Effective January 1, 2014, the Affordable Care Act “play or pay” rules become effective for employers subject to the rules. These “play or pay” requirements are also referred to as the employer mandate or the shared responsibility requirements of the Affordable Care Act. Whatever label is applied to the requirements, the law requires that covered employers offer affordable coverage to full-time employees. View a brief description of these requirements provided by Lisa A. Van Fleet, a partner in the Employee Benefits and Executive Compensation Group at Bryan Cave LLP.
The Affordable Care Act requires that employers offer affordable health care coverage to full-time employee beginning January 1, 2014 (or pay a penalty). Coverage is affordable if the employee’s contribution toward self-only coverage does not exceed 9.5% of his or her household income. Until now, it was not clear how wellness plan surcharges would impact the affordability calculations.
Based on the pre-release of guidance that is expected to be published today (May 3), wellness plan surcharges must be included in the premium for purposes of the affordability calculation. Two exceptions are provided for arrangements that satisfy the wellness plan rules: (1) surcharges based on tobacco use; and (2) for any plan year beginning prior to January 1, 2015, surcharges for any wellness arrangement, but only to the extent the terms of the wellness arrangement were in effect on May 3, 2013. Under this guidance, the premium that applies to non-tobacco users is used to test affordability for all employees regardless of tobacco use; however, any other wellness surcharge (except those described above in the transitional relief provision) must be included in the employee’s share of the premium when calculating affordability.
Yesterday, the Supreme Court granted a plan participant’s petition for a writ of certiorari in Heimeshoff v. Hartford Life & Acc. Ins. Co., No. 12-729, 2013 WL 1500233 (Apr. 15, 2013). The Court limited its review to a single question raised by the petitioner: “When should a statute of limitations accrue for judicial review of an ERISA disability adverse benefit determination?” The Supreme Court declined review of two other questions raised by the petition regarding the adequacy of notice provided to the participant: (1) “What notice regarding time limits for judicial review of an adverse benefit determination should an ERISA plan or its fiduciary give the claimant with a disability claim?”; and (2) “When an ERISA plan or its fiduciary fails to give proper notice of the time limits for filing a judicial action to review denial of disability benefits, what is the remedy?”
The Second Circuit in Heimeshoff had affirmed the district court’s judgment, holding that Connecticut law permitted the plan to shorten the applicable state limitations period (to a period not less than one year) and that the plan’s three-year limitations period could begin to run before the participant’s claim accrued, as prescribed by plan terms. Heimeshoff v. Hartford Life & Acc. Ins. Co., 496 Fed. Appx. 129, 130 (2d Cir. 2012). In this case, the plan provided that the limitations period ran from the time that proof of loss was due under the plan. Id.
In January, Bryan Cave issued a client alert detailing the Second Circuit opinion in Heimeshoff.
ERISA requires that all plans have a written plan document and summary plan description. In addition to describing the benefits, the written plan document must also establish: a funding policy, a procedure for allocating administrative and management responsibilities, a procedure for amending the plan, and the scheme for payment of contributions and benefits.
For welfare plans, plan sponsors have customarily relied on the benefit booklets prepared by the insurer (for insured plans) or the third party administrator (for many self-insured plans) as both the plan document and the summary plan description. The benefit booklets and the schedules of benefits usually provide a full and detailed description of the benefits that are covered and excluded as well as requirements for preauthorization of treatment, filing claims and appeals, and the costs (deductibles, co-pays, out of pocket maximums) that participants pay. But, the booklets, which are not prepared by the plan sponsor, generally do not include certain required ERISA provisions such as identification of fiduciaries, allocation of responsibilities, funding, claim procedures, or provisions that protect the employer such as those provisions that reserve the plan sponsor’s right to amend or terminate the plan, provide for subrogation and recovery of overpayments, address lost participants, and stipulate the absence of any guarantee of employment. Similarly, the benefits booklets do not typically include all of the information that the DOL regulations require to be included in a summary plan description (e.g., name, address and employer identification number of the plan sponsor, name and address of the plan administrator and others who have fiduciary and administrative responsibilities, plan number, agent for service of legal process).
