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

Health care reform compliance deadlines are closing in on us.  I have been asked by numerous clients and plan professional about "action items" that should be in place after September 23, 2010.  So I thought I would share them here.  And let's start with notice requirements to participants.

1. Grandfathered Plan Status Notice.  First, you have to understand grandfathering, then decide whether or not you are maintaining grandfathered status.  If you are, participants are entitled to a notice of intent to maintain grandfathered status. 

2. Special Enrollment Notices for Lifetime Limits.  For individuals who have otherwise reached lifetime limits under a plan are entitled to a special enrollment notice identifying that they are now available for coverage.  With the lifetime limit going away, these folks are not coming back on the plan per se, but they will have the ability to have claims paid again.

3. Patient Protection Notice for Physician Choice.  This notice advises participants that they have the ability to designate primary care physicians and to obtain OB/GYN care without prior authorization. 

4. Notice of Age 26 Coverage Extension.  With the expansion of coverage to individuals up to age 26, participants have to be notified of that option and they have to be provided enrollment rights and instructions.

5. Appeal Rights.  With the possible addition of external appeals that applies to non-grandfathered plans, participants have to be told about the new appeals rights.  Plus they should be reminded of the existing appeal rights under the plan.

So step 1, you have to decide what notices are required based on your plan.  Step 2 is to decide who gets those notices and step 3 is to draft the notices and send them out.  Certainly you can rely on the insurance company for these notices provided the insurance company is sending them out.  But ultimately it is the responsibility of the plan sponsor to make sure notices are being correctly sent.  So don't assume.  Ask questions,  Contact the company, your broker and your plan professionals to make sure you are dealing with these new notice requirements.

For assistance in understanding and preparing these notices, please contact your attorney at Fox Rothschild.

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Benefit plan design, administration and documentation is not thrilling stuff.  But when things go wrong, it can be very exciting.  As a plan sponsor, there is no "perfect" plan design that you can latch on to for every plan and never have any problems because you still have to administer them.  Still, there are some things about plan design and administration that can reduce risk, so consider the following as things you can do in designing your plan.

1. Don't make the plan sponsor the fiduciary of the plan.  It is not required that the company that creates the plan automatically takes on the role of "fiduciary."  Instead, consider whether creating an Employee Benefits Committee to be named as the fiduciary might be more appropriate.  The committee structure may help differentiate the fiduciary plan functions from the non-fiduciary (i.e., business or settlor) functions, thus reducing potential conflict-of-interest issues as well as concerns over executive v. fiduciary status in making hard business decisions.  Plus the committee could retain separate legal counsel from the company specifically for the plan concerns, thereby further preserving privilege.

2. Along those same lines, avoid naming key corporate officers as fiduciaries.  C-suite executives have loads of information about the company but that knowledge would also be imparted to them in their capacity as plan fiduciaries.  Wearing a high level executive hat AND a plan fiduciary hat carries with it a host of potential conflict-of-interest issues.  Its better to keep the company executives away from the plan if possible.

3. Before you go any further, make sure you have strong reservation of rights language in your plans.  Make sure that plan documents specifically provide for the ability to amend, revise or terminate the plan at the discretion of the fiduciaries.  Also, consider including the reservation of rights language in every communication from the plans.  Though not specifically required under ERISA, caselaw on the topic seems to clearly favor using the disclaimer in all communications.

4. Clearly define roles and responsibilities.  Make sure that everyone who has a role in plan administration knows the role and is held accountable for what has to be done.  Consider creating an administrative manual for the plan that specifies when and how plan administration activities are completed.  Don't get caught wondering whose job it was to take care of something that goes wrong.

5. Don't cut off appeals.  Appeal periods that are too short or procedures that are vague or cumbersome are always a danger.  Make sure the plan documents explain how to exhaust administrative remedies and what the specific steps are to complete the appeals process.  Make sure to follow the process as it is written.  Be aware of the new requirements for external appeal if this applies to your health plan.

6. Keep a history of the plan.  Someone should always know where documents are, how things were done in the past and what service providers were used.  Consider making a written record of all the plan professionals used for each plan year and what services they provided.  Keep track of where plan records are kept, even the old ones, and pass the history down to incoming plan personnel.  Like a family oral history, take the time to share the history of the plan with new generations so they have some idea of "how things were done."

Again, none of these is definitive or absolutely required.  But in an age where benefits administration is getting more and more confusing, a few simple tweaks to your administrative processes can go a long way toward making things easier down the road.  For assistance with your plan administration concerns, you can always contact your attorney at Fox Rothschild.

