While taxpayers were completing their holiday shopping and preparing to spend time with their families, Congress and the Internal Revenue Service (“IRS”) were busy changing laws governing employee benefit plans and issuing new guidance under the Patient Protection and Affordable Care Act (“ACA”). The results of that year-end governmental activity include the following:

Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”)

The PATH Act, enacted by Congress and signed into law by President Obama on December 18, 2015, made the following changes to federal statutory laws governing employee benefit plans:

  • The ACA’s 40% excise tax (“Cadillac Tax”) on excess benefits under applicable employer sponsored coverage — so called “Cadillac Plans,” due to the perceived richness of such coverage — is delayed from 2018 to 2020.
  • Formerly a nondeductible excise tax, any Cadillac Tax paid by employers will now be deductible as a business expense.
  • Commencing with plan years after November 2, 2015, employers with more than 200 employees will not be required to automatically enroll new or current employees in group health plan coverage, as originally required under the ACA.
  • The rules governing the circumstances under which church plans will be treated as sponsored by a single employer for purposes of Code section 414’s aggregation rules have been modified. These new provisions, in particular, clarify the circumstances under which church organizations will be deemed a single employer for purposes of Code section 403(b) plans.
  • After December 31, 2015, individual taxpayers who purchase private health insurance via the Healthcare Exchange will not be eligible to claim a Health Care Tax Credit on their tax returns.

IRS Notice 2015-87

On December 16, 2015, the IRS issued Notice 2015-87, providing guidance on employee accident and health plans and employer shared-responsibility obligations under the ACA. Guidance provided under Notice 2015-87 applies to plan years that begin after the Notice’s publication date (December 16th), but employers may rely upon the guidance provided by the Notice for periods prior to that date.

Written in a Q & A format, Notice 2015-87 covers a wide-range of topics from employer reporting obligations under the ACA to the application of Health Savings Account rules to rules for identifying individuals who are eligible for benefits under plans administered by the Department of Veterans Affairs. Following are some of the highlights from Notice 2015-87, with a focus on provisions that are most likely to impact non-governmental employers.

