The COBRA subsidy begins on April 1, 2021, and will end on September 30, 2021.  However, the subsidy will end earlier than September 30, 2021 if: (a) the individual loses eligibility for continuation coverage under the normal COBRA rules, such as when the 18-month maximum COBRA period has ended, or (b) becomes covered under any other group health plan (as an employee or otherwise), or certain individual coverages including Medicare and Medicaid.

Qualifying AEI pay no cost for monthly COBRA premiums if the individual is eligible for COBRA coverage during the subsidy period (i.e., April 1, 2021 to September 30, 2021).  To be clear, the subsidy period does not extend the maximum COBRA coverage period (i.e., 18 months).  Instead, the ARPA simply suspends the AEI’s obligation to make COBRA premium payments for up to six months.

Assistance Eligible Individuals

Individuals who voluntarily terminate their employment are not eligible for COBRA or the COBRA subsidies.  However, the ARPA defines “assistance eligible individuals” to include the following individuals who are or become eligible for COBRA as the result of an involuntary termination of employment or reduction in hours:

• Individuals who were previously eligible for COBRA continuation coverage, but who did not elect COBRA and have coverage that would have extended into the subsidy period (e.g., an individual laid off on September 30, 2020, and would have been eligible for COBRA coverage for up to 18 months, but who did not elect COBRA);
• Individuals who were previously eligible for COBRA continuation coverage, elected coverage, but later dropped coverage, and that coverage (had it not been dropped) would have extended into the subsidy period (e.g., an individual who was laid off on September 30, 2020, elected COBRA and could have continued COBRA coverage for up to 18 months, but did not pay premiums after January 31, 2021); and
• Individuals who are or become eligible during the six-month “subsidy period” from April 1, 2021 to September 30, 2021 (e.g., an individual involuntarily terminated on or after March 31, 2021 or had a reduction in hours significant enough to qualify them for COBRA coverage for up to 18 months).

New COBRA Notices

The ARPA requires three separate notices to AEIs: (1) a Notice of the Availability of Premium Assistance; (2) a Notice of Extended Election Period; and (3) a Notice of Expiration of Subsidy.

The DOL recently released model notices and frequently Asked Questions (FAQs).  They can be found at https://www.dol.gov/cobra-subsidy. The new notices need to be sent by May 31, 2021, which is 60 days from the April 1, 2021 start date for premium assistance.  The new “expiration” notice needs to be provided 15-45 days before the individual’s premium assistance expires.

Mechanics of the COBRA Subsidy

Under the ARPA, the employer, the plan (in the case of a multi-employer plan), or the insurer (for fully-insured coverage), has an obligation to provide subsidized COBRA coverage and pay or incur the AEI’s COBRA premium cost during the “subsidy period” (i.e., April 1, 2021 to September 30, 2021). AEIs, in contrast, pay nothing during the subsidy period.

Claiming the Tax Credits

Most employers sponsoring insured or self-funded group health plans covered by the law will be reimbursed by the federal government for 100% of each eligible individual’s COBRA premium (including the administrative fee) for April 2021 through September 2021. The subsidy will take the form of a Medicare payroll tax credit, which could result in direct payment to employers whose Medicare tax liability is less than the credit. The employer may recover the cost of the coverage plus the 2% administrative fee from the federal government by claiming a credit against its quarterly Medicare payroll tax liability.

Tax credits are also available for COBRA coverage provided by Taft-Hartley multiemployer plans. However, the logistics for claiming the credit will be determined by subsequent regulations issued by the DOL.

Bottom Line

As you can see, there are still many details that need to be worked out in future regulatory guidance.

The post Biden’s $1.9 Trillion Stimulus Bill Provides Up to Six Months of Paid COBRA Benefits for “Assistance Eligible Individuals” appeared first on Felhaber Larson.

The Mandate

The case related to a mandate in the Affordable Care Act of 2010 (ACA) requiring health plans to cover birth control on a no co-pay basis.  A narrow exemption was granted to houses of worship; other religious organizations could exercise an “opt out” which then would let plan participants obtain such coverage directly from an insurer.

Subsequently, in the Hobby Lobby decision from 2014, the Supreme Court ruled that for-profit family-owned businesses could also opt out of paying for employees’ birth control in company-sponsored group health plans if they had similar religious or moral objections.

In 2017, the Trump administration rolled back the birth control coverage rules, allowing more employers to deny such coverage.  The states of New Jersey and Pennsylvania sued and the new rules were enjoined from being enforced.  The federal Third Circuit Court of Appeals affirmed this ruling, leading to the appeal before the Supreme Court.

