PPI in the News Compliance Corner - January 21, 2021 Archive
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On January 10, 2021, the Department of the Treasury released final regulations related to Individual Coverage HRAs (ICHRAs) and the application of the employer mandate and nondiscrimination. The final regulations contain only minor changes from the proposed rules and guidance.

Under the rules, an employer of any size may use an ICHRA to pay for or reimburse the cost of employees' individual health policies. The employer cannot offer any group health plan to the same classification of employees being offered the ICHRA, although an employer could also offer a dental only or vision only plan to those employees. The same terms and reimbursements must apply within the same classification, though the employer may increase the maximum reimbursement based on family size and age.

The ICHRA is subject to COBRA and ERISA, which means it is subject to the SPD, Form 5500, and fiduciary requirements. The individual policies themselves are not subject to ERISA. Expenses must be substantiated before reimbursement.

A notice relating to the ICHRA must be provided to eligible employees at least 90 days before the beginning of each plan year or no later than the date an employee is first eligible to participate in the ICHRA. The notice must include specific and detailed information. A model notice is available on the DOL site .

An ALE may use an ICHRA to satisfy its obligations under the employer mandate. The minimum value standard can be met through the substantiation of qualifying individual coverage. The cost of individual coverage must be affordable to the employee. In order to be affordable, the employee’s cost for the lowest cost self-only silver coverage in the rating area in which they live minus the employer’s ICHRA contribution must be no greater 9.83% (for 2021) of the employee’s earnings. There are two safe harbors relevant to this calculation.

• Location safe harbor. The employer may use employment location as the rating area, rather than the employee’s residence. However, if an employee does not normally work at the employment location (for example, they normally work from home), the employment location cannot be used. The final rules clarify that the employer should use the address that is expected to be permanent or indefinite when determining location. In other words, temporary changes in location would be disregarded.
• Look-back month safe harbor. A calendar year ICHRA may use the rates of January of the previous year. A non-calendar year ICHRA may use the rates of January of the current year for the entire plan year. Also, an employer may use an employee’s age at the start of the plan year for the entire plan year.

Employers who have already adopted ICHRAs may want to review the preamble of the regulations as it has detailed information about administration. Employers interested in learning more about ICHRAs should contact their consultant.

Final Regulations »

On January 7, 2021, the DOL's Wage and Hour Division published final regulations related to independent contractor status under the Fair Labor Standards Act (FLSA). The division largely adopted the rules as proposed on September 25, 2020.

As background, many of the standards for determining whether a worker is an independent contractor or employee were developed through case law over the last 80 years. This led to overlapping rules, inconsistent application and confusion.

The division received over 1,800 comments on the proposed rules, and over 900 of them were from UBER drivers. The remaining comments were from other independent contractors, employers, labor unions, consultants and other stakeholders. Most of the comments were in support of the proposed regulations due to the lack of consistent rules in the past.

The DOL estimates that there are close to 19 million individuals that work as independent contractors for their primary or secondary source of employment. The most prevalent industries are construction and professional/business services. Based on various studies, the DOL reports that 79.4% of self-employed independent contractors have health insurance. Most of these workers either purchase insurance on their own (31.5 %) or have access through their spouse (28.6 %).

In adopting the final regulations, the WHD reviewed and considered all comments, which are detailed in the preamble. They specifically considered the widely publicized “ABC test” used in California for determining worker status. The preamble firmly rejects adopting that test as the federal standard, stating "the ABC test would be infeasible, difficult to administer, and disruptive to the economy if adopted as the FLSA standard." The final regulations generally apply across all industries. They replace regulations specific to tenants, sharecroppers, forestry and logging workers.

The rules adopt a distinct five factor test. There are two core factors that are considered to have more weight than the other three.

1) Control: The employer should consider the nature and degree of the worker's control over the work such as setting their own schedule, selecting their projects and the ability to work for others, which might include the potential employer's competitors.

2) Opportunity for profit or loss: The individual is more likely to be an independent contractor if they have an opportunity to earn profits or incur losses based on their exercise of initiative (such as managerial skill, business acumen or judgment) or management of their investment in, or capital expenditure on, such things as assistants, equipment or material.

The rules acknowledge that there may be additional factors to consider, but the additional three factors in the new test are:

3) The amount of skill required for the work: The employer should consider whether the work requires specialized training or skills that the employer does not provide.

