Compliance Corner Archives

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:

• Who Must File.

  The revised instructions define which entities are required to file in certain situations. Under both the instructions and the filing tips, filers are reminded that a MEWA that is an ERISA employee welfare benefit plan must also file Form 5500, and it must use the same name, EIN and other identifying information on both forms. Further, the instructions now describe the special filing rules for group insurance arrangements.

• Date and Type of Filing.

  Item 4 of Form M-1, which identifies the type of filing, now requires filers to enter the event date for a registration, origination or special filing. The filing tips explain that only MEWAs should check “annual” or “registration,” and only ECEs will check “origination” or “special.” The instructions now emphasize that “operating” for this purpose means “any activity including but not limited to marketing, soliciting, providing, or offering to provide benefits consisting of medical care.”

• Additional Details.

  The instructions for item 13 (actuarial soundness) emphasize the DOL’s power to issue a cease and desist order if it appears a MEWA “is fraudulent, or creates an immediate danger to the public safety or welfare.” The instructions for item 17 include a new note about completing this line for all applicable states in which the MEWA operates. Also, clarifications have been added to the instructions for item 21 regarding whether the MEWA is subject to Part 7 of ERISA.

• Annually Adjusted Penalties.

  The instructions specify that the maximum penalty for Form M-1 filing failures is currently $1,558 per day, but they remind filers to check for increases, since required annual adjustments take place after the Form M-1 has been published.

• Self-Compliance Tool.

  The self-compliance tool is no longer included on the informational Form M-1, but the form describes where to locate the tool online.

• Filing Tips.

  The filing tips state that insurance information for every state in which the MEWA operates must be provided, and that the information must be correct. Another tip explains that only medical insurance must be reported — not, for example, dental or vision insurance. Another reminds MEWAs that are also employee benefit plans to retain the M-1 filing confirmation number because this will be needed for the Form 5500 filing. The tips also explain that more than one Form M-1 filing requirement could apply for a year: a registration filing and an annual filing.

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.

2018 Form M-1 »
M-1 Filing Tips for AHPs and Other MEWAs »

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:

DOL

• For health and welfare plans:, proposed rules on HRAs and other account-based group health plans
• For health and welfare plans: final rules relating to religious and moral exemptions and accommodations for coverage of contraceptive preventive services under the ACA
• For retirement plans: proposed rules on association retirement plans and other multiple employer plans
• For retirement plans: final rules for adoption of amended and restated voluntary fiduciary correction program, the fiduciary rule and prohibited transaction exemptions
• For retirement plans: final rules on amendment of abandoned plan programs and electronic filing of apprenticeship and training plan notices and top hat statements

Treasury Rule List

• For health and retirement plans: proposed rules on determination of governmental plan status and the definition of “church plan”
• For health plans: proposed rules on medical and dental expenses (for HRA, HSA and FSA reimbursements and individual deductions) and on collectively bargained welfare benefit funds
• For health plans: proposed rules on the Cadillac tax and supplemental rules on the employer mandate
• For health plans: final rules on the health insurance tax (HIT)
• For retirement plans: proposed rules on spousal IRAs, SEPs and IRA technical changes, on hardship distributions from 401(k) plans, and on multiple employer plans (MEPs) and the unified plan rule
• For retirement plans: final rules on qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs)

HHS

• Proposed rules on OTC drugs and sunscreen products, which could potentially impact reimbursements from HRAs, FSAs and HSAs
• Proposed rules on grandfathered health plans in the individual and small group markets
• Proposed rules that rescind the adoption of the standard unique health plan identifier (HPID) and other entity identifier
• Proposed rules on miscellaneous Medicare Secondary Payer (MSP) clarifications and updates and related penalties for MSP reporting requirements

Main Agenda List »
DOL Rule List »
Treasury Rule List »
HHS 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.

IRS Notice 2018-88 »

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.

IR-2018-222 »
Rev. Proc. 2018-57 »

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.

Notice 2018-89 »

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.

DOL News Release »
Form 5500 Series Forms and Instructions »

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.

Tax Relief for Victims of California Wildfires »

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:

• The failure is solely attributable to the California wildfires
• The plan administrator makes a good-faith, diligent effort under the circumstances to comply with procedural requirements
• The plan administrator makes a reasonable attempt to assemble any missing documentation as soon as practicable

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).

