Firms that cut workforces or reduce full-time employees’ hours to avoid health care reform’s employer mandate could have to defend against allegations of ERISA violations, a prominent law firm explains.
In other news, U.S. Department of Health and Human Services Secretary Kathleen Sebelius ordered an Office of Inspector General investigation into the problems contributing to the poor early phase launch of the health care reform website Healthcare.gov. She also appeared before a house committee on Dec. 11 to argue that the website had turned a corner, enrolling much more people in November than it had in the previous month.
A survey of 500 businesses shows employers are mistrustful of health care reform because it shows no sign of reducing cost or improving the quality of health care they pay for. The view is even dimmer because employers desire health care transparency of prices (which reform has not improved, some critics say), and because business has an extremely low opinion of government’s capability to provide information about its programs and rules.
And criticism of reform came from patient advocates, who pointed out that health plans sold on federal- and state-run exchanges are skimping on drug benefits for serious chronic illnesses like AIDS, multiple sclerosis and cancer. The result is higher out of pocket costs for people with the worst illnesses, advocates say.
Workforce Realignments to Avoid Reform Mandate Might Violate ERISA
A strategy of reducing employee hours potentially exposes employers to liability under ERISA Section 510, which prohibits interfering with employees’ rights to present and future benefits, the law firm Epstein Becker & Green reports.
Some employers report that they are cutting workers hours so those workers will not fall under reform’s 30-hour definition of full-time worker, and the employer will not have to offer health coverage to those workers. But employers may face discrimination and retaliation complaints for following such a strategy, attorneys Kara Maciel and Adam Solander write.
Employees who averaged 30 hours or more a week previously and whose employer reduced their workload below 30 hours per week in response to the employer mandate might argue that the change was intended to deny them health coverage they are entitled to under ERISA.
It is important for employers to understand the claims that may be brought against them and the steps that maybe taken to reduce the chance of such claims succeeding. ERISA Section 510 is enforced through the civil enforcement framework laid out in ERISA Section 502. Depending upon the nature of the action, ERISA Section 502 allows for both private parties as well the Secretary of Labor to bring civil actions to enforce ERISA.
Typically, plaintiffs bringing ERISA Section 510 (nondiscrimination, no retaliation) claims seek redress under the first and third options above. Under these options, monetary relief is limited. The first option restricts potential monetary relief to benefits due under the plan. However, section 502(a)(3), the provision for “other appropriate equitable relief” in cases where benefits due under the plan do not cover claimed losses, is also available. The interpretation of the third option has been the subject of considerable legal debate. In CIGNA Corp. v. Amara, the Supreme Court indicated that such equitable relief may include monetary relief, which would not necessarily be limited to the value of a lost plan benefit. Enforcement actions could involve:
A participant or beneficiary may bring a civil action to recover benefits due to him under ERISA’s enforcement provisions.
The U.S. Department of Labor, a participant, a beneficiary, or a fiduciary may bring an action against a fiduciary for breach of fiduciary duty.
A participant, beneficiary, fiduciary or DOL may bring an action to: (a) enjoin any act or practice which violates ERISA or the terms of the plan; or (b) obtain other appropriate equitable relief to redress violations or enforce any provisions of ERISA or the plan terms.
HHS/OIG Investigation of HealthCare.gov Contractors
After taking stock of the flawed launch of Healthcare.gov, HHS Secretary Kathleen Sebelius announced that the agency has launched an OIG investigation into the problems.
In a Dec. 11 blog post, Sebelius said the investigation would delve into the managerial and contractor performance that led to the flawed launch of HealthCare.gov. She ordered HHS Inspector General Dan Levinsonto investigate the acquisition process, overall program management, and contractor performance and payment issues. The Centers for Medicare and Medicaid Services will create a new risk officer to address risk management in large-scale contracting and IT acquisition projects and take action to ensure best practices for vendor management, she said.
House Chairman: More Coverage Lost than Gained
More people lost coverage so far due to policies not complying with essential health benefits and other coverage requirements, than have signed up for new coverage, said Health Subcommittee Chairman Joe Pitts, R-Pa., during a Dec. 11House Energy & Commerce hearing. said
Sebelius said 365,000 Americans enrolled in through the end of November, but under questioning from Pitts, she said that number was rough; premiums had not been paid, because those do not have to be paid until mid-December. CMS released the news in a Dec. 11 enrollment report.
Sebelius said the government is implementing “hundreds of software fixes, hardware upgrades and continuous monitoring” to improve website performance. She said site capacity was improved, responses to traffic were faster, and the site created far fewer errors. The website can handle 50,000 concurrent visitors and 800,000 people per day, she said.
Pitts countered by citing the government’s target enrollment number of 3.3 million by the end of December. Pitts claimed saying 5.6 million people in small-group and individual policies had their “skinny” policies cancelled, because they didn’t match health care reform tests. Sebelius and her allies on the committee, including Henry Waxman, D-Calif., said that having to change coverage to include more coverage is not the same as losing coverage.
Sebelius said four times more people enrolled in Obamacare in November 2013 than did so in October. The website also helped up to 2 million people get eligibility determination for ultimate enrollment in Medicaid or children’s health insurance program coverage, she said.
Even though the SHOP (small business health options) website functionality would prevent on-line sign-ups for small-group coverage, tax credits are still in place to get small business enrolled.
Employers Have Bleak Outlook on Reform, Deloitte Survey Shows
Employers have a bleak outlook about health care reform preparedness, health care cost containment strategies and the U.S. health care system's overall performance, according to a new web-based survey of 500 employers with 50 or more employees randomly selected by the Deloitte Center for Health Solutions.
The law’s overhaul of the health insurance system has many employers confused about the cost implications of reform implementation, and that is due in part to the government’s own defective roll-out of implementation guidance and enrollment systems, according to Deloitte.
While the reform law will eventually boost insurance access, the law shows few signs of improving quality or reducing costs, respondents said.
Smaller companies were less supportive of the law, Deloitte found. While about half of larger companies (over 1,000 employees) feel that the health care reform law is a “good start,” just under half disagreed. Smaller employers did not favor the law, with more than 50 percent of medium-size and small employers saying it is a “step in the wrong direction.”
The Deloitte survey found 54 percent of the employers increased employee cost sharing to curb health care costs. And 36 percent are implementing employee wellness programs to the same end, but few evaluate the return on investment of these initiatives or analyze subsequent claims data to drive decision-making.
Employers recognize that the health care system fails to meet their needs for information transparency, price transparency and better value, according to the results. Employers view the U.S. health care system as underperforming, expensive, and wasteful, Deloitte reported.
2014 and 2015 be the year many employers will make their final decision regarding their health plans under health care reform. As reform continues to unfold (assuming costs continue to rise), some employers may decide to no longer provide health coverage to employees, while others may continue providing benefits but under different models, Deloitte noted. For details on the employer mandate to provide coverage or pay a penalty, go to Section 410 of The New Health Care Reform Law: What Employers Need to Know.
Exchange Plans Could Be Shortchanging Chronically Ill on Drug Coverage
Health care reform is drawing the ire of advocates for patients with chronic diseases, who complain that health plans on the exchanges charge these patients higher out of pocket costs for treating chronic conditions than their previous employer plans and don’t cover important drugs used in disease-specific care.
On the one hand the health care reform law will insure millions more Americans and guarantees coverage of essential health services, but to pay for this expansion of coverage, some insurers are trying to keep chronically ill patients away from their plans, according to recent published reports.They are doing this by limiting reimbursement for a number of specialty drugs to treat chronic conditions, such as AIDS, MS, rheumatoid arthritis and cancer. (Patients said also that the doctors working on their chronic conditions are not in-network with many exchange plans.)
In a new letter, HIV Health Care Access Working Group voiced concern about exchange policies not covering some of the most effective and accepted drug treatments for HIV. “[They] are not covering HIV medications recommended by the HHS, including the single tablet regimens that promote adherence and result in lower medical costs.”
In an Oct. 18 letter, the group argued that many exchange insurance plans did not cover the single-tablet-regimen pills and other standard frontline treatments for HIV. For more information about coverage sold on health care reform exchanges, see Section 810 of the The New Health Care Reform Law: What Employers Need to Know.
Elsewhere, an analysis (by Avalere Health, a consulting company focusing on federal health programs) of health plans sold on federal and state exchanges showed that many people with chronic illnesses could pay high out-of-pocket costs, and face increased specialty drug payments.
A Dec. 9 article in the Washington Post described nonmonetary drug plan policies designed to curb utilization of expensive drugs: “The plans are curbing their lists of covered drugs and limiting quantities, requiring prior authorizations and insisting on ‘fail first’ or ‘step therapy’ protocols that compel doctors to prescribe a certain drug first before moving on to another — even if it’s not the physician’s and patient’s drug of choice.”
Winter has started in earnest. Snow and ice storms marched across many parts of the country this week, providing a timely reminder that this time of year employers need to be especially mindful of the Fair Labor Standard Act’s working time provisions.
Employers need to make sure they have proper procedures and policies in place before the snowflakes fall so that both managers and employees know what to expect when the weather inevitably takes a turn for the worse.
When bad weather hits, an office closure may be necessary to ensure that workers are safe. In the telework age that does not always mean your workers have the day off, but it can be complicated. The rules for how bad weather impacts your workers vary depending on several factors, including whether a specific employee is considered exempt or nonexempt. (See Tab 200 in Fair Labor Standards for Private Employers or Tab 200 in Fair Labor Standards for Public Employers for a full explanation of exempt and nonexempt employees.)
