Federal Updates
DOL and IRS Release Guidance on Association Health Plans
On Aug. 20, 2018, the DOL and IRS released guidance on association health plans (AHPs). As background, in June 2018 the DOL published final regulations on AHPs. Those regulations allow more employer groups and associations to form AHPs by relaxing ERISA's original rules on AHPs. Specifically, through the new AHP regulations, AHPs can now be offered to employers in a state, city, county or multi-state metro area, or to employers in a common trade, industry or profession. Additionally, the new regulations allow sole proprietors to join AHPs.
DOL Compliance Assistance
The DOL's compliance assistance document features a discussion of the new regulations and provides answers to a number of questions pertaining to the administration of AHPs under the law. Specifically, the document confirms that AHPs are employee welfare benefit plans under ERISA, and therefore must meet ERISA's reporting, disclosure and fiduciary requirements of plans and plan sponsors. This means that AHPs will still need to furnish SPDs, SMMs, and SBCs to employees covered by the plan. Likewise, both fully insured and self-insured AHPs will have to file Forms 5500 and M-1 (since AHPs are also MEWAs). AHPs must also comply with the benefits claims procedures, consumer health care protection provisions and fiduciary rules imposed on ERISA fiduciaries.
Notably, the Department discusses COBRA and points out that they anticipate future guidance on the application of COBRA to AHPs that provide coverage to employers that have less than 20 employees (which is the threshold of employees that makes an employer subject to COBRA).
The remaining questions and answers in the document discuss enforcement of AHPs. The DOL makes it clear that AHPs will also be able to avail themselves of any necessary prohibited transaction exemptions as well as the DOL's Voluntary Fiduciary Correction Program (VFCP - which allows plan sponsors to self-correct certain violations of ERISA). However, they also reiterate the fact that ERISA allows the DOL to issue cease-and-desist orders or summary seizure orders to MEWAs that are fraudulent or create a risk of immediate danger or harm to the public. Additionally, the document reminds the public that state insurance regulators also have jurisdiction over AHPs, including self-insured AHPs.
The document ends by identifying the timeline under which AHPs can be established or operate under the DOL's new rules, and echoes an earlier part of the document in stating that AHPs formed prior to the new rules can operate under the old regulations or elect to follow the new regulations.
IRS Q&A; on Employer Mandate & AHPs
The IRS updated their
Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act
to discuss AHPs and the employer mandate. Specifically, in "Q&A; 18," the IRS states that the employer mandate does not apply to an employer participating in an AHP unless they are otherwise subject to the employer mandate. In other words, employers that are not an Applicable Large Employer (ALE) under the ACA will not become one by virtue of joining an AHP.
Although the guidance from the DOL and IRS does not present new information, entities seeking to establish an AHP should consider this guidance and familiarize themselves with the resources provided by the documents. We'll continue to report on additional developments as the DOL and IRS provide them.
Association Health Plans ERISA Compliance Assistance >>
IRS Q&A; >>
EEOC Settles with Estee Lauder on Paternity Leave Discrimination Case
On July 17, 2018, the EEOC issued a press release announcing a settlement agreement resolving a lawsuit it filed against Estee Lauder. The company is a manufacturer and marketer of skin care, makeup, fragrance and hair care products. As a result of the settlement, Estee Lauder will pay $1,100,000 and provide other relief to resolve the lawsuit alleging sex discrimination against male employees.
As background, the EEOC alleged that Estee Lauder discriminated against a class of 210 male employees. Specifically, the lawsuit claims Estee Lauder provided new fathers two weeks paid leave to bond with a newborn, or with a newly adopted or fostered child, while it provided six weeks to new mothers. The parental leave at issue was separate from medical leave received by mothers for childbirth and related issues. The EEOC also alleged that the company unlawfully denied new fathers return-to-work benefits provided to new mothers, such as temporary modified work schedules, to ease the transition to work after the arrival of a new child and exhaustion of paid parental leave.
