EEOC Sues Employer, Alleges Wellness Program Violates the Americans with Disabilities Act
The Equal Employment Opportunity Commission (EEOC) has filed a complaint in the
Eastern District of Wisconsin, Green Bay division, alleging that Orion Energy Systems, Inc.
(Orion) has violated the Americans with Disabilities Act (ADA) by implementing a nonvoluntary wellness program and for terminating an employee in retaliation for refusing to
participate in the wellness program. This is the first time the EEOC has directly challenged
an employer's wellness program as violating the ADA.
Orion implemented its wellness program in 2009. The wellness program had two
components: a health risk assessment, which included questions regarding medical history
and blood work, and a fitness component, whereby employees were required to use a
range of motion machine in Orion's physical fitness room. Employees who failed to
participate in the wellness program were required to pay the entire cost of medical coverage
and employees who failed to complete the fitness component were assessed a $50 monthly
Only a single employee refused to participate in the wellness program and, according to the
EEOC's complaint, she was terminated for refusing to participate in, and for objecting to,
the wellness program. The employee then filed a complaint with the EEOC. The EEOC
attempted to resolve the issue through informal methods of conciliation, conference and
persuasion, and when those attempts ultimately failed, the EEOC filed suit.
Wellness programs must comply with two sets of federal laws: the Affordable Care Act
(ACA) and the ADA. The ACA codified the Health Insurance Portability and Accountability
Act (HIPAA) requirements for nondiscriminatory wellness programs and sets forth three
kinds of wellness programs: participation-based (such as completing a health risk
assessment), activity-based (such as participating in a walking program), and outcomebased (such as requiring an employee to quit smoking). The latter two programs, referred
to as "health contingent" programs, cannot provide incentives in excess of 30% of the cost
of employee-only coverage (50% for tobacco cessation programs). In contrast, the ACA
does not limit the incentive that may be provided under a participation-based program.
The ADA generally prohibits medical inquires (such as those included in a health risk
assessment) unrelated to employment unless they are voluntary. The ADA does not define
what constitutes "voluntary" but the EEOC's position is that, to be voluntary, the employer
cannot require participation or penalize employees for failing to participate. The EEOC has
not issued guidance on whether the use of incentives to encourage participation impacts
the determination of whether the program is "voluntary."
The ADA includes an exemption to the voluntary medial inquiry rule for wellness programs
administered as a term of a bona fide employee benefit plan that are based on
underwriting, classifying or administering risks. In 2012, the Eleventh Circuit Court of
Appeals upheld an employer-sponsored wellness program as not violating the ADA in Seff
v. Broward County because, in part, the wellness program was wrapped into a bona fide
employee benefit plan (for more detail, please see the September 2012 EB Update. If a
wellness program fits within the bona fide employee benefit plan exemption, whether the
program uses incentives to encourage participation may be irrelevant.
The Orion wellness program may comply with the ACA, but it seems that the EEOC does
not equate ACA compliance with ADA compliance. Further complicating matters in the
Orion case may be the fact that Orion fired the employee, rather than simply assessing her
the full cost of coverage for failing to participate. In the press release announcing the suit,
the regional attorney for the EEOC Chicago district reiterated that the EEOC does not
dispute that employers may have voluntary wellness programs but emphasized that the
program must be voluntary. Imposing "enormous penalties such as shifting 100 percent of
the premium for health benefits" to the employee or terminating the employee for refusing to
participate compels participation, in the EEOC's view, and makes the wellness program
non-voluntary. Plan sponsors of wellness programs that impose financial incentives on
participation will want to monitor this case, as well as any further EEOC guidance on
wellness programs, to see if the EEOC provides any additional insight on what level of
financial incentive shifts a voluntary program into compelled participation.
SELECT COMPLIANCE DEADLINES AND REMINDERS
Upcoming Health Plan Compliance Deadlines and Reminders
1. Business Associate Agreements. Group health plans must have updated business
associate agreements (BAA) in place with all business associates by September
2. Medicare Part D Notice of Creditable Coverage. All group health plans that offer
prescription drug coverage to Medicare eligible employees (under either an active
plan or retiree plan) must provide an annual creditable coverage disclosure notice
to Medicare eligible participants and dependents no later than October 15, 2014.
Group health plans must also provide notices to each new participant who may be
Medicare eligible. Centers for Medicare and Medicaid Services (CMS) provides a
model notice that can be accessed through the CMS website. Plan sponsors should
review the model notice to ensure that it accurately reflects the nature of the
coverage and the rights that individuals have if they lose coverage.
3. Health Plan Identification Number. All large group health plans, including plans that
do not process their own claims, must have a Health Plan Identification Number
(HPID) by November 5, 2014. Plan sponsors that have not already done so should
apply for an HPID as soon as possible to ensure the plan has an HPID by the
Small health plans must have an HPID in place by November 5, 2015. A small
health plan, for this purpose, is a plan with annual benefits, for a self-funded plan,
1000 North Water Street
Milwaukee, WI 53202
22 East Mifflin Street
Madison, WI 53703
N16W23250 Stone Ridge Drive
Waukesha, WI 53188
2215 Perrygreen Way
Rockford, IL 61107
233 South Wacker Drive
Chicago, IL 60606
16220 North Scottsdale Road
Scottsdale, AZ 85254
8400 East Prentice Avenue
Greenwood Village, CO 80111
or premiums, for an insured plan, of $5 million or less.
