My Research Dashboard

• May 24, 2013

  Claim Against Fund That Fixed COBRA Error Dismissed as Result of QB’s Payment Failure

  A welfare fund that tried to make good on a COBRA administrative error by offering retroactive coverage was able to fend off a legal claim as a result of  a qualified beneficiary’s mistake: He failed to pay any premiums. In dismissing an ERISA claim against the fund, a federal district court in New Jersey noted that the fund’s offer of retroactive coverage was not unilateral. In return, the qualified beneficiary had to pay the premiums, and nothing in plan document terms indicated he would get free COBRA coverage. The case is Larzik v. Local 464A United Food and Commercial Workers Union Welfare Service Ben. Fund, 2013 WL 1987214 (D.N.J., May 13, 2013).

  Facts of the Case

  Patrick Larzik was a member of the United Food and Commercial Workers’ Local Union No. 464A and had health coverage through its welfare fund.

  From October 1998 through May 5, 2012, Larzik worked as a meat cutter at the Great Atlantic & Pacific Tea Co. (A&P). On June 18, 2011, he went on disability leave. Under that leave, his health coverage was maintained through Aug. 31, 2011. Afterward, he elected COBRA coverage on Oct. 29, 2011. (COBRA provides that a termination or reduction in hours of employment that results in a loss of coverage is a qualifying event entitling a qualified beneficiary to up to 18 months of COBRA coverage. See Mandated Health Benefits — the COBRA Guide, ¶1121.)

  In December 2011, Larzik learned that his COBRA election form had not been accepted. He appealed to the fund, asking to be reimbursed for private insurance premiums and out-of-pocket medical expenses he incurred because his COBRA coverage became effective. He also requested that his COBRA election be applied retroactively.

  Before the appeal was decided, Larzik entered into a separation agreement with A&P. The fund was not a signatory to that agreement. Under the agreement: (1) Larzik’s employment would end effective May 5, 2012; and (2) he could choose to take a lump sum payment or to “continu[e][his] existing company sponsored health insurance coverage for a total of 8 months after the Effective Date of this Agreement.” If Larzik chose the second option, A&P agreed to pay those premium contributions.

  On June 15, 2012, the fund denied his appeal to the extent it sought reimbursement of premiums and medical expenses, but granted the appeal to the extent it sought to provide Larzik with COBRA coverage. The fund acknowledged that it made a mistake when it rejected Larzik’s COBRA election. Accordingly, it offered to provide him with COBRA coverage retroactive to Sept. 1, 2011. Larzik was given 45 days to pay the monthly premiums for September 2011 through April 2012. If Larzik paid those premiums, the fund would take the money A&P was to provide under the separation agreement to pay Larzik’s COBRA premiums for May 2012 through December 2012. Apparently, Larzik failed to pay those premiums, and as a result, the fund refused to provide Larzik with COBRA coverage. Also, apparently the fund did not return the eight months’ worth of premiums provided by A&P.

  Larzik sued the fund for various federal and state-law claims. The claim pertinent to COBRA involved ERISA’s civil enforcement provision (29 U.S.C. §1132(a)(1)(B)), under which a plan participant or beneficiary can sue to recover plan benefits, enforce plan rights or clarify rights to future benefits under plan terms. Larzik sought a declaration that the fund was obligated to provide health coverage from June 2011 to the end of the separation agreement, to include COBRA coverage thereafter. He explained that under the agreement, health coverage would continue for eight months after the agreement’s effective date. He interpreted this as meaning he was entitled to health coverage from May 2012 through December 2012, and when that coverage ended, he should have been given the opportunity to elect COBRA coverage.

  The fund sought to dismiss the claim, arguing that Larzik was not entitled to: (1) COBRA coverage from June 2011 through April 2012 because he failed to pay the required premiums; and (2) any kind of coverage — COBRA or otherwise — from May 2012 onward based on the plan terms.

  Larzik Was Not Entitled to COBRA Coverage

  The court noted that Larzik was incorrect in his interpretation that the fund would continue his coverage for eight months followed by COBRA coverage. The court noted that the fund admitted its mistake of failing to accept Larzik’s election form. As a remedy, it offered to retroactively provide COBRA coverage. However, the court pointed out that the fund’s offer “was not unilateral.” In return, Larzik had to pay the premiums but failed to do so.

  “Indeed, it appears that Larzik believes Defendant should retroactively provide him with COBRA coverage free of charge,” the court noted. However, it indicated that the plan terms provide that COBRA coverage will terminate early if “any required premium is not paid in full on time.” Accordingly, the court found that Larzik was not entitled to COBRA coverage from June 2011 through April 2012.

  Larzik  Was Not Entitled Any Coverage After May 2012

  The plan terms also doomed Larzik’s claim regarding post-May 2012 coverage. The court noted that the plan does not entitle union members to eight months of health coverage once they leave A&P. Instead, as Larzik apparently conceded, the plan provides coverage for active employees. Larzik argued, however, that the separation agreement transformed him into an active employee entitled to coverage under the fund. However, the court rejected that argument, further noting that the fund never agreed to be bound by that agreement.

  Finally, the fund did not have to give Larzik the opportunity to apply for COBRA coverage in January 2013, according to the court. The plan terms provide that COBRA coverage is a “continuation of Plan coverage when coverage would otherwise end because of a life event known as a ‘qualifying event’”; such as a reduction in hours like Larzik’s disability leave, which began in June 2011. The only other possible qualifying event, the court noted, was his termination of employment in May 2012. (The court also noted in a footnote that case law suggests Larzik’s termination did not constitute a qualifying event since he had already claimed a qualifying event based on the reduction in hours.) The court added:

  In June 2012, after both qualifying events had passed, the Fund offered to provide Larzik with COBRA coverage Larzik points to nothing in the Plan or the ERISA statute requiring the Fund to give Larzik a second opportunity to apply for COBRA coverage in January 2013.

  According, the court dismissed Larzik’s ERISA claim.
• May 24, 2013

  Congress Criticizes EEOC for ‘Fishing’

  The U.S. Equal Employment Opportunity Commission has come under congressional fire for a recent shift in its enforcement priorities.

  Republicans in the U.S. House of Representatives told the commission to reign in recent “fishing” expeditions and go back to basics. EEOC should deal with its backlog of complaints instead of looking for new employers to investigate, lawmakers said in the May 22 hearing.

  The agency, which is responsible for enforcing federal nondiscrimination laws in employment, generally investigates discrimination claims made by workers. Recently, however, EEOC has increased pattern-and-practice investigations and has sued companies whose policies potentially violate the law, regardless of whether an employee has complained. And it hasn’t always been successful.

  For example, the commission lost a suit it filed against U.S. Steel for its policy of randomly testing probationary employees for alcohol use. The employer showed that its testing was job-related and consistent with business necessity, earning summary judgment in the case.

  Members of the House’s Subcommittee on Workforce Protections also expressed concern about EEOC v. Evan’s Fruit Co. (No. 2:11-cv-03093 (E.D. Wash.)), a case in which a court said the commission lacked evidence for its claims.

  “[D]oesit serve the best interests of workers and employers when EEOC investigates businesses without evidence of wrongdoing?” Rep. Tim Walberg, R-Mich., asked.

  Backlog

  Lawmakers also expressed concern that these investigations into systemic discrimination are taking resources away from employees who actually have asked for help.

  “The agency has set a goal that up to 24 percent of all litigated cases be systemic in nature,” Walberg, chair of the subcommittee, said, citing EEOC’s strategic enforcement plan. “Meanwhile, a backlog of more than 70,000 discrimination claims by workers continues to plague the commission.”

  The federal government should not divert resources away from workers who believe they have been harmed in order to follow a hunch, he continued. “And we should not be dragging our nation’s job creators through unnecessary and costly investigations without a factual basis of wrongdoing.”

  EEOC’s chair, Jacqueline A. Berrien, replied that the commission has made substantial progress in reducing its backlog. During the past two fiscal years, EEOC resolved more charges than it received, she said. The commission reduced its unresolved private sector inventory by “nearly 20 percent” since 2010, she said.

  Walberg, however, wasn’t satisfied. The commission should handle backlogged and incoming complaints first, he said, and EEOC employees should keep to a minimum “fishing or agenda-producing efforts.”

  General Counsel

  Walberg also questioned whether recent high-profile EEOC losses have been the result of the commissioners giving away too much litigation power.

  “Congress created a commission of five members to ensure accountability within the agency,” he said. “Yet for almost 20 years the commission has delegated that authority to the Office of General Counsel.”

  “One case initiated by the general counsel was later rejected by a federal district judge. The judge described the commission’s actions as a ‘sue first, ask questions later litigation strategy,’” he said, referring to EEOC v. CRST Van Expedited, No. 07-CV-95-LRR (N.D. Iowa 2010). The district court fined the commission $4.6 million for suing without conducting a thorough investigation but was later instructed by the controlling appellate court to reconsider the fine.

  Berrien, however, pointed out that the commission has a higher than 90 percent success rate in its litigation efforts, and that its losses should be viewed alongside its successes.

  I don’t expect you to win every case,” Walberg told Berrien. But it is important to remember that “sometimes the actual workplace knows the best practice better than [EEOC] or Congress,” he said.

  Reps. John Kline, R-Minn., and Larry Bucshon, R-Ind., echoed Walberg’s concerns.
• May 23, 2013

  Employee’s Decision to Quit Absolved Employer from FMLA Obligations, Courts Say

  Once an employee quits his or her job, an employer is not obligated to further inquire about a health condition that may qualify the employee for leave under the Family and Medical Leave Act. When an employee tenders his or her resignation, the employee’s prior medical history is not relevant to determining whether he or she gave adequate notice to invoke FMLA rights.

