Recently in Employee Benefits Category

July 29, 2015

Employee Benefits-IRS Announces That It Will No Longer Permit Use Of Lump Sums To Replace Life Income From A Defined Benefit Plan

In Notice 2015-49, the Internal Revenue Service (the "IRS") announced that the Treasury Department and the IRS intend to amend the required minimum distribution regulations under § 401(a)(9) of the Internal Revenue Code to address the use of lump sum payments to replace annuity payments being paid by a qualified defined benefit pension plan. The IRS said the the regulations, as amended, will provide that qualified defined benefit plans generally are not permitted to replace any joint and survivor, single life, or other annuity currently being paid with a lump sum payment or other accelerated form of distribution. The Treasury Department and the IRS intend that these amendments to the regulations will apply as of July 9, 2015, except with respect to certain accelerations of annuity payments described in the Notice.

July 24, 2015

Employee Benefits-IRS Discusses A Mid-Year Retirement Savings Check-Up For Workers

In IRS Retirement News for Employers, July 6, 2015 Edition, the Internal Revenue Service (the "IRS") advises workers to do a mid-year check up on their retirement savings. Here is what the IRS says.

Are you saving enough to afford the lifestyle you want when you retire? Now is a good time to check whether you're taking full advantage of all your retirement savings opportunities, while you still have the rest of the year to adjust your contribution levels.

Employer-sponsored retirement plans

Join the plan - If you haven't already, join your employer's retirement plan as soon as you can to increase your retirement savings. Many retirement plans have quarterly or semi-annual entry dates. Contact your employer to find out when you can start participating in the plan, and then join on the next entry date.

Make salary deferral contributions - If your employer's plan allows you to contribute, remember that you can decrease your taxable income by making pre-tax salary deferral contributions. You may also qualify for the Saver's Credit for contributing to your plan. Many plans allow salary deferral elections to be submitted at any time, so review your contribution rate to ensure you are contributing as much as the plan allows.
The maximum annual salary deferral contributions allowed for 2015 are:

• $18,000 to 401(k) or 403(b) plans
• $12,500 to SIMPLE plans

If you're age 50 or older by the end of the year, your plan may allow you to make additional catch-up contributions of:

• $6,000 to 401(k) or 403(b) plans
• $3,000 to SIMPLE plans

Your employer may match some of your salary deferral contributions. For example, your employer might contribute 50 cents for each dollar that you contribute to the plan from your salary up to a certain amount. Contact your plan administrator for details and adjust your salary deferrals to take full advantage of matching contributions.

Individual Retirement Arrangements (IRAs)

For 2015, the maximum total contributions you can make to all of your traditional and Roth IRAs is:

• $5,500 ($6,500 if you are age 50 or older), or
• your taxable compensation for the year, if your compensation was less than this dollar limit.

Some factors may limit or eliminate your ability to contribute to an Roth IRA or claim a deduction for your traditional IRA contribution (for example, your age, modified adjusted gross income, filing status and amount of compensation). See IRA Contribution Limits. The amount of traditional IRA contributions that you can deduct from your taxable income depends on whether you or your spouse were covered for any part of the year by an employer retirement plan if your income is above certain thresholds.

Remember, saving for retirement requires planning! That is why you should periodically review your retirement savings goals, savings options and annual contributions to maximize your retirement savings.

July 22, 2015

Employee Benefits-IRS Announces Revisions To The Employee Plans Determination Letter Program

In Announcement 2015-19, the Internal Revenue Service (the "IRS") describes important changes to the Employee Plans determination letter program for qualified retirement plans. Here is what the Announcement says.

Effective January 1, 2017, the IRS will eliminate the staggered 5-year determination letter remedial amendment cycles for individually designed plans. The IRS will limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination, and to certain other limited circumstances that will be determined by Treasury and the IRS.

As of January 1, 2017, the IRS will no longer accept determination letter applications based on the 5-year remedial amendment cycles. However, sponsors of Cycle A plans, described in section 9.03 of Rev. Proc. 2007-44, will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.

Section 5.03 of Rev. Proc. 2007-44 extends the remedial amendment period for disqualifying provisions described in section 5.03(1) and (2) to the end of a plan's applicable remedial amendment cycle. As a result of the elimination of the 5-year remedial amendment cycles, the extension of the remedial amendment period provided in section 5.03 will not be available after December 31, 2016, and the remedial amendment period definition in § 1.401(b)-1 will apply. However, the Commissioner intends to extend the remedial amendment period for individually designed plans to a date that is expected to end no earlier than December 31, 2017.

