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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.

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...

DOL Releases Same-Sex Spouse Guidance for Purposes of ERISA
By: Jason Lacey

The DOL released guidance today (here) describing how it will interpret the term "spouse" for purposes of ERISA in light of the Supreme Court's decision in Windsor. There are no real surprises. The guidance is consistent with broader tax-based guidance released by the IRS a few weeks ago (here). 

A same-sex couple will be treated as married (and therefore as "spouses") for purposes of ERISA if their marriage is valid in the state in which it was celebrated. This includes marriages entered into in foreign countries that recognize same-sex marriage. It does not matter that the couple may reside in a state (like Kansas) that does not recognize same-sex marriage.

Consistent with the IRS's guidance, the DOL also clarified that same-sex couples who are in non-marriage relationships, such as civil unions or domestic partnerships, will not be recognized as spouses for purposes of ERISA. They must, in fact, be married.

The DOL's guidance was limited to the definition of spouse for purposes of ERISA and does not address other federal statutes under the jurisdiction of the DOL, such as the FMLA.

Provisions of ERISA that affect spousal rights include:

  • HIPAA special enrollment rights.
  • COBRA notice and election rights.
  • Survivor benefits and other spousal rights under retirement plans.
  • Rights under qualified domestic relations orders (QDROs).

For prior coverage of the Windsor case and related guidance, see here and here.

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...

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.

Health Care Reform 102
By: Boyd Byers

Jason Lacey, a Foulston Siefkin LLP partner who advises employers in the area of employee benefits, presented a seminar titled “Health Care Reform 102” to HR professionals and business managers on August 18 and August 23 in Wichita.  The workshop explored in detail two of the more-troubling aspects of health care reform law for employers:  (1) the new rules prohibiting discrimination in insured health plans, and (2) the new play-or-pay penalties that will impact many employers beginning in 2014. 

The nondiscrimination rules prohibit employers with insured health plans from discriminating in favor of highly compensated employees as to either eligibility or benefits.  These rules require employers that offer an insured health plan to make it broadly available to employees and to provide all covered employees with the same benefits.  “Every organization will have at least one highly compensated employee for purposes of these rules,” Lacey said, "so employers cannot assume they are exempt from the rules just because they are small or do not have highly paid employees."  The rules are technically effective now, although the IRS is not enforcing the requirements until further guidance is provided.  That guidance could be issued any time and is expected no later than 2014.  Once enforcement begins, employers that fail to comply will risk exposure to a steep penalty of $100 per day for each individual who is discriminated against.
The play-or-pay penalties that begin in 2014 are the primary mechanism in the health care reform law that prod      Continue Reading...

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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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