  So ruled the 6th U.S. Circuit Court of Appeals as it recently affirmed a decision by the U.S. District Court for the Middle District of Tennessee, Nashville Division, to dismiss an FMLA violation claim against a Tennessee electric utility company. The case is Miles v. Nashville Electric Service, No. 12-6028 (6th Cir., May 9, 2013).

  Facts of the Case

  Bilqis Miles worked for 11 years in the civil and environmental engineering department at Nashville Electric Service. In April 2011 took FMLA leave when she hospitalized for a psychotic break.

  One month later Miles submitted a signed medical release stating that she was “capable to return to work without restriction.”

  On her first day back from her leave of absence, Miles received permission from her supervisor to leave work early and left after working a half-day. The next morning she informed her supervisor “that she was not coming back.” When asked to clarify what she meant, Miles said that she was quitting her job at NES.

  Miles testified that she made the decision to resign on her own and that no one at NES tried to talk her into quitting. She wrote a resignation letter that morning and handed it at a neutral site to her supervisor, along with her company ID card.

  Three days later, after discussing the matter with her family, Miles sought to rescind her resignation, but NES refused to reinstate her.

  Four months after resigning, Miles filed a complaint alleging that NES violated her rights under FMLA and NES moved for summary judgment to dismiss the charge.

  Courts Weigh in

  The federal district court found that NES had “no duty to recognize that Miles may not have been fit to return to work … given that she provided a medical release.” The district court also found that Miles’ resignation was voluntary and that NES had no duty under FMLA to allow Miles to rescind her voluntary resignation.

  The circuit court agreed with the district court’s interpretation and found “all of the evidence indicates that Miles communicated to [her supervisor] that she wanted to resign — not take more medical leave — and that she came to this decision absent any coercion.”

  Moreover, Miles conceded in court that after she told her supervisor that she “was not coming back,” he asked “what type of leave she needed,” in an effort to understand the reason for her reported absence. Miles testified that she told him that she wanted to quit her job at NES, not that she wanted to take additional medical leave or that she need more time to recuperate from her psychotic break.

  “Nothing in the record surrounding the circumstances of Miles’s resignation gave NES a reason to think that [she] may have been requesting additional medical leave,” the appeals court concluded. A day before Miles resigned NES had received a fitness-for-duty certification from her health care provider so the company “had a duty to reinstate Miles, not to second-guess her ability to return to work.”

  Employer Takeaway

  Miles’ statements to her supervisor (that she was quitting) were not enough to put the employer on notice of FMLA leave. Even if her unstable mental health condition was a potentially FMLA-qualifying reason, NES did not have an obligation to inquire further as to whether Miles was requesting leave.

  In short, once Miles officially resigned from her position, the employer’s FMLA obligation ended.

  FMLA permits employers to require a fitness-for-duty certification as a condition of restoring the employee whose need for leave was due to his or her own serious health condition. The certification is at the employee’s own expense and there is no entitlement to reimbursement for time or travel costs.

  The need for a fitness-for-duty certification must be communicated to the employee at the same time as notice of eligibility for FMLA leave is given.
• May 23, 2013

  Navigating the Complex Tax Treatment of Same-sex Partner Coverage

  If an employer offers same-sex domestic partner coverage, how should it charge for the coverage? Should the employer impose after-tax payroll contributions and imputed income for the full premium cost of the benefit?

  The quick answer is that charging participants on an after-tax basis and imputing income for the employer-provided portion is the most common practice.But it’s more complicated than that.

  Dependent Status

  Federal law does not recognize domestic partners as dependents unless they meet the definition of “dependent” under Code Section 152. Generally, a dependent under federal law is a qualifying child of an individual or a qualifying relative, and most domestic partners do not meet this definition. The federal tax code says that a “qualifying relative” is an individual with one of the following relationships to an individual:

  1.   a child or a descendant of a child;
  2. a brother, sister, stepbrother, or stepsister;
  3. the father or mother, or an ancestor of either;
  4. a stepfather or stepmother;
  5. a son or daughter of a brother or sister of the taxpayer;
  6. a brother or sister of the father or mother of the taxpayer;
  7. a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister- in-law; or
  8. an individual (other than an individual who at any time during the taxable year was the spouse of the taxpayer) who, for the taxable year of the taxpayer, has the same principal residence as the taxpayer and is a member of the taxpayer’s household. 

  Calculating the Value

  The fact that the majority of domestic partners do not qualify as dependents under federal law means that the value of any health coverage an employer provides to an employee’s domestic partner cannot be excluded from the employee’s income and is income for the employee, subject to federal income, Social Security, Medicare and unemployment taxes, as well as any applicable state or local income taxes.

  To properly tax such coverage, the fair market value of health, dental and vision coverage provided to an employee’s domestic partner is to be included in the employee’s income as imputed income. For an employee to be taxed on that coverage, the employer must determine the FMV of that coverage. And that depends on the cost of the coverage. An employer has several different options for computing the cost.

  For instance:

  1. If the coverage is for the employee and his or her domestic partner, then the FMV is the difference between the amount the employer: (a) contributes for both the employee and the partner, and (b) would contribute for the employee’s coverage alone, minus the amount the employee contributes for coverage after taxes are imposed.
  2. If the coverage is for an employee, an employee’s children and the employee’s domestic partner, then the cost is the difference between the amount the employer: (a) contributes for the employee, the employee’s children, and the partner,and (b) would contribute for coverage of the employee and the employee’s children (assuming that they are qualified dependents of the employee), minus the amount the employee contributes for coverage after taxes are imposed.
  3. If the coverage is for an employee and an employee’s domestic partner and the domestic partner’s children (who are not dependents of the employee), then the cost is the difference between the amount the employer: (a) contributes for the employee, the partner, and the partner’s children, and (b) the amount the employer would contribute for the employee’s coverage alone, minus the amount the employee contributes for coverage after taxes are imposed. 

  Imputed income that results from domestic partner coverage is considered wages and must be reported on an employee’s Form W-2. And the employer has to withhold for FICA, FUTA, Medicare and federal income taxes on the benefits’ value, as well as applicable state or local taxes.

  Marriage

  It is possible that opposite-sex domestic partners could be considered as married legally in states recognizing common law marriage even if they do not participate in a marriage ceremony. In such situations, the employee will not be taxed on the value of the benefits provided to the common law spouse.

  This does not apply to same-sex domestic partners, however, at least as far as federal tax law is concerned. Even if a state recognizes same-sex couples as common-law spouses, that recognition will not translate to the same federal tax treatment of such spouses.

  Employers that provide coverage to same-sex partners who are employees’ spouses because an employee actively married them, rather than passively becoming common-law spouses, face even more complicated tax issues.

  Under the federal Defense of Marriage Act, federal law recognizes only the union of a man and a woman as a marriage. That means that any benefits coverage an employer provides an employee’s same-sex spouse cannot be excluded from federal income tax and are includible income for the employee — and therefore, federal taxes will be imposed.

  State-law Complications

  There are complications with regard to state law as well. Twelve states — Massachusetts, Connecticut, Vermont, New Hampshire, Iowa, Maine, Maryland, Washington, New York, Delaware, Rhode Island and Minnesota — as well as the District of Columbia —recognize same-sex marriages as legal (in California, same-sex marriages entered into between June 17, 2008 and Nov. 4, 2008 are considered legal under California law as well). Three states — New Jersey, Illinois and Hawaii — allow civil unions, through which same-sex couples have most of the rights of married couples in this states. On the other hand, many other states have enacted laws or amended their state constitutions to recognize as legal only a marriage between a man and a woman.

  This wild disparity in the way states approach same-sex marriage means that there is also a wide variation in the way states tax coverage an employer provides to employees’ same-sex spouses. The effect of this is especially acute for multistate employers and employers located near a border between states with disparate treatment of same-sex marriage.

  In the states that have not enacted their own defense of marriage provisions, in which validly performed same-sex marriages can be recognized, favorable state tax treatment generally is available. From a practical standpoint, this means that an employer must subtract, for state tax purposes, any income imputed to the employee for federal tax purposes. In addition, an employer should give the employee the right to make premium payments on behalf of the same-sex spouse on a pre-tax basis for state tax purposes even though contributions are made on an after-tax basis for federal tax purposes.

  Some employers that do not wish to interpret state DOMA provisions simply have a policy that they will impute income for federal and state tax purposes in all cases. In other words, these employers presume that a same-sex spouse does not qualify as a dependent or as a spouse under state law. While this approach simplifies administration, employers should be wary of adopting it because the result may be to impose incorrect taxes and withholding on certain employees.
• May 23, 2013

  D.C. Sues DOL Over Wage Ruling it Says Could Hike Construction Project Costs by $20M

  Washington, D.C. filed a lawsuit May 20 against the U.S. Department of Labor to overturn an agency decision that deemed a major construction project covered by the Davis-Bacon Act’s prevailing wage provisions. Both the district and the project developers claim that applying the DBA could raise construction costs by as much as $20 million.

  The DBA (40 U.S.C. §276a) applies to public buildings and public works.The project in dispute is CityCenterDC, a mixed-use development currently slated for the site of the city’s old convention center. The district contends that the DBA should not be applied to  the development because it is privately constructed and financed and will be privately owned, operated and occupied. DOL’s standpoint is that the project is a public-private partnership, making it different from typical private-sector development projects, and therefore subject to DBA provisions. The lawsuit is District of Columbia v. United States Department of Labor et al, No. 13-cv-00730 (D.D.C. May 20, 2013).

