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Three Things Employers Should Know About the New DOL Rule on Association Health Plans
By: Jason Lacey

The U.S. Department of Labor has released a final rule that describes the criteria for establishing a “bona fide” association health plan under ERISA. This rule implements an October 2017 directive from President Trump to make association plans easier to form and available to more employers.

There is a lot of detail in the rule that is relevant to organizing and operating an association health plan, but here are three big-picture things employers should know about the rule at this early stage in its existence.
  1. Don’t Give Up Your Current Plan Just Yet. The DOL rule is intended to provide employers—particularly smaller employers—with additional options for purchasing health coverage, and the rule makes it easier to use an association structure to allow unrelated employers to jointly purchase coverage. But, there are still a lot of hoops to jump through to get a new association plan off the ground. Don’t expect to see them popping up overnight. And, if a new one does emerge, make sure you ask lots of questions before signing up. Not all association plans are created equal. Some are very well managed and provide a reliable source of coverage for employers and their employees. Others, not so much.
  2. Sharing Is Caring, But Do You Want to Share Health Expenses? One anticipated benefit of association plans is providing small employers with an alternative to purchasing insurance in the small group insurance      Continue Reading...
Supreme Court Limits Health Plan Reimbursement Rights
By: Jason Lacey

The U.S. Supreme Court has held that a self-insured health plan may not exercise reimbursement rights against a plan participant after settlement proceeds recovered by the participant from a third party have been spent or otherwise “dissipated.”

In the case, the plan paid $120,000 toward medical expenses incurred by the participant after he was injured by a drunk driver. The participant later recovered a $500,000 settlement from the drunk driver. The plan was entitled to seek reimbursement of $120,000 from the settlement, but it did not take adequate steps to enforce its rights. By the time the plan brought suit to enforce its right to reimbursement, the settlement proceeds had been paid to the participant and were gone. The plan attempted to recover the $120,000 from the participant, but the court held that the equitable remedies available under ERISA did not include a right to obtain payment from the participant after the settlement dollars were no longer in an identifiable fund.

The take-away? A self-insured health plan with a right to subrogation or reimbursement must assert its claim while the proceeds of a judgment or settlement are still in an identifiable fund, such as the trust account of the lawyer representing the participant in the personal-injury action. Otherwise, there may be nothing left from which to seek recovery. 

A copy of the court's opinion is available here.

New ACA FAQ Addresses Elimination of Contraceptive Coverage
By: Jason Lacey

A new FAQ (Part XX in the series) addresses the disclosure obligations of an employer that elects to eliminate contraceptive coverage in light of the Supreme Court's Hobby Lobby decision. It describes obligations under ERISA and, specifically, the employer's obligation to update its SPD by adoption of a new SPD or summary of material modifications (SMM).

60-Day Deadline. SMMs generally must be provided by 210 days after the end of the plan year in which a plan modification occurs. However, a modification that is a material reduction in covered services or benefits under a group health plan must be provided within 60 days after the date the modification is effective. The FAQ indicates that a decision to reduce or eliminate contraceptive coverage would be considered a material reduction in covered services or benefits, thereby requiring notice within 60 days.
What About SBCs? Interestingly, the FAQ makes no reference to the summary of benefits and coverage (SBC). In general, if there is a mid-year plan modification that affects the content of a previously provided SBC, notice of the modification must be provided at least 60 days in advance of the effective date of the change.
Perhaps the failure to address this obligation reflects a conclusion that elimination of all or a portion of contraceptive coverage would not affect the content of the SBC and, therefore, does not trigger the advance-notice requirement. (A review of the sample SBC on the DOL's website shows no reference to contraception or other preventive care.) But any employer considering      Continue Reading...
DOL Updates COBRA Notice Regulations and Model COBRA Notices
By: Jason Lacey

Earlier this month, the Department of Labor (DOL) issued proposed amendments to the COBRA notice regulations and released updated model notices for the COBRA general notice and the COBRA election notice.

Proposed Regulations. The proposed changes in the actual regulations are largely unremarkable. The DOL is basically proposing to give itself the ability to update the model COBRA notices at any time by posting a new one to its website, rather than actually amending its regulations each time a model notice is updated. (The original model notices were issued as appendices to the actual regulations.)

