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Benefits Law Advisor

Employee Relief Charities – The Unbenefit That Keeps On Giving

By: Raymond Turner

Especially during the holidays, but also throughout the year, both employers and employees often seek a means of financially assisting distressed coworkers and their families. The various methods of targeting relief to employees are summarized in IRS Publication 3833, DISASTER RELIEF, PROVIDING ASSISTANCE THROUGH CHARITABLE ORGANIZATIONS at http://www.irs.gov/pub/irs-pdf/p3833.pdf.  Some employers establish a “donor-advised fund” or other similar account at a local “community foundation” in order to target assistance to members of the company “family” who are in need due to some financial or medical setback or circumstance. Many moderate to large-sized companies, however, have established their own charitable employee relief organizations to perform this function.

A Company Workforce as a “Charitable Class”

Since Hurricane Katrina, the IRS has recognized significantly smaller employee populations than previously as a qualifying “charitable class” that can be benefited by a 501(c)(3) company-sponsored organization.  The benefited class must be the indefinite open-ended group of current and future employees, rather than a specific group of existing employees.

The Benefits of Public Charity Status

A 501(c)(3) employee relief charity will be classified as a “private foundation” unless it meets the requirements to qualify as the generally more tax-favored and flexible “public charity.”  Deductible contributions to a public charity are capped at a higher limit than those for private foundations. Private foundations must also comply with more burdensome regulations and restrictions on their investments and grants than do public charities.

Company private foundations can provide employee financial relief only in the case of “qualified disasters” designated under federal law, but if an organization qualifies as a public charity it can provide such relief in virtually any kind of disaster or personal emergency hardship situation.  Recipients must be selected based on objective determinations of need or distress by an independent selection committee or some other procedure that ensures any benefit to the employer is incidental.  In short, the relief granted cannot be a disguised “employee benefit” or entitlement even though it may, and should, cause the company to be deemed a more desirable place to work.

Establishing “Public Support”

To establish public charity status, the organization must normally not receive more than one-third of its support from gross investment income and must normally receive more than one-third of its support from contributions by employees (through payroll deduction or otherwise), other public charities, governmental units and/or the general public.  Generous employer contributions may need to qualify as isolated or “unusual” grants in order to meet this one-third test.   Fundraising activities for an employee relief charity can include golf tournaments or other similar events.  Employees may make payroll deduction contributions or donate unused PTO dollars. The employee may deduct these just like contributions to the United Way.

A company employee relief charity can build workforce morale in a way that complements other employee benefits offerings.  The unbenefit can be a real continuing benefit for both employees and employers.  Happy Holidays!



EEOC Announces Intent to Propose Regulations That May Harmonize ADA and GINA with ACA Wellness Program Rules

Since filing multiple litigations against employers concerning their wellness programs, including seeking a temporary restraining order against Honeywell International, the Equal Employment Opportunity Commission (EEOC) has faced a significant amount of push back from many U.S. companies, their CEOs and other organizations.

The reason … programs designed to be compliant with the wellness program rules established under the Affordable Care Act (and final regulations jointly issued by the Departments of Treasury, Labor and Health and Human Services) are now being challenged in court by another federal agency (the EEOC) which has yet to issue any formal guidance concerning these programs.

This has left many employers scratching their heads, but this conflict in the law is nothing new. Around this time in 2006, prior to the enactment of the ACA, the Departments of Treasury, Labor and Health and Human Services issued joint regulations under the Health Insurance Portability and Accountability Act (HIPAA) clarifying earlier guidance for wellness programs that had been in place since the 1990s and which formed the basis for the ACA provisions. The EEOC has not issued formal guidance since that time, except when it issued final regulations under another federal law, the Genetic Information Nondiscrimination Act (GINA). The GINA regulations affected many wellness programs concerning the collection of genetic information (such as family medical history), including limiting the kinds of questions that could be asked in a health risk assessments (HRAs), and despite concerns that these rules would diminish the value of HRAs. However, the EEOC has not formally addressed the Americans with Disabilities Act (ADA) and its application to wellness programs.

For many employers, the EEOC’s announcements that it plans to issue proposed regulations (scheduled for February 2015) that would “promot[e] consistency between the ADA and HIPAA, as amended by the ACA,” and “clarify[] that employers who offer wellness programs are free to adopt a certain type of inducement without violating GINA” are welcomed news. Employers will have to see what the proposed regulations say, of course, and it is unlikely that these proposed regulations will address all of the uncertainties employers face concerning wellness programs.

