EEOC Updates Guidance Regarding COVID-19 Vaccinations
On October 13, 2021, the EEOC updated its previously issued COVID-19-related compliance guidance concerning employer-provided vaccination incentives for employees and their family members under the Americans with Disabilities Act (ADA), the Genetic Information Nondiscrimination Act (GINA) and other federal employment nondiscrimination laws. Overall, the updated guidance does not significantly change its prior guidance on vaccination incentives; instead, the revised language more clearly describes the COVID-19 vaccination incentive limits under the ADA and GINA.
The updated Q&As state that neither the ADA nor GINA limit the incentives an employer may offer to encourage employees (or their family members) to voluntarily receive a COVID-19 vaccination when the vaccination is administered by a provider that is not affiliated with their employer (e.g., the employee’s personal physician, a pharmacy or a public health department).
However, when the employer or its agent (defined as an individual or entity having the authority to act on behalf of, or at the direction of, the employer) administers the vaccine, the ADA’s rules on disability-related inquiries apply because the pre-vaccination screening questions are likely to elicit information about a disability. In this case, the amount of the incentive cannot be “so substantial as to be coercive.” Unfortunately, the EEOC did not expand on what amount would be considered coercive.
Employers who are considering imposing a surcharge or incentive to encourage COVID-19 vaccinations should also consider the application of the HIPAA wellness program rules. On October 4, 2021, HHS, IRS, and DOL released guidance on COVID-19-related compliance guidance, including the HIPAA wellness rules. We reported those updates in an article in the October 14, 2021, edition of Compliance Corner which can be found here.
Moreover, the updated EEOC guidance states that laws do not prevent an employer from requiring all employees physically entering the workplace to be fully vaccinated against COVID-19. However, if employers decide to implement a vaccine mandate, they are required to provide reasonable accommodations for employees who decline to be vaccinated because of a disability or a sincerely held religious belief, practice or observance, unless providing an accommodation would pose an undue hardship on the operation of the employer’s business.
Employers considering vaccine mandates, surcharges or incentives should consider the EEOC’s guidance and consult with employment law.
PBGC Extends Opinion Letter Pilot Program
The Pension Benefit Guaranty Corporation (PBGC) recently announced that the agency’s opinion letter pilot program has been extended to September 30, 2022. PBGC insures most private-sector defined benefit pension plans, and this pilot program is designed to allow employers to request a determination from the agency about whether a proposed defined benefit pension plan will be covered.
PBGC will address two questions when providing an opinion letter: whether the plan’s sponsoring employer is a professional service employer, and whether all participants in the plan are substantial owners. PBGC does not cover plans that cover 25 or fewer participants and are established and maintained by a professional service employer. PBGC also does not cover plans that are established and maintained exclusively for substantial owners of the plan sponsor.
Employers who are considering establishing a defined benefit pension plan should be aware of this pilot program.
PBGC Releases Technical Update Regarding the Effect of ARPA on 4010 Reporting
On October 15, 2021, the Pension Benefit Guaranty Corporation (PBGC) issued Technical Update 21-1 explaining that the ERISA Section 4010 reporting obligation is waived in situations where the reporting requirement is triggered only due to a retroactive election permitted by the American Rescue Plan Act of 2021 (ARPA) and IRS Notice 2021-48, among other items.
As background, certain underfunded single-employer plans are required to report identifying, financial and actuarial information to PBGC per Section 4010 of ERISA. This requirement is triggered if one or more plans sponsored by a member of a controlled group had a funding target attainment percentage below 80%.
ARPA amended the rules for single-employer plans such that the amortization period for shortfall amortization bases was extended for plan years beginning after December 31, 2021 (or for plan years beginning after December 31 of 2018, 2019 or 2020 if the plan sponsor chooses). ARPA also modified the way stabilized discount rates are determined for plan years beginning after December 31, 2019 (or a later effective date if the plan sponsor chooses).
Due to these changes, it is now possible that a plan’s 4010 FTAP (interest rate stabilization rules) may retroactively drop below 80%, triggering a retroactive 4010 filing requirement. It is also possible that this could result in a change to already reported actuarial information.