All group health plans subject to the HIPAA administrative simplification rules must
have an HPID, including those plans that are excepted from the HIPAA portability
rules (e.g., dental plans, vision plans, flexible spending arrangements). Thus,
unless plan sponsors have bundled their plans into a single group health plan, it is
possible that a plan sponsor would need multiple HPIDs.
4. Reinsurance Fee. Plan sponsors must report to the Department of Health and
Human Services (HHS) the average number of covered lives under the group
health plans by November 15, 2014. HHS will then determine the amount of the
plan's reinsurance fee and provide a notice to the plan sponsor no later than
December 15, 2014. Plan sponsors must pay the entire fee or the first installment
payment within 30 days of receipt of the notice. The 2014 fee is $63/covered life (or
$52.50/covered life for the first installment and $10.50/covered life for the second
5. Open Enrollment Materials:
a. Plan sponsors must issue a new summary of benefits and coverage (SBC) to
participants and beneficiaries covered under the plan with each open
enrollment. Group health plans without open enrollment must issue the SBC
30 days in advance of the plan year (December 2, 2014 for calendar year
plans). The Department of Labor (DOL) has confirmed that there are no
changes to the SBC template for the 2015 plan year.
b. Plan sponsors of health reimbursement arrangements (HRA) must offer
participants an annual opportunity to opt-out and waive all future
reimbursements from their HRA. This notice of opt-out opportunity could be
provided with the open enrollment materials.
6. Employer Shared Responsibility. Employers must offer coverage to all full-time
employees and their dependent children beginning January 1, 2015 (or the first day
of the plan year beginning in 2015 for employers that qualify for the fiscal year
transition relief). The measurement periods for employers that want to use calendar
year stability periods should begin in fall 2014.
Upcoming Retirement Plan Compliance Deadlines and Reminders
Defined Contribution Plans
1. QDIA Notice. Plan sponsors of plans that invest participant contributions in a
qualified default investment alternative (QDIA) because the participant failed to
make an investment election must provide an annual notice to all participants at
least 30 days, but not more than 90 days, before the beginning of the plan year.
Plan sponsors of calendar year plans must send the notice between October 2 and
December 1, 2014.
2. Automatic Enrollment Notice. Plan sponsors of plans with an eligible automatic
contribution arrangement or a qualified automatic contribution arrangement must
provide an annual notice to all participants on whose behalf contributions may be
automatically contributed to the plan at least 30 days, but not more than 90 days,
before the beginning of the plan year. Plan sponsors of calendar year plans must
send the notice between October 2 and December 1, 2014. Plan sponsors may
want to combine the automatic enrollment notice with the QDIA notice.
3. Safe Harbor Notice. Plan sponsors of safe harbor plans must provide participants
an annual safe harbor notice that describes the safe harbor contribution and other
material plan features at least 30 days, but not more than 90 days, before the4
beginning of the plan year. Plan sponsors of calendar year plans must send the
notice between October 2 and December 1, 2014. If applicable, plan sponsors may
want to combine the safe harbor notice with other notices such as the QDIA notice.
4. Participant Fee Disclosure. Plan sponsors of plans permitting participants to direct
the investment of their plan accounts must provide participants with an annual
participant fee disclosure. Plan sponsors that have not already sent the participant
fee disclosure for 2014 must send all participants an updated disclosure.
All Retirement Plans
1. Windsor Amendment. Plan sponsors may need to adopt an amendment to comply
with the U.S. v. Windsor decision and subsequent Internal Revenue Service (IRS)
guidance. For calendar year plans, the amendment must be adopted no later than
December 31, 2014.
2. Discretionary Amendments. All discretionary amendments to qualified plans must
be adopted no later than the end of the plan year in which they are effective. A
discretionary amendment generally includes any change to the terms of a plan that
is not required for plan qualification. Plan sponsors of calendar year plans must
ensure discretionary amendments effective in 2014 are adopted no later than
December 31, 2014.
3. Determination Letter Filing. Remedial Amendment Period Cycle D individually
designed plans must be submitted for a favorable Internal Revenue Service (IRS)
determination letter no later than January 31, 2015. Cycle D plans include those
sponsored by employers with tax identification numbers ending in a four or a nine,
as well as multiemployer plans.
Same Sex Marriage
The Seventh Circuit Court of Appeals has unanimously upheld the district courts' opinions
striking down the same sex marriage bans in Wisconsin and Indiana. Both states have
stated they intend to appeal the decision to the United States Supreme Court. As with the
district court opinions, the Seventh Circuit stayed its decision pending the appeal.
Accordingly, plan sponsors in Wisconsin and Indiana do not yet need to take any action in
response to the Seventh Circuit's decision.
HIPAA Notice of Creditable Coverage
Effective December 31, 2014, plan sponsors are no longer required to provide participants
with HIPAA certificates of creditable coverage.