  • Guidance applicable to Health Reimbursement Arrangements (“HRAs”)
    • Funds held in an HRA that covers two or more participants who are current employees (as opposed to retirees or other former employees) may not be used to purchase an individual insurance policy on the marketplace, without regard to whether the participants have the opportunity to purchase coverage under an integrated group health plan sponsored by their employer.
    • An HRA that covers an employee’s spouse or dependents (i.e., a family HRA), may not be integrated with a group health plan that covers only the employee (i.e., self-only coverage).   To satisfy market reform requirements under the ACA, an HRA may only reimburse medical expenses of those individuals (employee, spouse, and/or dependents) who are also covered by the employer’s group health plan providing minimum essential coverage (“MEC”) that is integrated with the HRA.  Realizing that many HRAs do not currently restrict employees from reimbursing family member medical expenses if the family members are not enrolled in the employer’s MEC plan, the IRS and Treasury will not treat such HRAs — if otherwise integrated with an employer’s MEC plan as of December 16, 2015 — as non-integrated for plan years beginning prior to January 1, 2017. Thus, employers who currently sponsor HRAs that are properly integrated with a MEC plan have until the first day of the plan year commencing on or after January 1, 2017 to amend their HRAs to condition HRA benefits on enrollment in and coverage under the MEC plan.
    • For the purpose of determining “affordability” under the ACA, employer contributions that are required by the terms of a MEC-integrated HRA and that are permitted to be used by employees to pay premiums, to meet cost-sharing requirements under the MEC plan, or to pay for medical expenses not covered by the MEC plan are treated as reducing the employee’s required contribution — without regard to whether the employee in fact uses the HRA to pay his or her share of contributions under the MEC plan. Thus, the price of lowest cost, self-only coverage is reduced by the employer’s required contribution amount under the terms of the HRA.
  • Guidance applicable to Cafeteria (Code §125) Plans and Other Arrangements
    • Employer flex contributions to a cafeteria plan will reduce the price of lowest cost, self-only coverage for ACA affordability purposes if: (i) the employee may not elect to receive wages in lieu of the employer contribution; (ii) the employee may use the employer contribution to purchase MEC; and (iii) the employee may only use the employer contribution to pay for medical care as defined under Code § 213.
    • Employer opt-out payments, i.e., wages paid to an employee solely for waiving employer-provided coverage may, in the view of Treasury and the IRS, effectively raise the contribution cost for employees who desire to participate in a MEC plan. Treasury and the IRS intend to issue regulations on these arrangements and the impact of the opt-out payment on the employee’s cost of coverage. Employers are put on notice that if an opt-out payment plan is adopted after December 16, 2015, the amount of the offered opt-out payment will likely be included in the employee’s cost of coverage for purposes of determining ACA affordability.
  • Guidance Under the ACA
    • Treasury and the IRS will begin to adjust the affordability safe harbors to conform with the annual adjustments for inflation applicable to the “9.5% of household income” analysis under the ACA. For plan years beginning in 2015, therefore, employers may rely upon 9.56% for one or more of the affordability safe harbors identified in regulations under the ACA, and 9.66% for plan years beginning in 2016. For example, in a plan year commencing in 2016, an employer’s MEC plan will be “affordable” if the employee’s contribution for lowest cost, self-only coverage does not exceed 9.66% of the employee’s W-2 wages (Box 1).
    • To determine which employees are “full-time” under the ACA, “hours of service” are intended to include those hours an employee works and is entitled to be paid, and those hours for which the employee is entitled to be paid but has not worked, such as sick leave, paid vacation, or periods of legally protected leaves of absence, such as FMLA or USERRA leave. However, “hours of service” are not intended to include hours not worked by the employee but for which an employer may be required to make a payment for the employee’s benefit, such as workers’ compensation leave, periods during which an employee is receiving unemployment compensation, or periods during which an employee is receiving disability income.
    • Treasury and the IRS have observed that certain educational organizations are using staffing agencies to avoid the rule that an employee must have a break in service of at least 26 consecutive weeks before that employee may be treated as a new hire — thereby subject to a new eligibility waiting period or a new initial measurement period. In order to address this perceived abuse, Treasury and the IRS anticipate issuing amended regulations to require that staffing agency employees who primarily provide services to educational organizations during an entire year (including employees in bus driving or janitorial positions) be treated as employees of the educational organizations for purposes of the 26 week break in service rule.
    • For purposes of ACA penalties, an offer of TRICARE coverage by an applicable large employer to an eligible full-time employee for any month will be deemed to be an offer of MEC for that month.
  • Guidance concerning COBRA obligations and Flexible Spending Accounts (“FSAs”)
    • An FSA is not required to offer COBRA coverage to an employee who experiences a qualifying event unless the amount the employee is entitled to receive from the FSA from the date of the qualifying event to the end of the plan year exceeds the amount the FSA could require as premiums for COBRA continuation coverage for the remainder of the plan year. The amount the employee is entitled to receive from the FSA includes any $500 carry-over amount to which the employee may be entitled.
    • For purposes of determining the cost of COBRA continuation coverage under an FSA, amounts carried-over from a prior plan year are not included in the 102% of applicable premium determination.
  • Guidance concerning ACA reporting obligations
    • The Treasury and IRS remind applicable large employers that they will provide relief from penalties for failing to properly complete and submit Forms 1094-C and 1095-C if the employers are able to show that they made good faith efforts to comply with their reporting obligations.

 

Happy New Year!

In Notice 2016-4, the IRS has extended the due dates for certain 2015 Affordable Care Act information reporting requirements.

Specifically, the Notice extends:

  • the due date for furnishing to individuals the 2015 Form 1095-B and Form 1095-C from February 1, 2016, to March 31, 2016, and
  • the due date for filing with the IRS the 2015 Form 1094-B, Form 1094-C and Form 1095-C from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically.

For detailed information about these Forms, please see our earlier article.

In the Notice, the IRS also grants special relief to certain employees and related individuals who receive their Form 1095-C or Form 1095-B, as applicable, after they have filed their returns:

  • For 2015 only, individuals who rely upon other information received from employers about their offers of coverage for purposes of determining eligibility for the premium tax credit when filing their income tax returns will NOT be required to amend their returns once they receive their Forms 1095-C or any corrected Forms 1095-C.
  • For 2015 only, individuals who rely upon other information received from their coverage providers about their coverage for purposes of filing their returns will NOT be required to amend their returns once they receive the Form 1095-B or Form 1095-C or any corrections.

Thus, generally, employers should not be concerned that furnishing these Forms on a delayed basis in accordance with the Notice will force employees to file amended 2015 income tax returns.

