Although the Family and Medical Leave Act of 1993 (“FMLA”) is not something I usually address, the DOL final regulations issued last week did address an issue I have previously written about and that is recognition of same-sex spouses. The FMLA generally provides that eligible employees can take leaves of absence for certain family- and medical-related reasons, including caring for a spouse. The new regulations redefine the term “spouse” for FMLA purposes to include same-sex couples who have been legally married in any jurisdiction, regardless of whether the state in which they reside or work recognizes their marriage. The new regulatory definition of “spouse” under the FMLA goes into effect on March 27, 2015.
This is somewhat significant in the employee benefits arena in that health benefits are generally continued during a qualified leave. More often than not, the request for FMLA leave is handled through the HR department, which also happens to be handling benefit plan administration. Consequently, the question can come up as to whether FMLA leave is available, and if so, is it the type of leave that permits continuation of health coverage. More importantly, though, I think it is further clarification that, from a federal perspective, the “celebration” rule is becoming the accepted norm. In short, if the jurisdiction where the marriage was performed recognizes the marriage, it would be recognized anywhere else.
Tucked within the FMLA final rules is a little further clarification for marriages outside of the United States. The Final Rule provides that in these cases, if the marriage is valid in the place where it was entered into and could have been entered into in at least one state, it will be recognized for FMLA purposes and the definition of “spouse.” This is also helpful to some extent in understanding benefit plan administration because it gives at least some insight into how the DOL might look at a benefit plan trying to determine whether a foreign same-sex marriage should be recognized. It is not definitive, but it does add a layer to help understand the verification of dependent status for enrollment in US plans.
The point being is that as we fine tune plan administration, employers and plan sponsors can get additional insight from this type of indirect revision to rules. Employers subject to the FMLA clearly have to abide by this new rule, but benefit plans can also use it as a sounding board to ensure proper compliance. If the employer has to recognize the spouse for FMLA purposes, it seems to suggest that the employer should also recognize the spouse for benefit plan purposes. In any event, employers who start revising their FMLA policies to reflect this change should also use it as an opportunity to review their benefit plan language to make sure it accurate reflects the definition of “spouse.”
Back in November of 2014, the DOL issued FAQ Part 22, which directly addresses some recent efforts by employers to reimburse employees for participation in the exchange through Code Section 105, or through some type of other arrangement. The gist of the FAQs, consistent with Notice 2013-54, was that employers could not offer employees cash to reimburse the purchase of an individual market policy. This type of arrangement would fail to comply with the market reforms and would subject the employer to a penalty.
Fortunately, some additional guidance has been issued that provides some transitional relief for employers who have been using such an arrangement. IRS Notice 2015-17 still adheres to the proposition that giving employees money to pay for coverage in the individual market or on a health insurance exchange will not be considered to be an employer plan satisfying ACA’s employer mandate. But it also gives some transitional relief that allows for some avoidance of the $100 a day penalty that these arrangements would create for employers.
Transitional relief is available only to those who are not “applicable large employers” meaning 50 or fewer FTEs. It also applies if the arrangement is sponsored by an S-corporation for 2-percent shareholder-employees, is a Medicare premium reimbursement arrangement or a TRICARE-related health reimbursement arrangement. The stay on enforcement is in effect until June 30, 2015. After July 1, 2015, penalties may apply to a reimbursement arrangement of this nature unless the relief is extended further. So the effect is that the $100 per day excise tax will not be asserted for (and no reporting obligations will apply to) arrangements if they meet one of the 4 criteria identified above.
Warning: this relief does not apply to stand-alone health reimbursement arrangements or other arrangements that reimburse employees for medical expenses other than insurance premiums, and employers who are applicable large employers.
By way of additional clarification, this new guidance provides that if an employer increases an employee’s compensation, but does not condition the payment of the additional compensation on the purchase of health coverage, the arrangement is not an employer payment plan that would be subject to the excise taxes described above.
So if you currently “reimburse” your employees for the cost of premiums for individual medical insurance policies, Medicare or TRICARE, make sure you meet the standards for transitional relief and be prepared to eliminate these arrangements if no additional relief is granted. If you have an arrangement that reimburses for premiums and you do not get relief, you have to look at reporting non-compliance for the first part of this year and also how to eliminate it.
At last, the forms are upon us. Last week, the IRS issued its “final” versions of the forms 1094-B, 1094-C, 1095-B and 1095-C along with instructions for the “B” forms and instructions for the “C” forms. The good news is that the forms are pretty much the same. What has changed is that the instructions have filled in some gaps about reporting, some of which I highlight below:
- Employers with 50-99 FTEs who were exempt from compliance in 2015 must still file these forms for the 2015 tax year.