2014 Transitional Reinsurance Fee Reporting Deadline Extended to December 5, 2014

Written by Keith Ranta

The Department of Health and Human Services (HHS) has announced that the 2014 deadline for reporting the number of participants covered under a health plan for purposes of paying the 2014 Transitional Reinsurance Fee has been extended from November 15, 2014 to December 5, 2014. Insurers and sponsors of self-insured plans who have not already done so must register and report the number of participants covered under their health plans for 2014 at www.pay.gov.

Reinsurance Program

The Affordable Care Act established a Reinsurance Program to assist with stabilizing health insurance premiums payable for coverage in the individual market during 2014 through 2016. The Reinsurance Program requires health insurance issuers and sponsors of self-insured health plans to pay a Transitional Reinsurance Fee for 2014, 2015 and 2016. The fees collected under the program will be distributed to health insurance issuers in the individual market, which includes the health insurance exchanges established under the Affordable Care Act, to offset the cost of coverage provided to high-cost individuals in the individual market during 2014 through 2016. The payments to the issuers are intended to reduce the insurance risk associated with providing coverage in the individual market to potentially high-cost participants.

Calculation of Fee

The fee is calculated based on the number of covered lives under the health plan (including all employees, spouses and dependents covered under the plan). Regulations issued by the HHS provide alternative methods that can be used for calculating the number of covered lives, depending on whether the plan is insured or self-insured. The methods generally include counting the actual number of individuals covered by the plan for each day during the first nine months of the plan year and dividing the sum by the number of days within the nine month period, taking a snapshot of the number of covered lives on a single day in each quarter and averaging the snapshots, and using amounts reported on Form 5500 adjusted by certain factors to account for self-only versus other coverage. The fee for 2014 is $5.25 per covered life under the plan per month ($63.00 annually per covered life during 2014). The fee will decrease for 2015 and 2016.

The fee only applies to plans providing major medical coverage, including high deductible health plans, COBRA coverage and retiree only medical coverage. The fee is generally not applicable to health reimbursement arrangements, health savings accounts, health care flexible spending accounts, employee assistance programs that do not provide significant medical coverage, stop-loss coverage and plans providing solely prescription drug coverage.

Reporting and Payment Deadlines

Plan sponsors must pay the fee if the plan is self-insured, but they may enlist third-party administrators to assist with payment. The insurance providers must pay the fee for insured plans. The deadline for reporting to HHS the number of covered lives each year is generally November 15th (now December 5th for 2014). HHS will then provide a notice of the assessed fee by the later of 30 days following receipt of the enrollment numbers and December 15th. Insurers and plan sponsors have two alternatives for paying the fee. They can either pay the fee in a single lump sum by January 15th of the following year (paying the full $63.00 per covered life for 2014), or they can pay it in two installments, with the first installment equal to the sum of $52.50 per covered life (for 2014) due by January 15th, and the second installment equal to $10.50 per covered life (for 2014) due by the following November 15th. The Department of Labor has indicated that the payment of the reinsurance fees can be treated as a plan expense under ERISA because the payment is required by the Affordable Care Act.

HHS recently released the form that insurers and sponsors of self-insured plans must use to register and report the number of persons enrolled in the health plan. The form can be accessed at https://www.pay.gov/public/form/start/64510311. The reinsurance fee is also paid through www.pay.gov, which requires registration before submitting the form and making the payment.

Premium Reimbursement Arrangements – Employers Beware

The Department of Labor (DOL) has just published a series of FAQs regarding premium reimbursement arrangements.  Specifically, the FAQs address the following arrangements:

An arrangement in which an employer offers an employee cash to reimburse the purchase of an individual market policy.

Where an employer provides cash reimbursement for the purchase of an individual market policy, the DOL takes the position that the employer’s payment arrangement is part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Therefore, the arrangement is group health plan coverage subject to the market reform provisions of the Affordable Care Act applicable to group health plans and because it does not comply (and cannot comply) with such provisions, it may be subject to penalties.

An arrangement in which an employer offers employees with high claims risk a choice between enrollment in its group health plan or cash.

The DOL takes the position that offering a choice between enrollment in the standard group health plan or cash only to employees with a high claims risk would discriminate based on one or more health factors. The DOL states that such arrangements will violate such nondiscrimination provisions regardless of whether (1) the cash payment is treated by the employer as pre-tax or post-tax to the employee, (2) the employer is involved in the selection or purchase of any individual market product, or (3) the employee obtains any individual health insurance.

