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  • BC Network
    Monday, July 13, 2015

    Grooms Wedding RingTwo years after recognizing same-sex marriages for purposes of federal law, the U.S. Supreme Court has gone a step further, requiring that all states recognize same-sex marriages as valid if they were valid in the jurisdiction where they were performed.  Further, states are required to license same-sex marriages no differently than opposite sex marriages.  In short, the Supreme Court struck down existing state bans on same-sex marriage.

    Effect on 401(k) Plans and Other Qualified Plans: 401(k) and other qualified retirement plans are not impacted by Obergefell, since the previous Windsor decision, along with guidance issued by the IRS following Windsor, already required qualified retirement plans to recognize same-sex spouses.  Following Windsor, same-sex marriages were to be treated no differently than opposite-sex marriages for all purposes, including automatic survivor benefits (spousal annuities), determining hardship withdrawals, and qualified domestic relations orders (QDROs)).

    Effect on Medical Plans:  Sponsors of insured medical plans are bound by the terms of the insurance contract – and therefore have little discretion on the matter of same-sex coverage.  The providers must write their policies to comply with applicable state law and the plan sponsor buys the policy subject to those terms.

    On the other hand, self-funded medical plans may define their own terms.  They are governed by ERISA, and as such, state law is largely preempted.  Accordingly, any state requirement that the plan cover same-sex spouses may be preempted.  Moreover, there is no federal law which mandates coverage of spouses (although if it did, “spouse” would include a same-sex spouse).  In the absence of a federal law requiring coverage for spouses, a plan sponsor may still choose whether or not to cover some or all spouses — although treating same-sex spouses differently than opposite-sex spouses is not without risk.  There have been a number of challenges asserted with respect to plans which do not provide same-sex coverage and those challenges are likely to escalate.  In short, while the Obergefell decision does not on its face compel same-sex spousal coverage under self-funded medical plans, the decision coupled with the trend of legal developments in this area creates an increased level of exposure for employers who offer spousal coverage for opposite-sex spouses but not for same-sex spouses.

    In a previous blog we discussed ramifications of the Obergefell decision on domestic partner benefits.  See HERE.

    Wednesday, July 1, 2015

    Gavel and RingsAs has now been widely reported, the Supreme Court ruled on June 26 (the second anniversary of the Windsor decision) that same-sex couples have a right to marry in any part of the United States. Despite being hailed as a victory for marriage equality, as this New York Times article points out, it may not be such happy news for currently unwed domestic partners. Specifically, there is a concern, as the article points out, that employers who previously extended coverage to domestic partners out of a sense of equity may now decide not to since both opposite-sex and same-sex couples can now marry.

    As the article mentions, there was a concern at one time that domestic partnership rules would be used by some employees to cover individuals with whom they are not really in a committed relationship. Given that not all states have registration requirements or clear standards, it was largely up to employers to set the standards for what constituted enough of a commitment for a domestic partner to warrant coverage. The difficulty was that employers had to balance not covering individuals who really were not in committed relationships with setting a standard low enough that those who really were in such relationships could qualify. The article says that it does not appear that this was really a problem, but of course, the validity of such relationships are more difficult to verify than a marriage.

    What the article also fails to point out is that there are some valid reasons why employers may want to eliminate coverage for unmarried domestic partners. Health coverage provided to a spouse is generally nontaxable under federal and state laws. However, domestic partnerships, by contrast, are subject to a patchwork of various rules ranging from essentially marriage equivalence in some states to complete non-recognition in others. This means that, in many cases, domestic partner health coverage results in imputed (that is, non-cash) income to employees for federal and some state purposes. The calculation of that imputed income is not 100% clear and the administration of those benefits can be complex.

    Many employers who saw extending coverage to same-sex couples as important were willing to suffer those difficulties and take on that risk of the IRS or state agencies second-guessing their calculations when marriage was not uniformly available to those couples. Now that it is, those employers have to engage in a cost-benefit analysis to determine if the complexity and risk are worth it on a going-forward basis.

    Additionally, it is unclear what the effect of state domestic partner and civil union laws will be after the Obergefell decision. Even though marriage is now available to same-sex couples, the decision did not remove those laws from the states’ books. What movement, if any, states make in this regard will likely influence what employers do going forward as well.

    The talent recruitment marketplace will eventually sort this out, but in the interim, employers should at least consider evaluating whether offering unmarried domestic partner benefits continues to be important as part of their recruitment and retention strategy.

