President Trump’s recently issued Executive Order entitled “Strengthening Retirement Security In America” (the “EO”) may be helpful to businesses that sponsor or participate in multiple employer retirement plans (“MEPs”), as well as single employer plans, even if the sponsors and employers are not small business owners. While the stated purpose of the EO, which was issued on August 31, 2018 (the “EO Date”), is to “promote retirement security for America’s workers,” the EO directs attention to small business owners (less than 100 employees), noting that such businesses are less likely than larger businesses to offer retirement benefits. The EO also notes that regulatory burdens and complexity can be costly and discourage businesses, especially small ones, from offering retirement plans to employees. This post summarizes the four actions identified in the EO that the Federal Government may take to promote retirement security. While these actions are intended to benefit small businesses, large businesses that participate may benefit as well.

First, the EO may expand the circumstances under which a business or organization can sponsor or participate in an MEP. The EO directs the Secretary of Labor to consider, within 180 days following the EO Date, proposing regulations to clarify when a group or association of employers or other appropriate business or organization can be treated as an “employer” within the meaning of Section 3(5) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The definition of “employer” is significant, as an employee benefit plan, such as an MEP, is typically sponsored by an “employer”. (An “employee organization”, such as a labor union, may also sponsor an employee benefit plan.) If an MEP were sponsored by businesses that were not considered a “group or association of employers” pursuant to Section 3(5) of ERISA, the MEP would not be treated as a single plan covering all of the participating businesses. In that case, each business participating in the MEP would be treated as sponsoring its own plan for all purposes under ERISA and would have to separately comply with ERISA’s requirements, such as preparing a written plan document and summary plan description, having an ERISA bond, and filing a Form 5500. Clarification of the term “employer” may allow businesses that sponsor or participate in single employer plans to treat such plans as an MEP and thereby minimize their individual responsibilities under ERISA. The clarification may also create new opportunities for businesses to sponsor MEPs.

Second, the EO may reduce compliance burdens for MEP sponsors. The EO directs the Secretary of the Treasury to consider, within 180 days following the EO Date, amending regulations to modify the rule providing that if one participating employer in an MEP fails certain non-discrimination requirements, the entire MEP fails. For example, under current Treasury regulations, the actual deferral percentage test and actual contribution percentage test are applied separately to each participating employer in the MEP, as if that employer maintained a separate plan. If one participating employer fails one of the tests, then the MEP fails the test and could potentially be disqualified for all participating employers. This regulation can present a dilemma for MEP sponsors, as they cannot be certain that each participating employer will satisfy the non-discrimination requirements. Therefore, modification of the regulations should benefit businesses that sponsor MEPs.

Third, the EO may reduce the costs associated with required disclosures to participants in MEPs, and in single employer plans. The EO directs the Secretaries of Labor and Treasury to review, within one year following the EO Date, actions that could make retirement plan disclosures more useful for participants, while reducing costs for sponsors and participating employers.

Finally, the EO directs the Secretary of the Treasury to determine, within 180 days following the EO Date, whether the actuarial tables used to calculate the amount of required minimum distributions should be updated annually (or on another periodic basis) to reflect current mortality data. This update could reduce the amount of annual required minimum distributions, which would benefit participants in single employer plans, as well as in MEPs. Such change could also reduce the administrative burden on plan sponsors and participating employers associated with making these distributions.


If the actions described above result in changes in law, such changes should benefit businesses that sponsor or participate in MEPs and single employer plans.   In addition, such changes may provide new opportunities for businesses to sponsor MEPs. Given the time frames imposed by the EO, businesses might see proposed regulations or other guidance addressing some of these changes during 2019.

Our colleagues , at Epstein Becker Green, have a post on the Retail Labor and Employment Law blog that will be of interest to many of our readers in the health care industry: “Proposed Federal Bill Would Pre-Empt State and Local Paid Sick Leave Laws.”

Following is an excerpt:

On November 2, 2017, three Republican Representatives, Mimi Walters (R-CA), Elise Stefanik (R-NY), and Cathy McMorris Rodgers (R-WA), introduced a federal paid leave bill that would give employers the option of providing their employees a minimum number of paid leave hours per year and instituting a flexible workplace arrangement. The bill would amend the Employee Retirement Income Security Act (“ERISA”) and use the statute’s existing pre-emption mechanism to offer employers a safe harbor from the hodgepodge of state and local paid sick leave laws. Currently eight states and more than 30 local jurisdictions have passed paid sick leave laws.