The DOL also notes that such an arrangement, depending on facts and circumstances, could result in discrimination under an employer’s cafeteria plan (an arrangement pursuant to which an employee can choose between taxable cash and a tax qualified benefit must be made pursuant to a cafeteria plan).

An arrangement where an employer cancels its group policy, sets up a reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allows eligible employees to access the premium tax credits for Marketplace coverage.

The DOL takes the position that such an arrangement is a group health plan and, therefore, employees participating in such arrangement are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage.

The DOL also takes the position that such arrangements are subject to the market reform provisions of the Affordable Care Act and cannot be integrated with individual market policies to satisfy the market reforms.  Thus, such arrangements can trigger penalties.

Key Takeaway

There has been quite a bit of banter regarding whether any of the foregoing arrangements could be an effective way for employers to avoid complying with the market reforms and other provisions of the Affordable Care Act applicable to group health plans.  These FAQs are a strong indication that the DOL will be forceful in its interpretation and enforcement of these provisions.

Court Denies EEOC’s TRO Motion Seeking to Halt Employer’s Wellness Program

As reported in our Disability, Leave & Health Management Blog, Judge Ann D. Montgomery of the U.S. District Court for the District of Minnesota denied the EEOC’s TRO request to immediately stop an employer, Honeywell, from implementing its wellness program, ruling that the EEOC did not establish that there would be irreparable harm. Judge Montgomery did not address the EEOC’s likelihood of success in the litigation.

One of the interesting discussions during the hearing related to determining what amount of a monetary penalty will result in employees involuntarily, a key concern of the EEOC. When the Judge posed that question, the EEOC’s lawyers could not provide a clear answer or point to a line that could not be crossed, noting only that Honeywell crossed it.

Many employers remember the mantra during the early stages of the debate over healthcare reform – “bend the cost curve down.” Enhancing the existing rules for wellness program incentives was one of the often cited tools included in the Affordable Care Act (ACA) to help bend that curve down. The Departments of Labor, Health and Human Services and Treasury issued extensive regulations implementing the ACA’s wellness program provisions. However, as employers struggle to design their plans to meet the ACA minimum value and affordability requirements, and also to apply the ACA’s wellness program provisions as intended, they now face a “we know it when we see it” approach from a different federal agency, the EEOC. During the hearing Honeywell pointed to the clear guidance on acceptable incentives for wellness plans and acceptable employee contributions in the ACA, and also pointed to the ADA “safe harbor” that potentially undermines many of the EEOC’s arguments.

It is not clear at this point how this case will turn out, but employers with wellness programs should watch these cases closely.

HPID Requirement Delayed by HHS

Written by Tyler Philippi

The scramble for group health plan administrators to navigate the Centers for Medicare & Medicaid Services (CMS) website and obtain a Health Plan Identifier (HPID) ahead of next week’s deadline is over.  On October 31, 2014, the CMS Office of e-Health Standards and Services (OESS), the division of the Department of Health & Human Services (HHS) that is responsible for enforcement of the HIPAA standard transaction requirements, announced a “delay, until further notice,” of the HPID requirements.  The regulatory obligations of plan administrators delayed by this notice are the: (i) obtaining of a HPID, and (ii) the use of the HPID in HIPAA transactions.

This delay comes on the heels of a recommendation by the National Committee on Vital and Health Statistics (NCVHS), an advisory body to HHS.  The NCVHS asked HHS to review the HPID requirement and recommended that HPIDs not be used in HIPAA transactions.  NCVHS’s primary opposing argument to implementation of the HPID standard was that the healthcare industry has already adopted a “standardized national payer identifier based on the National Association of Insurance Commissioners (NAIC) identifier.”

Whether HHS will adopt the recommendations of the NCVHS on a permanent basis remains to be seen, but for the time being, plan administrators may discontinue the HPID application process and should stay tuned for further announcements from HHS.

Biometric Screening Requirement Under Wellness Program Violates ADA and GINA, According to EEOC Suit

The EEOC has challenged a third employer-sponsored wellness program in three months. Filed in federal court in Minnesota on October 27, the EEOC’s petition seeks to enjoin Honeywell International, Inc. from implementing its wellness program. We expect this case will be watched more closely by employers and wellness vendors alike as the program the EEOC describes in its petition is similar to popular wellness programs typically offered in the marketplace. The EEOC is alleging violations of Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA), despite the employer’s assertions that its program complies with the Affordable Care Act’s wellness regulations.

The Program.