Plan sponsors can fill in the gaps in the benefit booklets by adopting a wrap plan document that contains the missing information required for both the plan document and the SPD. The wrap plan document also incorporates by reference the detailed terms of the benefit booklets and certificates, which are included attachments. In this way, the wrap document can satisfy both the plan document and summary plan description requirements. If the document is intended to serve as both the plan document and the SPD, it is advisable to state clearly that the wrap document is intended to be both the plan document and the SPD.
A wrap document can also be used when a plan sponsor wants to treat several welfare benefit plans or programs as a single plan. Many plan sponsors treat different welfare plans, such as group health (medical, dental and vision), long and short-term disability, group term life insurance, as a single plan and file one Form 5500 although each program has a separate insurance policy or contract. A wrap document permits the sponsor to incorporate the several contracts and certificate into a single plan document and establish that it has a single plan for Form 5500 reporting purposes.
Plan sponsors should review their documents to determine whether they need a wrap document to satisfy ERISA’s plan and summary plan description requirements.
Courts have recently seen a flurry of activity from for-profit corporations challenging the Affordable Care Act’s contraceptive mandate, which became effective January 1. These employers claim providing female employees with certain types of FDA-approved contraceptives violates the owners’ right to free exercise of religion.
Do for-profit corporations have a right to free exercise of religion, at least with respect to providing controversial contraceptives to employees? While we’re waiting for that issue to make its way to the Supreme Court, which it most certainly will, federal circuit courts are divided with respect to issuing temporary injunctions until the substantive issues are decided. The Supreme Court weighed in on the Hobby-Lobby case in December 2012, denying its request for an injunction while the company’s general challenge was pending, but it did not address the underlying, controversial issues, such as whether a corporation can even exercise religion in the first place. Circuits courts are left facing a number of injunction requests and the results vary by circuit. The Third, Sixth, and Tenth Circuits have generally denied injunction requests, while the Seventh and Eighth Circuits seem open to issuing temporary injunctions. See Conestoga Wood Specialities Corp. v. Sebelius (3d Cir., February 7, 2013); Autocam Corp. v. Sebelius (6th Cir., December 28, 2012); Grote v. Sebelius (7th Cir., January 1, 2013); Annex Med. v. Sebelius (8th Cir., February 1, 2013); Hobby Lobby Stores, Inc. v. Sebelius (10th Cir., December 20, 2012; aff’d December 26, 2012).
The general standard for granting a temporary injunction in this type of case is whether the plaintiff has a reasonable likelihood of success on its claim, here, the standard being whether the mandate violates an employer’s right to free exercise of religion under the First Amendment or Religious Freedom Restoration Act. Since no circuit court has considered these claims, whether an employer has a reasonable likelihood of success is unclear. One of the key differences between circuits is whether courts accept at face value an employer’s claim that the mandate constitutes a substantial burden on its right to free exercise of religion or whether the court should delve deeper and decide if the employer has a reasonable likelihood of success on the underlying claims. The Autocam court pointed out that the divergence of district courts on this issue establishes the possibility of success. However, since the employer did not demonstrate more than a possibility of success, the court denied the injunction. The Annex Med. court, however, stated that an employer shows a substantial burden on its right to free exercise of religion simply by saying so, and thus granted the injunction.
Topping off the debate, a bill to repeal the portion of the mandate requiring employers to provide emergency contraception was introduced in the U.S. House of Representative on March 5. One of the sponsors argued that Americans were being forced to choose between religious convictions or breaking the law. While the legislation has little chance of being passed, it demonstrates that the contraceptive mandate is still an important issue for many employers and the debate is unlikely to be settled until the Supreme Court addresses the complex, underlying issues.
We thank our Intern, Will Kim, for his help in preparing this post.
