New Address for Delinquent Filer Voluntary Compliance Program Submissions
Effective May 15, 2019, the DOL has changed the address to which Delinquent Filer Voluntary Compliance Program (DFVCP) submissions should be mailed. As background, the DFVCP is a correction program for plan administrators who are delinquent in filing a plan’s Form 5500. The program provides reduced penalties and is open to those who have not been notified in writing by the DOL of the delinquency.
The address plan sponsors should now use for submission is:
PO Box 6200-35
Portland, OR 97228-6200
The DOL is also making an address available for overnight delivery service. That address is:
Attn: DFVC 6200-35
17650 NE Sandy Boulevard
Portland, OR 97230
As a reminder, submissions may also be sent electronically.
Plan sponsors that seek to file a DFVCP submission should keep this change in mind.
IRS Information Letter Addresses Code 213 Medical Care Expenses
On March 29, 2019, the IRS released Information Letter 2019-0005, which responded to an inquiry about whether menstrual care products may be categorized as qualified medical expenses under Code Section 213 and expensed under health savings accounts (HSAs), flexible spending accounts (FSAs), and other tax-preferred accounts.
As background, Code Section 213 allows taxpayers to deduct medical care expenses when made for the “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of a structure or function of the body.” Alternatively, personal, family or living expenses that are merely beneficial to the general health of the individual likely do not qualify as “medical care” under 213. However, personal expenses can be considered “medical care” if the taxpayer would not have incurred the expense but for the disease or illness.
The IRS does not say whether menstrual care products can be “medical care,” but provides a list of objective factors to use when determining whether an expense that is typically personal in nature was, in a specific instance, a qualified medical expense. The factors include:
- The motive or purpose for making the expenditure
- A physician’s diagnosis of a medical condition and recommendation of the item as treatment or mitigation
- The relationship between the treatment and the illness
- The treatment’s effectiveness
- The proximity in time to the onset or recurrence of a disease
Applying these objective factors to menstrual products, some things to consider are whether the menstrual products are purchased for treating, mitigating, or diagnosing the taxpayer’s disease; whether the costs are merely beneficial to the taxpayer’s general health such that they might be considered the taxpayer’s personal expense; and whether the expense would be incurred but for the medical condition.
Please note that this letter is intended only for informational purposes, but serves as a good reminder that HSA, FSA, and other tax-preferred accounts can only be used for certain expenses. Administrators must consider when approving an expense as qualified under Code Section 213 whether it would typically be personal in nature.
HHS Announces $3M Settlement Relating to Violations of HIPAA’s Privacy, Security, and Breach Notification Rules
On May 6, 2019, HHS’s Office of Civil Rights (OCR) announced a $3 million settlement with Touchstone Medical Imaging, a diagnostic medical imaging services company, relating to violations of HIPAA’s privacy, security and breach notification requirements. According to an HHS press release, in May 2014, the FBI and OCR notified Touchstone that one of its servers allowed uncontrolled access to its patients’ protected health information (PHI). Both the FBI and OCR confirmed that PHI from many patients, including some Social Security numbers, was visible through a basic Google search even after the server was taken offline. Touchstone initially claimed that it had not breached or exposed any patient’s PHI. However, after an investigation, OCR concluded (and Touchstone subsequently admitted) that the PHI of more than 300,000 patients was exposed. Some of the exposed information included names, birth dates, social security numbers, and addresses.
OCR’s investigation also found that Touchstone had not thoroughly investigated the security incident until several months after the FBI and OCR notified Touchstone of the security incident (availability of the information on the internet). As a result, Touchstone’s notification to affected individuals regarding the breach was considered untimely. OCR further concluded that Touchstone failed to conduct an accurate and thorough risk analysis of potential risk and vulnerabilities relating to the availability and confidentiality of its electronic PHI and failed to have business associate agreements in place with its vendors, as required by HIPAA.
The settlement serves as a reminder to covered entities, particularly employers with self-insured plans, regarding HIPAA privacy, security, and breach requirements. This case resulted in a significant penalty for several reasons, including the number of affected individuals, the failure to conduct a risk analysis and to implement business associate agreements, the failure to respond to two federal law enforcement agencies, and the failure to timely notify impacted individuals regarding the breach. Employers should review their HIPAA obligations with their advisers and outside counsel in developing a comprehensive strategy for adhering to the privacy, security, and breach notification requirements.
