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

In connection with the 65% COBRA subsidy that went into effect earlier this year, there is a provision that provides that an individual is no longer eligible for the subsidy if they are eligible for other coverage, including Medicare.  This means that if an employee is receiving the COBRA subsidy and gets a new job and becomes eligible for coverage with that new employer, they are no longer eligible for the 65% premium subsidy.

The IRS has clarified that an individual who is receiving the subsidy is under an affirmative obligation to notify their old employer that they are eligible for other coverage and that they must cease receiving subsidy payments.  Individuals who continue to receive subsidy payments after they are eligible for other coverage are subject to a penalty under new IRC Section 6720C.  That penalty is 110% of the subsidy obtained after the date of eligibility for new coverage. 

The model notices issued by the IRS included a model form for notifying plans that the employee is eligible for other coverage.  In addition, the IRS has provided that anyone who suspects that an individual is receiving a subsidy after they become eligible for other coverage may report the violation to the IRS using form 3949-A (Information Referral).  Click here of a copy of the form.

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By this time, all health plan administrators should be aware of the required annual notices like the Women's Health and Cancer Rights Act notice and the Medicare Part D notice.  Plus we have updated our COBRA notices to comply with the COBRA subsidy requirements of the ARRA.  So now let's take stock of what changes are in store for 2010.

1. Mental Health Parity Act.  For plan years after 10/3/09, a group health plan that provides mental health and substance abuse benefits cannot have special caps for benefits related to treatment for these disorders.  Co-pays, deductibles, limits and out-of-pocket expenses cannot be more restrictive for these treatments than for medical or surgical benefits under the plan.

2. COBRA Subsidies under the ARRA.  Remember that the COBRA subsidy is currently set to end as of December 31, 2009, meaning that for qualifying events occurring after 1/1/2010, COBRA notice and election forms will NOT contain information about eligibility for the subsidy.  So plan administrators should be prepared to go back to standard COBRA notices (unless the subsidy is extended).

3. Children's Health Insurance Program Re-authorization (CHIP).  As of April 1, 2009, all plan must provide for the special 60 day enrollment period for employees and dependents who become eligible or cease being eligible for premiums assistance under Medicaid or state children's health insurance programs.  Plans have to be updated to include this special enrollment period.  There is also an annual notice requirement beginning 1/1/2010.

4. Michelle's Law.  For plan years after 10/9/09, a group health plan cannot terminate coverage for a dependent college student because of a loss of full-time student status where the loss of status is due to a medically necessary leave of absence.  Information about Michelle's Law must be provided with any notice explaining eligibility for coverage as a dependent student.

5.  Genetic Information Non-Discrimination Act.  For plan years after 5/21/09, the plan must provide that genetic information cannot be requested, required or purchased for underwriting purposes and will not be used for enrollment.  Also, participants cannot be required to undergo a genetic test and genetic information cannot be used to set contribution rates or premiums. 

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In an era where we all like to see statistic and trends, the Internal Revenue Service has obliged by publishing a list of common recurring mistakes it sees in large case audits of qualified retirement plans.  The mistakes were identified through submissions under the Voluntary Correction Program.  While this list mainly identifies concerns with qualified retirement plans, it also provides a pretty fair checklist of concerns for welfare plan administrators looking to ensure compliance. 

Common Mistakes Across All Retirement Plan Types.  This first list covers the general common problems associated with  both defined contribution and defined benefit retirement plans.  Note that many would apply to welfare plans generally:

1. Failure to timely amend the plan document for changes in the law;
2. Failure to follow the plan's definition of and limits on compensation for contribution purposes;
3. Failure to enroll eligible employees and/or to exclude ineligible employees;
4. Failure to meet the legally-required minimum distribution provisions in the plan;
5. Failure to follow the in-service distribution provisions in the plan;
6. Failure to use correct distribution forms, make timely distributions and file correct tax reporting on distributions;
7. Failure to follow the plan's vesting schedule;
8. Failure to retain records and maintain internal controls regarding administration of the plan;
9. Failure to follow the terms of a qualified domestic relations order (QDRO); and
10. Exceeding the legal maximums on contributions and benefits under the plan.

