On May 2, 2022, a draft opinion from the U.S. Supreme Court case Dobbs v. Jackson Women’s Health was leaked to the press, and as a result the Court is expected to overturn Roe v. Wade and Planned Parenthood v. Casey, effectively leaving the issue of abortion rights to the states. Thirteen states currently have laws in place that will automatically ban at least some forms of abortion in their state if Roe v. Wade is overturned, and it is expected that thirteen or more additional states will quickly follow suit.  More…

Whether because of the tight U.S. labor market or flawed onboarding processes, many undocumented workers are becoming participants and accruing benefits in ERISA-governed employee benefit plans. Dealing with such plan participation adds yet another layer of administrative difficulty and legal exposure for employers who hire employees not authorized to work in the U.S.

ERISA does not exclude individuals otherwise qualifying as common law employees from plan rights and protections simply because of their immigration status.

However, although the Department of Labor (“DOL”) has affirmed that other federal statutes, such as the FLSA, protect undocumented workers, it has conspicuously failed to formally state that ERISA does too.

And the court decisions have not been consistent. For example, one federal district court opinion held in 2016 that trustees of ERISA benefit funds could enforce collection from employers of unpaid plan contributions for illegal aliens to collectively bargained welfare and pension plans. But another federal district court decision in 2009 held that the wife of a deceased undocumented worker could not recover death benefits under an ERISA group life insurance plan.

These individuals understandably desire to stay under all governmental radar, usually because they have either no social security number or a false one. As a result, tax and related difficulties arise when administering their participation in a plan.  For example, under the annual reporting requirements of the Affordable Care Act, large employers must now provide to the IRS the employee social security numbers of their group health plan participants. When an undocumented employee terminates employment, a 401(k) or another qualified retirement plan will usually need to report the distribution of accrued benefits to the employee for tax purposes.

Nontaxable rollovers are generally not elected by these employees. Taxable distributions could be properly reported on form 1099-R if the undocumented employee obtains and gives the employer a valid Individual Taxpayer Identification Number (“ITIN”). An ITIN can be used for 1099 reporting and the personal filing of taxes by undocumented employees, even though the employer may not use it for Form W- 2 reporting.

But many undocumented employees simply will not file the Form W-7 to get an ITIN. This is unfortunate since, in general, the IRS and the Social Security Administration do not share tax or wage reporting information with immigration authorities.

Of course, given the tax and other difficulties of paying compensation and providing benefits to undocumented employees many employers simply terminate an undocumented worker when they learn that the social security number is missing or false (including where the number belongs to someone else). But note that in certain circumstances, an ERISA Section 510 discrimination action could be brought by the worker, assuming the worker chose to go public with his or her illegal status.

Some employers may choose, for business reasons, to keep an undocumented individual employed but discourage plan enrollment by requiring a valid social security number.  Other employers draft a categorical coverage exclusion into the plan document for employees who are not authorized to work under U.S. immigration laws or who gain employment with false documentation.

The absence of controlling court precedents, clear DOL administrative guidance, and more accommodating federal tax reporting for actual and potential employee benefit plan participation by undocumented workers require careful consideration of the facts and circumstances of any scenario.

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

Deadline

On April 19, 2022, the Departments of Labor, Health and Human Services, and the Treasury issued additional guidance under the Transparency in Coverage Final Rules issued in 2020.  The guidance, FAQs About Affordable Care Act Implementation Part 53, provides a safe harbor for disclosing in-network healthcare costs that cannot be expressed as a dollar amount.  They also serve as a timely reminder of the pending July 1, 2022, deadline to begin enforcing the Final Rules.