US House of Representatives Passes SECURE Act
On May 23, 2019, the US House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) by a vote of 417-3. While the Benefits Compliance team doesn’t normally report on bills that haven’t yet been written into law, we chose to provide this information as the SECURE Act. If passed, the SECURE Act would result in major changes to retirement regulations. In fact, the act would provide the most sweeping changes to retirement legislation that we’ve seen in over a decade. We provided more detail on this act in an article in our April 18, 2019 edition of Compliance Corner .
The act is now expected to be voted on in the Senate, where the Senate could vote on it as-is or could reconcile the act with the Retirement Enhancement and Savings Act (RESA), which is currently in the Senate Finance Committee. Either way, given the bipartisan support for the legislation, it seems very likely that some version of the act will be passed in the Senate and sent on to the president.
We will continue to report on any developments with this act.
Ninth Circuit Awards Surviving Spouse Benefits to Domestic Partner
On May 16, 2019, in Reed v. KRON/IBEW Local 45 Pension Plan , the U.S. Court of Appeals for the Ninth Circuit reversed a district court decision to deny a domestic partner from receiving the pension benefits upon an employee’s death. The court ruled that the pension plan committee abused its discretion in the denial and remanded with instructions to determine the payments owed to the plaintiff.
In this case, the plaintiff (Reed) registered as a domestic partner with the (now deceased) Gardner in 2004. At that time, Gardner worked for a television station and was a participant in the company’s pension benefit plan. Gardner retired in April 2009 and began receiving pension benefits. Gardner and Reed married in May, 2014, and Gardner passed away five days later. The pension payments ceased upon Gardner’s death.
Reed submitted a claim for a survivor-spousal benefit, but it was denied, because the plan terms had “consistently interpreted the term spouse to exclude domestic partners.” Reed sued the plan committee that made the decision. The plan argued that the Defense of Marriage Act (DOMA), which was in place at the time of Gardner’s retirement, prohibited the plan from recognizing Reed as Gardner’s spouse. The district court found in favor of the plan committee stating that it did not abuse its discretion in denying Reed’s claim for benefits.
In considering the appeal, the ninth circuit focused on the plan document’s choice-of-law provision that stated the plan was to be “administered and its provisions interpreted in accordance with California law.” The ninth circuit determined that the plan committee should have awarded spousal benefits to Reed, because in either time the committee reviewed the case, in 2009 (at the time of Gardner’s retirement) and 2016 (at the time of Gardner’s death), California law afforded domestic partners the same rights, protections, and benefits as those granted to spouses. The fact that DOMA was law at the time of Gardner’s retirement did not supersede the plan’s terms.
This case serves as a good reminder of the protections extended to domestic partners in certain states, including CA. Plan administrators should know and understand the implications of applicable state laws when interpreting a plan’s terms.
Can an employer choose not to allow mid-year changes to employees’ HSA contribution elections?
While an employer could choose to limit employees’ HSA contributions in some ways, they have to allow employees the chance to change their HSA contribution amount at least monthly.
As background, pre-tax HSA contribution election changes must be allowed at least monthly and upon a loss of HSA eligibility. This requirement correlates with the HSA monthly eligibility rules. Although an employer could choose to place other restrictions on HSA contribution elections under its cafeteria plan (such as only allowing one election change per month), the same restrictions must apply to all employees.
So the employer would essentially have to allow employees to change their HSA contribution elections on at least a monthly basis. Keep in mind, though, that many employers just allow open-ended prospective election changes to employees’ HSA contributions.
Ultimately, the circumstances under which mid-year election changes will be allowed for HSA contributions should be addressed in the cafeteria plan document and in participant communications.
Extended Relief for Non-ACA-compliant Small Group and Individual Policies and Plans
On May 13, 2019, Insurance Commissioner Ridling released Bulletin 2019-04 to extend the ability of health insurance carriers in the individual and small group market to continue transitional health insurance plans that renew for a policy year starting on or before October 1, 2020, as long as the coverage comes into ACA compliance by January 1, 2021.