- For employers that cover non-employees (COBRA beneficiaries or retirees being most common), they can use forms 1094-B and 1095-B instead of filing out 1095-C Part III to report for those individuals.
- With respect to reporting for employees who work for more than one employer member of a controlled group aggregated ALE”), the employee may receive a report from each separate employer. However, the employer for whom he or she works the most hours in a given month should report for that month.
- Under the final instructions, a full-time employee of a self-insured employer that accepts a qualifying offer and enrolls in coverage, the employer must provide that employee a 1095-C. The previous draft indicated that it would be enough to simply provide an employee a statement about the offer rather than an actual form
- For plans that exclude spouses covered or offered health coverage through their own employers, the definition of “offer of health coverage” now provides that an offer to a spouse subject to a reasonable, objective condition is treated as an offer of coverage for reporting purposes.
- There are some changes with respect to what days can be used to measure the “count” for reporting purposes. Employers are allowed to use the first day of the first payroll period of each month or the last day of the first payroll period of each month, as long as the last day is in the same month as when the payroll period starts. Also, an employer can report offering coverage for a month only if the employer offers coverage for every day of that month. Mid-month eligibilities would presumably be counted as being covered on the first day of the next month. However, in the case of terminations of employment mid-month, the coverage can be treated as offered for the entire month if, but for the termination, the coverage would have continued for the full month.
Now as a refresher about what needs to be filed:
- Each ALE member may satisfy the requirement by filing a Form 1094-C (transmittal) and, for each full-time employee, a Form 1095-C (employee statement).
- Non-ALE members (meaning employers not subject to the employer shared responsibility provisions) that sponsor self-insured plans will file Forms 1094-B and 1095-B to satisfy the reporting requirements.
- An employer must furnish a Form 1095-C to each of its full-time employees by January 31 of the year following the year to which the Form 1095-C relates. Filers of Form 1095-B must furnish a copy to the person identified as the responsible individual named on the form.
Bear in mind that there is a considerable amount of time between now and the final filing obligation so there may be additional revisions to these instructions, or at least some further clarification. But in the meantime, read the instructions and familiarize yourself with the reporting obligations.
Recently I was working with a client updating some of the plan documents and we ran into an interesting issue. The plan provides for eligibility for same-sex partners under a provision defining them as “domestic partners.” The plan sponsor asked “since all of our employees reside in a state that recognizes same-sex marriage, do we still need this?” Great question. Since they asked, I have been doing a fair bit of research and have come to the following conclusion: it depends on what you want to do, but make sure you know you are doing it.
At the outset, this is not about whether or not same-sex marriage is a positive or a negative. I am only concerned with appropriate plan administration. And one considerable difficulty with plan administration is that some terms and provisions become “legacy” provisions that just continue to show up, restatement after restatement, without any clear understanding of why they are in there. So as a starting point, you should really be reviewing your plan documents with an eye toward making sure you know what eligibility and benefits provisions are included. Many a plan sponsor has been frustrated in finding “surprise participants” based on plan language that was just carried over year after year. Don’t let plan provisions stick around just because they are already in there. Make sure they are actually doing what you want them to do.
That said, the definition of “domestic partner” can be part of the problem. Many plans started by defining domestic partners as same-sex couples who legally could not get married. 37 states now recognize same-sex marriage, so in many ways, the necessity for this type of eligibility may be falling away. Legally speaking, there is little rationale for treating opposite sex couples differently from same-sex couples if both can marry so the plan can certainly limit the definition of “spouse” to those legally married. Further, recall that the IRS recognizes same-sex marriages if they are performed in a jurisdiction that recognizes them, so even out-of-state marriages would create a “spouse” if your plan includes a provisions defining a spouse as being anyone legally married in a jurisdiction recognizing the marriage.
So there is certainly ample justification for considering limiting the definition of “spouse” to people legally married and doing away with domestic partners. However, there is also some support for keeping the definition in. Some plans want to provide coverage for domestic partners regardless of the gender of the employee. Yes, some plans offer benefits to opposite sex domestic partners, provided certain plan requirements are met. There might be tax issues to consider, but the point is you can include such a provision in your plan.
The point is that whether you decide to leave “domestic partners” in, or decide to take them out, make sure you know how you have defined them, how you verify the status and how you apply the plan terms. If you decide to take them out, make sure you provide proper notice to plan participants and properly amend the plan documents, including any summaries that explain eligibility. And while you are at, give the other plan terms a once-over to see if there is anything else in there that might need to be updated to reflect current practices.
