Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

A frequent complaint I hear about multiemployer pension plans is that employers cannot get information from plan administrators.  The primary problem has always been that ERISA requires plan administrators to provide information to participants, but contributing employers were not entitled to receive any specific plan information.  Employers could not get access to actuarial information, financial data or investment information.  Well that is about to change.

Under the new regulations, effective in April of 2010, multiemployer pension plan administrators are obligated to provide to participants, beneficiaries, employee representatives AND contributing employers, the following documentation if requested:

1. Periodic actuarial report (including any sensitivity testing) received by the plan for any plan year which has been in the plan's possession for at least 30 days prior to the date of the written request; and
2. Quarterly, semi-annual, or annual financial report prepared for the plan by any plan investment manager or advisor (without regard to whether such advisor is a fiduciary within the meaning of section 3(21) of the Act) or other fiduciary which has been in the plan's possession for at least 30 days prior to the date of the written request.

This new disclosure rule stops well short of requiring disclosure of all plan data, and contributing employers are still not listed as persons entitled to receive things like summary plan descriptions, plan documents or summary annual reports.  But it does now give participating employers some opportunity to get additional financial information about the plan.  A copy of the regulation is available here.

As with all information, having access to the information does not mean it will be easily understood.  And there is nothing in the changes that gives an employer the ability to question or challenge the investment decisions or financial information provided.  The new rules also do not apply to multiemployer welfare funds.  But at least now contributing employers should have an easier time finding out the inner workings of the pension plans to which they contribute. 

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Last night, President Obama signed a stop-gap bill that extends the COBRA subsidy eligibility through March 31. So employees who are involuntarily terminated between March 1 and March 31, 2010, would be eligible for subsidy participation. We will have more details as they are released, but it appears that clients should continue to use the COBRA subsidy notices and requests for treatment as a subsidy eligible individual that are currently being used until further notice.

Under H.R. 4691, the 65%, 15-month premium subsidy for laid-off workers is extended to those involuntarily terminated from March 1 through March 31.  Meanwhile, the Senate Wednesday will continue consideration of legislation, H.R. 4213, that would extend the premium subsidy to employees laid off through Dec. 31, 2010.

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The U. S. Department of Labor's Employee Benefits Security Administration (EBSA) announced new outreach and compliance assistance efforts for 403(b) pension plans subject to Title I of the Employee Retirement Income Security Act (ERISA).  The official word is that the initiatives are part of the agency's ongoing compliance assistance program to help employers, plan officials and service providers.

Like administrators of 401(k) plans, 403(b) plan administrators now must file basic financial and other compliance information annually with the government on a Form 5500 or Form 5500-SF (a simplified report that many small 403(b) plans can use).  Large plans (generally those with 100 or more participants) must include a report of an independent qualified public accountant with their Form 5500.  All Form 5500s beginning with the 2009 plan year must be filed electronically using the department's new EFAST2 system.

Field Assistance Bulletin 2010-01, Annual Reporting and ERISA Coverage for 403(b) Plans, is available here.  It provides a variety of questions and answers associated with reporting and coverage.  Additional guidance, including links to Field Assistance Bulletin 2007-02 (ERISA Coverage Of IRC § 403(b) Tax-Sheltered Annuity Programs) and Bulletin 2009-02 (Form 5500 Reporting by IRC § 403(b) Plans Covered by Title I of ERISA) is available here.  Finally, administrators should make sure to review a publication titled "Getting Ready for Changes In Filing Your Plan's Annual Return/Report Form 5500" that is available here.

If you need additional information about administration of your 403(b) plan, please contact your attorney at Fox Rothschild and we will be happy to assist.

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As previously posted, eligibility for the COBRA subsidy was extended through February 28, 2010, and the subsidy period goes for up to 15 months.  Of course, individuals who have been denied the subsidy are entitled to appeal the denial and the new application for expedited review of the denial is available here.

While I don't anticipate employers will need to fill out this application, I think employers should be aware of what type of documents that they might have to provide terminated employees to assist them in their appeal:  The notice provides that:

• These documents will assist you in completing your application : COBRA election notice; Information on your plan sponsor, employer, insurance company, and/or plan administrator; A "Request for Treatment as an Assistance Eligible Individual" or other form used to request the premium reduction; Insurance information card; Payroll stubs showing deductions for health benefits; Any documents detailing the date and circumstances of the termination of the employee’s employment; or Any documentation you were provided regarding the denial of the premium reduction.

Note that the COBRA election notice and the request for Treatment as an Assistance Eligible Individual are required to appeal.  This means that these documents will be reviewed by the DOL when the appeal is filed.  So I think it is very important to make sure your COBRA election notice and other COBRA documents are up to date.  An employee who appeals the denial of a subsidy could potentially trigger a bigger audit if your documents are defective.