    Friday, June 5, 2015

    In Duda v. Standard Insurance Company, a recent case decided by the Federal District Court in the Eastern District of Pennsylvania, we are reminded of the limits on the type of relief an employer may obtain for participants in its insured ERISA plans.  In this case, the employer filed suit against the insurer of its long-term disability plan under Section 502(a)(3) of ERISA, which provides the following:

    “A civil action may be brought…(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.”

    A suit brought by a fiduciary under 502(a)(3) is preferable since the de novo standard of review, which is less deferential to the party making the initial benefit determination, would apply.  The court determined that the employer was not a plan fiduciary for purposes of making claims determinations, and therefore could not rely on this provision to sue the fiduciary that held such authority (i.e., the insurer). The court noted that even if the employer was considered to be a fiduciary, ERISA does not afford a fiduciary the right to sue if the relief sought can be obtained directly by the participant under 502(a)(1)(B), which provides the following:

    “A civil action may be brought …(1) by a participant or beneficiary… (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan or to clarity his rights to future benefits under the terms of the plan.”

    Thus, an employer’s leverage, if any, to pressure insurers to pay benefits rests with the power to move the business to a different insurer.  Of course, that leverage is significantly impaired if the insurer is not interested in keeping the business.



    Thursday, April 16, 2015

    WellnessOn April 16, the Equal Employment Opportunity Commission (the “EEOC”) finally gave a peek into its thinking about what constitutes a “voluntary” wellness program under the Americans with Disabilities Act (the “ADA”). Recall that, while there are extensive wellness rules under HIPAA and ACA for these types of programs, there was always a gray area with regard to whether these programs were considered “voluntary” for ADA purposes. The EEOC recently started suing companies over their programs and was heavily criticized for doing so without issuing any guidance (aside from a couple of non-binding opinion letters). These proposed regulations are the beginnings of the guidance the critics have requested. While not binding, they are a good starting point for understanding where the EEOC may end up.

    Under the proposed rules, a workplace wellness program will be “voluntary” if:

    1. It does not require employees to participate.
    2. It does not deny coverage under a plan or benefit package for non-participation. It also cannot limit benefits for employees who do not participate.
    3. The employer does not take an adverse employment action against employees (presumably for not participating).
    4. If the program is part of a group health plan, the employer must provide a notice in understandable language that describes the type of medical information that will be obtained, how it will be used, and the restrictions on the disclosure of that information. The notice also must describe the employer representatives and other parties to whom the information will be disclosed and the methods that the employer will use to ensure the information is not improperly disclosed.
    5. The incentive under the program, when combined with the reward for any other wellness program that is part of a group health plan, cannot exceed 30% of the total cost of employee-only coverage under the plan.

    There are a few observations from a review of the proposed rule. First, under the HIPAA rules, the incentive can be up to 30% of the total cost of family coverage if spouses and dependents are eligible to participate in the wellness program. The EEOC’s proposed rules contain no such expansion. It is not clear whether the EEOC feels it does not have jurisdiction over non-employees participating in a health plan or if it is trying to reign in the possible incentives under wellness programs.

    Also, under the ACA wellness rules, the incentive can swell to 50% of the cost of coverage if the program is related to tobacco use cessation. The EEOC noted that a program that merely asks individuals if they are tobacco users is not subject to the ADA because that information is not considered a disability-related inquiry or a medical examination. Therefore, the incentive for that type of program could still go as high as 50% of the cost of coverage. However, if biometric screening (like a blood test) is used to determine the presence of tobacco, then it would be subject to the EEOC’s requirements, when they are finalized.

    Additionally, the second requirement that the program “cannot limit benefits for employees who do not participate” raises a concern for disease management type programs which may provide additional benefits for employees who choose to participate. Usually, those types of programs do not include a penalty for non-participation, but it would be helpful to see a carve-out for these types of programs.

    Fourth, in the preamble, the EEOC takes issue with the opinion in Seff v. Broward County where the court ruled that a wellness program that is part of a group health plan does not have to comply with the “voluntariness” requirement under a separate ADA exception for bona fide benefit plans. The EEOC’s position is that Seff was wrongly decided because that logic would render the “voluntary” exception as irrelevant. However, the EEOC’s analysis fails to recognize that employers can (and do) offer wellness programs to their employee populations, regardless of health plan participation. Therefore, it would not be inconsistent to say that a wellness program that is part of a group health plan satisfies the separate “bona fide benefit plan” exception and one that is available to employees generally must satisfy the “voluntary” exception.

