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

In conjunction with the 2008 amendments to the Americans with Disabilities Act, the Equal Employment Opportunity Commission is proposing certain changes to its rules and regulations governing disability issues under the ADA.  While these proposed changes may not have a direct impact on administration of disability plans, they certainly will add a level of confusion over what is and is not a "disability" when dealing with employees and plan participants.

The proposed rules impact the way disability is defined for purposes of determining whether an impairment exists.  A disability is traditionally defined as something impairing major life activities.  The rules somewhat broaden the definition of disability to include major bodily functions (e.g., "functions of the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions") as part of major life activities.  The new rules will also provide that an employee no longer has to show that the employer perceived the individual to be substantially limited in a major life activity, and instead says that an applicant or employee is "regarded as" disabled if he or she is subject to an action prohibited by the ADA (e.g., failure to hire or termination) based on an impairment that is not transitory and minor.  This will have substantial impact on considerations for reasonable accommodation.

I say that this should not have a significant impact on disability plans because the definition of "disabled" under most disability plans requires some showing that the participant is unable to perform the material and substantial requirements of their primary job function.  Plans generally anticipate an individual becoming disabled rather that being disabled at the time of enrollment.  However, I do believe that the broadening of the ADA definition of disability will require disability plan administrators to be more cognizant of how impairments of major life functions (now not necessarily purely physical in nature) can raise to the level of a complete disability under a plan definition.

For example, a cognitive impairment does not typically manifest itself in outward ways.  As a result of a neurological condition, an employee/participant may develop memory loss or difficulty with fact retention.  Under the new ADA definition, this cognitive impairment would appear to be a disability affecting a major life function (that of communication and neurological difficulty).  The impairment alone may not trigger a claim for disability benefits, but it might require an employer accommodation under the ADA.  If the impairment progress to the point where the employee can no longer function in their job, it would arguably give rise to a claim as a disability under the disability benefits plan.

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I recently read a couple articles that suggest that employers are more inclined to institute layoffs and salary freezes than they are to cut retirement benefits.  I also read an article that suggested that employers are more inclined to decrease or eliminate health benefits rather than institute layoffs.  It seems to me that in these troubled economic times, there is no clear answer as to what is the appropriate solution or the correct way (or the most effective way) to bring down personnel costs.

However, I have a seen a number of articles and press releases from various sources that criticize companies that use cost-control measures like reducing staff or benefit levels as unfair.  Particularly if the company is perceived as a large employer or is viewed as still being "profitable" while taking advantage of the workers.  Executive compensation is obviously in the news and highly paid executives with generous benefits packages make for good villains when employee benefits are generally being cut to make budget. 

It strikes me that in addition to having a sound fiscal plan for taking steps to adjust benefits packages (or to reduce payroll or staff), employers and plan sponsors would do well to prepare a game plan to deal with the public and negative press.  I read an excellent blog post by Alan Metrick of Alan Metrick Communications that can be read here.  He suggests (and I tend to agree) that any good plan for reduction of force or benefits also includes a prepared public message that the employer controls.  It makes sense to me that a plan sponsor should also consider being prepared to answer public questions about plan adjustments (like reduction or elimination of benefits) if challenged by an active media.

So when considering changes to benefit plans that have a negative connotation (like eliminating employer matches to 401(k) plans or terminating life insurance benefits), I encourage plan sponsors to also make a plan to respond to concerns both from employee and the public in advance of these changes.  You might not be able to make everyone happy with your decision, but you will at least be prepared to defend it.

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Because I have previously made reference to certain required or notices for welfare plans, I would be remiss in not bringing up some requirements for retirement plans. 

First the notices.  Retirement plans have a number of annual notice requirements, so this should service simply as a reminder of what notices are due.  The annual Safe Harbor 401(k) Plan Notice is due not later than 30 days prior to the beginning of the next plan year.  So for calendar year plans, that would be by December 1, 2009.  Also due in that same time period is the Qualified Default Investment Alternative Notices that would apply to plans that have provided for default elections.  Finally, don't forget the 401(k) Plan Annual Automatic Enrollment Notices, also due 30 days prior to the beginning of the next plan year. 

If you have a defined benefit plan, you have to send a Defined Benefit Plan Annual Funding Notice within 120 days of the end of the plan year (or by April 30, 2010 for a plan year ending 12/31/09).  Participant Benefit Statements are due every three years or annually (depending on the election of the plan administrator), so you need to prepare those by December 31, 2009, if required.  Participant Benefit Statements for Defined Contribution Plans are due quarterly, and are timely if provided within 45 days of the end of the quarter.  For calendar year plans, they would be due February 15, 2010.

In addition to these notices, there are several required and optional plan amendments for defined benefit and defined contribution plans that may be applicable to your plan (or that you may have adopted).  If the plans were amended during the last plan year, don't forget to send a Summary of Material Modifications to participants to alert them to the changes.  If you have questions about what amendments were available or concerns about making sure you have adopted all appropriate amendments, contact your plan professional of your attorney at Fox Rothschild to set up a review of your retirement plan.

