Articles Posted in Employee Benefits

In Texas v. United States of America, Civil Action No. 4:18-cv-00167-O (N.D. Texas 2018), the district court judge ruled that the entire Affordable Care Act (the “ACA”) is unconstitutional, and therefore presumably unenforceable.

How did the judge arrive at this decision?  The Tax Cuts and Jobs Act of 2017 eliminated the penalty imposed on an individual for not having health insurance coverage, and thus not complying with the ACA’s Individual Mandate.  The judge who rendered the decision, Judge O’Connor, said that, without a penalty that could be imposed, the constitutionality of the Individual Mandate could no longer be supported by Congress’ taxing power, and, as no other power of Congress supports it, the Individual Mandate is unconstitutional.  Further, ruled Judge O’Connor, the Individual Mandate is not severable from the remainder of the ACA, so the entire ACA is not constitutional.

So what happens now?  Nothing immediately.  Judge O’Connor did not enjoin the ACA in his decision.  As such, the rules and requirements of the ACA remain the law.  The White House has announced that the ACA will stay in effect, through the upcoming appeal of Judge O’Connor’s decision to the Court of Appeals for the Fifth Circuit and (probably) to the United States Supreme Court.  So for right now, employers should continue to follow ACA rules.  Don’t be late with the Form 1094/1095 information returns (see my blog of December 12).

In Notice 2018-94, the Internal Revenue Service “IRS”) extends the due date for for furnishing to individuals the 2018 Form 1095-B, Health Coverage, and the 2018 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2019, to March 4, 2019.

A Form 1095-B provides information to an individual who is covered by minimum essential health coverage and therefore are not liable for the individual shared responsibility payment.  A Form 1095-C reports to the individual information about offers of health coverage from and enrollment in the employer’s health plan, and the individual may use this information to determine whether, for each month of the calendar year, the individual may claim the premium tax credit on his or her individual income tax return.

The Notice states that, in view of this automatic extension to March 4, 2019, the provisions under the Treasury regulations allowing the IRS to grant an extension of time of up to 30 days to furnish Forms 1095-B and 1095-C will not apply to the extended due date.  Notwithstanding the extension provided in this notice, employers and other coverage providers are encouraged to furnish 2018 statements as soon as they are able.

Recent tax legislation has changed some of the rules of the Internal Revenue Code (the “Code”) and the underlying regulations that apply to hardship withdrawals from 401(k) and 403(b) plans.  These changes are effective as of the plan year starting in 2019 (January 1, 2019 for calendar year plans), and are as follows, according to the preamble to the new proposed regulations (discussed below):

Changes Affecting 401(k) Plans.

Section 41113 of the Bipartisan Budget Act of 2018 (the “BBA”) directs the Secretary of the Treasury to modify Treas. Reg. §  1.401(k)-1(d)(3)(iv)(E) to: (1) delete the 6-month prohibition on pre-tax and after-tax employee contributions following a hardship distribution and (2) make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) (which allows distribution of pre-tax employee contributions for hardship).  The prohibition in (1) had been a part of the “safe harbor” hardship distribution rules.

A News Release, dated October 23, 2018, says the following:

The U.S. Departments of the Treasury, Health and Human Services, and Labor today issued a proposed regulation that expands the usability of health reimbursement arrangements (“HRAs”). HRAs are designed to give working Americans and their families greater control over their healthcare by providing an additional way for employers to finance quality, affordable health insurance. This proposed regulation is in response to President Trump’s Executive Order on “Promoting Healthcare Choice and Competition Across the United States,” and will benefit hundreds of thousands of businesses and millions of workers and their families in the coming years.

“Today’s proposed regulations will expand the availability of affordable health insurance for hardworking Americans. This fulfills the commitment the President made in his October 2017 Executive Order to foster competition and choice and to provide Americans – especially employees who work at small businesses – with more options for financing their healthcare. Treasury projects that this will benefit hundreds of thousands of employers and millions of workers,” said U.S. Secretary of the Treasury Steven T. Mnuchin.

In Hager v. DBG Partners, Inc., No. 17-11147 (5th Cir. 2018), after plaintiff David Hager (“Hager”) was fired by defendant, DBG Partners, Inc (“DBG”), he obtained continuation coverage under DBG’s ERISA health care plan through COBRA.  Hager later filed this suit, alleging that DBG had discontinued its health plan without notifying him, violating COBRA’s notice requirements.  The district court dismissed Hager’s claim on the eve of trial, concluding that ERISA did not provide Hager with a remedy.  Hager appeals.

Upon reviewing the case, the Fifth Circuit Court of Appeals (the “Court”) reversed the district court’s decision.  COBRA has a notice provision, in  29 U.S.C.S. § 1166(a)(4), which applies to former employees receiving COBRA benefits.  DBG discontinued its health plan earlier than 18 months after Hager was fired.  It therefore had an obligation-under the COBRA notice provision- to notify Hager “as soon as practicable” that it was discontinuing coverage.  Hager adequately alleged that DBG did not fulfill its notice obligations under COBRA.  Hagar could be entitled to the penalty award under 29 U.S.C.S. § 1132(c)(1) because of DBG’s failure to provide the notice.

In WHD Opinion Letter FMLA2018-2-A, the U.S. Department of Labor (the “DOL”) concluded that organ-donation surgery can qualify as a “serious health condition” under the Family and Medical Leave Act of 1993 (the “FMLA”).  Here is what the DOL said.