In addition to the money paid pursuant to the settlement, the agreement requires Estee Lauder to administer parental leave and related return-to-work benefits in a manner that ensures equal benefits for male and female employees and utilizes sex-neutral criteria, requirements and processes. Estee Lauder has already taken steps to address this requirement by implementing a revised parental leave policy that provides all eligible employees, regardless of gender or caregiver status, the same 20 weeks of paid leave for child bonding and the same six-week flexibility period upon returning to work. For biological mothers, these parental paid leave benefits begin after any period of medical leave received by mothers for childbirth and related issues. The benefits apply retroactively to all employees who experienced a qualifying event (birth, adoption or foster placement) since Jan. 1, 2018. Finally, the settlement also requires that Estee Lauder provide training on unlawful sex discrimination and allow monitoring by the EEOC.
In summary, this lawsuit and settlement agreement provides employers with a great example of conduct that violates the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964. Ultimately, this settlement demonstrates that employers must provide equal opportunities for time off to new dads and new moms for bonding with a new child, which is what federal law requires. Specifically, leave benefits related to pregnancy, childbirth or related medical conditions can be limited to women affected by those conditions. However, parental leave must be provided to similarly situated men and women on the same terms. The EEOC commended Estee Lauder for working cooperatively on a resolution that compensates male employees who received less paid leave for child-bonding as new fathers and for revising its parental leave policy.
Tenth Circuit Rules in Favor of Employee in Disability Appeal
On Aug. 13, 2018, in McMillan v. AT&T; Umbrella Benefit Plan No. 1 , No. 17-5111 (10th Circ. Aug. 13, 2018), the U.S. Court of Appeals for the Tenth Circuit affirmed a federal judge's decision to reverse an AT&T; benefit plan's denial of short-term disability (STD) benefits to an employee. The issue in the case was whether the plaintiff, McMillan, was entitled to 26 weeks of STD benefits due under the plan due to his inability to perform "all of the essential functions of his job" as a Senior IT Client Consultant. The court highlighted the employer's improper administration of the ERISA disability claim and upheld the district court judge's award of 26 weeks of disability benefits.
As background, McMillan received STD insurance under AT&T;'s income benefit program. He submitted an STD claim due to his sleep apnea, diabetes, stage III kidney disease, shortness of breath, chronic obstructive pulmonary disease, inability to stand or walk for long periods of time, and an inability to focus, concentrate and retain short-term memory. Upon review of the physician statements and conversations with McMillan regarding his job duties, the plan administrator denied the claim, asserting that his job duties were sedentary and, therefore, the medical findings were insufficient to conclude he was unable to perform his job duties. McMillan followed the appeal procedures and submitted additional medical substantiation but was denied again. He then sued for judicial review of the decision under ERISA, and the district court reversed the plan administrator's denial of McMillan's STD benefits.
Upon review, the Tenth Circuit first reviewed the plan document, which provided that an employee is totally disabled if "because of Illness or Injury, [he or she is] unable to perform all of the essential functions of [his or her] job." Further, the court stated that an ERISA plan must consider whether the claimant can actually perform all the job requirements and that a denial is arbitrary and capricious if premised on medical reports that fail to consider one or more of the claimant's essential job functions. Although the plan consulted with five doctors with different specialty areas, who all came to the conclusion that McMillan was not disabled, the court noted that none of them explained how McMillan could have a job which required some weeks of 100% travel when he had difficulty walking. As such, the court ruled that the plan failed to consider McMillan's ability to perform the travel and cognitive requirements of his position and remanded McMillan's claim back to the plan for further processing.
This case serves as a good reminder that employers should properly administer ERISA disability claims. Upon receipt of a claim, an employer should always review the plan terms to determine what steps are required and what specific evidence is necessary to review the claim. An employer should be very detailed in the claim review and follow the plan terms. Additionally, any doctors that are reviewing the claim on behalf of the plan administrator should be provided all pertinent information and encouraged to complete a thorough analysis of the participant's claims. In the event of a denial, they should be very specific as to why the claim does not meet what's required under the plan to receive the benefit. It's also an important reminder that even when an employer turns to a third party to handle the administration of the plan, the employer remains ultimately responsible.