  The project is particularly difficult to categorize because of the structure of the agreement between the developers and the city. Often, government bodies transfer titles for property to private entities for improvement and then lease the improvements for governmental use. In contrast, the CityCenterDC project involves long-term, 99-year leases of public government land to private developers. The D.C. government will not be occupying any of the new buildings.

  DBA

  The DBA of 1931 is the oldest of a group of federal contracting minimum wage laws. Since the DBA was instituted, other related acts also have been enacted, including so-called “Little Davis-Bacon Acts” that control some state and local government procurement practices.

  Under the DBA any contract over $2,000 that the federal government or D.C. is a party to must include provisions stating that workers will receive a minimum wage and fringe benefits equal to prevailing wages in the area. The requirement applies to laborers and mechanics on federally financed projects. DOL sets the minimum prevailing wage and fringe benefit rates in localities by occupation and publishes the wage determinations, which must be incorporated directly into the government contract. Generally, DBA wages exceed the federal Fair Labor Standards Act minimum wage of $7.25 per hour.

  Background

  Plans to redevelop the former site of the Washington Convention Center started in 2000. Following a lengthy process to find a development partner and negotiate contracts and details, the CityCenterDC redevelopment plan was approved. A final contract with the developer was signed in 2007. In April 2009, a carpenters’ union requested a ruling from DOL’s Wage and Hour Division on whether the project was subject to the DBA. On Aug. 30, 2010, the chief of WHD’s enforcement branch notified the union that DBA was not applicable to the project. The union asked for reconsideration of the matter in October 2010.

  In June 2011, the acting WHD Administrator overruled the earlier determination and issued a final ruling that said the DBA did apply to the CityCenterDC project. Construction on the project had already started by then. The final ruling said the project would serve the interests of the general public, which would make it subject to the DBA. The developers and the district challenged the administrator’s decision, which was affirmed by DOL’s Administrative Review Board on April 30, 2013.

  The ARB held that the lease contract between the city and the developers in this particular case qualifies as a DBA construction contract. The ARB also found that the district had authority over what would be built on the site and how it would be built, making it a public work. Under the DBA a public work has to be carried on directly by the authority of the district. The ARB rejected the argument of the developers and the district that a public work’s primary purpose has to be to benefit the public interest and that the CityCenterDC project did not qualify under those terms. The ARB said that while the developer might be motivated by private economic gain, the CityCenterDC project also offered significant public benefits to the city.

  D.C. Lawsuit

  The district and CityCenterDC developers claim that the DBA provisions, if applied, would increase the cost of the project by as much as $20 million. None of the DOL rulings addressed whether those additional costs are to be borne by the district or the developers. However, both parties expressed their belief that the DBA does not apply to the project.

  On May 20, the district filed a lawsuit arguing that the ARB’s decision was “arbitrary, capricious, an abuse of discretion, and is otherwise not in accordance with the law.”

  According to the district’s complaint, CityCenterDC’s current design includes 520,000 feet of office space, 458 residential rental units, 216 for-sale residential units, 295,000 square feet of retail space, 1,555 parking spaces, a high-end hotel with 300 to 400 rooms, a public plaza and a public park. The complaint notes that no public funds are being used to pay for or fund the construction project. “This unprecedented decision by the Labor Department is contrary to 80 years of jurisprudence and poses a very serious danger to many other construction projects in the District. There are many projects in D.C. that are privately financed that may result in incidental tax and employment benefits for the city, but that does not convert them into public buildings or public works. We had no choice but to sue, the Labor Department’s decision must be set aside,” said D.C. Attorney General Irvin B. Nathan.

  Employer Take-away

  The FLSA is not the only wage law that applies to workers, particularly those that could be considered subject to a federal contract. Employers should keep close tabs on how DOL views some of these complicated contracting relationships to avoid possible problems.

  For Additional Information about Contracting Laws

  Public employers should turn to ¶126 of Fair Labor Standards for Public Employers. Private employers can consult ¶126 of Fair Labor Standards for Private Employers. 
• May 23, 2013

  Failing to Engage in Interactive Process Not Per Se an ADA Violation

  When an employer fails to participate in the interactive process of finding a workplace accommodation for an employee with a disability, that misstep can be used as evidence of discrimination. Such a failure is not, however, an ADA violation when it stands alone, the 7th Circuit ruled in Basden v. Professional Transportation, Inc., No. 11-2880 (May 8, 2013), reinforcing its precedent on the issue.

  Facts of the Case

  Terri Basden worked as a dispatcher for Professional Transportation, Inc. PTI’s attendance policy called for employees to be fired after eight absences in a year. When Basden began experiencing symptoms that were later diagnosed as Multiple Sclerosis, she quickly accumulated seven absences.

  She provided doctors’ notes for each absence — some of which included emergency room visits — and requested a month-long leave of absence usually reserved for employees with a year’s tenure. Because she had not been with PTI for a year, her request was denied.

  She was absent an eighth time and PTI fired her. Basden filed suit, alleging that PTI had failed to accommodate her disability and failed to engage in the interactive process of finding an accommodation. The U.S. District Court for the Southern District of Indiana granted summary judgment for the employer and Basden appealed.

  Failure to Accommodate

  On appeal, the 7th Circuit found that Basden failed to show that she was qualified to perform the essential functions of her job, with or without a reasonable accommodation — a prerequisite to proceeding with an ADA claim.

  Basden was not qualified because there was no reasonable accommodation that would allow her to do her job. She failed to show that the requested month off would have allowed her to return to work without erratic attendance issues. At the time she was fired, Basden was waiting to see an MS specialist. However, she provided the court with no evidence that her symptoms improved after she began treatment. She also testified that her condition worsened after leaving PTI. At her next job, while receiving medical treatment, she needed more time off.

  Employers generally are permitted to treat regular attendance as an essential job requirement and need not accommodate erratic or unreliable attendance (¶359-1), the court said, quoting its 2001 holding in EEOC v. Yellow Freight System, Inc (253 F.3d 943 (2001). “[A]t the time of Basden’s termination, she had … no anticipated date by which she could have been expected to attend work regularly even if she had been granted leave,” the court said, dismissing her accommodation claim.

  Interactive Process

  Basden then argued that PTI ran afoul of ADA when it failed to engage in the interactive process of looking for a reasonable accommodation.

  The “interactive process” is an informal, interactive discussion between the employer and the individual who needs an accommodation. During this process, the employer and employee identify the limitations imposed by the disability and available accommodations that would overcome those limitations to enable the employee to perform the essential functions of the job. It generally takes place after an employee requests an accommodation, although employers may have to initiate the process in certain, limited situations (see ¶325).

  The 7th Circuit, and most other courts, have held that there is no independent legal violation of ADA for failing to engage in the interactive process. Usually, such a failure is merely evidence in a “failure to accommodate” claim.

  While the Basden court said it could not “conclude that PTI’s response to Basden’s request was appropriate under the ADA,” it also could not find that it had violated the law.

  The failure to engage in the interactive process ADA requires is not an independent basis for liability under the statute, the court said. “Even if an employer fails to engage in the required process, that failure need not be considered if the employee fails to present evidence sufficient to reach the jury on the question of whether she was able to perform the essential functions of her job with an accommodation,” the 7th Circuit continued, citing its earlier rulings in Rehling v. City of Chicago, 207 F.3d 1009, 1016 (2000) and Bombard v. Fort Wayne Newspapers, Inc., 92 F.3d 560, 563–64 (1996).

  Because Basden was not a qualified individual, the 7th Circuit upheld summary judgment for PTI, “despite any shortcomings in PTI’s response to her request.”

  Employer Take-away

  Despite PTI’s success in Basden, risk-adverse employers still may want to participate in ADA’s interactive process for several reasons.

  First, employers in the 9th Circuit are subject to case law that opposes the 7th Circuit’s position. There “is a mandatory obligation to engage in an informal interactive process,” the 9th Circuit said in Vinson v. Thomas, 288 F.3d 1145 (2002). The ruling applies to employers in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. Likewise, state law in California and case law in Connecticut and New Jersey suggests that the interactive process is required in those states (see ¶714 and Fig. 710).

  But even for other employers, the decision to ignore the interactive process remains a risky choice. The 7th Circuit found that PTI did not violate ADA because it was later discovered that a month of leave would not have allowed Basden to return to work. Had Baden’s condition improved with treatment, the case may have ended differently.

  Good faith participation in the interactive process can provide a defense to the employer if the employee later sues, the 3rd Circuit explained in Taylor v. Phoenixville School Dist., 184 F.3d 296 (1999). The Taylor court said that an employer can show good faith in the interactive process by:

  1. meeting with the employee who requested an accommodation;
  2. requesting information about the condition and what limitations the employee has;
  3. asking the employee what he or she specifically wants;
  4. showing some sign of having considered the employee’s request; and
  5. offering and discussing available alternatives when the request is too burdensome.

  Moreover, the effort the employer puts into finding an accommodation bears a direct relationship to potential damages in a failure-to-accommodate suit, even if the employer is still found to have violated ADA in some way. When an employer can show a good faith effort in consultation with the employee who needed accommodation “to identify and make a reasonable accommodation that would provide such individual with an equally effective opportunity,” punitive and certain compensatory damages may not be awarded (42 U.S.C. §1981a). Some courts have found the employer is not liable for discrimination at all when it makes a good faith effort to accommodate, although others merely limit damages.

  For more information on the interactive process, see ¶325 of the Guide.
• May 22, 2013

  States Continue Push to Protect Employees' Social Media Accounts

  State legislative proposals continue to advance that would prohibit employers from asking if their employees or prospective employees have social media accounts. In early May, Colorado and Washington enacted social media account protection laws. Oregon is likely to do the same; a recently passed bill now awaits action from the governor. In New Jersey, a strict bill was conditionally vetoed; however, Gov. Chris Christie (R) has offered amendments that would satisfy his concerns.