The Decision and Its Impact

The Supreme Court reversed the decision by a 7-2 vote, ruling essentially that if the federal government has the authority to issue rules interpreting the ACA, they also have the same authority to modify those rules. As a result, employers who object to providing coverage for birth control based on a sincerely held religious belief or moral principle may now decline to do so, and employees seeking such coverage will have to look elsewhere.

The impact of this decision remains to be seen.  Will employers actually decide to exercise their right to decline such coverage?  Will such a decision affect recruitment and retention of employees who are used to receiving such coverage? Will a possible change in administration in November bring about yet another revision of these rules?

Bottom Line

Employers who do not wish to deny coverage for birth control need not do anything to their plans – this decision has no effect upon them.  Employers who do wish to alter their coverage based on religions or moral objections may now do so.

The post U.S. Supreme Court Gives Blessing to Rules Allowing Employers to Exclude Insurance Coverage for Birth Control appeared first on Felhaber Larson.

This makes the bill much more expansive than the paid sick leave, family leave and/or parenting leave laws that other states have adopted.

What is Required

Although originally intended as just a paid sick leave bill, the legislation morphed into a more general paid leave obligation with the blessings of many members of the business community. Employers with ten or more employees therefore would be required to provide up to 40 hours of unrestricted paid leave to their would workers to be accrued at the rate of one hour of paid leave for every 40 hours worked.  The bill excludes seasonal employees and those covered by collective bargaining agreements.

The new law would cover approximately 85% of Maine employers.  While many such employers already offer the sort of paid leave benefits required by the bill, it is estimated that approximately 200,000 employees will benefit by receiving more paid leave than they receive currently.

Notice Obligations

Interestingly, the new bill would require only “reasonable notice” of the intent to use the new paid leave benefit.  This is a much more lenient standard for employees than the typical requirements that employees comply with a specified notice requirement for foreseeable leaves, and “as much notice as is practicable” in emergencies.  Even so, the Maine legislation does require that leave in non-emergency situations must be scheduled to avoid undue hardship for the employer.

Governor Janet Mills has already indicated support for the bill and is expected to sign it when it arrives at her desk.  This would then allow the bill to take effect on January 1, 2021.

Bottom Line

Maine’s legislature leans heavily Democratic and there was talk that if some sort of paid leave bill was not passed this session, the issue would be brought before the voters by referendum.  Thus, the Republican minority worked hard to find a compromise they could accept.

The bill’s support from a large faction of the business community was interesting.  Perhaps they too were concerned about what the voters might choose to do.  It has been reported that many employers just favored the simplicity and clarity of a general leave bill while others who already offer vacation but not sick leave may have seen a general leave bill as a way to avoid having to increase their leave offerings to employees.

Maine is the first state to mandate general leave benefits for employees.  It would not be surprising to see other states with Democratic majorities begin to pursue similar initiatives.

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The Cadillac tax, named of course after the iconic luxury automobile, is a 40% excise tax imposed on the value of certain excess benefits offered under employer provided health insurance policies.  Originally the tax was non-deductible.  In the 2016 spending bill Congress changed that and made the tax deductible.

Stuck in Neutral

The Cadillac tax was first scheduled to take effect this year.  However, in 2016 Congress passed an omnibus spending bill which included a 2-year delay of the tax, pushing out the effective date to 2020.  Now, this most recent bill tacks on another two years to push the effective date to 2022.

The Cadillac tax was intended to discourage employers from offering high-cost health plans to employees because they would need to trim their spending on plans to get under the excise-tax cap.  Economists have argued that because income taxes are not paid on health insurance benefits, health care prices have risen because employers pay more for health care than they would if these benefits were taxable at certain levels.  It was hoped that with reduced spending on health care plans, employers might reallocate that spending to increase employee wages.

Many industry groups have supported outright repeal of the tax, arguing that the tax will result in shifting of steadily increasing healthcare costs to employees. Many labor unions also have sought repeal since theirs are among the high cost plans that will be affected by the tax.

Bottom Line

With implementation now delayed until 2022, and with the ever-shifting political winds, it is anybody’s guess as to whether this tax will ever actually take effect.

The post Cadillac Tax On Benefit Plans Delayed Another Two Years appeared first on Felhaber Larson.

Employee benefit plans, including defined benefit pension plans, are generally regulated by ERISA, which requires pension plans to disclose information about the plan and its investments, to adequately fund the plan and to participate in the federal pension insurance program.

However, “church plans” are excepted from ERISA’s requirements (as well as its protections).  Numerous church-associated entities, including hospitals, schools and social service agencies, maintain church plans.  One main difference is that participants in church pension plans have no federal insurance protection and may find themselves in underfunded pension plans.