Finally, the extensions do not require the submission of any request or other documentation to the IRS and have no effect on information reporting provisions for other years.

 

Here in the middle of the holiday season, we’ve been busy putting the finishing touches on the next issue of our practice group’s quarterly newsletter, “Employee Benefits for Employers.”  The newsletter is a reimagined version of some earlier efforts to provide this audience with useful information on the rapidly evolving areas of employee benefits and executive compensation.  You may have noticed our first issue when it came out in September, but if not, please take a moment to check it out here.

The current issue includes Rob Perry’s analysis of some recent – and for employers, potentially disturbing – court decisions involving  withdrawal liability under ERISA.  Jewell Esposito also contributed a piece assessing a much-anticipated Supreme Court case involving ERISA pre-emption of state law.  For busy benefits professionals, the revamped newsletter also provides quick-hitting reports on significant recent developments in the law, usually with links to resources for further reading.  My pet project, however, is the new “Featured Lawyer” section, a getting-to-know-you item that (we hope) will offer our friends and clients a chance to learn a little more about the great group of practitioners we have here at Jackson Lewis.  This particular issue will shine the spotlight on Melissa Ostrower.

As the executive editor of the newsletter, I take special pride in putting out our “new and improved” newsletter, although it would not have been possible without the assistance and support of many, many other folks around the firm.  We are all eager to continue improving the newsletter, so if you have comments, criticism or praise, please consider this my invitation to share those with me by e-mail or by phone.

The new issue came out yesterday, Monday, December 21.  If you’re not already on the mailing list for the newsletter, sign up here.

All of us at Jackson Lewis wish you our warmest Season’s Greetings, and look forward to working with you in 2016!

On December 9, 2015, the IRS issued Notice 2015-87 [link below], which provides guidance on the application of the recent United States Supreme Court (“SCOTUS”) decision in Obergefell v. Hodges [link below] to qualified retirement and health and welfare plans.

Prior to the 2013 SCOTUS decision in United States v. Windsor [link below], Section 3 of the federal Defense of Marriage Act (DOMA) prohibited recognition of same-sex spouses for federal tax law purposes. In Windsor, SCOTUS found Section 3 of DOMA to be unconstitutional. As a result of that decision (along with certain other guidance [links below] issued by the IRS), marriages of same-sex spouses that were valid in the state where they were entered into were required to be recognized for federal tax purposes. SCOTUS took it a step further in 2015 with the Obergefell decision, holding that the Fourteenth Amendment to the U.S. Constitution requires a state’s civil marriage laws to apply to same-sex couples “on the same terms and conditions as opposite-sex couples,” and prohibits a state from refusing to recognize a lawful same-sex marriage performed in another state.

Notice 2015-87 recognizes that, because the Windsor decision and its accompanying guidance already meant that same-sex marriages were recognized for federal tax purposes, the IRS does not expect the Obergefell decision to have a major impact on the application of federal tax law to employee benefit plans. For example, the Notice states that qualified retirement plans should not require any additional changes based on Obergefell, assuming of course that plan sponsors amended their plans to comply with Windsor by December 31, 2014. Plan sponsors may still choose to make discretionary amendments to provide new rights or benefits with respect to participants with same sex-spouses, however, such as recognizing the marriages of same-sex couples on a retroactive basis as of a date prior to June 26, 2013 (the date of the Windsor decision). The Notice confirms that such amendments will not cause a plan to lose its qualified status. The deadline to adopt such a discretionary amendment is generally the end of the plan year in which the amendment is operationally effective.

Obergefell similarly does not require changes to the terms of health or welfare plans—i.e., nothing in federal tax law, or Obergefell, requires a plan to offer any specific coverage to the spouse of a participant. Obergefell could, however, require changes to the operation of a plan. For example, if the terms of a health or welfare plan provide that coverage is offered to the spouse of a participant as defined under applicable state law, and the plan administrator determines that applicable state law has expanded to include same-sex spouses as a result of Obergefell, then same-sex spouses would be eligible for coverage under the plan as of the date of the change in applicable state law.