The IRS is requesting comments on specific issues relating to the implementation of these changes to the determination letter program, and as to the situations in which an application for a determination letter will be accepted. The foregoing changes will be reflected in an update to Rev. Proc. 2007-44, and in a successor to Rev. Proc. 2015-6.

In addition, the IRS will no longer accept determination letter applications that are submitted off-cycle, except in limited circumstances. In connection with the modifications to the determination letter program described in this Announcement, the Treasury Department and the IRS are considering ways to make it easier for plan sponsors to comply with the qualified plan document require

July 15, 2015

Employee Benefits-District Court Rules That Benefits Under A Retiree-Only Health Plan Are Not Subject To The Lifetime Limit Under The Affordable Care Act.

In King v. Blue Cross and Blue Shield of Illinois, Case No.: 3:13-CV-1254-CAB-JMA (S.D. Cal. 2015), the court held that the benefits payable under a self-insured health care plan, which covers only retirees, are not subject to the lifetime limit on essential health benefits under the Affordable Care Act. How did the district court reach this conclusion?

The court said that the issue in this case involves an understanding of the interplay between the Public Health Service Act ("PHSA"), ERISA, and the Affordable Care Act. The court noted that, among its many other provisions, the Affordable Care Act amended the PHSA to ban lifetime limits on the dollar value of benefits for any group health participant or beneficiary. 42 U.S.C. § 300gg-11(a)(1). At the same time, the Affordable Care Act added a provision to ERISA stating that the requirements of the PHSA (as amended by the PPACA), which includes the lifetime limit ban, shall apply to group health plans. ERISA § 715(a)(1). However, Section 732 of ERISA, which pre-dates the Affordable Care Act, generally states that the requirements of this part (which includes § 715(a)(1)) does not apply to any group health plan for any plan year if, on the first day of such plan year, such plan has less than 2 participants who are current employees (the "Retiree Plan Exception").

The court reviewed and discussed the interaction among these and other provisions of the acts in question. The court concluded, and therefore ruled, that the Retiree Plan Exception exempts employer plans covering only retirees (and therefore fewer than two participants who are current employees) from the coverage mandates of the Affordable Care Act, including the amendments thereto by the Affordable Care Act such as the lifetime limit on essential health benefits.

July 9, 2015

Employee Benefits-District Court Rules That Employer Failed To Provide Former Employee With Sufficient Notice Of COBRA Rights

In Griffin v. Neptune Technology Group, Civil Action No. 2:14cv16-MHT (WO) (M.D. Alabama 2015), plaintiff Joshua Griffin sued his former employer, Neptune Technology Group, claiming, among other things, that Neptune illegally failed to provide appropriate notice that he could continue his health-insurance coverage under COBRA after his termination of employment at Neptune, and seeking statutory damages for this failure.

Griffin's primary complaint is that the contents of the notice Neptune uses were insufficient under the law to allow him to make an informed and intelligent decision whether to elect continued coverage under COBRA. The court noted that the regulations, at 29 C.F.R. § 2590.606-4, sets forth detailed requirements for the content of COBRA notices. It provides that the notice "shall be written in a manner calculated to be understood by the average plan participant and shall contain the following information," and then lists 14 different categories of information that must be included.

The court further noted that the notice actually given to Griffin tracks the requirements of § 2590.606-4 in several respects. The notice gave him the deadline for returning the notice, the premium amounts for himself and his spouse or dependents, and the date by which the premium needed to be paid. However, it does not contain most of the items required by the regulation. Out of the 14 categories in 29 C.F.R. § 2590.606-4, the notice completely omits nine. In addition, subsection (b)(v) requires inclusion of "[a]n explanation of the plan's procedures for electing continuation coverage, including an explanation of the time period during which the election must be made, and the date by which the election must be made." While Neptune's notice tells the reader that the election form must be returned within 60 days of the date of the letter and instructs the reader to "follow the instructions on the next page to complete the Enclosed Election form," the instruction page was not included. Accordingly, the court concluded that the notice fails to adequately explain the plan's procedures for electing coverage. As such, the court held that the Neptune notice fails to provide sufficient information of COBRA rights, and stated that an appropriate judgment will be entered against Neptune for this failure.

June 30, 2015

Employee Benefits-IRS Provides Penalty Relief Program for Form 5500-EZ Late Filers

In Employee Plans News, Issue No. 2015-7, June 23, 2015, the IRS discusses the new penalty relief for Form 5500-EZ Late Filers. Here is what the IRS said.