One of the sadder tasks encountered by a plan administrator is sorting out who is the appropriate recipient of benefits when a participant has been murdered by the intended beneficiary of such benefits. Over time, we have advised many plan administrators in handling situations like this one dealing with their pension, 401(k), life insurance and accidental death plans and, in doing so, have developed a variety of alternatives each with varying levels of cost and risk. These alternatives, each of which is summarized in more detail below, include: (1) commencing an interpleader action, (2) securing a receipt, release, and refunding agreement, and (3) obtaining an affidavit of status (e.g., heirship).
In arriving at these alternatives, we have considered applicable law, including state statutes and ERISA preemption. Most individual states have enacted so-called “slayer” statutes, which generally provide that an individual who kills the decedent cannot benefit from his or her crime and, therefore, forfeits all benefit rights he or she possessed as the primary beneficiary. While some courts have held that these state slayer laws may be preempted under ERISA’s broad preemption doctrine, a similar result is likely to be reached through applicable federal common law principles. In fact, an Eastern District of Pennsylvania court recently addressed this situation in In re Estate of Burklund (January 28, 2013). The Burklund court declined to decide the ERISA preemption issue since the Pennsylvania state law and the federal common law that would apply if ERISA preempted Pennsylvania’s slayer’s act are essentially the same in a “slayer” situation and further noting that several district courts have taken this approach. In this case, the court ruled that the wife (also the primary beneficiary of her husband’s employer-sponsored life insurance and accidental death policy) was barred from receiving any benefits from her husband’s insurance policy following her first-degree murder conviction for the husband’s death. The son was, instead, deemed to be the appropriate beneficiary since he had been designated as the contingent beneficiary named under such policies.
When a substantial amount of benefits are involved and/or a plan administrator is aware of multiple parties who will potentially assert a claim on the benefits, an interpleader action may be the most appropriate course of action. In essence, an interpleader action involves the plan administrator paying the entire benefits into the court and having the potential claimants become parties to the litigation. The claimants proceed against each other and the court determines which of the claimants is legally entitled to the benefits. While an interpleader may be prohibitively expensive (and burdensome from a time and cost perspective) for a plan administrator if a small amount of benefit is involved, it is one of the only manners in which a plan administrator can gain certainty that it will not have to pay out the dispute benefits to more than one party making such a claim. Thus, the time and money invested may be worthwhile.
Receipt and Refunding Agreement
In situations where a plan administrator chooses not to proceed with an interpleader action (perhaps on account of the cost or time involved with such an action), obtaining a receipt, release, and refunding agreement may serve as an attractive alternative. By securing such an agreement, the signing payee/beneficiary acknowledges that he/she has received the proceeds, and further agrees to immediately refund to the plan(s) the amount of any excess or improper distribution. A receipt, release, and refunding agreement may be used in conjunction with an affidavit of the party’s relationship with the participant (discussed below) to minimize the chance the recipient would need to refund any amount that was initially distributed. However, unless the signing payee/beneficiary voluntarily agrees to repay the inappropriately distributed amounts, a plan administrator may have to commence litigation to enforce the agreement. Even if that litigation is successful, there is a possibility that a plan administrator may not be able to secure repayment if the signing payee/beneficiary is “judgment proof.” Thus, this alternative is not without risk.
Affidavit of Status
Where a plan administrator is paying out benefits to a party on account of their relationship to the decedent/participant, a plan administrator may choose to secure an affidavit from the payee/beneficiary as to that relationship. For example, if (1) a participant in a 401(k) plan dies without a designated (i.e., named) beneficiary, (2) his spouse murdered him and, (3) the plan provides that the surviving children of the participant would be the appropriate beneficiary, then it might make sense to secure an “affidavit of heirship” from a surviving child stepping forward affirming that such child is and ever was the only known child of the decedent/participant. As suggested above, by using this type of affidavit in conjunction with a receipt, release, and refunding agreement, the plan administrator preserves an “undo” feature to the initial distribution in case another beneficiary is subsequently discovered.
