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Employee Benefits Legal Blog

Employee Benefits Related to Labor & Employment Matters

Employers Start Your Reporting (or at Least Start Preparing)

Posted in Plan Administration, Welfare Plans

Effective in 2015, PPACA requires that employers “report” information about the health coverage they offer to employees.  IRC Section 6055 requires employers and insurers to report information about the entity providing coverage, including contact information and a list of individuals with identifying information and the months they were covered.  Under IRC Section 6056, entities must report information about the applicable large employer offering coverage and a list of full-time employees and information about the coverage offered to each, by month, including the cost of single (or employee only) coverage.

The Section 6055 reporting requirements apply to employers with self-funded or self-insured plans and to the insurer with respect to offering an insured plan.  Section 6056 applies to “applicable large employers” (those with over 50 full-time equivalents who are obligated to offer coverage).  Employers with self-funded plans are going to have to file both forms, while employers with an insured plan will only file the latter under Section 6056.  While employers can use outside service providers to complete the filing, the responsibility to make sure the filing was made remains on the employer.  Returns must be filed with the by February 28 (or March 31 if filed electronically) for the applicable reporting year. 

Employers must file an information return annually and must provide annual statements to their full-time employees.  The general reporting requirement for an annual filing requires the employer to provide detailed information, for each calendar month, on the total number of full-time employees, the name, address and Social Security number of each full-time employee, whether the coverage offered to that employee was “minimum essential coverage,” whether it satisfied the ”minimum value” requirement, whether it was affordable and how much the employee was required to pay and whether the coverage was offered to full-time employees and their dependents. 

More information and guidance is sure to be issued on these reporting requirements, particularly when model forms are created, but employers need to start looking at the reporting process now.  First, since the obligations under 6055 and 6056 are somewhat duplicative, employers should first figure out whether they have to file both.  Second, collecting this information is going to take a lot of coordination between the HR, payroll and benefits departments.  Now is a good time to see what information is available and how responsive information will be collected and aggregated for final reporting.  If the company relies on an outside vendor for benefit services, it will probably have to review and even amend service provider agreements to make sure the process works smoothly.

So as you plan for PPACA compliance, be reminded that you have this reporting obligation, not just to the IRS but to employees as well.  Develop a process for collecting and sorting the required information and anticipate that you will need to show not only who was offered coverage, but how much it cost.  And as we get closer to the reporting deadline, make sure to work with your tax and legal professionals to ensure that your PPACA compliance is properly reported.

PPACA Compliance: It Is Not Just About Taxes

Posted in Plan Administration, Welfare Plans

In today’s New York Times online, there is an article titled “Tax Preparers’ New Role: Health-Coverage Advisers.”  In it, there is a quote from a tax preparation professional who says “[w]e’re the Affordable Care Act experts.  As with all tax laws, we know the new health care law inside and out.”  Well, with all due respect to the tax law experts, PPACA compliance for employers is about more than just taxes.  It has as much to do with ERISA as it does with anything else.

From an employer’s perspective, complying with PPACA by offering health benefits coverage (whether through the purchase of insurance or otherwise) makes the employer the sponsor of an employee welfare benefit plan.  And under ERISA, the sponsor of an employee welfare benefit plan has certain responsibilities.  These responsibilities go beyond mere tax implications.  There are required documents like summary plan descriptions and annual notices.  There are eligibility restrictions and provisions related to discrimination.  There are specific rules related to appeals and determinations and even the timing of the payment of benefits.

Certainly, this is not a knock on tax preparers or accountants or tax professionals generally.  For plan sponsors, they provide a valuable service.  But what they don’t provide is plan administration, and plan administrators have fiduciary obligations and liabilities.  Fiduciary obligations are owed to the plan and the plan participants, which mean that the plan sponsor (and the plan administrator) has to be concerned with the specific operation of the plan under ERISA.  Tax advice is generally provided to the employer or the company in its capacity as the sponsor, but not necessarily to the plan sponsor in their fiduciary capacity.  In short, what might be a good move for the company for tax purposes may not be the right thing to do for the plan under ERISA.

So as April 15th passes and employers get closer to the January 1, 2015 PPACA compliance deadline, it is important to consider a compliance program in a holistic sense.  Sure, taxes and penalties have to be a consideration for the company, but so does ERISA, as do other employment laws that affect the employer as both an employer and plan sponsor.  Make sure you have the whole picture to ensure your health benefits compliance program works across the board.

