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Benefits Law Advisor

“Final” Obamacare Employer Penalty Rules Released

The US Treasury released the final regulations implementing the employer shared responsibility penalty provisions of the 2010 health care reform law on February 10, 2014.  In many ways, the final regulations resemble the proposed regulations issued over a year ago but there are several – mostly welcome – changes and transition provisions for employers.  (See our earlier post regarding the proposed regulations.)

Phased-in enforcement.  The penalty provisions were to apply, beginning this year, to employers with 50 or more fulltime equivalent employees.  Such “large” employers are subject to a tax penalty under Internal Revenue Code section 4980H for each month in which they fail to offer affordable minimum value coverage to 95% of fulltime employees (and their children up to age 26).  The Obama administration announced last summer that it would delay enforcement of the penalty provision until 2015 for all large employers.  These final regulations further delay the penalty provision until 2016 for large employers with fewer than 100 fulltime equivalent employees.  And, for a large employer with 100 or more fulltime equivalent employees, penalties can be avoided in 2015 as long as the employer offers affordable minimum value coverage to at least 70% (not 95%) of its fulltime employees.   

Fulltime employees for purposes of the penalty determination.  The final regulations retain the safe harbor look-back measurement/stability period method for determining fulltime status but provide some of general exceptions to who must be counted as a fulltime employee including most volunteers of government or tax-exempt entities and seasonal employees customarily working less than six months of the year.  In addition to the exceptions, the final regulations include some clarifying provisions for counting hours of other categories of employees (e.g., teachers, work-study students, and adjunct professors).    

Transition relief of proposed rules extended.  Certain transition relief that would have been available for 2014 is extended under the final regulations.  For example, an employer can use a six-month period in 2014 (instead of the whole year) to determine whether it has the threshold 100 fulltime equivalent employees for purposes of the 2015 penalty enforcement.  Also, an employer with a fiscal year plan generally will not be subject to the penalty provisions until the first day of its 2015 plan year.

As with the proposed regulations, the devil is in the details regarding the special exceptions and transition rules and a full treatment of all those details is well beyond the scope of this post. 

We will update our free webinar on the employer shared responsibility penalties and post a link to that webinar on the blog shortly.  Also, stay tuned for the final regulations implementing the employer information reporting provisions of the law which the IRS indicates will be “simplified” relative to the earlier proposed reporting regulations.

For compliance assistance or other guidance related to the health care reform law, contact a member of the firm’s Health Care Reform Task Force or the Jackson Lewis attorney with whom you normally work.

U.S. Surgeon General’s Report May Spur More Wellness Program Activity

A U.S. Surgeon General’s Report issued this month marks fifty years since the Surgeon General’s landmark report in 1964 that set in motion a nationwide campaign to reduce and hopefully eliminate tobacco smoking in the United States. Also during this month, rules under the Affordable Care Act (ACA) go into effect, enhancing employers’ ability to provide financial incentives to employees to “kick the habit!” Employers proceed with caution, however, as the matrix of laws affecting so-called “wellness programs” present significant legal risks and practical obstacles.

Learn more about wellness programs: free webinar.

The 2014 Report is more than 900 pages and is full of information about the success America has experienced in reducing smoking, while noting the challenges that remain. The Report provides some information likely to be interesting to employers, such as:

A 2013 review of smoking and absence from work included several of the studies presented in the 2004 Surgeon General’s report along with more recent studies (Weng et al. 2013). In a meta-analysis of 17 of the studies, current smokers were 33% more likely to have an absence from work than nonsmokers (i.e., a group that combined never smokers and former smokers).

The Report also notes that:

Studies of contingency management interventions, in which quitting is rewarded with financial incentives, show promise, including higher quit rates (34% of women in the intervention arm quit compared to 7.1% of women receiving standard care) and improvements in infant birth weight (Higgins et al. 2010, 2012).

But for employers and their varied wellness programs, design and administration is fraught with risk as wellness programs sit at the crossroads of a range of federal and state laws. These include the American with Disabilities Act, the Health Insurance Portability and Accountability Act, the Age Discrimination in Employment Act, the Equal Pay Act and a host of others. Recent attention by the Equal Employment Opportunity Commission heightens these concerns.

Helping employees (and their dependents) stop smoking tobacco is a worthwhile goal. But some of the tools that can help achieve that goal, such as financial incentives designed to drive healthier behaviors, have significant risks associated with them. Employers should proceed with caution, but recognize that not doing anything also has risks.

