More on the EEOC and Wellness Programs
Source: ThinkHR.com
The U.S. Equal Employment Opportunity Commission’s (EEOC) recent litigation against employers over incentives granted to employees participating in wellness programs may be a concern for other employers. Specifically, the EEOC has asserted that the size of the incentive that is lost by employees that refuse to participate could render an employer’s wellness program “involuntary” and in conflict with the Americans with Disabilities Act (ADA). Our recent blog post on this issue highlights the concern.
The EEOC’s action raises issues that have confused employers and benefit advisors for many years: What types of wellness program rewards or penalties are acceptable under the ADA? Will programs that comply with other federal laws for employer-sponsored health plans avoid claims of discrimination under the ADA?
The ADA generally prohibits employers from requiring employees to answer disability-related questions or to undergo medical exams (except certain health/safety exams in specific professions or industries). The EEOC, which regulates various ADA provisions, has confirmed that employers may conduct health assessments or exams as part of a voluntary wellness program without violating the ADA. Medical records must be kept confidential and separate from personnel records.
While the EEOC has not published clear guidance as to the meaning of “voluntary” participation, the need for clarification is apparent. The Health Insurance Portability and Accountability Act (HIPAA), has long permitted health plans to make wellness rewards (incentives or penalties) up to certain limits — those limits were increased under the Affordable Care Act (ACA) starting in 2014. These ACA limits may inform strategy on employer implementation of incentives to promote participation in wellness programs.
Penalties and Rewards
The ADA speaks of penalties, but in the vernacular of the ACA, the term “reward” refers both to an incentive payment or a penalty surcharge. Further, the ACA categorizes wellness programs as either “participatory” or “health-contingent” and applies different rules for each category.
Participatory programs do not depend on health status and no specific health outcome is required. For example, a program that rewards all employees that complete a health risk assessment, without regard to the results, is a participatory program. A health-contingent program is one that offers the reward only to employees that either meet an initial health standard (such as satisfactory biometric screenings) or do not meet the initial standard but meet a reasonable alternative standard (such as attending an educational program).
Starting with 2014 plan years, the maximum allowable reward (incentive or penalty) in a health-contingent wellness program under the ACA is 30 percent of the health plan cost, or 50 percent if the program is designed to prevent or reduce tobacco use. (Health plan cost generally is the COBRA rate minus the 2 percent administrative fee.) If the program is merely participatory, however, there is no limit under the ACA for the amount of reward an employer can give an employee.
Regardless of the ACA provisions for wellness programs, the EEOC presently believes that compliance with the ADA prevents employers from offering rewards amounting to steep or enormous penalties — even in a participatory-only program. In its recent case, the EEOC cites the difference between employees paying 25 percent versus 100 percent of the cost for health insurance based on whether they participated in a wellness program as an “enormous penalty.”
Considering the EEOC’s public comments endorsing voluntary wellness programs, and that their enforcement activity is focused on programs imposing penalties that they describe as enormous or steep, it appears likely the use of wellness program incentives will continue to be permitted. However, compliance with the reward limits and reasonable alternatives required under the ACA needs to be complimented with awareness of the EEOC’s concern over excessive penalties. Formal guidance from the EEOC is still pending.
For more information about wellness programs under the ACA, read the Final Rule.
IRS Announces 2015 Retirement Plan Contribution Limits
Source: ThinkHR.com
On October 23, 2014 the Treasury Department announced cost-of-living adjustments affecting dollar limitations for pension plans and retirement accounts for tax year 2015. The following is a summary of the changes that impact employees:
401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plans
- The elective deferral (contribution) limit increased from $17,500 to $18,000.
- The catch-up contribution limit for employees aged 50 and over who participate in these plans increased from $5,500 to $6,000.
Individual Retirement Arrangements (IRAs)
- The limit on annual contributions remains unchanged at $5,500.
- The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Simplified Employee Pension (SEP) IRAs and Individual/Solo 401(k)s
- Elective deferrals increase from $52,000 in 2014 to $53,000 in 2015, based on an increased annual compensation limit of $265,000, up from $260,000 in 2014.
- The minimum compensation that may be required for participation in a SEP increases from $550 in 2014 to $600 in 2015.
SIMPLE (Savings Incentive Match Plan for Employees) IRAs
- The contribution limit on SIMPLE IRA retirement accounts for 2015 is $12,500, up from $12,000 in 2014.
- The SIMPLE catch-up limit is $3,000, up from $2,500 in 2014.
Defined Benefit Plans
- The basic limitation on the annual benefits under a defined benefit plan is unchanged at $210,000.
Other Changes
- Highly-compensated and key employee thresholds: The threshold for determining “highly compensated employees” increases from $115,000 to $120,000 in 2015; the threshold for officers who are “key employees” remains at $170,000 for 2015.
- Social Security Cost of Living Announcement: In a separate announcement, the Social Security Administration increased the Taxable Wage Base from $117,000 in 2014 to $118,500.