Retirement plan sponsors who missed filing required annual reports may be eligible for penalty relief under Revenue Procedure 2015-32.

Plans eligible

• One-participant plans covering a 100% owner or a partnership, and their spouses (no other participants). Non-ERISA plans only.

• Foreign plans subject to IRS annual reporting that are maintained outside the U.S. primarily for non-resident aliens.

Plans subject to Title I of ERISA aren't eligible. Instead, use the Department of Labor's Delinquent Filer Voluntary Compliance Program.

Forms covered

• Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan.

• Form 5500, Annual Return/Report of Employee Benefit Plan, if you filed this return because your non-ERISA plan didn't meet the filing requirements for Form 5500-EZ for plan years before 2009.

If you've received a delinquency notice for the overdue form, you can't use this penalty relief program for that year's return. The delinquency notice is CP 283, Penalty Charged on Your Form 5500 Return.

How to apply

1. Each plan must be submitted separately. All delinquent returns for a single plan may be submitted together.

2. Prepare delinquent returns. Prepare a paper Form 5500-EZ for each delinquent year, including any required schedules and attachments.

• 1990-current delinquent Form 5500-EZ- use the correct Form 5500-EZ for that year.

• Pre-1990 delinquent Form 5500-EZ- use the current year Form 5500-EZ.

• Form 5500 required for the delinquent year - use the current year Form 5500-EZ, filled out with the beginning and ending dates for the plan year for which the return was delinquent.

3. Write in red at the top of each paper return: "Delinquent Return Filed under Rev. Proc. 2015-32, Eligible for Penalty Relief."

4. Complete Form 14704. Attach this Transmittal Schedule to the top of your submission (including all delinquent returns).

5. Pay the required fee. The fee is $500 per delinquent return, up to $1,500 per plan. Make your check payable to "United States Treasury."

6. Mail your returns. Electronically filed delinquent returns are not eligible for penalty relief.

First class mail

Internal Revenue Service
1973 North Rulon White Blvd.
Ogden, UT 84404-0020

Private delivery services

Internal Revenue Submission Processing Center
1973 North Rulon White Blvd.
Ogden, UT 84404

Penalties that otherwise apply

Without the program, a plan sponsor faces many potential late filing penalties, including:

• $25 per day, up to $15,000 for each late Form 5500 or 5500-EZ, plus interest (IRC Section 6652(e)).

• $1,000 for each late actuarial report (IRC Section 6692)

Reasonable cause for late filing

As an alternative to submitting late returns under this delinquent filer program, you may instead request relief by attaching a statement to your delinquent return, signed by a person in authority, stating your reasonable cause for the untimely return. However, if the request is denied, you will receive a penalty notice (CP 283) and the return will no longer be eligible for this delinquent filer program.

June 26, 2015

Employee Benefits-Supreme Court Rules That Code Section 36B Tax Credits (That Is, The Health Care Subsidies) Are Available When Health Insurance Is Purchased On A Federal Exchange

In King v. Burwell, No. 14-114 (Supreme Court 2015), the Court faced a key question arising under the Affordable Care Act.

The Background: The Affordable Care Act contains a number of reforms, including:

-- the requirement that individuals either purchase health insurance coverage or pay a penalty to the IRS (unless the cost of purchasing insurance would exceed eight percent of that individual's income);

--making insurance more affordable by giving refundable tax credits, under section 36B of the Internal Revenue Code, to individuals with household incomes between 100 percent and 400 percent of the federal poverty line; and

--requiring the creation of an "Exchange" in each State--basically, a marketplace that allows people to compare and purchase health insurance plans.

The Exchanges, Tax Credits And The Issue: The Affordable Care Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish "such Exchange" if the State does not. Relatedly, the Act provides that tax credits "shall be allowed" for any "applicable taxpayer," but only if the taxpayer has enrolled in an insurance plan through an Exchange established by the State. Section 36B(a) -(c). The Issue becomes whether the tax credits are available when the individual has enrolled in (that is, purchases) health insurance offered under an Exchange established by the Federal Government. An IRS regulations indicates that the tax credits are so available.

Holding By The Court: Section 36B's tax credits are available to individuals in States that have a Federal Exchange, and who purchase health insurance through that Federal Exchange.