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While the focus on health care reform has been primarily major medical plans, there is no question that the new laws have a considerable impact on cafeteria plans.  The IRS has recently issued guidance that allows retroactive amendments to cafeteria plans to comply with health care reform.  Additionally, employers must revise their cafeteria plans for changes taking effect during and after 2011.  Plan sponsors and employers need to be familiar with these changes now in order to communicate them during the next open enrollment period and also to properly administer them.

1. Change to Eliminate OTC Reimbursements

Effective for expenses incurred on or after 1/1/2011, FSAs (health flexible spending accounts) in cafeteria plans may no longer provide for reimbursement for over-the-counter (OTC) drugs unless they are prescribed.  Unfortunately, the exact definition of the terms “drugs” and “prescribed” is unclear, and we will need future guidance to be sure.  We do know that the effective date is Jan. 1 even for non calendar-year plans.  The same rule will apply to health reimbursement arrangements (HRAs) and health savings accounts (HSAs).)   So every cafeteria plan with an FSA must be amended by Dec. 31, 2010, to exclude payment for OTC drugs, and this change must be communicated to plan participants so that they can adjust the amount they elect to contribute.

Although not required, plan sponsors may also want to take the opportunity to amend cafeteria plans at the same time to adopt the new $2,500 limit on health FSAs, which takes effect Jan. 1, 2013.

2. Address Changes to Benefit Elections

Remember that under health care reform, the age-26 dependent extension of coverage means that an employee’s child is covered under the health plan tax-free through the end of the calendar year in which the child turns 26.  That means that the value of health coverage for adult children should not be included as gross income for the employee.  Participants with covered “adult” children need to change their cafeteria plan elections to provide for payment of the premiums for such coverage on a pretax basis.  This may also give rise to a mid-year change in the health FSA accounts because medical expenses of adult children are now reimbursable tax-free.

Be aware that the the IRS has identified two problems for cafeteria plans designed to allow such mid-year changes for adult children:

1. Under the existing cafeteria plan regulations, adding an adult child to the plan would not seem to fit the definition of “change of status” that would justify changes outside of open enrollment..
2. IRS regulations generally require cafeteria plans to be amended on a going-forward basis, not retroactively.

Fortunately, the IRS has given some relief in Notice 2010-38, which provides that the IRS has determined that it will amend the change-of-election regulations to allow changes in elections for events affecting adult children’s eligibility, whether or not they are tax dependents.  The IRS will also allow amendments to cafeteria plans to allow such changes of election, retroactive to when the plan started allowing such changes as long as the amendment is adopted by 12/31/10.

So remember, not only does health care reform require an adjustment of treatment of over-the-counter reimbursements.  You also have to attend to the changes in elections and make sure your plan is properly amended to account for the intended benefits.  Plus there should be some opportunity to participants to change elections if they are adding adult children.  So don't assume that the major medical plan is all you have to look at.  Pay attention to your cafeteria plan, too.

If you need assistance in amending your cafeteria plan to comply with these changes, please contact me or your attorney at Fox Rothschild.

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 Lately I have been fielding a lot of questions relating to employee benefits issues in mergers and acquisitions.  Whether they be asset deals, stock deals or straight mergers, due diligence about employee benefits should always come sooner rather than later.  There are lots of checklists out there about things you need to look for and specific questions to ask, but what strikes me is that some of them overlook some of the basics that I ask first.  So I thought I would share my initial questions when being asked to consider employee benefit concerns in a deal.

1. What do the entities look like to begin with and what will then end up looking like?

The structure of the entities before the transaction and after the transaction can tell us a lot about what might need to be done with the benefit arrangements.  A parent selling a wholly owned subsidiary may have different issues then two small companies creating a joint venture.  So before you do your employee benefit analysis, make sure you know where you have been and where you are going.  Believe me, it matters.

2.  What have you got that is not wages and what will you keep giving?

Seems like a silly statement, but a good review should start with the assumption that everything provided to employees that is not a straight wage could be a benefit.  Maybe not an ERISA benefit plan, but possibly some type of "plan" or "program" that has to receive special treatment.  Don't assume that simply because it is not a qualified plan it is not relevant for consideration.  I have seen things like wellness programs, commuter benefits, pet insurance and adoption assistance plans become last minute problems that would not have been issues if considered in advance.  So a real inventory is a census of everything you have (on both sides) and what you expect to give when you are done.