- The maximum “Old Age, Survivor and Disability Insurance” (OASDI) tax will be $7,347 for both employers and employees; and
- Hospitalization Insurance (Medicare) tax continues to apply to all wages.
The IRS pension plan limits announcement with more details is available here.
The Social Security Administration Fact Sheet outlining the 2015 changes can be found here.
Too Many Choices?
Source: ThinkHR.com
Some of the earliest investment advice given: “Don’t put all of your eggs in one basket.” Its value is enduring. An investor can minimize the risk of losing money by diversifying the allocation of money into different categories of investments. Even within a single category, an investor can choose investment vehicles, such as mutual funds, spreading ownership over an array of financial instruments. Are plan sponsors successful if they offer participants the highest possible amount of mutual funds and other investment choices?
Offering a large number of funds does not equate to success in either the realm of compliance with regulation, nor in achieving maximum levels of employee participation. It is important to offer the appropriate number of choices to empower participants to meet goals for retirement income. It is also important to do this in a manner that allows the employer to meet fiduciary responsibilities.
Fiduciary Responsibility
On one hand, participant-directed accounts, such as many 401(k) plans, give members control over their own investment accounts. On the other hand, the plan sponsor is generally still responsible for the fiduciary liability associated with selecting and monitoring the investment vehicles being made available to participants. Good processes with solid documentation of their application provide the foundation, enabling employees to make good decisions about investments. These factors also position the employer to face an Employee Benefits Security Administration (EBSA) audit without undo fear of negative consequences. Most employers will need to engage the services of a “prudent expert” as a guide along the path of selecting and monitoring appropriate investment opportunities.
A prudent expert financial advisor must be familiar with methods required to deliver comprehensive analysis of investment vehicles. Among these methods is the necessity to establish and track appropriate benchmarks to measure a particular investment’s performance over time. Understanding the purpose of a particular class of investments and how the particular fund being offered relates to its peers is more important than offering a large number of funds in that class.
Sponsors need to maintain an Investment Policy Statement outlining the categories of investments to be offered to participants. This document should also identify the committee and entities responsible for choosing, monitoring, and, when appropriate, replacing the individual investment options offered to participants. This tool will assist the sponsor in seeing when it is appropriate to replace an option instead of just adding new options. Beyond concerns about managing an employer’s exposure to liability, providing a reasonable, yet limited, choice of options can actually improve employees’ willingness to participate in the benefit plan.
Participant Behavior
Fewer choices are better when people do not come into a situation already knowing for sure what they prefer. This describes most employees in their relationship to employee benefit plans. They simply do not know what to do without education. Initially, it may seem logical to grant the widest possible range of options. If surveyed, employees may even indicate a strong preference for unlimited choices. However, the employer’s goal is not to merely capture interest — the goal is to make it easy for employees to participate in a benefit plan and see progress towards fulfillment of their own financial objectives.
The opportunity to make some choices is a good thing for participants. Indeed, it is necessary for employees with participant-directed accounts to be offered options so that they can achieve diversification of their investments. However, too much of a good thing is manifest when participants experience choice overload.
Behavioral scientists are finding choice overload to be a condition people experience when they withdraw from a situation out of fear of making the wrong decision. Often an individual starts off highly motivated as they begin to examine the choices they have been presented. As choice overload sets in, the extensive array of choices becomes demotivating, and the individual may put off a decision to commit or give up entirely.
Sheena S. Iyengar of Columbia University and Mark R. Lepper of Stanford University demonstrated the impact of choice overload when they studied the influence of choice on the purchasing habits of 502 people who were introduced to various selections of exotic jams. They found that 60 percent of the people given the opportunity to choose from 24 items were interested in investigating, but only 3 percent made a purchase. By contrast, only 40 percent of those given the limited choice of 6 items investigated, but 30 percent made a purchase. The average quantities of jam individuals were willing to taste test was less than 2, regardless of whether they were offered an array of 6 or 24.
Employers can promote participation in benefit plans by reducing the complexity of presentations to employees. Making use of competent advisors, employers can present employees with properly labelled choices packaged in a consumer-friendly manner.
The Retirement Readiness Challenge: Five Ways Employers Can Improve Their 401(k)s
Originally posted October 20, 2014 on www.ifebp.org.
Today, nonprofit Transamerica Center for Retirement Studies® ("TCRS") released anew study and infographic identifying five ways employers can improve their 401(k)s. As part of TCRS' 15th Annual Transamerica Retirement Survey, this study explores employers' views on the economy, their companies, and retirement benefits. It compares and contrasts employers' views with workers' perspectives.
"As the economy continues its prolonged recovery from the recession, our survey found upbeat news that many employers are hiring additional employees. Moreover, they recognize the value of offering retirement benefits," said Catherine Collinson, president of TCRS.
Seventy-two percent of employers have hired additional employees in the last 12 months (compared to only 16 percent that say they have implemented layoffs or downsizing). Among employers that offer a 401(k) or similar plan (e.g., SEP, SIMPLE), the vast majority (89 percent) believe their plans are important for their ability to attract and retain talent.