The preamble to the proposed regulations provides some assurance that the new model notices may be relied on even though the regulations aren't final: “Until rulemaking is finalized and effective, the Department of Labor will consider use of the model notices available on its website, appropriately completed, to be good faith compliance with the notice content requirements of COBRA. The Department notes that the use of the model notices is not required. The model notices are provided solely for the purpose of facilitating compliance with the applicable notice requirements.”

New Model Notices. Both the model general notice and the model election notice have been updated and posted to the DOL website.

  • General Notice. Ignoring the ARRA COBRA-subsidy notices (remember those?!), this is the first update to the model general notice since 2004. Other than some general wordsmithing, the primary change is to add some general discussion of Marketplace coverage and the related premium-assistance tax credits      Continue Reading...
Supreme Court Upholds Internal Statute of Limitations in an ERISA Plan
By: Jason Lacey

In a unanimous decision (here), the Supreme Court has upheld the enforcement of an internal statute of limitations imposed by the language of an ERISA plan. 

Background. The case involved an employer-sponsored disability insurance plan. The plan language said that any lawsuit to seek payment of benefits must be filed within 3 years after proof of loss of the claim was required to be submitted. This was a shorter period than would have been required under general legal principles. Although ERISA does not provide a specific statute of limitations for claims for benefits, courts have long held that the most comparable statute of limitations under state law applies (usually 3 to 5 years) and that the statute of limitations does not begin to run until after the participant has exhausted the plan's internal claims and appeals process. Under the facts of the case before the Supreme Court, the effect of the internal statute of limitations imposed by the plan language was to require the participant to file a lawsuit within about 1 year after the conclusion of the internal claims and appeals process.

The Court's Ruling. The court held that it was permissible for the plan to impose a shorter limitations period than would otherwise apply under general legal principles. The court reasoned that the terms of the plan generally are controlling and must be given effect, unless the limitations period imposed by the plan is unreasonably short or another controlling statute prohibits the shorter limitations period. After considering the specific      Continue Reading...

Supreme Court Invalidates DOMA
By: Jason Lacey

In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.

Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.

The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.

Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under      Continue Reading...

Forgot to File Form 5500? There's an App For That.
By: Jason Lacey

Most employee benefit plans that are subject to ERISA are required to file Form 5500. This includes both retirement plans (including most 403(b) plans) and welfare-benefit plans, although many welfare-benefit plans covering fewer than 100 participants are exempt.

The failure to file Form 5500 can result in serious penalties. The DOL currently assesses a penalty of $300 per day, up to $30,000 per year for a failure to file Form 5500. Ouch.

But there is good news. The DOL maintains a voluntary compliance program that allows employers to correct a failure to file Form 5500 and pay a substantially reduced fee. Even in cases where there have been failures to file Form 5500 over multiple years, the maximum fee under the program is only $4,000. That's still a lot of money, but it's better than staring down something approaching a 6-digit penalty.

The program was recently updated (see here). The technical details of how the program works and what has changed will not be of interest to most of you. But it's a good time to remind ourselves the program exists - and should be used whenever possible.

On the Radar: Cycle B Retirement Plan Restatements
By: Jason Lacey

As the crisp fall air settles in, our thoughts turn to pumpkins, hayrack rides, apple cider - and, of course, retirement plan restatements. This year, it's Cycle B plans that must be restated and filed with the IRS for a fresh determination letter. If your EIN ends in a 2 or a 7 and you sponsor an individually designed retirement plan, you're up. The deadline to file with the IRS is still a few months away (January 31, 2013), but it's a good time to start getting everything in order, so you can beat the last-minute rush.

Not sure if you have an individually designed plan? All ESOPs and cash-balance pension plans are individually designed, and many traditional defined-benefit pension plans are too. But most plans maintained on a pre-approved "prototype" or "volume submitter" plan document are not considered individually designed and do not need to be submitted to the IRS at this time. This covers many (but not all) 401(k) and profit-sharing plans. Your retirement plan service provider or legal counsel can help you understand what type of plan you have, if you're not sure.

Happy Birthday, ERISA
By: Jason Lacey

It's Labor Day, and as you drink in the last few drops of summer, pause to acknowledge ERISA's 38th birthday. (Do this quietly, of course. We don't want your family to think you're totally losing it.)