3. Who will still be employed when the dust settles?

Sometimes a merger eliminates employees.  Or an acquisition can take one set of employees and moves them to a new employer.  To evaluate continuation (and COBRA) obligations, you have to know who will still be around and who will be losing their employment status.  Do we have any obligations to retirees?  What about people who retiree because of the transaction?  Will job classifications change?  You would be amazed at the amount of litigation that arises related to terminating benefits for former AND continued employees that could have been addressed beforehand by simply considering who was being let go and who was being kept.

4. Do we have any unions involved?

Without going into too much detail, collectively bargained employee benefits issues can be a ticking time bomb for anyone who waits until the last minute to consider them.  Make a list of all unions involved,both before and after, and include any multiemployer benefit fund to which there may be a contribution obligation.  Be cognizant of possible successor liability for any delinquent contributions of the seller entity.

Continue Reading...

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Step one in the process of creating insurance exchanges required under the PPACA (health care reform) is officially underway.  The Department of Health and Human Services published a request for comments from interested stakeholders - including the employer community that can be accessed here.

PPACA allows each state to establish a health insurance "exchange" to provide for the purchase of of "qualified health plans."  These exchanges will be available to certain smaller employers and individuals.  There will also be a federal exchange for people who live in states that do not offer their own state sponsored exchange.  Exchanges will ideally begin functioning on January 1, 2014.  The DHHS has now published a request for comments to obtain input from interested parties (which includes employers) on issues surrounding how the Exchanges will work.

The request for comment covers a wide assortment of topics, including who gets run the exchanges and how they will operate, time frames for implementation, information and technology needs, qualification criteria of health plans and possible pricing of the exchanges (including permissible cost-sharing components with employees).

Since employers will be impacted by the exchange offering and administration process, employers may be interested in the design and operation of the exchanges.  Beyond the comments requested, DHHS is also interested in input from employers regarding:

Design features likely to be most important for employer participation in the Exchanges. Important factors in determining the employer size limit (e.g., 50 versus 100) for participation in an Exchange. Important considerations to facilitate coordination between employers and the Exchanges (e.g., the key issues that will require collaboration).

Comments are requested by October 4, 2010.   If you are interested in obtaining assistance in submitting comments, or would be interested in having us prepare and submit comments on behalf of your company or organization, please contact me or your attorney at Fox Rothschild.

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Just because you work with retirement plan money, you are not necessarily a fiduciary.  This is generally good news to service providers who are trying to balance between potential liability under ERISA and their obligations under service contracts to plans and plan sponsors.

In Erickson v. ING Life Ins. & Annuity Co., the U.S. District Court of Idaho recently affirmed that a service provider moved money was not liable as a fiduciary.  At issue concerned moving money as a directed custodian.  The funds were transferred a day late which cost the plan money.  But the court would not allow a claim for breach of fiduciary duty to survive, finding that mere custodial responsibility (meaning acting at the direction of other fiduciaries) did not automatically give rise to fiduciary status under ERISA. 

The court reasoned that fiduciary status requires something more than merely having control of certain ministerial functions involving plan assets, like writing checks or moving money.  To be a fiduciary, one has to be using their own judgment and assume control, not simply acting at the direction of the plan.  Doing what you are told is not the same as assuming authority or control over plan assets for the purposes of being a fiduciary.

It is important to note that the court did not foreclose a possible negligence or breach of contract action against the custodian.  It merely concluded that this was not an ERISA case.  So for plan service providers, a case like this can provide some measure of comfort in the idea that just because you work with plan assets, you are not automatically a fiduciary.  but it also reminds us that service providers should be very clear in their contracts and agreements as to who is giving the directions and making the actual decisions for the plan.

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If you are a regular reader, you know that I have been spending a lot of time addressing health care reform and upcoming plan administration and design issues.  As part of that administration process, it is important that plan sponsors not overlook some of the notice requirements that are hidden within the rules.  It is important to prepare for the required communications and, fortunately, the DOL has give us some samples.  So what is coming up?

1. Notice of Key Plan Design Changes

For most plans, the target date for compliance will be January 1, 2011.  So these notices are probably a good place to focus first.  The DOL has given us a notice for Annual and Lifetime Limit Changes (http://www.dol.gov/ebsa/lifetimelimitsmodelnotice.doc), a notice for Older Children Dependent Eligibility (http://www.dol.gov/ebsa/dependentsmodelnotice.doc), and a model for Primary Care Physician Designation (http://www.dol.gov/ebsa/patientprotectionmodelnotice.doc ).  Of course you will have to modify these notices to fit your plan, but they give us an idea of what will have to be in place.