    The EEOC also noted that employers are still required to give reasonable accommodations for employees with disabilities to earn the financial incentives. The EEOC stated that providing a reasonable alternative standard and notice, as required by HIPAA, would likely (although not conclusively) fulfill this obligation. The EEOC also said the ADA requires a reasonable accommodation for participation-only programs (i.e, programs which reward participation regardless of results), even though HIPAA would not require a reasonable alternative standard and notice for those programs. However, the examples include offering a sign language interpreter for a deaf employee who is attending one of the classes, so it is not clear that the EEOC necessarily requires an alternative standard for participation-only programs.

    Comments to the proposed rule are due 60 days after it is published in the Federal Register (which is expected to happen on April 20).

    Tuesday, April 7, 2015

    For many years, medical plan drafting was viewed as a commodity. Insurance companies, third-party administrators and brokers often prepared summary plan descriptions and plan documents for self-insured medical plans using form documents. With the passage of the Affordable Care Act and other health-care related laws, however, medical claims, appeals and litigation have increased exponentially. In many instances, the terms of the plan documents have been outcome-determinative with respect to these disputes. There never has been a better time for an employer to step back and take a comprehensive review of the terms of the employer’s self-insured medical plan document and summary plan description, not only for compliance reasons but also to put the employer in the best position in the event of any dispute. The following are three drafting tips which might be considered during such a review.

    Kitchen SinkAvoiding the “Kitchen Sink” Appeal. Increasingly, our clients have been receiving lengthy appeals of denied claims for benefits. We refer to these epistles as “kitchen sink appeals” because the authors of the letters seemingly throw in everything but the kitchen sink. A typical kitchen sink appeal is prepared on behalf of an out-of-network provider who claims standing to appeal based on an assignment of benefits by a plan participant. A kitchen sink appeal is often a “cut-and paste” compilation of 25 pages or more, usually containing long passages and references to cases which appear to have no bearing whatsoever on the appeal. Usually, only one or two pages of a kitchen sink appeal contain any marginally relevant point, and yet the claims administrator must respond to the appeal in compliance with the strict requirements of the ERISA claims procedures.

    One manner of dealing with these nuisance appeals is to draft the medical plan document to prohibit the assignment of claims to third parties. Courts have uniformly recognized the enforceability of anti-assignment clauses, which are particularly effective in preventing kitchen sink appeals made by out-of-network providers who seek through litigation higher reimbursement amounts than they could negotiate with the plan directly.

    Subrogation Provisions. Medical plans should include carefully drafted subrogation provisions which are informed by Supreme Court precedent in Sereboff v. Mid Atlantic Medical Services, Inc. and U.S. Airways v. McCutchen. For example, a well-drafted subrogation provision will expressly state that the common law “make-whole doctrine” does not apply and will require plan participants to do nothing to prejudice the plan’s subrogation rights.

    On March 30, the Supreme Court announced it would review the Eleventh Circuit’s decision in Board of Trustees of the National Elevator Industrial Health Benefit Plan v. Montanile, another medical plan case involving subrogation. The Supreme Court’s decision in Montanile may further inform best practices in drafting medical plan subrogation provisions in self-funded plans.

    Plan Limitation Periods. The period of time during which a plan participant may bring a lawsuit in connection with a claim for medical benefits is typically governed by the most analogous state statute of limitations, which may be as long as ten years. A medical plan may be drafted, however, to shorten the limitations period for bringing such a lawsuit. Recent cases have upheld such provisions, provided they are reasonable and afford a long enough period of time to file a lawsuit after the administrative appeals process has been completed.

    Thursday, February 12, 2015

    The facts surrounding the Anthem breach continue to evolve as does Anthem’s handling of the situation.

    Based on the current status of the investigation, and Anthem’s current reactions to the incident, there are steps which group health plan sponsors should consider taking to fulfill their own HIPAA and fiduciary obligations with respect to group health plans affected by the Anthem breach. These steps include the following:

    • Have business associate agreements and other relevant documents reviewed to assess the plan sponsor’s rights and obligations with respect to the breach.
    • Request from Anthem:
      • additional information about the breach;
      • confirmation concerning the steps that will be taken to protect the plan sponsor’s employees and affected individuals;
      • more extensive victim protection, client indemnification, and paid notification than Anthem is currently proposing to offer; and
      • confirmation that any state notification requirements will be satisfied on behalf plans and plan sponsors.