June 16, 2015

Employee Benefits-IRS Issues New Listing of Required Modifications (LRMs)

In Employee Plans News, Issue No. 2015-6, June 10, 2015, the Internal Revenue Service (the "IRS") issues an extensive, new Listing of Required Modifications (LRMs). The new listing is here. The IRS call the new listing a collection of information packages designed to assist sponsors who are drafting or re-drafting plans to conform with applicable law and regulations. The new listing includes LRMs for cash balance plans, ESOPS, 403(b) plans, defined benefit plans, defined contribution plans and CODAs.

June 15, 2015

Employee Benefits-IRS Announces That Its Pre-Approved Plan Program Is Expanded to Include Cash Balance Plans and ESOPs

In Employee Plans News, Issue No. 2015-6, June 10, 2015, the Internal Revenue Service (the "IRS") announces that its pre-approved plan program is expanded to include cash balance plans and ESOPS. Here is what the IRS said.

Revenue Procedure 2015-36 updates existing guidance on master & prototype and volume submitter plan applications for opinion and advisory letters. Important changes in the new revenue procedure include:

• Extending the application deadline for pre-approved defined benefit plans from June 30 to October 30, 2015,
• Opening the pre-approved plan program to cash balance plans for submission by October 30, 2015, and
• Expanding the pre-approved plan program to employee stock ownership plans (ESOPs) during the defined contribution application period beginning February 1, 2017.

Concurrent with the new revenue procedure, the IRS has also released sample language - Listings of Required Modifications (LRMs) - for pre-approved cash balance plans and ESOPs.

Converting individually designed plans into pre-approved plans

Employers currently maintaining individually designed plans that intend to adopt pre-approved cash balance plans or ESOPs (when available) should complete Form 8905, Certification of Intent To Adopt a Pre-approved Plan, before the end of their plan's current 5-year remedial amendment cycle. This form serves as a record of the employer's intention to transition from an individually designed plan to a pre-approved plan. See the FAQs on Form 8905 and Revenue Procedure 2007-44, Part IV for further information.

If an employer doesn't know which particular pre-approved plan it will ultimately adopt the employer does not need to complete Part II or the information in Part III, line 4, of Form 8905 (requiring identifying information on the pre-approved plan and certification by the M&P sponsor or VS practitioner). Instead, attach a statement indicating that the employer intends to adopt a pre-approved cash balance plan or ESOP when the plan has received an opinion/advisory letter. The employer should keep a copy of the form and statement and attach them to any determination letter application (Form 5300, 5307 or 5310) they file.


June 11, 2015

Employee Benefits-Eighth Circuit Rules That Taxpayer Engaged In A Prohibited Transaction, When He Used An IRA To Fund A Business Which Paid Him Wages

In Ellis v. Commissioner of Internal Revenue, No. 14-1310 (8th Cir. 2015), the taxpayers were appealing from the decision of the tax court finding a deficiency in their income taxes and imposing related penalties. Upon reviewing the case, the Eighth Circuit Court of Appeals (the "Court") concluded that taxpayer Mr. Ellis engaged in a prohibited transaction with respect to his individual retirement account (the "IRA"), and affirmed the tax court's ruling.

In this case, an attorney for Mr. Ellis formed CST Investments, LLC ("CST"), to engage in the business of used automobile sales in Harrisonville, Missouri. The operating agreement for CST listed two members: (1) a self-directed IRA belonging to Mr. Ellis (owing 98% of the company,), and (2) Richard Brown, an unrelated person who worked fulltime for CST (owning the remainder of the company). Mr. Ellis was designated as the general manager for CST and given "full authority to act on behalf of" the company. The operating agreement also stated that "the General Manager shall be entitled to such Guaranteed Payment as is Approved by the Members."

Mr. Ellis's IRA did not exist at the time CST was formed. Rather, he established the IRA with First Trust Company of Onaga ("First Trust") in June 2005. On June 22, 2005, he received $254,206.44 from a 401(k) that he had established with his previous employer, and he deposited the amount in his IRA. He then directed First Trust as the custodian of the IRA to acquire 779,141 shares of CST at a cost of $254,000. On August 19, 2005, Mr. Ellis received an additional $67,138.81 from his 401(k), which he again deposited into the IRA. He directed First Trust to acquire an additional 200,859 shares of CST at a cost of $65,500. Mr. Ellis reported the transfers from his 401(k) to the IRA as non-taxable rollover contributions. To compensate him for his services as general manager, CST paid Mr. Ellis a salary of $9,754 in 2005 and $29,263 in 2006. While not clear if these were guaranteed payments per the operating agreement, Mr. Ellis had, at all times, the power to have CST make payments to him.