As such, the requirement to submit a 4010 filing for an information year ending before December 31, 2021, is waived when such filing would not have been required absent the enactment of ARPA. Further, for 4010 filings that contain actuarial information that subsequently changed due to ARPA, no amendment is necessary. PBGC explains that it reserves the right to request a revised actuarial information reflecting any ARPA-related changes, should they need such information related to monitoring and enforcement activities.
Employers should be aware of these developments.
DOL Proposed Rule Addresses Retirement Plan ESG Investments and Proxy Voting
On October 13, 2021, the DOL released a proposed rule entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.” The proposed rule clarifies that retirement plan fiduciaries may consider environmental, social and governance (ESG) factors when making investment decisions and exercising shareholder voting rights. If finalized, the proposed rule will amend the current “Investment Duties” regulation under ERISA.
Historically, DOL guidance indicated that ERISA duties of loyalty and prudence do not prevent plan fiduciaries from making investment decisions that reflect ESG considerations, provided certain conditions are satisfied. Additionally, the DOL views ERISA fiduciary duties as encompassing the management of shareholder voting rights related to stock shares held by the plan. However, according to the DOL fact sheet accompanying the proposed rule, stakeholders expressed concerns that the existing 2020 rule created uncertainty regarding the integration of ESG factors into plan investment decisions.
Therefore, the proposed rule addresses stakeholder concerns by recommending several important changes to the investment selection process. First, the guidance recognizes that an evaluation of the economic effects of ESG factors on a particular investment may be required if material to the risk-return analysis. The proposed rule retains the basic principle that ERISA duties of prudence and loyalty require fiduciaries to focus primarily on material risk and return factors and no other objectives when making plan investment decisions. The proposed rule provides examples of ESG factors that may be material to the risk-return analysis, such as climate-change related factors (e.g., a corporation’s exposure to physical risks of climate change), governance factors (e.g., board composition) and workforce practices (e.g., equal employment opportunities).
Second, the rule proposes a change to the “tie-breaker” standard, which allows plan fiduciaries to consider collateral benefits (such as ESG considerations) when making investment selections under certain circumstances. Under the existing rule, competing investments must be “indistinguishable” before fiduciaries can consider collateral factors as tie-breakers. The proposed rule is more flexible, allowing fiduciaries to consider collateral benefits when there are two competing investment options that are equally appropriate additions to the plan (even if not indistinguishable). Additionally, the proposed rule removes special documentation requirements for applying the tie-breaker standard. However, if the tie-breaker is used in the selection of a designated investment alternative (such as a 401(k)-plan investment option), the plan must prominently display the collateral considerations to plan participants in fund disclosures.
Third, the proposed rule changes the existing rule by allowing for a fund to be chosen as a Qualified Default Investment Alternative (QDIA) despite its consideration of collateral ESG factors (provided the fund otherwise satisfies the QDIA regulation requirements). Accordingly, the proposed rule applies the same investment standards to QDIAs as to other plan investments.
The proposed rule also makes several notable changes regarding the current rule’s provisions with respect to shareholder rights and proxy voting. First, the proposed rule removes language stating that the fiduciary duty to manage shareholder stock rights does not require the voting of every proxy or the exercise of every shareholder right. The DOL view is that proxies should be voted unless the plan fiduciary decides the voting would not be in the plan’s interest (e.g., due to excessive costs).
Second, the proposed rule eliminates a provision in the current rule that sets out specific requirements when the authority to vote proxies or exercise shareholder rights has been delegated to an investment manager or involves proxy advisory services. The DOL believes that general ERISA prudence and loyalty duties already impose a monitoring requirement.
Third, the rule removes two existing safe harbors for proxy voting policies, due to concerns these do not adequately safeguard the interest of plans and participants. One safe harbor permits a policy to limit voting resources to particular types of proposals that the fiduciary has prudently determined are substantially related to the issuer’s business activities or are expected to have a material effect on the value of the investment. The other safe harbor permits a policy of refraining from voting on proposals or particular types of proposals when the plan’s holding in a single issuer relative to the plan’s total investment assets is below a quantitative threshold.
Fourth, the proposed rule eliminates the specific requirement that plan fiduciaries must maintain records on proxy voting activities and other exercises of shareholder rights. Again, the DOL view is that the general ERISA duties of prudence and loyalty should govern.