The minimum amount of paid leave employers would be required to provide depends on the employer’s size and employee’s tenure. The bill does not address whether an employer’s size is determined by its entire workforce or the number of employees in a given location. …

Read the full post here.

Almost ten months into the Trump Administration, the executive and legislative branches have been preoccupied with attempting to repeal and replace the Affordable Care Act (“ACA”) – but each attempt has thus far proved fruitless.  While the debate rages over the continued viability of the ACA, as we stated in our previous Take 5, employers should remember that obligations to comply with Section 1557 (the non-discrimination provision of the ACA) and the final rule implementing that provision remain.  But there have been developments regarding which characteristics are protected by Section 1557.  In this Take 5, we explore whether Section 1557 continues to cover gender identity and transition services.

Although the health care debate has received the bulk of the media attention, other legal developments also promise to have significant impact on health care employers.  For instance, the  Equal Employment Opportunity Commission (“EEOC”) appears to have set its sights on the accommodation of disabled workers in the health care industry, and recent decisions regarding employees’ rights to use medical marijuana may impose new burdens on employers.

These and other developments are discussed in this edition of Take 5:

  1. Will The Affordable Care Act’s Non-Discrimination Regulations Continue to Cover Gender Identity and Transition Services?
  2. Restrictive Covenants – How Effective are Non-Competes and Non-Solicits in the Health Care Industry?
  3. Navigating the Interactive Process:  Best Practices for Complying with the ADA
  4. A Growing Trend In Favor of Medical Marijuana Users in the Employment Context
  5. ERISA Withdrawal Liability: Make Sure to Look Before You Leap Into Mergers and Acquisitions

Read the full Take 5 online or download the PDF.

On June 5, 2017, in Advocate Health Care Network et al. v. Stapleton et. al, the Supreme Court unanimously held that employee benefit plans maintained by church-affiliated hospitals were exempt from the Employee Retirement Income Security Act (the “ERISA”), regardless of whether the plan was actually established by a church. The plaintiffs consisted of current and former employees of three church-affiliated non-profits who ran hospitals and healthcare facilities that offered their employees defined benefit pension plans established by the hospitals and managed by internal hospital employee benefits committees.  The plaintiffs filed class actions in three different federal districts alleging that the hospital defined benefit pension plans were not entitled to an exemption under ERISA because they were not established by a church and therefore should be required, among other things, to meet the minimum-funding obligations of ERISA. The pension plans at issue were severely underfunded and ERISA would have required the hospitals to potentially contribute billions of dollars to satisfy the ERISA minimum-funding standards.

Under ERISA, private employers that offer pension plans must abide by a set of rules created to protect plan participants and ensure plan solvency. Section 4(b)(2) of ERISA, however, specifically exempts the employee benefits plans of churches. Section 3(33) of ERISA originally defined a church plan to mean a plan “established and maintained” for its employees by a church or by a convention or association of churches. In 1980, Congress expanded the church-plan definition to state that an “employee of a church” would include an employee of a church-affiliated organization and to add that a church plan includes a plan “maintained” by a “principal-purpose” organization. A “principal-purpose” organization is an organization controlled by or associated with a church or a convention or association of churches the principal purpose or function of which is the administration or funding of a plan or program providing retirement or welfare benefits to employees of such organizations. The Supreme Court found that, under the best reading of the statute, Congress intended that the church plan exemption under ERISA include plans adopted by principal-purpose organizations, even if not established by the church to which the principal-purpose organization is affiliated. In a concurring opinion, Justice Sotomayor agreed with the interpretation of ERISA but cautioned that Congress, when enacting the 1980 amendment, probably did not envision that this exemption would apply to large organizations that employ thousands of employees, operate for-profit subsidies, earn billions of dollars in revenue, and compete in the secular market with companies that must bear the cost of compliance under ERISA. Although she agreed with the majority’s conclusion, she wondered whether the current reality may prompt Congress to make changes.


The Supreme Court’s decision provides assurances to church-affiliated organizations that have treated their employee benefit plans as exempt church plans under ERISA. The organizations should be mindful, however, that as the Court specifically noted, the issue of whether  the hospitals qualified as “principal-purpose” organizations was not brought before it.  Therefore, it remains to be seen how the lower courts address the level and quality of a relationship that must be maintained between a church and a health care provider to qualify it as a “principal-purpose” organization.

Our colleagues Kara Maciel and Adam Solander have a new Law360 article, “Where ERISA and the Affordable Care Act Collide,” that serves as an important wake-up call on staffing decisions that employers have to face.