If an exempt employee is ready, willing and able to work, but is prevented from doing so by an employer decision — for example, closing the office because of bad weather — his or her pay may not be docked, according to U.S. Department of Labor guidance.
Arguably an employer may require exempt employees to use vacation or accrued leave for the inclement weather closure. The FLSA does not require employers to provide paid-time-off. Employees must be paid, but the pool the money is drawn from does not matter.
If an office is closed for a full week due to bad weather, exempt employees do not need to be paid. DOL specifies that employees do not need to be paid for any workweek in which they perform no work. However, if an exempt or nonexempt employee performs work while they are at home due to an office closure they must be paid for a full day. Here’s where telework makes things a little tricky.
Nonexempt employees operate under different rules. Generally hourly nonexempt employees need only be paid for actual working time (unless they are covered by a contract that explicitly requires otherwise). Nonexempt, salaried employees (such as workers whose overtime is calculated using the fluctuating workweek method) on the other hand must be paid for the day.
Office Is Open, but Employees Can’t Make it In
If the weather is not bad enough for the office to fully close, but an employee is absent because of the inclement weather, he is considered to be absent for personal reasons under the FLSA. The employee may be placed on leave without pay for the days he fails to report to work due to events such as heavy snow.
Again, employers must be aware of telework, however. If the exempt employee does some work from home he must be paid. Even if he spends some time during part of the day having a snowball fight with his kids, if he performed work for his employer his salary may not be docked. The employer may require the employee to use vacation or accrued leave for the part of the day when he was not working, but time spent working must be compensated.
Nonexempt workers who cannot make it into an open office because of bad weather do not need to be paid for their time, since they are only compensated for actual hours worked.
If the weather takes a turn for the worse while employees are already in the office and an employer chooses to close early, exempt employees still must be paid a full day’s wages. Here again, however, they may be required to use vacation or accrued leave for the time the office will be closed.
The employer does not need to pay nonexempt employees for the full day, but they must be paid for all hours actually worked.
Employers have some flexibility in how they handle office closures due to bad weather. Legally they are permitted to use employees’ vacation or other accrued time to cover the hours the employee is not working. That may not be the most prudent course for an employer that wants to avoid a disgruntled workforce, but generally speaking it is allowed. Telework offers an increasingly common middle ground, allowing workers to avoid dangerous travel conditions, without negatively affecting their employers’ day-to-day-operations. Employers should make sure they have a clear policy spelling out how they will handle all these situations (including a clear telework policy) before they arise.
For a full discussion of inclement weather considerations, including questions about commuting time and what to do if employees get stuck in the office, see “Commonly Asked Questions About Working Time,” ¶690 in Fair Labor Standards for Private Employers and ¶499 in Fair Labor Standards for Public Employers.
Employers whose employees use their own vehicles on business can now adjust their reimbursement forms and procedures for 2014, since the IRS released the standard mileage rates for the year in Notice 2013-80 on Dec. 6.
The IRS also adjusted the reimbursement rate for miles driven for medical purposes or a relocation, also by half a penny.
The standard mileage rates beginning Jan. 1, 2014 are:
56 cents per mile for business miles driven (down from 56.5 cents in 2013);
23.5 cents per mile driven for medical purposes or relocation (down from 24 cents); and
14 cents per mile driven in service of charitable organizations (unchanged).
The revised rates reflect decreases in costs related to driving, including the cost of gasoline and the cost of insurance. Changes in the depreciation rate of vehicles also factor into the yearly adjustment.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Revenue Procedure 2010-51 provides the rules for computing the deductible costs of operating an automobile for business, charitable, medical or relocation expenses; and for substantiating the expenses under Code Section 274(d) and Treas. Reg. §1.274-5. Employers using the standard mileage rates must comply with Rev. Proc. 2010-51. (See ¶822 and ¶841 of the Guide to Fringe Benefits Rules for more on the cents-per-mile rule and the use of mileage plans, respectively.)
Employers can require that workers arbitrate all employment disputes and that they do so individually, a federal appeals court has ruled, vacating the National Labor Relations Board’s decision in D.R. Horton v. National Labor Relations Board, No. 12-60031 (5th Cir. Dec. 3, 2013).
Facts of the Case
D.R. Horton, a home builder, required all new hires to sign an arbitration agreement. It stated that Horton and its employees “voluntarily waive all rights to trial in court before a judge or jury on all claims between them” and agree that all disputes would “be determined exclusively by final and binding arbitration. It also said that “the arbitrator [would] not have the authority to consolidate the claims of other employees” and would “not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding.”
In other words, employees were barred from filing individual or collective claims in court and from pursuing collective arbitration. Their only option was individual arbitration.
When a group of employees wanted to file a Fair Labor Standards Act claim, alleging that they were misclassified as exempt from the law’s overtime provisions, Horton would only allow them to arbitrate their claims individually. The lead plaintiff filed an unfair labor practice charge, alleging that the waiver violated the National Labor Relations Act.
NLRB agreed with the employees, finding that the agreement violated Sections 7 and 8(a)(1) of NLRA because it required employees to waive their right to pursue collective employment-related actions (D.R. Horton, 357 NLRB No. 184 (Jan. 3, 2012)).
Section 7 states that employees “shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection[.]” (29 U.S.C. §157) By requiring employees to refrain from collective or class claims, the arbitration agreement infringed on the substantive rights protected by Section 7, the Board found.
Section 8(a)(1) states that “[i]t shall be an unfair labor practice for an employer … to interfere with, restrain, or coerce employees in the exercise of [their] rights.” (29 U.S.C. §158(a)) Horton committed an unfair labor practice by requiring employees to agree not to act in concert in administrative and judicial proceedings, the Board said.
Because these interpretations conflicted with the Federal Arbitration Act — a law designed to protect arbitration agreements — the Board determined that NLRA trumps FAA.
5th Circuit Weighs in
Horton appealed to the 5th Circuit, arguing that the ability to adjudicate claims collectively is not a “substantive right” granted by NLRA. Additionally, NLRA does not override FAA, it alleged. Therefore, the Board’s interpretations of Sections 7 and 8(a)(1) conflict with FAA by prohibiting the enforcement of an arbitration agreement, the employer alleged.
The appeals court agreed with Horton. “The use of class action procedures … is not a substantive right,” the court said, citing Supreme Court precedent. Furthermore, “there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA,” it said. That law requires that waivers be enforced, with limited exceptions not applicable in Horton.
The appeals court did, however, find that the waiver could create the impression that employees are waiving not just trial rights, but administrative rights as well. It upheld the Board’s earlier order for Horton to revise the language.
The Board may ask the Supreme Court to hear the case. However, it’s important to note that NLRB’s decision could be vacated completely depending on the outcome of another case currently before the Court.
NLRB asked the Court to review a federal appeals court ruling that President Obama’s January 2012 recess appointments to the board were unconstitutional (Noel Canning v. National Labor Relations Board, No. 12-1115 and 12-1153 (Jan. 25, 2013)).
In January 2013, the U.S. Court of Appeals for the District of Columbia invalidated a ruling the NLRB made 11 months earlier in a case involving a routine dispute between the International Brotherhood of Teamsters and Noel Canning, a Pepsi-Cola bottler in Washington. Agreeing with the employer, the appeals court determined that the NLRB was not authorized to rule because the recess appointees were made during a Senate recess, not between two enumerated sessions of Congress, as the U.S. Constitution requires. Rather, the presiding panel was comprised of only one Senate-confirmed member and thus, did not constitute the required quorum, the court found.
According to NLRB, it has been long-standing practice for the president to make appointments while the Senate is in recess, “regardless of whether the recess occurs between two enumerated sessions of Congress or during a session, and regardless of when the vacancies first arose.”
If the High Court deems the appointment unconstitutional, it would call into question “every order issued by the National Labor Relations Board since Jan. 4, 2012” as well as decisions made by other federal agencies that also have been staffed by recess appointees, according to NLRB.
The U.S. Department of Labor has sued a New Mexico tea room, alleging that it owes 42 employees more than $300,000 in back pay, overtime and damages. The employer maintained an invalid tip pool, failed to pay proper overtime and violated the Fair Labor Standards Act’s recordkeeping requirements, the suit alleges. In another case involving a tip pool, the 2nd U.S. Circuit Court of Appeals has determined that Starbucks shift managers in New York can participate in tip pools because they do not have meaningful control over other workers. And in Georgia, a federal district court found that cable installers who were paid a “piece rate” for work performed were not entitled to overtime under FLSA.
DOL Sues Restaurant, Seeking $304,000 in Back Pay
DOL has sued a New Mexico restaurant, alleging that it owes 42 employees $304,000 in unpaid minimum wages, overtime and damages.
A Wage and Hour Division investigation revealed that St. James Tearoom Inc. violated FLSA’s minimum wage, overtime and recordkeeping provisions. The company required that its dishwashers and serving staff join a tip pool, which resulted in minimum wage violations, according to DOL. The mandatory tip pool included salaried managers, shift leaders, dishwashers and other employees who are not eligible for tip pools, the department has alleged. DOL says the company also failed to pay servers proper overtime and failed to keep accurate records of employees’ hours.
FLSA allows employers to consider tips as part of wages, but the employer must pay at least $2.13 per hour in direct wages, the department explained in a press release. If an employee’s tips, combined with the employer’s direct wages of at least $2.13 an hour do not equal the minimum hourly wage, the employer must make up the difference. Employees must retain all their tips, unless they are part of a valid tip pool, DOL said.
“This lawsuit demonstrates that the department is fully committed to using all enforcement tools at its disposal to ensure that workers are paid all wages due under the laws we enforce,” said Cynthia Watson, a WHD regional administrator, in a statement. The suit was filed in the U.S. District Court for the District of New Mexico.