In no way do the enumerated alternatives described above constitute an exhaustive list. We are constantly seeking more creative and effective methods to ensure that the proceeds are paid to the appropriate recipient. In addition, the appropriate strategy to undertake largely depends on the factual circumstances facing the plan administrator. Do you have any other alternatives that you’d like to share?
Texas state Rep. Jonathan Stickland is trying to help companies that refuse to comply with the Affordable Care Act’s (ACA) contraceptive mandate, which took effect January 1 for most companies. This freshman representative is protesting “ObamaCare” by introducing a bill (TX H.B. 649) that would grant companies a tax break if they offer healthcare to their employees (as required by ACA) but refuse to include emergency contraceptive coverage because of the religious convictions of their owners.
This bill attempts to neutralize any federal fines by giving a business a tax break equal to the amount paid in federal penalties, up to the total amount the company pays in state taxes. Fines for violating ACA’s contraceptive mandate are $100 per employee per day, which can add up quickly for large employers. For example, Oklahoma-based Hobby Lobby recently announced it would not comply with the mandate and faces a fine of approximately $1.3M per day. The Texas bill, if passed, could mean huge reductions in Texas state tax income.
However, the reach of the contraceptive mandate seems to be narrowing. On February 1, the federal government proposed updated guidelines that would expand the exemption allowing certain religious-based nonprofits a means to opt out of the contraceptive mandate. Instead, employees would be permitted to obtain contraceptive coverage through separate health policies. In addition, numerous religious-based businesses have sued over this hot-button issue. Adding fuel to the fire, at least two circuit courts have issued injunctions to stop the government from enforcing the contraceptive mandate against for-profit secular employers pending the outcome of their appeals. See Grote v. Sebelius (7th Cir) and Annex Medical Inc. v. Sebelius (8th Cir).
One looming question (at least for benefits practitioners) is whether this type of law would be preempted by ERISA. Generally, ERISA preempts any state law to the extent it “relates to” an employer-sponsored benefit plan. However, if the ACA’s contraceptive mandate merely imposes a federal tax for non-compliance and is not really a federal “mandate,” similar to the Supreme Court’s holding that the ACA’s individual coverage mandate is merely a tax and not a federal mandate, ERISA may not preempt these types of laws. What do you think?
- The Secretary of Labor has the authority to asses civil penalties of up to $1,100 against a plan administrator who fails or refuses to file a complete and timely Form 5500 (plan annual return/report);
- The DOL first adopted the DFVC program in 1995 to encourage plan administrators to voluntarily correct late Forms 5500 by offering the opportunity to file and pay a reduced penalty (which was capped on a per year and per plan basis); and
- The DVFC was last updated in the Federal Register in 2002; however, the Program has been updated periodically since 2002 to reflect the adoption of certain technical changes (including changes associated with electronic filing of Forms 5500 and allowing for online payment of the DFVC penalty).
Below is a summary of the main updates set forth in the Federal Register’s comprehensive update. Note that some of these changes were previously adopted informally on the DOL’s website and are now being incorporated into the Federal Register description of the program, while others are new:
- Paper filings are no longer accepted for either timely or delinquent filings (since the migration to the EFAST2 electronic filing system is complete for all filing years);
- DFVC filers generally must use the most current year EFAST2 form and schedules available for filing in EFAST2 (entering the correct plan year dates on the space provided at the beginning of the Form 5500) with the following exceptions:
- Filers must attach as a pdf image file the correct year Schedules B, SB, MB, E, P, R, and T, as applicable, for delinquent filings for plan years that commenced prior to January 1, 2009, completed with blue or black ink;
- Filers required to file Schedule C for the plan year for which the delinquent filing is being made have the option of attaching a pdf image of the correct year Schedule C completed with blue or black ink in accordance with the correct year instructions, instead of filing the latest plan year Schedule C available; and
- Filers filing for Code section 403(b) plans for plan years commencing before January 1, 2009 must use the latest plan year Form 5500 available, but must complete only those limited reporting items required to be completed before 2009 (i.e., Part I and Part II, lines 1-4, and line 8);
- The DOL added an online tool to its website (called the “Form 5500 Version Selection Tool”), designed to assist filers in determining which versions of Forms 5500/5500-SF and schedules to use when filing delinquent annual reports or amending prior year annual reports under EFAST2;
- The DOL issued a reminder that filers cannot submit the Schedule SSA (“Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits”) or IRS Form 8955-SSA (in pdf format or otherwise) to EFAST2 or under the DFVC Program. This information must be submitted directly to the IRS; and
- Filers who utilize the online payment system are no longer required to mail a hard copy of the Form 5500 (without schedules) to another DVFC address.