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With all of the changes to COBRA and questions about the subsidy for COBRA participants, it is important to keep in mind that accuracy of information is still very significant.  Plan administrators should keep in mind that the $110 a day penalty still looms large when dealing with COBRA content of notices and timing of distribution.

This was brought home recently in In re Olick, a bankruptcy case out of the Eastern District of Pennsylvania.  (2009 WL 5214583).  The employee terminated his employment and the employer sent a COBRA notice 4 months late, with a termination date (qualifying event date) that corresponded with a later termination date.  The employer asserted that claims denied during that 4 months were denied in error, and that the employee's actual qualifying event date was the later date.  Because the employee was in bankruptcy, the issue was presented to a bankruptcy court, that awarded $13,000 in penalties to the employee because of the intentional "misstatement" of the qualifying event date in the COBRA notice.  Oddly, the Court found that even though the employee's claims were paid by the health insurance carrier, damages were still warranted because the dating of the notice was not merely a clerical error and was not made in good faith.  It appeared intentional by the company to protect the company.

DOL COBRA regulations require the election notice to identify the qualifying event and the date coverage will terminate unless COBRA is elected, but not the specific date of the qualifying event.  But if the qualifying event date is provided in the notice, it must accurately reflect the actual qualifying event date.  In this case, the penalties covered the 120 days between the actual qualifying event date and the one erroneously reported on the notice.

This decision is consistent with past decisions relating to COBRA notice requirements and penalties and it should serve as a gentle reminder to plan administrators that information provided to COBRA eligible participants should be timely and accurate.  Even though the participant might not actually be prejudiced by the receipt of incorrect information, it can still give rise to penalties under the regulatory framework.  So make sure whatever information you are providing is accurate and accurately reflects your own plan records.

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Before the east coast started digging out from under all the snow this week, the Department of Labor published the Model Notice for Employers to Use Regarding Eligibility for Premium Assistance Under Medicaid or CHIP.

By way of background, on February 4, 2009, President Obama signed the Children's Health Insurance Program Reauthorization Act of 2009. CHIPRA includes a requirement that the Departments of Labor and Health and Human Services develop a model notice for employers to use to inform employees of potential opportunities currently available in the State in which the employee resides for group health plan premium assistance under Medicaid and the Children's Health Insurance Program (CHIP).  The EBSA Notice providing explanations of the required content of the notice is available here.  The DOL's model notice is available here.

An employer that maintains a group health plan in a State that provides medical assistance under a State Medicaid plan under title XIX of the Social Security Act (SSA), or child health assistance under a State child health plan under title XXI of the SSA, in the form of premium assistance for the purchase of coverage under a group health plan, is required to make certain disclosures. Specifically, the employer is required to notify each employee of potential opportunities currently available in the State in which the employee resides for premium assistance under Medicaid and CHIP for health coverage of the employee or the employee's dependents.  These notices are referred to as ``Employer CHIP Notices''.

If a group health plan provides benefits for medical care directly (such as through a health maintenance organization); or through insurance, reimbursement or otherwise to participants, beneficiaries, or providers in one of these States, the plan is required to provide the Employer CHIP Notice, regardless of the employer's location or principal place of business (or the location or principal place of business of the group health plan, its administrator, its insurer, or any other service provider affiliated with the employer or the plan).

An Employer CHIP Notice must inform each employee, regardless of enrollment status, of potential opportunities for premium assistance in the State in which the employee resides. The State is which the employee resides may or may not be the same as the State in which the employer, the employer's principal place of business, the health plan, its insurer, or other service providers are located.

If you have questions about providing this model notice or your obligations to comply, please contact your attorney at Fox Rothschild.

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The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), which amended the Public Health Service Act, the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, generally is effective for plan years beginning on or after October 3, 2009.   For calendar year plans, the effective date is January 1, 2010.  The Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury have published an interim final rule implementing the provisions of MHPAEA. The regulation is effective on April 5, 2010, and applicable to plan years beginning on or after July 1, 2010.

Also available is a DOL Fact Sheet that explains the anticipated changes and impact of the provisions in the interim final rule.  It is not anticipated that this "interim" final rule will be changed between now and the July 1, 2010 final effective date.  

If you are familiar with the Mental Health Parity Act of 1996 (MHPA), you are probably aware of the requirements that there be parity with respect to aggregate lifetime and annual dollar limits for mental health treatment and other major medical benefits.  Since MHPA did not apply to substance use disorder benefits, MHPAEA was enacted to continue the MHPA parity rules as to limits for mental health benefits, and amended them to extend to substance use disorder benefits.  Therefore, plans and issuers that offer substance use disorder benefits subject to aggregate lifetime and annual dollar limits must comply with the MHPAEA’s parity provisions.

We expect more guidance to be issued, but for plan sponsors that are concerned about compliance with the new act, start with the assumption that treatment for addiction gets the same protection as treatment for other mental illness claims.  As more guidance is issued, we will post that information.