Starbucks Managers May Participate in Tip Pools, 2nd Circuit Rules
Shift managers at Starbucks may participate in tip pools, the 2nd Circuit has ruled, upholding summary judgment for the company.
The New York Labor Law states that employers and their agents cannot accept any money that was meant to be a gratuity for an employee. The plaintiff alleged that this provision bars any employee with even the slightest degree of supervisory responsibility from sharing tips.
The court rejected that theory, holding that tip sharing “should be limited to employees who, like waiters and busboys, are ordinarily engaged in personal customer service, a rule that comports with the expectations of the reasonable customer.” An employee whose personal service to patrons is a principal part of his or her duties may participate in a tip pool, even if that employee possesses some supervisory responsibilities, the court continued.
It cautioned, however, that if the degree of managerial responsibility becomes so substantial that the individual can no longer fairly be characterized as an employee similar to general wait staff, then they cannot participate in tip pools. “[T]he line should be drawn at meaningful or significant authority or control over subordinates,” the court said, noting that this might include disciplining subordinates; assisting in hiring, firing or performance evaluations; or having input in the creation of employee work schedules.
Starbucks shift managers have limited supervisory duties, the court said. Considering that together with the shift supervisors’ “principal” responsibilities to provide “personal service to patrons,” they do not have meaningful authority over subordinates, the court said, upholding the lower court’s summary judgment for Starbucks in Barenboim v. Starbucks Corp., No. 10-4912-cv (2nd Cir. Nov. 21, 2013)
‘Piece Rate’ For Cable Installers Did Not Violate FLSA, Court Rules
Paying cable installers a “piece rate” — or a set rate for each job performed — was a permissible “commission” under FLSA, the U.S. District Court for Middle District of Georgia has ruled.
A cable installer filed suit again Tucker Communications on behalf of himself and 146 other workers. He alleged that the “piece rate” arrangement violated FLSA because they were not paid overtime.
The court, however, found that FLSA’s “7(i) exception” (29 USC §207(i)), which applies to retail and service establishments, exempted Jones and the other workers from the law’s overtime requirements. It states that overtime need not be paid if: (1) the regular rate of pay of such employee is in excess of one and one-half times the minimum wage; and (2) more than half his compensation for a representative period (not less than one month) represents commissions on goods or services. The cable installers met both requirements.
Jones disputed that the workers were paid on a commission basis, but the employer showed that their pay was incentive-based. They started the day with a list of assignments but if they worked quickly, they could receive more assignments and more pay. Because the payment system incentivized employees to work more efficiently and effectively to the benefit of both the employee and the employer, the exemption was met, the court concluded in Jones v. Tucker Communications, Inc., No. 5:11-CV-398 (MTT) (M.D. Ga. Nov. 18, 2013).
Does your company provide cellular telephones or portable electronic devices to employees for business purposes? Do you send employees on business trips? If you said “yes” to both questions, then you know that company-provided cell phones and PEDs, as well as company-paid air fare, are common working condition fringe benefits. And most everyone knows that if an employee happens to have both of these perks they face tight restrictions on how, and even whether, they can use one of them — cell phones and other PEDs — while availing themselves of the other — flying. That’s because U.S. regulations still bar passengers from making voice calls while airborne and until recently, flight safety rules have put severe restrictions on how passengers can use any type of PED, including wireless phones, in-flight. But that may be changing.
The Rules As They Stand Now
The U.S. Federal Communication Commission bars airlines from allowing passengers to talk on cell phones during commercial flight; and the U.S. Department of Transportation’s Federal Aviation Administration imposes safety restrictions that apply to cell phones as part of the larger universe of devices, which both agencies refer to as “portable electronic devices,” or PEDs.
One Rule Change and One Proposal
But thanks to a recent determination from the FAA, airlines have started to relax their rules on the use of PEDs in “airplane mode” — that is, without transmitting or receiving voice or data. Voice calls and in-air data transmission are still unsettled issues.
Whatever happens, passengers on all flights will still have to stow heavier electronics, like laptop computers, during take-off and landing, even though they may be permitted to use lightweight PEDs — like e-readers, tablets, smartphones and MP3 players — from gate to gate without interruption, including during take-off and landing.
Separately from the FAA development, the FCC announced on Nov. 21 that it would, on Dec. 12, consider lifting its ban on airline passengers making in-flight voice calls and using their PEDs to transmit and receive data. While that action, if the FCC approves it, would not automatically lead to in-flight phone calls, it would pave the way for airlines to begin allowing them. Not that they are planning to — several airlines say they do not intend to change their policies on voice calls aloft.
The FCC announcement met with a barrage of protests from the public. FCC Chairman Tom Wheeler reported that his inbox was flooded with emails from people who did not want to listen to their seatmate conduct phone conversations in the close confines of an airplane cabin.
Related but Separate
The FCC, in an online Q&A, said the public “should not be confused with the FAA's recent rule change on Portable Electronic Devices (PEDs),” but that the two agencies were working together. (See Box 1.)
Airlines Will Decide
Wheeler, in response to the negative public feedback about allowing voice calls in airplanes, was quick to point out that each individual airline would make the ultimate decision on whether to allow passengers to talk on the phone in-flight. (Some non-U.S. carriers already permit it.) Some of the largest domestic airlines — including UnitedContinental Holdings, which operates United Airlines — have said that their customers have already voiced a negative opinion about letting fellow passengers chat it up on the phone in-flight. At least one major airline, Delta, said definitively on its website that it would not be allowing passengers to make calls aboard its domestic flights even if the FCC were to allow it (see Box 2).
United Airlines said in a Nov. 6 press release that it is “now offering its customers electronics-friendly cabins on all domestic mainline flights,” since the airline said it received “approval from the FAA to begin allowing passengers use of their [PEDs] during all phases of flight,” adding that it would immediately implement the change. In the release, United did not mention the prospective change on cell phone calls onboard its aircraft, depending on what action the FCC takes Dec. 12. But in an email to Thompson Information Services, a United spokesman said, “Our customers have expressed concern about how the use of cellphones inflight will impact their experience onboard. When the FCC makes a proposal available, we will study it along with feedback from customers and crews.”
Flight Attendant Opposition
A union that represents flight attendants, the Association of Flight Attendants-CWA, opposes allowing voice calls on planes, saying that “passengers overwhelmingly reject cell phone use in the aircraft cabin. The FCC should not proceed with this proposal.”
The union issued a statement Nov. 21, that stated, “Flight Attendants, as first responders and the last line of defense in our nation’s aviation system, understand the importance of maintaining a calm cabin environment. Any situation that is loud, divisive, and possibly disruptive is not only unwelcome but also unsafe.”
Voice and Data — All or Nothing Proposition?
Nick Bilton, blogging for The New York Times, cautioned readers that they should “think carefully” when it comes to protesting voice use of cell phones in airplanes. “Say no to cellphone use,” he wrote,” and you lose that data connection on your iPad and smartphone at 30,000 feet. And that’s what many of you have been asking for all along.” The blog appears in the Dec. 2 print edition of the newspaper.
But is it an all-or-nothing proposition? The FCC’s Q&A states, “We understand that many passengers would prefer that voice calls not be made on airplanes. Ultimately, if the FCC adopts new rules, it will be the airlines’ decision, in consultation with their customers whether to permit the use of data, text and/or voice services while airborne.” (Emphasis added.)
‘Words with Friends’ Not the Same as ‘Conversations with Friends’
Sen. Edward Markey, D-Mass., a member of the Commerce, Science and Transportation Committee, which has jurisdiction over the FCC, voiced reservations about allowing calls aloft, although he acknowledged the other benefits of using PEDs aboard flights. “Playing ‘Words with Friends’ is different than passengers having lengthy, loud ‘conversations with friends’ while in the tight, inescapable confines of an airline passenger cabin,” he said in a prepared statement. “Consumers could benefit from access to email, texts, and related functions of their phones while in flight, but it’s clear that many have concerns about the atmosphere in airline cabins if unfettered phone conversations were permitted.”
FCC on Coordinating with FAA
The FCC said, "The FCC works very closely with FAA and will continue to do so through this process. The choice about whether to deploy such services would be made by individual airlines, consistent with FAA rules. This should not be confused with the FAA's recent rule change on Portable Electronic Devices (PEDs): The FAA has determined that airlines can safely expand passenger use of PEDs during all phases of flight, and provided the airlines with guidance. The FCC's proposal relates to mobile operations above 10,000 feet."
Customers may use AM/FM or satellite radios; digital and video cameras; calculators; Delta-installed equipment such as in-flight entertainment systems; DVD players; e-readers; electric shavers; electronic/digital watches; global positioning system (GPS) receivers; handheld computer games; headphones; laptop computers; medical devices; noise reduction headphones; portable media players; pagers, tablets and wireless keyboards or mouse from gate to gate on Delta flights within the U.S. Pagers, smartphones and any device with cellular network service must be turned off or in airplane mode.
On voice calls
In a Q&A published on the airline’s website (see “source” below) Delta responds to the question, “If the FCC changes its policy, will Delta allow voice communications on flights?” as follows: No. Delta has years of customer feedback on the impact on the customer experience and voice communications and the overwhelming sentiment is to continue with a policy that would not allow voice communications while in flight.
Source: Q&A at http://news.delta.com/index.php?s=18&item=176.
On PED use
United Airlines issued a Nov. 6 statement reacting to the FAA’s approval to let airlines begin allowing passengers to use their portable electronic devices during all phases of flight: “With this change, United customers can safely use their lightweight, hand-held electronic devices — such as tablets, e-readers, games and smartphones — in non-transmitting mode from gate-to-gate, unless instructed otherwise by a crew member.”