Following is an excerpt:

In July 2013, the Obama administration announced a delay of the employer mandate provision of the Affordable Care Act for one year (i.e., the employer mandate). While back in July a one-year delay seemed like an eternity, the reality is that given the way in which most employers will determine whether an employee is classified as full-time, and therefore is eligible for coverage, as a practical matter, in very short order employers may be forced to make staffing decisions that could expose them to liability. This article will examine some of the risks associated with employer staffing decisions and how those risks maybe mitigated.

Download a PDF of the full article here.

On February 20, 2013, the Departments of Labor, Health and Human Services and the Treasury (the “Departments”) jointly issued a set of Frequently Asked Questions (“FAQs”) About Affordable Care Act Implementation (Part XII).  In the latest round of guidance, the Departments addressed the limitations on cost-sharing and the coverage of preventive services under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”).  This guidance applies only to non-grandfathered group health plans.  Large employers should be aware of these significant changes to the provision of health benefits and the limitations to the costs that may be borne by employees.

Limitations on Cost-Sharing for Large Employer Group Health Plans.  Under Section 1302(a) of the Affordable Care Act, group health plans are prohibited from imposing annual limits on essential health benefits.  On February 20, 2013, the Departments issued final regulations on the definition of “essential health benefits” and the standards for offering “qualified health plans” on a State Exchange (PDF).

Under Section 1302(c) of the Affordable Care Act, group health plans are required to limit the annual cost-sharing required of employees.  Cost-sharing includes co-insurance and co-payments.  The rule generally means that:  (1) essential health benefits must be provided without any annual limitations on the cost of those benefits; and (2) employees may not be required to contribute out-of-pocket more than a certain annual dollar limit for the provision of such essential health benefits.

  • Out-of-Pocket Maximums.  The prohibition on cost-sharing limitations under Section 1301(c)(1) applies to all non-grandfathered group health plans, including self-insured group health plans and large group insured health plans.  The FAQs specifically address the annual limitation on the imposition of out-of-pocket maximums, which for 2014 will be limited to $5,000 for self-only coverage and $10,000 for non-self-only coverage.
    • Many group health plans receive benefits through different services providers that impose different limitations.  For example, a group health plan may have a major medical provider, a separate pharmacy benefit manager (PBM) and a separate mental health provider.
    • The Departments have provided a safe harbor for different service providers.  Although the Department stated that the providers must “talk” to each other, for the first plan year beginning on or after January 1, 2014, the annual limitation on out-of-pocket maximums will be considered satisfied if: (1) the major medical coverage satisfies the annual maximums; and (2) if the plan has coverage that applies a separate limit for other coverage (such as prescription drug coverage), a separate out-of-pocket maximum may be imposed as long as it does not exceed the annual dollar limitations.
    • The Departments have noted that this safe harbor generally may not be applied to mental health and substance abuse disorder benefits because the Mental Health Parity and Addiction Equity Act of 2008 prohibits any separate out-of-pocket maximum between medical/surgical benefits and mental health and substance abuse disorder benefits.
  • Deductibles.  The FAQs make clear that the annual deductible limit under Section 1302(c)(2) of the Affordable Care Act, which for 2014 generally will be $2,000 for self-only coverage or $4,000 for non-self-only coverage, will not be enforced against self-insured and large employer group health plans.

Preventive Care Services.  Non-grandfathered group health plans must offer certain preventive care benefits without cost-sharing.  These preventive care benefits or services are based on recommended health guidelines developed by certain government agencies and medical studies, including the United States Preventive Services Task Force (“USPSTF”), the Centers for Disease Control and Prevention, the Health and Human Resources and Services Administration, among others.  The group health plan may use reasonable medical management to determine the frequency, method, treatment or setting for a specific preventive service.

The FAQs address issues raised with respect to specific preventive services and certain identified medical conditions, as follows:

  • In-Network.  If a preventive service is not offered in-network and is obtained out-of-network, the out-of-network service must be provided with no cost-sharing.
  • Aspirin.  Aspirin may only be covered if it is prescribed by a doctor for health conditions.
  • Colonoscopy.  If during a colonoscopy a polyp is removed, it must be covered without cost sharing because it is an integral part of colonoscopy
  • Breast Cancer.  Genetic counseling and evaluation for the routine breast cancer susceptibility gene (“BRCA”) testing for breast cancer includes the BCRA test itself.
  • High-Risk Population.  Some of the USFT recommendations for services apply to certain high-risk populations susceptible to a specific illness for which the service is provided.  The medical provider will make that determination and the service must be provided with no cost-sharing.
  • Immunizations.  The immunizations that must be covered without cost-sharing are those recommended by the Advisory Committee on Immunization Practices (“ACIP”), which may change from time to time.  The FAQs make clear plans and issuers can review the ACIP recommendations and make updates annually prior to the beginning of each plan year.
  • Women’s Preventive Services.  Plans and issuers have raised many questions over what types of women’s preventive services must be offered without cost-sharing.  The recommendations for women preventive services are relatively new and certain provisions, such as the coverage of contraceptives without cost-sharing, have been controversial.
    • Well-Woman Visits.  Well-woman visits are intended to include all women preventive services that are age and developmentally-appropriate.  Though more than one visit may be needed, plans are not required to provide for multiple visits and may provide for one annual well-woman visit.
    • Domestic Violence.  Screening and counseling for interpersonal and domestic violence may include open-ended questions and brochures, forms or other checklists or assessments.
    • HPV DNA Testing.  HPV DNA testing may be done every three years for women with normal cytology results who are 30 years of age or older.
    • HIV Testing.  Annual HIV screening as a preventive service includes HIV testing.
    • Contraceptives.  Preventive services include the full range of FDA-approved contraceptive methods (and are not limited to coverage of oral contraceptives).
      • Over-the-counter contraceptives are not covered unless prescribed by a health care provider.
      • Contraceptives for men are not covered.
      • FDA-approved IUDs and implants must be provided without cost-sharing if prescribed by a health care provider.
      • Side effects of contraceptives, counseling and device removal are covered preventive services.
    • Breastfeeding.  Breastfeeding counseling is a required preventive service and includes prenatal and postnatal lactation support, counseling and equipment rental or purchase for the period of breastfeeding, but the scope of such services is subject to reasonable medical management.  The Departments have declined to address reimbursement policies for such services as outside their scope of these rules.

The detail of the FAQs as to particular conditions and circumstances create challenges for plans and issuers in implementing the Affordable Care Act.  Employers should be aware of these rules to ensure that their group health plans are in compliance and pay attention to the continuing onslaught of guidance from the Departments.

In the wake of Hurricane Sandy, employers with employees and operations impacted by Hurricane Sandy are asking what types of tax and employee benefits relief may be available to them and their affected employees.  The Internal Revenue Service (“IRS”), the Department of Labor (“DOL”) and the Pension Benefit Guaranty Corporation (“PBGC”) have moved quickly to provide disaster relief guidance for affected employers and their employees.

IRS Relief.  In response to Hurricane Sandy, on November 2, 2012, the IRS in IR-2012-84 declared Hurricane Sandy a “qualified disaster” for federal income tax purposes under Section 139 of the Internal Revenue Code of 1986, as amended (the “Code”).  The IRS then acted to institute the following relief measures:

  • Qualified disaster relief payments.  The designation of Hurricane Sandy as a “qualified disaster” under Code Section 139 allows employers to make “qualified disaster relief payments” for expenses resulting from or attributable to Hurricane Sandy.  Qualified disaster relief payments are excluded from the employees’ federal gross income and are not wages for purposes of employment taxes.  Qualified disaster relief payments are defined as payments that are not covered by insurance made for personal, family, living or funeral expenses resulting from the qualified disaster, including the costs of repairing or rehabilitating personal residences damaged by the qualified disaster and replacing their contents.
  • Sharing and/or donating accrued vacation, sick and PTO leave.  On November 6, 2012, the IRS announced in IR-2012-88 and IRS Notice 2012-69 that employees will be permitted to forego vacation, sick or personal leave and contribute the value of the leave as a cash payment for the relief of victims of Hurricane Sandy.  The cash payments may be contributed to a Code Section 170(c) private foundation, including an employer-sponsored foundation, for the relief of victims of Hurricane Sandy, as long as those amounts are paid to the organization on or before January 1, 2014.  The leave contributed by an employee will not be included in the employee’s gross income or wages and the right to make a contribution will not result in constructive receipt for purposes of income or employment taxes.  Electing employees, however, may not claim a charitable contribution deduction under Section 170 for the value of the cash payment.  On November 6, 2012, the IRS also announced in IR 2012-87 an expedited review and approval process for Code Section 170(c) private foundations that are newly established to help individuals impacted by Hurricane Sandy.
  • Delay of tax filing deadlines to February 1, 2013.  On November 2, 2012, the IRS announced in IR-2012-83 that certain taxpayers affected by Hurricane Sandy will be eligible for filing and payment federal tax relief.  Affected individuals and businesses located in certain counties of the States of Connecticut CT-2012-48 (effective October 27), New Jersey NJ-2012-47 (effective October 26), New York NY-2012-47 (effective October 27) and Rhode Island RI-2012-30 (effective October 26), as well as relief workers working in those areas, will have until February 1, 2013 to file certain tax returns and pay any taxes due.  This includes the filing of the fourth quarter individual estimated tax payment, payroll and excise taxes for the third and fourth quarters, and Form 990 and Form 5500 if the deadlines or extensions occur during the applicable extended filing period.  The extension does not apply to Forms W-2, 1098 and 1099, or Forms 1042-S and 8027.  The IRS is also waiving failure to deposit penalties for federal and excise tax deposits on or after the applicable disaster area effective date through November 26, 2012 if deposits are made by November 26, 2012.
  • Expansion of hardship distributions and participant loans under 401(k) plans, 403(b) plans and 457(b) plans.  On November 16, 2012, the IRS announced in IR-2012-93 and IRS Notice 2012-44that a qualified retirement plan will not be treated as violating any tax qualification requirements if it makes hardship distributions for a need arising from Hurricane Sandy or loans to employees or former employees whose primary residence or place of employment is in a qualified disaster area.
    • Hardship distributions and loans also may be made to employees who have relatives living in the qualified disaster area impacted by Hurricane Sandy.  Relatives for this purpose include an employee’s grandparents, parents, children, grandchildren, dependents, or a spouse.
    • Certain documentation and procedural requirements, and other limitations, are not required if the plan administrator makes a good-faith diligent effort to satisfy those requirements and the plan administrator, as soon as practicable, uses reasonable efforts to assemble any forgone documentation.
    • If the plan does not provide for loans or hardship distributions, the plan may be amended to allow for Hurricane Sandy distributions no later than the end of the first plan year beginning after December 31, 2012.
  • Code Section 409A deferred compensation plans.  Hurricane Sandy may qualify as an “unforeseeable emergency” affecting a service provider that allows for a distribution under a nonqualified deferred compensation plan subject to Code Section 409A.  Though not clear, it may be possible for a plan to be amended to allow for payment upon an unforeseeable emergency after the occurrence of the emergency.

DOL Relief.  The DOL is providing disaster relief by allowing plans to take certain actions that otherwise could be a violation of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  The DOL will not consider the following events to be a fiduciary violation under ERISA:

  • The plan provides for loans and hardship distributions in compliance with the IRS Hurricane Sandy disaster relief guidance described above.
  • There is a temporary delay under the plan in forwarding participant contributions and loan repayments from payroll processing services in the Hurricane Sandy qualified disaster area and the affected employers and service providers act reasonably.
  • There is a blackout period under a retirement plan related to Hurricane Sandy and the plan is not able to comply with the requirements to give participants and beneficiaries 30-day advance written notice of the blackout.
  • Group health plans make reasonable accommodations due to Hurricane Sandy for plan participants and beneficiaries for deadlines and documentation in filing claims for benefits, including COBRA elections.
  • Group health plans and issuers are not able to comply with pre-established claims procedures and disclosures due to the physical disruption to the plan or service provider’s principal place of business from Hurricane Sandy.

PBGC Relief.  The PBGC is providing limited disaster relief for a plan or plan sponsor located in the qualified disaster area, specifically Connecticut, New Jersey, New York and Rhode Island, or a plan or plan sponsor that cannot reasonably obtain information from a service provider, bank or other person whose operations were directly affected by Hurricane Sandy.  The PBGC relief includes the following:

  • Any premium payment required to be made on and after October 26, 2012 and on or before February 1, 2013 (the “PBGC disaster relief period”) will not be subject to penalties if made by February 1, 2013.
  • Single-employer standard terminations and distress terminations deadlines required to be made during the PBGC disaster relief period are extended to February 1, 2013.
  • Reportable event post-event notice deadlines for the PBGC disaster relief period are extended to February 1, 2013.  Pre-event reportable event notice deadlines may be extended on a case-by-case basis.
  • Annual financial and actuarial information reporting for certain large underfunded plans, missed contributions or funding waivers may be extended on a case-by-case basis.
  • If information is requested under an allowable extension of a Form 5500 filing date, and the Form 5500 is eligible for a filing extension under the IRS guidance for Hurricane Sandy, the allowable extension will commence on the last day of the qualified disaster extended deadline.
  • Requests for reconsiderations or appeals are extended through the PBGC disaster relief period.
  • Multiemployer plans’ premium deadlines will be extended as described above.  The PBGC will not assess a penalty or take enforcement action for the failure to comply with multiemployer plan deadlines during the PBGC disaster relief period.

