D.C. District Court Invalidates DOL’s Rules on Association Health Plans
On March 28, 2019, in New York v. DOL , the U.S. District Court for the District of Columbia invalidated the DOL’s rules relating to association health plans (AHPs). As background, prior to 2018, AHPs (which are considered multiple employer welfare arrangements, or MEWAs, under ERISA) could only be sponsored by employer groups or associations whose members shared a “commonality of interest” that was unrelated to benefits. That meant employers within the association had to be in the same trade, industry, or profession and could not just be in the same geographic location. The DOL’s rules also prohibited AHPs from forming solely for the purpose of providing benefits; AHPs had to show that their association was primarily for business purposes, with benefits being an afterthought.
In 2018, pursuant to a White House executive order, the DOL published new rules (in proposed form in January 2018 and in finalized form in June 2018) that allow AHPs to include employers without a commonality of interest if they are located in the same state or metropolitan area (for example, DC/MD/VA or NY/NJ/CT). Further, AHPs can now form for the primary purpose of providing benefits (something that was prohibited before 2018), as long as they can show a “substantial business purpose,” which includes fairly minimal proof — anything from setting business standards and practices to publishing a newsletter. Importantly, the 2018 rules also allow an AHP to cover non-employees (sole proprietors, independent contractors, partners, and other businesses without any employees). The 2018 rules have staggered applicability dates — they applied to fully insured AHPs on September 1, 2018, existing self-insured AHPs on January 1, 2019, and newly-formed self-insured AHPs on April 1, 2019. Finally, the 2018 rules did not address state enforcement of MEWAs; ERISA generally allows (and the 2018 rules explicitly allow) states to enforce their own rules with regard to MEWAs. Many states have a particular interest in regulating self-insured MEWAs as a way to protect against consumer fraud and misrepresentation regarding the MEWAs’ ability to pay benefits.
Following the finalization of the 2018 rules, a coalition of state attorneys general (AGs) — led by New York and Massachusetts — filed a lawsuit challenging the 2018 rules, stating that the DOL violated the Administrative Procedure Act by overreaching on its regulatory authority. The other states involved include California, Delaware, District of Columbia, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia, and Washington. The AGs’ lawsuit claimed that the DOL’s new interpretation of “employer” was inconsistent with the purpose and language of ERISA, and that the 2018 rules allowed businesses (some without employees) to form AHPs and avoid the ACA’s consumer protections (those that apply to individual and small group plans). Self-insured AHPs could also avoid certain state insurance laws, including benefit and other mandates meant to protect the residents of that particular state. Finally, the AGs’ lawsuit claimed that the 2018 rules increased the risk for consumer fraud and harm and jeopardized states’ ability to add stronger consumer protections and protect against consumer fraud and harm.
The court agreed with the state AGs. After concluding that the states had standing, the court concluded that the DOL did not reasonably interpret ERISA and that the primary provisions of the 2018 rules must be invalidated. Those primary provisions are the expanded definition of “commonality of interest” and the inclusion of working owners. Specifically, the court stated that the commonality of interest expansion in the 2018 rules failed to meaningfully limit the types of associations that could qualify as sponsors of an ERISA plan. The judge concluded that the 2018 rules establish “such a low bar that virtually no association could fail to meet it.” In addition, because ERISA is meant to regulate benefit plans that arise from employment relationships, the inclusion of working owners impermissibly expanded ERISA’s regulation to plans outside of such employment relationships. The judge concluded that the outcome would be “absurd,” since it ignores ERISA’s definitions and structure, case law, and ERISA’s 40-year history of excluding employers without employees.
In the opinion, the court invalidated the major provisions of the AHP rule and remanded the rule back to the DOL to determine if any remaining portions of the rules (relating to nondiscrimination and organizational structure) are severable. On that, the court noted its opinion that the remaining portions, were “collateral” to the more major portions which it held invalid. Additionally, in his order, the judge did not issue a stay. That leaves the DOL with a few options. First, the DOL could seek a stay (meaning the decision would not go into effect) and appeal the decision, sending the case to the Court of Appeals for the D.C. Circuit. Second, the DOL could try and find a way to re-craft the rule in a way that meets the district court ruling. Third, the DOL could rescind the rule altogether.