Retirement Benefits and Savings Are Increasing (Yet More Can Be Done)
Employers are increasingly offering 401(k) or similar plans to their employees. Between 2007 and 2014, the survey found that the percentage of employers offering a 401(k) or similar plan increased from 72 percent to 79 percent. The offering of a plan is highest among large companies of 500 or more employees (98 percent) and small non-micro companies of 100 to 499 employees (95 percent) and lowest among micro companies of 10 to 99 employees (73 percent).
During the recession and its aftereffects, many 401(k) plan sponsors suspended or eliminated their matching contributions. Plan sponsors that offer matching contributions dropped from 80 percent in 2007 to approximately 70 percent from 2009 to 2012. In 2014, the survey found that 77 percent of plan sponsors now offer a match, nearly rebounding to the 2007 level.
"Despite the tumultuous economy in recent years, 401(k) plan participants stayed on course with their savings," said Collinson. According to the worker survey, participation rates among workers who are offered a plan have increased from 77 percent in 2007 to 80 percent in 2014. Among plan participants, annual salary contribution rates have increased from seven percent (median) in 2007 to eight percent (median) in 2014, with a slight dip to six percent during the economic downturn.
Workers' total household retirement savings increased between 2007 and 2014. The 2014 estimated median household retirement savings is $63,000, a significant increase from 2007, when the estimated median was just $47,000. Notably, Baby Boomers have saved $127,000 (estimated median) in household retirement accounts compared to $75,000 in 2007. "For some workers, current levels of retirement savings may be adequate; for many others, they are not enough," said Collinson.
Five Ways Employers Can Improve Their 401(k)s
"401(k)s play a vital role in helping workers save and invest for retirement," said Collinson. "Until every American worker is on track to achieve a financially secure retirement, there will be opportunities for further innovation and refinements to our retirement system."
The survey identified five ways in which employers, with assistance from their retirement plan advisors and providers, can improve their 401(k)s. Plan sponsors are encouraged to consider these enhancements to their plans:
1. Adopt automatic plan features to increase savings rates
"Automatic enrollment is a feature that eliminates the decision-making and action steps normally required of employees to enroll and start contributing to a 401(k) or similar plan," said Collinson. "It simply automatically enrolls employees. They need only take action if they choose to opt out and not contribute to the plan."
The percentage of plan sponsors offering automatic enrollment increased from 23 percent in 2007 to 29 percent in 2014. Plan sponsors' adoption of automatic enrollment is most prevalent at large companies. Fifty-five percent of large companies offer automatic enrollment, compared to just 27 percent of small non-micro companies and 21 percent of micro companies.
Plan sponsors automatically enroll participants at a default contribution rate of just three percent (median) of an employee's annual pay. "Defaulting plan participants into a 401(k) plan at three percent of annual pay can be very misleading because it implies that it is adequate to fund an individual's or family's retirement when in most cases, it is not," said Collinson. "Plan sponsors should consider defaulting participants at a rate of six percent or more of an employee's annual pay."
"Automatic increases can help drive up savings rates: Seventy percent of workers who are offered a plan say they would be likely to take advantage of a feature that automatically increases their contributions by one percent of their salary either annually or when they receive a raise, until such a time when they choose to discontinue the increases," said Collinson.
2. Incorporate professionally managed services and asset allocation suites
Professionally managed services such as managed accounts, and asset allocation suites, including target date and target risk funds, have become staple investment options offered by plan sponsors to their employees. These options enable plan participants to invest in professionally managed services or funds that are essentially tailored to his/her goals, years to retirement, and/or risk tolerance profile.
Eighty-four percent of plan sponsors now offer some form of managed account service and/or asset allocation suite, including:
56 percent offer target date funds that are designed to change allocation percentages for participants as they approach their target retirement year; 54 percent offer target risk funds that are designed to address participants' specific risk tolerance profiles; and, 64 percent offer an account (or service) that is managed by a professional investment advisor who makes investment or allocation decisions on participants' behalf.
"For plan participants lacking the expertise to set their own 401(k) asset allocation among various funds, professionally managed accounts and asset allocation suites can be a convenient and effective solution. However, it is important to emphasize that plan sponsors' inclusion of these options, like other 401(k) investments, requires careful due diligence as well as disclosing methodologies, benchmarks, and fees to their plan participants," said Collinson.
3. Add the Roth 401(k) option to facilitate after-tax contributions
"Roth 401(k) can help plan participants diversify their risk involving the tax treatment of their accounts when they reach retirement age," said Collinson. The Roth option enables participants to contribute to their 401(k) or similar plan on an after-tax basis with tax-free withdrawals at retirement age. It complements the long-standing ability for participants to contribute to the plan on a tax-deferred basis. Plan sponsors' offering of the Roth 401(k) feature has increased from 19 percent in 2007 to 52 percent in 2014.