4) The degree of permanence of the work relationship between the individual and the employer: This factor weighs in favor of an independent contractor if the work and the relationship are for a definitive period of time or occurs sporadically. The factor weighs in favor of the worker being an employee to the extent the work relationship is instead by design indefinite in duration or continuous.

5) Work integration with company production: The employer should consider whether the work is an integral unit of production. In other words, is the work a part of the employer's integrated process with goods or services or is the work outside of that core process?

Although this rule only addresses workers' independent contractor status under the FLSA primarily for minimum wage and overtime purposes, the DOL assumes that employers are likely to keep the status of most workers the same across all benefits and requirements. When considering the impact these rules have on benefits administration, employers should consider the new test in determining which workers are considered full-time employees for employer mandate and group health plan eligibility purposes. This categorization will also determine if offering benefits to these individuals will create a MEWA. Employers should consult with employment law counsel if they have any questions about this rule.

Final Regulations »

On January 7, 2021, CMS issued a toolkit designed to assist insurers and Medicare Advantage plans in covering the COVID-19 vaccine. The document focuses on issues that issuers must consider, and includes:

• A list of operational considerations for issuers and Medicare Advantage plans as they design their approach to promoting COVID-19 vaccinations and information.
• A summary of legislative and regulatory provisions applicable to issuers.

The toolkit also contains advice on how to streamline vaccination coverage and how to maximize the number of enrollees who get vaccinated. It also includes an important reminder that, although the cost of the vaccine itself is paid for by the CARES Act, the costs of administering the vaccine by a provider will be paid for by the payer, such as a private insurance company or Medicare in the case of an Medicare Advantage plan.

Employers who have self-insured plans, as well as those who are fully insured, should be aware of this information.

CMS Toolkit »

On January 7, 2021, the EEOC issued an opinion letter regarding individual coverage health reimbursement arrangements (ICHRAs) under the ADEA. The letter was in response to an inquiry submitted by a professional association representing health insurance agents, brokers, consultants and employee benefit specialists. Specifically, the opinion considers whether an employer can offer an ICHRA with a defined contribution or specified percentage formula without violating the ADEA.

ICHRAs present potential challenges when offered to older employees. The ADEA prohibits discrimination against those 40 years of age and older with respect to compensation, terms, conditions or privileges of employment (including fringe benefits). ICHRAs are a type of HRA created by 2019 regulations that can be integrated with individual health insurance coverage (as opposed to group health coverage, as is required for other types of HRAs). Employers may sponsor an ICHRA that offers a defined contribution (i.e., a set dollar amount, such as $300 per month) or a specified percentage (e.g., 30%) towards premium costs. However, individual health insurance policies are priced based upon factors that include the applicant’s age, so older individuals often pay a higher cost than younger applicants for the same coverage. If an employer sponsors an ICHRA that offers a defined contribution or a specified percentage towards premium costs, then older employees may pay more out-of-pocket for the policies than younger employees. This disparity in the cost paid by older employees could be discriminatory under the ADEA.

The opinion notes that an employer using the defined contribution formula is making the same amount available to each employee regardless of age, so this does not violate the ADEA prohibition against providing lesser compensation to older employees based on age. Additionally, there is no violation of the contributory fringe benefit rules, which do not allow older workers to assume a greater portion of the cost of a fringe benefit than younger workers, because the employees are not required to contribute to the ICHRAs. Although older workers may pay a greater amount for the individual health insurance policies bought using ICHRA funds, these policies are not considered ADEA-covered employee benefit plans because the employer does not select, offer or make these policies available to employees. Therefore, an ICHRA with a defined contribution formula that provides the same dollar amount to each covered employee does not violate the ADEA.

The opinion goes on to explain that a set percentage design may result in the employer providing larger amounts to older workers. Employers providing a greater level of compensation to older employees because of their age would not violate the ADEA. The opinion explains that this would be the case regardless of whether the employer structured the formula as a set percentage of the premium cost or instead chose to increase the dollar amount available for older workers to offset age-based increases in health coverage costs.

The EEOC opinion is limited to the application of the ADEA to the scenarios presented. However, employers who offer ICHRAs (or are considering doing so) should be aware of this opinion.