When is a Plan a “Church Plan”?

Employees in three different hospital systems brought three different class actions challenging the “church plan” status of their defined benefit pension plans, and sought relief related to non-compliance with ERISA. The employees argued that in order for a pension plan to be a “church plan,” it must first have been originally established by a church, not merely maintained by a church-related organization. Because none of the hospital plans were established by a church, but were instead established by their non-profit entities, the employees argued that the plans did not qualify as “church plans” and were subject to ERISA. The federal Third, Seventh and Ninth Circuit Courts of Appeal agreed with the employee-classes in each of the three cases.

In Advocate Health Care Network v. Stapleton, the U.S. Supreme Court examined all three cases and reversed each of the lower courts’ holdings. By an 8-0 vote, the court ruled that pension plans maintained by a principal-purpose organization qualify as a “church plan” that is excepted from ERISA, regardless of who established the plan.

This decision aligns with hundreds of private letter rulings and opinion letters issued by the Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Board which have all exempted plans maintained by church-affiliated organizations, even if such plans were not originally established by a church.

What is a “Principal-Purpose Organization”?

In making this ruling, the Supreme Court assumed for purposes of the case that the three hospital systems were in fact “principal-purpose organizations,” meaning organizations the principal purpose of which is the administration or funding of a plan for employees of a church or entity associated with a church.

As these cases go forward under this new interpretation, the employees bringing the lawsuits intend to contest the Supreme Court’s characterization of the hospitals as principal-purpose organizations so that they can continue to challenge the conclusion that the pension plans are actually “church plans.”

Church Plans Are Subject to State Law

Notwithstanding the Advocate Health Care decision, church plans exempt from ERISA are still subject to state common law and statutory law governing fiduciary duty and trusts.

Bottom Line

Litigation over benefits plans of church-associated organizations will continue, but will focus on the status of the entity as a “principal-purpose organization” and on state law.  While the Advocate Health Care Network decision is a blessing for church-affiliated organizations and their benefits plans, it is not full dispensation from all of the “church plan” exception’s requirements.

The post ERISA Church Plan Exception Applies to Pension Plans of Hospitals with Church Association appeared first on Felhaber Larson.

So, while none of the portions of the bill are actually law, this overview summarizes the key portions that relate to employers.

CRITICAL CHANGES

Employer Mandate: The bill reduces the penalties to $0 retroactive to 2016, effectively repealing the obligation of large employers to offer affordable, minimum essential coverage to full-time employees.

Individual Mandate: Similarly the bill reduces the penalties to $0 retroactive to 2016, effectively repealing the obligation of individuals to maintain coverage.

Employer Reporting: With removing the employer mandate, the bill seeks to simplify the reporting of an offer of coverage by checking a box on Form W-2 and having the Secretary of Treasury stop enforcing the reporting requirements.

FSA and HSA Changes: The bill eliminates the $2,500 cap on FSA salary reduction contributions, and increases the HSA contribution limits to equal the current high deductible health plan out-of-pocket limits.

Cadillac Tax: The effective date is delayed, again, until 2026. This date has been pushed out several times, leading many to believe it will never take effect.

Pre-Existing Conditions: This portion of the bill generated considerable attention in the news, though its impact on employers is perhaps minimal. The ACA prohibited insurers from denying coverage or charging more to a participant based on a pre-existing condition. The House bill provides that for individuals who maintain continuous coverage – without a break of 63 days or longer – the same prohibitions on pre-existing conditions will apply. However for those with a break in coverage longer than 63 days, insurers can impose a premium surcharge of up to 30% for up to 12 months.

BOTTOM LINE

The House bill now moves onto the Senate where further political wrangling is almost sure to happen.

The post A First Look at the American Health Care Act appeared first on Felhaber Larson.

The ACA imposes a variety of reporting requirements on “Applicable Large Employers” (employers with 50 or more full-time employees) and on health coverage providers (including insurers and self-insured plans). One such requirement is that insurers and certain other health coverage providers are required to provide their insureds Form 1095-B permitting the recipients to verify in their tax returns that they have at least the minimum required coverage for themselves and their dependents.

Applicable Large Employers are required to provide their full-time employees Form 1095-C, which identifies the months in which the employee was eligible for coverage and the cost of the cheapest monthly premium the employee could have paid under the plan. For a self-insured plan, Form 1095-C also permits recipients to verify in their tax return if they and/or their dependents are enrolled in the coverage.

What Has Changed…and What Has Not?

Originally, these forms were due to insureds and employees by January 31, 2017.  Now, the IRS has granted a 30-day extension, making the forms due to employees or insureds by March 2, 2017.  Having given this automatic extension to everyone,  the IRS will NOT grant individual requests for further extension.