Employers Don’t Have to Give More Than One Shot Per Year at Avoiding a Tobacco Surcharge, According to DOL FAQs

The Departments of Labor, Treasury and Health and Human Services issued final regulations on June 3, 2013, that implement PHS Act section 2705, added by the Affordable Care Act (ACA), and existing provisions under ERISA and the Code. The preamble to those regulations stated that the Departments anticipated issuing future subregulatory guidance as necessary. Frequently asked questions issued on January 9, 2014, provide some of that additional guidance.

Some plan sponsors were uncertain as to how the final regulations applied when a participant, after declining an opportunity at initial or open enrollment to participate in a wellness program to avoid a tobacco surcharge, attempts to join the program in the middle of the plan year. Question 8 of the DOL’s FAQs confirm employers need not provide this “second bite at the apple” during the plan year:

No. If a participant is provided a reasonable opportunity to enroll in the tobacco cessation program at the beginning of the plan year and qualify for the reward (i.e., avoiding the tobacco premium surcharge) under the program, the plan is not required (but is permitted) to provide another opportunity to avoid the tobacco premium surcharge until renewal or reenrollment for coverage for the next plan year. Nothing, however, prevents a plan or issuer from allowing rewards (including pro-rated rewards) for mid-year enrollment in a wellness program for that plan year.

Some plan sponsors may desire to provide participants with more flexibility during the plan year to earn a wellness program reward or avoid a surcharge pertaining to tobacco cessation. However, other employers may find doing so creates a significant administrative burden, or they may believe multiple opportunities during the plan year weaken the influence of the incentive. Either way, this flexibility in design is likely to be welcomed by employers, even if not communicated before the 2014 calendar plan year.



Department Of Labor Issues “Me Too” Technical Release: ERISA Definition of Marriage Includes Same-Sex Spouses

written by Lisa deFilippis

Following the lead of the IRS  in Revenue Ruling 2013-17, the Department of Labor issued DOL Technical Release No. 2013-04 on September 18, 2013 providing that, where the Secretary of Labor has authority to regulate with respect to the limited provisions of ERISA where the term “spouse” is used, “spouse” will be read to refer to any individuals who are lawfully married under any state law, including same-sex spouses, and without regard to whether their state of domicile recognizes same-sex marriage. Thus, for ERISA purposes as well as federal tax purposes, an employee benefit plan participant who marries a person of the same sex in a jurisdiction that recognizes same-sex marriage will continue to be treated as married even if the couple moves to a state that does not recognize same-sex marriage. 

Neither the DOL Technical Release, nor the IRS Revenue Ruling answered the question of the retroactive application of these rulings, although the IRS Revenue Ruling states that future guidance will address retroactivity. (See our earlier article regarding the IRS’ guidance.)

IRS Rules: All Legal Same-Sex Marriages Will Be Recognized for Federal Tax Purposes

Written by Lisa deFilippis and Bruce Schwartz

The Internal Revenue Service issued Revenue Ruling 2013-17 answering some, but not all, questions for employers in the wake of the US Supreme Court’s opinion that invalidated the federal law that confined marriage to a legal union between one man and one woman as husband and wife – United States v. Windsor, No. 12-307 (June 26, 2013) (see our earlier blog post regarding this decision).

The IRS ruled that same-sex couples, who are legally married in jurisdictions that recognize their marriages, will be treated as married for all federal tax purposes regardless of whether the couple currently lives in a jurisdiction that recognizes same-sex or in a jurisdiction that does not recognize same-sex marriage.

The ruling applies to all federal tax provisions where marriage is a factor, including tax filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.

The ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

The ruling provides that by September 16, 2013 employers must take the following prospective actions:  (1) recognize same sex spouses for payroll tax purposes, including with respect to the taxation of employer-provided group health coverage and other fringe benefits, and (2) implement the ruling with respect to qualified retirement plan spousal protections and benefits, including treating a same-sex spouse as a spouse for payment of death benefits and qualified joint and survivor annuity requirements.

The IRS stated that it will be issuing further guidance on the retroactive application of Windsor to benefits and retirement plans, and on plan amendment requirements (including timing of required amendments). The ruling and related FAQs issued simultaneously also mention procedures that individuals can follow claim refunds for prior open tax years. The ruling does not discuss whether employers will be required to take any retroactive actions for tax and benefit treatment of same-sex marriages prior to September 16, 2013.