As background, on March 25, 2019, CMS provided guidance for a transition policy extension that allows insurers the option to renew non-grandfathered non-ACA-compliant plans, as long as the state allows for such an extension. Such transition policies are not required to be in compliance with certain ACA mandates including community rating, coverage of essential health benefits, prohibition on pre-existing condition exclusions and the annual out-of-pocket maximum limit. This bulletin applies this most recent federal extension to Alabama and allows the issuer to renew these non-ACA compliant plans either as an early renewal or short policy year to implement the extension.
Small employers that are interested in renewing their non-ACA-compliant plan should work with their advisors and insurers.
Mini-COBRA Law Now Applies to Employers with Fewer Employees
On May 7, 2019, Gov. Ducey signed SB 1035 into law, creating Chapter 183. The new law relates to Arizona’s mini-COBRA law. Currently, AZ’s mini-COBRA requirement applies to employers with 1-20 employees that offer a fully insured group health insurance plan in AZ. According to Chapter 183, beginning July 27, 2019, AZ employers with 1-19 employees with such fully insured plans will be required to comply with the state’s mini-COBRA law. More information on AZ’s mini-COBRA law can be found in our article here.
Extended Transition for Grandmothered Plans
On May 10, 2019, the New Jersey Department of Banking and Insurance published Bulletin 19-05. The purpose of the bulletin is to advise carriers of the department’s intent to continue to permit the renewal of coverage pursuant to the CCIIO’s latest transitional policy extension for non-grandfathered non-ACA-compliant plans (called “grandmothered plans”) in the individual and small group markets. As background, on March 25, 2019, CCIIO provided guidance for a transition policy extension that allows insurers the option to renew grandmothered plans as long as the state allows it. Such transition policies are not required to be in compliance with certain ACA mandates including community rating, coverage of essential health benefits, prohibition on pre-existing condition exclusions, and the annual out-of-pocket maximum limit.
According to the bulletin, NJ-issued policies may continue to be renewed on or before October 1, 2020, provided the policy will terminate by December 31, 2020. Insurers may renew early or issue coverage for periods less than one year if a policy terminates prior to December 31, 2020, and (in the case of a small group) if the employer wants coverage through the end of the calendar year. Employers with grandmothered plans should check with their adviser and carrier to determine if the carrier will continue to offer the plan via the extension.
Dallas Passes Paid Sick Leave Ordinance
On April 24, 2019, Dallas city council passed an ordinance requiring employers that have employees working inside the city of Dallas to provide paid sick leave as early as August 1, 2019. By doing so, Dallas became the third TX city (after Austin and San Antonio) to pass such an ordinance. The ordinance allows employees to use the leave to care for their own physical or mental illness, physical injury, preventative medical or health care, or health condition, or that of the employee’s family member.
Under the ordinance, employees earn one hour of sick leave for every 30 hours worked and can generally use the sick leave as soon as it is earned (with some restrictions). An employer with 15 or more employees at any time in the preceding twelve month period must provide at least 64 hours of paid sick leave per year. An employer with fewer than 15 employees must provide at least 48 hours of paid sick leave per year.
Employers with employees working in the city of Dallas must provide a monthly statement showing the amount of available earned sick time to each employee and keep records to show the amount of sick time accrued by each employee. Employers also must include a notice to employees about the contents of the ordinance within their employee handbooks. Lastly, once the City of Dallas provides signage on its website, employers must display a sign about the ordinance in a conspicuous place, in English and Spanish. Civil penalties for substantial violations may be assessed up to $500 per violation.
The ordinance will take effect for employers with at least five employees on August 1, 2019. The effective date for employers with fewer than five employees is delayed until August 1, 2021. It is important to mention that earlier in April 2019, the TX state senate passed SB 2485, which would effectively ban local regulation of employee benefits, including paid leave. However, the bill was not voted on in the house and has not been signed by the governor. We will continue to monitor the progress of SB 2485 and the potential impact on the Dallas ordinance and other city paid leave laws.
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.
Industry news topics covered in the Compliance Corner are chosen based on general interest to most employers and may include articles about services not available through PPI.
Can an employer choose not to allow mid-year changes to employees’ HSA contribution elections?