April is a Busy Month: IRS Releases Guidance on Same Sex Marriage and Retirement Plan Rollovers

Posted in Plan Administration, Retirement Plans

We are less than halfway into April and already the IRS has issued two notices that provide some long awaited guidance related to retirement plan administration.  One addresses treatment of same-sex marriages post-Windsor and the other deals with rollovers by qualified retirement plans.

Notice 2014-19 clears up some of the issues related to the timing requirements for qualified retirement plans as they relate to the June 26, 2013 decision and the issuance of notice 2013-17 on September 16, 2013, that formalized the IRS’s recognition of same-sex marriages.  Some key points from 2014-19:

  1. Plans are not required to recognize same-sex marriages prior to June 26, 2013.
  2. Plans are not required to have adopted the “celebration” rule until September 16, 2013.  Plans that used the “domicile” rule prior to that will not be penalized.
  3. Plans are permitted to choose to recognize same-sex marriage prior to June 26, 2013, and can choose the purposes for which same-sex marriages are recognized for periods prior to that date.
  4. Plans with terms that are inconsistent with the Windsor decision must be amended by the later of (i) the date the plan otherwise would have to be amended for changes in applicable law or (ii) December 31, 2014.

Revenue Ruling 2014-9 is a little more procedurally specific.  Normally, distributions from tax-qualified retirement plans and IRAs are taxable as ordinary income to the recipient of the distribution unless it is an “eligible rollover distribution.”  However, there is no requirement that plans actually permit inbound rollovers.  And if they do, they can impose additional restrictions such as not allowing rollovers of after-tax or designated Roth contributions.  If a plan does permit rollovers, the plan administrator of the receiving plan must “reasonably conclude” that the rollover is an eligible rollover distribution.  If the plan administrator later learns that the rollover was not, in fact, a valid rollover contribution, the plan administrator must distribute the rolled-over amount (plus any earnings) back to the participant within a reasonable amount of time.

2014-9 Provides two new due diligence safe harbor procedures that allow a plan administrator to reasonably conclude that a rollover into the plan is a valid rollover contribution that are simpler and they eliminate the need for the plan to obtain supporting documentation from the transferring plan for many rollovers.  It also provides for payment of rollovers via wire transfer or other electronic means, so long as the necessary information is communicated to the receiving plan administrator, something many plans were already doing.

Sponsors and administrators of retirement plans are encouraged to review both of these notices to ensure appropriate compliance.  If you have question about the impact of these notices on your plan, your attorney at Fox Rothschild can help.

Why It’s Not Too Late for Your Employees to Get on the Exchange—Special Enrollment Periods

Posted in Plan Administration, Welfare Plans

Now that we’ve passed the important deadline of March 31, 2014 for signing up on the Health Care Exchange/Marketplace (“the Exchange”), employers are asking questions about options for employees who did not get into the exchange, like is it too late for them to get coverage.  Most of the time this question comes from employers with mid-year renewals (that is, renewals that are after 3/31/2014) who are thinking about cancelling coverage or limiting eligibility and their employees would be barred from getting into the Exchange for the remainder of 2014.  I have heard this argument made in collective bargaining as well by unions arguing that employers are legally prevented from terminating coverage mid-year because of the enrollment limitation.

Well, in addition to the various extensions provided to employers, and the expansion of the enrollment period generally, the Affordable Care Act also contains provisions that allow for enrollment in the exchange after March 31, 2014, through a “special enrollment period.”  As explained in the “Glossary” Section of the Exchange website, a special enrollment period is “a time outside of the Open Enrollment period during which you and your family have a right to sign up for health coverage.  In the Marketplace, you generally qualify for a special enrollment period of 60 days following certain life events that involve a change in family status (for example, marriage or birth of a child) or loss of other health coverage.  If you don’t have a special enrollment period, you can’t buy insurance through the Marketplace until the next Open Enrollment period.”

Other “triggering events” that can require the Exchange to allow an employee a special enrollment period include: errors, misrepresentations, or inaction by an officer, employee, or agent of the Exchange or HHS; obtaining the status of a citizen; or “exceptional circumstances,” including natural disasters like earthquakes or floods.