Employers that sponsor retirement plans should be aware of the proposed changes to the existing Investment Duties regulations. Comments can be submitted on or before December 13, 2021, in accordance with the directions specified in the proposed rule.
Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights »
Notice of Proposed Rulemaking on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights »
IRS Provides Guidance on ARPA Funding Relief for Multiemployer DB Plans
On October 12, 2021, the IRS released Notice 2021-57, which provides guidance to multiemployer plan sponsors of defined benefit pension plans. The Internal Revenue Code (the Code) requires such plans to meet certain funding requirements. Under Section 432 of the Code, plans that have a funding deficiency may be certified by the plan actuary as endangered or critical status, which carries additional requirements including reporting and notification. The American Rescue Plan Act (ARPA) included relief related to these plans and requirements.
A multiemployer plan sponsor may make an election under which the plan’s Section 432 certified status for a plan year is the same as the plan’s status for the preceding plan year. The plan sponsor may make a freeze election for the first plan year beginning on or after March 1, 2020, or the next succeeding plan year. Such election does not require an update to the plan’s funding improvement plan, rehabilitation plan, or schedules otherwise generally required.
If a freeze election changes a plan’s Section 432 status for a plan year, the election must be made within 30 days after the plan actuary certifies the plan’s status (or, if earlier, 30 days after the due date for that certification). If a freeze election does not change a plan’s status for a plan year, the freeze election must be made by the last day of the election year. If a freeze election is made for a plan year before the annual certification of the plan’s status is submitted to the IRS, then the election must be included with the submission of the certification. If the election is made after the submission of the certification, then the election must be submitted to the IRS not later than 30 days after the due date for making the election.
The plan sponsor of a multiemployer plan in endangered or critical status for a plan year beginning in 2020 or 2021 may make an extension election under which the plan’s funding improvement period or rehabilitation period, whichever is applicable, is extended by five years.
An extension election must be submitted to the IRS under the same terms that apply for a freeze election, as described above. If the plan sponsor makes more than one election (for example, a freeze election and an extension election are both made for a plan year), the elections may be included in a single submission.
An extension election must be made by the last day of the election year. However, a freeze election or an extension election will be treated as timely if it is made by December 31, 2021.
A listing of items that must be included in the submission along with filing instructions are include in the Notice.
If a plan has been certified by the plan actuary as being in endangered or critical status for a plan year, but the plan is not considered to be in such status because of a freeze election, the plan sponsor must provide notification to the participants and beneficiaries, the bargaining parties, Pension Benefit Guaranty Corporation (PBGC), and the DOL.
Notice 2021-57 details the required elements of the notification as well as the filing procedures with the PBGC and DOL.
In regards to timing of the notification, if the freeze election is made before the date the annual certification of the plan’s Section 432 status is submitted to the IRS, then this notice must be furnished no later than 30 days after the date of the certification. If the election is made after the date the annual certification is submitted to the IRS, then this notice must be provided no later than 30 days after the date of the election.
Special Amortization Rules
Finally, the experience losses related to COVID-19 may be spread over a period of 30 plan years if certain conditions are met. COVID-19 losses include experience losses related to reductions in contributions, reductions in employment and deviations from anticipated retirement rates, as determined by the plan sponsor. Adoption of the special rules would impact the plan’s Form 5500 filing and Schedule MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information).
Multiemployer plan sponsors of defined benefit plans wishing to take advantage of the relief provided by ARPA will want to review the Notice for additional details and clarifications and work with outside counsel on completing the filing and notification requirements.
Updated CHIP Notice Available
On October 15, 2021, the DOL updated its Premium Assistance Under Medicaid and the Children’s Health Insurance Program (CHIP) model notice that employers with group health plans may use to notify eligible employees about premium assistance available through their state Medicaid or CHIP. The DOL regularly updates the notice to reflect any changes to the list of states offering premium assistance programs.
The latest updated notice includes changes to the program contact information for Massachusetts and Virginia compared to the previous January 31, 2021, version.
Employers creating their own notices, rather than using the DOL’s model notice, should pay special attention to ensure the most recent information is used. Employees residing in any of the states identified on the notice must receive this information automatically, before the start of the plan year, and free of charge.