The Notice also makes clear that a cafeteria plan that allows participants to make mid-year election changes due to a significant improvement in coverage may permit a participant to revoke an existing election and submit a new election if same-sex spouses first become eligible for coverage under the terms of the plan mid-plan year for any reason, including but not limited to an amendment to the terms of the plan; a change in applicable state law (to the extent the terms of the plan refer to state law); or a change in the interpretation of the existing terms of the plan. If a plan does not currently allow mid-year election changes due to a significant improvement in coverage, it may be amended to do so. Such an amendment may be retroactive, but must be adopted no later than the last day of the plan year including the later of (i) the date same-sex spouses first became eligible for coverage under the plan, or (ii) December 9, 2015.

Plan administrators are encouraged to take a second look at all plan documents to ensure that the required Windsor amendments have been made, and to consider whether any further changes (for example, to a plan’s definition of “spouse,” if such definition refers to state law) might be advisable in light of Obergefell.

 

Notice 2015-87 – https://www.irs.gov/pub/irs-drop/n-15-86.pdf

Obergefell v. Hodges – http://www.supremecourt.gov/opinions/14pdf/14-556_3204.pdf

United States v. Windsor – http://www.supremecourt.gov/opinions/12pdf/12-307_6j37.pdf

Guidance – https://www.irs.gov/pub/irs-drop/n-13-17.pdf; https://www.irs.gov/pub/irs-drop/n-14-19.pdf; https://www.irs.gov/pub/irs-drop/n-14-37.pdf; https://www.irs.gov/pub/irs-drop/n-13-17.pdf; https://www.irs.gov/irb/2014-2_IRB/ar13.html

 

As the calendar year comes to an end, group health plan sponsors must remember that if they took advantage of the ACA relief of IRS Notice 2014-55, amendments to their cafeteria plans by year end are needed.

Notice 2014-55 was effective as of September 18, 2014, and it allowed participants to revoke a cafeteria plan election for group health coverage, that is not a health FSA and provides minimum essential coverage, for 2 specific situations. These circumstances arise where participating employees may want to purchase a Qualified Health Plan through a competitive marketplace (Exchange or Marketplace coverage).

The first set of circumstances addressed by Notice 2014-55 was that employees experiencing a change in employment status where they no longer expect to average 30 hours of service per week, but remain eligible for employer-provided coverage, may revoke a cafeteria plan election and elect other minimum essential coverage.

This situation would ordinarily arise with group health coverage designed to avoid the employer shared responsibility penalties of Code § 4980H. Determining whether an employee has experienced a reduction of hours may be done by using scheduled or expected hours instead of actual hours worked by the employee. Plan sponsors should also keep in mind that a reduction of hours that does not result in a change in employment status – moving from full-time to part-time status – may not present the participant with a revocation opportunity.

The second scenario arises when participants who made a cafeteria plan election for group health coverage intend to enroll in Marketplace coverage during either a special enrollment period or the Marketplace’s annual enrollment period (for non-calendar year plans). The employee’s (and related individuals’) Marketplace coverage must begin no later than the day immediately following the revocation of the group health coverage.

Without the new election change permitted for Marketplace enrollment, participants may have had to continue their participation in employer-sponsored health coverage despite becoming eligible to enroll on the Exchange. Permitting an election change under these circumstances allows participants to adjust their coverage as their eligibility for Marketplace coverage changes.

Notice 2014-55 also provided that plan sponsors could rely on its provisions immediately and plan amendments were not required at the time. Moving forward, cafeteria plans must be amended (if they choose to implement these permitted change rules) by the last day of the calendar year in which the revocations were made, unless the election was made in 2014. If the revocation occurred in 2014, the cafeteria plan is allowed to amend as of the last day of the following plan year.

Amending cafeteria plans for the 2 new permitted changes also provides a good opportunity for plan sponsors to evaluate the method used for measuring employees’ hours of service for its effectiveness (i.e., are most of the people initially designated as a full-time employee remaining in that classification) and consistency (e.g., how hours counted while employees on FMLA). We anticipate that sponsors should have more clarity as to the effectiveness and consistency of their group health plan design and administration after working through this year’s ACA reporting requirements – which are also just around the corner.

The Employee Benefits Security Administration (EBSA) of the Federal Department of Labor plans to publish on November 18, 2015, new claims procedures for adjudicating disability benefits designed to enhance existing procedures for those benefits under Section 503 of the Employee Retirement Income Security Act (ERISA). EBSA’s goal is to apply to disability benefits many of the new procedural protections and safeguards that have been applied to group health plans under the Affordable Care Act (ACA). Interested parties may submit comments to these proposed regulations no later than 60 days after publication.