Look for future Jackson Lewis articles for further analysis of post-Windsor issues and guidance.


The Patient Protection and Affordable Care Act requires employers to furnish employees a notice of the availability of coverage through public health insurance exchanges, i.e., the “Marketplace”. The Department of Labor requires that employers give employees the notice by October 1, 2013. As highlighted in our earlier blog post, Department of Labor Technical Release 2013-02  (http://www.dol.gov/ebsa/newsroom/tr13-02.html) provides temporary guidance and templates for the notice.

Who is subject to the notice requirement?

All employers that are covered by the Fair Labor Standards Act are subject to the notice requirement. That’s virtually all employers with annual sales or receipts of $500,000 or more as well as hospitals, schools, government entities, and other specified employers.

Which employees must be provided the notice?

Employers must provide the notice to each employee, regardless of plan enrollment status or part-time or full-time status. Employers should note that the definition of employee for this purpose is broader than the definition of employee for certain other purposes. For example, service providers classified as independent contractors for tax purposes may be employees for FLSA purposes and, if so, they must receive the notice.

What form must the notice take and what are the content requirements?

The notice must be in writing and must include information regarding the existence of the new marketplace/exchange and contact information and a description of the services provided by the marketplace/exchange.  

The notice must also inform the employee that the employee may be eligible for a premium tax credit under the Internal Revenue Code if the employee purchases a qualified health plan through the marketplace/exchange.

In addition, the notice must inform an employee that if the employee purchases a qualified health plan through the marketplace/exchange, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes.

How may the notice be delivered?

The notice may be provided by first class mail, electronically (if the Department of Labor’s electronic disclosure safe harbor is satisfied) or in person (although employers should be sure to document in-person delivery). For an employee hired on or after October 1, 2013 (the deadline for furnishing the notice to current employees), the employer must provide the notice within 14 days of the employee’s start date.   

Model notice

The Department of Labor also provided a model notice – one template for employers who do not offer a health plan and another template for employers who do. Employers should note that the model contains more information than is required to be provided by law and the Technical Release. Use of the model is not required. Employers should work with counsel in determining whether they want to use the model “as-is” or make modifications to it. The model language is available on the Department of Labor’s website at www.dol.gov/ebsa/healthreform.

Amendment to model COBRA election notice

Employers should note that the Technical Release also provides a revised model COBRA election notice which includes information about the marketplace/exchange. The model election notice is available in modifiable, electronic form on the Department of Labor’s website at www.dol.gov/ebsa/cobra.html.

Relief from August 30th Deadline for Fee Disclosures

The Department of Labor is allowing defined contribution retirement plan administrators to reset the timing for annual fee disclosures to participants (see our earlier blog post reminding readers of the disclosure requirement and contemplating possible relief). 

DOL has issued Field Assistance Bulletin 2013-02 announcing the temporary enforcement policy. The participant-level fee disclosure regulation, implemented last year, required administrators of 401(k)- and 403(b)-type plans to disclose information about plan investment options – including fees and investment performance information –to participants at least annually. Plans maintained on a calendar year basis were required make the first participant-level disclosures by August 30, 2012. Absent the relief provided by FAB 2013-02, plan administrators would be required to reissue updated versions of fee disclosures to participants by August 30, 2013 (or earlier, if the first fee disclosures were issued before August 30, 2012).  

Under FAB 2013-02, plan administrators may reset the deadline one time, for either 2013 or 2014, if the plan fiduciary determines plan participants will benefit from doing so and provided no more than 18 months pass before participants receive the next disclosure.

The temporary enforcement policy does not change any other requirements for plan administrators.

DOL Provides Guidance on ERISA Fee Recapture Accounts

In Advisory Opinion 2013-03A (http://www.dol.gov/ebsa/regs/AOs/ao2013-03a.html), the Department of Labor addresses what are commonly referred to as ERISA “budget accounts” or “fee recapture accounts.” In the Advisory Opinion, the DOL describes these accounts and discusses the plan asset and prohibited transaction issues related to them.

What is an ERISA Account?

ERISA accounts are accounts that contain revenue sharing payments (e.g., 12b-1 fees, shareholder and administrative service fees and similar payments) that plan service providers receive for providing investments to certain retirement plans covered by ERISA. In some cases, a service provider will agree with a plan to maintain a bookkeeping account of revenue sharing received in connection with plan investments. This bookkeeping account will reflect credits to the plan calculated by reference to the revenue sharing payments. Under an alternative arrangement, the service provider may deposit an amount into the plan account equal to the credits.