EEOC Opinion Letter »

On January 7, 2021, the EEOC proposed amendments to the wellness program regulations under the ADA and the GINA. The proposed rules provide guidance for designers and administrators of those programs who wish to include incentives, among other matters.

As background, EEOC rules come into play for wellness programs that include disability-related inquiries (e.g., health risk assessment) or medical examinations (e.g., biometric screening). In 2016, the EEOC issued rules under the ADA and GINA that such programs had to be voluntary and could offer incentives to participate up to a 30% limit, among other requirements. However, this incentive limit was soon challenged in court. In AARP v. EEOC , the AARP challenged the 30% limit as involuntary and the court found that the EEOC failed to justify the basis for the limit. This eventually resulted in the removal of the rules related to incentives (effective since January 1, 2019).

As a result, there was no current EEOC guidance related to the incentive limitation, and the proposed amendments provide anticipated replacement guidance. The highlights of the proposed rules include:

• Most wellness programs that include disability-related inquiries and/or medical examinations may offer no more than de minimis incentives to encourage employee participation. Examples of de minimis incentives include water bottles or gift cards of “modest value.”
• There is an exception for certain health-contingent wellness programs. The proposed rules provide a safe harbor for health-contingent wellness programs that are part of or qualify as a group health plan and meet HIPAA’s nondiscrimination requirements. Such programs can offer up to the maximum incentive permitted under HIPAA, which is 30% of the total cost of coverage (and 50% for tobacco cessation programs). Nondiscrimination rules under HIPAA require the following criteria:
  • The program must give individuals an opportunity to qualify for the reward at least once a year.
  • The reward amount cannot exceed 30% (or 50% for tobacco cessation), based on total cost of single coverage, unless spouse can also participate (then it is based on cost of coverage in which enrolled).
  • The reward must be available to all similarly situated individuals.
  • The program must be reasonably designed to promote health or prevent disease.
  • The program must disclose that reasonable alternative standards are available.
• Four factors provided to help determine if the wellness program is part of a group health plan include:
  • The program is only offered to employees who are enrolled in an employer group health plan.
  • Any incentive offered is tied to cost sharing or premium reductions (or increases) under the group health plan.
  • The program is offered by a vendor that has contracted with the group health plan.
  • The program is a term of coverage under a group health plan.
• Since the EEOC is proposing a de minimis incentive standard (for wellness programs that do not meet the safe harbor), it no longer believes that a prior notice describing the type of medical information that will be collected and how it will be used (among other things) is necessary.
• Only a de minimis incentive can be provided for all family members, not just spouses, in exchange for family members providing information about their manifestation of diseases or disorders.

Employers should be aware that these are proposed rules and are not final. The EEOC is soliciting comments for 60 days following the date the rules are published in the Federal Register. The EEOC will review any comments received during that time before issuing a final rule. The final rules could vary from the proposed rules. We are monitoring this process and will provide updates in future editions of Compliance Corner , including when the final rule is available.

Press Release »
Proposed Rules for Wellness Program Rules under ADA »
Proposed Rules for Wellness Program Rules under GINA »

The IRS recently issued instructions for Form 5500-EZ, a form used by one-participant plans that are not subject to the requirements of IRC section 104(a) of ERISA.

Effective for plan years beginning after 2019, a one-participant plan or a foreign plan required to file an annual return can file Form 5500-EZ electronically using the EFAST2 filing system or file Form 5500-EZ on paper with the IRS. Form 5500-SF is no longer used by a one-participant plan or a foreign plan in place of Form 5500-EZ.

As a reminder, if a plan fails to file a return, then the penalties are now $250 per day, up to a maximum of $150,000 per plan year. Returns required to be filed after December 31, 2019, are subject to these increased penalties.

Business owners covered by these plans should be aware of the increased penalties that could be imposed if they fail to file.

Instructions for 2020 Form 5500-EZ »

On January 4, 2021, the IRS released Revenue Procedure (Rev. Proc.) 2021-4, which explains the IRS procedures for issuing determination letters for employee benefit plans and transactions.

Rev. Proc. 2021-4 supersedes Rev. Proc. 2020-4 and updates those procedures by deleting procedures for submitting pre-approved plans for remedial amendment cycles prior to the third cycle and requiring requests for determination letters for plans that result from a plan merger to include the most recent determination letter for each predecessor plan. The update also increases the user fee for determination letter requests filed on Form 5300 to $2,700, the fee for determination requests filed on Form 5307 by adopters of modified volume submitter plans to $1,000, and the fee for requests on Form 5310 for terminating plans to $3,500. The update also requires that requests for determination as to whether leased employees are deemed employees include a cover letter requesting the determination and the additional information described in the procedure.