On March 28, 2011, the Commissioner of the Internal Revenue Service sent the taxpayers, the Ellises, a notice of deficiency and related penalties, based on a determination that Mr. Ellis engaged in prohibited transactions under 26 U.S.C. § 4975(c) by (1) directing his IRA to acquire a membership interest in CST with the expectation that the company would employ him, and (2) receiving wages from CST. The notice explained that, as a result of these transactions, the IRA lost its status as an individual retirement account and its entire fair market value was treated as taxable income. See 26 U.S.C. § 408(e)(2). The Ellises filed a timely petition in tax court to contest the notice of deficiency. The tax court upheld the Commissioner's determination, and the Ellises appealed.

In analyzing the case, the Court said that Code section 4975 limits the allowable transactions for certain retirement plans, including individual retirement accounts under § 408(a). It does so by imposing an excise tax on enumerated "prohibited transactions" between a plan and a "disqualified person." 26 U.S.C. § 4975(a). Prohibited transactions include any "direct or indirect . . . transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;" or "act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account." § 4975(c)(1)(D), (E). If a disqualified person engages in a prohibited transaction with an IRA, the plan loses its status as an individual retirement account under § 408(a), and its fair market value as of the first day of the taxable year is deemed distributed and included in the disqualified person's gross income. 26 U.S.C. § 408(e)(2).

The Court continued by noting that, here, it is undisputed that Mr. Ellis was a disqualified person under § 4975(e)(2)(A) because he was a fiduciary of his IRA (as he can direct asset investment). The parties also agree that CST was a disqualified person because Mr. Ellis was a beneficial owner of the IRA's membership in the company. See id. § 4975(e)(2)(G)(i) (including as a disqualified person a corporation in which 50 percent or more of the stock is owned by a fiduciary); id. § 4975(e)(4) (stating that ownership includes indirect ownership). Therefore, said the Court, the only issue on appeal is whether the payment of wages to Mr. Ellis was a prohibited transaction. The record establishes that Mr. Ellis caused his IRA to invest a substantial majority of its value in CST with the understanding that he would receive compensation for his services as general manager. By directing CST to pay him wages from funds that the company received almost exclusively from his IRA, Mr. Ellis engaged in the indirect transfer of the income and assets of the IRA for his own benefit and indirectly dealt with such income and assets for his own interest or his own account. This results in a prohibited transaction by Mr. Ellis with respect to his IRA, and the IRA's loss of its status as such with the corresponding deemed distribution to the Ellises in an amount equal to the former IRA's fair market value.

May 29, 2015

Employee Benefits-Departments Restate Their Position On Provider Non-Discrimination Under the Affordable Care Act

In FAQs about Affordable Care Act Implementation (Part XXVII), the Departments of Labor ("DOL"), Health and Human Services ("HHS"), and the Treasury (collectively, the "Departments") provide guidance on non-discrimination against service providers under the Affordable Care Act. Here is what the FAQs say:

Background. PHS Act section 2706(a), as added by the Affordable Care Act, states that a group health plan must not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider's license or certification under applicable State law. PHS Act section 2706(a) does not require that a group health plan contract with any health care provider willing to abide by the plan's terms and conditions. Further, nothing in PHS Act section 2706(a) prevents a group health plan from establishing varying reimbursement rates based on quality or performance measures. Similar language is included in section 1852(b)(2) of the Social Security Act and HHS implementing regulations.

On April 29, 2013, the Departments issued FAQs (specifically, FAQs about Affordable Care Act Implementation Part XV) which addressed, among other issues, provider nondiscrimination requirements under PHS Act section 2706(a). Subsequently, the Senate Committee on Appropriations issued a report dated July 11, 2013 (to accompany S. 1284) raising questions about the Departments' FAQs addressing provider nondiscrimination. The Departments published a request for information (RFI) on March 12, 2014, seeking comment on all aspects of interpretation of PHS Act section 2706(a). The RFI specifically solicited comments on access, costs, other federal and state laws, and feasibility. The Departments received over 1,500 comments in response to the RFI. The House Committee on Appropriations subsequently issued an explanatory statement dated December 11, 2014 (to accompany 113 H.R. 83) directing the Centers for Medicare & Medicaid Services to provide a corrected FAQ or provide an explanation.

The Departments are now issuing the following FAQs in response to the December 11, 2014 explanatory statement.