On voice calls
A United spokesman wrote in an email to Thompson Information Services, “Our customers have expressed concern about how the use of cellphones inflight will impact their experience onboard. When the FCC makes a proposal available, we will study it along with feedback from customers and crews.”
A brief from the U.S. Solicitor General recommending that the U.S. Supreme Court hear a “stock-drop” class-action case could make it the most important ERISA litigation of the High Court’s current term. Employee benefits attorneys watching the case’s progress say a High Court decision could deter employers from offering employer stock as a 401(k) plan investment option.
In recent years, increased litigation by plan participants has emerged over whether plan sponsors breached their fiduciary duty under ERISA when company stock offered in defined contribution plans falls and participant retirement accounts lose value. Federal circuit courts of appeal and district courts around the United States have supported employers in these cases, so a High Court decision would clarify whether participants have a right to sue over sharp company-stock declines.
Many plan sponsors claim that making employee stock ownership plans part of their DC plans is a matter of plan design, not fiduciary discretion, but a series of lawsuits by participants has challenged that position.
Ruling in Favor of Plaintiffs
The case the solicitor general proposes the High Court hear reversed the trend toward plan sponsor support. In September 2012, the 6th U.S. Circuit Court of Appeals in Cincinnati ruled in favor of the plaintiffs in Dudenhoeffer v. Fifth Third, No. 11-3012 (6th Cir., Sept. 5, 2012), saying that the “presumption of prudence,” also known as the Moench presumption, does not apply at the initial stages of a stock-drop case. (See October 2012 story.) Sixth Circuit judges have a record of decisions favorable to ERISA class-action plaintiffs alleging breaches of fiduciary duty.
On Nov. 12, 2013, the Solicitor General’s Office, at the High Court’s request and on behalf of the U.S. Department of Labor, filed a friend-of-the-court brief seeking a petition for certiorari in Fifth Third v. Dudenhoeffer (No. 12-751) so that the Court can consider two key issues:
whether the 1995 Moench presumption, which provides a legal shield for plan sponsors’ investment decisions, applies at the early stage, when a complaint is filed; and
The solicitor general suggests the Supreme Court reframe these questions, rule that ESOPs are subject to divestment and prudence review, and indicate that the presumption of prudence is not a given in stock-drop cases. The brief contends ERISA does not guarantee such protection for plan sponsors’ investment decisions “at any stage of the proceedings.” It does not recommend the Court hear the second point on SPDs, arguing that it’s clear they are fiduciary communications.
In this case, the stock value of Fifth Third plunged between 2007 and 2009 by 74 percent as a result of the large bank’s subprime lending. Plaintiffs claim plan sponsors should have foreseen the drop and divested of company stock to protect their retirement assets. In addition, the original complaint alleged that Fifth Third and its plan committee were aware of the risks presented by their investment in the subprime lending market, but through incomplete and inaccurate statements, caused the price of Fifth Third stock to be artificially inflated before plummeting.
The case was the first in which an appeals court held that plaintiffs claimed the defendants, including Fifth Third, its CEO and other officers, violated their fiduciary duty by incorporating by reference certain Securities and Exchange Commission filings into the plan’s SPD.
Potential for Upset of Status Quo
Retirement industry lawyers writing about the strong potential for the Supreme Court to hear this case see a realistic chance for an upset of the longtime judicial trend favoring plan sponsors. The Court has for years declined to review other stock-drop cases.
“A U.S. Supreme Court ruling that the presumption of prudence does not apply at the initial stage [of a case], or … at all, would seemingly eviscerate the statutory boundaries that favor ESOPs, and likely have a significant chilling effect,” wrote Porter Wright Morris & Arthur LLP attorney Ann Caresani in a Dec. 2 posting on her firm’s website, www.employeebenefitslawreport.com.
“If the [C]ourt were to overrule the Moench presumption and the substantial body of law developed over the last two decades, it would have substantial ramifications for 401(k) plans and ESOP fiduciaries,” said a Nov. 20 client bulletin from law firm Sidley Austin LLP. “A clarification on these issues would provide ESOP fiduciaries with helpful guidance for the future,” the bulletin continued.
Finding out More
For more information about plan sponsors' fiduciary duties, investment responsibilities and employer communication of these, see ¶210 in The 401(k) Plan Handbook.
The U.S. Supreme Court’s ruling in U.S. v. Windsor (133 S. Ct. 2675 (2013)) is historic in many ways. There is much work to do for private employers that provide employee benefit plans to ensure compliance with the new definition of “spouse” under federal law, as well as the differing state laws on this issue.
The Bureau of Labor Statistics in October published data showing that while 19 percent of private-sector employees had access to a defined benefit retirement plan, only 9 percent of these workers were in plans that provided survivor benefits for same-gender partners.
In contrast, among state and local government employees, 83 percent had access to a DB plan, and 50 percent of these employees were in plans that provided survivor benefits for same-gender partners. Most believe the gap in benefits for same-gender partners available to private-sector and public-sector employees is likely to narrow in light of Windsor.
With that in mind, this column reminds employers of retirement and health plan issues to consider after the Windsor decision.
Virtually All Employers Affected
The Windsor ruling will affect virtually all employers across the country after the Court held that Section 3 of the federal Defense of Marriage Act is unconstitutional. That section of DOMA defines “marriage” and “spouse” as excluding same-gender partners for purposes of determining the meaning of any federal statute, rule or regulation, including those relating to pension and welfare benefits.
As such, DOMA prevented employees’ same-gender spouses from receiving some of the same employee benefits as spouses in opposite-genmarriages, even though same-gender marriages were lawful and recognized in several states and in the District of Columbia.
Although the Supreme Court’s decision means that the federal government will generally recognize state-sanctioned same-gender spouses as married for purposes of federal laws, protections and obligations, it leaves some unanswered questions for private employers regarding benefit plan administration, and notably does not force states to permit or recognize same-gender marriage, which will be significant for employers operating in those states that have not yet sanctioned such marriages.
For employers that do not currently offer group health benefits to their employees’ same-gender spouses (and their children), the Windsor decision may not yet require any changes to their health benefit plans, but these employers should carefully review their benefit plan documents, summaries and other materials to ensure that the plan’s definition of “spouse” is consistent with their intent.
For example, a benefit plan’s definition of “spouse” may be linked to DOMA, and in light of the changed definition of this term under Windsor, the employer may desire to amend its benefit plans. These employers also should ensure that outside administrators, insurers and service providers are administering their benefit plans (including tax consequences) in a manner consistent with the sponsor’s intent and the applicable legal requirements arising from Windsor.
ERISA Issues Will Arise
Regardless of a particular employer’s policies on covering same-gender spouses, the following ERISA issues will arise from the Windsor decision:
Pension issues. Under ERISA, all DB plans and certain defined contribution plans are required to have an automatic form of benefit payment known as a qualified joint and spousal survivor annuity, unless the participant’s spouse waives the right to the survivor benefit. Similarly, if a participant dies while still employed, the participant's spouse is entitled to an automatic pre-retirement survivor annuity under a DB plan and certain DC plans. Under Windsor, the new definition of “spouse,” expands the number of beneficiaries covered by these rules.
COBRA, Health Insurance Portability and Accountability Act and Family Medical Leave Act rights. Before Windsor, same-gender spouses (and their children) covered under group health plans were not treated as spouses or children for purposes of these other federal statutes. Now, the protections provided by these statutes also will apply to employees with same-gender spouses.
For employers that offer health benefits to same-gender spouses, the following are examples of some of the issues that may arise after Windsor:
Tax consequences. Before the Supreme Court’s decision, employers were required to impute taxable income to an employee for the value of health benefits provided to a same-gender spouse (when benefits were paid for by the employer), unless the spouse qualified as a dependent for this purpose. After Windsor, imputing income for these employees should no longer be required for federal income tax purposes, and any employer-adopted practice of “grossing-up” for the additional taxes incurred by employees with same-gender spouses should cease. Depending on an employee’s state of residence, however, imputing income for same-gender spouses may have to continue for state income tax purposes, and will likely have significant administrative and cost implications for employers that operate in multiple states.
Enrollment rights. Generally, employees may not change pretax benefit elections under a Section 125 cafeteria plan after the beginning of each plan year, unless they experience a permissible qualifying “change in status” event, such as a change in marital status. It is likely that employees in same-gender marriages will view the Windsor decision as a “change in status” event that will allow them to enroll themselves and their same-gender spouses (and their children) in coverage on a pretax basis under the same midyear eligibility requirements that cover opposite-gender marriages.
FSAs, HSA and HRA claim reimbursements. Before Windsor, expenses of same-gender spouses (and their children) were generally not eligible for tax-free reimbursement under a health or dependent care flexible spending account, health savings account or health reimbursement account, unless those individuals separately qualified as dependents. Now, these expenses can be reimbursed on a tax-free basis.
Default Beneficiary of Death Benefits
Further, under many retirement plans, a participant’s spouse is treated as the default beneficiary of any death benefits. What this means after Windsor is that participants with same-gender spouses, who have previously designated another person as their plan beneficiary, will now need to get their same-gender spouses to consent to such other beneficiary in order for the designation to remain effective.
Another issue that arises with retirement benefits is splitting of assets upon divorce. Same-gender spouses who divorce also will have the right to an award of retirement benefits under a qualified domestic relations order, and employers may now be presented with QDROs by couples who divorced prior to Windsor. In addition, employees participating in DC plans now will be able to submit hardship distributions for their same-gender spouses (and their children).