So, in many ways, special enrollment rights in the Exchanges look a lot like the special enrollment rights provided in HIPAA for employer sponsored plans.  The point being that, for employers, determining whether or not to continue a plan in its current form, to terminate coverage or to change eligibility for coverage should not assume that employees who lose coverage would be barred from the exchanges for the remainder of 2014.

DOL Hopes Proposed Amendment to Fee Disclosure Rules Will be Useful Roadmap in Difficult Terrain

Posted in Plan Administration, Retirement Plans

Perhaps after reading too many voluminous, jargon-filled fee disclosure agreements, the Department of Labor (“DOL”) became fed up and decided to take action. Last week, the DOL issued a proposed rule (“the Proposed Rule”) that would amend its final service provider fee disclosure regulation (“the Final Rule”) under ERISA Section 408(b)(2).

The Proposed Rule will require covered service providers to pension plans (including 401(k) plans) to provide a guide to assist plan fiduciaries in reviewing disclosures required by the Final Rule where such disclosures are contained in “multiple or lengthy documents.” The Proposed Rule will not require covered service providers to provide this new guide if they already furnish the required initial disclosures to plan fiduciaries in a “concise, single document.” The guide will have to identify the specific page number, section or specific location of documents containing important information about the service provider’s relationship to the plan, including information about compensation, fees and the services provided.

The DOL is currently soliciting comments on the Proposed Rule, including comments on the issue of “how many pages” and “what length of document” will trigger the requirement to provide a guide, as well as whether a page number locator requirement is an appropriate standard.

In a press release about the Proposed Rule, Assistant Secretary of Labor for the DOL/EBSA, Phyllis Borzi, stated, “[m]uch like a roadmap, a guide can help employers locate fee information, which will help them better understand what they are being charged by financial services providers.”

While this is a positive development for employers who have been trying to get a better handle on their plan’s fees, some have argued that it doesn’t do enough to simplify the maze of complicated financial jargon that employers must sift through, and that an easier solution to the problem would be to limit the entire disclosure document to a few pages.

Some Background on the DOL’s Fee Disclosure Rule: The DOL promulgated the Final Rule in early 2012. It requires disclosure of compensation and fees from service providers to plan fiduciaries of pension plans in order for the provider’s contract with the plan to be considered “reasonable” under ERISA Section 408(b)(2), and therefore, not a prohibited transaction. The final rule became effective for covered plans on July 1, 2012.

While the Final Rule (at the time that it was published) did not require covered service providers to make the required initial disclosures in any specific format, the DOL made available a sample guide as an appendix to the Final Rule, and reserved paragraph (c)(1)(iv)(H) of the Final Rule in order to publish, in a separate proposal, a guide or similar requirement to help plan fiduciaries review the required disclosures.

 

Are You Doing What Your Plan Says You Are Doing? Consistent Plan Administration

Posted in Plan Administration, Retirement Plans, Welfare Plans

Recently a client brought me in to review a defined contribution plan document given to them by a service provider to create their new plan.  In the document, it makes reference to regular investment committee meetings, a benefit committee and an appeals committee.  When I asked my client about who would serve on those committees, he confessed to me that not only had he not thought about it, but he was not really aware that the document said these committees would even exist.  I would imagine he is not the only person with a benefit plan that might not be aware of the requirements of administration contained in his plan.

Whether or not committees are necessary to have or good for plan administration is a topic for future debate.  But what this anecdote does bring up is a reminder that plan administration is governed by the terms of the written plan.  ERISA provides some pretty broad protections to diligent plan fiduciaries, but those protections are limited in that a fiduciary has to follow the terms of the plan document to get them.  In many respects, the plan documents serve as a promise to participants about the constancy with which the plan will be administered, and courts, when reviewing fiduciary decisions, hold fiduciaries to those promises.

Obviously a plan can change over time, which is why there is a process for amending plans and a process for notifying participants of change to the plan.  Consequently, over the years, the way a plan is actually administered can begin to differ from how the plan documents say it will be administered.  I find this happens quite often when companies merge or make acquisition in inherit benefit plans that are not being terminated.  Unfortunately, inconsistencies between actual plan administration and what the plan says will be done on a regular basis usually don’t come to light until there is litigation against the plan and it turns out the terms were not being strictly followed.