The ruling leaves associations and AHPs in a difficult spot. The ruling prevents the formation of self-insured AHPs under the 2018 rules – those rules would’ve gone into effect on April 1, 2019 – that effective date is clearly after the decision, and prevents the formation of other AHPs that rely on the 2018 rules. The ruling’s impact is much trickier to discern for those AHPs that have already formed pursuant to the new rule. The status of the AHP as an ERISA plan could be in jeopardy, meaning the AHP would have to comply with the ACA’s individual and small group protections, and any working owners (sole proprietors, etc.) would have to exit the AHP (they could potentially qualify for a special enrollment in the exchange). Some of that impact, however, depends on the next steps in the lawsuit. Since the decision could potentially be placed on hold pending an appeal, AHPs that have formed under the 2018 rules could wait and see what happens before making any decisions on the future. However, they should likely consult with legal counsel to determine their next steps.
One thing is for certain, though: AHPs formed under the old AHP rules (those that have a commonality of interest, exclude sole proprietors, and exercise control over the AHP) are not impacted by the 2018 DOL rules or by the court’s ruling here. So, if an AHP formed under that older ERISA definition, they can continue to operate as they have been. On April 2, 2019, the DOL published an FAQ document in response to the court ruling, wherein the DOL stated that “Participants in AHPs affected by the District Court’s decision have a right to benefits as provided by the plan or policy. Plans and health insurance issuers must keep their promises in accordance with the policies and pay valid claims.” The DOL also reiterated that its considering its options for appealing the decision, with more to come on that.
PPI Benefits Compliance will continue to monitor the lawsuit and any related developments.
DOL Updates Fact Sheet on Adjusting ERISA Civil Monetary Penalties
The DOL recently updated their Fact Sheet detailing the 2019 inflation adjustments of ERISA’s civil monetary penalties that can be imposed on employer-sponsored plans. This fact sheet provides the penalty amounts that are enforceable by the EBSA for penalties assessed after January 22, 2019 and for violations that occurred after November 2, 2015.
As background, the annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer-price index-urban (CPI-U) from October of the preceding year. For 2019, the penalties were published on January 23, 2019, and the amounts were based on a cost-of-living increase of 1.03 percent.
To avoid the imposition of penalties, employers should ensure ERISA compliance for all benefit plans and stay updated on ERISA’s requirements.
IRS and DOL Guidance on Relief Available for March Storm Victims
In March 2019, the IRS and DOL issued notices of possible tax relief and ERISA relief for certain counties in Ohio and Nebraska that were declared disaster areas due to serious weather events. The relief is available to individuals that reside or work in the following counties:
- Nebraska counties: Butler, Cass, Colfax, Dodge, Douglas, Nemaha, Sarpy, Saunders, and Washington
- Iowa counties: Fremont, Harrison, Mills, Monona and Woodbury counties.
The guidance describes the ability of the IRS to postpone certain deadlines for taxpayers who reside or have business in the impacted areas, including the April 15, 2019, deadline for income tax returns and payments and the quarterly estimated income tax payments due on April 15, 2019, and June 17, 2019. Eligible taxpayers also have until July 31, 2019, to make 2018 IRA contributions. Penalties on payroll and excise tax deposits due on or after March 9, 2019, and before March 25, 2019, will be abated as long as the deposits were made by March 25, 2019.
Separately, the DOL recognized that plan fiduciaries, employers, labor organizations, service providers, and participants and beneficiaries located in the declared disaster areas may have difficulty in complying with ERISA over the coming months. Relief is available regarding verification procedures for pension plan loans and distributions as well as the time restrictions for participant contributions and loan repayments. There is also relief extended to ERISA claims compliance as long as plans act reasonably, prudently, and in the interest of the workers and their families who rely on their health, retirement, and other employee benefit plans for their physical and economic well-being.