    In addition, plan sponsors should continue to monitor ongoing developments so they can modify their own response as appropriate to fulfill their obligations with respect to and protect plan participants.

    Wednesday, February 11, 2015

    If your 2015 New Year’s Resolution was to fully comply with all aspects of California’s New Paid Sick Leave Law, you may already be in trouble. Although the substantive portions of the law do not kick in until July 1, 2015, the deadline for certain notice requirements was January 1, 2015. So, if you haven’t already posted and provided the required notices, the following guidelines are for you:

    Who Must Comply?

    All employers who employ one or more employees who work at least 30 days within a year in California, including part-time, per diem, and temporary employees. (The law provides for some specific, limited exceptions including providers of publicly funded In-Home Support Services; employees covered by collective bargaining agreements with certain specific provisions, and individuals employed by an air carrier as a flight deck or cabin crew member, so long as they are already receiving compensated time off at least equivalent to the requirements of the new law.)

    What Must Be Done?

    Post the required paid sick leave poster in a conspicuous place at the workplace (the required poster can be found at

    Provide every employee with an individualized notice to employee (Cal. Labor Code § 2810.5, a form of the notice can be found at

    Optional Steps?

    Revise company handbooks/policy manuals to include paid sick leave policy (also, revise related policies affected by the new law, including any domestic violence leave policy and possible revisions of FMLA/CFRA policies)


    January 1, 2015 (so if it isn’t done, you’d better get moving)

    Keep watching because in the next few weeks, we’ll be providing further direction on how to fully comply with the substantive portions of California’s new paid sick leave law—the Healthy Workplaces/Healthy Families of 2014.

    Thursday, February 5, 2015

    Security ThreatAs has now been widely reported, Anthem, Inc. was the unfortunate target of a cyber-attack potentially impacting 80 million current and former customers. Some reports have indicated that the HIPAA breach notification rules will not apply to this breach. However, the information stolen appears to include individually identifiable information, potentially including health plan enrollment information. Enrollment information, in the hands of a health plan, is protected health information (PHI), so it is possible that the HIPAA data breach notification rules are applicable. As such, both insured and self-funded customers utilizing Anthem as their TPA should review information concerning the Anthem breach carefully before concluding that the HIPAA breach notification rules do not apply.

    Additionally, given that claims for other Blue Cross Blue Shield customers may have been submitted through Anthem for employees and dependents in an Anthem service area, it is possible that Anthem has information on individuals who are not Anthem customers, but are customers of other Blue plans. Therefore, customers of any Blue Cross Blue Shield insurer should reach out to their contacts to ensure they are not affected.

    If the HIPAA breach rules do apply, then Anthem and other Blue customers should also carefully review their applicable business associate agreements. Those agreements should outline the obligations of the Blue Cross entity and the plan administrator (which is often the company) in providing notification to affected individuals.

    Finally, while we mostly focus on the benefits issues under federal law, it’s is also important not to neglect state law. States have their own data breach laws that could be applicable to this breach as well, as described in this short bulletin.

    Wednesday, February 4, 2015

    ReviewMistakes on your plan’s Form 5500 create a nice target for the Internal Revenue Service’s auditors. In its February 2, 2015 edition of Employee Plans News, the Internal Revenue Service explains that entering incorrect information or leaving a blank in a required field increases the likelihood you’re your plan will be selected for a compliance check.

    The IRS provides a helpful list of common mistakes on the Form 5500:

    • Number of Participants – Sponsors leave this field blank or enter zero when there are in fact assets and participants in the plan.
    • Plan Terminations – Sponsors mark the 5500 to show they terminated the plan or adopted a resolution to terminate it, but the plan is still in existence. While the resolution starts the termination process, the plan is not terminated for 5500 purposes until the plan has a zero balance. Many plans that checked the box showing they were terminated did not reflect zero assets on the last day of the year of termination.
    • Fraud – On the line requesting whether the plan lost money due to fraud, many plan sponsors enter the amount of the fidelity bond held by the plan, when this line should (hopefully) be blank.
    • Frozen Plans – Sponsors listed pension code 1l, which applies to frozen defined benefit plans, when the plan wasn’t a defined benefit plan or frozen.