What about the obligation to file this type of information with the IRS?  That has not changed – Forms 1094-B and 1094-C, which transmit the 1095-B and 1095-C forms and provide additional information, still must be filed with the IRS by February 28, 2017 (if filed on paper) or March 31, 2017 (if filed electronically).  In this instance, however, the IRS will accept requests for a 30-day extension to file these forms.

This is the second year ACA reporting and filing has been required. In the first year, the IRS had a period of “good faith” compliance with the reporting rules.  Notice 2016-70 also extends the period of “good faith” compliance for the 2016 reporting year.  This relief does not apply to missing or late filings.

Bottom Line

This is just a very small change the precedes what may be a flood of larger changes to come in the ACA.  2017 promises to be an interesting year in that arena.

The post ACA Reporting Deadline Gets 30-Day Extension; Filing Deadline Stays the Same appeared first on Felhaber Larson.

Mirelle Vangas was terminated from her job at Montefiore Medical Center in the Bronx, NY, after she was unable to return to work from her FMLA leave. The employer intended to mail her COBRA notice to her home address in the town of Cornwall–on–Hudson but the mailing listed the town as “Cornwallonhuds.”

Testimony from the court case indicated that the abbreviation occurred because of a character limit in the “town” field in the electronic system used to communicate employee data to the third party administrator.  The envelope did, however, contain the correct zip code, which was the only one that the town used.

The Notice is in the Mail…Somewhere

Vangas never received the notice in the mail. Therefore, when she sued the employer for disability discrimination (arising out of her termination), she included a claim for failure to provide her with proper notice of her rights under COBRA.

COBRA (the well-known acronym for the Consolidated Omnibus Budget Reconciliation Act) requires that employers notify terminated employees of the right to elect continuing health coverage under the employer’s group health plan but does not specify how the notice is to be given.  Courts generally conclude that employers satisfy their obligation if notice is sent by “means reasonably calculated to reach the recipient.”

Failure to give the COBRA notice allows the departing employee to claim coverage through the date that they receive a valid notice, plus a 60-day period to elect COBRA after that new notice. A participant, a participant’s spouse and a participants dependents may each also seek statutory penalties of up to $110 per day for failing to provide a proper COBRA election notice.

Court Delivers Good News to Employer

In this case, the court ruled that the notice was indeed reasonably calculated to reach Vangas despite the abbreviated town name. For one thing, the employer maintained a standard procedure to ensure that notices are properly mailed and they followed that procedure in this instance.  In addition, the incorrect abbreviation should not have been a real impediment to her receipt of the notice since, as Vangas acknowledged, she had received similarly addressed mail in the past, some of which didn’t even contain the correct zip code.

In short, the employer made a good faith attempt to mail the notice to Vangas.  As such, the Appeals Court affirmed the dismissal of the claim.

Bottom Line 

This case underscores that employers do not have an absolute duty to insure that terminated employees receive COBRA notices.  Instead, they have a duty to undertake a good faith effort to make sure that the notice is sent.  This requires having good procedures in place for the issuance of the notices and a method for evaluating whether the procedures are working effectively.

The post Wrong Mailing Address Doesn’t Affect COBRA Rights appeared first on Felhaber Larson.

The Vermont law in question established an all-inclusive health care database used to evaluate health outcomes and costs.  The law requires health plans (among other entities) to report payments relating to health care claims, as well as other related information, into a state agency for compilation into the database.  Seventeen other states, including Minnesota, have similar laws requiring this sort of reporting.

Federal Law Preempts

Liberty Mutual maintains a self-insured health plan under the Employee Retirement Income Security Act (ERISA) that provides coverage to over 80,000 individuals.  A self-funded plan is not provided through insurance; it is provided through employer assets or a multiemployer trust.  This type of plan actually covers more than 93 million people in America.

A Vermont state agency issued a subpoena to Liberty Mutual and its third-party administrator, Blue Cross Blue Shield of Massachusetts, to submit all files on member eligibility, medical claims and pharmacy claims for their Vermont employees and dependents in accordance with the state law. The penalty for noncompliance would be a fine of up to $2,000 per day and a suspension of Blue Cross’ authorization to operate in Vermont for as long as six months.

Liberty Mutual instructed Blue Cross to not provide the data because of concerns that the disclosure might violate its fiduciary duties under the Plan. Liberty Mutual then sued to obtain a declaration that ERISA preempts application of the Vermont law.