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Employee contributions to retirement plan have to be treated as plan assets and submitted to the plan in a timely manner.  The old rule required that while employee contributions had to be segregated from the employer's general assets, there was limited guidance about how long the employer had to submit those withheld contributions to the plan.  There is a requirement that they be submitted in a "reasonable" time frame at the earliest reasonable date, not later than the 15 business days into the month following the month in which employee contributions were withheld.  But there was no "safe harbor" defining what would be reasonable.

Now, at least for small plans, there is a "safe Harbor" of 7 business days.  Employers that sponsor a plan covering fewer than 100 participants (small plans) will be deemed to be in compliance with the "earliest possible date" if contributions are remitted to the plan within 7 business days.  Any plan sponsor who remits the contributions within the 7-day window will be considered as having made a timely deposit.

This is important because plan participants assume employers put money into a 401(k) plan on the day it is withheld.  In a volatile stock market, timing can be everything.  Employee can claim that any delay in remittance was a breach of fiduciary duty because it hurt plan participants.  At least now, a plan sponsor can use the 7-day rule as a safety net to be able to confirm satisfaction of fiduciary responsibilities. 

The contributions don't have to be allocated within 7 days, only contributed to the plan.  The 7 business days are counted from the day amounts are withheld.  The effective date of the rule is January 14, 2010.  The safe-harbor period applies on a deposit-by-deposit basis, so failure of one deposit does not take the safe-harbor away for future deposits.  The 7-day rule also applies to welfare plans and cafeteria plans.  This rules does not apply to large (over 100 participants) plans.  They are still governed by the "15th-business day of the next month" guideline.

So if you are the sponsor of a small plan, I highly recommend that you review your administrative procedures to take advantage of the 7-day safe harbor and review with your plan service providers their procedures to ensure quick transmission of employee contributions.  Failure to comply does not necessarily mean that a fiduciary duty has been breached, but it is better to be "safe harbor" than sorry.

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As of November 30, 2009, 15 states had proposed mandatory sick-leave laws to require employers to provide paid sick days to employees.  San Francisco, Milwaukee and Washington DC have municipal ordinances that require some mandatory sick leave and the New York City council has proposed similar regulation.  Federal regulation was proposed on both the Senate and the House of Representatives.  The purpose of this entry is not to survey the state or cities that have adopted these regulations, and if you have concerns that you might be subject to mandatory sick leave laws, I encourage you to reach out to your attorney at Fox Rothschild and make sure you are in compliance.

Instead, I am looking at whether an employer can create a "sick pay plan" to satisfy the obligation to pay sick days and create an ERISA governed welfare plan.  Such a plan might be beneficial for an employer for tax purposes or administrative purposes, or it might be part of preserving employee good will.  Under IRC sections 105 and 162, a business cannot deduct wages paid to a disabled employee.  The key word is wages.  IRC section 106 requires that a company pay wages only to employees who render services.  However, a company can pay wages to disabled employees under a section 105 qualified sick-pay plan (QSPP).

Generally 29 CFR 2510.3-1 provides that the definition of "employee welfare benefit plans" in Section 3(1) of ERISA does not include arrangements that pay an employee's normal compensation, out of the employer's general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons.  This "sick pay" exclusion is designed to exempt from ERISA requirements payroll and employment practices when the benefits are uninsured and paid out of the employer’s general assets, such as vacation pay, holiday pay and short-term disability pay or sick leave.

Generally we can assume that disability plans, when funded through insurance, are probably ERISA plans.  But what about a truly "short term" type of benefit that provides compensation for something like 5 missed work days?  Going back to PWBA Advisory Opinion 96-16A (8/27/1996), the DOL looked at a three phase disability plan that provided compensation replacement coverage for three disability periods: really short (5 to 10 days), short (11 days to one year) and long term (more than one year until retirement).  The plan replaced compensation where absences was due to illness or injury.  The plan was unfunded and paid out of the general assets of the company, but the Company retained discretion to pay benefits through a group disability income insurance policy, a trust or a separate account.

The specifics of this plan are not so interesting as the DOL's decision that the entire arrangement was not a "payroll practice" within the meaning of 29 CFR 2510.3-1.  But what if "phase one" coverage (5-10 days) was separated out?  Would that sick-pay arrangement have qualified?  What about a sick pay plan covering days 1-4?  In this case, I believe the answer lies somewhere closer to our analysis of severance plans and the determination of whether they should be treated as ERISA plans.  For example, we look to things like the funding arrangement and the ongoing administrative requirements.  An employer who pre-funds sick pay at the beginning of the year, or sets aside a trust from which sick-pay benefits are paid may be creating something outside the payroll function.  If the sick pay arrangement requires some additional administration beyond a simple payment of wages (such as cost of living adjustments or eligibility requirements) would appear to look more like a "plan" rather than a payroll practice.

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