Are the Revenue Sharing Amounts Plan Assets?

If the service provider creates a bookkeeping account to reflect the credits, the bookkeeping account generally should not be considered a plan asset. However, if the plan has a contract with the service provider to pay specified plan expenses from the account, this contract right would be a plan asset. If the plan establishes a plan account to receive and hold revenue sharing payments from the service provider, these amounts would be plan assets.

Application of Prohibited Transaction Rules and Fiduciary Issues

These arrangements are subject to ERISA’s prohibited transaction rules. As the service provider is a party in interest to the plan in connection with these account arrangements, the arrangements must meet the conditions in Section 408(b)(2) of ERISA in order to be exempt arrangements (i.e., not prohibited transactions). Thus, the arrangements must be reasonable, necessary for the establishment and operation of the plan and provide no more than reasonable compensation for the services rendered.

In addition, general standards of fiduciary conduct apply to these arrangements.

Note also that the Advisory Opinion does not address any fiduciary issues that may arise from the allocation of revenue sharing among plan expenses or individual accounts or where the employer has the obligation to pay plan expenses.

Fee Disclosures

The fees paid to the service providers pursuant to these arrangements should be disclosed in the fee disclosures provided by service providers pursuant to Section 408(b)(2) of ERISA.

Form 5500 Schedule C Reporting

FAQs published by the Department of Labor explain how to report these arrangements on Schedule C of the Form 5500. See http://www.dol.gov/ebsa/faqs/faq-sch-C-supplement.html.

Key Takeaways

Plan sponsors should review their services agreements to understand how their ERISA “budget account” or “fee recapture account” arrangements are structured. The Advisory Opinion makes clear that the way the services agreement terms are drafted impacts whether or not the accounts are plan assets. If the accounts are plan assets, they must be allocated in accordance with ERISA requirements.

In addition, plan sponsors should review and understand the terms of the arrangements to make sure that the fees paid in connection with the arrangements are reasonable.

ACA Employer Mandate Delayed One Year

Employers with 50 or more full-time equivalent employees can breathe a little easier this morning, following the announcement by the Obama administration that it will delay key provisions of the new health care reform law. Specifically, this move by the administration will delay certain information reporting requirements under the Affordable Care Act and, most important, the employer shared responsibility payment requirements under Code Section 4980H. According to the announcement, these requirements will not apply until 2015.

The administration cites as reasons for the delay a recognition of the difficulty businesses have been facing while trying to implement the law and the need for additional time, as well as the fact that most businesses already provide health insurance coverage for their employees. During the one year delay, the administration hopes to simplify the reporting requirements, and give employers more time to make health coverage affordable and accessible for their employees. More guidance on what to expect during the delay, and after, is coming shortly. Stay tuned…

U.S. Supreme Court Rulings on DOMA and California’s Proposition 8 Affect Employee Benefit Plans and Plan Sponsors

Two decisions issued by the United States Supreme Court on June 26, 2013 expand same-sex marriage rights and carry significant implications for employee benefit plans and employers sponsoring the plans. In United States v. Windsor, No. 12-307 (June 26, 2013), the Court ruled that Section 3 of the Defense of Marriage Act of 1996 (“DOMA”), which denied federal recognition of legally-married same-sex couples, was unconstitutional. Issued on the same day, Hollingsworth, et al. v. Perry, No. 12-144 (June 26, 2013), held that proponents of California’s “Proposition 8”, which amended the state constitution to define marriage as a union between a man and a woman, lacked standing to appeal a lower court ruling that Proposition 8 is unconstitutional.

Windsor and Hollingsworth will significantly impact employee benefit plans, their administration and the taxation of employee benefits. Plan sponsors, with counsel’s assistance, must examine their benefit plan documents, administrative forms (including beneficiary designation forms, benefit election forms, etc.) and systems to ensure that benefits are structured and administered in a manner that is consistent with applicable law. The decisions also raise a host of new questions and issues that will need to be resolved through legislative and regulatory guidance. For additional information about the Supreme Court’s decisions in Windsor and Hollingsworth and their impact on employers, please refer to this Jackson Lewis article: http://www.jacksonlewis.com/resources.php?NewsID=4532.