Background

The Final Rules require non-grandfathered health plans and health insurance issuers to post information about the cost to participants, beneficiaries, and enrollees for in-network and out-of-network healthcare services through machine-readable files posted on a public website.  The Final Rules for this requirement are effective for plan years beginning on or after January 1, 2022 (an additional requirement for disclosing information about pharmacy benefits and drug costs is delayed pending further guidance).   The Final Rules require that all costs be expressed as a dollar amount.  After the Final Rules were published, plans and issuers pointed out that under some alternative reimbursement arrangements in-network costs are calculated as a percentage of billed charges.  In those cases, dollar amounts cannot be determined in advance.

FAQ Safe Harbor

The FAQs provide a safe harbor for disclosing costs under a contractual arrangement where the plan or issuer agrees to pay an in-network provider a percentage of billed charges and cannot assign a dollar amount before delivering services.  Under this kind of arrangement, they may report the percentage number instead of a dollar amount.  The FAQs also provide that where the nature of the contractual arrangement requires the submission of additional information to describe the nature of the negotiated rate, plans and issuers may describe the formula, variables, methodology, or other information necessary to understand the arrangement in an open text field.  This is only permitted if the current technical specifications do not support the disclosure via the machine-readable files.

Public Website Requirement

This guidance is pretty narrow and of most interest to plans, issuers, and third-party administrators responsible for the technical aspects of the disclosure.  Still, it is a helpful reminder to plan sponsors that the July 1st enforcement deadline for these requirements is rapidly approaching.  Plans sponsors should remember that these machine-readable files must be posted on a public website.  The Final Rules clearly state that the files must be accessible for free, without having to establish a user account, password, or other credentials and without submitting any personal identifying information such as a name, email address, or telephone number.  If a third-party website hosts the files, the plan or issuer must post a link to the file’s location on its own public website.  Simply posting the files on an individual plan website or the Plan Sponsor’s company intranet falls short of these requirements.  Regardless of how a plan opts to comply, enforcement begins in two months.

We are available to help plan administrators understand these requirements.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

In a decision of great import to the New York City hospitality industry, a federal court has held that a New York City statute mandating payment of severance benefits to certain covered hotel service employees was not preempted by ERISA. RHC Operating, LLC v. City of New York, 1:21-cv-09322-JPO (S.D.N.Y. Mar. 30, 2022).

Background

Like other major centers of tourism, the hotel industry in New York City was decimated by the COVID-19 pandemic, resulting in many closed hotels and thousands of laid-off workers.  To date, some 60% of New York City hotel workers remain unemployed.

In response to the pandemic, the federal government’s Coronavirus Aid, Relief and Economic Security Act (CARES Act ), provided funding for enhanced and extended unemployment benefits until September 2021.

Shortly after the federally subsidized unemployment benefits ended, New York City’s Severance Law  (codified as Int. No. 2397-2021) was enacted on October 9, 2021.  Under the law, hotels with at least 100 rooms must pay weekly severance of $500 per employee per week to laid-off employees for up to 30 weeks if the hotel either (1) experienced a mass layoff of 75% or more of their workforce employed as of March 1, 2020, during any 30 day period or (2) closed to the public on or after March 1, 2020, and have not yet (a) as of October 11, 2021, recalled 25% or more of its employees employed as of March 1, 2020, and (b) reopened to the public by November 1, 2021.

The obligation to pay severance ceases at the later of when the employee is recalled, or, if the hotel that experienced a closure reopens, on the date when the hotel is reopened to the public and has recalled at least 25% of its employees employed as of March 1, 2020. (For details on the Severance Law, see What You Need to Know About New York City’s Law on Severance Pay for Hotel Service Employees.)

Here, the owner of a closed hotel with significant obligations under the Severance Law sued, challenging the Severance Law on a variety of state and federal theories. Relevant here is the claim that the Severance Law is preempted by ERISA.

ERISA Preempts Laws Requiring an Employer to Establish an “Employee Benefit Plan”

ERISA supersedes any state law that relates to an employee benefit plan, including any statute that requires an employer to establish an employee benefit plan. Here, the courts have traditionally differentiated between laws that require an employer to provide employee benefits (which are generally found not preempted) and those that require an employer to establish an employee benefit plan (which are generally found to be preempted by ERISA).