4. Extend eligibility to part-time workers to help expand retirement plan coverage
"Expanding coverage so that all workers have the opportunity to save for retirement in the workplace continues to be a topic of public policy dialogue. A tremendous opportunity for increasing coverage is part-time workers," said Collinson. Only 49 percent of 401(k) or similar plan sponsors say they extend eligibility to part-time workers to save in their plans.
"Employers should consider consulting with their retirement plan advisors and providers to discuss the feasibility of offering their part-time workers the opportunity to save for retirement," said Collinson.
5. Address any disconnects between employers and workers regarding benefits and preparations
The survey findings revealed some major disconnects between employers and workers regarding retirement benefits and preparations. For example: Ninety-five percent of employers that offer a 401(k) or similar plan agree that their employees are satisfied with the retirement plan that their company offers; yet, in stark contrast, only 80 percent of workers who are offered such a plan agree that they are satisfied with their employers' plans.
"Starting a dialogue between employers and their employees could help employers maximize the value of their benefits offering while also helping their employees achieve retirement readiness," said Collinson. Just 23 percent of employers have surveyed their employees on retirement benefits and even fewer workers (11 percent) have spoken with their supervisor or HR department on the topic in the past year.
EEOC Challenges Employer Sponsored Wellness Programs Over “Enormous Penalties”
Source: ThinkHR.com
Recently, the U.S. Equal Employment Opportunity Commission (EEOC) announced litigation against a second employer — Flambeau, Inc., a plastics manufacturer based in Baraboo, Wisconsin — over employer-sponsored wellness program participation incentives granted to employees. The specific issue with Flambeau involves an employee unable to qualify for the program due to medical leave. However, a major concern for other employers is the EEOC’s assertion that size of the payment incurred by an employee refusing to participate in a wellness program could render participation involuntary.
In its press release published October 1, 2014, the EEOC describes “enormous penalties” as unacceptably compelling participation, mirroring language used in its August 20, 2014 announcement of a lawsuit against Orion Energy Systems on similar grounds. The example of shifting 100 percent of the premium cost to an employee who refuses to participate in biometric tests or to complete a health risk assessment was cited as unacceptable. This 100-percent employee responsibility is in contrast with employees who participated in the wellness program, but were only required to pay 25 percent of the premium cost. Such a scheme is alleged to make participation involuntary; this is critical because voluntary participation is described as a major factor in avoiding a claim of disability discrimination under Title I of the Americans with Disabilities Act (ADA).
Most employers do not charge 100 percent of premiums to employees who fail to participate in a wellness program. What percentage of cost is acceptable under the ADA?
ADA Voluntary Wellness Participation Not Clearly Defined
The EEOC acknowledges an employer’s right to conduct voluntary medical examinations as part of a health plan under certain circumstances. Among these circumstances would be meeting the requirement for programs to be voluntary and the medical records to be maintained separate from personnel records and used in a confidential manner. Such guidance is published in the EEOC Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act (ADA) under “Other Acceptable Disability-Related Inquiries and Medical Examinations of Employees.”
What is not published is clear guidance as to the meaning of voluntary participation, a point acknowledged in testimony before the EEOC on May 8, 2013 by its own Christopher Kuczynski, Acting Associate Legal Counsel. Kuczynski called attention to the need for clarification concerning the ADA in an environment where the Affordable Care Act (ACA) amended the Health Insurance Portability and Accountability Act (HIPAA) to permit rewards (incentives or penalties); but it was not clear what limits, if any, would be required by the ADA. To date, the EEOC has not published guidance clarifying the requirements to satisfy the ADA requirement that disability-related inquiries or medical examinations be voluntary.
Employers, along with their attorneys, will be busy studying case law developing from EEOC-driven litigation. Additionally, the limitations under the ACA may inform strategy on the implementation of incentives to promote participation in wellness programs. Comments about “reasonableness” and percentage limits to certain types of wellness benefits under the ACA may help inform the development of a wellness incentive strategy.
Affordable Care Act Demands Reasonableness
While the ADA speaks of penalties, in the vernacular of the ACA incentive payment or penalty surcharges are lumped together in the term “rewards.” For plan years beginning on or after January 1, 2014, maximum rewards are 30 percent of the annual total cost of coverage for a health-contingent wellness program (50 percent for tobacco-related health programs) offered in connection with an employer-sponsored group health plan. The total cost of coverage would likely be the COBRA rate, less the 2 percent administrative charge. Thus, the maximum amount that an employer can transfer to an employee for participation in a health-contingent wellness program under the ACA is 30 percent, and 50 percent for tobacco-related programs (effective 2014); however, there is technically no limitation under the ACA for the amount of reward an employer can give an employee for a participatory wellness program.
Under the ACA, wellness programs are categorized as either “participatory” or “health-contingent.”
Participatory programs do not depend on health status; thus, no specific health outcome is required. (For example, requiring a member to fill out a health risk assessment would be an example of a participatory activity.) ACA regulations do not limit the reward an employer can give for a participatory activity. However, as mentioned above, the EEOC presently believes ADA compliance will prevent offering rewards amounting to steep or enormous penalties, citing the difference between employees paying 25 percent versus 100 percent of the cost for health insurance based on participating in a wellness program as an “enormous penalty.”