The Supreme Court sided with Liberty Mutual, declaring that Vermont cannot force Liberty Mutual to turn over its claims data. The court ruled that ERISA preempts the state statute because allowing Vermont and other states to maintain individual (and differing) requirements would be inconsistent with the federal goal of “a uniform national scheme” for ERISA plans. ERISA has its own reporting and disclosure obligations, and that should be enough for plans of this type.

Justice Kennedy wrote the majority opinion in which three other justices joined.  Justice Thomas and Justice Breyer concurred with the result but offered a different rationale.  Justice Ginsberg wrote a dissent, in which Justice Sotomeyer joined.

Bottom Line

This decision provides relief to employers who are subject to state regulation for self-insured health plan claims data. The demands of these various state laws can be onerous and are often coupled with threats of penalties and fines.  Minnesota’s law, like those of the other states, likely will be ruled preempted as well.

Remember, however, that this decision only affects self-funded plans.

For more information, please contact Ruth Marcott at rmarcott@felhaber.com.

The post State Reporting Laws for Self-Funded Plans Overruled appeared first on Felhaber Larson.

A recent ruling from a federal judge in New York has raised serious and troubling questions about the legality of this practice.

Is an Employee “Entitled” to Coverage?

The ACA requires employers with 50 or more full-time employees (or full-time equivalents) to offer affordable minimum health coverage to their employees averaging 30 hours or more per week.  A common strategy for avoiding this mandate has been to manage workforce scheduling so that employees work less than 30 hours and therefore are not eligible for coverage.

Maria De Lourdes Parra Marin, an employee of the Dave & Buster’s restaurant in Times Square, claimed that she had been regularly working 30 or more hours per week but that the company cut her hours causing her to lose her eligibility for coverage under the company’s group health insurance plan.  She sued the company on behalf of herself and a large class of current and former employees who experienced similar reductions in hours, claiming that the company illegally took her benefits away..

Specifically, the lawsuit alleges that the reductions in hours violated §510 of the Employee Retirement Income Security Act (ERISA) which prohibits interference with an employee’s ability to obtain benefits to which they are entitled.  As evidence of the company’s unlawful motivation, Ms. De Lourdes Parra Marin pointed to numerous statements from company officials about how the prospect of the ACA was forcing them to reduce the employees’ hours so that they did not have to pay for insurance.

You Can’t Lose What You Never Had

Dave & Buster’s filed a motion to dismiss the case, arguing that in order for such a claim to proceed, an employee has to demonstrate more than merely a “lost opportunity to accrue additional benefits.” They contended that you can not violate the law by merely acting to prevent an employee from becoming eligible for a future benefit.  Instead, there must be an obstruction to the employee’s receipt of a benefit to which they are unquestionably entitled at the time.

The judge issued a decision siding with Ms. De Lourdes Parra Marin and denying the employer’s motion to dismiss the case.  The judge ruled that the critical element of §510 is proof that the intent of the employer’s action was to interfere with an employee’s attainment of benefits.  In this instance, the judge concluded that there was enough evidence of such a motive to permit the lawsuit to move forward.

Bottom Line

Remember that this was not the final ruling on the law – it was actually just the first of  what will likely be a long series of legal skirmishes in this case.  Still, this could be an inkling of something very significant down the road.   A great many employers base their staffing patterns on the potential cost of providing employee benefits, and the prospect of complying with the ACA mandates for health insurance coverage has led many employers to reconfigure their workforce.

This may just be a case where the employer was so overt about their intentions that a judge felt obligated to let the issue play out just a little bit longer.  It is difficult to believe that the courts will actually start handcuffing employers’ ability to determine where to spend their labor dollars.  Nevertheless, at least one judge thinks that there my be merit in second-guessing these sorts of decisions so this is definitely a development worth tracking.

The post Hours Cut to Avoid Health Coverage May Be Illegal appeared first on Felhaber Larson.

In EEOC v. Flambeau, Inc., the employer established a wellness program that required employees enrolling in the employer’s health plan to complete the wellness program’s health risk assessment and a biometric test.  The risk assessment included a questionnaire about the employee’s medical history, diet, mental health, social wellbeing, and job satisfaction.  The biometric test was similar to a physical examination in that it recorded the employee’s height, weight, blood pressure, and required a blood draw.

None of the specific results were given to the company.  Instead, the information gathered was used by the program administrators to identify health risks and medical conditions among the workforce participants.

One of the employees failed to complete the wellness program’s test and therefore was dropped from the medical plan. The employee filed a union grievance, a complaint with the Department of Labor (DOL) and a disability discrimination charge with the Equal Employment Opportunity Commission (EEOC).  The employer and the DOL settled the dispute by agreeing that the employee could be reinstated retroactively to the health insurance plan if he complied with the plan’s testing obligations and paid the required plan premiums.