Note the applicable DFVC Program penalties have not changed. Thus, to use the Program, a plan administrator must pay $10 per day for each day the Form 5500 is filed after its due date (without regard to any extensions), subject to the following caps:
|Type of Plan||Per Year Penalty||Per Plan Penalty|
For this purpose, a “small plan” is one with fewer than 100 participants at the beginning of the plan year and a “large plan” is one with at least 100 participants at the beginning of the plan year. The “per plan” cap applies in the case of a DFVC Program submission relating to more than one delinquent annual report for the plan.
Continuing what has become a habit of Friday afternoon rule issuances, the Departments of the Treasury, Labor, and Health and Human Services issued a proposed rule last Friday to attempt to accommodate the objections of religious employers to the contraceptive mandate. The rule makes a few accommodations to the prior guidance.
- First, the definition of “religious employer” (i.e., an employer entirely exempt from the mandate) has been expanded by eliminating the 3 prior requirements, which resulted in widespread objections: that the organization (1) have as its purpose the inculcation of religious values, (2) primarily employ persons who share its religious beliefs, and (3) primarily serve persons who share its religious beliefs. Under the new proposal, a “religious employer” must be described in Code section 6033(a)(3)(A) (i) and (iii), which refer to churches, their integrated auxiliaries, conventions and associations of churches, and the exclusively religious activities of religious orders. For example, under the new proposal a church that has social service and outreach programs or a school that serves and employs persons of other faiths will qualify as a “religious employer” and will not be subject to the contraceptive mandate. Such employers would not have been exempt under the prior guidance.
- Second, it provides an exemption for an employer that:
- Objects to one or more contraceptive services required by PPACA,
- Is a nonprofit entity,
- Holds itself out as a religious entity, and
- Self-certifies that the above conditions are met.
An employer in the second category would not have to provide coverage for contraceptive services to which it objects. Instead, if the entity’s plan is insured, the insurer would have to provide stand-alone coverage of the contraceptive services not covered by the employer’s plan to any individuals covered by the employer’s plan at no cost to the participants. The preamble states that health economists “estimate” that the provision of contraceptives will be at least cost neutral. Therefore, the Departments did not provide any mechanism for insurers to receive any kind of cost recovery (unlike the rules for self-insured plans described below).
Contraceptive Coverage as an Excepted Benefit. The coverage would be considered an “excepted benefit” as long as it complies with the health reform prohibitions on lifetime and annual limits, rules on claims and appeals, requirement of guaranteed renewability, and prohibitions on recissions of coverage. Except for these four rules, it would not have to comply with other health reform mandates. One issue the Departments did not address in this rulemaking is how, if at all, the separate contraceptive coverage would factor into any medical loss rebate calculation for the insurer. As an excepted benefit, the separate contraceptive coverage would generally not factor into the calculation. To put insurance coverage for nonprofit religious organizations on par with other nonprofits (and for profits), the Departments should consider revising the MLR rules to include the costs of this contraceptive coverage in the MLR rebate calculation.