Retirement Update
Eighth Circuit: Plaintiffs Can't Prove Fiduciary Imprudence of Investment Selections Without a Meaningful Benchmark
On Aug. 3, 2018, in Meiners v. Wells Fargo & Company, et al. No. 17-2397 (8th Cir., Aug. 3, 2018), the U.S. Court of Appeals for the Eighth Circuit (the Court) ruled in favor of retirement plan fiduciaries, requiring plaintiffs to meet a high bar in order to prove imprudent selection of investment funds (which is a violation of ERISA's rules for fiduciaries).
As background, the plaintiffs in this class action case alleged that their plan sponsor had breached their ERISA fiduciary duties of loyalty and prudence by offering twelve of Wells Fargo's Target Date Funds (TDFs) for investment in the plan. The plaintiffs alleged that these funds were more expensive (due to higher fees) and underperformed compared to other funds available to the plan. Specifically, they pointed to other funds offered by Vanguard and Fidelity which were less expensive, and identified one of the Vanguard funds that performed higher than the Wells Fargo TDFs.
Before the case came before the Court, the Federal District court had granted Wells Fargo's motion to dismiss the case. On review, the Court agreed with the District court, and upheld the dismissal of the plaintiffs' claim of imprudence on Wells Fargo's part. Essentially, the Court concluded that the plaintiffs failed to sufficiently plead facts indicating that Wells Fargo's TDFs were underperforming.
In fact, the court noted that it was not enough that the plaintiffs pointed to the one Vanguard fund that outperformed the Wells Fargo TDFs, especially when the District Court found that the Vanguard fund in question had a different investment strategy. Additionally, the Court reasoned that the mere existence of cheaper funds was not proof of imprudence. Ultimately, the Court held that the plaintiffs failed to offer a meaningful benchmark of funds that would prove the offering of the Wells Fargo TDFs to be imprudent.
This case makes it clear that plaintiffs who want to claim imprudence based on investment fund offerings that are proprietary, more expensive or underperforming must meet the burden of providing a meaningful benchmark by which to measure the funds in question. While this case was adjudicated in favor of the employer, retirement plan sponsors should also consider their own fiduciary responsibilities and whether or not their choices of investment funds would be considered prudent.
IRS Revises Retirement Plan Checklists
The IRS emphasizes the importance of annually reviewing the operating requirements for a company's retirement plan. They have designed checklists specifically for this purpose: Publication 4284 for Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs and Publication 4285 for Simplified Employee Pensions (SEPs). Both checklists have recently been revised to reflect 2018 indexed limits.
A SIMPLE IRA is a retirement plan available to small employers. SIMPLE IRAs require an employer contribution, and both employer and employee contributions are made to an individual retirement account (IRA) or annuity set up for each employee. The checklist reminds employers of the relevant operating requirements including:
- They cannot have more than 100 employees who earned at least $5,000 in the previous year.
- They cannot sponsor another type of retirement plan in addition to the SIMPLE IRA.
- The required employer contribution is either two percent of the employee's compensation or a three percent matching contribution.
- Employee deferrals must be deposited as soon as possible but no later than 30 days following the months in which the employee would have otherwise received the money.
A SEP is a plan in which all eligible employees are permitted to participate, including part-time employees. Contributions are deposited to IRAs for each employee. The checklist reminds employers of the relevant operating requirements including:
- Employees of related businesses must be included in plan participation.
- Employer contributions to a SEP must be the same percentage of compensation for each employee.
- All contributions are limited to the lesser of 25 percent of compensation or $55,000 (for 2018).
Publication 4284, SIMPLE IRA Plan Checklist >>
Publication 4285, SEP Checklist >>
FAQ
What is IRS Letter 5699, and what are the penalties for not filing appropriate reports (Forms 1094-C and 1095-C) with the IRS?