Signed into law on Labor Day 1974 by President Ford, ERISA was intended to prevent the kind of pension-plan meltdown that occurred when the Studebaker Corporation closed its plant in 1963 and terminated its pension plan, leaving nearly two-thirds of its workers with just a fraction (if any) of the pension benefits they had been promised. But ERISA has grown over the years to mean much more than just pension security. Significant amendments were made by COBRA, HIPAA, and PPACA to regulate health-and-welfare benefits. And the retirement-plan rules have been subject to nearly constant tweaking (think TEFRA, DEFRA, REA, TRA 86, GATT, SBJPA, TRA 97, EGTRRA, PPA - and so much more).

The result is a federal statute that, at the mere utterance of its phonetically pronounced name, can conjure up thoughts and feelings that may be fairly characterized as spanning the range of human emotion. But love it or hate it, it is deeply embedded in the fabric that lines so much of the employer-employee relationship, and it is likely to be a constant presence in our lives for years to come. So at your own time and in your own way, take a moment this Labor Day to raise a glass (or a finger) and salute ERISA - for what it has been, for what      Continue Reading...

Now Approaching the Station: August 30 Deadline for Initial 401(k) Participant Fee Disclosures
By: Jason Lacey

The August 30 deadline for initial annual disclosures under the DOL's participant-level fee-disclosure regulation is fast approaching. Employers with participant-directed 401(k) plans should be putting the final touches on their notices (or confirming that their service providers have done so) and making sure all systems are "go" for distributing them by next Thursday.

If you need a refresher, take a look at the DOL's fact sheet on the final rule, as well as our prior coverage (here).

DOL Withdraws Controversial Guidance on Participant-Level Disclosures in 401(k) Plans with Brokerage Windows
By: Jason Lacey

The Department of Labor has withdrawn the controversial "Q&A-30" in Field Assistance Bulletin 2012-02, which would have required some investment-specific disclosures regarding fees and expenses in 401(k) plans that offered only a brokerage window, self-directed brokerage account, or similar arrangement and did not designate any specific investment options beyond the brokerage platform. In an amended bulletin (Field Assistance Bulletin 2012-02R), the DOL replaced Q&A-30 with a new Q&A-39 that does not require any investment-specific disclosures in brokerage-window-only plans, but does contain strong language warning plan fiduciaries that merely offering a brokerage window to participants may not be fully consistent with the general fiduciary obligations imposed by ERISA.

As brief background, the DOL's participant-level fee-disclosure regulation (which goes into effect this year) requires specific annual and quarterly disclosures to participants in most participant-directed 401(k) and other individual-account plans regarding plan-level and investment-level fees and expenses. (The initial disclosures are due by August 30, 2012, for calendar-year plans.) The investment-level information applies only to investments that are "designated investment alternatives." A brokerage window is not a designated investment alternative. So the regulation generally has been read to mean that no investment-level disclosures are required in a plan that does not have any designated investment alternatives but rather offers participants a brokerage window or self-directed brokerage account through which investments may be made in a large number of publicly available investment securities.

Q&A-30 went beyond that by nonetheless requiring investment-level disclosures in brokerage-window-only plans with respect to investment options that were either designated      Continue Reading...

Ten Things Employers Should Know About the SBC
By: Jason Lacey

We have put out an Issue Alert describing ten basic considerations for employers regarding the new Summary of Benefits and Coverage (SBC) required as part of health care reform. The Issue Alert has more details, but the bottom line is that many employers will need to begin complying with this requirement in the next few months. Now that we know health care reform is sticking around for a while, it's time to begin thinking about things like who will be responsible for preparing the SBC and how (and when) it will be distributed to plan participants and beneficiaries.

DOL: "Open MEP" is Not a Single ERISA Plan
By: Jason Lacey

The Department of Labor (DOL) has opined that a large 401(k) plan covering over 9,800 employees of 500 different employers is not a single retirement plan, but rather is a collection of separate plans established by each participating employer.

The plan was set up as a "multiple employer plan" and referred to as an "open MEP" because the employers adopting the arrangement were not related to each other by ownership, industry, or any other unifying factor. The DOL concluded this lack of "genuine organizational relationship" among the employers was fatal to the intended treatment of the plan as a single plan.

Although this opinion does not impair the tax-qualified status of open MEPs, it does mean that employers participating in open MEPs will be required to separately comply with the standards imposed under ERISA, such as the plan document, summary plan description, and Form 5500 requirements. In addition, each employer is treated as a fiduciary under ERISA and is charged with, among other things, prudently selecting and monitoring investment and service providers, including the sponsor of the open MEP and its affiliated service providers.