2. Summary of Material Changes

Some time in 2012, plans or sponsors will have to send participants a written summary of any plan changes at least 60 days prior to the beginning of their plan year.   This is not the SPD or a summary of material modifications but rather will be targeted to summarize what changes are being made to comply with health care reform.  

These notices will be required by March 23, 2012, and ideally we will have DOL models before then.

3.  Summary of Medical Coverage

This plan summary is also due in the 2012 plan year and it will be referred to as a “uniform explanation of coverage.”  Limited to 4 pages and 12-point font, The summary must include specific content and definitions, and be written in language that is “linguistically” and “culturally” appropriate.  Again, this will not replace and SPD, but will likely supplement it as a uniform statement of certain required benefits.  

4.  Summary of Managed Care Programs

2012 looks like a big year for notices as we expect model language on notices that will describe all care management programs.  These will deal with wellness and disease management programs.  So to the extent an employer may not already have its wellness programs fully explained in writing, this notice will require those statements.

5.  Automatic Enrollment

As we get closer to 2014 and the penalties, employers will likely be looking at automatic enrollment and preparing for employees who want to opt-out of employer coverage.  In 2013, we can anticipate providing participants that they are automatically being enrolled in medical coverage and what actions they must take to opt-out.

6. Eligibility for Health Insurance Exchange

Coupled with the employee choice and the creation of the exchanges, we are going to have notices explaining what they are and how to access them.  Presumably, these notices will include information about eligibility rules for premium credits and the differences between an exchange plan and an employer-sponsored plan.  

So start with number 1, getting the 2011 notices and information in place.  Dutifully watch to see what sample or model notices are release next and continue to prepare your plan for full compliance.  And above all, don't miss any notices requirements because communication to participants will be the key to avoiding complaints.

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With the heady rush of health care reform changes, we might be overlooking retirement plans.  I have been writing before about the importance of fees disclosures in retirement plans and it turns out the government has not forgotten about it either.

On July 16, 2010, the DOL further clarified its position that fiduciaries must understand the fees and expenses associated with plans that allow participants to direct their investments and participants must be made aware of them.  Beginning July 16, 2011, a failure to disclose will result in prohibited transaction which in turn triggers excise tax penalties of 15 percent of the fees.

Retirement plan providers are now responsible to make the  disclosure if they reasonably expect to receive $1,000 or more in compensation.  The following persons are entities are required to make disclosures under these regulations:

• Fiduciaries of the plan, including investment managers and anyone else who gives investment advice to the plan for a fee
• Fiduciaries of plan assets in which the plan has a direct equity investment
• Registered investment advisers
• Providers of the plan’s record keeping and brokerage services
• Other service providers, if they receive indirect compensation – including accountants, actuaries, banks, consultants, investment advisors, lawyers and third party administrators.

The service provider is required to disclose, in writing,  the following information BEFORE before providing services:

• A description of the services to be provided
• A statement of the provider’s fiduciary status
• A description of all direct and indirect compensation to be received for covered services
• A disclosure of compensation paid to the service provider and affiliates or subcontractors
• A description of any compensation payable upon termination of the arrangement
• If recordkeeping services are provided, a separate identification of the cost of the services

These fees are normally reported on the plan's 5500 (typically on the schedule C).  The regulations are available here for closer review.  These regs are substantially the same as were originally considered back in 2007, so there should be no surprises.  But plan sponsors and fiduciaries should now be very careful to make sure plan records maintain a full explanation of plan service fees incurred, and also make sure they are accurately reported.

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Within the Health Care Reform structure there is a provision that adds an external appeals component to claims processing.  In the mad rush to get regulations and guidance in place before the September 23, 2010, start date, the department of Labor issued a Fact Sheet on the appeals process.  It references interim regulations  which in tun references the Uniform Health Carrier External Review Act produced by NAIC(National Association of Insurance Commissioners).

Now the way it is set up, the regs suggest that States adopt the NAIC model for insurance written in their states.  For group health plans not subject to state regulation, or for insurance issued in states that have not adopted the NAIC model, a federal external appeals process will apply.  However, the actual process itself is not yet defined, and is not required to be fully defined until July 1, 2011.  So as best as I can tell, the idea is that the external appeals process is just that, an appeal that occurs outside of the plan.  It is ideally governed by the state insurance appeals process and models give by the NAIC.  And I would assume that the federal model eventually adopted will look like the NAIC recommendations.

So what does this mean?  Well, we still have to wait.  But for now it means they are working on it.  Plan sponsors should take a look at the NAIC model process available and recognize that they should start evaluating the process to see how they would ultimately implement such an external appeals process once actual guidance is finally issued.

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