EEOC Claims Subterfuge

Nevertheless, the EEOC sued the company contending that the program violated the Americans with Disabilities Act (ADA) ban on employer-mandated medical examinations.  The employer countered that the wellness program fell within the ADA’s safe harbor for insurance benefit plans, which allows employers to establish and administer the terms of a benefit plan for purposes of underwriting, classifying, or administering risks, and that the wellness program constituted a term of its benefit plan.

Federal District Court Judge Barbara Crabb concluded that the wellness requirement was a term of the employer’s health plan and that it was intended for the purposes authorized under the ADA’s safe harbor provision. The court was heavily influenced by evidence that the data derived from the wellness program was utilized by consultants to forecast insurance costs, determine whether to purchase stop-loss insurance, and set plan premiums for participants, with differentials for whether the participants was a tobacco user or not.

In particular, Judge Crabb rejected the EEOC’s contention that the plan was a subterfuge for the employer’s desire to illegally collect employee medical information. The judge explained that the ADA does not prohibit the collection of such information and that a benefit plan requirement is not a subterfuge unless it involves a “disability-based distinction” that is used to discriminate against disabled individuals.  In this instance, no such distinction existed since all employees seeking insurance had to supply the wellness program data and there was no evidence that such data was used to make disability-based decisions regarding employees’ benefits.

Bottom Line  

The EEOC has not been as successful as they would have hoped in challenging wellness programs as violations of the ADA. We can expect, however, that they will continue to challenge such plans if they perceive that employees are compelled to divulge medical information that they otherwise would wish to keep confidential.  We may also see EEOC regulations sometime in the future as an alternative method of imposing greater uniformity upon employers.

For more information, please contact Michael McNally at mmcnally@felhaber.com.

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Paid Sick Leave for Federal Contractors

The Department of Labor must still undertake rulemaking to implement the Executive Order. However, here is a summary of the new sick leave requirement for federal contractors:

• Employees earn at least 1 hour of paid sick leave for every 30 hours worked.
• Employers may not “cap” the accrual of sick leave at or less than 56 hours.
• The paid leave can be used for the employee’s own illness or to obtain “diagnosis, care, or preventive care from a healthcare provider.”
• The paid leave also may be used to care for or to obtain a diagnosis or preventative care for a family member, which is defined to include anyone “related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”
• The paid leave also may be used to recover from or seek assistance for incidents of domestic violence, sexual assault or stalking.
• The paid leave cannot be made contingent on the employee finding a replacement to cover the missed time
• The paid leave can carry over to successive years (subject to the 56-hour cap).
• The paid leave need not be paid out at termination, although employees who are rehired within 1 year are entitled to have their paid leave reinstated.

Questions remain about how the mandatory sick leave will interact with employer-provided PTO and other leave mandated by state or local law. It appears, however, that contractors who already provide sick leave benefits (and presumably PTO) will not be required to do anything more as long as their policies meet or exceed what the Executive Order requires.

Bottom Line

It is interesting to note that the Executive Order kicks in after President Obama’s term expires, so it remains to be seen whether his successor will be as committed to this new benefit for federal contractors’ employees.

Nevertheless, the move is expected to spur Congressional debate over the “Healthy Families Act,” which would require all businesses with 15 or more employees to offer up to 7 paid sick days each year.

We will continue to monitor this story as it develops.

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Large employers (employers with 50 or more FTEs) are required to provide information on health coverage to their employees using Form 1095-C; they must further file this information with the IRS using Form 1094-C.  If an employer fails to provide and/or file the forms, the employer is subject to IRS penalties.

The trade bill made steep increases in the penalties for reporting failures. In addition to applying to Forms 1094-C and 1095-C, these increased penalties also apply to other information returns and filings required to be filed or furnished after 2015, such as W-2s.

• The general penalty for failure to file will increase from $100 per return to $250 per return.
• The cap on the total amount of penalties for such failures during a calendar year will increase from $1,500,000 to $3,000,000.
• If a failure relates to both an information return (e.g., a Form 1094-C required to be filed with the IRS) and a payee statement (e.g., Form 1095-C required to be furnished to the individual), the penalties may be doubled.

If a failure is caused by intentional disregard, the new $250 penalty is doubled to $500 for each failure, and no cap applies to limit the amount of penalties that can be applied with respect to that calendar year.

The IRS has stated that it will not penalize employers who  “make good faith efforts to comply” with the ACA reporting requirements. Therefore, employers should document their efforts to comply with the ACA reporting requirements to avail themselves of a “good faith” compliance defense, if need be, against any assessed “failure to file penalties.”