Steven D. Weinstein is a partner in Proskauer Rose’s Employee Benefits, Executive Compensation & ERISA Litigation Practice Center in the firm’s New York City office. He has been practicing in the employee benefits field since 1984, representing clients sponsoring single-employer and Taft-Hartley pension and welfare plans. He advises clients in all aspects of pension plan tax qualification and administration. Mr. Weinstein is a contributing editor ofThe Guide to Assigning and Loaning Benefit Plan Money.
As the transition continues to a more heavily regulated environment for 403(b) plans, some plan sponsors — particularly those with plans funded by individually owned contracts from multiple vendors — may feel it’s administratively easier to terminate the 403(b) plan in favor of other plan designs. However, IRS regulations make this much easier said than done. In fact, in some cases, terminating a 403(b) plan can be almost impossible.
Plan sponsors need the ability to terminate their retirement plans for a variety of financial, business or compliance reasons. For example, new rules imposed by the IRS and the U.S. Department of Labor in 2009 imposed substantial new responsibilities on employers maintaining 403(b) plans. (See The 403(b)/457 Plan Requirements Handbook, ¶100.) Some of these new rules are proving to be very challenging to implement, especially for long-standing ERISA 403(b) plans funded with individually owned contracts from multiple vendors.
Because of the historical nature of a number of these arrangements, it has become extraordinarily difficult for certain plans to collect the data necessary and enter into the agreements required by regulations to be compliant. This problem has led many employers to consider terminating their 403(b) plans and replacing them with other retirement plans, such as 401(k) plans. However, terminating a 403(b) plan may still not be possible for plans under which participants own individual 403(b) custodial accounts holding mutual fund shares.
Section 403(b) plans were originally designed to be individual pensions, much like individual retirement accounts. Because of this, the tax code contains no provisions addressing how an employer may terminate a 403(b) plan and distribute its assets to plan participants. This was never necessary because these arrangements where under the control of the participant, not the plan sponsor.
With the advent of increased employer control and responsibility for 403(b) plans came the need for employers to be able to properly terminate their plan-related obligations. The IRS recognized this need, and its 2009 403(b) regulations permitted employers to terminate the 403(b) plans that they sponsored.
However, the regulations imposed several requirements on plan terminations, the most important being that plan sponsors must distribute all the assets of a terminated 403(b) plans within 12 months after first terminating the plan. Failing to do so would mean that the termination failed. In turn, a failed termination means that: (1) none of the assets distributed in that 12-month period becomes immediately taxable (and cannot be rolled over into an IRA or another plan); and (2) the employer sill has all its obligations of maintaining the 403(b) plan (including, for example, continuing to file its annual report, Form 5500).
The IRS recognized that employers often do not have the authority under individual 403(b) contracts to actually order a distribution of the assets from these contracts. That right is typically reserved to the individual plan participant. As a result, the IRS regulations permit employers to force a distribution of an annuity contract from the plan upon termination, in order to comply with the “12 month” distribution rule. (See ¶461.)
The IRS, however, continues to insist that a 403(b) plan sponsor cannot do the same for custodial accounts. The agency will not permit a plan to distribute the custodial account contract upon plan termination in the same manner it will permit the distribution of an annuity contract. The reason for this reluctance is unclear.
This IRS position has a terrible practical effect on employers that wish to terminate their 403(b) plans. If any plan assets are held in individually controlled custodial accounts (as many are), and the employer cannot convince its employees to actually liquidate those assets from the custodial account upon plan termination, the plan cannot be terminated.
A number of attorneys are beginning to take the position that the IRS’ view is without legal merit and are advising their clients to proceed with the “distribution” of the custodial account. Plan sponsors that are in the position of needing to terminate a 403(b) plan funded in part with individual custodial accounts, should first seek legal counsel to see if a plan termination can be done. Otherwise, the employer will be indefinitely burdened with an unwanted 403(b) plan.
Bob Toth has more than 25 years of experience in employee benefits law. His practice focuses on the design, administration and distribution of financial products and services for retirement plans, one that combines elements of ERISA, tax law, insurance law, securities law and investment law for defined contribution plans. Industry memberships and activities include the American Society of Pension Professionals and Actuaries, Chair, Tax Exempt and Government Plans Government Affairs Committee; and adjunct professor at John Marshall School of Law's Employee Benefits LLM Program. Toth is a contributing editor of Thompson's The 403(b)/457 Plan Requirements Handbook.
When it comes to retirement plan compliance, year-end reviews can be thought of as that season’s spring cleaning. There are several activities that require periodic review to ensure that the plan is operating in accordance with its terms and the applicable section of the federal tax Code. Plan administrators have an obligation to monitor plan transactions and make adjustments where needed.
This column provides a few general and year-end reminders to help plan administrators avoid errors commonly seen in IRS correction program submissions. Tips for performing these functions follow the discussion of each.
Check the Plan’s Governing Documents
Examine the plan document and summary plan description to confirm that both reflect the same language regarding plan features. As most participants are working from the SPD, it is important that it accurately describe the plan terms and features.
To the extent it doesn’t, it is advisable to incorporate language in both documents to clarify that “to the extent there is a discrepancy between the plan document and the summary plan description, the plan document will rule.” A plan administrator may find it wise to make sure that:
any changes are communicated in a timely fashion to plan participants with a summary of material modification or other plan notice through electronic means, or, when necessary, through distribution that is bifurcated and sent via U.S. mail; and
the plan is being administered in accordance with its terms by reviewing the corresponding forms and related practices of the administrator to the plan.
To the extent a plan feature is not being administered as described, the plan administrator should implement changes to the practice or amend the plan document so that it is consistent with the current practice, and use the IRS correction program, when needed.
Survey Enrollment Practices
Conduct periodic surveys with new hires to ensure that enrollment practices are consistent with those described in the plan document and SPD. With the recent rise in automatic enrollment and relaxed eligibility requirements, it is important to make sure that newly hired employees receive plan materials during or soon after their hiring process is complete. The materials may be distributed in a new-hire packet, communicated via email with a link to the plan website, or mailed to the participant’s home address. In all cases, every effort should be made to make sure that the employee receives the plan information and is aware that it is important.
Make sure enrollment materials are distributed in a timely manner, which, for automatic enrollment plans means the employee is to receive notice of the automatic feature 30 days before the default payroll deduction.
Make sure that plan participants have an opportunity to make a salary deferral election via the website or paper form, by making employees aware of the plan materials they receive.
Check to make sure that any participant’s opt-out request and corresponding distribution are processed on time.
Conduct Periodic Reviews of Plan Loans
Assess plan loans to ensure that they are made in accordance with the plan terms and Code Section 72(p).
Make sure the loans were repaid in a timely manner. There sometimes are cases where, due to a simultaneous change in a participant’s payroll frequency, the loan repayment switch is not activated and payments are missed. Or a payroll frequency change during the loan term causes ongoing repayments to be interrupted or require an adjustment. If these scenarios are not addressed promptly, the loan will not be repaid on time.
Make sure that any defaulted loan amounts are reported on IRSForm 1099-R. If the participant fails to repay the loan during the loan term and applicable cure period, then the outstanding balance of the loan will be treated as a taxable distribution.
Conduct Periodic Reviews of Plan Hardship Withdrawals
Scan the plan’s hardship withdrawal records to ensure that they are being made in accordance with plan terms and Code Section 401(k).
Make sure that proper documentation of the financial hardship was provided by the participant, and confirm that the amount requested is consistent with the participant’s financial need.
Make sure that the participant’s deferrals are suspended for six months, and make sure to communicate to plan participants whether they need to initiate deferrals at the end of the suspension or whether deferrals will automatically resume.
Investigate Delivery of Participant Communications
Conduct periodic surveys of the participant population to ensure that plan materials and communications are being delivered.
Make sure that participants are receiving SPDs, summary annual reports, quarterly statements and any SMMs to update plan changes. If materials are distributed electronically, the plan administrator will want to implement surveys or similar activities to confirm receipt. It is also prudent to establish procedures for any undeliverable mail that is returned.
Make sure participants are receiving investment information for the plan’s designated investments. Provide participants with a telephone number to call to obtain additional information on the available plan investments. In addition, obtain from the investment service provider what information will be supplied to new hires and recently enrolled and existing participants, and when such materials will be provided. Conduct periodic reviews to ensure that investment information is being received.
Scrutinize Military Leave Policies and Practice.
Conduct periodic reviews to ensure that military leave procedures are being followed.Confirm that the plan procedures for military leave and treatment of returning military personnel are consistent with the requirements of the Uniformed Services Employment and Reemployment Rights Act.
Make sure that returning military personnel have been credited with hours of service for qualifying military leave time.
Make sure returning military personnel are permitted to make up elective deferrals to the 401(k) plan, and that any corresponding employer matching contributions are made promptly.
Review the Plan for Necessary Amendments
Amendments may be needed to reflect regulatory changes or plan sponsor-initiated enhancements to the plan features that are effective, or will be effective. Any discretionary amendments to the plan have to be adopted by the end of the plan year in which they are adopted, or by Dec. 31 for calendar-year plans.
Post-Windsor (U.S. v. Windsor (No. 12-307, June 26, 2013)), the U.S. Supreme Court decision that struck down the provision of the federal Defense of Marriage Act that defined “marriage” as only occurring between a man and a woman), it may be necessary to amend the definition of "spouse" under your plan to remove any reference to the federal DOMA. Note, however, that the Supreme Court left intact the part of DOMA that recognizes states’ authority to determine for themselves how to define and recognize marriage and spouses for purposes of state law. Therefore, plan sponsors and administrators need to be aware that the state where the plan is located may define “marriage” and “spouse” in a different way than the federal government now does, which means the plan sponsors and administrators may need to account in the plan documents and procedures for this divergence. In general, though, qualified plans are governed by federal law through the tax Code and ERISA, and to the extent state law is inconsistent, it is superseded.