What are disability benefits?

In general, if an ERISA-covered plan conditions the availability of a benefit to the claimant upon a showing of disability, that benefit is a disability benefit. This is true whether the plan is a pension plan or a welfare plan. See FAQs About The Benefit Claims Procedure Regulation, A-9.

Why the change?

Fearing an increase in disability claims due to an aging population likely to be more susceptible to disabilities, EBSA anticipates an increase in disability litigation. The agency also expressed concern that disability benefit costs may be motivating insurers and plans to aggressively dispute disability claims. The proposed regulations states:

This aggressive posture coupled with the inherently factual nature of disability claims highlight for the Department the need to review and strengthen the procedural rules governing the adjudication of disability benefit claims.

What would the DOL like to change?

In short, the proposed regulations would incorporate into the rules for processing disability benefits many of the procedural protections for healthcare claim in the Affordable Care Act (ACA), such as:

  • Procedures would need to be designed to ensure independence and impartiality of the persons making the decision. For example, plans would not be permitted to provide bonuses to a claims adjudicator based on the number of denials.
  • Denial notices would be required to provide a full discussion of the basis for denial and the standards behind the decision. For instance, denial notices would have to do a better job explaining why the plan’s decision is contrary to the claimant’s doctor’s view.
  • Claimants would need to be given access to their entire claim file and permitted to present evidence and testimony during the review process.
  • Notice would need to be given to claimants, along with an opportunity to respond to, any new evidence reasonably in advance of an appeal decision. EBSA is considering whether the timing rules will need to be adjusted to allow for dialogue between the plan and the claimant about the new evidence.
  • Final denials at the appeals stage would not be permitted to be based on new or additional rationales unless claimants first are given notice and a fair opportunity to respond.
  • Claimants would be deemed to have exhausted administrative remedies if the plan fails to comply with the claims processing rules, with limited exceptions. These exceptions include circumstances where the violation was: (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance.
  • Certain rescissions would be treated as adverse benefit determinations, subject to appeals procedures.
  • Notices would need to be written in a culturally and linguistically appropriate manner. In short, if a claimant’s address is in a county where 10 percent or more of the population residing in that county, as determined based on American Community Survey (ACS) data published by the United States Census Bureau, are literate only in the same non-English language, notices of adverse benefit determinations to the claimant would have to include a prominent one-sentence statement in the relevant non-English language about the availability of language services. Such services would include (i) oral language services in the non-English language, such as through a telephone hotline, (ii) written notices in the non-English language upon request, and (iii) answering questions and providing assistance with filing claims and appeals in any applicable non-English language.

Plan sponsors, plan administrators and carriers will have to watch the development of these rules carefully. Once finalized, changes likely will be needed to ERISA-covered pension and welfare plan documents that provide disability benefits.

Preapproved (prototype or volume submitter) defined contribution plans must be restated for the Pension Protection Act by April 30, 2016.

Master and prototype and volume submitter plans are generally required to be updated and restated on a six year cycle. The current cycle for preapproved defined contribution plans ends April 30, 2016. Therefore, if you have a preapproved defined contribution plan, you must restate the plan no later than April 30, 2016. In addition, if you want to receive IRS approval of your restated plan, the filing must be made with the IRS on or before April 30, 2016. However, the IRS does not accept applications for many pre-approved plans. As we all know, the end of the year and the beginning of the year are busy for HR so the April 30, 2016 deadline is close at hand.

As noted in previous blogs, the IRS announced elimination of the five year determination letter remedial amendment cycle program for individually designed plans. Individually designed plans will no longer be able to obtain IRS determination letters except for new plans and terminating plans. A transition rule applies for certain plans currently in the five year cycle, (i.e., Cycle E and Cycle A plans may still file for determination letters).

If you have an individually designed plan that falls under Cycle E (the plan sponsor’s EIN ends in five or zero), you can restate and file the document with the IRS by January 31, 2016. This is generally recommended for employers who have Cycle E plans, especially considering the changes to the IRS determination letter program.

Individually designed plans which are on Cycle A (the plan sponsor’s EIN ends in one or six) can still restate their plans and obtain a determination letter from the IRS by restating the plan and filing it on or before January 31, 2017.