The design of the program at issue is one you may have seen before: employer provides employees a financial incentive to encourage their participation in activities that will help them to better understand their health risks in the hope that they will adopt healthier behaviors. More specifically, employees and their spouses were asked to take part in biometric screenings that would inform them about certain health metrics, such as blood pressure, cholesterol, glucose level and body mass index (BMI). Employees and their spouses were not asked to achieve a particular outcome, just to get the screenings.

Failure to participate in the screenings would subject the employee to financial penalties. For example, an employee that does not participate would not be able to receive a company contribution to the employee’s health savings account of up to $1,500 for the year. Additionally, the employee would be subject to a $500 surcharge on medical plan costs, as well as tobacco surcharges of $1,000 that apply to the employee and the employee’s spouse if they fail to take the screenings.

The EEOC’s Claims

In its motion to support its request for a temporary restraining order, the EEOC argues that the program violates the ADA’s protection against involuntary medical inquiries. The biometric screenings are not job-related or consistent with business necessity, but are medical examinations that must be voluntary, according to the EEOC. Because of the incentives described above, the EEOC claims that the examinations are involuntary, effectively forcing employees to submit to the biometric screenings. The Eleventh Circuit rejected a similar challenge in Seff v. Broward County, FL, applying a separate “safe harbor” provision of the ADA.

The EEOC also claims that the program violated GINA’s proscription against an employer’s providing inducements to employees to obtain the family medical history of the employees. According to the EEOC, by imposing a penalty on the employee if the employee’s spouse does not participate in the program’s biometric screening, which could yield information related to conditions such as the spouse’s hypertension and diabetes, Honeywell’s program is providing a financial inducement to obtain genetic information (that is, manifestation of disease in the spouse, related to the employee). The EEOC is making these claims even though the information obtained from the screening is in all likelihood being provided to Honeywell’s vendor and not Honeywell directly.

What Should Employers Be Doing Now?

For many employers, open enrollment for 2015 either has started or is scheduled to start soon, and all of the planning, design and communications for health plans and related wellness programs are complete. However, companies that have to date considered only the ACA requirements for their wellness programs should re-evaluate the programs in light of ADA and GINA risks. At a minimum, employers should monitor the developments in this case and the EEOC’s overall enforcement of these programs.

EEOC Challenges the Design of Another Employer’s Wellness Program under the ADA

Little more than a month ago, we reported to you about the U.S. Equal Employment Opportunity Commission’s (EEOC’s) first lawsuit against a Wisconsin employer concerning its wellness program. On October 1, the EEOC announced a second lawsuit against another Wisconsin employer. EEOC v. Flambeau, Inc. (W.D.WI, filed October 1, 2014). Based on the report, the agency’s concerns about the program are similar to those in the first case – when employees are made to face “dire consequences” for not participating in certain aspects of an employer’s wellness program that constitute a medical inquiry, the EEOC believes the program violates the Americans with Disabilities Act’s (ADA) prohibitions against certain medical inquiries. In short, the EEOC considers such inquires to be involuntary.

In this case, the wellness program featured biometric testing and a “health risk assessment” – common features in many programs. However, according to the EEOC, if employees did not submit to the testing or complete the assessment, they would face “cancellation of medical insurance, unspecified “disciplinary action” for failing to attend the scheduled testing, and a requirement to pay the full premium in order to stay covered”. More specifics on the program and the case are described in our Disability, Leave & Health Management Blog.

The regional attorney for the EEOC’s Chicago district, John Hendrickson, acknowledges that “employers certainly may have voluntary wellness programs – there’s no dispute about that – and many see such programs as a positive development.” But, he warns, they have to be voluntary. In addition to EEOC concerns about voluntariness, employers need to consider how the Affordable Care Act may apply, if at all, to the wellness program they want to implement. Some of these issues are summarized in our discussion about the EEOC’s first lawsuit which can be accessed at the first link above.


Have You Obtained a HPID?

Written by Tyler Philippi

The Department of Health and Human Services (“HHS”) recently released guidance on the application process to obtain a Health Plan Identifier (“HPID”). A HPID is an all-numeric 10-digit identification number that many HIPAA-covered health plans are required to adopt by November 5, 2014. Think of a HPID like an EIN for health plans. HPIDs will be used in all HIPAA standard transactions, such as the payment of health care claims, claim status checks, health plan eligibility confirmations, and premium payments.