Health-contingent programs are divided into one of two subgroups: activity-based programs and outcome-based programs. Activity-based programs require activities such as exercise, but with no required outcome. Further, a reasonable alternative path to the reward must be provided when it is medically inadvisable to perform the primary activity. An example of a reasonable alternative would include exempting a member from an activity based on a physician’s advice. Outcome-based programs include, for example, biometric screening of triglycerides < 151 mg/dL. The program must offer a reasonable alternative path to the reward for anyone failing to meet the goal. No doctor’s note is required to access the alternative.
Considering the EEOC’s public comments endorsing voluntary wellness programs, and their enforcement activity being focused on what they describe and enormous or steep penalties, it appears likely that the way forward for wellness programs will permit the use of incentives. However, compliance with the reward limits and reasonable alternatives required under ACA needs to be complimented with awareness of the EEOC’s concern over excessive penalties. Formal guidance from the EEOC is still pending.
For more information, read the Final Rule.
United States: You've Acquired A New Qualified Retirement Plan? Time For A Compliance Check
Originally posted October 20, 2014 by Nancy Gerrie and Jeffrey M. Holdvogt of Mondaq Business Briefing, on www.ifebp.org.
In connection with a merger or acquisition, an acquiring company may end up assuming sponsorship of a tax-qualified retirement plan that covers employees of the acquired company. Basic due diligence on the plan likely was done during the acquisition. But if the plan will continue to be maintained following the acquisition, this is the perfect time to establish procedures to ensure that the numerous administrative and fiduciary requirements involved in maintaining a qualified retirement plan will continue to be met on an ongoing basis. Following is a brief summary of some key issues that a company should focus on after it assumes a new qualified retirement plan.
Review Compliance with Coverage and Nondiscrimination Testing
In order for the plan to retain its tax-qualified status, the Internal Revenue Code requires that a qualified retirement plan be tested periodically to ensure that it does not discriminate in favor of highly compensated employees. Two of the most important tests to be monitored are: (i) the coverage test, to ensure that the plan covers a stated minimum number of non-highly compensated employees on a controlled group (employer-wide) basis, and (ii) the nondiscrimination test, to ensure that the formula for determining the amount of contributions and benefits a particular participant receives does not discriminate in favor of highly compensated employees. Advance planning should be done to determine the impact of the acquisition on these tests, both for the new plan and any existing plans within the controlled group. Different rules may apply for determining which employees are highly compensated, depending on the type of transaction.
Become Familiar with the Plan's Investments and Investment Policy
The acquiring company, or more typically a committee appointed by the acquiring company, will have fiduciary responsibility for selecting the plan's investments, including the investment funds offered under a 401(k) or other individual account retirement plan. Plan fiduciaries, who likely will be newly appointed following the acquisition, must familiarize themselves with the fund lineup, obtain information to evaluate the funds and document how they monitor and select funds to ensure compliance with U.S. Department of Labor requirements. Plan fiduciaries also should familiarize themselves with the plan's written investment policy or guidelines, refer to the investment policy or guidelines when meeting to discuss changes to plan investments and update the policy or guidelines, as needed.
Understand Plan Fees and Revenue Sharing
New plan fiduciaries should carefully review any revenue-sharing arrangements related to the plan and understand the plan's use of so-called "12b-1 fees" and other revenue-sharing payments. Plan fiduciaries must understand the formula, methodology and assumptions used to determine the respective share of any revenue generated from plan investments by the plan's service provider. Plan fiduciaries also must monitor the arrangement and the service provider's performance to ensure that the revenue owed to the plan is calculated correctly and that the amounts are applied properly (for example, for payment of proper plan expenses or for reallocation to participants' plan accounts).
Review Consultant, Investment Manager and Service Provider Agreements
Qualified retirement plan fiduciaries typically have agreements with various consultants, investment managers and service providers that carry over following an acquisition. This is a good time to review these agreements, both to understand the service providers (and whether they are still needed) and to make sure plan fiduciaries are set up to properly monitor and select new service providers, as needed. In particular, plan fiduciaries should understand whether the consultant or advisor represents itself to be a fiduciary or co-fiduciary of the plan, whether the consultant or advisor maintains adequate insurance coverage, whether fees are reasonable and whether any conflicts of interest exist.
Ensure the Plan's Eligibility Provisions Reflect the New Controlled Group
The plan document will specify precise rules for employee eligibility. Following an acquisition, the acquiring company often must update the plan's eligibility provisions to reflect the new controlled group. In addition, with new administrators and new human resources personnel likely to be looking at the plan, this is an ideal time to make sure the plan is following the eligibility and enrollment rules set forth in the plan document, including: (1) eligibility for or exclusion of part-time employees; (2) proper classification of independent contractors; (3) adherence to hours-of-service counting rules or the elapsed-time alternative; (4) re-enrollment of rehired participants; and (5) for automatic enrollment plans, proper automatic enrollment for eligible employees on a timely basis.