In the past I have written about the importance of doing regular “dependent eligibility audits” and litigation over payment of retirement benefits to spouses, ex-spouses and other beneficiaries. But every once in a while, a case comes to my attention that reminds me that one of the hardest parts of maintaining benefit plans is that they benefit employees and their dependents, and frequently the status of these folks can change. Consequently, keeping track of dependent status is a key component of good plan administration.
In Forristal v. Federal Express, the District Court in Massachusetts considered a case where the employee claimed that he was a victim of wrongful termination. He claimed that the basis for his termination was, in part, punishment for keeping his ex-spouse enrolled in the company health plan for 7 years after his divorce. The company found out about the deception when the employee asked to drop the ex-spouse because he was getting remarried. From a purely legal point of view, the employer argued that ERISA preempted the wrongful discharge claim and the Court ultimately agreed. Because the claim ultimately related to the administration of the plan, it was preempted by Section 514 of ERISA.
However, setting the legal arguments aside, the plan language in question clearly made it so that the ex-spouse was not eligible for benefits. But for 7 years, it continued to treat the ex-spouse as a covered dependent. I have seen in the past where retirement plans have run into a quandary over payment of retirement benefits to the “spouse” only to find out that a divorce has occurred. Moreover, I have actually seen situations where the plan has continued to list a deceased spouse as a primary beneficiary. I have even seen a situation where a health plan accidentally continued coverage for a spouse of a deceased employee for years, apparently not aware that the employee had died.
In each of these situations, there were logical explanations for how the mistakes occurred. But in each case, it struck me that problems could have been avoided with a regular review of who the plan considered to be “dependents.” Good recordkeeping is important for good plan administration. Not all plans have pen enrollment every year where dependent eligibility can be checked so consider some type of audit of your planes to verify dependents are still in fact “dependents” under the terms of your plan. And before you make fun of Federal Express in this case, make sure you don’t have the same problem.
For some time, there has been a question about whether health benefits “vest” under a collective bargaining agreement. Since neither ERISA nor the National Labor Relations Act actually requires employers to provide health-care benefits, employees typically bargain for health benefits that are then memorialized in a collective bargaining agreement. Over the course of time, employers have trouble dealing with this potential obligation to provide retiree medical benefits, and as with most disputes, it ended up in litigation. Now the Supreme Court has ruled on the issue.
In M&G Polymers USA v. Tackett, the Supreme Court of the United States considered a case that directly questioned the obligation to provide retiree medical benefits established through a collective bargaining agreement. In sum, the retirees were arguing that the right to receive the medical benefits was “vested” as of the date of their retirement, particularly where the collective bargaining agreement made no mention of the duration of these benefits and provided no provision for their termination. A unanimous Court (which is rare in and of itself) disagreed with the lower court opinion that silence in a collective bargaining agreement regarding the duration of bargained-for retiree health care benefits should be construed as evidence of the parties’ intention that those benefits vest and continue indefinitely. Instead, the Court determined that ordinary contract law principles should apply.
The general rule in interpreting contracts is that the court has to look to the intention of the parties to resolve ambiguities. Instead of applying contract principles, the lower court applied a standard that presumed that unless there was evidence to the contrary, the provisions of a collective bargaining agreement providing for retiree medical intended to grant those benefits for life. This concept, developed under a case called Yard-Man, had acted as the basis for the proposition that retiree medical benefits vest unless otherwise specified. The Supreme Court’s primary concern was that this presumption improperly places “a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” It presumes intent rather than requiring a determination of the actual intent.
It should be noted that the Supreme Court has a fairly long history of determining that welfare benefits (including retiree medical care benefits) are exempted from ERISA’s vesting requirements. Correspondingly, this is why many plans include provisions that preserve the right to amend or terminate so that there is no implication that they can never be changed. So while this case deals primarily with collectively bargained obligations, it should also serve as a reminder to plan sponsors to include those provisions in their plan documents so they have that discretionary authority. As for this case, it provides a not-so-subtle warning to employers engaged in collective bargaining that while silence does not presume vesting, the intent of the parties in bargaining may ultimately become an issue that has to be proven with actual evidence.
So the take away from this case may actually be more than just an elimination of the Yard-Man presumption. It may be that it is a reminder to employers that engage in collective bargaining to not assume silence in an agreement has any particular meaning. You may ultimately have to prove intent, particularly when it comes to benefit issues. Intent is easier to prove when it is specifically spelled out in actual contract terms. Therefore, it could be that the best way to preserve the right to change or eliminate benefits (or terminate retiree medical) is to specifically include that right in the agreement. Sure, it might cause an issue at bargaining, but it may end up avoiding future problems where “proving intent” becomes an issue.
