PPI in the News Compliance Corner - June 14, 2018 Archive
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The Office of Management and Budget's (OMB's) three-year approval for the FMLA forms and notices used to manage the program was scheduled to expire on May 31, 2018. However, the DOL requested a 30-day extension to June 30, 2018. So employers can (and should) continue to use the existing forms.

As background, the FMLA forms are used to notify an employee of their rights under the law and to certify that an employee is eligible to take FMLA leave. Pursuant to the Paper Reduction Act of 1995, the DOL is required to submit the FMLA forms and notices to the OMB for approval every three years.

The DOL submitted the forms to the OMB back in April and requested a three-year extension to the forms in their current form (meaning they requested no changes). The current review period expired May 31, 2018, but the OMB hasn't yet approved the DOL's request. Until the OMB formally approves the FMLA forms and notices, the DOL will automatically renew the existing forms on a month-by-month basis. So, the DOL has updated the forms to provide a June 30, 2018, expiration date and will continue to extend the expiration date every 30 days until the DOL receives the OMB's approval.

In the meantime, employers can use the current forms and notices. Because the DOL didn't request any modifications, it's likely that the FMLA forms and notices will go unchanged for another three-year term.

DOL FMLA Forms >>
OMB's status of approval >>

On May 18 and 30, 2018, the IRS released eight new Issue Snapshots (with six released on the earlier date and two released on the later date). As background, Issue Snapshots represent the IRS's periodic research summaries on tax-related issues.

Here are the issues presented and a summary of their content:

• Plan Forfeitures Used for Qualified Nonelective and Qualified Matching Contributions - This snapshot discusses the recent changes to the rules governing qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). Specifically, it examines the fact that plan forfeitures can now be contributed as QNECs and QMACs.
• Vesting Schedules for Matching Contributions - Matching contributions are subject to different vesting requirements. This snapshot discusses the different vesting requirements for matching contributions to a defined contribution plan.
• Qualification Requirements for Non-Electing Church Plans under IRC Section 401(a) - This snapshot identifies and discusses the IRC regulations that a church plan must follow if they sponsor a qualified plan. It also identifies the pre-ERISA requirements church plans must follow.
• Borrowing Limits for Participants with Multiple Plan Loans - Last year, the IRS issued guidance on the limits applied when a participant has multiple plan loans in a given year. This snapshot explains that guidance and gives examples of its application.
• Treatment of 401(a)(17) Limitation in Defined Contribution Plan in a Short Plan Year - This snapshot discusses how to adjust the IRC compensation limit in a short plan year, such as an amended or terminating plan year.
• Treatment of 415(c) Dollar Limitations in a Short Limitation Year - This snapshot explains how to adjust the annual contribution limit for a defined contribution plan that experiences a short plan year (either in an initial, amended or terminating plan year).
• Spousal Consent Period to Use an Accrued Benefit as Security for Loans - IRS regulations require that qualified plans with qualified joint and survivor annuities (QJSAs) obtain the consent of a participant's spouse prior to the participant's use of plan assets as security for a loan. This snapshot clarifies that plans may use a 180-day period for obtaining spousal consent.
• How to Change Interest Crediting Rates in a Cash Balance Plan - This snapshot addresses how to credit rates on account balances in a cash balance plan. (This is a defined benefit plan issue.)

Plan sponsors should review these snapshots for a better understanding of the IRS guidance on these issues.

IRS Issue Snapshots Page >>

Generally, employers will have to decide how to handle an adjusted MLR rebate check received from an insurance carrier. This can be somewhat confusing for employers, since the adjustments generally relate to prior years. Overall, though, the employer's MLR rebate distribution responsibilities hinge on whether there's a portion of the rebate that's attributable to employee contributions (which makes them "plan assets," a status that places some stricter rules on whether and how they should be refunded to employees).

If the entire rebate is attributable to employer contributions (e.g., the employer contributed 100 percent of the premium), then the employer can generally keep the rebate. If, however, employees contributed toward the cost of coverage, the portion of the MLR rebate that's attributable to employee contributions is considered plan assets, meaning it must be used in a way that benefits those employees/participants.

There are basically three ways an employer can use the plan assets portion of the MLR rebate to benefit employees/participants: providing a taxable cash refund, allowing a premium reduction (sometimes called a "premium holiday"), or adding some type of benefit enhancement (such as coverage for an additional service, an additional contribution to an HRA or something similar) to the overall plan design. Most employers settle on using a cash refund or premium holiday to benefit participants. One reason is that the MLR rules require the rebate to be used within 90 days and only on behalf of that specific plan's participants. So, for example, the amount couldn't be used to provide a wellness program that benefits all employees. If the employer instead chooses a premium reduction, the employer could limit the distribution to only those who are currently participating in the plan. Further, the employer could limit the distribution to only those who are participating now AND were also participating in that same plan in the relevant year.