Check the Plan's Definition(s) of Compensation
A plan's definition of compensation is used for a variety of important purposes, including the calculation of an employee's allocation in a defined contribution plan or benefit accruals in a defined benefit plan, adherence to limitations on allowable compensation and performing nondiscrimination testing. The plan document must specify precise definitions for applicable compensation for each purpose. Problems frequently arise following an acquisition because the payroll provider may change or key personnel who understood how compensation was applied under the plan may be gone. Also, the transaction agreement may require the continuation of certain benefit levels for a period of time, which in practice may require that the plan continue to apply the same definition of eligible compensation as before the transaction. Plan administrators should review payroll codes against the plan's definition of compensation and make adjustments to either the plan or the payroll codes, as needed.
Review the Distribution Paperwork
The acquiring company will usually update the plan's summary plan description and employee communications to reflect the new employer. However, distribution paperwork, including benefit election and rollover forms that the employee must complete, as well as descriptions of optional forms of benefits and other required disclosures, is often overlooked in the due diligence and transition process. If election forms are not periodically reviewed and updated, the plan may fail to provide all the correct options (for example, installments, annuities and lump sums, where available) or fail to require spousal consent for distributions, where it is required under plan rules.
Update ERISA Fidelity Bonds and Fiduciary Insurance Coverage
One of the most common failures noted by the Department of Labor during audits is a plan's maintenance of an Employee Retirement Income Security Act (ERISA) fidelity bond. ERISA generally requires that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan be bonded (for at least 10 percent of the amount of funds he or she handles, subject to a $500,000 maximum per plan for plans that do not hold employer securities) to protect from risk of loss due to fraud or dishonesty on the part of persons who "handle" plan funds or other property. The period after an acquisition is an excellent time to make sure the plan maintains appropriate bonds, as well as to make sure the company is adequately protected with fiduciary insurance coverage, which may be with the same insurer as the fidelity bond.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Deadline Looms to Obtain Group Health Plan Identifiers
Originally posted October 17, 2014 by Stephen Miller on www.shrm.org.
updated 9/19/2014
Self-insured employers should take note of approaching deadlines under a Department of Health and Human Services (HHS) final rule that requires large health plans to obtain health plan identifiers (HPIDs) by Nov. 5, 2014; for small plans, the deadline is Nov. 5, 2015.
An HPID is intended to serves as a unique identifier for health plans involved in transactions subject to the Health Insurance Portability and Accountability Act (HIPAA). HIPAA defines a small health plan as one with annual receipts of $5 million or less.
Employers “are really struggling with the requirements for health plan identifiers,” said Gretchen Young, senior vice president for health policy at the ERISA Industry Committee (ERIC), in a news release. “Regulations issued by HHS were clearly not written with self-insured group health plans in mind.”
Clarification Sought
ERIC recently polled its members, who are large employers that sponsor benefit plans for their workers, and found that the vast majority of these companies had not tried to obtain an HPID as of September 2014. The poll indicated that nearly half of the respondents (45 percent) were still waiting, with hopes that HHS would publish relevant guidance.
For those members who have attempted to obtain an HPID, 100 percent found the process to be “very difficult” or “difficult,” Young said. Common problems included the lack of guidance from HHS regarding the manner in which self-insured plans should calculate the number of plans that need an HPID.
“Many plan sponsors use a single document that includes a variety of different benefit programs and they treat all of the benefit programs as a single plan for reporting purposes under ERISA. It is unclear whether companies would need to treat each type of benefit as a separate [controlling health plan] that needs its own HPID, even if they use a single document and their benefits are treated as a single plan for ERISA purposes,” explained Young.
“It is critical that HHS act quickly to address the deficiencies in the current guidance...given the lack of guidance and difficulties using their system,” she said.
Other Self-Funded Arrangements
“While it is the insurer that is responsible to obtain an HPID on behalf of fully insured health plans, plan sponsors of fully insured health plans should be aware that an HPID may be required for other self-funded arrangements,” cautioned Tripp Vander Wal, an attorney with law firm Miller Johnson, in an online article.
Examples of these self-funded arrangements include health reimbursement arrangements (HRAs) or medical flexible spending accounts (FSAs). “The good news is that HRAs and FSAs are likely to qualify as small health plans and have an additional year to obtain an HPID,” he noted.
Update:
In a subsequently issued set of FAQs, the Centers for Medicaid and Medicare Eligibility stated that neither health FSAs nor HSAs are required to obtain an HPID because they are “individual accounts directed by the consumer to pay health care costs.” In addition, CMS stated that whether an HRA needs an HPID depends on what it reimburses. HRAs that cover only deductibles or out-of-pocket costs do not require HPIDs; however, HRAs that pay for other costs (e.g., health insurance premiums) still need HPIDs.