Some plans will now be switching to pre-approved plans to avoid the risk of operating without a determination letter.   However, many employers will want to delay switching to a pre-approved plan until the next deadline for adoption, which under the current rules would appear to be April 30, 2022. Of course, adopting a pre-approved plan avoids the legal risk associated with the end of the determination letter program, but will not meet the needs of many employers, especially employers with sophisticated or complex plans. These plans are going to tend to be too unique to fall under prototype or volume submitter programs. For example, employers who have had substantial acquisitions or dispositions.

As the April 30, 2016 deadline looms, employers should review their plan documents to ascertain the effects of the April 30, 2016 deadline for prototype and volume submitter plans and the potential changes to the IRS determination letter program. When April 30, 2016 passes, some flexibility for employers will be lost. Finally, employers who are in Cycle A or Cycle E should seriously consider restating their programs and filing within the timeframes of these cycles.

Today the Supreme Court entertained oral argument on yet another ERISA remedies case. In Montanile v. Board of Trustees of the Nat’l Elevator Indus. Health Benefit Plan, No. 14-723, the Court will again attempt to apply the phrase “appropriate equitable relief” to a plan’s claim for reimbursement of medical benefits.

The scenario is a familiar one to the Court, which has addressed very similar issues in Great-West Life & Annuity v. Knudson (2002), Sereboff v. Mid-Atlantic Medical Services (2006), and US Airways v. McCutchen (2013). Like those other cases, Montanile arose from a plan’s attempt to recoup medical benefits paid to an injured participant, after the participant received a recovery from the tortfeasor causing the injury.

The question in Montanile, however, involved dissipation of the funds — that is, is the plan’s claim for “equitable relief” still viable when the settlement funds have been spent, distributed and/or commingled with the participant’s general assets? Defending the claim in the district court, the participant (Montanile) argued that ERISA did not allow the plan’s recovery because there was no specifically identifiable sum of money in Montanile’s possession that could be traced back to his tort settlement. According to Montanile, this precluded any claim for “equitable relief” under existing Supreme Court jurisprudence. The lower courts rejected the “dissipation” defense, ruling that the plan’s reimbursement provisions gave rise to an equitable lien by agreement, which attached as soon as the participant came into possession of the settlement funds. As a result, the lower courts found that the participant’s dissipation of the funds was immaterial to the plan’s right of recovery.

This question was starkly presented to the Court in Montanile. There was no dispute that the plan established an equitable lien by agreement, nor was there any dispute that Montanile had dissipated most or all of the settlement proceeds with knowledge of the plan’s reimbursement right.

At oral argument, the Court initially focused on the participant’s argument that a plan can protect its rights by notifying the parties to the tort suit, as well as counsel. According to the participant’s counsel, a plan can protect itself by notifying the participant, the tortfeasor and their counsel of the plan’s lien on any personal-injury recovery. Curiously, in Montanile, the Eleventh Circuit followed its decision in AirTran v. Elem, a decision it considered binding, and in which the participant had dissipated settlement proceeds in spite of plan’s efforts to protect itself in this exact way. (A petition for certiorari is pending in the AirTran case.) Chief Justice Roberts, in particular, expressed concerns that a complicated and expensive reimbursement process would discourage employers from sponsoring benefits plans voluntarily, contrary to one of ERISA’s central goals.

During his argument, the plan’s counsel offered a starting premise – namely, that a defendant-participant cannot defeat the plan’s claim by knowingly frustrating the plan’s equitable rights (by dissipating the subject funds). In this construct, plan counsel proposes that the plan becomes a general creditor with respect to the participant’s general assets. Plan counsel suggested that this would distinguish reimbursement claims in the context of pension and disability plans, where the participant’s dissipation of the funds is less likely to be in bad faith (i.e., with knowledge of a reimbursement claim). In addition, plan counsel argued, the Court’s interpretation of the equitable tradition would be consistent with ERISA’s emphasis on enforcing plan terms as written. In any event, the plan’s emphasis on intentional dissipation does seem to have resonated with some of the Justices.

Of course, it’s impossible to predict how the Court will rule. However, the two cases before the Court (Montanile and AirTran) offer some favorable “equities” for the plans. Despite that, the dialogue at oral argument suggests that some Justices are loath to issue any expansive interpretation of the statute. If the Court affirms the rulings below, the most interesting aspect of that decision may be the Court’s attempt to limit its holding to avoid future undesirable consequences that might flow from its decision.