With regard to former participants, the DOL provides employers a bit of flexibility. Since a benefit enhancement or premium holiday wouldn't help a former participant, the only method that would be appropriate for former participants is a cash refund. If the cost of distributing rebates to former participants is approximately equal to or greater than the amount of the rebate, then the employer may decide to limit rebates to current participants. It's unclear what can be taken into consideration in determining cost. While it may include the time to track down individuals, the more conservative approach is that the employer should look only at "hard" costs (e.g., postage, cost of having check cut, locator fees, etc.). Ultimately, since the employer is the fiduciary of the plan assets, they'll have to decide the overall cost-effectiveness of distributing to former participants (but couldn't do the same for current participants).

In addition, there isn't a de minimis threshold. The only consideration is the one outlined above regarding the cost of including former employees compared to the distribution amount. The proportionate amount related to plan assets must be distributed to current participants even if it's a small amount.

Lastly, there's one exception to the general rule that plan assets must be distributed to participants in one of the three ways outlined above. Specifically, if the employer placed specific language in the plan document to retain the rebate amount (which is extremely rare), it's possible they could retain it. Employers relying on that exception should work with outside counsel to ensure compliance with the MLR rules in that situation.

In summary, if employees originally contributed towards the cost of coverage, an employer couldn't keep the entirety of an adjusted MLR rebate. This is because a portion of the rebate is attributable to plan assets and must be handled accordingly. If the rebate is an insignificant amount, the employer may be able to exclude former participants, but it would be required to include current participants in one of the three distribution methods outlined above.

On March 28, 2018, Gov. Ivey signed SB 318, the Alabama Data Breach Notification Act, into law. This law requires covered entities to implement reasonable, appropriate security measures to protect personal information on state residents from a security breach. Further, it requires employers to notify employees and applicants about any breach of personal information and if the breach is likely to cause substantial harm.

A covered entity is defined as "a person, sole proprietorship, partnership, government entity, corporation, nonprofit, trust, estate, cooperative association, or other business entity that acquires or uses sensitive personally identifying information." Thus, any public or private employer that acquires or uses certain personal information on Alabama residents, including on employees and applicants, is subject to the security measure requirements and breach notification provisions.

Personal information is defined as a resident's first name or first initial and last name in combination with one or more of the following with respect to the same resident:

• A non-truncated Social Security number or tax ID number
• A non-truncated driver's license number, state-issued ID card number, passport number, military ID number or other unique ID number issued on a government document used to verify the identity of a specific individual
• A financial account number, including a bank account number, credit card number or debit card number, in combination with any security code, access code, password, expiration date or PIN, that's necessary to access the financial account or to conduct a transaction that will credit or debit the financial account
• Any information regarding an individual's medical history, mental or physical condition, or medical treatment diagnosis by a health care professional
• An individual's health insurance policy number or subscriber identification number and any unique identifier used by a health insurer to identify the individual
• A user name or email address, in combination with a password or security question and answer that would permit access to an online account affiliated with the covered entity that's reasonably likely to contain or is used to obtain sensitive personally identifying information

Covered entities that experience a breach must notify affected residents within a reasonable time to conduct an appropriate investigation, but no later than 45 days from the determination that a breach has occurred and is reasonably likely to cause substantial harm (with certain exceptions). Importantly, if a covered entity's third-party agent experiences a breach in the agent's system, the agent must notify the covered entity as soon as possible, but no later than 10 days following the determination of the breach or reason to believe the breach occurred. If more than 1,000 Alabama residents are affected by a breach, covered entities must notify the state attorney general and consumer reporting agencies with specific information. Therefore, covered entities need to review third-party service agreements to ensure they're meeting these requirements and to ensure breach procedures are in place should an incident occur.

In addition, the law imposes reasonable security requirements for covered entities and third-party vendors, including an assessment based on the security measures as a whole.

Therefore, employers with employees in Alabama should familiarize themselves with the specific data breach notification requirements, and they should update security measures to adequately protect the data they hold and respond appropriately to any potential data incident. This law is effective May 1, 2018.

SB 318 »

On March 29, 2018, Gov. Colyer signed SB 351 into law, enacting the Pharmacy Patients Fair Practices Act. This Act requires that copayments on prescription drugs not exceed the total charges submitted by the network pharmacy. Additionally, pharmacists and pharmacies have the right to provide individuals covered under the plan with information on the amount of the cost share of the prescription and information on more affordable alternatives, if available. The law doesn't apply to polices that provide coverage for limited benefits, such as specified disease, accident-only, credit, dental, disability income, hospital indemnity or long-term care insurance coverage.

The law is effective for contracts entered into or renewed on or after Jan. 1, 2019. Although this law doesn't directly affect employer plan sponsors, they should be aware of plan participants' rights under this law.

