PPI in the News Compliance Corner - March 17, 2022 Archive
You are here: Home / PPI in the News / Compliance Corner - March 17, 2022 Archive

On March 15, 2022, President Biden signed the Consolidated Appropriations Act of 2022 (CAA 2022) into law. The law extends relief that allowed individuals to access and use telehealth services without losing their eligibility for HSAs. The CARES Act first provided this relief. Before the CARES Act, most services (such as telehealth services) that provided significant medical care before the HDHP statutory minimum deductible was met could render individuals ineligible for HSAs. The CARES Act created an exception for telehealth services, but applied it to telehealth services performed after January 1, 2020, with respect to plans years that began on or before December 31, 2021. The CAA 2022 re-established this relief for services provided after March 31, 2022 and before January 1, 2023.

For a calendar year HDHP, this extension leaves a gap in the first three months of 2022. Individuals who have access to telehealth services during that time will not be eligible to contribute to their HSAs (although they are potentially eligible for the other nine months of the year).

Plans that choose to adopt the relief should be revised to reflect these changes, and the changes should be communicated to employees through an SMM.

The Fourth Circuit upheld the district court’s ruling regarding the first and third DOS; however, it reversed the district court’s rulings regarding the second DOS. The Fourth Circuit reasoned that the faulty HIPAA release did not excuse the carrier from an obligation to produce documents that did not contain protected information (such as the plan documents). In addition, the Fourth Circuit found that the carrier had a fiduciary duty under ERISA to notify the plaintiff of the problem with the HIPAA release and allow the plaintiff an opportunity to fix the problem. Since the failure to respond to the request for documents put the plaintiff at a disadvantage in the claim review process, the Fourth Circuit remanded the issues surrounding the second DOS back to the district court for another review.

On March 4, 2022, the IRS released two fact sheets (FS) that updated two sets of FAQs on the FFCRA Paid Sick Leave Act (“EPSLA”) and Emergency Family and Medical Leave Expansion Act (“Expanded FMLA”). One set of the FAQs focuses on the tax credits that are applied to leaves taken prior to April 1, 2021 (FS-2022-16), and the other describes the tax credit applied to leaves taken between April 1, 2021, to September 31, 2021 (FS 2022-15). The IRS also added four new FAQs to address when an employer claims the tax credits for qualified leave wages paid after December 31, 2021, for leave taken by an employee in 2020 and 2021 and whether the employer is required to furnish a Form W-2c (Corrected Wage and Tax Statement) correcting the amount of sick leave and family leave wages reported in Box 14 of the employee’s 2020 and/or 2021 Form W-2 to the employee.

The FFCRA included provisions mandating employers with fewer than 500 employees to provide paid leave to employees who are unable to work or telework due to certain COVID-19-related reasons. To offset the financial burden to covered employers, the FFCRA provides for federal tax credits to fund the leave payments. Originally, the FFCRA required covered employers to provide paid leave under the EPSLA and the Expanded FMLA with respect to leave taken by eligible employees from April 1, 2020, through December 31, 2020. Subsequently, the COVID-related Tax Relief Act of 2020 extended the tax credit under the FFCRA through March 31, 2021, and then the American Rescue Plan Act of 2021 (ARPA) further extended the tax credit availability through September 31, 2021, for employers who chose to continue to provide FFCRA leaves on a voluntary basis.

Specifically, the new addition, Question 98a in FS-2022-15, explains that an employer that claims the tax credits for qualified leave wages paid after December 31, 2021, for leave taken by an employee from April 1, 2021, through September 30, 2021, must furnish the employee a Form W-2c to correct the amount of sick leave and family leave wages reported in Box 14 of the employee’s 2021 Form W-2. Similarly, Question 54g in FS-2022-16 clarifies that an employer that claims the tax credits for qualified leave wages paid after December 31, 2021, for leave taken from April 1, 2020, through March 31, 2021, must either furnish the employee a Form W-2c or provide a corrected statement to correct the prior reporting.