Employers in these affected areas should call the IRS disaster hotline at 866.562.5277. For disaster relief specific to the EBSA, visit www.askebsa.dol.gov or 1.866.444.3272 .
IRS Updates Operational Compliance List for 2019
On March 26, 2019, the IRS updated their operational compliance list (“OC List”) to include changes to the hardship distribution rules. As background, the OC List is provided by the IRS to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.
The updated list incorporated the most recent changes to the hardship distribution rules. (We discussed those changes in the November 29, 2018, edition of Compliance Corner The list also highlights the relief available to victims of the hurricanes that occurred in 2018.
The IRS periodically updates the OC List to reflect new legislation and guidance. As such, it is a useful tool for plan sponsors. However, the list is not intended to be a comprehensive list of every item of IRS legislation or guidance. Plan sponsors should work with their advisers to ensure their continued compliance with the retirement plan regulations.
Announcements
2018 HSA Contributions and Corrections Deadline Is April 15
Individuals who were HSA eligible in 2018 have until the tax filing deadline to make or receive contributions. Thus, 2018 HSA contributions must generally be made by April 15, 2019. This includes employer contributions. The 2018 contribution limit is $3,450 for self-only coverage and $6,900 for any tier of coverage other than self-only. Those aged 55 and older are permitted an additional catch-up contribution of $1,000. An individual’s maximum annual contribution is limited by the number of months they were eligible for the HSA.
There is an exception to this rule. An individual that was HSA eligible on December 1, is permitted to contribute the full statutory maximum for the year. However, if eligible employees do not remain HSA eligible through December of the following year, they may experience tax consequences.
Individuals who contributed more than the allowable amount for 2018, should be refunded the excess contributions and associated interest by April 15, 2018. The excess would be subject to income tax. If the excess is not refunded from the account, it will not only be subject to income tax, but also a six percent excise tax penalty. If an employer is aware of an employee who was not eligible for a contribution or who has contributed more than the allowable amount for 2018, they should work with the HSA bank/trustee to process the excess contribution.
Can self-funded plan sponsors, including religious organizations, choose not to cover same-sex spouses on their group health plan?
After the US Supreme Court decision in Obergefell v. Hodges all states recognize same-sex marriages, and state insurance laws require that they be recognized by fully-insured health plans. While some make the argument that self-funded plans would not be subject to that requirement (since they aren’t subject to state insurance laws due to ERISA preemption), we are of the opinion that any self-funded employer seeking to limit coverage to opposite-sex spouses should seek counsel.
Since the Obergefell case did not speak to the application of the case to benefits, some are of the opinion that a self-funded plan that wishes to exclude coverage for same-sex spouses may do so. Keep in mind, though, that a self-funded plan that provides coverage to opposite-sex spouses, but excludes coverage for same-sex spouses risks litigation under Title VII of the Civil Rights Act of 1964. Specifically, some courts and the EEOC have contended that excluding coverage for same-sex spouses would be discrimination based on sexual orientation.
In one example of a case that was settled through the EEOC, the EEOC linked a press release that can be found here on the EEOC Newsroom page The press release discusses a group health plan that specifically excluded coverage for same-sex spouses. One of the participants filed a complaint and the EEOC brought suit against the employer for Title VII discrimination. As part of the settlement, the employer had to reimburse health care expenses for the same-sex spouse and revise its policy.
Even religious organizations and religiously-affiliated institutions should consult with counsel before excluding same-sex spouses from coverage. While the EEOC does recognize a sort of “ministerial exception” available to churches under some laws, the exception doesn’t tend to allow churches the right to discriminate for every purpose. Instead, whether or not a religious institution could claim an exception under Title VII or any other federal law would likely involve a facts and circumstances-based determination. Additionally, there is always the risk of litigation of the matter.