Lately, I have been recommending that plan sponsors undertake a self-audit of their plans to see how the plan document says they are administering their plans.  Make a ledger that has, on one side, how the current administration process works and, on the other side, all of the things the plan document says are used in administration.  Then work to reconcile the two.  Use this review as an opportunity to get with your plan services providers to develop  “best practices” and, if necessary, update your plan documents accordingly.  Just make sure to follow whatever process you develop.

I once read a case where the participants were suing the plan sponsor for mismanagement of a 401(k) plan and the plan document provided that that an investment committee would meet at least annually to review the investment options offered by the plan.  It turns out the committee had never met and in fact was never actually formed.  As you can imagine, things did not go well for the fiduciaries in that case.  Better to review and revise your plan now then to get caught not following your terms.

Funding Status Does Not Preclude Withdrawal: Remember Honerkamp

Posted in Court Cases, Plan Administration, Retirement Plans

More and more employers are looking to withdraw from multiemployer pension funds.  Employers cannot unilaterally withdraw from the fund as the obligation to contribute is established through collective bargaining with the union.  Lately, several employers have contacted me about representations from the union (or the fund) that claim that employers cannot legally withdraw from the fund because the fund is critical status.  Maybe that’s the union’s way of ending the negotiation on that issue, but it is actually an incorrect statement.

Under the Pension Protection Act, if a pension fund is in critical status, the trustees have to adopt a rehabilitation plan.  The rehabilitation plan usually increases contributions and adjusts benefits so that the plan will eventually reduce its underfunding.  To some extent, the rehabilitation plan assumes that the number of contributing employers will remain constant.  So a withdrawing employer can cause some frustration but being in critical status with a rehabilitation plan does not lock an employer into the plan.

The key question in the Trustees of Local 138 Pension Trust Fund v. Honerkamp was whether the requirements of the PPA trumped a participating employer’s ability to withdraw from a critical zone pension fund.  The trustees of the Fund adopted a rehab plan in 2008, and in 2009, Honerkamp negotiated its way out of the Fund.  The trustees filed suit asserting that Honerkamp was not permitted to withdraw from the Fund under the PPA once it had entered critical status.  But Second Circuit Court of Appeals disagreed, finding that Congress did not intend the PPA to supplant the withdrawal liability statutes in ERISA and that the PPA does not prohibit an employer from withdrawing from a pension fund.

Now while this decision does make it fairly clear that an employer can withdraw from a fund in critical status, it also reminds employers that there is a statute already in place that addresses payment of withdrawal liability when an employer ceases to have a contribution obligation.  And it is a pretty safe bet that if you are withdrawing from a fund in critical status, you will have to deal with withdrawal liability.  So remember that the funding status of the fund does not lock you in to the fund, but it may have a significant impact on the amount of withdrawal liability you will have on the way out.  If you are thinking about withdrawing from a multiemployer pension fund, it is always best to consider these issues with your counsel before you make that move.

PPACA Compliance: A Refresher on Who Has to Comply When

Posted in Plan Administration, Welfare Plans

As the White House continues to make changes to PPACA, some employers can get confused over whether and when they have to comply to avoid penalties.  I thought now might be a good time to remind employers how things presently sit so they can make sure they properly prepare for PPACA deadlines (and avoid penalties).

First, employers have to count their number of employees.  The employee count is based on full-time equivalents (FTEs).  Remember that a full time employee is someone working 30 or hours per week, but FTEs include all employees as either a full-time employee or a fraction of one.  A special six-month transition rule, applicable for 2014 only, allows employers to use any period of six consecutive months in 2013 when determining whether they are a large employer, rather than use the full 12 months.  Plus you can exclude seasonal workers.  Add up your full-time and your fractional part-timers and see how many FTEs you have.

Second, you figure out your compliance deadline.  If you have fewer than 50 FTEs, congratulations.  You will not face a penalty for failing to offer coverage.  If you have between 50 and 99 FTEs, your compliance deadline is delayed until 2016, so you will not face penalties in 2015.  If you have 100 or more FTEs, you have to comply in 2015, but your compliance level is reduced from 95% of full-time employees to 70% of full time employees.  So if you offer qualifying coverage to 70% of your full time employees in 2015, you would satisfy the rule requiring you to offer coverage.  Remember that you still have to consider the affordability of that coverage to avoid a penalty.

So your compliance deadlines are never, 2015 or 2016 depending on your size.  At least for now.  Because as we have seen lately, this is a fluid law and things can change on a moment’s notice.  And if any of these terms are foreign to you, make sure to reach out to your benefits professionals for an explanation.  Happy planning!