Common Mistakes for 401(k) Plans in particular.  A more detailed list is provided specific to  401(k) plans:

1. Failure to pass ADP/ACP nondiscrimination testing
2. Failure to to provide for minimum top heavy benefit contributions
3. Failure to Satisfy IRC 415 limits

Common Mistakes for Defined Benefit Plans.  For defined benefit plan, the list includes:

1. Benefit calculations based on inaccurate data;
2. Failure to provide the required notice when benefits are suspended; and
3. Premature or delinquent commencement of benefits.

To access the EPTA Audit Team Compliance Trends and Tips click here.  What is interesting about this link is that it also provides a link to the "Correcting Plan Errors" main page which has guides for identifying and correcting plan errors, including a 41 page guide to identifying and fixing common 401(k) errors.  Bear in mind that the IRS specifically disclaims providing legal advice and reliance on the guide is not a justification for avoidance of penalties and interest if a subsequent audit does reveal problems with the plan.  But as a starting point, plan administrators should at least consider this summary a checklist of useful things to look at and discuss with their plan professionals.

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A partner of mine recently came to me with this question: if any employee is out on leave, when does the employer send the COBRA notice?  "Good question" I said, "what type of leave and what does the company's leave policy provide?"  Well, it got me to thinking (and researching) COBRA and leaves and when the "qualifying event" is triggered.

I came across an article about a case called Jennings v. Crane, out of the Western District of Kentucky where an employee was terminated while out on leave.  The company wanted the COBRA to qualifying event to be when the leave started.  The employee said it started when he was fired.  In the end, the Court sided with the employee, but did so after looking at the company leave policy and what the health plan said about leaves of absence.  In other word, what did the plan sponsor tell the participants about COBRA and leaves of absence.

The DOL is very specific about what happens while an employee is out on FMLA leave.  An FMLA leave is not a qualifying event, but a qualifying event may occur when the employee notifies the employer of the intent not to return to work.  The DOL is much less specific about COBRA when someone is out on some other type of leave.  The employer has to define how leave will apply.

Hypothetically, think of an employee who goes out on a leave for 6 weeks.  At the end of 6 weeks, the employee does not return to work and the employer has no idea if he will ever return.  Is that a qualifying event under COBRA?  Is the employee treated as losing coverage in the day he does not return to work?  Can he extend the leave indefinitely and never trigger COBRA?  All are possible if the employer is not paying attention and does not take the time to the following:

1.  When you design your group health plan, decide how a leave of absence will be treated and when the leave will trigger COBRA continuation.  A plan sponsor can clearly define when the loss of coverage will occur under various leave situations.

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A copy of the FTC guidance can be found at: http://www.ftc.gov/bcp/edu/microsites/redflagsrule/faqs.shtm.

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Sometimes the hardest thing to interpret in benefit plans is when a disability occurs.  Most questions about disability focus on short term and long term disability plans, but retirement plans and other welfare plans can have benefit levels that are triggered or impacted by a disability determination.  Ultimately, the plan administrator is obligated to apply the terms of the plan to make a determination if a participant is "disabled" under the terms of the plan.

In Hobson v. Met Life, 2nd Cir., 7/29/09, the Court looked at a situation where a participant claimed complete disability which was denied by the plan administrator.  After applying the now required Glenn analysis to the determination, the Court also had to look at a situation where the Social Security Administration made a determination that the participant was disabled.  The plan administrator disagreed, applying the plan definition of disability to determine that the participant was not unable to work and was therefore not entitled to long term disability benefits.  The Court agreed with the plan administrator, but issued a warning that if an administrator is going to disagree with SSA, it should make sure the basis for its determination, and ultimately the basis for its disagreement, be very carefully and completely explained.  An SSA determination is not binding on a plan, but the plan had better explain WHY it disagrees in such a way that a meaningful appeal can be made.

This decision continues the long line of cases that gives deference to decisions made by plans that retain discretion.  But I believe it also should serve as a reminder to plan administrators to be very thoughtful in the application of "determinations."  Met Life was very thorough and collected a lot of medical information on its own.  It had detailed notes and records about all of the steps it took in evaluating each stage of the claim and was meticulous in its record-keeping as to how the decision was ultimately made.  It did not simply rely on an outside determination but did the hard legwork itself.

So from this case, it appears that SSA determinations are not the defining definition of "disability," but plans should be prepared to explain in detail how an alternative conclusion was reached.  And be prepared to prove HOW the conclusion was reached.

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