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At issue were 6 words in the Affordable Care Act.  The Act states that subsidies are available for people who cannot afford health coverage if they purchase insurance through “an Exchange established by the State.”   The Petitioners argued that these words excluded subsidies where insurance was purchased through a federally-run exchange.  Thirty-four states have federally-run exchanges; the remaining states, including Minnesota, have state-run exchanges.

Justice Roberts, writing for the majority, conceded that the Petitioners “plain-meaning arguments are strong.”  However, “[T]he Statutory scheme compels the Court to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange . . .”

“The Affordable Care Act contains more than a few examples of inartful drafting,” noted Justice Roberts.  An observation generally agreed upon in the dissent filed by Justice Scalia, and joined in by Justices Thomas and Alito.

The result of this decision is that the Affordable Care Act continues to operate unchanged, including reporting requirements on insurers and employers taking effect this year.  And, taxpayers who meet certain income criteria will be able to receive a tax subsidy if they participate in an Exchange operated by either a state or the federal government.

The post High Court Holds Health Reform Law Subsidies Are Legal appeared first on Felhaber Larson.

The plaintiffs in this case argued that the fiduciaries their 401(k) Savings Plan acted imprudently when they offered six higher priced retail-class mutual funds as plan investments when materially identical lower priced institutional-class funds were available.  Three of the challenged funds were selected in 1999; the other three were selected in 2002.  However, the lawsuit was not filed until 2007, prompting the lower courts to rule that the challenge to the 1999 fund selections was time-barred because there was no allegation of any change in circumstances that would have led the fiduciaries to e review and change the 1999 investments.

The U.S. Supreme Court reversed, concluding that retirement plan trustees have an on-going, continuing fiduciary duty to monitor and review the plan’s investments and remove imprudent ones.  As a result, people wishing to challenge these selections do not have to point to a change in circumstances.  As long as a lawsuit is brought within 6 years of any alleged breach of this continuing duty, the claim is timely.

The justices refused to define the precise scope of the fiduciary duty to monitor and review; they merely noted that such a duty exists and then remanded the case back to the Ninth Circuit Court of Appeals to decide if there was a proper claim for a breach of fiduciary duty within six years of any claimed breach of that duty.

While the duty to monitor has always existed, the potential for liability arising from investment decisions has increased. Troubling news indeed for people servicing in this capacity.

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The Americans with Disabilities Act (ADA) bans discrimination based on disability in regard to most facets of the employment relationship, including “fringe benefits available by virtue of employment, whether or not administered by the covered entity.” The ADA also restricts employers from obtaining employee medical information through disability-related inquiries or medical examinations.

An exception exists in the law for employee health programs, which the EEOC contends must be voluntary; penalties for employees who do not participate are forbidden.  The EEOC’s new rules seek to clarify precisely what they mean by “voluntary”, especially in regard to incentives to encourage participation.  These proposed rules apply to all programs that require the disclosure of disability-related health information.

The Proposed Rules provide:

• Purpose: employee health programs, including any disability-related inquiries and medical examinations that are part of such programs, must be reasonably designed to promote health or prevent disease.
• Incentives: Incentives for participation are limited to 30% of the total cost of employee-only coverage for both health-contingent wellness programs and participatory wellness programs.
• Voluntariness:  A three part test where (1) employees are not required to participate; (2) coverage under any group health plans or particular benefits packages within a group health plan are not restricted or limited due to non-participation; and (3) there is no  adverse employment action or retaliation against employees who choose not to participate.
• Notice: If the program is offered as part of, or provided by, a group health plan, an employer must provide a notice that clearly explains what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure, and the methods the covered entity will employ to prevent improper disclosure of the medical information.
• Disclosure: Medical information collected through an employee health program may only be provided to an employer in aggregate terms that do not disclose, or are not reasonably likely to disclose, the identity of specific individuals, except as needed to administer the health plan.

Although public comment is still to come, these proposed rules are likely to become final.  Therefore, now is the time to take a fresh look at your company policies.

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Pay-or-Play Rule

Under the Rule, applicable large employers (those with 50 or more full time or full-time equivalent employees) are required to provide employees who work on average 130 hours or more per month with minimum essential health coverage that is both affordable and provides minimum value.

The Rule was supposed to be effective January 1, 2014, and employers were in the process of completing a lengthy list of administrative actions in order to be PPACA compliant by the original deadline. The Treasury cited the lack of guidance on the reporting requirements in PPACA as the reason for the delay.