Commented law firm Alston & Bird LLP in an Advisory Update, “We note that, while this guidance may appear to be welcome news for employers with only fully insured plans and health FSAs or HRAs (whose only potential HPID enumeration responsibility would be because of the health FSA or HRA), it is not consistent with HIPAA’s definition of health plan, under which both health FSAs and HRAs are health plans, as CMS has previously recognized. Employers should be able to rely on CMS’s clear statement in this guidance that FSAs and certain HRAs do not require HPIDs, but we advise caution. Given the inconsistency with previous guidance on FSAs and HRAs and the manner in which CMS has phrased the FAQ, the guidance may not create as broad an exception as it first appears.”
Ohio Employment Law Alert – October 2014
Source: ThinkHR.com
Minimum Wage Increase
On September 29, 2014, the Ohio Department of Commerce announced that the state minimum wage will increase to $8.10 on January 1, 2015, for non-tipped employees and to $4.05 per hour for tipped employees. The increased minimum wage will apply to employees of businesses that have annual gross receipts of more than $297,000 per year.
For employees at smaller companies (with annual gross receipts of $292,000 or less per year in 2014 or $297,000 or less per year after January 1, 2015) and for 14- and 15-year-old workers, the state minimum wage is $7.25 per hour. For these employees, the state minimum wage is tied to the federal minimum wage.
Read the Department of Commerce News Release
View the 2015 Minimum Wage Poster
Federal Employment Law Update – October 2014
Source: ThinkHR.com
FAQs about Affordable Care Act Implementation Part XXI
On October 10, 2014, the Departments of Labor, Health and Human Services (HHS), and the Treasury jointly released FAQs about Affordable Care Implementation (Part XXI). The FAQS update prior guidance on cost-sharing limitations for plans using “reference-based pricing.”
The new FAQS set forth specific factors the departments will consider when evaluating whether a non-grandfathered plan that utilizes reference-based pricing (or similar network design) is using a reasonable method to ensure that it provides adequate access to quality providers at the reference-based price.
IRS – 2015 Per Diem Rates for Travel Expense Reimbursements
On October 6, 2014, the IRS released Notice 2014-57. This annual notice provides the 2014-2015 special per diem rates for taxpayers to use to substantiate ordinary and necessary business expenses incurred while traveling away from home, specifically:
- The special transportation industry meal and incidental expenses rates (M&IE).
- The rate for the incidental expenses only deduction.
- The rates and list of high-cost localities for purposes of the high-low substantiation method. Taxpayers using the rates and list of high-cost localities provided must comply with Rev. Proc. 2011-47, I.R.B. 2011-42, 520.
Transportation industry rates
The special M&IE rates for taxpayers in the transportation industry are $59 for any locality of travel in the continental United States (CONUS) and $65 for any locality of travel outside the continental United States (OCONUS).
Incidental expense only rate
The rate for any CONUS or OCONUS locality of travel for the incidental expenses only deduction is $5 per day.
High-low substantiation method
For purposes of the high-low substantiation method, the per diem rates are $259 for travel to any high-cost locality and $172 for travel to any other locality within CONUS. The amount of the $259 high rate and $172 low rate that is treated as paid for meals is $65 for travel to any high-cost locality and $52 for travel to any other locality within CONUS. The per diem rates in lieu of the meal and incidental expenses only substantiation method are $65 for travel to any high-cost locality and $52 for travel to any other locality within CONUS.
High-cost localities changes
San Mateo, Foster City, Belmont, Sunnyvale, Palo Alto and San Jose, California; Glendive and Sidney, Montana; and Williston, North Dakota, have been added to the list of high-cost localities appearing in Notice 2013-65, I.R.B. 2013-44, 440. The portion of the year in which they are high-cost localities has changed for Sedona, Arizona; Napa, California; Vail, Colorado; Fort Lauderdale, Florida; Miami, Florida; and Philadelphia, Pennsylvania. The following localities have been removed from the list of high-cost localities: Yosemite National Park, California; San Diego, California; and Floral Park, Garden City, and Great Neck, New York.
Effective date
The guidance is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only that are paid to any employee on or after October 1, 2014, for travel away from home on or after October 1, 2014. For purposes of computing the amount allowable as a deduction for travel away from home, this guidance is effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after October 1, 2014.
Read IRS Notice 2014-57
Executive Order 13658 – Final Rule
On February 12, 2014, President Obama signed Executive Order 13658, Establishing a Minimum Wage for Contractors, to raise the minimum wage to $10.10 for all workers on federal construction and service contracts. The Executive Order directed the Department of Labor to issue regulations to implement the new federal contractor minimum wage.
On October 1, 2014, the department announced a Final Rule implementing the provisions of Executive Order 13658. Key provisions of the final rule include:
- It defines key terms used in the Executive Order, including contracts, contract-like instruments, and concessions contracts.
- It provides guidance for contractors on their obligations under the Executive Order.
- It establishes an enforcement process that should be familiar to most government contractors and will protect the right of workers to receive the new $10.10 minimum wage.
- It confirms that approximately 200,000 workers will benefit from the Executive Order.
Executive Order 13658 applies to new contracts and replacements for expiring contracts with the federal government that result from solicitations issued on or after January 1, 2015, or to contracts that are awarded outside the solicitation process on or after January 1, 2015.