The U.S. Supreme Court has held that a statute requires an employer to establish an employee benefit plan (and is therefore preempted) where an ongoing administrative program is necessary to meet the employer’s statutory obligations. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987). Courts have identified these factors as evidencing an administrative program (and therefore an employee benefit plan):

  • Whether the program requires individualized eligibility and benefit determinations;
  • Whether the program requires the exercise of managerial discretion; and
  • Whether the program shows an ongoing commitment to provide employee benefits.

Severance Law Was Not Preempted by ERISA

Applying these factors, the court had little problem finding the Severance Law did not require the establishment of an ongoing administrative scheme. Compliance with the Severance Law did not require an employer to make individualized benefit assessments. On the contrary, the court found that an employer need determine only whether a class of former employees were “laid off after March 1, 2020, due to a closure or a mass layoff.” The court characterized these as “clerical determinations” that require neither an administrative program nor the exercise of managerial discretion sufficient to turn a severance benefit into a plan. The court easily rejected plaintiff’s argument that a program is necessary to navigate eligibility decisions about an employee’s eligibility for benefits under the Severance Law, noting that the criteria (whether the employee was employed on March 1, 2020, had been employed for at least one year to perform hotel service, and was not a manager or a supervisor) could be resolved through “a basic review of the employer’s payroll system.”

In what the court described as “most significant,” the court found the Severance Law does not require an employer to make “an ongoing commitment … to provide employee benefits.” Schonholz v. Long Island Jewish Medical Center, 87 F.3d 72, 76 (2d Cir. 1996). The court found the Severance Law did just the opposite. The court described the Severance Law as envisioning a “one-time” project to address the lingering effects of a historically unique event (a global pandemic) by mandating certain severance payments for “a short span of time.” Tischmann v. ITT/Sheraton Corp., 145 F.3d 561, 566 (2d Cir. 1998). Concluding that “whatever scheme the Severance Law requires, it is not one that reflects an ongoing plan,” the court held that the Severance Law is not preempted by ERISA.

National Labor Relations Act Does Not Preempt the Severance Law

Many hotel workers covered by the Severance Law are represented by labor unions. All hotel employees (whether unionized or not) are covered by the federal National Labor Relations Act (NLRA), which protects employee participation in “concerted activity” for mutual aid and protection in the workplace. Further, the NLRA regulates the process of collective bargaining for unionized employees. Employers must bargain with the employees’ union over terms and conditions of employment, resulting in a collective bargaining agreement. The generous benefit required by the Severance Law certainly would be a subject of mandatory bargaining under the NLRA.

The plaintiff here argued the severance mandate should be deemed preempted by the NLRA. There are two theories for NLRA preemption, both rejected by the court.

Under a Garmon preemption (San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236 (1959)), a state statute that regulates activity the NLRA protects, prohibits, or arguably protects or prohibits may be preempted. The court held “the Severance Law does not regulate workers’ rights” to engage in protected concerted activity within the meaning of the NLRA. Further, although the NLRA prohibits a unionized employer from unilaterally amending terms and conditions (such as severance pay), it does not foreclose the state’s authority to regulate working terms. Here, the Severance Law obligations “merely supplement” any obligations employers would have under their collective bargaining agreements.

The plaintiff also argued the Severance Law interferes with the mechanism of collective bargaining created by the NLRA. Referred to as Machinists preemption (Lodge 76 Int’l Ass’n of Machinists & Aerospace Workers, AFL-CIO v. Wis. Emp’t Relations Comm’n, 427 U.S. 132 (1976)), state regulation that may interfere with the “open space” intended by Congress “for the free play of economic forces” in collective bargaining may be preempted. The “crucial inquiry” applied by the court here is whether the Severance Law frustrates the effective implementation of NLRA processes. The court found no interference as the statute does not encourage or discourage economic action by the parties (strikes or lockouts) and the mandated benefits are the same for union and non-union employees. Further, the court held the severance mandate does not differ from other labor standards such as minimum wage requirements, which are not subject to preemption.