Cycle C plans (those with employer identification numbers ending in 3 or 8) may need to be amended or restated in preparation for filing with IRS for a favorable determination letter.
Ensure that Required Disclosures and Notices Have Been Sent
The 401(k) safe harbor notice, 401(k) automatic enrollment notice and qualified default investment notice are due to participants not less than 30 days, and not more than 90 days, before the beginning of the applicable plan year.
An annual fee disclosure notice has to be provided for plans with participant-directed accounts, giving detailed fee and expense information designed to help participants make informed investment decisions.
Review Plan Terms Regarding Forfeitures
Make sure that any forfeiture resulting from employer matching contributions left in the plan by departing participants who are not fully vested has been allocated, and that such allocation is done as described in the plan terms. For example, some unvested amounts from forfeitures may be directed to pay expenses.
Arris Reddick Murphy is an attorney with experience in the employee benefits and executive compensation practice area, and she is senior counsel with FedEx Corp.’s Tax & Employee Benefits Law group. Before joining FedEx, she held the position of associate with the law firm of Potter Anderson & Corroon, LLP, and worked in-house with The Vanguard Group and the City of Philadelphia as counsel to its Board of Pensions and Retirement.The views expressed in this column are strictly Ms. Murphy’s, and are not those of FedEx Corp.,any of its operating companies or affiliates. She is contributing editor of The 401(k) Handbook.
At this time of year it is time to plan ahead to help ensure that, as a plan sponsor or administrator, you are taking steps to avoid missing anything critical as the year comes to a close. It is also the time to look at major trends of the past 12 months to determine whether they were passing fads, or are here to stay.
Increased Government Activity
Last month's column (November 2013 Pension Plan Fix-ItHandbook) addressed preparing for an IRS audit and the importance of internal controls. At least annually, plan sponsors should review how well their plans are complying with IRS and U.S. Department of Labor guidance and regulations.
Government audit and enforcement activity increased in 2013, so it is a good idea to prepare for an audit. In addition, plan sponsors have a fiduciary responsibility to monitor their service providers. A plan sponsor may outsource administrative functions but not fiduciary responsibility. Plan sponsors will be required to provide proof regarding compliance issues; both IRS and DOL have issued guidance regarding record retention that would be worth your time to review.
IRS provides valuable information about how long you should maintain records, as well as about how records can be kept. ERISA requires that records be maintained as long as necessary to determine whether a benefit is due.
Both IRS and DOL provide guidance regarding electronic maintenance of records. IRS Revenue Procedure 98-25 says that electronic records must be capable of being retrieved upon IRS request. DOL regulation §2520.107-1(b) provides that records must be maintained in a safe and accessible place and be readily available for inspection. More details regarding record retention can be found in the December 2012 column.
Trend or Passing Fad: Increased government focus on compliance is here to stay. Government data collection for retirement plans is becoming more sophisticated, enabling the agencies to pinpoint specific issues and identify targets of examination.
Look for greater focus on participant expenses in DC plans.
Expect audits of plans with low per-participant expenses as well as high per-participant expenses; and
Assume that focus on various fee disclosures will continue.
Defined Benefit Derisking
Pension derisking made headlines many times in 2012, although there were fewer of these transactions at big pension plans this year. Among the factors driving this trend are minimum plan funding requirements from the Pension Protection Act of 2006 and the U.S. Pension Benefit Guaranty Corp.’s premium increases, along with an overriding desire by plan sponsors to decrease financial risk. Large U.S. companies, including Verizon, New York Times Co., General Motors, Ford Motor and Chrysler (see Chrysler story in August 2013 newsletter), have taken steps to remove pension liabilities from their books.
These steps included purchasing group annuities from insurance companies and offering lump-sum cash options to deferred vested participants (see story in April 2013 newsletter). Some plan sponsors have frozen defined benefit plans to new entrants. The emphasis on derisking by large, well-known companies sponsoring DB plans may represent just the tip of the iceberg in this area in the next few years.
Trend or Passing Fad: Several surveys have shown that more and more companies with DB plans will at least investigate derisking techniques for at least some of their pension liabilities. But keep in mind the government will be watching! Expect to hear from the ERISA Advisory Council on this topic in 2014.
Target-date Funds Under the Microscope
TDFs and their glidepaths, both “to” and “through” a participant’s retirement, are not understood by many, including plan practitioners. TDFs are designed to shift investment allocations as the participant ages, with investments in stocks decreasing and investments in bonds increasing.
Interest rates have remained low for a long time; when they begin to rise, the value of bondholdings decreases, which could be damaging for those near or in retirement. The good news is that bondholdings’ maturities are often laddered, which should help when interest rates begin to rise again. But the prudent plan sponsor and participant are wise to keep TDFs under the microscope (see November 2012 column). In fact, DOL has issued a fact sheet for plan sponsors that offer the now-nearly ubiquitous TDF investment options: (http://www.dol.gov/ebsa/pdf/fsTDF.pdf )
Trend or Passing Fad: Expect news coverage of TDFs to continue. Both DOL and SEC will continue to keep a watchful eye on them, to make sure participants aren’t misled or having their ultimate retirement savings affected by the composition of TDFs that may not be right for their situation.
The Demise of the DB Plan
There is no need to tell retirement plan professionals that the traditional DB plan is on the decline and being replaced by DC plans. Media reports now often declare that the DB plan is dead. Clearly, it has changed and may never again resemble the plans of our parents and grandparents. But will it survive? Only time will tell.
Mary B. Andersen is president and founder of ERISAdiagnostics Inc.,an employee benefits consulting firm that provides services related to Forms 5500, plan documents,summary plan descriptions and compliance/operational reviews. Andersen has more than 25 years of benefits consulting and administration experience. Andersen is a CEBS fellow and member of the charter class. She also has achieved the enrolled retirement plan agent designation. Andersen is the contributing editor of the Pension Plan Fix-It Handbook.
“To be or not to be,” that was the key question in William Shakespeare’s play, Hamlet.
A similar question arises regarding HIPAA privacy and security requirements: Whether a third-party administrator of COBRA needs to be, or not to be, viewed as a business associate. In order to do this, you must first determine if there is access to protected health information. If so, more than likely, the TPA is a business associate.
What Exactly Is a Business Associate?
A business associate is defined as a person or entity, who, on behalf of a covered entity:
creates, receives, maintains or transmits PHI (for example, claims processing or administration, data analysis, billing, benefits administration and management); or
provides legal, actuarial, accounting, consulting, data aggregation, management, administrative, accreditation or financial services to or for the covered entity, or to or for an organized health care arrangement in which the covered entity participates, involving PHI.
What Is Individually Identifiable Health Information?
Under the HIPAA regulations, PHI is defined as “[i]ndividually identifiable health information that is maintained or transmitted either electronically or via any other medium.” The regulations specifically exempt this category of information:“[e]mployment records held by a covered entity in its role as employer.”
Individually identifiable health information is a type of health information that is created by a covered entity, such as a health care provider, a health plan or its business associate. This pertains to the past, present or future health condition, provision of care or payment for care of an individual.
Does COBRA Administration Deal with Accessing PHI?
First, we will address if COBRA administration typically involves accessing PHI. The U.S. Department of Health and Human Services indicated that enrollment and disenrollment data is not PHI since it is provided by a non-covered entity (that is, the employer sponsoring the plan) in the employment context.
COBRA records are generally beyond the reach of HIPAA. There are four ways to check to make sure the COBRA information is not PHI:
COBRA information does not include health information. Usually COBRA information pertains to eligibility and the payment for continuation of coverage under the group health plan. For example, electing and paying for medical coverage does not include a specific health condition. Therefore, it can be treated as a simple “enrollment” function (see #4 below)
The employer provides the information. The HIPAA regulations specifically exclude employment records and COBRA administration. Employment information is needed to process a COBRA qualifying event; for example name, address and benefit coverage levels are not considered PHI, they are considered identifiers.
Employers are responsible for the COBRA requirements. ERISA makes it clear that COBRA is a plan sponsor duty; generally the employer is the plan sponsor. The Internal Revenue Code states the liability for the excise taxes fall to the employer.
Enrollment and disenrollment information is exempt from the privacy rule. The preamble to the HIPAA privacy regulations specifically states: “Plan sponsors that perform enrollment functions are doing so on behalf of the participants and beneficiaries of the group health plan and not on behalf of the group health plan itself.”
COBRA information constitutes enrollment and disenrollment information, which is not protected health information under HIPAA. This type of COBRA information does not contain health information (that is, relating to a condition, provision of health care or payment for provision of health care) as defined in Section 160.103 of the HIPAA regulations. In addition, COBRA information relates to activities performed on behalf of an employer/plan sponsor, not a health plan that is a covered entity.
This fact was proven in the lawsuit Cooney v. Chicago Public Schools. (See the Guide, ¶1900.) This is not a COBRA case that involves COBRA coverage; it pertains to HIPAA privacy issues.
The COBRA open enrollment mailings contained the names, Social Security numbers, addresses and other personal information of more than 1,750 qualified beneficiaries. This resulted in the employer, Chicago Public Schools, and a printing company being sued for HIPAA privacy and other claims.
Since the school board held plaintiffs’ health insurance elections in its role as an employer, the board’s disclosure fell outside HIPAA’s coverage. Therefore, all claims were dismissed.