RETIREMENT PLAN DEVELOPMENTS
DOL Issues Updated Guidance on Locating Missing Participants
The DOL has updated the steps plan fiduciaries must take in locating missing plan
participants when terminating a defined contribution plan. Field Assistance Bulletin (FAB)
2014-01. Recognizing that the Internet provides multiple search tools and that the Social
Security Administration and IRS have discontinued their letter forwarding services, the DOL5
has now advised that plan fiduciaries must take the following steps when attempting to
locate missing participants:
1. Send notices via certified mail;
2. Check related plan and employer records;
3. Consult the beneficiary of the missing participant; and
4. Use free electronic search tools, such as Internet search engines, public record
databases, obituaries and social media.
Additionally, the DOL cautions that even if plan fiduciaries have failed to locate the
participant using the above steps, the duties of prudence and loyalty require that fiduciaries
consider whether additional search methods should be used. Considerations would include
the size of the participant's account and the cost of additional search efforts. The DOL
notes that plan fiduciaries could consider commercial locator services, credit reporting
agencies, information brokers and investigation databases as possible additional search
Plan fiduciaries that are unable to locate participants using the above steps must determine
the appropriate distribution of the missing participants' accounts. While the DOL notes that
plan fiduciaries may continue to establish a federally insured bank account in the
participant's name or transfer the account balance to a state unclaimed property fund as
secondary options, the DOL reiterates that it prefers plan fiduciaries to rollover the account
balance to an individual retirement plan. In the event plan fiduciaries cannot rollover the
account balance, or if the plan fiduciaries have another compelling reason not to rollover the
account balance, the DOL encourages plan fiduciaries to consider bank fees and interest
payments as well as whether the state unclaimed property fund maintains a searchable
database when deciding between the two alternatives. Finally, the DOL, in consultation with
the IRS, has determined that using 100% income tax withholding as an option would be a
breach of the fiduciaries' duties.
Though the guidance specifically applies to terminating defined contribution plans, plan
fiduciaries of active plans could consider following the same steps for locating missing
participants to make plan distributions. To that end, plan fiduciaries should review their
missing participant policies and update as necessary to incorporate the steps provided in
HEALTH AND WELFARE PLAN DEVELOPMENTS
HHS Expands Contraceptive Coverage Relief for Religious Employers
HHS has issued two sets of guidance concerning the ACA's contraceptive coverage
mandate and the exemption for certain religious employers. First, HHS issued an interim
final rule providing an alternative notification option for non-profit religious organizations in
response to the United States Supreme Court's interim order in the Wheaton College case.
In addition to self-certifying to the plan sponsor's insurer or third-party administrator (TPA),
non-profit religious organizations can now send written notice to HHS for insured plans or
the DOL for self-funded plans. The respective department will then notify the insurer or TPA
of the employer's exemption.
The HHS has also issued proposed regulations extending the contraceptive mandate
exemption to closely held, for-profit corporations in response to the Supreme Court's
decision in Burwell v. Hobby Lobby Stores, Inc. The proposed regulations provide for two
alternative approaches for defining a closely held, for-profit corporation: the corporation
cannot be publically traded and ownership is either (1) limited to a certain number of owners6
or (2) a minimum percentage of ownership would be concentrated among a certain number
of owners. The proposed regulations solicit comment on an appropriate number of owners
and/or concentration of ownership. To qualify for the exemption, the corporation can take
valid corporation action in accordance with the corporation's governing structure and state
law stating the owners' religious objection.
Exclusion of Applied Behavior Analysis Therapy May Violate Mental Health Parity and
Addiction Equity Act
An Oregon district court has ruled that a group health plan's exclusion of services for
"developmental disabilities" violates the Mental Health Parity and Addiction Equity Act
(MHPAEA). A.F. v. Providence Health Plan. The Providence Health Plan included coverage
for autism but excluded services for developmental disabilities. The plan had accordingly
denied coverage for applied behavior analysis (ABA) for treatment of autism spectrum
disorder. The court found that the exclusion applied "specifically and exclusively to mental
health conditions" and therefore violates the MHPAEA prohibition on separate treatment
limits applicable only to mental health or substance abuse disorder benefits.
Michigan Medical Claims Tax Applicable to Self-Insured Plans
The Sixth Circuit Court of Appeals has ruled that ERISA does not preempt a Michigan state
law imposing a 1% tax (recently reduced to 0.75%), as well as corresponding
recordkeeping and reporting obligations, on medical claims paid by carriers and TPAs for
services provided in Michigan to Michigan residents. Self-Insurance Institute of America v.
Snyder. Carriers, for purposes of the Michigan law, includes sponsors of group health plans.
The district court had likewise concluded that law was applicable to self-funded plans (see
the September EB 2012 Update for additional information on the district court decision.
Consequently, TPAs continue to be subject to the tax on any medical claims paid for
Michigan residents' in-state claims and the corresponding recordkeeping and quarterly
reporting obligations. TPAs will likely pass these fees through to self-funded plans.
This Headlines in Employee Benefits Law E-Alert provides general information and should not be construed as legal advice or a
legal opinion. Readers should seek legal counsel concerning specific factual situations confronting them.