Some employers have been receiving IRS Letter 5699, which is a letter from the IRS inquiring about an employer's informational reporting forms (Forms 1094-C and 1095-C), which may have been due in past years. As background, under the employer mandate and the related reporting, applicable large employers (ALEs--those with 50 or more full time employees, including equivalents) are required to identify and offer affordable coverage to all full time employees (those working 30 hours or more per week) and to file Forms 1094-C and 1095-C (which detail the offer of coverage) with the IRS. ALEs were generally required to offer coverage beginning in 2015, and are required to file informational reporting forms regarding the prior year's compliance (that is, file reports in 2016 reporting on 2015 compliance, in 2017 reporting on 2016 compliance, and so on).
The IRS sends Letter 5699 to employers that may have failed to submit their informational reports. In other words, if the IRS doesn't have a record of a company's Forms 1094-C and 1095-C, and the IRS believes the company should have submitted those reports, the IRS could send Letter 5699 to that company. Letter 5699 identifies the year of the alleged failed reporting, and provides the employer with five options for responding. Specifically, employers who receive this letter can:
- Acknowledge they were an ALE for the year indicated, and that they actually did file the appropriate forms (and identify the date and employer EIN used to file).
- Acknowledge they were an ALE for the year indicated, but that they didn't file appropriately or on time for the year. The employer would also include in their response the appropriate forms and explain the reasons for the late filing.
- Acknowledge ALE status and promise to report within 90 days of the letter (and explain the reasons for the late filing).
- Claim they were not an ALE for the year in question.
- Categorize their response as "Other," which is a catch-all option for the employer to explain why they didn't file and any actions they plan to take to fix the failure.
The letter reminds the employer that there are penalties for failing to file the appropriate informational returns. Although the letter does not list specific penalty amounts, the IRS has previously indicated that the penalty amount for tax filings made in 2017 or after is $260 for each return to which a failure relates (capped at $3,218,500 -- although there's a lower cap for employers with $5 million or less in annual gross receipts). For failures in 2016, the penalty is $250 (with a $3 million cap). Keep in mind that the failure to provide a form to the IRS and to a given participant is considered two separate failures.
Employers that receive IRS Letter 5699 should review the letter closely and review their filing for the year indicated in the letter. Employers are required to respond to the letter within 30 days. The first page of the letter contains IRS contact information and employers should reach out to that IRS contact to let them know they've received the letter and are working towards its resolution. After reviewing and assessing whether the filings were made in the year in question, the employer should check the box relating to their response (under one of the five options above). The employer may also need to provide an explanation of the situation or the reasons for the failure, as well as any corrective action they plan on taking. Working directly with the IRS agent, the employer may also want to attach additional documentation or substantiation relating to the informational reports. If the employer has specific questions or needs exact advice, they should work with outside counsel.
State Updates
Connecticut
Association Health Plan Restrictions
On Aug. 10, 2018, Commissioner Wade issued Bulletin HC-122 to remind insurers that state law continues to regulate association health plans.
As background, on June 21, 2018, the DOL issued final regulations regarding association health plans (AHPs). Under the regulations, a group or association of employers may act as a single "employer" sponsor of an association health plan under ERISA. The federal regulations attempted to encourage the creation of these associations, but emphasized that the states retain their authority to regulate AHPs. This bulletin clarifies the coordination with CT law.
CT allows fully insured AHPs, but any "small employer" participating in an AHP must continue to be rated as a small employer. CT defines a "small employer" as an employer with at least one but no more than 100 employees during the preceding calendar year and that employs at least one employee on the first day of the group plan's year. The state does not consider a sole proprietorship that employs only the sole proprietor or the spouse of such sole proprietor to be a "small employer."
The bulletin further clarifies that AHPs are considered MEWAs, and that self-insured MEWAs or multiple employer trusts (METs) must be licensed as an insurance carrier in the state. An employer that operates a self-insured MEWA or MET without authority or license is considered an illegal operation.
The main purpose of this bulletin is to remind insurers that the state retains the right to regulate MEWAs, regardless of changes to federal law. Employers should be aware that their participation in a fully insured MEWA will likely fall under CT's jurisdiction. The state also took the time to reiterate that an organization operating (or seeking to operate) a self-funded MEWA must be licensed as an insurance carrier to do so or risk being considered an illegal operation.