Delay May Only Increase Uncertainty

The announcement was unexpected. With such a complicated overhaul of employer-provided health care coverage, it was welcome news to some. But many employers who have been actively preparing for the Rule’s effective date are now unsure whether they should move forward with compliance. At the same time, the delay gives those who haven’t yet begun preparing time to plan and manage implementation.

Additional guidance is expected on the exact details of the Rule delay and how it will impact other pieces of PPACA. The Treasury’s post indicates that premium tax credits will be available in 2014, and from that it seems almost certain that employers must distribute the notice of the availability of coverage through the exchanges on schedule, by October 1, 2013.

For now, other changes, including the elimination of pre-existing conditions, limits on waiting periods and the elimination of annual limits appear to be unaffected by the delay. The PCORI fee seems to be unchanged and, for some employers who sponsor self-insured plans, it may be due as soon as July 31, 2013.

Bottom Line

Employers who have begun taking the first-steps – including establishing measurement, stability and administrative periods – need to carefully consider how this news changes their strategy, if at all. To be sure, employers should wait for the release of additional guidance expected from the Treasury before making any final decisions.

Those who have not begun work on their plans for compliance should begin doing so soon, mindful that the work is complex and lengthy. Those who have started implementation should continue to attempt to comply and consider the next calendar year a test run, knowing that they have been provided some breathing room for later adjustments.

Attorney Michael G. McNally also contributed to this post.

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DOMA’s Definition of Marriage

The main issue was Section 3 of DOMA, which defined “marriage” and “spouse” for purposes of federal law as “only a legal union between one man and one woman . . . .”  This obviously conflicted with the dozen states that include same-sex unions into their definition of “marriage.”  In those states, persons considered to have been legally married were still denied a variety of benefits under federal law, including the right to file joint income tax returns or to obtain spousal benefits under the Social Security system.

State Definitions of Marriage Are Now Controlling

Writing for a 5-4 majority, Justice Anthony Kennedy ruled that Section 3 of DOMA is unconstitutional because it deprives lawfully married same-sex couples of equal protection under the Fifth Amendment. The Court was careful to limit its decision to only “lawful marriages,” i.e. those same-sex marriages that are legally recognized under state law. The Court stopped short, however, of declaring that all states must recognize same-sex marriage.

Benefits Implications for Minnesota Employers

The practical effect of the Court’s ruling is that same-sex couples who are married in a state which permits same-sex marriage are now recognized as married in the eyes of the federal government. At present, there are 12 states, (including Minnesota as of August 1, 2013), where same-sex couples can legally marry.

Minnesota employers should immediately assess the impact of this landmark ruling on their benefit plans and make appropriate changes to their tax and payroll systems. To start, figure out which plans are governed by federal laws.

• Health Coverage: If an employer offers self-insured coverage, the plan is governed by ERISA, a federal law. In accordance with the Court’s ruling, ERISA plans that provide spousal coverage in a state that recognizes same-sex marriage, the definition of “spouses” will now include same-sex partners.  For federal tax purposes, no longer will the value of the employer-paid coverage to same-sex spouses be treated as imputed income and reported on Form W-2.  Similarly, for employers who offer a Code Section 125 cafeteria plan and allow employees to pay their portion of the premium on a pre-tax basis, the value of the coverage extended to same-sex spouses will not be imputed to the employee.

• Retirement Benefits: Many retirement benefits, such as a 401(k) plan or a pension, are subject to the Internal Revenue Code and ERISA.  The Court’s decision means employers must treat same-sex spouses identically as opposite-sex spouses who are providing retirement benefits. Employers will be required to recognize same-sex spouses for purposes of determining surviving spouse annuities and death benefits.  Plans must provide a qualified joint and survivor annuity and a qualified pre-retirement survivor annuity to a participant with a same-sex spouse.   Pension plans that define a spouse as a “DOMA spouse” need to be amended, so too do beneficiary designations to require same-sex spouses to consent to beneficiary designations.

In addition, all spouse-related leaves in Minnesota under the Family and Medical Leave Act (FMLA) apply to employees in same-sex marriages. For example, a Minnesota employee married to a same-sex partner will be entitled to take FMLA leave to care for his or her spouse who is suffering from a serious health condition, for military caregiver leave, or to take leave for a qualifying exigency when a same-sex spouse is called to active duty in a foreign country in the military.

Bottom Line

The implementation process will present employers with significant challenges, particularly those who operate in multiple states. In the end, it may streamline and simplify benefit plans and reduce paperwork, but the coming weeks and months are a critical time. Employers should conduct a thorough review, implement the appropriate changes and educate their human resources personnel to address employee questions.

Attorneys Grant T. Collins and Michael G. McNally contributed to this post.

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