What May Implicate PHI
HIPAA did not change nor eliminate the requirement that under COBRA, employers are to inform a provider of the status of a qualified beneficiary. Disclosing that the qualified beneficiary currently does not have coverage but will have, retroactively, once COBRA is elected and the first payment is received would not be providing any PHI. The employer could even disclose the specific dates of the election period and when the premiums are due.
Although for HIPAA purposes, most COBRA information is not considered PHI, one should still proceed with caution. The HIPAA rules require plan sponsors (that is, employers) to safeguard any information provided by the health plan. This would be the same for a COBRA administrator; safeguards and confidentiality are a must. In addition, some TPAs may perform other services for an employer beyond COBRA, services that could make the TPA a business associate.
For example, in the case of a self-funded plan such as a health flexible spending account or health reimbursement arrangement, an employer generally outsources the claim substantiation to TPAs. Following are examples of what contains PHI:
Some communication notes
Data at rest and data in transmission
Paper-based and electronic data
In this context, since TPAs definitely receive, maintain and transmit PHI, they are considered a business associate and have many requirements under the HIPAA privacy/security rules to be in compliance.
HIPAA now applies with equal force to a business associate as it has in the past for a covered entity. Therefore, a TPA must put into practice the same measures as a covered entity to prevent privacy and security breaches.
The definition of a breach is “the acquisition, access, use, or disclosure of protected health information in a manner not permitted under subpart E of this part which compromises the security or privacy of the protect health information.”
An example of a possible breach for a TPA would be when an explanation of benefits was sent to an incorrect participant and was not returned as undeliverable. This should throw up a red flag and action should be taken quickly to correct the issue.
If an EOB was sent to an incorrect participant and the post office returned it unopened, this would not be considered a breach.
In closing, here are three issues business associates and covered entities should keep in mind to avoid any breaches that could initiate fines and penalties:
This statement clarifies that a TPA is considered a business associate: “If you’re a TPA, you are, in effect, running the health plan. We would expect that kind of business associate to operate just as a covered entity would,” Susan McAndrew, HHS deputy director in the Office for Civil Rights, recently stated.
In addition, a TPA’s subcontractors are also considered business associates. Now, companies must look not only to their direct contractors, but to their subcontractors of those entities to ensure that they are HIPAA compliant.
Furthermore, HIPAA requires that“[u]ses, disclosures and requests for PHI must be limited to the minimum necessary amount needed to carry out the purposes of the use or disclosure.”
Constance Gilchrest is the research and compliance specialist for Infinisource, Inc., a provider of workforce management, COBRA and flexible benefits administrative services to more than 63,000 employers nationwide. She has more than 19 years of experience with COBRA, is certified for Advanced Flexible Compensation Instruction through the Employers Council of Flexible Compensation, is a certified COBRA Administration Specialist and has earned a Consumer Directed Health Care Certification from the National Association of Health Underwriters.
The right to reinstatement to the same or “an equivalent position” is a fundamental protection that the Family and Medical Leave Act provides to eligible employees following statutory leave. While that terminology appears to be relatively straightforward, many employers struggle with what constitutes an “equivalent” position regarding job reinstatement, particularly if there has been some restructuring in the workplace during the employee’s absence. The following discussion briefly reviews the requirements of the law and regulations, and some of the challenges this obligation poses.
Employers generally must restore employees who take FMLA leave to the position held by the employee when the leave started, or place him or her in an “equivalent position, with equivalent employment benefits, pay, and other terms and conditions of employment.” Taking federally protected leave cannot result in the loss of any employment benefit to which the individuals were entitled before the date on which the leave commenced.
FMLA does not establish a right of employees to accrue seniority or other employment benefits during any period of leave, beyond that to which the employee would have been entitled had he or she not taken leave. Moreover, certain highly compensated “key” employees may be exempt from this reinstatement protection, but this is a fairly narrow category of individuals.
Limitations on Reinstatement Rights
Post-leave, an employee has no greater right to return to the prior position or to an equivalent job than if the employee had been continuously employed during his or her FMLA leave.
Example. If a company shut down completely during a period of leave, or closed one facility with no transfer rights for any worker, an employee using FMLA leave during shutdown would have no greater rights to a job than his or her former co-workers. To deny restoration to employment, however, an employer must be able to show that the individual would not otherwise have been employed at the time reinstatement is requested; in some instances, this may be harder to establish than in other settings.
An employee is entitled to reinstatement “even if the employee has been replaced or his or her position has been restructured to accommodate the employee's absence.” When it comes to defining an equivalent position, the U.S. Department of Labor provides that it must be “virtually identical” to the position the employee held before taking leave “in terms of pay, benefits and working conditions, including privileges, perquisites and status.”
Base Pay, Overtime and Bonuses
Regarding pay, DOL states more specifically that an employee is entitled to any unconditional pay increases that have occurred during the leave period (such as cost-of-living increases) and to the same or equivalent pay premiums — such as shift differentials — as the prior position.
Employers must grant pay increases based upon seniority or work performed to those who have taken FMLA leave on the same basis as employees on a comparable leave not covered by FMLA. For example, if an employee departed a position with a customary opportunity of 10 hours weekly overtime, a position offering the same overtime pay opportunity would be required to meet the equivalency standard.
DOL regulations, as revised in 2009, took a somewhat different approach on the important issue of bonuses during FMLA leave, as compared to the agency’s original 1995 rules. FMLA now provides that a bonus based on achievement of a goal specified in the plan or policy (for example, hours worked, products sold or perfect attendance) properly can be denied to an employee who fell short of the goal because he or she was on FMLA leave, provided that the same bonus is not paid to an employee who has been out on an equivalent type of leave not covered by FMLA.
The thrust of this approach is that employers may not discriminate in the payment of bonuses because of the use of FMLA leave. To illustrate, the regulations cite the example of an employee who used paid vacation leave for a non-FMLA purpose; if that individual would receive the bonus payment in question, then an individual who used vacation leave for an FMLA-covered purpose would have to receive it as well.
“Equivalent” employer-provided benefits include benefits covered under ERISA, a written employer policy or solely under its human resources practices. These include group life insurance, health and disability insurance, sick and annual leave, educational benefits and pensions.
Benefits must be resumed in the same manner and at the same levels for an employee returning from leave as before that event (that is, no qualification or waiting periods), though changes that have been adopted during leave for the entire workforce can be applied to the returning individual unless the employer chooses otherwise.
DOL certainly recognized that satisfying these requirements may mean that an employer has to change its policies, make arrangements for continued payment of costs (even if the employee does not pay required premiums during leave) or otherwise deal with the challenging requirement of coverage reinstatement. Periods of unpaid leave under FMLA cannot be treated as or counted towards a “break in service” for vesting or participation purposes in pension plans.
Duties and Working Conditions
Apart from compensation, FMLA sets additional standards for equivalency of positions that sometimes are difficult to measure. To be judged equivalent, the new position for an employee returning from leave must have the same or substantially similar duties and responsibilities under similar working conditions, and they also must entail substantially equivalent skill, effort, responsibility and authority.
The new position must be in the same (or a geographically proximate) physical worksite; there cannot be a significant increase in commuting time or distance. If the worksite at which the employee worked before leave has been closed, the employee is entitled to any and all transfer rights that would have been available to the individual had he or she not been on leave at that time.
The new work shift typically would have to be the same as the one to which the employee was assigned before leave, unless an alternative better suits the individual’s needs. Not surprisingly, there is no prohibition on the offer of a promotion to a returning employee, in satisfaction of the reinstatement requirement, but there is an express prohibition on an employee being induced to accept a different position against their wishes.
Though not fully comforting to an employer trying to deal with the question of a new assignment following leave, DOL has at least stated that the obligation of reinstatement to the same or equivalent position does not extend protection to de minimis aspects of the job, including those that are intangible or not measurable.
Equivalency: A Mandate with Consequences
As one might imagine, over the 20 years that FMLA has been on the books, there have been a number of litigated cases that involve these reinstatement questions. To describe the outcome in generalities, courts have been fairly strict in construing mandates of the equivalency requirement, when an alternative position is offered to an employee returning from statutory leave.
The intolerance of the courts is particularly true with respect to compensation, while certain lesser distinctions might be tolerated, leaving more subjective considerations open to question — such as “status” or prospects for advancement in a new position (as compared to the prior one).
Shifting a returning employee to a new job after FMLA leave can have consequences, so an employer should make a careful judgment after receiving good counsel before moving in that direction.
The IRS recently released Notice 2013-71, which modifies the “use or lose” rule for health flexible spending accounts to allow a maximum $500 annual carryover of unused health FSA contributions that can be used to reimburse medical expenses after the end of the plan year. In other words, participants don’t have to “lose” up to $500 of contributions for a year simply because they didn’t “use” them up by the end of the year. This new carryover provision is permitted only if the cafeteria plan does not otherwise use the cafeteria plan “grace period” rule that the IRS promulgated in 2005.
The new carryover option is intended to encourage employees to participate in health FSAs by watering down the strict “use-or-lose” rule familiar to health FSA participants, and reduce unnecessary spending at the end of the year to avoid forfeiture of contributions. Despite the apparent benefits, the new exception allowing a carryover option raises many unanswered questions for health FSA COBRA coverage.
In general, a cafeteria plan may not provide for the deferral of compensation from one year to the next (for example, a pre-tax contribution made in one year may not be used to purchase a benefit that will be provided in a subsequent year). Regarding health FSAs, this prohibition takes the form of the so-called “use-or-lose” rule, which requires that pre-tax health FSA contributions not used by the end of the plan year (or any applicable “grace period”) be forfeited. In 2005, the IRS modified the “use-or-lose” rule to permit cafeteria plans to allow up to a 2½ month grace period, during which employees could continue to be reimbursed for qualified medical expenses incurred during the “grace period” with funds remaining (or carried over, if you will) from the prior plan year.