For self-employed individuals who claimed the self-employed equivalent leave credit, Q65c (FS-2022-16) and Q116a (FS-2022-15) address whether they need to file an amended individual tax return if they receive a Form W-2c regarding corrected qualified leave wages from their employers.

Employers should be aware of these new clarifications and review the updated FAQs to determine if they need to issue a W-2c or corrected statement to the employee for the payment made after December 31, 2021.

IRS Fact Sheet. Tax Credits for Paid Leave under the ARPA 2021 for Leave After March 31, 2021 »

IRS Fact Sheet. Tax Credits for Paid Leave under the ARPA 2021 for Leave Prior to April 1, 2021 »

On February 24, 2022, the Court of Appeals for the Fourth Circuit ruled that HIPAA did not allow a carrier to deny the plaintiff’s request for documents when the documents at issue did not contain protected information and the carrier had a fiduciary duty to allow the plaintiff an opportunity to correct an inadequate HIPAA release form. In Wilson v. United Healthcare Ins. Co. (4th Cir., No. 20-2044, February 24, 2022), the plaintiff challenged the defendant carrier’s denial of a series of claims the plaintiff submitted to cover his son’s residential behavioral health treatment.

Specifically, the plaintiff challenged the defendant’s denial of benefits for residential treatment that took place over a period that began on December 1, 2015, and ended on July 31, 2017. The district court organized these claims into three groups based on dates of service (“DOS”). The carrier denied the claims in the first and second DOS because the residential treatment was not medically necessary. Plaintiff appealed these decisions as part of the plan’s claim review process, and he engaged an attorney to represent him in the appeal of the second DOS. As part of that appeal, the attorney requested copies of the documents that the carrier relied on when making its decisions, such as plan documents. The attorney attached a HIPAA release form with the request. The carrier did not respond to this and to a subsequent request for documents because the signature purporting to belong to the plaintiff’s son on the HIPAA release form was illegible. The plaintiff’s son continued to receive residential treatment during this time, although the plaintiff did not submit claims from the third DOS to the carrier.

When the carrier failed to respond to the plaintiff’s request for documents, the plaintiff filed suit in federal district court. The district court held that the carrier’s denial of the first DOS was supported by substantial evidence and that the carrier did not abuse its discretion when coming to this decision. The district court also found that the carrier did not abuse its discretion when it did not respond to the request for documents relating to the second DOS and that the attorney’s request was not an appeal. Since the plaintiff did not submit claims relating to the third DOS, the court found that the plaintiff had not exhausted its administrative remedies when it came to the second and third DOS, and so dismissed the plaintiff’s claims with prejudice (i.e., the plaintiff could not bring those claims to court again).

The Fourth Circuit upheld the district court’s ruling regarding the first and third DOS; however, it reversed the district court’s rulings regarding the second DOS. The Fourth Circuit reasoned that the faulty HIPAA release did not excuse the carrier from an obligation to produce documents that did not contain protected information (such as the plan documents). In addition, the Fourth Circuit found that the carrier had a fiduciary duty under ERISA to notify the plaintiff of the problem with the HIPAA release and allow the plaintiff an opportunity to fix the problem. Since the failure to respond to the request for documents put the plaintiff at a disadvantage in the claim review process, the Fourth Circuit remanded the issues surrounding the second DOS back to the district court for another review.

This case demonstrates the importance of providing documents relating to a claim to the person who submitted the claim, as well as a reminder of a plan’s fiduciary duty to deal with participants fairly. Employers should be aware of these obligations.

Wilson v. United Healthcare Ins. Co. »

On March 7, 2022, the Congressional Research Service (CRS) released a report describing different types of health reimbursement arrangements (HRAs). CRS is a federal legislative branch agency serving Congress members and committees. The report highlights key elements of each HRA type, including eligibility, contributions, distributions and the treatment of unused balances. Specifically, the types of HRAs the report features are:

• Group health plan HRAs
• Qualified small employer HRAs (QSEHRAs)
• Individual coverage HRAs (ICHRAs)
• Excepted benefit HRAs
• Retiree-only HRAs

The report includes a helpful table comparison of the different types of HRAs (Table 2). Additionally, the historical background of HRAs is described in its appendix.