News Release »
Participant FAQs »

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:

• Full-time
• Part-time
• Seasonal
• Employees covered under a collective bargaining agreement
• Employees who have not yet satisfied an ACA-compliant waiting period
• Employees under 25 prior to the beginning of the plan year
• Non-resident aliens with no US-based income
• Employees whose primary site of employment is in the same rating area

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.

Proposed Rule »

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.

Help for Victims of Hurricane Michael »
Tax Relief for Victims of Hurricane Michael in Florida »

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:

• Conducted an accurate and thorough risk analysis of the potential risks and vulnerabilities to the confidentiality, integrity and availability of all ePHI held by Anthem
• Satisfied the requirement to implement sufficient procedures to regularly review the records of information system activity
• Identified and respond to detections of a security incident (leading to this breach)
• Implemented technical policies and procedures for electronic information systems that maintain ePHI to allow access to only those persons or software programs that have been granted access rights
• Prevented the access of ePHI to 78.8 million individuals stored in the enterprise data warehouse

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.

HHS press release »
Resolution Agreement »

On Oct. 4, 2018, the IRS issued a Program Letter outlining its compliance strategies and priorities for fiscal year 2019. They include:

• Determining whether workers have been misclassified as independent contractors rather than employees. While this is primarily an employment law issue, it can impact employee benefits. An employer who has misclassified an employee as an independent contractor could have liability under ERISA for excluding an otherwise eligible employee from coverage under the group health plan. Also, an applicable large employer must offer coverage to substantially all full-time employees working 30 hours or more per week. If employers misclassify workers as independent contractors and exclude them from group health plan eligibility, employers could be opening themselves up to risk, specifically under employer mandate Penalty A.
• Verifying that retirement plans are following correct distribution procedures
• Contacting employer plan sponsors who fail to file a Form 5500
• Examining 403(b) and 457 plans for compliance related to universal availability, excessive contributions and catch-up contributions
• Continuing to pursue referrals received from internal and external sources that allege possible noncompliance by a retirement plan
• Hiring 40 new revenue agents to process the applications that determine the exempt status of submitting organizations

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.

Program Letter »

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.

HHS Posting »

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.

Help for Victims of Hurricane Florence »
Tax Relief for North Carolina »
Tax Relief for South Carolina »

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:

• Transition Rule: The credit is generally available for wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020. This transition rule allows eligible employers that set up a qualifying program (or amend an existing program) by Dec. 31, 2018 to claim the credit for eligible leave already provided during their 2018 tax year.
• Leave for Tax Credit Purposes: Family and medical leave eligible for the credit is defined the same as leave as under FMLA. Generally, this includes an eligible employee’s leave 1) following the birth of a child or placement of a child for adoption or foster care, 2) for the employee’s own serious health condition, or 3) to care for a spouse, child or parent with a serious health condition. In addition, “qualifying exigencies” and care for covered service members with a serious injury or illness (as defined by FMLA) are eligible.
• Employers Not Subject to FMLA: The tax credit is available to all employers, even those that are not subject to FMLA (for example, because the employer is not subject to FMLA or because the employee has not completed the requisite number of hours), as long as they offer certain FMLA-like protections to employees. These businesses must include “non-interference” protections in their written policies. Sample language is given in Q/A 3.
• Additional Restrictions on Eligible Leave: To be eligible for the tax credit, leave must be specifically designated for an FMLA reason, may not be used for any other purpose, and may not be paid by a state or local government or required by a state or local law. Leave provided under an employer’s insured or self-insured short-term disability policy may be eligible, if it otherwise satisfies relevant requirements.

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.

Press Release »
IRS Notice 2018-71 »

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:

• Implement a policy and procedure to track the location, movement, modifications or repairs and disposition of devices and media throughout their lifecycle
• Train workforce members, including management, on the proper use and handling of devices and media to safeguard ePHI
• Implement appropriate technical controls including access controls, audit controls and encryption

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.

OCR August 2018 Cycber Security Newsletter »

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.

Form 5558 (Rev. September 2018) »

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.

Wage and Hour Division. “FMLA: Forms.” www.dol.gov »

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.