What is the Departments' Approach to PHS Act section 2706(a)? In light of the breadth of issues identified in the comments to the RFI, the Departments are re-stating their current enforcement approach to PHS Act section 2706(a). Until further guidance is issued, the Departments will not take any enforcement action against a group health plan, with respect to implementing the requirements of PHS Act section 2706(a), as long as the plan or issuer is using a good faith, reasonable interpretation of the statutory provision, which states:

"A group health plan ...shall not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider's license or certification under applicable State law. This section shall not require that a group health plan contract with any health care provider willing to abide by the terms and conditions for participation established by the plan .... Nothing in this section shall be construed as preventing a group health plan ... from establishing varying reimbursement rates based on quality or performance measures."

Specifically, Q2 in FAQs about Affordable Care Act Implementation Part XV, which previously provided guidance from the Departments on PHS Act section 2706(a), is superseded by this FAQ. The Departments will continue to work together with employers, plans, issuers, states, providers, and other stakeholders to help them comply with the provider nondiscrimination provision and will work with families and individuals to help them understand the law and benefit from it as intended.

May 28, 2015

Employee Benefits-Departments Provide Additional Guidance On Cost Sharing Limitations

In FAQs about Affordable Care Act Implementation (Part XXVII), the Departments of Labor ("DOL"), Health and Human Services ("HHS"), and the Treasury (collectively, the "Departments") provide additional guidance on cost sharing limitations under the Affordable Care Act. Here is what the FAQs say:

Background. Public Health Service ("PHS") Act section 2707(b), as added by the Affordable Care Act, provides that a non-grandfathered group health plan must ensure that any annual cost sharing imposed under the plan does not exceed the limitations provided for under section 1302(c)(1) of the Affordable Care Act. For plan years beginning in 2015, the maximum annual limitation on cost sharing under section 1302(c)(1) is $6,600 for self-only coverage and $13,200 for coverage other than self-only coverage. For plan years beginning in 2016, this maximum annual limitation is $6,850 for self-only coverage and $13,700 for other than self-only coverage. Thereafter, the limitation increases for inflation.

In the final HHS Notice of Benefit and Payment Parameters for 2016 (the "2016 Payment Notice") (80 FR 10750), HHS clarified that under section 1302(c)(1) of the Affordable Care Act, the self-only maximum annual limitation on cost sharing applies to each individual, regardless of whether the individual is enrolled in self-only coverage or in coverage other than self-only (the "Self-Only Rule"). This application of this rule needs the clarification provided below.

The Self-Only Rule. PHS Act section 2707(b) applies the Self-Only Rule to all non-grandfathered group health plans, including non-grandfathered self-insured and large group health plans, and including high-deductible health plans ("HDHPs"). The Departments will apply the Self-Only Rule only for plan years that begin in or after 2016.

Example. The FAQs provide the following example-

Assume that a family of four individuals is enrolled in family coverage under a group health plan in 2016 with an aggregate annual limitation on cost sharing for all four enrollees of $13,000 (note that a plan is permitted to set an annual limitation below the maximum established under section 1302(c)(1), which is an aggregate $13,700 limitation for coverage other than self-only for 2016). Assume that individual #1 incurs claims associated with $10,000 in cost sharing, and that individuals #2, #3, and #4 each incur claims associated with $3,000 in cost sharing (in each case, absent the application of any annual limitation on cost sharing). In this case, because, under the clarification discussed above, the self-only maximum annual limitation on cost sharing ($6,850 in 2016) applies to each individual, cost sharing for individual #1 for 2016 is limited to $6,850, and the plan is required to bear the difference between the $10,000 in cost sharing for individual #1 and the maximum annual limitation for that individual, or $3,150. With respect to cost sharing incurred by all four individuals under the policy, the aggregate $15,850 ($6,850 + $3,000 + $3,000 + $3,000) in cost sharing that would otherwise be incurred by the four individuals together is limited to $13,000, the annual aggregate limitation under the plan, under the assumptions in this example, and the plan must bear the difference between the $15,850 and the $13,000 annual limitation, or $2,850.


May 18, 2015

Employee Benefits-DOL Provides Guidance On Coverage Of Preventive Services

In FAQs about Affordable Care Act Implementation (Part XXVI), the U.S. Department of Labor, the Department of Health and Human Services and the Treasury (the "Departments") provide guidance on rules pertaining to coverage of preventive services under the Affordable Care Act.