Ramifications 

Many New York City hotels have already satisfied their Severance Law obligations, either by payment or by reopening. It remains to be seen what will happen to those who have not done so.  On April 26, 2022, the plaintiff filed a notice of appeal with the United States Circuit Court of Appeals for the Second Circuit (Case No. 22-923 RHC Operating LLC v. City of New York.)  We will continue to monitor this case and report on any developments.  Meanwhile, please contact a Jackson Lewis attorney with questions.

Ohio’s Surprise Billing Law, R.C. § 3902.51, became effective January 12, 2022, but its impact on health plans is still evolving.  The law strives to prevent patients from receiving and paying surprise medical bills, specifically those stemming from unanticipated out-of-network care.  While the Ohio Surprise Billing Law intends to shield insureds from surprise medical costs, health plans and insurers may end up paying these costs in some instances.  These additional costs are expected, at least in large part, to be ultimately borne by employers through increased reimbursement rates and higher premiums.

Under the Ohio Surprise Billing Law, cost-sharing amounts – such as coinsurance, copayments, and deductibles – are limited to the patient’s in-network amounts.  However, the Ohio law also mandates that applicable health plans must reimburse certain providers for emergency out-of-network care at the highest of three statutory rates unless independently negotiated.

In addition, the law outlines procedures for rate calculation and rate negotiation between insurers and health care providers or facilities for out-of-network services rendered.  Providers and payors may resolve disputed rates through arbitration.  The Ohio Department of Insurance (ODI) is charged with administering and enforcing the Ohio law, which applies to certain health plans, insurance companies, multiple employer welfare arrangements, non-federal governmental health plans, and other entities subject to the jurisdiction of the ODI.  The ODI’s Administrative Rule governing reimbursement for unanticipated out-of-network care details the process for determining reimbursement rates and for resolving disputes between health plan issuers and providers.

The Ohio Surprise Billing Law would require insurers to reimburse medical providers for these expenses:

  • An out-of-network provider for unanticipated out-of-network* care provided at an in-network facility;
  • An out-of-network provider or emergency facility for emergency services provided at an out-of-network emergency facility;
  • An out-of-network ambulance for emergency services provided in an out-of-network ambulance;
  • An out-of-network provider or facility for clinical laboratory services provided in connection with unanticipated out-of-network care or emergency services.

* “Unanticipated out-of-network care” means health care services, including clinical laboratory services, that are provided under a health benefit plan and that are provided by an out-of-network provider when either of the following applies:

    • The covered person was unable to request such services from an in-network provider.
    • The services provided were emergency services.

R.C. § 3902.50

Ohio’s law is similar to the No Surprises Act: a federal surprise billing law that became effective January 1, 2022, raising questions of federal preemption.  The federal version of the No Surprises Act is enforceable against self-funded health plans subject to ERISA and individual plans purchased directly or through the Health Insurance Marketplace.  The Ohio law, however, is enforced by the ODI and only against health plans and other entities and arrangements regulated by the ODI.

We are available to help plan administrators understand the new Ohio Law.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

It’s no secret that the statutory deck under ERISA is stacked heavily in favor of multiemployer pension plans (MEPPs) and against employers contributing to (or withdrawing from) Taft-Hartley trust funds. For example, an employer who receives a demand to pay its alleged allocable share of a multiemployer pension plan’s unfunded vested benefits (Withdrawal Liability) will generally only have 90 days to properly respond or be forever barred from raising any defenses except payment in full. The deadlines for initiating arbitration are even trickier. An employer must initiate arbitration on the earlier of: (1) 60 days after the date the plan responds to the employer’s request for a review; or (2) 180 days after the employer’s request for review. An unwary employer may miss the arbitration deadline by simply expecting the MEPP to respond to the request for review, which it has no obligation to do.  More…

