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

Questions about W-2 reporting requirements for health plans to comply with PPACA?  As we continue to prepare for the 2012 reporting requirements, I thought it would be beneficial to provide a link to the sites that the IRS has published to give guidance.  The most recent "Question and Answer" is available here with links to all previously published notices.  They have also prepared a nifty chart based on the content of Notice 2012-9 available here.

While the 2011 reporting requirements was option, that does not mean it went away altogether so you should be looking at what is required for the 2012 year now so you can begin collecting the correct information.  For assistance, please contact your attorney at Fox Rothschild.

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While I don't normally get an opportunity to include matters relating to executive compensation, it is an important component of employee benefit package in many companies.  Robert Fields and Sarah Ivy, two of our executive compensation attorneys here at the firm, have shared the following with me, so I am passing it on:

In 2010, the Securities and Exchange Commission adopted final rules regarding shareholder advisory (“say-on-pay”) votes on executive compensation and “golden parachute” compensation arrangements required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).  As you may know, these votes are now required to be included in a proxy statement relating to an annual meeting of stockholders or, in the case of “say-on-parachute” votes, in a merger or related proxy.

On February 13, 2012, the SEC’s Division of Corporation Finance issued the following Compliance and Disclosure Interpretation regarding a say-on-pay vote and its presentation on proxy cards:

      Question: On its proxy card and voting instruction form, how should a company describe the advisory vote to approve executive compensation that is required by Exchange Act Rule 14a-21?

      Answer: The following are examples of advisory vote descriptions that would be consistent with Rule 14a-21's requirement for shareholders to be given an advisory vote to approve the compensation paid to a company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K.

• To approve the company's executive compensation
• Advisory approval of the company's executive compensation
• Advisory resolution to approve executive compensation
• Advisory vote to approve named executive officer compensation

The following is an example of an advisory vote description that would not be consistent with Rule 14a-21 because it is not clear from the description as to what shareholders are being asked to vote on. Shareholders could interpret this example as asking them to vote on whether or not the company should hold an advisory vote on executive compensation, rather than asking shareholders to actually approve, on an advisory basis, the compensation paid to the company’s named executive officers.

• To hold an advisory vote on executive compensation

Compliance Steps: Public companies should review their proxy cards to determine if their presentation of the say-on-pay vote is in a form that has been endorsed by the SEC and, if not, whether the presentation is misleading in contravention of the requirements of Rule 14a-21.

For more information about this topic, please contact Sarah or Robert, or your attorney at Fox Rothschild.

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Plan fiduciaries are frequently faced with difficult decisions regarding plan administration and it is important for them to know not only what the plan says, but also what the potential penalties are for not following the plan.  And sometimes, strict adherence to "form over substance" can create a fiduciary breach.  Such was the case in Klepeis v. J&R Equipment, recently decided in the Southern District of New York.

Klepeis left employment in January of 2005 and was entitled to have his 401(k) account balance rolled over as of December 31, 2005.  Klepeis made a rollover request, but it was not on the correct form.  The plan administrator testified that to make a rollover, the form provided by the participant was not required, only authorization from the plan trustee (who happened to be the owner of the company).  The defendants argued a variety of defense, claiming the request was untimely and that the funds in the plan were frozen pending an IRS approval of the plan's termination. 

The Court found that though the SPD provided that upon termination, plan assets would be distributed as soon as practicable, that did not allow a fiduciary to withhold assets until the actual termination occurred, particularly where the participant had no notice of the termination.  Moreover, because the fiduciary was aware of the request and only need to authorize the distribution, it was a breach of fiduciary duty to delay the approval.  When the plan terminated, Klepeis' account was transferred to an IRA, but he lost almost $7,000 between the time he should have received his distribution and the actual rollover date.  The Court awarded this as damages, plus interest and attorneys fees. 

I think this case illustrates what I consider to be an ongoing warning to fiduciaries.  To satisfy their obligations as fiduciaries, they are charged with acting reasonably and in the best interests of the plan.  Strict adherence to the law is one thing but requiring strict adherence to form requirements or ignoring participant's reasonable requests can be a breach of duty.  So fiduciaries should comply with the law, seek to know the requirements of the law and the plan and administer the plan accordingly.  But being a draconian administrator can be as problematic as being too lax.  Satisfying your fiduciary obligations requires a balance of both.  Your plan professionals should be consulted to help you figure out what is "reasonable" to avoid these problems.

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You may recall that, under PPACA, plans were to start providing uniform "summaries of coverage" and uniform definitions by March 23, 2012.  This compliance date was delayed pending publication of final rules.  Well now they are here.  The final rule and guidance documents are now available.  Under the final rule, plans with plan years that start September 23, 2012 or later will have to supply SBCs in their next open enrollment.

Rather than try to summarize each document, I suggest you look at them first.  As more opinions and guidance are release, I will be providing additional commentary for each.  But for now please check out the following official publications to help start your compliance process:

1. Final Regulations,
2. Compliance Guide,
3. Summary of Benefits and Coverage Template
4. Sample Completed SBC
5. Instructions for Completing the SBC - Group Health Plan Coverage
6. Instructions for Completing the SBC - Individual Health Insurance Coverage
7. Why This Matters language for "Yes" Answers
8. Why This Matters language for "No" Answers
9. Uniform Glossary of Coverage and Medical Terms 

And as a sort of a catch all page, use this HHS Site for Simulating Coverage which has all the resources.

As we get closer to September 23, there will likely be some modifications.  But plan sponsors should start preparing now for compliance for their 2012-2013 open enrollment. 

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Its tax time again and I tend to get questions this time of year about reporting of benefits.  Health plans that provide coverage to same-sex couples and domestic partners require some special consideration for tax purposes so let's review some of the key issues.