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By now most plan administrators should be aware that there is something called the HITECH Act and that the ARRA of 2009 made some changes to HIPAA with respect to medical privacy and security regulations.  In my August 24, 2009 entry about plan compliance items, I make reference to the HITECH Act and the new "security breach" requirements and the need to update business associate agreements.  But as a follow up, I wanted to dig a little deeper into what this security breach component is and what it means and take a look at the creation of a class of information called "unsecured protected health information."

Often when I am having discussions about HIPAA, questions are are raised about what constitutes PHI.  Technically it is individually identifiable information about past, present or future medical care or diagnosis.  So while the medical care or diagnosis part was protected, the individual identifiers themselves were NOT protected by HIPAA privacy.  Now I believe that changes.

ARRA creates a class of information called “Unsecured Protected Health Information” which is protected health information (PHI) that is not secured through the use of a technology or methodology specified by HHS as one that renders the PHI as unusable, unreadable or indecipherable to unauthorized individuals.  In other words, if it is not encrypted under the technology requirements, it is unsecured.  And that may be all there is too it.  But I actually think unsecured PHI might go a little deeper. 

I think that unsecured PHI might also be that that information that is part of the PHI records, but not necessarily PHI that is specifically secured and protected by HIPAA.  So I think we might  now have "secured PHI" like a medical diagnosis, and "unsecured PHI" which would be the social security number of the patient who received the diagnosis.

The Department of Health and Human Services is required to issue guidance specifying the technologies and methodologies that render PHI as unusable, unreadable or indecipherable to unauthorized individuals within 60 days of the enactment date (i.e., April 18, 2009) and annually thereafter.  Until the guidance is issued, covered entities may rely on a technology or methodology which is developed or endorsed for this purpose by a standards developing organization accredited by the American National Standards.  That would appear to cover the technological component but I think it overlooks the fact that PHI does not exist only in electronic format.  You can't encrypt a piece of paper, but you still have to protect what is on it.

So I think that, at least in some respects, the purpose of the ARRA changes is that while technically all PHI is protected, not all ancillary information contained within the PHI is necessarily subject to the current protections.  If secure PHI is improperly released, there are corrective mechanisms in place under the original regulations.  But what to do about that ancillary information that was part of the PHI that is not necessarily protected but should still be secured?  Maybe it is now defined as unsecured PHI and new standards apply to it.

The ARRA creates a new notice obligation when the security of an individual’s unsecured PHI is breached. In other words, if unsecured PHI (like social security numbers) gets out, the entity that let it escape has breached this new obligation to protect it. The security of that information is compromised. If the security of this PHI is breached or believed to have been breached, then the covered entity that becomes aware of the breach must notify each impacted individual of the breach, in writing, without unreasonable delay but no later than 60 calendar days after discovery of the breach. Business associates are subject to the same requirement except that the business associate must notify the covered entity of the breach.

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If you are an employer participating in a multiemployer pension fund, the last few months have probably brought up discussions about underfunding or withdrawal liability.  Briefly, withdrawal liability is the amount of unfunded liability that an employer has to pay when they cease being a contributing employer to a pension fund.  If you are familiar with it, this case might interest you.

In Pittsburgh Mack Sales v. IUOE Local No. 66 (Case No. 07-3938, 2009), the Third Circuit Court of Appeals found that a union's agreement to indemnify an employer for withdrawal liability to a pension plan was valid and enforceable, vacating the lower court decision that the agreement would violate "public policy."  Factually, the collective bargaining agreements between the company and the union contained a provision that provided that the union would hold the employer harmless for any liability to the fund in excess of specified contributions. 

The company sold its assets to another entity and the pension fund assessed $413,000 in withdrawal liability.  The company demanded that the union hold it harmless and litigation ensued.  The District Court ruled in favor of the union under a theory that the indemnity provision was contrary to public policy and that ERISA laws governing withdrawal liability could not be defeated by contract.  The Third Circuit disagreed, stating there was no "well-defined and dominant" public policy that would justify overriding the contract provisions and that the parties could contract away responsibility for withdrawal liability.

This decision is interesting primarily because the tradition view of withdrawal liability under the Multiemployer Pension Plan Arbitration Act (MEPPA) is that the withdrawing employer is liable by statute, and payment is due under the terms of that statutory framework.  However, this decision appears to give rise to the possibility that, while the liability cannot be avoided by contract, a contract can be created that indemnifies employers for that withdrawal liability.  In other words, you cannot contract away the liability, but you can contract for someone else to pay the company back for the loss.

So next time you are in collective bargaining, consider asking for a similar provision.  This case says it might be worth asking.

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In conjunction with New York State continuation coverage and the ARRA (which provides for the 65% subsidy), the New York Department of Insurance has published a model New York State Continuation Coverage election notice.  It is available through this link.  This notice applies to New York state continuation coverage (mini-COBRA) and includes the subsidy election form.

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