 

Last November, Melissa Ostrower wrote an excellent blog on the perils of employers reimbursing employees for health care premiums. (See: https://www.benefitslawadvisor.com/2014/11/articles/health-care-reform-legislation/premium-reimbursement-arrangements-employers-beware/)   At the time of her article, the Department of Labor had just published a new FAQ which stated, in general, that where an employer provides cash reimbursements to employees for the purchase of an individual market health care policy or provides cash in lieu of coverage to employees with high claims risks, such action would be considered part of a plan, fund or arrangement governed by the Affordable Care Act (“ACA”).   Because these arrangements — by their nature — can never comply with the ACA group health plan provisions, they may subject employers providing such arrangements to penalties.

 

Earlier this year, the IRS issued Notice 2015-17 reemphasizing that where an employer provides reimbursements or payments, either pre-tax or post-tax, that are dedicated to providing medical care — such as cash reimbursement for the purchase of an individual market policy — such an arrangement is itself a group health plan. And because such an arrangement fails to satisfy market reforms, it may trigger a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under IRC Section 4980D.

 

But, what about COBRA reimbursements? COBRA reimbursements should be allowed so long as the reimbursements are for group health coverage that otherwise complies with the ACA market reforms. However, for terminating employees, keep in mind that the end of a subsidized or reimbursed COBRA premium period is not a special enrollment event — such as loss of coverage due to termination of employment, reduction in hours or the end of a COBRA continuation period — which would allow the employee immediate access to health insurance marketplace coverage. Thus, the employee needs to be mindful of how to coordinate COBRA coverage with the next marketplace open enrollment, or subsidized COBRA may not prove to be particularly beneficial.

 

For new employees, coverage under a prior employer’s group health plan is often continued under COBRA for a period of time. Again, it is important to be sure that the underlying plan is ACA compliant. In addition, if you are the new employer, you still have the obligation — without regard to any COBRA continuation coverage a new employee may have — to offer coverage under your own group health plan within 90 days or possibly be subject to the ACA’s shared responsibility penalty.

 

Bottom line: Any direct or indirect, pre-tax or post-tax employer reimbursement for individual health insurance premiums could subject an employer to some big penalties.   For now, COBRA premium reimbursement is permissible so long as the underlying plan is ACA compliant.

Since the enactment of the Affordable Care Act (ACA), larger employers have wondered about an auto-enrollment provision that the ACA added to the Fair Labor Standards Act (FLSA). Under that provision, employers that are subject to the FLSA and which employed more than 200 full-time employees would have been required to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law). Certain notices would have been required giving employees an opportunity to opt out of any coverage in which the employee was automatically enrolled.

Employers have been in limbo about auto-enrollment since December 2010, when the Department of Labor advised in a Frequently Asked Question that because the statute requires implementation of the requirement “[i]n accordance with regulations promulgated by the Secretary [of Labor],” and no regulations had been issued, employers were not required to comply with FLSA section 18A until the DOL completed its rulemaking.

Wonder no more. Today, President Barack Obama signed H.R. 1314, the “Bipartisan Budget Act of 2015,” which among other things repealed the auto-enrollment requirement from the FLSA. For many employers, this will be welcomed relief from yet another ACA compliance requirement.

Note, however, employers may decide to use “default” or “negative” elections for enrolling employees into health plan coverage or certain other benefits. Under a default or negative enrollment arrangement, an otherwise eligible employee will be deemed to have elected a certain type and level of coverage, unless the employee timely returns a written waiver of that coverage. The Internal Revenue Service permitted this practice in a 2002 Revenue Ruling, and affirmed the approach in proposed regulations under Section 125, issued in 2007. This practice may even be applied to HSA contributions made under a cafeteria plan.

As many expected would be the case for the ACA’s auto-enrollment requirement, to implement default or negative elections under Section 125, employers would need to provide notice to employees about the coverage and cost, and provide the opportunity to opt-out of the arrangement. In many cases, negative or default elections will involve payroll deductions made without an affirmative election by the employee to reduce his or her wages to pay for that benefit. Some state wage withholding laws, however, have an express requirement that there be an affirmative election by the employee before any deductions may be made. But, the DOL has taken the position that in this context such wage withholding laws are preempted by ERISA. Still, employers may want to avoid the ire of an aggressive state labor official seeking to enforce his or her state’s wage law, even if the battle may be won by the employer in court.  Employers should consider this practice carefully and consult with appropriate counsel.