The report may be helpful for employers who are interested in learning different types of HRAs as well as those who are considering implementing any of the HRAs.

CSR. HRAs Overview and Related History »

On February 28, 2022, the US Supreme Court declined to review the appeal of a challenge to California’s mandated payroll deduction IRA program, CalSavers. The plaintiff, the Howard Jarvis Taxpayers Association, requested the review. The plaintiff asserted that ERISA preempted the state law. The plaintiff also argued that the California law conflicted with ERISA’s structure and stripped employers of ERISA’s protections. The federal district court and the Ninth Circuit Court of Appeals had each dismissed the plaintiff’s claims.

CalSavers requires certain employers that do not offer a retirement plan to employees to automatically deduct 5% of pay for employees and pay it to CalSavers, which would invest those funds in Roth IRAs. However, employees can opt out or change the deduction amount or investment to a traditional IRA. It is one of several similar state-initiated retirement programs.

On May 6, 2021, the Ninth Circuit affirmed a lower court decision that ERISA does not preempt the CalSavers program. The Ninth Circuit found that California created and administered CalSavers. Since ERISA regulates plans established or maintained by an employer, the court held that CalSavers was not subject to ERISA. Additionally, in the court’s view, CalSavers does not regulate ERISA plans and does not require any employers to alter or provide ERISA benefits.

The Supreme Court’s denial effectively ends the ERISA preemption challenges to the CalSavers program (and likely similar state-initiated programs). Nevertheless, affected employers should be aware of this development and be prepared to satisfy the CalSavers program requirements.

Supreme Court Declines Review of ERISA Preemption Challenge to CalSavers »

On March 9, 2022, the DOL proposed rules to update the application process for prohibitive transaction exemptions under ERISA and the Code. According to the DOL, the changes are designed to create greater consistency and transparency in the exemption application process. The proposed rule amends the existing prohibited transaction exemption procedure, which was published back in 2011.

ERISA establishes an extensive framework of standards and rules that govern the conduct of ERISA plan fiduciaries and safeguard the integrity of employee benefit plans. As part of this structure, ERISA and the Code generally prohibit a plan fiduciary from causing the plan to engage in a variety of transactions with certain related parties (including sponsoring employers, affiliates and service providers) unless a statutory or administrative exemption applies.

However, the DOL and IRS have the authority to grant administrative exemptions from the prohibited transaction rules upon a finding that relief is: (1) administratively feasible, (2) in the interests of the plan and its participants and beneficiaries and (3) protective of the rights of participants and beneficiaries of such plan. Such exemptions may be granted on a class or individual basis.

The regulators are also responsible for maintaining procedures for granting administrative exemptions, including the application and documentation requirements. Accordingly, the proposed rule clarifies the types of information and documentation required to complete an application to the DOL and the related timing requirements. It expands opportunities for applicants to submit information electronically. The proposed rule also explains which documents are included in the administrative record for an application and when the administrative record is available for public inspection.

The scope of the application procedures is also addressed. Specifically, the proposed rule indicates the DOL will grant administrative exemptions in its sole discretion and is not bound by prior exemptions based upon similar facts nor by DOL commentary provided in response to oral inquiries. If retroactive relief is requested for a prior prohibited transaction, the DOL will apply a high level of scrutiny and consider whether the plan participants and beneficiaries were harmed by the transaction.

The proposed rule also explains the types of exemption applications the DOL will not consider. The DOL would not review applications that fail to include current information, involve a transaction subject to an investigation under ERISA or federal or state law, or include confidential information.

Additionally, the proposed rule revises and adds certain definitions. For example, the definition of an affiliate is expanded to include all employees and officers (rather than only those who are highly compensated or have authority, responsibility, or control related to the custody, management or disposition of relevant plan assets).