Background. The FAQs provide the following background. Section 2713 of the Public Health Service Act (PHS Act) and its implementing regulations relating to coverage of preventive services require non-grandfathered group health plans to provide benefits for, and prohibit the imposition of cost-sharing requirements with respect to, the following:

• Evidenced-based items or services that have in effect a rating of "A" or "B" in the current recommendations of the United States Preventive Services Task Force ("USPSTF") with respect to the individual involved, except for the recommendations of the USPSTF regarding breast cancer screening, mammography, and prevention issued in or around November 2009;

• Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices ("ACIP") of the Centers for Disease Control and Prevention ("CDC") with respect to the individual involved;

• With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by the Health Resources and Services Administration (HRSA); and

• With respect to women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA, to the extent not included in certain recommendations of the USPSTF.

If a recommendation or guideline does not specify the frequency, method, treatment, or setting for the provision of a recommended preventive service, the plan may use reasonable medical management techniques to determine any such coverage limitations.

Topics Covered by the FAQs. In summary, the FAQs say the following:

--Coverage of breast cancer testing: A plan MUST cover, without cost sharing, recommended genetic counseling and BRCA testing (that is, testing for breast cancer susceptibility genes) for a woman who has not been diagnosed with BRCA-related cancer, but who previously had breast cancer, ovarian cancer, or other cancer.

--Coverage of Food and Drug Administration ("FDA")-approved contraceptives: Plans must cover, without cost sharing, at least one form of contraception in each of the methods (currently 18) that the FDA has identified for women in its current Birth Control Guide. This coverage must also include the clinical services, including patient education and counseling, needed for provision of the contraceptive method. The Departments will apply this guidance for plan years beginning on or after the date that is 60 days after publication of these FAQs.

Further, if a plan covers some forms of oral contraceptives, some types of IUDs, and some types of diaphragms without cost sharing, but excludes completely other forms of contraception, the plan does NOT comply with PHS Act section 2713 and its implementing regulations. Also, if a plan covers oral contraceptives (such as the extended/continuous use contraceptive pill), it may NOT impose cost sharing on all items and services within other FDA-identified hormonal contraceptive methods (such as the vaginal contraceptive ring or the contraceptive patch).

--Coverage of sex-specific recommended preventive services: A plan may NOT limit sex-specific recommended preventive services based on an individual's sex assigned at birth, gender identity or recorded gender.

--Coverage of well-woman preventive care for dependents: If a plan covers dependent children, the plan is NOT required to cover (without cost sharing) recommended women's preventive care services for dependent children, including services related to pregnancy, such as preconception and prenatal care.

--Coverage of colonscopies pursuant to USPTF recommendations: The plan may NOT impose cost sharing with respect to anesthesia services performed in connection with the preventive colonoscopy, if the attending provider determines that anesthesia would be medically appropriate for the individual.

April 24, 2015

Employee Benefits-EEOC Issues Proposed Regulations On Wellness Programs

The Equal Employment Opportunity Commission (the "EEOC") has issued a notice of proposed rulemaking (the "NPRM", which includes proposed regulations) on how Title I of the Americans with Disabilities Act (ADA) applies to employer wellness programs that are part of a group health plan. The NPRM proposes changes both to the text of the EEOC's ADA regulations and to interpretive guidance explaining the regulations that will be published along with the final rule. The EEOC has also issued questions and answers ("Q&As") which describe what the NPRM says and what will happen now that the proposed rule has been issued.

One question raised: What should employers do until a final rule is published to make sure their wellness programs comply with the ADA? Here is what the Q&As say:

While employers do not have to comply with the proposed rule, they may certainly do so. It is unlikely that a court or the EEOC would find that an employer violated the ADA if the employer complied with the NPRM until a final rule is issued. Moreover, many of the requirements explicitly set forth in the proposed rule are already requirements under the law. For example, employers should make sure they:
o do not require employees to participate in a wellness program;
o do not deny health insurance to employees who do not participate; and
o do not take any adverse employment action or retaliate against, interfere with, coerce, or intimidate employees who do not participate in wellness programs or who do not achieve certain health outcomes.
Additionally, employers must provide reasonable accommodations that allow employees with disabilities to participate in wellness programs and obtain any incentives offered. For example, if attending a nutrition class is part of a wellness program, an employer must provide a sign language interpreter, absent undue hardship, to enable an employee who is deaf to participate in the class. Employers also must ensure that they maintain any medical information they obtain from employees in a confidential manner.