All employers with employees and operations impacted by Hurricane Sandy directly or indirectly should take immediate action to review the relief available for their businesses and employees.

For further information on employment considerations for qualified disasters such as Hurricane Sandy, please see our client advisory entitled HR Guide for Employers – Responding to Natural Disasters.

By Amy J. Traub, Gretchen Harders, Anna Kolontyrsky, and Margaret C. Thering

With the reelection of President Obama, it is clear that employers should be preparing to comply with all of the applicable provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”).  As employers well know, the Affordable Care Act contains comprehensive healthcare reform provisions, including, among other things, the mandate that larger employers face penalties starting in 2014 if they do not make affordable healthcare coverage available to their workers, the so-called “pay or play” mandate.  We have already seen efforts by the Department of Labor (“DOL”) to audit employers’ group health plans for compliance with the Affordable Care Act.  Given that we expect the Obama Administration’s DOL to continue its audit efforts, we recommend that all employers conduct a self-audit of their compliance efforts with healthcare reform.  Even small employers should assess the size of their work force to determine whether they fall within the threshold requirements for the pay or play mandate.  How many employers have actually conducted self-audits of their group health plans and taken other recommended steps towards compliance?  The DOL wants to know.

As an initial matter, employers should immediately be preparing for the following upcoming requirements and changes:

  • Form W-2 Reporting.  Beginning with the 2012 tax year, employers issuing 250 or more Form W-2s must include the cost of employer-sponsored health coverage on each worker’s Form W-2.  This must be prepared and provided to employees in January 2013.
  • Notice of Exchange.  No later than March 1, 2013, employers must provide employees and new hires with a written notice of the availability of the healthcare exchanges.  The notice must describe the services provided by the exchange and inform employees of their potential eligibility for a premium tax credit or a cost-sharing reduction.  The Department of Health and Human Services is expected to issue a model notice.
  • Limit on FSA Salary Reductions.  For Plan years commencing after December 31, 2012, a $2,500 annual limit on salary reduction contributions applies to health flexible spending accounts (health FSAs).
  • Elimination of Employer Deduction.  Commencing January 1, 2013, the employer deduction for subsidized retiree prescription drug expenses is eliminated.
  • FICA  Tax Increase (Unearned Income Medicare Contribution). FICA tax for 2013 will increase by 3.8% on certain unearned income (e.g., capital gains, dividends, proceeds from sale of a home) of high-income individuals with adjusted gross income (AGI) over $200,000 annually; $250,000 if married filing jointly; or $125,000 if married filing separately.
  • Medicare Tax Increase. In 2013, the employee portion of Medicare tax on wages will increase by 0.9% for high-income individuals earning wages over $200,000 annually; $250,000 if married filing jointly and $125,000 if married filing separately. The Medicare tax increase will apply to wages in excess of such thresholds.

Additional Affordable Care Act mandates become effective as of January 1, 2014, including, among other things, the employer “pay or play” mandate, limits on waiting periods to 90 days and the elimination of annual dollar limits on essential health benefits.

As far as the existing rules under the Affordable Care Act are concerned, we understand the DOL already has begun issuing audit letter requests to audit employer’s group health plans.  As is typical of a DOL group health plan audit, the DOL is requesting documentation that demonstrates an employer’s compliance with the Affordable Care Act.  For example, the following information has been requested from both grandfathered and non-grandfathered health plans:

  • For plans with dependent care coverage, a sample of the notice describing enrollment opportunities relating to coverage of children up to age 26;
  • A list of participants who have had their coverage rescinded and the reasons for any such rescissions; and
  • If the Plan imposes a lifetime limit, documents relating to that limit for each plan year.

 For non-grandfathered health plans, DOL has requested the following information:

  • The Plan’s claims and appeals procedures, including notices regarding adverse benefit determinations and final external review determination notices.  This request is meant to demonstrate that the Plan has adopted the new internal and external claims procedures pursuant to the Affordable Care Act;
  • Contracts with independent review organizations (“IROs”) or third-party administrators providing external review.  The Affordable Care Act requires non-grandfathered health plans to contract with three Independent Review Organizations (IROs) to handle external claims appeals;
  • Documents related to preventive health services.  Under the Affordable Care Act, non-grandfathered plans must cover certain preventive care services without cost sharing, including the new standards for women’s preventive care services (which includes coverage of contraceptives); and
  • Documents relating to the Plan’s emergency services benefit.  This request allows the DOL to verify that emergency hospital services are provided without requiring prior authorization or higher cost sharing amounts.

For group health plans that claim grandfathered status, the DOL has requested records documenting the terms of the Plan, the participant notice of grandfathered status and any additional documents to confirm the Plan’s grandfathered status.

