees may still exclude from gross income the value of commuter benefits purchased with pretax salary reduction contributions (through a Section 125 plan). Thus, employees may continue to make pretax contributions for parking and transportation costs, but not for bicycling costs.
Employers that previously subsidized mass transit and parking might consider switching to exclusive employee pretax contribution designs. Importantly, employers in cities that require employers to maintain employee pretax contributions (such as Washington D.C., New York and San Francisco) should review local ordinances before coming to any conclusions on their transportation fringe benefit programs.
Employer Tax Credit for Providing Paid Family Leave
Interestingly, the 2017 Tax Reform Law provides for a new tax credit for wages paid by employers in 2018 and 2019 to employees that are on an FMLA-protected leave. While FMLA currently provides job and benefits protection for those out on an FMLA-protected leave, FMLA doesn’t require that the leave be paid. Employers that provide ”qualifying employees” at least two weeks of annual paid family and medical leave that provides at least 50 percent wage replacement would be eligible for the tax credit. A “qualifying employee” is one who has been employed for at least one year and who didn’t have compensation (for the preceding year) in excess of 60 percent of the compensation threshold for highly compensated employees (for 2018, 60 percent of $120,000, which would be $72,000).
In addition, the employer must outline their policy in writing. The tax credit itself depends on how much replacement wages the employer provides, but it generally ranges from 12.5 percent (for employers paying up to 50 percent of wages) to 25 percent (for employers paying more than 50 percent of wages) of the cost of each hour of paid leave. Importantly, personal leave (such as PTO or vacation pay) or pay mandated by a state or local government may not be taken into account for purposes of the new tax credit.
We anticipate that the federal government will provide additional guidance on the new tax credit which will hopefully flesh out more of the details. In the meantime, because the new tax credit implicates leave policies (an area outside benefits compliance generally), employers should work with outside counsel or an HR professional in developing their leave policies in a way that allows them to take advantage of the new tax credit.
The 2017 Tax Reform Law will have minimal impact on most retirement plans. But there are some minor changes to consider. First, under prior law, if a qualified retirement plan (including 401(k) plans) account balance is reduced to repay a plan loan, and the amount of that offset is considered an eligible rollover distribution, the offset amount may be rolled over into an eligible retirement plan (so long as the rollover occurs within 60 days). Under the 2017 Tax Reform Law, the 60-day deadline is extended until the due date for the participant’s individual federal income tax return (including extensions) for the year in which the amount is treated as a distribution. Thus, an employee who terminated employment with an outstanding loan could avoid having adverse tax consequences relating to that loan if the employee rolls over the loan amount to an IRA or eligible retirement plan before they file their federal income tax return for that year. This provision applies to employees whose plan terminates or who separate from employment after Dec. 31, 2017.
The new law also allows retirement plans (including 401(k) plans) to help victims of federally declared major disasters occurring in 2016 through a special distribution event (i.e., one that avoids the normal 10 percent early withdrawal penalty for distributions received before age 59 ½). Specifically, the new law provides relief from the early withdrawal penalty for up to $100,000 for qualified 2016 disaster distributions (those taken from a retirement plan between Jan. 1, 2016, and Jan. 1, 2018) to an individual whose principal place of abode at any time during 2016 was located in a 2016 area impacted by a federally declared major disaster (as declared by the President). Qualified disaster distributions are taxed ratable over three years (rather than all in one year) and the distribution amount may be recontributed to an eligible retirement plan within three years. Employers may amend their retirement plans retroactively to take advantage of the new distribution rules.
Employers with questions regarding retirement plan changes should work with their advisor or outside counsel.
Dependent Care and Adoption Assistance Left Untouched
Although prior versions of 2017 Tax Reform Law made changes to the exclusion for dependent care flexible spending arrangements (known as a dependent care FSA or dependent care assistance program, DCAP), that exclusion remains untouched in the law as passed. Similarly, the adoption tax credit and exclusions for educational assistance programs and qualified tuition reductions remain in place.