BACKGROUND.  The FMLA entitles eligible employees of covered employers to unpaid, job-protected leave for specified family and medical reasons.  Eligible employees may take up to 12 workweeks of leave in a 12-month period for, among other things, a serious health condition that renders the employee unable to perform the functions of his or her job. 29 U.S.C. § 2612(a)(1)(D); 29 C.F.R. § 825.112(a)(4).

The FMLA defines “serious health condition” as an “illness, injury, impairment, or physical or mental condition that involves” either “inpatient care in a hospital, hospice, or residential medical care facility” or “continuing treatment by a health care provider.” 29 U.S.C. § 2611(11).  Implementing regulations define “inpatient care” as “an overnight stay in a hospital, hospice, or residential medical care facility, including any period of incapacity… or any subsequent treatment in connection with such inpatient care.” 29 C.F.R. § 825.114.  The regulations also specify that “continuing treatment” includes “incapacity and treatment,” “chronic conditions,” “permanent or long-term conditions,” and “conditions requiring multiple treatments.” 29 C.F.R. § 825.115.  For all conditions, “incapacity” means “inability to work, attend school or perform other regular daily activities due to the serious health condition, treatment therefore, or recovery therefrom,” and “treatment” includes “examinations to determine if a serious health condition exists and evaluations of the condition.” 29 C.F.R. § 825.113(b), (c).  An employee is incapacitated if he or she is “unable to work at all or is unable to perform any one of the essential functions of the employee’s position,” including when the employee “must be absent from work to receive medical treatment.” 29 C.F.R. §§ 825.113(b), .123(a).

The Internal Revenue Service (the “IRS”) has issued a Private Letter Ruling in which an employer proposes to amend its 401(k) plan in a manner which will help its employees accumulate moneys to pay off student loans.

In PLR 201833012 (dated August 17, 2018), the Internal Revenue Service (the “IRS”) was faced with the following proposed amendment to a 401(k) plan (the “Plan”).

An employer proposed to amend the Plan to offer a student loan benefit program (the “Program”).  Under the Program, the employer would make an employer nonelective contribution on behalf of an employee, conditioned on that employee making student loan repayments (the “SLR Nonelective Contribution”).  The Program is voluntary.  An employee must elect to enroll, and once enrolled, may opt out of enrollment on a prospective basis.

In IRS Tax Reform Tax Tip 2018-69, May 4, 2018, the IRS offers guidance on the tax credit available to employers for paid family and medical leave.  Here is what the Tax Tip says:

During National Small Business Week, the IRS focuses on educating employers about the employer credit for paid family and medical leave created by the Tax Cuts and Jobs Act passed last year. Employers may claim the credit based on wages paid to qualifying employees while they are on family and medical leave.

Here are some facts about this credit and how it benefits employers:

In Pizza Pro Equipment Leasing, Inc. v. Commissioner of Internal Revenue, No. 17-1297 (8th Cir. 2018) (Unpublished Opinion), Pizza Pro Equipment Leasing, Inc. (“Pizza Pro”) appeals a tax court decision upholding determinations by the Commissioner of Internal Revenue that it owes excise taxes and additions to tax related to its defined benefit pension plan.  After reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s ruling.

In this case, in 1995, Pizza Pro established a defined benefit pension plan (the “Plan”).  This case involves a dispute about a limitation on the Plan’s annual benefit, see I.R.C. § 415(b)(2)(C), which in turn determines Pizza Pro’s deductible contributions to the Plan.  The Commissioner concluded that from 2002 to 2006 Pizza Pro incorrectly calculated the limitation on the annual benefit and therefore made nondeductible contributions to the Plan. See I.R.C. § 404(j)(1)(A).  Section 4972 of the Internal Revenue Code imposes “a tax equal to 10 percent of the nondeductible contributions.”  The Commissioner further imposed additions to tax for failure to file a return of excise taxes and to timely pay the excise tax owed. See I.R.C. § 6651(a)(1) & (a)(2).

Pizza Pro petitioned the tax court, challenging the excise tax and additions.  The tax court decided the case without trial based on the parties’ stipulated facts and expert reports, and it upheld the Commissioner’s determinations.  It also concluded that Pizza Pro did not make a valid election under I.R.C. § 4972(c)(7), which allows a taxpayer to disregard contributions to a defined benefit plan under certain conditions, thereby avoiding the excise tax on nondeductible contributions.  Pizza Pro timely appealed.

In Notice 2018-24 (the “Notice”), the Internal Revenue Service (the “IRS”) requests comments on the potential expansion of the scope of the determination letter program for individually designed plans during the 2019 calendar year, beyond provision of determination letters for initial qualification and qualification upon plan termination.  Here is what the IRS says:

INTRODUCTION:  In reviewing comments submitted in response to this Notice, the Department of the Treasury (the “Treasury Department”) and the IRS will consider the factors regarding the scope of the determination letter program set forth in section 4.03(3) of Revenue Procedure 2016-37, 2016-29 I.R.B. 136.  The Treasury Department and the IRS will issue guidance if they identify any additional types of plans for which plan sponsors may request determination letters during the 2019 calendar year.

BACKGROUND:  Revenue Procedure 2016-37 sets forth procedures for issuing determination letters and describes an extension of the remedial amendment period for individually designed plans.  Effective January 1, 2017, the sponsor of an individually designed plan may submit a determination letter application only for initial plan qualification, for qualification upon plan termination, and in certain other limited circumstances identified in subsequent published guidance.  Section 4.03(3) of Rev. Proc. 2016-37 provides that the Treasury Department and the IRS will consider each year whether to accept determination letter applications for individually designed plans in specified circumstances other than for initial qualification and qualification upon plan termination.