The first is verification of status.  Some employers voice to me concerns over asking for marital status for fear that requiring enrollees to identify potential same-sex partners is tantamount to discrimination.  But it is OK to ask (and in many instances, you are required to).  You just can't treat enrollees differently once they are determined to be eligible for coverage.  As more states define their respective positions with regard to same-sex marriage or domestic partnerships, plan sponsors are under specific tax rules that require that benefits to these spouses and partners be properly taxed at a federal and state level.  So the employer must, as a function of tax law, inquire about status and an employee who enrolls a same-sex spouse in a state that recognizes same sex marriage can be asked to differentiate between "marriage" and "same-sex marriage" for plan enrollment and tax purposes.

However, a plan sponsor cannot require different verifications standards.  If someone enrolls their same-sex married partner, they cannot be required to produce a marriage certificate unless you are prepared to require all married couples to produce a certificate.  So it is not the asking that creates the issue, it is the verification process.

Domestic partners can create a slightly different scenario in that some states recognize both same-sex and opposite-sex domestic partnerships.  Moreover, some plans actually provide for coverage for unmarried opposite sex partners with verification of some type of long term arrangement.  Plans seeking verification of domestic partnership status would need to require all domestic partners to verify that status, regardless of gender, but making that a requirement for domestic partners might also trigger an obligation to verify marital status for married partners as well.  Remember, marital status can be a protected class.  Essentially plans have to balance the obligation to verify eligibility and properly report income against the obligation to treat participants equally, regardless of marital status and sexual orientation.

A lot of plans simply require the employee to sign an affirmation of accuracy at the time of enrollment confirming they are making true statements.  This might eliminate the need for actual verification and certainly there can be stated penalties for fraud.  How a plan verifies eligibility is a process the plan administrator has to develop and administer so there is no automatic answer for every situation.  But when it comes to enrollment, plans have to ask so that benefits are treated properly for tax purposes.  Just make sure you ask properly.

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Gearing up for the April 1, 2012 fee disclosure deadline?  Well, yesterday the Department of Labor released final regulations under Section 408(b)(2) of ERISA, requiring retirement plan service providers to disclose information about their services and fees to plan sponsors.  They then delayed the application of the rules until July 1, 2012 to give plan sponsors more time to comply.

Some changes were made to the interim rule with the release of this new final rule:

1. There is an increase in the information that must be disclosed relating to any indirect compensation received by a covered service provider to include a description of the arrangement made between the payer of the indirect compensation and the service provider.
2. They revised  the investment-related information that must be disclosed by providers of fiduciary services to an investment contract, product or entity that holds plan assets and in which the plan has a direct equity investment to provide consistency for parties that are also required to comply with the DOL's participant-level disclosure regulation under ERISA Section 404(a).
3. Providers of record-keeping or brokerage services required to provide investment-related information are now permitted to comply with the regulations by providing information from the investment issuer's current disclosure materials, provided the issuer is one of the regulated entities described in the regulations.
4. Adding an optional "summary guide" to assist fiduciaries with their review of required disclosures.
5. Changing the deadline for disclosures of changes to investment-related information so that providers may disclose all such changes on an annual basis instead of being required to separately disclose each change within 60 days of the date the provider knows of the change.
6. Revising the deadline for providing related reporting and disclosure information to responsible plan fiduciaries to coordinate with the date the plan intends to comply with ERISA's general reporting and disclosure requirements, rather than the prior requirement to provide this information upon request.
7. Clarifying that any errors or omissions made by the covered service provider in disclosures of changes to previously disclosed information can be corrected within 30 days of the date the provider knows of the errors or omissions.
8. Requiring any covered service provider that provides record-keeping services to include a detailed explanation of the record-keeping services provided to the plan and the cost of those services.

To assist with compliance, the DOL issued a new "Fact Sheet", as well as a copy of the new "Final Regulation" and a "Summary of the Changes."

 From a plan sponsor's perspective, these changes should not have a significant impact on the information that is disclosed to participants.  However, it may change how information is reported to the plan by service providers.  Because these changes are relatively fresh, we should see some further explanation to sponsors about what they are required to communicate and we will continue to pass that information along.

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With PPACA comes potential coverage of dependents to age 26.  But how do you confirm dependent status and what can you do with non-cooperative participants?  Many plans are undertaking to conduct "dependent audits" to make sure covered dependents are actually eligible for coverage.  But what happens when you find someone on the plan who should not be there, or you can't get cooperation.

This was the situation in Muhammad v. Ford Motor Co. (E.D. Mich. 1/12/12).  The Ford plan had discretionary authority to (1) determine eligibility, (2) demand proof of dependent status and (3) garnish wages to recover overpayment of benefits.  Ford repeatedly asked Muhammad to provide proof that his dependents met the qualifications of eligibility under the plan, which he refused to do.  ford terminated the dependents and also garnished his wages to recover over payment for the dis-enrolled dependents.  He sued and lost because, in the minds of the court, the plan had acted fairly and in accordance with its terms.

What most likely saved Ford in this case was that its plan documents and notices specifically laid out its rights and remedies.  The plan has the right to set its proof for dependent status and as long as that requirement is evenly applied and reasonable, it can also dis-enroll (or deny enrollment) for failure to satisfy those requirements.  Similarly, if the administrative processes are followed as written, the discretionary authority grant in the plan will serve to protect the plan administrator when it makes a decision.

So plans should consider doing audits to make sure they are only covering eligible dependents.  Plus, plan sponsors should undertake to update or amend their plan language to allow them to require proof and state specific remedies for failure to provide proof.  Then, set up administrative guidelines for establishing how those proofs will be treated.  Don't assume you can require proof and terminate without it.  Check your language and work with your plan service providers to make sure you can do what you need to do.

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