April 23, 2015

Employee Benefits-DOL Provides Guidance On Wellness Programs

In FAQs About Affordable Care Act Implementation (Part XXV), the U.S. Department of Labor (the "DOL") provides guidance on wellness programs. Here is what the DOL said.

Wellness Programs

Under PHS Act section 2705 , ERISA section 702, and Internal Revenue Code (the "Code") section 9802 and the implementing regulations of the governing departments (the DOL, the Department of Health and Human Services and the Treasury, together the "Departments"), group health plans are generally prohibited from discriminating against participants, beneficiaries, and individuals in eligibility, benefits, or premiums based on a health factor. An exception to this general prohibition allows premium discounts, rebates, or modification of otherwise applicable cost sharing (including copayments, deductibles, or coinsurance) in return for adherence to certain programs of health promotion and disease prevention, commonly referred to as wellness programs. The wellness program exception applies to group health coverage.

On June 3, 2013, the Departments issued final regulations under PHS Act section 2705 and the related provisions of ERISA and the Code that address the requirements for wellness programs provided in connection with group health coverage. Among other things, these regulations set the maximum permissible reward under a health-contingent wellness program that is part of a group health plan at 30 percent of the cost of coverage (or 50 percent for wellness programs designed to prevent or reduce tobacco use). The wellness program regulations also address the reasonable design of health-contingent wellness programs and the reasonable alternatives that must be offered in order to avoid prohibited discrimination. In the preamble to the wellness program regulations, the Departments stated that they anticipated issuing future sub-regulatory guidance as necessary. The following FAQs address several issues that have been raised since the publication of the wellness program regulations.

A Reasonably Designed Program

Under section 2705 of the PHS Act and the wellness program regulations, a health-contingent wellness program must be reasonably designed to promote health or prevent disease. A program complies with this requirement if it: (1) has a reasonable chance of improving the health of, or preventing disease in, participating individuals; (2) is not overly burdensome; (3) is not a subterfuge for discrimination based on a health factor; and (4) is not highly suspect in the method chosen to promote health or prevent disease.

The determination of whether a health-contingent wellness program is reasonably designed is based on all the relevant facts and circumstances. The wellness program regulations are intended to allow experimentation in diverse and innovative ways for promoting wellness. While programs are not required to be accredited or based on particular evidence-based clinical standards, practices such as those found in the Guide to Community Preventive Services or the United States Preventive Services Task Force's Guide to Clinical Preventive Services, may increase the likelihood of wellness program success and are encouraged.

Wellness programs designed to dissuade or discourage enrollment in the plan or program by individuals who are sick or potentially have high claims experience will not be considered reasonably designed under the Departments' wellness program regulations. A program that collects a substantial level of sensitive personal health information without assisting individuals to make behavioral changes such as stopping smoking, managing diabetes, or losing weight, may fail to meet the requirement that the wellness program must have a reasonable chance of improving the health of, or preventing disease in, participating individuals. Programs that require unreasonable time commitments or travel may be considered overly burdensome. Such programs will be scrutinized and may be subject to enforcement action by the Departments.
The wellness program regulations also state that, in order to be reasonably designed, an outcome-based wellness program must provide a reasonable alternative standard to qualify for the reward, for all individuals who do not meet the initial standard that is related to a health factor. This approach is intended to ensure that outcome-based wellness programs are more than mere rewards in return for results in biometric screenings or responses to a health risk assessment, and are instead part of a larger wellness program designed to promote health and prevent disease, ensuring the program is not a subterfuge for discrimination or underwriting based on a health factor.

Compliance With Other Laws

The fact that a wellness program complies with the Departments' wellness program regulations does not necessarily mean it complies with any other provision of the PHS Act, the Code, ERISA, (including the COBRA continuation provisions), or any other State or Federal law, such as the Americans with Disabilities Act or the privacy and security obligations of the Health Insurance Portability and Accountability Act of 1996, where applicable. Satisfying the rules for wellness programs also does not determine the tax treatment of rewards provided by the wellness program. The Federal tax treatment is governed by the Code. For example, reimbursement for fitness center fees is generally considered an expense for general good health. Thus payment of the fee by the employer is not excluded from income as the reimbursement of a medical expense and should generally be added to the employee wages reported on the Form W-2, Wage and Tax Statement. In addition, although the Departments' wellness program regulations generally do not impose new disclosure obligations on plans and issuers, compliance with the wellness program regulations is not determinative of compliance with any other disclosure laws, including those that require accurate disclosures and prohibit intentional misrepresentation.