The 2017 Tax Reform Law generally disallows employer deductions for entertainment, amusement, recreation, meals and other food expenses. There are also changes to the tax treatment of employee achievement awards, on-site athletic facilities and employee moving expenses. Because those tax provisions are generally outside the scope of health and welfare benefits, employers should consult with a tax advisor for questions relating to these changes.
Overall, the 2017 Tax Reform Law doesn’t have a major impact on employee benefit offerings. While the repeal of the ACA’s individual mandate penalty may impact the health insurance market generally, it doesn’t directly affect employers’ requirements to comply with all the other ACA provisions.
Two federal district courts have enjoined the Trump Administration’s expansion of the moral and religious exemptions to the PPACA’s contraceptive mandate. As background, back in October 2017, the HHS, Treasury Department and DOL (the Departments) jointly issued interim final rules that broadened those exemptions. Specifically, the Departments’ interim final rules basically allowed any employer to claim a religious or moral objection to offering certain contraceptives, including non-closely held companies and even publicly traded companies.
After those rules were issued, many entities sued the Trump administration, claiming that the expansion of the exemption was unlawful for various reasons. Among those litigants are the state of Pennsylvania and a group of states including California, Delaware, Maryland, New York and Virginia.
On Dec. 15, 2017, the U.S. District Court for the Eastern District of Pennsylvania issued a preliminary injunction in favor of Pennsylvania in Pennsylvania v. Trump. The injunction blocks the Departments from enforcing the final regulations issued in October 2017 (discussed above).
The court in that case ruled that Pennsylvania was likely to succeed in showing that the agencies didn’t follow proper federal procedure when issuing the regulations. They also ruled that Pennsylvania had adequately shown that their citizens would suffer irreparable harm should the injunction not be granted. So although the court didn’t decide the case on its merits, it did decide to put a halt to the interim final rules during the course of the litigation.
Similarly, on Dec. 21, 2017, the U.S. District Court for the Northern District of California issued a preliminary injunction in favor of the State of California and the other plaintiffs in State of California v. HHS. The court in this case also reasoned that the Departments had failed to follow proper procedure and that the citizens of the different plaintiff states would suffer irreparable harm if the Departments’ interim final rules were allowed to remain for the duration of the proceedings.
Ultimately, this issue is far from over. It seems quite likely that the Trump Administration will appeal these rulings, and the states who sued will also continue to litigate their positions. As these (and other) challenges work their way through the courts, employers who are looking to avail themselves of these exemptions should work with legal counsel to ensure that they remain abreast of all the developments in this situation.
On Jan. 5, 2018, the EBSA published proposed regulations related to the creation and maintenance of association health plans (AHPs) under ERISA. The rules are in direct response to Pres. Trump’s Executive Order dated Oct. 12, 2017, in which he ordered the DOL to propose regulations to expand access to AHPs and allow health coverage sales across state lines.
As background, ERISA currently governs single employer plans and multiple employer welfare plans (MEWAs). There are two types of MEWAs depending upon whether the participating employers meet the commonality-of-interest test. In general, parties to the MEWA must have sufficiently close economic or representational connection.
ERISA would apply to the MEWA on the plan level, instead of on the individual employer level, if all of the following criteria apply:
If an employer meets these criteria, it’s considered a bona fide association, the group is rated collectively for insurance premium purposes, the plan is considered to be maintained at the plan level and there’s a single Summary Plan Description (SPD) and Form 5500 filed (if applicable). Alternatively, if the group doesn’t satisfy the criteria, then the insurer may issue rates based on each separate employer member, the plan is considered to be maintained at the employer level and each employer would be responsible for a separate SPD and Form 5500 (if applicable).
Essentially, the proposed regulations would eliminate the requirement for the association to exist outside of the purpose of providing benefits. Instead, under the proposed rules, a group of employers may join together solely for the purpose of purchasing or providing health benefits to employees. The group would still need to be maintained as a legal entity with by-laws and a governing board.