Bryan Jarrett. “Opinion Letter FMLA2018-1-A”, www.dol.gov. »
Bryan Jarrett. “Opinion letter FMLA2018-2-A”, www.dol.gov. »

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.

Association Health Plans ERISA Compliance Assistance »
IRS Q&A »

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.

EEOC Press Release »

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.

Order and Judgment »

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:

1. A plan, fund, or program
2. Established or maintained
3. By an employer or by an employee organization, or by both
4. For the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits
5. To participants or their beneficiaries

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 plan must be completely voluntary for employees
• No employer contributions toward coverage are allowed
• Employer involvement (without endorsing the program) must be limited to only specified activities allowed by the regulations
• The employer must not profit from the plan

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.

Cehovic-Dixneuf v. Wong »

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).

Announcement HI-2018-02 »

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.

ALJ decision »
HHS press release »

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:

• The association was a bona fide organization with business/organization functions and purposes unrelated to providing benefits.
• The participating employers shared some commonality of interest and relationship outside of benefits. Commonality of interest was defined as being of the same industry, trade, line of business or profession AND same geographic location.
• The employers directly or indirectly exercised control over the program.

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:

1. Diminishing value of existing trade and professional associations, and
2. An increased risk of poorly managed AHPs and fraudulent practices.

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.

Nondiscrimination Provisions

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:

• May not treat employees of an employer member as a distinct group of similarly situated individuals based on one or more employees’ health factors (for purposes of benefits, premiums, etc.)
• May treat employees of subsets of employer members as distinct groups of similarly situated individuals based on bona fide employment based classifications (e.g., factors such as industry, location, or its employees’ ages or genders or occupations)
• May not restrict employer membership based on any individual’s health factor, such as claims experience, disability, etc.

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.

Lingering Questions

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.

EBSA Final AHP Regulations »
DOL News Release »

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:

• That his premiums were paid entirely by him, with no contribution from Bryan Cave
• That participation in the LTD was completely voluntary for all Bryan Cave personnel
• That Bryan Cave’s sole functions in connection with the LTD were to permit Prudential to publicize the program to employees and to collect premiums through payroll deductions and remit them to Prudential
• That Bryan Cave received no consideration (outside reasonable compensation for administrative services) in connection with the Policy

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.

Stolebarger v. The Prudential Insurance Company of America »

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.

DOL FMLA Forms »
OMB’s status of approval »

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."

DOL Report »

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:

• Amendment of the Abandoned Plan Program: This rule would broaden the scope of entities that are authorized to identify wind-down abandoned plans.
• Adoption of Amended and Restated Voluntary Fiduciary Correction Program (VFCP): The DOL is expanding the VFCP to include more transactions and streamline the procedures.
• Religious and Moral Exemptions and Accommodations for Coverage of Certain Preventive Services Under the ACA: These two rules expand the exemptions from the ACA contraceptive mandate to include those companies who have religious and moral objections to offering such coverage.
• Definition of an ‘Employer’ Under Section 3(5) of ERISA – Association Health Plans: This rule will establish criteria to allow more employer groups and associations to sponsor association health plans.
• Short-Term, Limited Duration Insurance: This rule will amend the definition of short-term, limited duration insurance to allow for a longer period of coverage.

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:

• Final regulations regarding qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs): The final regulations will permit employers to use forfeitures to fund these contributions
• Announcements on hardship distributions following last year’s hurricanes and the California wildfires
• Church plan guidance: The proposed rule would update the definition of church plan under the IRC
• Guidance on the definition of “affiliated service groups”: This guidance would define the term “affiliated service group,” and the IRS would release the guidance under consideration and request comments
• Guidance on missing participants
• Proposed Rule to modify EPCRS (IRS correction program) by expanding certain corrections

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.

DOL Agenda »
IRS Agenda »

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.

Tax Reform Tax Tip 2018-69 »
Employer Credit for Family and Medical Leave FAQs »

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.

Rev. Proc. 2018-30 »

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.