SB 351 »

On May 12, 2018, Gov. Colyer sign HB 2028 into law, establishing the Kansas Telemedicine Act. This act provides that plans can't exclude health care services from coverage solely because they're provided through telemedicine rather than through in-person treatment. Under the Act, telemedicine means the delivery of health care services for a plan participant that's located at an originating site from a health care provider located at a distant site.

That Act also defines which practitioners can constitute health care providers and mandates that plans can't require additional documentation of telemedicine patients. Additionally, insurance issuers must establish payment or reimbursement for telemedicine expenses in the same way they establish them for in-person services.

Plan sponsors should consider this requirement to offer telemedicine for fully-insured plans based out of Kansas.

HB 2028 »

On May 30, 2018, the Duluth City Council adopted Ordinance No. 10571, which requires private employers to provide paid sick and safe leave to employees. The ordinance takes effect on Jan. 1, 2020, and Duluth joins Minneapolis and St. Paul to become the third city in Minnesota to enact a paid sick and safe time law.

The Duluth city ordinance requires private employers with at least five employees to provide employees with one hour of paid leave off for every 50 hours on the job, for up to 64 leave hours a year for employees that: (i) work in Duluth more than 50 percent of their working time in a 12-month period; or (ii) are based in Duluth, spend a substantial part of time working in Duluth, and don't spend more than 50 percent of work time in a 12-month period in any other particular place. The Duluth ordinance applies to an employer regardless of whether the employer is actually physically located in the city. Once the law goes into effect, employees may use accrued leave for sick and safe time purposes after 90 calendar days of employment. Employers are only required to allow an employee to carry over 40 hours of leave into the following year.

Covered sick time purposes include a mental or physical illness, injury, or health condition, medical diagnosis, care, or treatment of the same, and preventive medical care. For safe time purposes, leave may be used to provide or receive assistance for domestic abuse, sexual assault or stalking of an employee or family member. Employers that have existing paid leave policies that provide an amount of paid leave that is at least as beneficial in the way that it may be used and under the same conditions (including the law's accrual and carry-over requirements) as the Ordinance aren't required to provide additional sick time.

Once the law takes effect, employers must notify employees that they're entitled to earn sick and safe time, the amount thereof and the terms of its use under the law. In addition, employers must keep records documenting hours worked as well as leave accrued and used.

As for takeaways for employers, the law doesn't take effect until 2020, so employers don't need to worry too much about this ordinance at this point. The law does include notification and record-keeping requirements, so employers should be mindful of upcoming compliance requirements. Additional guidance will likely be forthcoming. Ultimately, employers that have employees in Duluth will want to work with outside counsel to incorporate the new Ordinance's requirements into their overall leave policy.

Duluth, Minnesota Ordinance No. 10571 »

On May 30, 2018, Gov. Murphy signed into law A 3380, the Health Insurance Market Preservation Act, which requires all New Jersey residents to have health coverage or pay a penalty. New Jersey's mandate mirrors the former federal requirement under the ACA and refers back to the ACA for key terms, including definitions, minimum essential coverage (MEC) and penalty amounts based on individual or family income. The annual penalty is 2.5 percent of the household's income or a per-person charge, whichever is higher. Interestingly enough, the Act provides that should Congress repeal the federal premium tax credits under the ACA or stop funding to the program, then the state mandate will not be enforced.

The New Jersey law is scheduled to take effect Jan. 1, 2019, making New Jersey the second state to enact such a state-wide individual health insurance mandate. The proceeds from the annual penalty are slated to fund a reinsurance program to help insurers cover the cost of the most expensive patients.

Because this is an individual mandate, employers don't need to take any action, but they should be mindful of potential tax implications for employees residing in New Jersey.

A3380 »

On May 30, 2018, the New Jersey Department of Banking and Insurance published Bulletin No. 18-10, which relates to the extension of renewal for non-ACA-compliant plans (also known as "grandmothered plans"). As background, on April 9, 2018, CMS issued guidance allowing extension of grandmothered plans (i.e., non-ACA-compliant plans that have been continued since 2014), subject to state and carrier approval. Bulletin No. 18-10 is New Jersey's approval for such an extension for the full period outlined by the CMS.

Similar to the extension approval for 2018, the bulletin directs carriers to the CMS guidance, meaning New Jersey will accept approvals for extensions based on the CMS bulletin's requirements. The CMS guidance allows an extension of non-ACA-compliant policies to policy years beginning on or before Oct. 1, 2019, provided that all such policies end by Dec. 31, 2019.

New Jersey employers with non-ACA-compliant plans should work with their carriers in extending their policies, as carriers may have their own restrictions (or prohibitions) on extending such plans.

Bulletin No. 18-10 »
CMS Guidance »