  Beginning in 2012, legislation to protect access to social media accounts was enacted, introduced or is currently pending in nearly two dozen states, including Delaware, Illinois, Maryland, Michigan, New Mexico and Utah.

  Social media account protection is a recent legislative focus, emphasizing employee privacy

  Protecting social media accounts became a legislative emphasis after employers began asking their employees for access to their Facebook or Twitter accounts. Some of those employers argue that access to non-public, personal accounts is needed to protect trade secrets or protect the employer from legal liabilities. Other times, employers are concerned with legal risks if employees leak information or disparage clients when using social media. Thus, to head off such risks, many employers have asked for their employees' account passwords.

  However, employees and many legislators consider requiring access to personal accounts an invasion of employee privacy, because these accounts frequently contain personal messages and other private or sensitive information. As many employees argue, the fact that their private accounts are password protected means that they are private.

  The employees' privacy arguments struck a chord with legislators across the country, and spurred the proposals and enactments of varying social media account protection bills. Some bills and laws apply to private-sector employees only, while others apply to both private- and public-sector workers. Others create similar protections for college students, while still others grant employers the right to access these accounts under limited circumstances.

  Colorado prohibits requesting passwords from prospective and current employees

  Colorado's new law, A Bill for an Act Concerning Employer Access to Personal Information Through Electronic Communication Devices (H.B. 1046), forbids employers from requiring or requesting that prospective and current employees disclose their username and password to their personal social media accounts. The term "employer" is defined broadly to mean a person engaged in a business, industry, profession, trade or other enterprise in the state (or a unit of the state or local government), including an agent, representative or designee. Gov. John Hickenlooper (D) signed the law on May 11.

  Washington bars requesting passwords from prospective and current employees, with exception

  Washington's law, S.B. 5211 signed by Gov. Jay Inslee (D) on May 21, prohibits employers from asking for social media personal passwords during a job interview or at the workplace. It also prohibits employers from forcing workers to connect with each other so that their profile is viewable.

  The law does, however, allow employers to request "content" of employee social media sites during internal investigations. In such situations, an employee's account can be opened if an employer has received a tip that a worker may be leaking information.

  Oregon bill awaits governor's decision, prohibits employers from requiring social media access

  A bill passed by the Oregon legislature on May 16, H.B. 2654, would prohibit employers from requiring workers to "friend" or connect with them on social media. It also would ban bosses from forcing employees to access their social media accounts in front of them. As part of a workplace investigation, however, an employer could ask employees to share content from their social media accounts. The bill is awaiting signature or veto from Gov. John Kitzhaber (D). A similar bill intended to protect students is making its way through the legislature (S.B. 344).

  New Jersey legislature will reconsider its bill with Gov. Christie's amendment recommendations

  On May 6, Gov. Christie issued a conditional veto of New Jersey's version of social media password protection legislation, A.B. 2878. The governor recommended several amendments in his veto, noting that while the bill itself had good aims, it nevertheless placed restrictions on employers that were greater than those in other states. For example, the bill would prohibit employers from even asking if potential employees have social media accounts, and would punish such questioning with financial penalties of up to $2,500 per violation.

  Christie's recommended amendments include:

  • deleting the bill provision that prohibits employers from requiring or requesting that an employee or prospective employee disclose whether he or she has a social networking account;
     
  • removing the grant of a private right of action to aggrieved employees and prospective candidates against employers;
     
  • adding language granting employers the right to conduct investigations to ensure compliance with applicable laws, regulations or “prohibitions against work-related misconduct” based on specific information on an employee’s personal account and also the right to investigate employee’s actions regarding the transfer of certain proprietary information to an employee’s personal account; and  
     
  • adding language granting employers the right to view, access or utilize information about current or prospective employees that can be obtained in the public domain.

  Employers should monitor state activity

  In light of the growing interest in passing social media password protection legislation, employers should keep track of legislative activity in their states. The states where social media password protection legislation has been introduced or is pending include Arizona, Arkansas, Connecticut, Georgia, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, North Dakota, Ohio, Rhode Island, Texas, Vermont and West Virginia.

  Even employers in states that already have laws in place should track legislative activity, because just as social media constantly evolves, so do those laws. For example, California legislators already proposed amending that state’s law to make it applicable to public-sector employees.

More

• May 22, 2013

  Possible Exchange Problems May Help Boost Self-funding

  In this world of uncertainty, the self-funded industry needs to establish that our products and services are the best option to reduce the cost of health care and expand coverage to all. This has added importance because if the health insurance exchanges do not do well and insurers begin to pull out, the public’s knee-jerk reaction may be that the country needs a government-run single-payer system, since everything else has failed. 

  Many in the self-funded industry say such a system seems to be the administration’s ultimate goal. Maybe the government would even welcome failure of state-level exchanges (the speculation goes) because that way a single-payer model becomes more appealing. Let’s see if this hypothesis comes to pass.

   

  This summer, the government plans to mount a public relations and recruitment effort to educate the nation about the health reform law and the exchanges, in order to sign up as many people as possible when open enrollment begins this fall. 

   

  The application for individuals to get exchange coverage had to be reduced to less than five pages for a single applicant not needing financial support (to make it easier to fill out), it was announced around May 1. The form for individuals to get into an exchange was initially 21 pages, embarrassing the government with complaints that it was not user friendly.

   

  Insurers have much riding on the success of the summer recruiting effort and subsequent fall enrollment in the exchanges. If the recruitment is successful in luring millions of young, healthy enrollees into exchanges, insurers stand to acquire a large chunk of subsidized new customers. On the other hand, if primarily the sick take the time to sign up, it might become an unsustainable and costly disaster — and it’s doubtful that insurers will want to continue participating in the exchanges. However, this would come with a heavy consequence: If insurers decide to not offer exchange coverage, states may prohibit them from selling any insurance in the state in retribution.

   

  What’s bad news for employers seeking exchange coverage — in 2014 at least — is the fact that national insurers are absolutely swamped just trying to prepare coverage options for numerous state exchanges. Insurers say they are so battered by the health reform law that they predict 50-percent to 200-percent premium increases for 2013. 

   

  The good news is that employers, including small employers, are not planning to take the easy way out and simply dump their employees into exchanges and pay the fine. Employers have realized that their employees would be unhappy with losing their employment-based benefits. Therefore, employers are being loyal to their employees and will continue to offer health benefits while the state and federal governments desperately enroll individuals into the exchanges.

   

  The other good news is that the insurer’s problems in getting ready for the exchanges is a huge boost to employers choosing to remain self-funded or looking at this option for the first time. In the world of self-funding, there are no profit margins and the industry has had strict transparency of fees and reporting since ERISA was enacted in 1974. Self-funding allows greater custom design of benefits offered in order to meet the specific needs of each workforce. Thus, it gives the most bang for the buck for both the employer and employee. Even many doctors and other providers are now beginning to see self-funding as a great way to be paid reasonable fees in light of health reform. In the not so distant past, they did not like self-funding since they were so comfortable with the large insurers.

   

  Now, if only the federal government, instead of attempting to eliminate self-insurance, would look at our industry as the blueprint for the nation. 

   

  See Section 150 and Section 810 of the New Health Reform Law: What Employers Need to Know for more information on the impact of state-run exchanges on self-insured health plans. For more of the latest news and information pertinent to self-insuring your health plan, go to the Employer's Guide to Self-Insuring Health Benefits.

   

  Adam V. Russo, Esq. is the co-founder and CEO of The Phia Group LLC, a cost containment adviser and health plan consulting firm. In addition, Russo is the founder and managing partner of The Law Offices of Russo & Minchoff, a full-service law firm with offices in Boston and Braintree, Mass. He is an advisor to the board of directors at the Texas Association of Benefit Administrators and was named to the National Association of Subrogation Professionals Legislative Task Force. Russo is the contributing editor to Thompson Publishing Group's Employer's Guide to Self-Insuring Health Benefits.
• May 21, 2013

  Fourth Circuit Enforces Waiver of Beneficiary Rights in Domestic Relations Order

  A properly named beneficiary of an ERISA-covered plan may waive his or her right to receive the plan benefit under state domestic relations law, and those waivers can be enforced without interfering with ERISA plan administration, the U.S. 4th Circuit Court of Appeals recently ruled. The decision is similar to that in a case from the U.S. District Court from the Western District of Michigan which we profiled in last quarter’s column but has a broader impact, since it was handed down by  a federal circuit court.

  ERISA-covered employee benefit plans must pay death benefits to a participant’s beneficiary who has been properly named under the procedures the plan document outlined, regardless of any state-law claim that the beneficiary had waived his or her right to receive the benefit. This point was made abundantly clear by the U.S. Supreme Court in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009). The Supreme Court left open the question, however, of whether a plan beneficiary’s waiver of his or her right to retain the benefit once it has been distributed from the plan may be enforced against that beneficiary. This was the issue presented to the 4th Circuit in Andochick v. Byrd, 709 F.3d 296 (4th Cir. 2013).

  Background of the Case

  Scott Andochick and Erica Byrd were husband and wife. Erica earned a benefit under  her employer’s 401(k) and life insurance plans. Erica filed separate beneficiary designations with each of the plans, both naming Scott as the beneficiary.  Subsequently, Scott and Erica divorced, and the final divorce judgment incorporated their marital settlement agreement. The agreement provided that Scott waived all interest in Erica’s 401(k) account, death benefit and the life insurance death benefit. The agreement further provided that Scott agreed to complete any documentation required to comply with the agreement. Erica then died before she had filed any new beneficiary designations for the survivor benefits with the 401(k) or life insurance plans.