In furtherance of the Biden Administration’s January 28, 2021, Executive Order 14009 and April 5, 2022, Executive Order 14070 to protect and strengthen the ACA, the Treasury Department and IRS published a proposed rule on April 7, 2022, advancing an alternative interpretation of Internal Revenue Code Section 36B.  Employers can breathe a sigh of relief as the proposed changes do not alter the Employer Shared Responsibility Payment (ACA penalty) construct.  Employers can continue to offer affordable employee-only coverage and spousal or dependent coverage that is unaffordable.  However, the potential indirect effects of the proposed regulations on employers are noteworthy.

At its core, the proposed regulation eliminates the current regulatory concept that the cost of coverage for a spouse and dependent children is deemed affordable if the lowest-cost silver plan for employee-only coverage is affordable.  Citing studies addressing the “family glitch” that disqualifies employees from subsidized Marketplace coverage if the employee-only coverage is affordable and finding this inconsistent with the purpose of the ACA of expanding access to affordable care, the Treasury Department and IRS have reinterpreted Section 36B as permitting a Premium Tax Credit to individuals if the only coverage available to them is unaffordable spousal or dependent coverage.

Allaying employers’ concerns that this proposed rule will affect their cost-sharing schedules, the Preamble to the proposed rule notes:

The proposed regulations would make changes only to the affordability rule for related individuals; they would make no changes to the affordability rule for employees.  As required by statute, employees continue to have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage of the employee does not exceed the required contribution percentage of household income.  Accordingly, under the proposed regulations, a spouse or dependent of an employee may have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage.

The proposed rule also modifies the minimum value regulations to include the entire family and addresses multiple offers of coverage.

Although not directly affecting employer-sponsored plans, employers may experience indirect effects of the changes if the proposed rule is finalized.  For example, in order for the Internal Revenue Service to make Premium Tax Credit determinations involving family coverage, they may require further information reporting from employers.  The IRS Forms 1094 and 1095 might be modified to require separate affordability reporting regarding both employee-only coverage and other coverage offers.

Further, employer-sponsored plans may see an uptick in enrollment if the Premium Tax Credit becomes available to families when employer-sponsored coverage is unaffordable for spouses and dependent children.  The Premium Tax Credit would help offset the high cost of coverage in employer-sponsored plans.

With the protection and strengthening of the Affordable Care Act being a focus of the current Administration, employers should prepare for further changes.

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (“SECURE 2.0”, HR 2954).  The vote was largely supported by both parties (414-5).  The Senate will likely act on the bill later this spring.  While we expect several changes in the Senate version, it is widely anticipated that the legislation will ultimately become law in some form.  Below we highlight a few provisions of the bill we believe are of interest to employers.

Expanding Automatic Enrollment in Retirement Plans

For plan years beginning after December 31, 2023, SECURE 2.0 would mandate automatic enrollment in 401(k) and 403(b) plans at the time of participant eligibility (opt-out would be permitted).  The auto-enrollment rate would be at least 3% and not more than 10%, but the arrangement would need an auto-escalation provision of 1% annually (initially capped at 10%).  Auto-enrolled amounts for which no investment elections are made would be invested following Department of Labor Regulations regarding investments in qualified default investment alternatives.  Plans established before the enactment of the legislation would not be subject to these requirements.  Additional exclusions also apply.

Increase in Age for Required Beginning Date for Mandatory Distributions

For certain retirement plan distributions required to be made after December 31, 2022, for participants who attain age 72 after such date, the required minimum distribution age is raised as follows: in the case of a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2030, the age increases to 73; in the case of a participant who attains age 73 after December 31, 2029, and age 74 before January 1, 2033, the age increases to 74; and in the case of a participant who attains age 74 after December 31, 2032, the age increases to 75.