The Final Rule will be published in the October 7, 2014 Federal Register.
Read the Final Rule
Read the Fact Sheet on the Final Rule
Read the FAQS on the Final Rule
IRS Expands Midyear Election Change Rules for Section 125 Plans
Originally posted October 1, 2014 on https://blog.thinkhr.com.
On September 18, 2014, the Internal Revenue Service (IRS) issued Notice 2014-55, Additional Permitted Election Changes for Health Coverage under § 125 Cafeteria Plan, which allows employers to make specific changes to their plans. These changes will make it easier for employees to change their group plan elections and take advantage of individual health plans available to them through the Marketplace exchanges created by the Affordable Care Act (ACA).
Section 125 cafeteria plans generally require participants to make binding elections for an entire plan year, with employers being able to allow employees to make changes only in limited cases (e.g., marriage, birth, or adoption of child). With the issuance of Notice 2014-55, the list of possible exceptions expands somewhat, making it possible for the employer to amend its plan design to allow an employee to drop employer-sponsored group coverage in order to enroll in a state or federally-facilitated Health Insurance Marketplace.
This guidance applies only to health coverage offered through a cafeteria plan that is minimum essential coverage. Thus, it does not apply to stand-alone dental and/or vision coverage or to health flexible spending accounts (FSAs). Further, an employer’s choice to amend its plan to adopt any of these exceptions is voluntary.
Reduction in Hours
Under the new exceptions, if an employee experiences a reduction in work hours to less than 30 hours per week, the employee may revoke coverage in the cafeteria plan if he or she plans to enroll in coverage through the Marketplace or another health plan.
This new opportunity for exemption could allow an employee who is changing to part-time status to benefit from subsidies available through the Marketplace. This is likely to be the case if an employee expects to experience lower household income after a change in status.
Previously, participant elections were irrevocable during the plan year unless the employee experienced certain family status changes, or unless the plan sponsor made significant changes to coverage or cost. For instance, under the ACA’s employer shared responsibility (play or pay) rules, a variable-hours employee may be covered for an entire “stability period” although the employee’s work schedule and earnings may change dramatically. The existing cafeteria plan rules would not allow the employee to revoke coverage in that case. The new exceptions, however, permit the employer to amend the cafeteria plan so an employee in that circumstance would be able to drop the coverage before the end of the stability period.
If a plan intends to adopt this exception, the following requirements must be met:
An employee must have been expected to average at least 30 hours per week prior to an actual change in the employee’s status that results in the expectation that the employee will average less than 30 hours per week. It does not matter if the employee will actually lose health plan eligibility due to hours — the expectation of averaging 30 hours per week is the test.
The change must correspond to the employee — including dependents experiencing a resulting change in coverage — intending to enroll in another plan providing minimum essential coverage.
The new coverage must be effective by the first day of the second month following the month in which the original coverage is revoked.
“Intending to enroll” in other coverage is determined by the statement of the employee experiencing a change in status. The employer may rely on such an employee’s reasonable representation of intentions. This reasonable representation applies to the employee and any related individuals impacted by the change.
Changes in Connection with Marketplace Enrollment
The IRS Notice also provides for another exception so employees can make midyear election changes. This new exception may be beneficial to employees who are covered by non-calendar year cafeteria plans, or who are finding Marketplace plans more attractive after a change in family status, to resolve the gap between an employer’s cafeteria plan year and the Marketplace open enrollment January 1st effective date. The current cafeteria plan rules do not allow employees to drop coverage at work midyear in order to enroll in a Marketplace plan. The Marketplace offers open enrollment for new policies starting January 1; however, many employer plans do not operate on a calendar-year basis.
Employers are now able to adopt provisions allowing an employee to revoke an enrollment election in order to obtain coverage through the Marketplace. The following conditions must be met for this exception to be allowed:
The employee must be seeking to enroll in the Marketplace during annual open enrollment or during a special enrollment period.
Enrollment in the Marketplace plan must be effective immediately following loss of coverage from the employer-sponsored plan.
Any related individuals who were dependent on the employee’s previous enrollment must also be enrolled in the new plan.
In this case, the employer is not required to prove that other coverage is actually elected. Rather, the employer is allowed to rely on the reasonable representation of an employee that he or she is intending to enroll in Marketplace coverage immediately after the change to enrollment in the employer’s plan is effective. Thus, there should be no gap in coverage if an employee is allowed to exercise this option.
Adopting the New Optional Provisions
Employers may adopt one or both of the new exceptions for midyear election changes by amending the cafeteria plan. For convenience, the IRS is allowing employers to amend their plans for the 2014 plan year by adopting the amendment at any time on or before the last day of the plan year that begins in 2015. Although the employer has extra time to adopt the formal amendment, the employer must take the following steps before allowing the exceptions:
Operate the cafeteria plan in accordance with the guidance outlined in IRS Notice 20144-55; and Notify all plan participants of the changes.
For complete details, read IRS Notice 2014-55.