Requirements for Short-term, Limited-Duration Health Policies
On Aug. 9, 2018, Commissioner Wade issued Bulletin HC-121 to reiterate the state's requirements that relate to short-term, limited-duration health insurance policies. The bulletin states that such plans are considered an individual health policy that must provide essential health benefits (EHBs) and that any plan (including a renewable plan) that's longer than six months in duration must not exclude coverage for preexisting conditions. In addition, each issued policy must be filed with the state as one of the following: (i) basic hospital expense coverage; (ii) basic medical-surgical expense coverage; (iii) major medical expense coverage; (iv) hospital or medical service plan contract; or (v) hospital and medical coverage provided to subscribers of a health care center.
As background, the HHS and DOL issued final regulations regarding short-term, limited-duration health plans on Aug. 1, 2018. The regulations extend the permissible policy time frame to no more than 12 months (an increase from the previous maximum of three months) and allow such a policy to be renewed or extended for a period of up to 36 months in total. Such short-term policies are exempt from the ACA's individual market rules, but remain subject to state regulation.
The primary purpose of this bulletin is to remind insurers of the state's requirements for short-term, limited-duration health policies. Employers should be aware that though these plans may be a lower cost option for individuals that just experienced a separation of employment, it doesn't change an employer's obligation to make an offer of COBRA (or state continuation), if otherwise required.
Hawaii
Medication Synchronization
On July 11, 2018, Gov. Ige signed HB 2145 into law. The new law allows for medication synchronization for participants who are taking two or medications for chronic conditions. The synchronization allows for the multiple medications to be filled at the same time by the same network pharmacy, which the new law states increases medication adherence. The new law specifically requires group health insurance policies to provide coverage for partial supplies of such medication (less than a 30 day supply) with prorated cost sharing applied. The law was effective July 1, 2018.
Restrictions on Short-Term, Limited-Duration Policies
On July 10, 2018, Gov. Ige signed HB 1520 into law. The new law prohibits an insurer from issuing or renewing a short-term, limited-duration health insurance policy for an individual who was eligible to purchase individual health insurance through the marketplace during open enrollment or a special enrollment period in the previous calendar year. Further, insurers are prohibited from issuing such a policy with a coverage period longer than 90 days. This law is more restrictive than the recently issued federal regulations related to short-term, limited-duration health insurance policies, which permits renewals for up to 36 months.
Kansas
Plans Can't Deny Mammograms
On Aug. 8, 2018, Commissioner of Insurance Selzer issued Bulletin 2018-2. The bulletin clarifies the requirements found in K.S.A. 40-2230, which require insurers that cover laboratory or x-ray services to cover mammograms. The Bulletin clarifies that for these purposes, the term "mammogram" includes tomosynthesis (3D mammography). Additionally, the cost sharing limits imposed on tomosynthesis must be the same as the ones applied to any other type of mammography.
The clarification in this Bulletin applies to plan years beginning on or after Jan. 1, 2019.
Maine
HHS Approves Maine Section 1332 Waiver
On July 30, 2018, HHS and the Department of the Treasury approved ME's state innovation waiver, which requested a waiver from certain health insurance requirements under the ACA. Specifically, ME sought waiver of the ACA's requirement that all enrollees in the individual market be rated under a single risk pool in order to reinstate the ME Guaranteed Access Reinsurance Association (the state-operated reinsurance program) from 2019 through 2023. The Departments believe that the waiver will achieve lower individual premiums in the state and lower premium tax credits (PTC) provided to ME residents.
The waived provisions are effective from Jan. 1, 2019 through Dec. 31, 2023, unless the waiver is extended. Superintendent Cioppa has 30 days (from July 30, 2018) to accept the terms and conditions of the Departments' approval. If approved, the estimated PTC savings will be provided to the state to be used for implementation of the state's reinsurance program.
The approval of this innovation waiver doesn't impact employers directly, since it's related to the individual market. However, employers may want to familiarize themselves with the approval in order to understand the waiver's effect on the individual market.