So ultimately, while it seems that a self-funded plan sponsor could choose not to cover same-sex spouses, doing so would likely open the employer up to the risk of litigation. And courts and the EEOC have made it clear that they find a same-sex spouse exclusion to be discrimination. As such, an employer who wants to keep such an exclusion should work with their outside counsel (even if the client has a religious basis for excluding such coverage), and that counsel would be best suited to draft any documentation of the exclusion (if they move forward with one).
State Updates
Alaska
One-Year Extension for Grandmothered Plans
On March 27, 2019, the Alaska Division of Insurance published Bulletin 19-05. The bulletin provides another one-year extension to the transitional policy of non-ACA-compliant individual and small group policies and plans issued in Alaska.
As background, on March, 25, 2019, CMS issued guidance allowing extensions of so-called “grand mothered policies” (for example, non-ACA-compliant plans that have been continued since 2013), subject to state and carrier approval. Bulletin 19-05 represents Alaska’s approval for such extension.
Bulletin 19-05 states that insurers have the option to renew non-ACA-compliant policies if coverage has been continuously in effect since December 31, 2013. Those policies may continue to be renewed on or before October 1, 2020, provided the policy will terminate by December 31, 2020. Insurers may early renew or issue coverage for periods less than one year if a policy terminates prior to December 31, 2020, and, in the case of a small group, if the employer wants coverage through the end of the calendar year.
The bulletin presents two options for insurers that elect to extend non-ACA policies. Under the first option, an insurer may permit employer-sponsored groups currently enrolled in the insurer’s non-ACA-compliant plan to continue to renew their coverage. Under the second option, the insurer may provide an additional opportunity to renew coverage in its non-ACA-compliant plan to an employer-sponsored group that’s currently enrolled in the insurer’s non-ACA-compliant plan but has indicated its intent to not renew at the end of the plan year.
Alaska small employers that are interested in renewing a non-ACA-compliant plan should work with their advisors and insurers.
Connecticut
Clarification of Infertility Treatment Mandates
On March 19, 2019, Ins. Commissioner Mais issued Bulletin HC-125 to clarify CT’s mandated coverage for infertility treatments. In 2017, CT started to require that carriers provide coverage for medically necessary expenses of the diagnosis and treatment of infertility. This new bulletin clarifies that the harvesting of eggs and sperm is a covered benefit in cases where the patients will undergo treatment that has the potential to render them infertile. Carriers and physicians may continue to use reasonable medical management to determine if the treatment is otherwise medically necessary. The carrier may apply plan copayments deductibles, and coinsurance (range from zero to 50 percent). Male infertility treatment is covered under this mandate.
Separately, the bulletin reminds carriers of the prohibition of the use of age-benefit restrictions in the infertility treatment for policies issued or renewed on or after January 1, 2016.
New Jersey
Pre-Tax Transportation Benefits
On March 1, 2019, Gov. Murphy signed S1567 into law, requiring employers with more than twenty employees to offer pre-tax transportation fringe benefits to their employees who are not otherwise covered by a collective bargaining agreement.
Under the bill, an employee may set aside a certain portion of pre-taxed wages to be made available for specified transportation services and this will also reduce the employee’s federal taxable income. This pre-tax fringe transportation benefit includes services such as transit passes, commuter highway vehicle travel, and costs of parking at park-and-ride lots. This bill does not apply to employees of the federal government who are eligible for a transit benefit equal to or greater than the pre-tax transportation fringe benefit required by the state.
Please note that this law does not require employers to offer a qualified parking or bicycle benefit, but employers are permitted to do so.
The Commissioner of Labor and Workforce Development will enforce this new measure and is authorized to issue citations to employers that do not offer this pre-tax transportation fringe benefit. Employers that do not comply will be liable for a civil penalty of not less than $100 and not more than $250 for the first violation.
The NJ DOL intends to adopt rules and regulations to address the administration of and enforcement of this pre-tax benefit. The Act takes effect immediately, but shall remain inoperative for 365 days following the date of enactment (March 1, 2020) or upon the effective date of rules and regulations adopted.
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.
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FAQ
Can self-funded plan sponsors, including religious organizations, choose not to cover same-sex spouses on their group health plan?
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