Rev. Proc. 2018-27 »

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:

• FAQ 1 indicates that the Departments are releasing an updated draft model disclosure form, which individuals would use to request information pertaining to their plan’s mental health benefits. The draft form was updated after the Departments received a number of comments on the original draft (which was released in 2017). The Departments are also requesting comments on the updated form, which must be submitted by June 22, 2018.
• FAQs 2-10 address different nonquantitative treatment limitation (NQTL) issues, including experimental limitations, prescription drug limitations, step therapy, reimbursement rates for physicians and non-physicians, network adequacy, medical appropriateness and emergency room care of acute conditions.
• FAQs 11-12 discuss medical health provider directories and the requirement to provide participants with an up-to-date list of network providers. Employer plan sponsors are allowed to provide a link to the list as long as they comply with the DOL’s electronic disclosure safe harbor.

FAQ Part 39 »

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.

Request Form »

Self-Compliance Tool

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.

Self-Compliance Tool »

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.

Pathway to Full Parity Report »

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.

2017 Enforcement Fact Sheet »

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.

Action Plan »

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:

• Deductible: $415 (a $10 increase from 2018)
• Initial coverage limit: $3,820 (a $70 increase from 2018)
• Out-of-pocket threshold: $5,100 (a $100 increase from 2018)
• Total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $7,653.75 (a $145 increase from 2018)
• Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $8,139.54 (a $278.06 decrease from 2018)
• Minimum copayments under the catastrophic coverage portion of the benefit:
  • $3.40 for generic/preferred multisource drugs (a $.05 increase from 2018)
  • $8.50 for all other drugs (a $.15 increase from 2018)

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).

CMS Announcement »

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.

Birmingham Plumbers and Steamfitters Local Union No. 91 Health and Welfare Trust Fund v. Blue Cross Blue Shield of Alabama »

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.

IRS Publication 969

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.

2018 Publication 15-B, Employer's Tax Guide to Fringe 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.

Bulletin 2018-10 »

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.

Ariana M. v. Humana Health Plan of Tex., Inc. »

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.

Zarda v. Altitude Express, Inc. »

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.

CNH INDUSTRIAL N.v., ET AL. v. JACK REESE, ET AL., (2018) »

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.

IRS Notice 2018-12 »

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 .

Rev. Proc. 2018-18 »

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 Facts:

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 Result:

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 Takeaways:

• This Informational Letter serves as a good reminder that employee complaints submitted through the proper channels can trigger an audit from various government agencies.
• We’re still waiting for the IRS to provide specific guidance for the calculation of the COBRA “applicable premium” for an HRA under either the actuarial basis or on the basis of past cost.

IRS Information Letter 2017-0027 »

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.

IRS Publication 974 »

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.

Updated MSP 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.

2017 Form M-1 Instructions »

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.

Motion for Partial Reconsideration »

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.

Publication 502 »
Publication 503 »
Form 2441 »
Instruction for Form 2441 »

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.

HHS MHPAEA Enforcement Report »

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.

DOL News Release »
Final Rules »
Fact Sheet »

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.

Retirement Plans

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.

Other Changes

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.

Tax Cuts and Jobs Act »

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.

Pennsylvania v. Trump »
State of California v. HHS »

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:

• The association is a bona fide organization with business/organization functions and purposes unrelated to providing benefits
• The participating employers share some commonality of interest and relationship outside of benefits
• The employers directly or indirectly exercise control over the program

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:

• Be in the same industry, trade, line of business or profession.
• Have a principal place of business within the same state or metropolitan area. The metropolitan area may include more than one state. EBSA provides specific examples of such areas: Greater New York City Area/Tri-State Region covering portions of New York, New Jersey and Connecticut; the Washington Metropolitan Area of the District of Columbia and portions of Maryland and Virginia; and the Kansas City Metropolitan Area covering portions of Missouri and Kansas.

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.

EBSA Proposed AHP Rules »

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 penalty for a failure to file Form 5500 will increase from a maximum of $2,097 per day to a maximum of $2,140 per day.
• The penalty for a failure to furnish information requested by the DOL will increase from a maximum of $149 per day to a maximum of $152 per day.
• The penalty for a failure to provide CHIP notices will increase from a maximum of $112 per day to a maximum of $114 per day.
• The penalty for a failure to comply with GINA will increase from $112 per day to $114 per day.
• The penalty for a failure to furnish SBCs will increase from a maximum of $1,105 per failure to a maximum of $1,128 per failure.
• The penalty for a failure to file Form M-1 (for MEWAs) will increase from $1,527 to $1,558.

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.

Final Rule »

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.

Memorandum »