Normally I do not like to comment on cases that are not final or court opinions that do not have a definitive outcome on a case. But this is an exception because of the topic, which is HIPAA and privacy, which can get overlooked too frequently. Also, because the facts are such that it could happen to other employers, it bears consideration.
The case is Myers v. Hog Slat, Inc., which is pending in the Northern District of Iowa. Myers was employed by Hog Slat and happens to have a daughter who is very ill. So ill, in fact, that she incurred medical expenses of around $1,000,000. The employer’s plan is a self-insured health plan, which paid the expenses. They then terminated Myers, which they claimed was for cause. Myers sued, making claims under the Americans with Disabilities Act (ADA) and interference with benefits in violation of ERISA (a Section 510 claim).
After the close of discovery, the employer moved for summary judgment. The Court denied the motion, which means the case can proceed to trial. The Court determined that the ADA prohibits discrimination against an employee due to expenses arising from a family member’s disability. But more importantly (from my point of view) was the fact that the Court cited numerous pieces of evidence that not only did the company executives know that Myers’ child was extremely ill, but they actively engaged in discussions about how they could limit the plan’s exposure to those claims. One key piece of evidence was an e-mail from Myers to the CFO updating him on the condition of Myer’s daughter. And therein lies the rub.
Arguably, Myers’ e-mail did not implicate HIPAA medical privacy concerns because the individual health information was provided by the father of the child, who was acting on behalf of and for the child. Information provided voluntarily by the patient himself or herself (or in this case the parent of a minor patient) is not protected health information (PHI) under HIPAA. Further, because the CFO knew about the sick child, he was able to review the plan expenses and deduce that the higher costs were associated with that particular dependent. Even that was not in and of itself a violation of HIPAA medical privacy (assuming his role with the plan was part of the plan’s operation). So there is no indication that there was an improper use of PHI so as to create a privacy violation under HIPAA.
But just because there is not a violation does not mean the employer can freely act on that information. Remember that one of the purposes of the HIPAA privacy rules is to make sure that employees do not suffer adverse employment actions as a result of their employer getting wind of their medical costs paid by the plan. Here, the employer may not have violated the “privacy rule” but it still used that information to terminate the employee. So the fact that “medical information” may not be protected does not mean the employee is not still protected from an employer misusing that information.
As we move in to the first phase of ACA compliance, a number of employers have been asking me about unionized employees and how they can know whether the employees are “offered” coverage (as required to avoid penalties) when coverage is provided through a multiemployer plan to which the employer contributes. The concern is that since the ACA requires an employer to offer coverage, and because the multiemployer plan is not technically their own plan, are they really offering coverage so as to avoid the penalties.
Fortunately, this issue has been addressed in the final regulations implementing the employer play or pay penalty (available at http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/pdf/2014-03082.pdf). It may have been overlooked, but in the preamble to those regulations, there is interim relief that provides that for employers that are required to make contributions to multiemployer plans under their collective bargaining agreements, if the multiemployer plan offers coverage that is affordable and provides minimum value and is offered to the children of individuals who are otherwise eligible, the employer will not be penalized, regardless of whether the employer’s employee is in fact eligible for the coverage under the multiemployer plan. More importantly, it also provides that coverage offered by a multiemployer plan to which the employer contributes that is affordable and provides minimum value is considered coverage offered “on behalf of” the employer. So the obligation to offer coverage is satisfied by virtue of the fact that there is an obligation to contribute to the plan and the plan controls the eligibility.
As an additional protection, the interim guidance now provides that an employer is treated as offering coverage for all employees for whom it is required to contribute to the multiemployer plan, even those full-time employees who never satisfy that plan’s eligibility rules and therefore are never offered coverage. So employers who are making contributions to the plan (who arguably never have control over the plan’s eligibility rules) are protected as long as they are making contributions. The fact that the plan may not actually provide coverage does not mean the employer has failed to offer the coverage.
This rule was originally transitional and only applied in 2014, but it has been extended until otherwise modified. So as long as the employer is obligated by the collective bargaining agree to make contributions to a plan that (1) offers dependent coverage, (2) provides minimum value coverage and (3) is affordable, there would be no penalty. How does an employer know that a plan does these things? One thing an employer could do is ask specifically for confirmation from the plan or the union that the plan satisfies these conditions. Even with the interim guidance, there is still an obligation for the employer to make sure these conditions are met.