    IRS Tips:

    • Read each item and then read the instructions for that line. Don’t assume you know what information is being requested.
    • Do not copy information from the prior year’s 5500 without first reviewing each item carefully to ensure you didn’t put information in the wrong box, leave an entry blank that should have information, or use an incorrect code.
    • If you rely on a third party to prepare the 5500, carefully review it before submitting it.
    • Consult with a benefits professional to institute sufficient administrative procedures to prevent mistakes on the 5500 and other informational returns.

    If you find a mistake on your Form 5500, file an amended return as soon as possible. Digging into the issues presented in the Form 5500 can also help uncover operational errors, which should also be fixed in accordance with the IRS’ Employee Plans Compliance Resolution System (EPCRS) as soon as discovered.

    While not covered in the IRS publication, employers should also note that 5500 errors are a source of Department of Labor investigations as well. In our experience, this is most often conducted as a “desk investigation” where the DOL sends a letter asking for clarification or correction of the Form 5500, but can sometimes result in a full-scale investigation.

    The bottom line: do not to give the IRS or DOL “easy meat” by filling out your 5500s incorrectly.

    Tuesday, February 3, 2015


    The death knell for the so-called “Yard-Man Inference” has sounded. If you think we’re being a little dramatic – OK, maybe you’re right – we have a tendency to get a little too worked up about employee benefits cases that make it to the Supreme Court. But, in any event, last week the Supreme Court resolved a circuit split and overturned the Yard-Man Inference with its decision in M&G Polymers USA, LLC v. Tackett.


    The Yard-Man Inference is named for the important retiree benefits decision handed down in 1983 in International Union et. al. v. Yard-Man, Inc., 716 F.2d 1476. In that case, the Sixth Circuit applied a presumption of vesting of retiree medical benefits in the absence of a termination provision in a collective bargaining agreement. You can read more about the original Yard-Man case in our earlier post on the case.

    In M&G Polymers, the Supreme Court found that Yard-Man improperly “plac[es] a thumb on the scale in favor of vested retiree benefits” and “distorts the intent to ascertain the intention of the parties” with respect to the collective bargaining agreement. The unanimous opinion authored by Justice Thomas held that the Sixth Circuit’s reliance on Yard-Man is “incompatible with ordinary principles of contract law.”

    The collective bargaining agreement at issue provided for retiree health care benefits and provided that retirees with a certain level of service would receive a full company contribution toward the cost of health care benefits. The agreement also provided that “for the duration of [the] Agreement…the Employer will provide [medical benefits].” The duration of the agreement was three years.

    The retirees alleged that the company had promised them lifetime health care benefits with no required contribution in the collective bargaining agreement, and that M&G had created a vested right to those benefits through the agreement. Once the case made its way to the Supreme Court, the Court was faced squarely with whether to approve or reject the Yard-Man presumption once and for all.

    In the Supreme Court opinion, Justice Thomas noted that “[a]lthough ERISA imposes elaborate minimum funding and vesting standards for pension plans…it explicitly exempts welfare benefits plans from those rules…” He quoted the 2013 Heimeshoff opinion and noted that “…the rule that contractual provisions ordinarily should be enforced as written is especially appropriate when enforcing an ERISA welfare benefits plan” (internal citations omitted). Justice Thomas concluded that the Sixth Circuit court had improperly “…derived its assessment…from its own suppositions about the intentions of employees, unions, and employers negotiating employee benefits…” and had “…failed even to consider the traditional principle[s] that courts should not construe ambiguous writings to create lifetime promises…[and that] contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement” (internal citations omitted). The M&G case was remanded with directions for the reviewing court to apply “ordinary principles of contract law in the first instance.”

    The concurrence authored by Justice Ginsburg and joined by Justices Breyer, Sotomayor and Kagan stressed that vesting does not require “clear and express” language, but rather may arise from “implied terms of the agreement.” The Sixth Circuit may “turn to extrinsic evidence – for example, the parties’ bargaining history,” she wrote, “if the [Court] concludes the contract is ambiguous.” Notably, Justice Thomas’ opinion did not make mention of the introduction of parol evidence in interpreting ambiguous contract terms, although such evidence is widely considered admissible when the terms of a contract are ambiguous. What, if anything, do you make of this? Please leave your comments below.

    This decision from the High Court reiterates the benefit of clear language in contracts and plan documents with respect to vesting and/or possible termination of regarding retiree health and welfare benefits to help avoid litigation, even without the Yard-Man inference.