Higher Catch-Up Limit for Participants Age 62, 63 and 64

For taxable years beginning after 2023, the catch-up contribution amount for certain retirement plans would increase to $10,000 (currently $6,500 for most plans) for eligible participants who have attained ages 62-64 by the end of the applicable tax year.

Treatment of Student Loan Payments As Elective Deferrals for Purposes of Matching Contributions

For plan years beginning after December 31, 2022, employers may amend their plans to make matching contributions to employees based on an employee’s qualified student loan payments.  Qualified student loan payments are defined in the legislation as amounts in repayment of qualified education loans as defined in Section 221(d)(1) of the Internal Revenue Code (which provides a very broad definition).   This student loan matching concept is not a novel idea – prior proposed legislation included a similar provision, and the IRS has approved student loan repayment matching contributions in a private letter ruling.  Given the difficulty many employers are finding in hiring and retaining employees, this provision of SECURE 2.0 may prove popular if it ultimately becomes law.

Small Immediate Financial Incentives for Contributing to a Plan

Under the “contingent benefit rule,” benefits (other than matching contributions) may not be contingent on the employee’s election to defer (subject to certain exceptions).  Thus, an employer-sponsored 401(k) plan with a cash or deferred arrangement will not be qualified if any other benefit is conditioned (directly or indirectly) on the employee’s deferral election.  SECURE 2.0 would add an exception to this restriction for de minimis financial incentives (such as gift cards), effective as of the date of enactment.

Safe Harbor for Corrections of Employee Deferral Failures

Under current law, employers could be subject to penalties if they do not correctly administer automatic enrollment and escalation features.  SECURE 2.0 encourages employers to implement automatic enrollment and escalation features by waiving penalty fees if, among other requirements, they correct administrative errors within 9 ½ months after the last day of the plan year in which the errors are made.  This provision would be effective as of the date of enactment.

One-Year Reduction in Period of Service Requirement for Long-Term Part-Time Workers

In a provision aimed at increasing retirement plan coverage for part-time employees, the bill would reduce the current requirement to permit certain employee participation following three consecutive years during which the employee attains 500 hours of service to two-consecutive years during which the employee attains 500 hours of service.   The preceding are the maximum service requirements that a plan can impose – employers are free to impose lesser service requirements.

Recovery of Retirement Plan Overpayments

The bill includes several provisions aimed at reducing the claw-back of overpayments from retirement plans to retirees to help ensure that the fixed income of retirees is not diminished.  Plan fiduciaries would have more latitude to decide whether to recoup inadvertent overpayments made to retirees from qualified plans.  Further, plan fiduciaries would be prohibited from recouping overpayments that are at least three years old and made due to the plan fiduciary’s error.  If a fiduciary did attempt to recoup an overpayment, the fiduciary could not seek interest on the overpayment, and the beneficiary could challenge the classification of amounts as “overpayments” under the plan’s claims procedures.  Certain overpayments protected by the new rule would be classified as eligible rollover distributions.

Reduction in Excise Tax on Certain Accumulations

SECURE 2.0 would reduce the penalty for failure to take required minimum distributions from a qualified plan from 50% to 25%.  The reduction in excise tax would be effective for tax years beginning after December 31, 2022.

Although we do not know exactly which provisions of SECURE 2.0 will be reflected in the Senate version, the Retirement Savings and Security Act of 2021 is expected to form the basis of the Senate’s bill.   Between the Senate’s current draft and this SECURE 2.0, significant changes to retirement plans are on the horizon.

We are available to help plan administrators understand the legislation as it progresses through Congress.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

Note:  The original version of this article was based on the bill as originally passed in the House on March 29.  On March 30, the bill was sent to the Senate.  The March 30 version of the bill included different effective dates with respect to certain of the provisions of the bill described herein.  Effective as of April 13, 2022, this article has been updated to provide for the March 30 effective dates.