  Both administrators of the plans separately determined that the survivor benefits under each of the plans must be paid to Scott, because he was the properly designated beneficiary under the terms of the plan. This determination was consistent with the Supreme Court’s decision in Kennedy. Erica’s parents, the Byrds, as the administrators of her estate, appealed the administrators’ decisions. The administrator of the 401(k) plan affirmed its decision, but the life insurance plan administrator could not reach a decision and stated it intended to file an interpleader action, which would deposit the benefit with a court and have the court determine who was the rightful recipient.

  Scott refused the Byrds’ request to sign waivers of the benefits under the terms of the final divorce judgment. Instead, Scott filed an action in the U.S. district court in Virginia seeking a declaration that the waiver provisions in the final divorce judgment were preempted by ERISA and, therefore, unenforceable against him. In response, the Byrds filed an action across the Potomac River in Maryland state court to enforce the waivers in the final divorce judgment. The Maryland court found Scott in contempt of the final divorce judgment, and ordered him to relinquish any interest in Erica’s plan benefits.

  The Byrds returned to federal court in Virginia — which had stayed its proceedings until the Maryland court action was resolved — seeking to dismiss Scott’s declaratory judgment action. The district court agreed with the Byrds and directed the plan administrators to pay the benefits to Scott. At the same time, the court required Scott to waive his claim to these benefits and distribute them to Erica’s estate according to the state court’s order. Scott appealed this decision to the 4th Circuit.

  The 4th Circuit agreed with the district court that the Supreme Court’s Kennedy decision required the plan administrators to pay the benefits to Scott, because Scott was the only beneficiary properly named according to the terms of the ERISA-covered plans. But that was not the end of the analysis of whether Scott could keep the benefit. 

  The 4th Circuit noted that the Kennedy decision was based on three important ERISA objectives:

  1. simple plan administration;
  2. avoiding double liability for plan administrators; and
  3. ensuring that plan beneficiaries receive their benefit quickly, without the nonsensical administrative dealings caused by vague rules. 

  None of these ERISA preemption concerns would be infringed, the appellate court found, by allowing post-distribution actions to enforce a state-law waiver. 

  In particular, the 4th Circuit found that enforcement of the waiver does not prevent the ERISA beneficiary from quickly receiving the benefit; it merely prevents him from keeping what he quickly received. The court cited a case with nearly identical facts from the 3rd Circuit, Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131 (3d Cir. 2012), in which the court stated that “the goal of ensuring that beneficiaries ‘get what’s coming quickly’ refers to the expeditious distribution of funds from plan administrators, not to some sort of rule providing continued shelter from contractual liability to beneficiaries who have already received plan proceeds.”

  The 4th Circuit also cited several other state law decisions that had reached similar results. As a result, the 4th Circuit held that ERISA does not preempt post-distribution suits against ERISA beneficiaries, and affirmed the district court order requiring Scott to turn over the benefits to Erica’s estate.

  Plan sponsors and administrators should find comfort in the Andochick decision because federal courts are maintaining the clear obligations of plans to pay benefits according to the terms of their ERISA-covered plan. The courts also are willing to back plan administrators’ determinations, and will resolve the claims of competing beneficiaries. But it remains crystal clear that plan administrators must pay benefits according to the terms of the written plan document and participants’ beneficiary designations properly completed in line with those terms.

  Todd B. Castleton is senior counsel with Proskauer Rose’s Employee Benefits, Executive Compensation & ERISA Litigation Practice Center in the firm’s Washington, D.C., office and is a contributing editor of the Guide to Assigning & Loaning Plan Money.
• May 17, 2013

  Navigating the Maze of FMLA Certifications and Recertifications

  Administrating and monitoring Family and Medical Leave Act leave is a complex enough task, but the area of medical certifications can be particularly difficult to grasp, even for seasoned human resources professionals. Not only must an employer protect its own interests and curb FMLA leave abuse, it must also stay within the bounds of the FMLA’s medical certification rules to avoid FMLA interference and retaliation claims.

  Medical Certifications for Serious Health Conditions

  According to FMLA, employees with serious health conditions are entitled to 12 weeks of unpaid leave, with a guaranteed right to return to their jobs. A serious health condition is an illness, injury, impairment or physical or mental condition that makes the employee incapable of performing essential job functions, and must also meet one of six benchmarks, including:

  1. periodic incapacity;
  2. certain chronic conditions that cause episodic incapacity;
  3. permanent or long-term incapacity; and
  4. conditions that require the employee to be absent to receive multiple treatments.

  Although not mandated by FMLA, an employer may require certification from an employee’s health care provider for leave based on a serious health condition. Once requested, the certification must be returned within 15 days. If an employee cannot meet the 15-day deadline, he or she must make a diligent, good faith effort to return the certification as soon as practicable under the circumstances.

  If the employee’s submitted medical certification form is incomplete or insufficient, the employer first must advise the employee in writing of the additional information that is needed to complete the form before it can contact the doctor directly. The employee has seven calendar days to obtain the necessary information to complete the form (or longer, if the employee can demonstrate diligent good faith efforts).

  A certification is considered insufficient if it contains information that is vague, ambiguous or non-responsive. In assessing a medical certification for a serious health condition, an employer may consider information received about an employee’s medical condition obtained while trying to determine disability status under the Americans with Disabilities Act, a workers’ compensation program or qualification for benefits under a disability plan.

  Clarification and Authentication of Medical Certifications

  An employer also has a limited right to contact an employee’s health care provider to discuss the medical certification form. Only certain specified agents of the employer, such as the HR professional or leave administrator, may contact the employee’s doctor for purposes of authenticating information. Importantly, an employee’s direct supervisor is expressly prohibited from contacting the health care provider. The employer may only clarify and authenticate information on the medical certification.

  Authentication means verifying that the health care provider actually filled out and signed the form. Clarification means understanding the handwriting on the form or understanding the meaning of a response. An employer may never seek information from a health care provider that the certification form itself does not request.

  While employers are sometimes concerned about violating the Health Insurance Portability and Accountability Act of 1996 if they directly contact an employee’s health care provider, those concerns are unfounded. The HIPAA obligation is between the doctor and the employee, not with the employer. FMLA specifically requires that the employee and/or health care provider clarify the necessary information, and the employer may deny FMLA leave on grounds that the certification form is unclear. Thus, it is the employee’s responsibility to authorize the health care provider to speak with the employer when necessary.

  The employer also has the right to obtain second and third opinions, at its own expense, if it has reason to doubt the validity of the certification. To aid in the second/third opinion process, an employee must authorize the release of relevant medical information to the second and third opinion health care providers, if those health care providers request it. Failure to authorize the release of this information also is grounds for denying FMLA leave.

  Recertification and the ‘30 Day Rule’

  An employer may not request recertification more than every 30 days and only in connection with an absence. If the duration of the medical condition is longer than 30 days, then the employer must wait that longer duration to seek recertification. However, in all circumstances, an employer is permitted to request recertification once every six months in connection with an employee’s FMLA absence, even if the certification states that the requested leave is for a permanent, lifetime condition.

  Recertifications may be requested more frequently than every 30 days in the following circumstances:

  • the employee requests an extension of his leave;
  • circumstances stated in a previous certification change significantly (for example, duration or frequency of absence or the nature or severity of illness); or
  • the employer receives information that casts doubt on continuing validity of employee’s certification.

  In addition, in connection with a recertification, an employer may provide an employee’s health care provider with a record of the employee’s absence pattern and ask the health care provider if the employee’s serious health condition and need for leave is consistent with the employee’s pattern of absences.

  What Constitutes Diligent, Good Faith Efforts?

  Under FMLA regulations, an employee must return a medical certification or recertification within 15 calendar days. If the employee fails to do so, the employer may deny FMLA coverage to the employee until the certification is provided. Therefore, any absences in the interim are unexcused and could subject the employee to discipline under the employer’s attendance policy, up to and including termination.

  An employee who fails to meet the 15-day deadline can still save an FMLA claim if she can establish that she was engaging in “diligent, good faith efforts” to return the certification on time. But what, precisely, are diligent, good faith efforts?

  In its holding in Brookins v. Staples Contract & Commercial, Inc., 2013 U.S. Dist. LEXIS 18590 (D. Mass. Feb. 12, 2013), the U.S. District Court for the District of Massachusetts has finally given employers some direction in this complicated aspect of FMLA administration.

  In this case, Brookins called her two primary physicians and asked them to complete the FMLA certification requested by her employer, Staples. When her doctors refused to complete the form, Brookins did absolutely nothing further to obtain the certification, and didn’t request an extension to return the certification until after the 15 days had passed.

  The court dismissed Brookins’ FMLA claim, finding that the exception to the 15-day rule did not apply. In doing so, the court listed several things Brookins could have done to show that she was engaging in diligent, good faith efforts to obtain complete and sufficient certification.

  • When her two primary physicians initially declined to fill out the form, Brookins could have contacted them again to explain the importance of completing the certification.
  • Brookins could have asked any one of her three treating specialists to complete the form.
  • She could have mailed the form to any of these doctors.
  • She could have hand-delivered the form to any of these doctors.
  • Most important, Brookins could have contacted Staples to explain her difficulties in obtaining a timely certification, and requested an extension before the expiration of the 15-day deadline.

  What Should Employers Take Away from the Brookins Holding?

  Under FMLA regulations, employers have the right to request and obtain complete and sufficient medical certification to support an employee’s absence due to an alleged serious health condition. Moreover, employees must return a completed certification (or recertification) within 15 days of their employer’s request, unless it is not practicable under the particular circumstances for them to do so despite diligent, good faith efforts.