What the EBSA Will Ask For In A 401(k) Plan Audit: Documentation You Need

Posted in Plan Administration, Retirement Plans

When clients get an audit request letter from the EBSA, they usually call me surprised at the amount of information being requested.  It is not just the shock of being audited that impacts them, but the amount of information they need to provide.  Sometimes, the requested documentation may not be available, which creates its own set of issues.  But for planning purposes, I thought it would be beneficial to lay out the list from the most recent audit request I reviewed.

Plan sponsors of defined contribution plans will likely be required to produce the following in response to an audit:

  1. Plan documents and all amendments, including trust documents and summary plan descriptions (which reminds us these should exist and amendments should be formally written and adopted)
  2. Summary annual reports for the period under review
  3. Fiduciary insurance and bond policies
  4. Internal income and disbursement statements
  5. IRS determination letters
  6. Meeting minutes for committee or subcommittee meetings (which suggests there should be meetings regarding plan administration)
  7. Plan financial records, including account statements and ledgers
  8. Service provider contracts
  9. A sample participant benefit statement
  10. RFPs disseminated showing the process for hiring plan professionals
  11. Form 5500s
  12. All documents related to service provider fees , including fee schedules and compensation paid to professionals by the plan
  13. All documents related to costs charged to the plan
  14. Documents identifying fiduciaries, including their dates of service
  15. Any ERISA compliance policies or procedures adopted by the plan or sponsor
  16. All documents related to plan investment performance (which includes an investment policy statement)
  17. All documents related to administrative expenses (direct or indirect) related to the plan
  18. Documents showing the names and service times of board members and officers of the plan sponsor
  19. Documents showing timeliness of employer contributions and repayment of participant loans
  20. Documentation showing the procedure for handling participant loans, if applicable (because loan administration and repayment of loans is a frequent issue in audits)

As you can see from this list, there are certain documents that relate to the plan (like plan documents) and certain information related to the sponsor.  Plus there is a lot of financial data that has to be provided.  The time to see if you have this required information is before you receive the audit request.  So consider this list as a test.  If there is a request here that you could not satisfy if you were undergoing an audit, now is the time to locate that information.  And if it is documentation that needs to be created, don’t hesitate to ask you attorney at Fox Rothschild for assistance.

Be Careful About Appeals: Deny them Completely the First Time

Posted in Court Cases, Plan Administration, Retirement Plans, Welfare Plans

Appeals for denial of benefits can create a real quagmire for plan administrators.  The appeal process creates an administrative record, and sometimes the administrative record is not complete.  It is important for plan administrators to consider each appeal completely, and address all issues related to claims processing, even ones not necessarily raised by the participant, because the plan is stuck with the administrative record once litigation is filed.  That’s why, in Garrett v. Principal Life, the 10th Circuit Court Appeals recently ruled that a plan administrator could not introduce a new basis for claim denial after suit was filed.

Garrett received inpatient alcohol abuse treatment at a clinic which the plan administrator denied because the service was at a non-covered facility.  When he changed facilities, the plan administrator again denied the claim, but this time claimed that in-patient treatment was not covered under the terms of the plan.  Garrett appealed and then filed an action for payment of benefits.  The total amount of the claim was $65,000.  As part of the litigation, the administrator submitted the administrative record and the Court determined that Garrett was entitled to benefits under the terms of the plan.

The interesting part of the case is that the court ordered payment of the claim in full.  But the plan administrator then argued that if it was covered, the payment would have to be subject to deductibles and also reduction for length of stay and for going to a non-preferred provider.  The Court of Appeals affirmed the lower court’s decision denying the reduction, saying that the only thing that could be considered was the rationale denying the claim, not other justifications.  In other words, the plan could not submit new evidence to supplement the administrative record.  It was stuck with its original administrative record and had to pay the full face value of the claim.

For plan administrators, this decision is significant because it reminds us that when considering claims appeals, the administrative record has to be complete, and has to lay out all of the possibilities for addressing the appeal.  Then the basis for the denial has to be completely and fully articulated.  Don’t assume that the court will allow you to supplement an incomplete administrative record.  Consider all avenues the first time and make a record of them.  That way, challenges in court can be fully considered and your plan won’t end up being barred from raising all relevant claims issues.