An insufficient response to a DOL audit request could lead to additional inquiries and even lawsuits.  Additionally, various penalties could be imposed by the DOL and/or the Internal Revenue Service for failure to implement certain Affordable Care Act-related coverage mandates.

Employers therefore are again reminded to perform a healthcare reform self-audit as their first order of business and continue their compliance efforts.  Employers should further take steps to be sure that their efforts are well-documented by: (1) preserving all records relating to the Plan administration, design, and maintenance, including contracts with third-party service providers; (2) preserving all documents distributed to employees that provide notice of the Affordable Care Act’s provisions; and (3) ensuring that all written policies that implement any Affordable Care Act mandates are easily obtainable for production.

In a previous blog, we have provided a timeline of what provisions of the Affordable Care Act are applicable to most employers and the deadlines or expected deadlines for compliance.  We also have blogged on the most recent guidelines on the upcoming pay or play penalties and the 90 day waiting period limitation.

As the Obama Administration takes steps to enforce the Affordable Care Act, self-audits of employers’ group health plans are critical.

We are pleased to announce the release of the inaugural edition of the quarterly Benefits Litigation Update (“Update”) – a joint project between Epstein Becker Green and The ERISA Industry Committee (ERIC), a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America’s largest employers.

The Update is a quarterly publication which provides two primary components:

  1. a Featured Article addressing a trend or topic currently being discussed in the benefits community which (i) explains why the topic is important, (ii) explains the impact of the topic on the reader, and (iii) proposes some action that should be considered in response; and
  2. select Case Summaries involving noteworthy benefits litigation issues across the country.


Benefit Claim Denial Litigation
After Glenn and Conkright
By: Paul Friedman and John Houston Pope

No single issue accounts for more ERISA litigation than the denials of claims for benefits. ERISA Section 502(a)(1)(B) provides a vehicle for a dissatisfied participant to obtain judicial review of a denial of benefits. Although ERISA permits either a state court of competent jurisdiction or a federal court to hear a lawsuit seeking review of a claim denial, most suits end up in federal court, either by claimant’s choice or the exercise of a plan’s right to remove to a federal forum. . .

Read the full Update here.

On December 6, 2011, the U.S. Department of Labor (“DOL”) issued a proposed rule on Form M-1 filing requirements, a proposed rule on DOL ex parte cease and desist orders, a notice of proposed form revision to Form M-1 and a notice of proposed form revision to Form 5500  implementing new requirements for multiple employer welfare arrangements (“MEWAs”) under the Patient Protection and Affordable Care Act (“PPACA”) (referred to as the “Proposed Rules”).  PPACA prohibits false statements or representations of fact about a MEWA’s financial condition, benefits provided and its regulatory status in connection with the marketing of participation in a MEWA.  The deadline for submitting public comments to the Proposed Rules is March 5, 2012. 

MEWAs are multiple employer welfare arrangements or similar entities that offer or provide medical benefits to employees of two or more employers that are not under common control of a single employer.  Employer plans that participate in MEWAs are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) in the same manner as any other employer sponsored employee benefit plan.  MEWAs covered by ERISA are subject to broader State insurance regulation than single employer ERISA welfare plans.  MEWAs generally have been used by small employers as an alternative to traditional health insurance coverage as they enable small employers to purchase health coverage at large group premium rates.  Many MEWAs do not satisfy the reserve thresholds or contribution and consumer protection requirements under State law applicable to licensed health insurance issuers.  In its fact sheet announcing the Proposed Rules, the DOL stated that MEWAs promote “abusive and fraudulent practices and become financially unstable,” and cited to examples of MEWAs that failed to cover millions of dollars in unpaid claims and benefits.

New Reporting Requirements.  An employer who sponsors an employee benefit plan subject to ERISA through participation in a MEWA is obligated to file a Form M-1 with the DOL.  This is not solely the obligation of the MEWA for reason that each employer’s plan, with the exception of certain employee associations, constitutes a distinct ERISA plan independently subject to the requirements of ERISA.  Unless the employer has a designated plan administrator responsible for the filing of the Form M-1, the employer is statutorily presumed to be the plan administrator of the plan it sponsors. 

The Proposed Rules expand the DOL reporting requirements for MEWAs and impose substantial penalties for failure to report.  The reporting rules also apply to multiemployer arrangements claiming they are exempt from the MEWA requirements.  Typically,  these are plans and arrangements established pursuant to a collective bargaining agreement (referred to by the DOL as “ECEs”).