  The Brookins holding now gives employers a guidebook as to what actions by an employee will constitute diligent, good faith efforts. If an employee fails to return requested medical certifications, and fails to act diligently and in good faith, an employer is well within its rights to:

  1. convert absences to unexcused absences;
  2. discipline employees under established attendance and vacation/sick policies; and
  3. deny FMLA leave.

  Brookins is a very useful decision for employers struggling with employees who fail to return their FMLA paperwork, and can be used to support discipline and/or termination of employment.

  Dena B. Calo is Director of Genova Burns Giantomasi & Webster’s Human Resource Practices Group. Calo provides employment law counseling, including preparing and reviewing employee handbooks, establishing and auditing human resources policies and procedures and conducting on-site investigations. Calo also trains organizations on best human resource practices.

  EileenFitzgeraldAddison of Genova Burns Giantomasi & Webster specializes in employment law counseling and human resources best practices training. Addison has represented employers in employment law litigation matters in administrative, state and federal courts involving claims of discrimination, harassment, wrongful termination, whistle-blowing, employment-related torts and violations of restrictive covenants.
• May 17, 2013

  Conducting an FMLA Self-audit

  Given the large volume of complaints filed and cases litigated under the Family and Medical Leave Act, many organizations have recognized the need to protect themselves through FMLA “self-audits.”

  A self-audit is a tool designed to help the employer evaluate the strengths and weaknesses of its human resources policies and procedures. Self-audits can raise important questions and identify problem areas, both in HR policy design and its implementation across the workforce. They also minimize employer liability exposure and employment-related claims that easily can reach into the range of six figures in a single proceeding.

  FMLA does not specifically require an employer to conduct a comprehensive self-audit of its statutory leave policies. However, the increasingly complicated nature of the federal leave law makes the use of periodic audits important to avoid legal landmines.

  Not ‘Completely Confidential’

  When conducting an audit, employers should recognize that discussions and notes regarding the audit ordinarily will be subject to discovery during subsequent litigation. Plaintiffs’ counsel could use these discussions and notes as a “road map” to potential areas of weakness in a lawsuit, or even to prove the employer’s liability.

  Employers may apply several privileges to limit the use of audit information. However, privileges apply only in limited circumstances, and it may be extremely burdensome, if not impossible, to satisfy all of the legal requirements for certain privileges.

  Therefore, employers should conduct audits and investigations, even when using attorneys, as though the information generated will later be discoverable. Before undertaking an audit, you should consult with legal counsel to determine the applicability of any privileges and what steps can be taken to preserve any privileges that are potentially applicable. In general, do not assume that any audit will be completely “confidential.”

  FMLA Self-audit in Four Phases

  There are many ways to approach an examination of FMLA policies and practices. One method is to look at compliance through the following four phases of FMLA administration:

  FMLA Leave Policy Design

  In many senses, the first phase — focusing on policy design, as well as employee and manager comprehension of its provisions — is most critical.

  Employers must clearly explain the covered reasons for leave, such as the recent amendments that mandate leave for both qualifying exigencies and military caregiver leave as it applies to service members.

  Most employers will want to choose how they calculate applicable 12-month leave years. For example, the “rolling” method is frequently selected to prevent “stacking” of leave entitlements from two leave years. It also will be desirable to designate the shortest increment of time used to account for leaves of any type (but that period can be no greater than one hour).

  Employers should describe medical certification forms and their use, including the potential for recertification if:

  1. a condition extends beyond the period covered in the initial certification;
  2. circumstances described in the prior certification change significantly; or
  3. the employer receives information that casts doubt on the stated reason for absence. 

  The employer should decide on — and communicate in its policy — requirements to use paid time off, vacation, sick or other leave concurrently with FMLA leave. Finally, return-to-work procedures — for example, requiring a release from a health care provider indicating that an employee can perform essential job functions — should be specified as well.

  FMLA Leave Initiation

  One point in the FMLA leave process that can lead to misunderstandings (and conflict, on some occasions) involves the initiation of protected leave. In this regard, employers need to educate supervisors regarding the organization’s policies and how they should handle requests for leave for medical reasons (for example, when to refer to HR, the employee benefits department, or other designated official). 

  Similarly, supervisors need to improve their coordination of leave issues with the designated leave administrator, as many employees commence leave before those outside the department are even aware of the situation.

  The organization should be certain to ensure consistency in the handling of FMLA paperwork. This is most easily accomplished if the medical-leave decision-making process is centralized. 

  Finally, be sure to review FMLA leave forms in the wake of regulatory changes. Some employers are still using forms generated before the agency’s regulations underwent substantial revisions in 2008.

  FMLA Leave Management

  When it comes to managing the FMLA process, one helpful focus is on whether the organization has adopted a uniform tracking system for protected leaves. This step is increasingly important because of the overlapping protections provided by other statutes, such as the potential coverage of leave as a reasonable accommodation under the Americans with Disabilities Act, and certain state leave and reinstatement protections under workers’ compensation laws. 

  While a coordinated understanding of relevant protections is important, employers typically should avoid excessive entanglement between the FMLA process and considerations relevant to short-term disability applications as the qualifications and entitlements most likely differ for each form of protection. 

  Continued payment of health care premiums on a normal basis during periods of protected leave for qualified employees is important, and may require coordination with those bearing benefits administration responsibilities. 

  With respect to recertification of the justification for leave, the organization should be sure to comply within the constraints of the U.S. Department of Labor’s regulations (for example, not requesting recertification every 30 days on a blanket basis).

  Intermittent leave poses multiple challenges to most organizations, and there are many “fine points” to incorporate into the employer’s policies, practices and self-analysis. Among these is the continued vitality of valid intermittent leave certifications for six months, even if unused by the employee over a period of multiple months.

  FMLA Leave Conclusion

  Another critical point in the FMLA process is the conclusion of leave and the reinstatement of the employee to the workforce and the same (or equivalent) position. This is another phase at which coordination between supervisors and the centralized leave administration contact is key, and one which makes reliable and comprehensive leave-tracking critical. 

  Other important issues for review include the implementation of requirements for release by a health care provider, restoration to benefits coverage (if interrupted during leave), and a procedure for consultation with counsel if:

  1. reinstatement is problematic;
  2. additional leave is sought —such as a reasonable accommodation for a disability; or
  3. the leave statute’s “key employee” exemption could conceivably come into play.

  Tailoring the Compliance Effort

  As these illustrations suggest, there are multiple policy points and steps to implementation that should be part of an effective FMLA compliance audit. Of course, these highlighted factors do not account every aspect of the federal regulations. 

  In tailoring the compliance effort and assessment to the organization’s specific circumstance, employers also should be certain to incorporate unique factors and requirements relating to:

  1. relevant state or local leave law requirements;
  2. the provisions of the organization’s leave and benefit policies; or
  3. the terms of applicable collective bargaining agreements covering some or the entire workforce. 

  An organization should enter into a process of critical self-analysis regarding leave compliance only if it intends to correct problems that are discovered, and if sufficient time and resources are available to improve current approaches, if necessary. (Greater problems might result if the organization’s violation of legal mandates becomes “knowing” or intentional once the analysis creates such awareness.) 

  An audit is merely the first step in preventing and confronting potential FMLA compliance problems. Once problems are identified, employers must act to correct policies, procedures, and practices that are inconsistent with the employer’s goals or legal requirements.

  FMLA compliance audits should not be regarded as one-time events, but rather as an ongoing process that must be engaged in with regularity as circumstances and legal requirements change.

  Peter Susser is a partner at Littler Mendelson in Washington, D.C. and is the author of the Family and Medical Leave Handbook and a member of its editorial advisory board. His views are not necessarily those of Thompson Publishing.
• May 16, 2013

  What Should an Employer Do When COBRA, HIPAA and FMLA Intersect?

  Occasionally, employers experience difficult decisions when it comes to federal laws. Following are COBRA issues to consider when dealing with HIPAA’s portability rules and Family and Medical Leave Act requirements.  

  HIPAA

  HIPAA’s portability provisions (in Title I of the law) changed three areas under the COBRA rules: (1) definition of a qualified beneficiary; (2) duration of COBRA; and (3) the disability extension.

  Definition of a Qualified Beneficiary

  Before HIPAA was enacted, a qualified beneficiary included an employee, spouse and dependent child covered under the group health plan the day before the qualifying event occurred. HIPAA changed this, allowing a child born to or placed for adoption with the covered employee during a period of COBRA coverage to also be a qualified beneficiary.

  Does it really matter? Yes, there are circumstances when it would be beneficial to allow a newborn, an adopted child or child placed for adoption to obtain qualified beneficiary status.

  Cost is one circumstance, because paying for COBRA premiums can be expensive. One way to make it less costly is for just one qualified beneficiary to remain on COBRA coverage.

  Example. A former employee and spouse elected and paid for COBRA coverage. While on COBRA, a child was born to the former employee. Due to the newborn’s medical expenses, the employee only wants coverage for the newborn. Can the newborn remain on COBRA coverage without the parents?

  The answer is yes. HIPAA allows for this. If the employee or spouse notifies the plan administrator of the desire to have the newborn covered under COBRA within 30 days from the date of the birth, the newborn gains qualified beneficiary status and can remain on COBRA for the remainder of the time frame.

  Duration of COBRA  

  At one point under COBRA, an individual who obtained coverage under another group health plan automatically would see COBRA terminated. HIPAA made a coordinating change to the COBRA rules so that if the new group health plan limits or excludes benefits for pre-existing conditions, COBRA would not be terminated.

  A pre-existing condition exclusion is an exclusion of benefits relating to a condition based on the fact that the condition was present before the effective date of coverage — whether or not any medical advice, diagnosis, care or treatment was recommended or received before that day.