If an employee is on a leave of absence, can they still contribute to a health FSA, dependent care FSA or HSA? Also, must employer HSA contributions continue during the leave period?
The handling of health FSA contributions while an employee is on a leave of absence depends upon the type of leave and the employer’s leave policies.
For FMLA leave, the employer must maintain the same group medical benefits, which include health FSA benefits, during the leave as if the employee was still working. So, the employee must be allowed to continue contributing to the health FSA for the leave period.
In such an event, arrangements should be made for the employee on FMLA leave to pay the health FSA contribution. The three options permitted are pre-payment (prior to the leave), pay-as-you-go (meaning at regular intervals during the leave, which would be post-tax for an unpaid leave) and catch-up (i.e., upon return from leave). The employer cannot offer pre-payment as the only option.
However, the employee is not required to make contributions during FMLA leave. If the employer requires the health FSA coverage to continue during the leave, the employee could cease contributions during the leave period (and then make catch-up contributions upon return). But an employer cannot require continuation of coverage during FMLA leave, unless also required for a non-FMLA leave of absence.
Alternatively, the employer could permit the employee to revoke the health FSA coverage during the leave (and be reinstated upon return). If the employee revokes the coverage, the employee is not entitled to reimbursement for health FSA claims incurred during the period the coverage was not in place.
USERRA also provides certain benefit rights for employees on a leave of absence for military service. Employees on USERRA leave must have the right to continue the health FSA coverage during the leave and are generally offered the same three payment options as those on FMLA leave (noted above). The employee may also be permitted to revoke coverage during the leave, subject to reinstatement upon return.
For other types of leave, the employer should review their cafeteria plan terms and leave policies to determine how the health FSA benefits should be addressed during the leave. These terms and policies should be clearly communicated and consistently applied to all similarly situated employees.
With respect to dependent care FSAs, an employer is not required to allow contributions to continue during the leave. The employee could be permitted to continue such contributions and, as with health FSA contributions, be offered the options of pre-payment, pay-as-you-go or catch-up contributions.
However, the employee may instead prefer to revoke or decrease the dependent care FSA contribution during the leave period because the employee will not have dependent care expenses that are eligible for reimbursement. Under IRS rules, dependent care expenses are generally only reimbursable if for the purpose of enabling the employee (or spouse) to be gainfully employed, (although there is an exception for short absences of two consecutive weeks or less). Additionally, the applicable qualifying event rules allow an employee to change a dependent care FSA election because of any change in daycare use, provider or cost. So, the employee should be made aware of the option to stop the contributions for the leave period (and make a new election upon return).
An HSA is not coverage under a group medical plan that must be continued during FMLA, USERRA or other types of leave. Rather, an HSA is a trust or custodial account owned by the employee. If permitted under the terms of the HSA program, an employee on a leave of absence may continue to contribute to the HSA, provided that the HDHP coverage is maintained during the leave period. If the leave is unpaid, the employee may prefer to cease HSA contributions for the leave period and then make a new election to resume HSA contributions upon return. Under a cafeteria plan, an employee must be permitted to change HSA elections at least monthly, for any reason.
Employers are not required to make employer HSA contributions for employees on a leave of absence, even if the leave is protected leave (such as FMLA). So, an employer may discontinue employer HSA contributions for an employee on leave (with no catch-up upon return). However, if the employer chooses to make HSA contributions for employees on non-protected leave, the contributions must be made for those on protected leave. The employer’s policy with respect to HSA contributions should be clearly defined in their leave policies and HSA program.
Accordingly, whether health FSA, dependent care FSA and HSA contributions continue during a leave period depends upon the type of leave, employer policy and, as applicable, options elected by the employee. Therefore, it is imperative that the employer’s cafeteria plan document, leave policies and other benefit materials clearly reflect how the health FSA, dependent care FSA and HSA contributions and benefits will be addressed during the leave period. This information should be clearly communicated to affected employees, so they are aware of their options and obligations for the leave period.
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.
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If an employee is on a leave of absence, can they still contribute to a health FSA, dependent care FSA or HSA? Also, must employer HSA contributions continue during the leave period?