  • MEWAs are required to file annual reports with the DOL on Form M-1 by March 1 of the year following the taxable year.  All MEWAs and ECEs are required to file a Form M-1 within 90 days of the MEWA’s or ECE’s origination or establishment.
  • The Proposed Rules would require MEWAs to file a Form M-1 with the DOL 30 days prior to registration, and ECEs to file a Form M-1 30 days prior to origination, as well as an annual Form M-1.  The Proposed Rules make clear that the obligation to file Form M-1 extends to all MEWAs, whether or not ERISA-covered plans, and ECEs.  Although the requirements may differ as to what constitutes a registration event for MEWAs and an origination event for ECEs, the Preamble to the Proposed Rules makes clear the general intent is to require all such arrangements to be subject to similar reporting requirements. 
  • MEWAs that are ERISA plans filing Form 5500 annual reports will be required to prove their compliance with the Form M-1 filing requirements.  MEWAs that are ERISA plans of small employers (less than 100 employees) will no longer be exempt from the requirement to file a Form 5500 annual report.
  • The Proposed Rules impose civil and criminal penalties for a MEWA’s failure to file or the fraudulent filing.  Civil penalties are up to $1,100 per day from the date of failure to file or the filing of the fraudulent Form M-1.  Criminal penalties are up to 10 years imprisonment, fines under Title 18 of the United States Code or both. 

In conjunction with the issuance of the Proposed Rules, the DOL proposed changes to Form M-1 to incorporate the new reporting requirements.  The proposed Form M-1, among other things, requires contact information of all persons associated with the MEWA, including promoters and third party vendors and providers.

On January 23, 2012, the DOL issued its revised Form M-1 for 2011, which has been updated to reflect PPACA requirements that became effective in 2011.  The 2011 Form M-1 is due by March 1, 2012, unless an extension to May 1, 2012 has been previously requested.

DOL Authority to Take Immediate Action Against MEWAs Deemed Fraudulent.  PPACA authorizes the Secretary to issue ex parte cease and desist orders when it appears that the conduct of a MEWA is:  (a) fraudulent; (b) creates an immediate danger to the public safety or welfare; or (c) is causing or is expected to cause significant, imminent and irreparable public injury. 

Fraudulent conduct is defined under the Proposed Rules as acts or admissions of a MEWA or a MEWA’s agent or employee that are committed knowingly and with an intent to deceive or defraud participants of the financial condition, benefits offered, management of the MEWA or the existing regulatory status of a MEWA under Federal or State law.  The DOL appears particularly concerned with MEWAs making false claims that the arrangement is established pursuant to a collective bargaining agreement and therefore exempt from MEWA requirements as an ECE.  Conduct that creates an immediate danger to the public safety or welfare or that is expected to cause significant, imminent or irreparable public injury does not require intent.  Examples of such conduct include a failure to establish or maintain ERISA claims procedures or a record keeping system, embezzlement or unreasonable compensation or payments to MEWA operators or third party providers. 

The Secretary may also issue a summary order to seize the assets of a MEWA that the Secretary determines is in a financially hazardous condition.  A financially hazardous condition occurs when a MEWA in imminent danger of becoming unable to pay benefit claims when due, a MEWA has sustained a significant loss of assets or the MEWA or a person responsible for the MEWA has been the subject of a cease and desist order.

A person that is adversely affected by a cease and desist or summary seizure order may request an administrative hearing regarding the order. 

What This Means for Employers.  The proposed civil and criminal penalties for failure to file Form M-1 raise the stakes for employers.  All employers that participate in a MEWA, including arrangements subject to collective bargaining agreements, should review the MEWA’s status and compliance with the Form M-1 filing requirements, as well as the requirements of ERISA-covered plans to file Form 5500 Annual Reports.  Employers also should be careful not to enter into any arrangement that inadvertently creates a MEWA.  This can occur in a variety of circumstances, such as a merger or acquisition, or the consolidation of plans offered by subsidiaries or affiliates that are independent employers that offer their own benefit plans.

A member of the Firm, Daly D.E. Temchine, aptly comments that the requirements of the Proposed Rules and the enforcement authority provided to the Secretary to act quickly have the potential to make MEWAs a more secure mechanism for employers to use as a vehicle for the provision of health benefit coverage to their employees. The disclosures required to be made by MEWAs enable employers, or their brokers or other agents, to conduct more informative investigations of a MEWA’s finances and operations than had previously been the case.  The availability of information, however, also creates a potential for greater liability on the part of an employer, broker or agent who fails to seek out that information and places in jeopardy the benefits promised to eligible participating employees.”