So if you are an employer contributing to a multiemployer plan, get confirmation that the plan meets these three conditions. As long as your collective bargaining agreement requires you to make contributions on behalf of full-time employees, you should be safe because you are “offering coverage.”
At the beginning of each year, there are certain contribution “limits” for retirement plans and welfare plans that I check on just to make sure I am current on my numbers. While the list is not exhaustive of all relevant numbers, there are some that seem to jump out more often than others and I have compiled a list of the ones that I commonly refer to, and here they are:
- The annual dollar limit for FSA contributions increases to $2,550
- But the annual limit for dependent care remains the same, at $5,000.
- The HSA contribution limit for 2015 is $3,350 for single and $6,650 for family. The catch-up contribution limit remains unchanged at $1,000.
- The IRS limit for HDHP maximum out-of-pocket amounts for 2015 are $6,450 for single and $12,900 for family.
- Something to note: under the ACA, the maximum out of pocket limits for an HDHP are $6,600 for single and $13,200 for family. Remember, though, that a plan has to comply with the IRS limits even though the ACA may permit them to be higher.
- Also remember that under the ACA, the deductible, while part of the out-of-pocket expense of the participant as its own limit. The maximum amount most plans can require participants to pay for deductibles increases to $2,050 for individuals and $4,100 for family.
- The ACA Transitional Reinsurance drops to $44 per enrollee, but the PCORI fee increases to $2.08 per covered life.
- The adoption assistance tax credit rises to $13,400, and the range for phasing out the credit now starts at $201,010.
And lest we forget about retirement plans:
- The elective deferral limits to most defined contribution retirement plans is increased for $18,000. The catch-up contribution limit for people over 50 increases to $6,000. Though not necessarily benefit plan related, the IRA contribution limit remains unchanged at $5,500, with a $1,000 catch up limit.
- The annual limit for a defined benefit plan remains unchanged at $210,000.
- The annual limit for defined contribution plans increases slightly to $53,000
- Finally, the compensation limit used in the definition of “highly compensated employee” increases to $120,000.
If you are a benefit plan administrator or HR professional, chances are you will run across these numbers at some point during 2015, so keep them handy.
January 1, 2015 has come and gone. With respect to employee benefits, it will likely be remembered as the first day of ACA compliance for many employers. If the past year has been any indication, employers will continue to struggle with the specifics of compliance, but for the time being, the initial considerations are more focused on “where are we now” and how we manage going forward. So let’s look at some of the keys for where employers should be.
First, assuming that in employer had over 100 FTEs in 2014, and has a calendar year plan, the employer should be offering creditable coverage to full-time employees. That would be those working 30 or more hours per week over the preceding measurement period that carried through the end of 2014. Second, this means that employers would be in the first stability period as well, meaning that those employees to whom coverage was offered as a result of satisfying the hourly requirements of the measurement period have that coverage and continue to be eligible for that coverage for a period of at least 6 months and no shorter than the measurement period. Third, for those employee subject to measurement periods (those variable hour employees), they would now be in their second measurement period to determine whether they will be eligible for coverage for the 2016 plan year.
This overlap of the first stability period and the second measurement period is key because over the next year employers have to remember that both apply. As we move through 2015, an employee who achieved full-time status during the 2014 measurement period may begin to average fewer than 30 hours per week over the 2015 measurement period. But that does not mean they lose coverage. They may lose eligibility for coverage in the 2016 plan year (which is why it is important to track their hours over the 2015 second measurement period), but they maintain that eligibility for the 2015 first stability period because of their status in the 2014 initial measurement period.
As employers make new hires in 2015, the decision then is whether the new hire is a variable hour employee subject to a measurement period (which means eligibility to participate in the health plan would be delayed), or whether the new hire is brought on as a full-time employee. Remember that new hire who are hired on a full-time basis generally have to be eligible for coverage within 90 days of the date of hire. So an additional consideration moving forward in 2015 is what status new employees are given as it relates to their eligibility. Plus we have to keep track of the number of employees we have for each month so that we can ultimate report that at the end of 2015.
The good news is that, at least through the close of 2014, no new regulations or restrictions were passed that significantly alter this basic framework. Employers should start off 2015 with three basic considerations:
- Make sure to offer and maintain coverage to those who are eligible
- Make sure to treat new hires correctly
- Make sure to count employees in accordance with the instructions for form 1094-C (even though they are still in draft form)
Employers who start 2015 with a focus on these three action items will be better prepared for compliance throughout the year. And of course, if you have questions about compliance, make sure to ask your attorney at Fox Rothschild for assistance.