  A PCE includes any exclusion applicable to an individual as a result of information relating to an individuals’ health status before the effective date of coverage. For example, a condition revealed in a pre-enrollment questionnaire or physical exam could be a PCE and therefore be excluded under a PCE clause.

  Due to the Affordable Care Act, which overrides the PCE rules under HIPAA portability, plans are prohibited from imposing a PCE on children under age 19. For plan years starting on or after Jan. 1, 2014, all PCEs are prohibited regardless of the individual’s age. The rule applies for plans of all sizes, regardless of whether the plan is insured, self-funded or has grandfathered status.

  Even though PCEs will no longer exist, the elimination of the HIPAA certificate of creditable coverage will not become effective until the end of 2014. Non-calendar year plans may still impose a pre-existing condition limitation until the last day of their 2013 plan year, which would feasibly occur in late December 2014. Therefore, on Dec. 31, 2014, the HIPAA certificates will become obsolete.

  Disability Extension  

  Previously, COBRA provided if the original qualifying event was employment termination or reduction of hours and a qualified beneficiary was deemed disabled by the Social Security Administration at the time of the 18-month event, coverage would be extended to a maximum of 29 months.

  HIPAA amended the law to provide that the SSA disability extension also would apply if a qualified beneficiary became disabled any time during the “first 60 days of COBRA continuation coverage.” If an employer uses the loss of coverage date for measuring the COBRA time frame, it is the 60th day after the loss of coverage.

  Moving on to FMLA

  Generally, the FMLA affects employers with more than 50 employees. It requires those employers to give employees up to 12 weeks of unpaid leave per year in the case of birth or adoption of a child; to care for a spouse, child or parent with a serious medical condition; because of an employee’s serious medical condition, or to care for an armed forces member injured in the line of duty. Here are three points to keep in mind for COBRA purposes: (1) FMLA in itself is not a qualifying event; (2) significant gap in coverage; and (3) HIPAA special enrollment rights.

  FMLA Is Not a Qualifying Event 

  There should not be a need to offer COBRA coverage when FMLA commences. Here are the three basic COBRA-FMLA rules:

  1. A qualifying event occurs on the last day of the FMLA leave.
  2. At the end of the leave, a COBRA qualifying event exists if:

  • The employee, spouse and dependents had group health coverage the day before FMLA started (even if coverage was dropped during the leave)
  • The employee experiences a COBRA triggering event (for example, termination of employment)
  • A qualifying event causes a loss of coverage (for example, divorce, dependent ceasing to be a dependent or death of the employee)

  3.   Any failure to pay the premiums during FMLA leave does not affect whether you must offer COBRA coverage.

  Significant Gap in Coverage  

  For purposes of counting creditable coverage, HIPAA provides that only a significant break in coverage (63 or more days) is considered a gap in coverage that could trigger PCEs. However, an employer should not include the time between the loss of coverage date to the end of the FMLA leave. This lapse in coverage does not count and no PCEs can be imposed.

  HIPAA Special Enrollment Rights 

  When the employee returns from the leave, coverage should be reinstated with the same benefits that are available to other employees. The employee, spouse and dependents (if applicable) are to be reinstated as if the FMLA leave never occurred.

  Conclusion

  To remain in compliance, employers should be consistent in their procedures. It is a perplexing world out there, and there is no need to cause more problems.

  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 18 years of experience with COBRA and 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. Constance currently serves on committees for ECFC’s Annual Conference, the Flexible Benefit Administrators’ Symposium and ECFC Education. Since 2008, she has taught the Fundamental 8 and COBRA sessions at the Administrator’s Symposium.
• May 14, 2013

  DOL Eliminates the Old and Brings in the New With Revised Model Qualifying Event Notice

  Now that the U.S. Department of Labor has issued a revised COBRA election notice, employers and plan administrators may have questions on the scope and importance of the changes, and most key, whether they should even use the new models, and if so, when. Following is some background on the COBRA notice obligation, an explanation of the changes DOL made, a discussion of changes plan administrators need to make to the DOL model and advice on when best to begin using it.

  Background

  As explained in ¶1314 and ¶1332 of Mandated Health Benefits — the COBRA Guide, upon the occurrence of a qualifying event, a COBRA election notice must be provided to all affected qualified beneficiaries in a timely manner. DOL regulations govern the content of a required COBRA notice and identify no fewer than 14 different items that have to be included in a legally compliant COBRA notice.

  Given the difficulty and uncertainty surrounding the type of information to be included, DOL has, for many years, published model COBRA notices. These notices are quite helpful and provide a “safe harbor” way of ensuring compliance with the technical COBRA notice content rules. Use of these notices is treated by DOL as good faith compliance with the regulatory content rules. Of course, plan administrators still have to comply with all other administrative rules (such as delivering the notice in appropriate and compliant means in a timely fashion). Nevertheless, using the notices can help satisfy the content requirements.

  As COBRA rules have changed over time, the notices also have changed. For example, when Congress enacted the tax subsidy payments under the American Reinvestment and Recovery Act as a temporary measure, DOL issued updated notices that could explain these rules. When the ARRA subsidy rules expired, the notices were amended again to delete those references.

  On May 8, 2013, DOL again revised the model election notice. The changes primarily relate to providing qualified beneficiaries with additional information about alternative coverage available through health insurance exchanges (known as the “Health Insurance Marketplace”). However, other changes in the notice also are of interest.

  The New Notice

  The latest version of the notice includes several changes. To help identify those changes, DOL also posted a redlined version of the notice. Aside from the stylistic or editorial changes, the following three major changes were made: (1) language was added on health reform coverage options; (2) language was revised related to pre-existing condition limitations; and (3) language was deleted on the Health Coverage Tax Credit.

  Language Added on Health Reform Coverage Options

  The notice now includes a reference to coverage available through the Health Insurance Marketplace. This marketplace (sometimes referred to as the insurance “exchange”) is a part of the Patient Protection and Affordable Care Act (the health reform law) and becomes effective beginning in 2014. It is a means by which individuals will have access to affordable health coverage.

  The purpose of including the marketplace reference in DOL’s model COBRA notice is that some qualified beneficiaries may want to consider and compare health coverage alternatives available through the marketplace to COBRA coverage. According to DOL Technical Release 2013-02, which accompanied the new model: “[q]ualified beneficiaries may also be eligible for a premium tax credit (a tax credit to help pay for some or all of the cost of coverage in plans offered through the Marketplace).”

  Language Revised on Pre-existing Condition Limitations

  The DOL model notice was amended to address issues related to pre-existing condition limitations and the fact that the health reform law requires that these limitations be eliminated for all covered individuals beginning in 2014.

  Under COBRA as in effect before the reform law, a group health plan generally was allowed to terminate COBRA coverage when a qualified beneficiary becomes covered, after electing continuation coverage, under another group health plan that does not impose any pre-existing condition exclusion for a pre-existing condition of the qualified beneficiary.

  HIPAA imposed certain limitations on the ability to impose a pre-existing condition limitation, including a rule that this type of limitation generally could not be longer than 12 months, less a period of prior creditable coverage. Any coverage that occurred before a “break” in coverage (a break of 63 days or more) could be disregarded. (See ¶1283.)

  Under the reform law, pre-existing condition limitations are prohibited for plan years beginning on or after Jan. 1, 2014. This means, for example, that for a calendar year plan year, the rule is effective on Jan. 1, 2014. For a June 1 plan year, the rule is effective June 1, 2014. Until the reform rule is fully effective, depending on the plan year, the HIPAA pre-existing condition exclusion rules continue to apply.

  Note that the reform law did amend the pre-existing condition rules to become effective sooner than 2014 for enrollees under age 19. Specifically, no pre-existing condition provision could apply to those enrollees effective for plan years beginning on or after Oct. 1, 2010. For a calendar year plan year, that rule applied Jan. 1, 2011.

  To reflect these developments, DOL made two changes to the model COBRA notice:

  1. DOL clarified that pre-existing condition exclusions will be prohibited beginning in 2014.
  2. The agency deleted the references in the model notice to breaks in coverage and how they could affect the ability to reduce a pre-existing condition limitation period. Related to this was the elimination of a reference to having to exhaust COBRA coverage in order to get a guaranteed right to purchase individual health insurance policies that do not impose such pre-existing condition exclusions.

  Language Deleted on HCTC

  Another area of change in the model COBRA notice relates to the tax credit enacted by the Trade Act of 2002. As explained in ¶1284, that law created a tax credit for certain individuals who became eligible for trade adjustment assistance and for certain retired employees who are receiving pension payments from the Pension Benefit Guaranty Corporation (eligible individuals). These tax provisions have been modified over the years and COBRA notices had to include information about the availability of the tax credit for qualified beneficiaries. These rules expire at the end of 2013; therefore, DOL deleted optional language on the HCTC that was included in the model notice.

  Modifying the Model

  DOL makes it clear that the model notice is just a model. No plan administrator is required to use the model. In addition, even if the model is used, it needs to be modified. As DOL indicates in the instructions, blanks need to be filled in and optional provisions could be included that explain plan provisions or policies more specifically.

  In the new model, two paragraphs under a heading of “Paperwork Reduction Act Statement” need to be deleted. This statement was not included in any earlier versions of the model notices. Unless plan administrators delete this language, qualified beneficiaries are likely to be quite confused about what it means.

  DOL’s new model notice and form are in Fig. 1332-A. A redlined version is also available.

  Effective Date Issues

  Many administrators are wondering what the effective date is of the new notice. Technically, there is none. That is in keeping with the notion this is just a model and it is never required to be used. Moreover, some of the changes (like the elimination of the tax credit rules) are effective with a “hard date” of Jan. 1, 2014. Other changes, such as the elimination of rules on pre-existing condition limitations, are based on the specific plan year for which the health reform is applicable.