In light of this opinion, employers considering an open MEP should carefully evaluate the extent to which participation in the plan will, in fact, relieve it of responsibilities it otherwise has as an employer offering retirement benefits to its employees.

DOL Releases FAQs on Mental Health Parity Requirements
By: Jason Lacey

The U.S. Department of Labor (DOL) has released a set of FAQs on the obligations of group health plans with respect to mental health and substance abuse benefits. The FAQs specifically discuss changes made by the Mental Health Parity and Addiction Equity Act of 2008.

The FAQs serve as a good reminder about these rules. Among other things, group health plans are prohibited from imposing visit limits on mental health and substance abuse benefits that are more restrictive than visit limits on medical/surgical benefits. Plans also may not use a separate deductible for mental health and substance abuse benefits and may not operate in a way that treats mental health and substance abuse benefits less favorably than other benefits.

Federal Appeals Court Rules Against Defense of Marriage Act
By: Jason Lacey

A federal appeals court in Boston ruled late last week that a portion of the Defense of Marriage Act (DOMA) is unconstitutional because it violates the rights of same-sex couples who are validly married under Massachusetts law. At issue in the case was a provision of DOMA that says only opposite-sex spouses may be recognized as spouses for purposes of federal law.

This has important implications for employee-benefit plans because several provisions of federal law grant spouses special rights. For example, spouses have survivor rights under retirement plans, and spouses can receive tax-free coverage and have special-enrollment and COBRA rights under group health plans. Under DOMA, these rights do not apply to same-sex spouses, but that could change if DOMA is struck down.

The case does not disturb existing state statutes and constitutional provisions that prohibit the recognition of same-sex marriages. But difficult questions may arise if a same-sex couple that is validly married in one state seeks to enforce rights under federal law against an employer or employee-benefit plan in a state that does not recognize same-sex marriage.

Ultimately, this is an issue that will be addressed by the Supreme Court, and now that a federal appeals court has ruled, review by the Supreme Court could come as early as next year.

DOL Clarifies Non-ERISA Safe Harbor for 403(b) Plans
By: Jason Lacey

In a recent advisory opinion, the U.S. Department of Labor (DOL) clarified the scope of its regulation on non-ERISA 403(b) plans. Under that regulation, certain 403(b) plans sponsored by 501(c)(3) organizations are considered exempt from ERISA. Among other things, the plans must be voluntary, must only allow for employee contributions (no employer contributions), and must limit other employer involvement.

The new advisory opinion describes an employer that maintains two plans: a 403(b) plan that allows for only employee salary-reduction contributions and a separate 401(a) qualified retirement plan through which employees receive matching contributions based on their contributions to the 403(b) plan. The DOL noted that simply maintaining two plans did not preclude the 403(b) plan from qualifying for the non-ERISA safe harbor. But in this case the close relationship between the two plans caused the 403(b) plan to fail the safe harbor. Specifically, the coordinated matching contribution provided through the 401(a) plan was too much employer involvement and caused the 403(b) plan not to be strictly "voluntary".

Premium Refunds from Health Insurers May Trigger ERISA Issues
By: Donald Berner

As part of the insurance-market reforms enacted by the Patient Protection and Affordable Care Act (PPACA), insurance carriers are required to spend a minimum percentage of premiums (generally 85%) on medical care and quality improvement.  If this percentage -- the "medical loss ratio" -- is not satisfied, premiums must be returned to the policyholder to the extent necessary to reach the required percentage.

A recent report by the Kaiser Family Foundation (read here) estimates that under this rule, carriers nationwide will be rebating as much as $1.3 billion in total premiums collected during 2011.  Of that, employer-sponsored plans are expected to receive approximately $900 million, and at least some rebates are expected in every state except Hawaii.

When a rebate is received with respect to an ERISA-covered plan, care must be taken to determine whether some portion of the rebate is a "plan asset".  If so, it must be treated in a manner that complies with the ERISA fiduciary obligations that apply to handling plan assets.  The Department of Labor (DOL) has provided some specific guidance on this issue (read here).  The guidance instructs that the rebate generally must be allocated between the employer and the plan participants.  The portion allocable to the participants is a plan asset and must either be returned to the participants or used exclusively for their benefit.

The facts of each arrangement must be considered, but a rebate generally will be allocated between the employer and the plan participants based on their relative contributions to the premiums      Continue Reading...


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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Jason Lacey, the Employee Benefits Guy
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