Employers that may need to request a determination letter should review this guidance and work with their service providers to submit any necessary applications.

Rev. Proc. 2021-4 »

On January 12, 2021, the DOL released three documents addressing their policy on missing participants. The first two pieces – “Compliance Assistance Release No. 2021-01” and “Missing Participants – Best Practices for Pension Plans” – identify the steps that defined benefit plan sponsors should take when they are unable to find certain vested participants or beneficiaries. The third piece – “Field Assistance Bulletin No. 2021-01” – outlines the DOL’s temporary enforcement policy regarding the participation of terminated defined contribution plans in the Pension Benefit Guarantee Corporation (PBGC) missing participant program.

As background, employers must often deal with terminated employees they are unable to find. This potentially leads to individuals who do not receive their pension or defined contribution distributions, which is a problem for both the employer and the DOL.

Compliance Assistance Release No. 2021-01 is a document that outlines the DOL’s practices under the Terminated Vested Participants Project (TVPP). Pursuant to the TVPP, the DOL directs defined benefit plans to maintain adequate census and other records necessary to identify participants and beneficiaries that are due benefits under the plan, the amount of benefits due, and when such participants and beneficiaries are eligible to receive the benefits. The release goes on to highlight the circumstances under which TVPP investigations are opened, the information the DOL asks for in such an investigation, the errors they look for and how cases are closed.

In “Missing Participants – Best Practices for Pension Plans” the DOL gives employers examples of the practices they should undertake to ensure that missing participants are found to the best of the employer’s ability. The DOL specifically lays out how employers can go about:

• Maintaining accurate census information for the plan’s participant population
• Implementing effective communication strategies
• Conducting missing participant searches
• Documenting procedures and actions

Finally, in Field Assistance Bulletin No. 2021-01, the DOL announces a temporary enforcement policy on employers’ use of the PBGC’s Missing Participants Program when terminating defined contribution plans. As background, the PBGC’s defined contribution missing participants program will hold retirement benefits for missing participants and beneficiaries of terminated defined contribution plans. This bulletin states that the DOL will not pursue any employers who use that program to transfer funds to the PBGC instead of transferring them to an IRA, bank or savings account, or state unclaimed property fund. For an employer to rely upon this temporary enforcement policy, they must follow the program’s rules (including conducting a diligent search for the missing participants). They must also send notices to the participants and beneficiaries that state that the funds are being transferred to the program and include the PBGC’s website address and customer contact number. This temporary enforcement policy will remain in place until the DOL issues regulatory guidance.

Employers should look to these three pieces of guidance for insight into how they should handle terminated and/or missing employees.

Compliance Assistance Release No. 2021-01 »
Missing Participants – Best Practices for Pension Plans »
Field Assistance Bulletin No. 2021-01  »

The IRS recently released the 2021 Instructions for Forms 1099-R and 5498. Form 1099-R reports distributions from retirement plans, pensions, annuities and IRAs. Form 5498 reports contributions to IRAs. The instructions provide specific guidelines for completing the forms.

As background, the IRS updates the form instructions annually to incorporate any recent administrative, reporting or regulatory changes. The 2021 Form 1099-R updates include an explanation of safe harbor notice requirements for eligible rollover distributions, in consideration of changes resulting from the SECURE Act of 2019.

Employers who sponsor retirement plans should be aware of the availability of the updated publication.

Instructions for 2021 Forms 1099-R and 5498 »

The IRS recently published the final version of the instructions for the 2020 Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. As background, Form 8955-SSA is used to report information about retirement plan participants who separated from service with the employer and are entitled to deferred vested benefits.

The instructions are intended to assist employers with preparation of the 2020 Form 8955-SSA filings. The 2020 publication includes a revision to clarify the correct coding in the event of a transfer of a participant’s benefit to a new employer’s plan. The instructions also explain that no form attachments are permitted.

Although many employers outsource the preparation and filing of Form 8955-SSA, employers should familiarize themselves with the form’s requirements and work closely with service providers to collect the applicable information.

Instructions for 2020 Form 8955-SSA »