ERISA Concerns. Additionally, the Departments did not address potential ERISA issues that this structure could implicate. Remember, the whole construct is that the employer is not arranging for, paying for, or otherwise providing the coverage. So is this individual coverage or employer coverage (or neither)? Are Forms 5500 required if more than 100 individuals select the separate contraceptive coverage? Who would be responsible for the preparation of those forms and SPDs? In fairness, this kind of structure does not exist currently, so the Departments don’t have any experience on which to draw. Still, the Department of Labor needs to address these issues. Our suspicion is that these contraceptive policies will likely be exempt from many of these ERISA reporting and disclosure requirements.
Self-Insured Plans. The Deparments requested comments on how to handle self-insured plans. They outlined some potential alternatives in the preamble, but did not include any specific rules for self-insured plans in the actual proposed regulations (except for the exchange fee offset described below). All of the potential alternatives, in one form or another, basically end up with the third-party administrator arranging for the insurance and receiveing some form of compensation for arranging for the insurance. However, under some of the alternatives, it appears the employer could still be held ultimately responsible if the TPA does not arrange for the coverage. Additional clarity in that regard would be welcome. The insurer providing the coverage would receive a reduction in its user fee that it will owe to Federally-facilitated exchanges based on an HHS-approved reimbursement rate.
For Profit Employers Will Continue to Litigate. Finally, this rule will do nothing to stem the tide of lawsuits by for profit employers who object to some or all of the contraceptive requirement on the grounds of their owners’ religious beliefs. The myraid of cases on that issue are still winding their way through the courts and likely will continue to do so, unless the Departments make further accomodations in their regulations.
So what do you think? Did the Departments go far enough? And how do you think they should deal with self-insured plans?
We acknowledge and appreciate the input of Colorado Springs Partners, Stuart Lark and John Wylie in the preparation of this post.
A representative from the Atlanta Regional Office for the Department of Labor recently spoke at an Atlanta Bar Association luncheon and provided some insight into the Employee Benefits Security Administration’s enforcement priorities and some other interesting facts:
- With regard to the need for fiduciary training that we wrote about previously, the representative confirmed that investigators generally only require proof of training if the plan sponsor/administrator has agreed to receive training as part of a settlement agreement following an audit. However, they generally will inquire as to whether the plan sponsor/administrator has had fiduciary training as part of a routine audit.
- The representative also confirmed that EBSA has started to audit for health care reform compliance (at least for the provisions that are currently effective).
- They are also looking at HIPAA compliance for both plan sponsors and service providers, and particularly HIPAA portability (e.g., creditable coverage notices, and the like) compliance by service providers. A focus on creditable coverage notices seems unusual since PPACA will eliminate preexisting conditions in 2014.
- Timely deposits of 401(k) contributions, a long-time focus of the DoL, continues to be a priority. In this regard, the representatives noted that they generally interview the plan sponsor to determine what is timely based on the complexity of the plan sponsor’s payroll(s). However, they reiterated that the 15th day of the month after the contributions are collected is not a safe harbor.
- They are taking hard look at plan loans to make sure they are administered to meet the necessary criteria for the ERISA prohibited transaction exemption. The representative noted to make sure your plan allows for loans if loans are being made from the plan (Yes, this seems obvious, but you’d be surprised).
- Audits of employee stock ownership plans (ESOPs) continue to be a national priority, particularly with respect to valuations. While a great many ESOPs are well-functioning, there is unfortunately ample opportunity for mistakes and even abuse, which puts them under DoL scrutiny.
In terms of takeaways for plan sponsors, they strongly encourage plan sponsor to read the service provider statements they receive, rather than just paying them without reviewing them. When issues arise during audit, they also are prone to ask, “did you read the plan?” which suggests that it might be a good idea to read it (as difficult as that may be in spots). Finally, they noted that if you show amounts as “other assets” or “other income” on the Schedule H for your Form 5500, you are likely to hear from them.
Of course, these are informal, non-binding views of the representative and cannot be taken as authoritative statements of the DoL/EBSA. Nevertheless, they are informative of the types of items that investigators may be looking for if they come knocking on your door.
A list of other DoL/EBSA enforcement priorities is available here.