The HPID requirement is another product of the Affordable Care Act and seeks to reduce administrative costs by promoting electronic transactions between medical providers and health plans. To acquire HPIDs for their health plans, plan sponsors will have to register with the Centers for Medicare and Medicaid Services’ (“CMS”) Health Plan and Other Entity Enumeration System (“HPOES”) available through the CMS Enterprise Portal.

It is fair to say that prior to this new guidance the instructions for the application process were not exactly easy to follow. This new two-page document, however, navigates users through the HPID application process step-by-step. In essence, employers will register their organization, identify approved users in the web portal and their roles, and designate an “Authorizing Official User” to act on behalf of the organization in approving/submitting applications.

HPIDs are not required for every health plan, only Controlling Health Plans (“CHP”). A CHP is a health plan that either controls its own business activities or is not controlled by an entity that is not a health plan and exercises sufficient control over any Subhealth Plans (“SHP”). A SHP is simply a health plan whose business activities are controlled by a CHP and obtaining a HPID for SHPs is optional.

Making the HPID optional for SHPs recognizes that employers can structure their health plans in a variety of different ways. For instance, a welfare benefit plan that has three medical benefit arrangements is only required to obtain a single HPID for the welfare benefit plan. The employer could, however, assign separate HPIDs to each medical arrangement if it would simplify claims administration, or any other reason. For most entities, coordination with the third-party claims administrator will determine whether obtaining a SHP has any benefit.

HPIDs will be required to be used in HIPAA standard transactions beginning November 7, 2016. It is the obligation of the HIPAA covered entity to use an HPID in the electronic HIPAA transactions and ensure that business associates of the entity are also using a HPID.

U.S. Supreme Court’s Rejection of Moench Presumption: Fifth Third Bancorp. vs. Dudenhoeffer

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Written by Meredith Fergus


Fifth Third Bancorp (the “Company”) is a public company which maintained a 401(k) plan containing an employee stock ownership plan (“ESOP”) component. The Company matched employee contributions by contributing employer stock to the ESOP, which invested its funds primarily in Company stock.  When the Company’s stock value fell, former employees and ESOP participants filed a lawsuit against the Company and several of its officers who were alleged to be fiduciaries of the ESOP.  The District Court dismissed the case on the premise that the ESOP fiduciaries were entitled to a “presumption of prudence” in continuing to offer the Company stock as an investment option.  The Sixth Circuit reversed this decision, concluding that although ESOP fiduciaries are entitled to a “presumption of prudence” that does not apply to other ERISA fiduciaries, the presumption is an evidentiary one and therefore does not apply at the pleading stage.

 The Moench Presumption

In the Third Circuit case, Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995), the court stated that “keeping in mind the purpose behind ERISA and the nature of ESOP’s themselves . . . An ESOP fiduciary who invests the assets in employer stock is entitled to a presumption that it acted consistently with ERISA . . . However, the plaintiff may overcome that presumption by establishing the fiduciary abused its discretion.”  This “presumption of prudence,” also known as the “Moench Presumption,” has been widely accepted by the courts: U.S. Courts of Appeal for the Second Circuit in In re Citigroup ERISA Litigation, 662 F.3d 128 (2d. Cir. 2011), and the Ninth Circuit in Quan v. Computer Sci. Corp., 623 F.3d 870 (9th Cir. 2010).

 The Supreme Court’s Ruling

There is no presumption of prudence to protect ESOP fiduciaries.  Plaintiffs must instead demonstrate that the plan fiduciary acted imprudently by plausibly alleging that:

  1. where a stock is publicly traded, there were special circumstances requiring a plan fiduciary to have recognized on the basis of publicly available information that the market was overvaluing or undervaluing the stock, or
  2. based on inside information, the fiduciaries should have taken an alternative action that the plan fiduciary could have taken, that would have been legal, and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.

ESOP fiduciaries are put into a difficult position in which they may be sued for imprudence by continuing to invest in company stock, or they may be sued for not following plan documents if they stop investing in company stock, and they can no longer use the Moench Presumption which has often caused lawsuits brought against them to be dismissed in the pleadings stage. 

 Effect on Publicly Traded Companies

This decision may cause more lawsuits to be initiated; however, this would likely primarily affect publicly held companies.  For example, the disclosure of inside information to participants is not relevant to privately held companies which usually fund their plans through company contributions, and there are no investment choices for the participants.  In addition, if a fiduciary of a privately held company chose not to buy ESOP shares because he knows that the company’s most recent valuation is no longer valid due to changes in business conditions and/or the valuation was based on improper information given to the appraiser, he would be violating ERISA, and such disclosure issues are not applicable to privately held companies because there is no market for the shares.