  Therefore, plan administrators should try to use the new notices beginning with qualifying events in fall 2013. In any case, plan administrators should talk with counsel and their third-party administrators about the implications of making these changes and consider how best to implement the changes in their particular circumstances.

  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 author and contributing editor of Thompson’s Mandated Health Benefits — The COBRA Guide, the Pension Plan Fix-It Handbook and the Guide to Assigning and Loaning Benefit Plan Money. He also was the senior contributing author of Thompson’s The New Health Care Reform Law – What Employers Need to Know (A Q&A Guide).
• May 13, 2013

  Considerations for Roth 401(k) Implementation and New In-plan Conversions

  As part of the American Taxpayer Relief Act of 2012, Congress enabled 401(k) plan sponsors to amend their plans to allow participants to convert existing account balances to after-tax Roth amounts without moving money out of the plan. (See related February 2013 Handbook column.) Previously, under the Small Business Jobs Act of 2010, plan sponsors could amend their plans to permit eligible participants to convert existing account balances to Roth amounts only if the assets were vested and available for distribution. This column discusses whether and how to add a Roth feature to an existing 401(k) plan, and the mechanics of in-plan Roth conversions.  

  Roth 401(k) Contribution Basics 

  Roth contributions are made with after-tax money and have both pretax and after-tax contribution characteristics along with some unique elements, such as distributions and rollovers. For example, the contribution limit ($17,500) and age 50 catch-up contribution limit ($5,500) are the same for both pretax and Roth contributions for 2013. These limits are applicable to the total sums of pretax contributions, Roth contributions or any combination of the two. Of course, both after-tax and Roth contributions are taxed at the time of contribution to the plan. Importantly, all contribution types are included in nondiscrimination testing, and the amounts are eligible for a company match or plan loan, if permitted by the plan.

  Taxation of In-service Withdrawals

  The availability of in-service withdrawals is limited to hardships, reaching age 59½, suffering a disability and as permitted by the plan. The withdrawal must also be qualified, or the distribution and earnings will be taxed pro rata and subject to an additional 10-percent excise tax unless the entire withdrawal is rolled over. (A distribution is “qualified” if taken from an account that is at least five years old and is distributed after the participant attains age 59½, dies or becomes disabled.)

  Taxation of Distributions

  Distributions of both Roth contributions and earnings are not taxable if the distribution is qualified. If the distribution is not qualified, the distribution and earnings will be taxed and subject to an additional 10-percent excise tax unless the entire withdrawal is rolled over. Roth contributions also must comply with the required minimum distribution rules. Minimum distributions are required at the later of a participant reaching age 70½ or retirement, unless the distribution is rolled into a Roth individual retirement account.

  Rollovers

  The rollover rules for Roth contributions are complicated. Different rules apply to direct rollovers from the plan to a Roth IRA or Roth 401(k), as opposed to an indirect 60-day rollover by a participant who has taken a distribution before re-depositing the assets into a Roth IRA or Roth 401(k). In addition, carryover treatment of the five-year holding period for Roth 401(k) accounts is generally unavailable unless the distribution is qualified.

  Sponsor Considerations for Implementing a Roth 401(k) Feature

  Benefits of Roth 401(k) Contributions  

  Roth distributions (including earnings) are tax-free if the distribution is qualified. So they are attractive to some participants because they will have more money at retirement. Further, Roth contributions rolled into a Roth IRA do not have age-70½ minimum distribution requirements. Therefore, the addition of a Roth 401(k) feature may encourage additional plan participation or higher contributions. The availability of a Roth 401(k) feature may also be viewed favorably by employees and provide a competitive advantage.

  Disadvantages of Roth 401(k) Contributions        

  Which participants will benefit from a Roth 401(k) feature versus pretax 401(k) contributions depends on varying factors and must be determined on a case-by-case basis. Roth rollover distributions are also complex and prone to administrative error because Roth amounts may only be rolled over to a Roth IRA or another Roth 401(k) account. As a result, Roth contributions add administrative complexity, and service providers may impose additional service fees to implement or administer them. In addition, setting up a Roth feature necessitates changes to the plan document, election forms, summary plan description and other communications materials.

  Roth 401(k) Implementation 

  Implementation begins with the adoption of a plan amendment to add the Roth 401(k) feature to the plan. The amendment should be adopted before the first contributions are made. Implementation will also include updating payroll coding to reflect the participant’s taxable income on Forms W-2 and setting up new Roth recordkeeping accounts, one for contributions and one for rollovers. Participant communications and the SPD will also need to be revised. Additionally, company matching calculations along with loan and withdrawal hierarchies will need to be adjusted. Plan sponsors may also want to conduct an education campaign to inform participants.

  Roth In-plan Conversions 

  Roth in-plan conversions allow participants an opportunity to convert non-Roth balances to a Roth account within the plan. IRS calls this conversion an “in-plan Roth rollover.”  In-plan conversions are only available if the plan permits both Roth contributions and in-plan Roth conversions.

  What Changes — What Doesn’t

  Under prior law, only vested and distributable amounts could be converted. Further, plan sponsors had to give participants a written distribution explanation for this process. A key change under the new law is that all contributions (even if ineligible for distribution) are eligible for conversion. (See related story.) Now, participants can convert all or some of an account balance, including non-vested amounts and loans, as the plan allows. And at distribution, a written participant explanation is no longer required. (Pending IRS confirmation, assume similar rules apply to both new  and prior conversions under pre-2013 IRS guidance.)

  Unchanged by the new law, conversions are not treated as distributions requiring spousal consent nor do they trigger a 10-percent early withdrawal penalty (subject to five-year holding). Conversions also remain available to participants and surviving spouses, as the plan allows. Conversions are not subject to mandatory withholding, and conversion elections continue to be irrevocable. Plan sponsors still cannot eliminate the prior protected rights and features of converted amounts.

  Plan Sponsor Considerations for Roth In-plan Conversions Benefits of In-plan Roth Conversions.  Roth distributions (including earnings) are tax-free if the distribution is qualified. Subsequently, participants can avoid tax on the earnings of converted amounts. The availability of in-plan Roth conversions may also be viewed favorably by employees, particularly those who want to keep both their pretax and after-tax money together in one plan and have access to any institutional investment funds offered by the plan. In-plan Roth conversions may reduce leakage; in other words, early withdrawals or cashouts, by keeping more money in the plan, which helps keep administrative and investment fees lower.   Disadvantages of In-plan Roth Conversions.  Conversions are irrevocable and participants must have the ability to pay the tax on converted pretax amounts in the year of conversion. To meet this tax obligation, participants may need to increase withholding or make estimated tax payments to avoid an underpayment penalty. In-plan Roth conversions also add administrative complexity and additional tax reporting burdens to the plan. (Plan sponsor reports converted amount as distribution on IRS Form 1099-R. Participants report converted amount as distribution on IRS Form 1040.) Thus, service providers may impose additional service fees to implement or administer them. The plan document, election forms, summary plan description and other communications materials will also need to be revised. Roth 401(k) In-plan Conversion Implementation.  The implementation process starts with a discussion with the plan recordkeeper about plan design, administrative constraints and a new in-plan Roth conversion recordkeeping account. Plan design should contemplate the types of contributions eligible for conversion and any frequency limitations. Actual implementation begins with the adoption of a plan amendment to allow Roth in‑plan conversions. The amendment should be adopted before the first in-plan conversions are made. Participant communications and the SPD will also need to be revised. Plan sponsors may also want to conduct a robust education campaign to inform participants.

  Clarifications Needed

  IRS has yet to confirm that prior Roth conversion guidance also applies to conversions under the new law. In fact, until further guidance is issued, many questions will remain unanswered. For example:

  • Can a plan sponsor impose limitations on Roth conversions (for example, vested amounts only or frequency limitations)?
  • Is a distribution notice under federal tax Code Section 402(f) or other notice required?
  • Can a non-spouse beneficiary elect a new in-plan Roth conversion?
  • What tax rules apply to conversions with employer stock?
  • When do plan amendments for the new in-plan Roth conversions need to be adopted?

  Without further guidance, it is expected that plan sponsors and recordkeepers may have questions about Roth 401(k) implementation and in-plan conversions that cannot be resolved at this time.  

  Finding out More

  For more information on Roth accounts, see ¶222 in The 401(k) Plan Handbook.

  David Diaz is an associate in the law firm of McDermott Will & Emery LLP and is based in the firm’s Washington, D.C., office. His practice includes a variety of employee benefits matters related to pension plans, 401(k) plans, cafeteria and welfare plans.

More

• Affirmative Action Tools & Forms
• American with Disabilities Act Tools & Forms
• COBRA Benefits Tools & Forms
• Domestic Partner Benefits Tools & Forms
• Family Leave Tools & Forms
• For-Cause Termination Tools & Forms
• Health Care Benefits Tools & Forms
• HIPAA Benefits Tools & Forms
• Immigration Tools & Forms
• Payroll Tools & Forms
• Performance Management Tools & Forms
• Reduction in Force Tools & Forms
• Sample Employee Handbook
• Savings, Pension and Profit-Sharing Plans Tools & Forms
• Technology in the Workplace Tools & Forms
• Wage and Hour Tools & Forms
• Workers' Compensation Tools & Forms
• Workplace Investigations Tools & Forms
• Workplace Safety and Health Tools & Forms

• Disability-Related Policy
• FMLA Opinion Letters
• Health & Welfare Benefits
• Retirement Benefits Plans
• Wage & Hour Guidance