Additionally, under the proposed rules, employers must exercise control over the program. For example, a representation of employers may serve on the board and make decisions related to coverage offered, plan design, etc. Importantly, the employers must either:
Currently, ERISA doesn’t apply to an arrangement consisting only of a self-employed individual with no common law employees. Participants must be employees, former employees or family members of such. However, the proposed rules would permit sole proprietors and other self-employed individuals with no common law employees to join an AHP as a member employer. The individual must just earn income from the trade or business for providing personal services. Specifically, the individual must provide on average at least 30 hours of personal services per week (or 120 hours per month) or have earned income that at least equals the cost of coverage under the AHP. Further, the individual must not be eligible for other subsidized group health plan coverage by another employer.
The proposed rules also include health nondiscrimination provisions. The association must not restrict membership based on a health factor such as claims utilization, health status or disability. The AHP must comply with the HIPAA nondiscrimination rules that prohibit discrimination in terms of eligibility or cost based on a health factor.
While any size employer may join an AHP, AHPs may only be attractive to small employers that would avoid the current member-level billing, modified community rating, essential health benefit package and limited plan choice. The rules apply generally to both fully insured and self-insured plans. This means that employers may join together to provide a self-insured plan, but the EBSA notes that such plans would still be subject to state law. Concerned with issues of plan solvency, many states restrict such designs and place many requirements on these plans, which may include licensure as an insurer.
Importantly, these plans would still be considered MEWAs and, therefore, would still have initial and annual M-1 filing requirements.
Comments on the proposed regulations are due within 60 days following Friday’s publication. We’ll continue to keep you updated on any future developments.
On Jan. 2, 2018, the DOL published a final rule adjusting for inflation civil monetary penalties under ERISA. As background, federal law requires agencies to adjust their civil monetary penalties for inflation on an annual basis. The DOL last adjusted certain penalties under ERISA in January 2017 (as discussed in the Jan. 24, 2017, edition of Compliance Corner).
Among other changes, the DOL is increasing the following penalties that may be levied against sponsors of ERISA-covered plans:
The regulations also increased penalties resulting from other reporting and disclosure failures.
These new amounts will go into effect for penalties assessed after Jan. 2, 2018, for violations that occurred after Nov. 2, 2015. The DOL will continue to adjust the penalties no later than Jan. 15 of each year and will post any changes to penalties on their website.
For more information on the new penalties, including the complete listing of changed penalties, please consult the final rule below. Additionally, see your advisor if you have questions about the imposition of these penalties.
On Dec. 20, 2017, the U.S. District Court for the District of Columbia vacated the EEOC wellness regulations effective 2019. The decision is in response to the AARP’s lawsuit challenging the EEOC’s employer wellness program regulations. Specifically, the EEOC claims that the 30 percent wellness reward allowable under the regulations is too high and leads to discrimination of older Americans. Their argument is that a wellness program is no longer considered voluntary considering the high cost of health plans.
In August 2017, the court had ordered the EEOC to reconsider their regulations, citing “serious concerns about the agency’s reasoning regarding the GINA and ADA rules.” In September 2017, the EEOC stated that it would issue proposed regulations by August 2018 and final regulations by October 2019, with an estimated effective date of January 2021.
In the most recent ruling, the court essentially rejected the EEOC’s timeline by stating “an agency process that will not generate applicable rules until 2021 is unacceptable. Therefore, the EEOC is strongly encouraged to move up its deadline for issuing the notice of proposed rulemaking, and to engage in any other measures necessary to ensure that its new rules can be applied well before the current estimate of sometime in 2021.”
For now, the EEOC’s rules remain in place. Employer wellness programs involving a disability-related inquiry (e.g., a health risk assessment) or a medical examination (e.g., a biometric screening) are limited to a 30 percent wellness reward. A financial incentive may be provided to individuals who voluntarily provide genetic information as long as certain requirements are met. A notice must be provided to participants prior to the inquiry or examination. If the EEOC doesn’t finalize regulations in 2018, those rules would be vacated effective 2019.
Importantly, the HIPAA rules related to wellness programs (including a limitation on reward amounts, requirement to provide a reasonable alternative standard and an additional notice requirement) aren’t impacted by this court decision and remain applicable to employer-sponsored wellness programs.
Wellness programs can be effective and useful for employers wanting to promote a healthier workplace and change employee behavior. However, the rules applying to such programs can be complex. Please contact your advisor with any questions or for additional resources.