The Affordable Care Act separately changed the rules for health FSAs, including limiting elective employee contributions to health FSAs to $2,500 per plan year starting in 2013, as indexed for inflation. Before the ACA, there was no federal dollar limit on health FSA contributions. Due to the ACA’s new dollar limit on health FSA contributions, the IRS concluded that it was appropriate to offer additional administrative relief beyond that provided by the grace period rule. Thus, the new IRS guidance modifies the “use-or-lose” rule applicable to health FSAs to permit an annual carryover of up to $500.
$500 Carryover Permitted
The IRS guidance allows, but does not require, a cafeteria plan to provide for a carryover of up to $500 of any amount remaining unused at the end of a health FSA’s plan year. The carryover means that a participant could continue to incur medical claims in a future year that could be reimbursed tax free out of that carryover amount. So if a participant defers $2,500 during a year and only incurs $2,000 of medical expenses during that year, he or she could carry over $500 to the next year (and possibly future years) to use for reimbursing medical expenses incurred in the subsequent year. The carryover amount does not count against or otherwise affect the $2,500 salary reduction limit applicable to each plan year.
The carryover amount may be used to pay claims incurred during the entire plan year to which it is carried over. Amounts remaining at the end of the plan year that are available for carryover are net of reimbursements made during the plan’s run-out period (the period of time following the end of the plan year during which claims incurred during that plan year may continue to be submitted for reimbursement).
Importantly, it is clear that the carryover amount does not have to be spent in the year following the year for which it was created. That is, once the carryover amount is established for a year, it could remain available for an indefinite number of future years as illustrated by the following examples. Any unused amount in excess of $500 remaining at the end of the plan year (after adjustments for run-out claims) is forfeited.
An employer offers a health FSA on a calendar year basis with an annual run-out period from Jan. 1 – March 31 in which participants can submit claims incurred during the prior year. The plan has a $2,500 annual limit and has been amended to adopt the $500 carryover; therefore there is no grace period.
Unused amount in employee’s health FSA on Dec. 31, 2013: $800
Employee’s 2014 health FSA election: $2,500
Employee submits a claim for $350 in March 2014 that was incurred in 2013
Employee’s unused amount is reduced to $450 ($800-$350)
If no other claims are submitted by March 31, 2014: $450 carries over to 2014
Employee has $2,950 available for claims incurred in 2014
Employee submits a claim for $2,700 incurred July 15, 2014
Plan pays the claim ($2,500 from 2014, plus $200 from the 2013 unused amount)
Employee’s unused amount is now reduced to $250 ($450-$200)
If no other claims are incurred in 2014: $250 carries over to 2015
Same facts as above. This example illustrates the carryover rules when an employee incurs claims in 2013, but waits to submit them until after being reimbursed for claims incurred in 2014.
Unused amount in employee’s health FSA on Dec. 31, 2013: $800
Employee’s 2014 health FSA election: $2,500
Employee submits a claim for $2,700 incurred Jan. 15, 2014
Plan pays the claim ($2,500 from 2014, plus $200 from the 2013 unused amount)
Employee’s unused amount is reduced to $600 ($800-$200)
Employee submits a claim for $350 in March 2014 that was incurred in 2013
Employee’s unused amount is reduced to $250 ($600-$350)
If no other claims are submitted by March 31, 2014: $250 carries over to 2014
If no other claims are incurred in 2014: $250 carries over to 2015
Plan Amendment Required
To use the new carryover option, a cafeteria plan offering a health FSA must be amended on or before the last day of the plan year from which amounts may be carried over. The amendment may be made retroactively to the first day of that plan year, provided that the employer informs participants of the carryover provision. Special relief for 2013 permits a cafeteria plan to be amended to adopt the carryover provision for a plan year that begins in 2013 at any time on or before the last day of the plan year that begins in 2014 (for example, by Dec. 31, 2014 for calendar year cafeteria plans). Also, a plan may not be amended to offer a carryover option if it also has a grace period that applies to the health FSA.
Unfortunately, the new IRS guidance does not specifically address the many issues that could arise when applying COBRA to health FSAs. Rather, it simply provides that “unused amounts” (the term used in the guidance for carryover balances) are forfeited upon termination of employment, unless the employee elects COBRA. There is no explanation of what happens if an employee (or other qualified beneficiary) elects COBRA coverage under a health FSA that includes a carryover provision.
As a general rule, a typical health FSA does not have to offer COBRA coverage to any qualified beneficiary beyond the end of the year in which a qualifying event occurs. In addition, COBRA coverage does not have to be offered at all to a specific qualified beneficiary if, at the time of the qualifying event, the health FSA is “overspent.” An “overspent” situation occurs if the amount to be paid for the remainder of the plan year exceeds the amount that could be reimbursed for the rest of the year.
Can Terminated Employees on COBRA Benefit from a Carryover Amount?
The guidance makes it clear that a terminated employee loses the right to a carryover amount if he or she does not elect COBRA. However, the guidance does not say what happens if the terminated employee does elect COBRA coverage. In other words, if a terminated employee elects COBRA coverage and keeps it in place through the end of the year, would he or she benefit from a carryover amount?
IRS guidance on the health FSA grace period rules clearly provides that any grace period must be offered to all participants who are covered under the plan on the last day of the plan year, including participants whose coverage is extended to the last day of the plan year through COBRA coverage. Based on this guidance, an argument could be made that if a qualified beneficiary continued COBRA coverage under the health FSA through the end of the plan year, he or she could benefit from the carryover of $500 to be used in the following year without having to pay any additional COBRA premium after the end of the year in which the qualifying event occurred. However, there are big differences between the grace period rule (which is limited to the 2½ month period after the end of the year) and the carryover option (which could remain in effect for a much longer time after the end of the year). Without any further specific guidance, it is not clear whether qualified beneficiaries could benefit from a carryover option in the same way as they could for the grace period rule.
To illustrate the potential complexity of allowing the carryover option to be made available to qualified beneficiaries, consider how long that option would have to be available. As explained above, the carryover option could last for several months or, theoretically, years after the end of a plan year. Would qualified beneficiaries have the right to carry that unused amount over indefinitely? This result — allowing qualified beneficiaries to keep an account under a former employer’s health FSA indefinitely into the future — would be a significant and expensive administrative burden on the employer. A reasonable rule for the IRS to have promulgated would have at least limited the carryover for qualified beneficiaries to just the end of the year following the plan year of the qualifying event; however, the new guidance did not articulate such a rule.
How Expansive Is the Right to a Carryover Balance?
A more troubling issue arises if an active employee with a carryover balance decides not to elect anything for a future year and retains a right to the carryover balance. To illustrate the problem:
Example. Bob does not elect to contribute to a health FSA in 2014, but in 2014 has a $500 carryover amount from 2013 (when Bob had elected to contribute to a health FSA). Bob terminates employment in 2014. Does Bob have a non-COBRA right simply to continue to use the $500 carryover until it is used up? When Bob is only covered by the carryover amount, does he have any COBRA rights?
Currently, there are no answers to these questions and additional guidance is necessary for employers and administrators to effectively administer the carryover option. Until then, there is just the statement in the new IRS guidance indicating that any unused amounts remaining in an employee’s health FSA as of termination of employment are forfeited unless the employee elects COBRA. As a result, employers and plan administrators need to consider whether it is reasonable not to continue to make the carryover amounts available to terminated employees based on the example above if those employees do not elect COBRA.
Can a Plan Require Payment for the Right to Continue the Carryover?
The final question raised by this fact pattern is whether the terminated employee who is only covered by a carryover balance must be offered COBRA in order to preserve the carryover amount. The rule mentioned above — that COBRA coverage does not have to be offered if the health FSA is “overspent” — might extinguish the obligation to offer COBRA coverage. However, it is not clear that a plan could require someone to pay for the right to continue the carryover — after all, the carryover only exists because the individual already paid for it (that is, it is attributable to unused funds previously contributed). Thus, perhaps the carryover option simply has to be made available to terminated employees who are only covered by a carryover amount without any COBRA-like election.
The bottom line is that the rules on applying COBRA to health FSAs using the carryover option are simply not clear and employers and administrators need to carefully consider good faith approaches to dealing with specific situations.
Employers that would like to incorporate the carryover for the 2013 plan year have some time to amend their cafeteria plans (they may do so by the end of the 2014 plan year); however, if the plan has a grace period, an amendment to eliminate the grace period is required by the end of the 2013 plan year. While considering whether to include the carryover option in their cafeteria plans, employers should weigh the uncertainty associated with the COBRA administration issues discussed above and consult with experienced employee benefits counsel.
Paul M. Hamburger is a partner in the Washington, D.C., office of the law firm Proskauer Rose LLP. Mr. Hamburger is head of the Washington, DC Employee Benefits, Executive Compensation and ERISA Litigation Practice Center, is a leader of its health and welfare subgroup, and a member of Proskauer’s Health Care Reform Task Force. He is a member of Thompson's Health Plan Advisory Board, and is contributing editor of Mandated Health Benefits — The COBRA Guide.
Lynda M. Noggle is an Associate in the Washington, D.C. office of Proskauer Rose LLP. Ms. Noggle advises clients in all aspects of employee benefits law, including tax, labor (including ERISA), securities and litigation issues. She is a contributing editor of Mandated Health Benefits — the COBRA Guide.