Mississippi
Mississippi Employers Must Allow Employees to Take Military Leave
On May 8, 2018, Gov. Bryant signed SB 2459 into law, which expands reemployment protections for military service members and veterans. The new law mandates that a service member or veteran be restored to his or her previous position after returning from training with the Armed Forces in another state.
Specifically, employers must allow eligible employees to take an unpaid leave of absence to perform duties or receive training with the US, MS, or another state's armed forces, including active state duty, state training duty, or other military duty authorized under federal armed forces or National Guard law.
Employers must reinstate eligible employees returning from military leave to the same position or a similar position with the same status, pay, and seniority if they're still qualified to perform the duties of that position. Employees returning to work after military leave must provide evidence of their satisfactory completion of duties or training with the US or MS armed forces.
Importantly, employers may not retaliate or discriminate against employees or applicants who are members of any reserve component of the US armed forces or former members of the US armed forces who were discharged or released from active military duty (except duty for training purposes) under other than for dishonorable conditions. Specifically, employers may not deliberately deny these employees and applicants or discriminate against them in compensation or conditions of employment based on active or former membership. This likely means that benefits offered to non-service member employees must also be provided to employees who are, or were, service members. Employers also can't use threats of physical or other harm to discourage employees or applicants from enlisting in any reserve or active component of the US armed forces.
Employers that violate the retaliation prohibition are subject to criminal prosecution and could be fined, imprisoned for up to six months, or both. Thus, employers in MS should ensure leave and hiring policies and procedures are updated in accordance with these new provisions. This law is effective July 1, 2018.
Missouri
Prescription Eye Drop Refills
On July 9, 2018, Gov. Parson signed SB 826 into law. This bill amends Section 376.1237 of the state's insurance code to repeal the expiration date applicable to coverage for prescription eye drops. Specifically, the new law prohibits plans from applying greater deductibles or copayments to early prescription eye drop refills than deductibles or copayments that apply to other, similar health-care services covered by plans. Additionally, due to the passage of this law the coverage requirement for early refills of prescription eye drops no longer expires on Jan. 1, 2020 (which was the sunset date previously included in the law). The new law takes effect on Aug. 28, 2018.
Mandated Substance Use Disorder Medication
On July 9, 2018, Gov. Parson signed SB 718 into law. This bill makes various changes to the insurance code including requiring plans to provide coverage for medication-assisted treatment of substance use disorders (Section 376.811) and removing language excluding chemical dependency from the definition of "mental health conditions" (Section 376.1550). The law takes effect on Aug. 28, 2018.
Ohio
Anatomical Gifts, Transplantation and Discrimination
HB 332 is effective Sept. 28, 2018, and prohibits a health plan issuer from denying coverage for anatomical gifts, transplantation, or related treatment and services solely on the basis of disability.
Pennsylvania
State Governance of AHPs
On Aug. 2, 2018, Insurance Commissioner Altman submitted a memo to the DOL in response to the final association health plan (AHP) regulations published by the DOL. In the memo, the Commissioner lays out the Insurance Department's opposition to the regulations and intention to enforce the state's existing restrictions as related to associations and AHPs. This position is in agreement with Pennsylvania Attorney General Shapiro, who has joined 11 other attorneys general in a lawsuit opposing the regulations.
Since the final regulations provide for state regulation of associations, it's important to understand Pennsylvania's current law. Pennsylvania:
- Prohibits a self-insured AHP, unless the association is licensed as an insurer meeting all financial and licensing requirements.
- Permits fully insured AHPs as long as the association has been in existence for at least two years and its primary purpose is other than the purchase of insurance.
- Prohibits a self-employed individual with no employees from joining an AHP as an employer. Such person would only be eligible to purchase an individual policy.
- Prohibits an insurer from issuing a large group policy to an association which consists of small employers with fewer than 50 employees. A small employer who joins an AHP would still be rated as a small employer subject to the small employer mandated benefits.
The issue of AHPs is complex and constantly changing. We'll continue to report any developments in Compliance Corner . If you have any questions as to how these rules may impact your health plan opportunities, please contact your advisor.
Commissioner Altman Memo to DOL >>
Insurance Department Press Release >>
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.