Employers who sponsor ERISA plans, and particularly those considering filing an application for a prohibited transaction exemption, should be aware of the proposed rule. The DOL requests comments regarding the proposed rule and encourages electronic submission in accordance with the specified instructions. The proposed rule is scheduled to take effect 90 days after publication in the federal register.

Proposed Rule: Procedures Governing the Filing and Processing of Prohibited Transaction Exemption Applications »

On March 10, 2022, the DOL published Compliance Assistance Release No. 2022-01. The release announces that the DOL’s Employee Benefits Security Administration (EBSA) may investigate 401(k) plans that offer opportunities to invest in cryptocurrencies and related products.

The release reminds these plans of their fiduciary duties to their participants, to “act solely in the financial interests of plan participants and adhere to an exacting standard of professional care.” In the context of 401(k) plans, these duties include an obligation to evaluate potential investment opportunities and make sure that those opportunities available to participants are prudent. To meet this obligation, the plan must remove imprudent opportunities from the plan, and the failure to do so is a breach of fiduciary duty.

The DOL believes that investments in cryptocurrencies and related products are at high risk of fraud, theft or loss. These investments are highly speculative and subject to price volatility. Cryptocurrencies are surrounded by hype and are so new that they are difficult to evaluate, since very few investors have the technical expertise necessary to make informed decisions about them. Since they are not recorded and tracked in traditional ways, being lines of code, they are vulnerable to manipulation and loss. They are difficult to appraise and do not conform to traditional regulatory frameworks. For these and other reasons, the agency is concerned that plans take steps to protect the interests of participants if they make these sorts of investments.

Plan fiduciaries should be aware of this release and expect the DOL to take further action regarding cryptocurrencies.

Compliance Assistance Release No. 2022-01 »

The Americans with Disabilities Act (ADA) applies to employers with 15 or more employees and requires them to provide individuals with disabilities an equal opportunity to benefit from the full range of employment-related opportunities available to others. However, an employee that experiences a reduction in hours due to a reasonable accommodation would not be entitled to remain enrolled on the health plan if their reduction in hours drops them below the eligibility threshold. Under the ADA, the only exception for this would be if the employer allows non-disabled participants that drop below the eligibility threshold to remain covered under the plan.

If the plan terms are such that the employee loses eligibility due to the lower numbers of hours worked, the understanding would be that the employer would terminate their coverage in accordance with the plan terms (i.e., end of the month after or date of event) and would then offer the employee COBRA.

Although the general rule is as discussed above, there are also two other compliance concepts that the employer will need to consider. First, under the ACA’s employer mandate, an employer may not be able to drop the person from coverage if the employer utilizes the lookback measurement method and the person is in a stability period. The rules for change in status don’t always allow employers to immediately terminate coverage when someone experiences a reduction in hours. So, the employer should also analyze whether they must continue to offer coverage to this employee due to the employer mandate’s rules.

Second, if the employee’s disability would also entitle them to rights under the FMLA, they would be able to continue coverage based on the idea that they are taking intermittent FMLA. Remember that FMLA entitles employees to continued employment and benefits for a period of no less than 12 weeks per year. So, if their disability is also a serious condition or illness and they are eligible for FMLA, then FMLA could also entitle them to remain covered under the group health plan benefits.

Annually, the Office of the Chief Financial Officer (OCFO) is required to review the Universal Paid Leave Fund for solvency. On March 1, 2022, the OCFO announced that the current employer contribution rate and benefits would result in a surplus of $500 million. Subsequently, the OCFO announced a reduction in the employer contribution from 0.62% of wages to 0.26%.

The maximum leave will also increase from eight weeks per year to twelve weeks. As a reminder, eligible employees may take up to eight weeks for parental leave, six weeks for their own medical condition, and six weeks for family care. For those who qualify, there are two weeks specifically for prenatal/ pregnancy leave, which is in addition to the current eight weeks annual maximum and will be in addition to the newly increased 12 weeks maximum.

The changes are effective July 1, 2022, but the Department of Employment Services has indicated that they may not be ready to implement the changes that quickly.

Employers should revise their leave policies and payroll systems as necessary.

OCFC Memo »