In this Issue
New Agency Guidance Makes Mental Health Parity and Addiction Equity Act Enforcement a Priority Finding Missing Participants in a Regulatory Fog Recent Developments Featured Lawyer: Yana Johnson Media Honors Webinar Upcoming Seminar
Jackson Lewis P.C. 2018
A Note from the Editor
We are excited to present to you the latest edition of Employee Benefits for Employers. Our lead piece, by Amy Thompson (Omaha), explores the most recent proposed Frequently Asked Questions about the Mental Health Parity and Addiction Equity Act ("MHPAEA"), detailing parity compliance issues for plans and insurers providing mental health and substance use disorder benefits. Our second article, written by Raymond Turner (Dallas), discusses the efforts of the Department of Labor, Internal Revenue Service, and the Pension Benefit Guaranty
Corporation to curb growing numbers of missing participants by offering methods for locating them and focusing on them during investigations. Our featured Lawyer is Yana Johnson, from our San Francisco office, who talks about her 20 years in ERISA law. We also discuss recent developments in employee benefits that may be of interest and highlight the recent activities and upcoming or recorded events of our practice group members. We hope you enjoy this edition.
-- Joshua Rafsky
New Agency Guidance Makes Mental Health Parity and Addiction Equity Act Enforcement a Priority
By Amy Thompson
The Mental Health Parity and Addiction Equity Act of 2008 ("MHPAEA") prohibits group health plans and health insurance issuers from imposing more stringent requirements and limitations on mental health and substance use disorder ("MH/ SUD") benefits than those placed upon benefits for medical conditions or surgical
procedures, requiring parity in financial requirements (such as deductibles or copayments) and in treatment limitations.
Treatment limitations include quantitative treatment limitations ("QTL"), which are numerically expressed (such as 50 outpatient visits per year), and
nonquantitative treatment limitations ("NQTL"), which limit the scope or duration of benefits for treatment. MHPAEA does not require MH/SUD coverage but, rather, it requires that any MH/SUD coverage provided be no more restrictive than a plan's medical/surgical coverage.
MHPAEA generally applies to fully-insured and self-funded group health plans and group and individual health insurance issuers. Non-grandfathered group health plans of small employers -- required to provide essential health benefits ("EHBs") under the Affordable Care Act ("ACA") including MH/SUD benefits -- must provide any MH/SUD essential health benefit in compliance with the MHPAEA rules.
MHPAEA compliance has been an enforcement priority for the Department of Labor ("DOL"). Notably, in its most recent compliance report, the DOL reported that 50% of group health plans investigated by its Employee Benefit Security Administration ("EBSA") were found to have MHPAEA parity violations. The DOL has emphasized MHPAEA enforcement will continue to be a priority in the coming year and it intends to establish a task force to target parity violations affecting access to MH/SUD treatment.
Parity law under the MHPAEA also has evolved through private litigation against insurers and sponsors of group health plans, including self-insured plans, where claims of NQTL violations are gaining traction in the courts.
Earlier this year, the three federal agencies responsible for MHPAEA enforcement -- the DOL, Health and Human Services, and Treasury -- issued guidance on NQTL parity standards as Proposed FAQs, a self-compliance tool, and a revised sample disclosure form. Summarized below, the guidance should assist group health plans, plan sponsors, plan administrators, and health insurance issuers evaluate NQTL parity compliance.
Proposed FAQs on Nonquantitative Treatment Limitations
Issued in April 2018, the Proposed FAQs address types of non-compliant NQTLs. Any NQTL limiting the scope or
duration of MH/SUD treatment benefits violates the MHPAEA unless the processes, strategies, evidentiary standards, or other factors used in applying the limitation are no more stringent under the plan as written and in operation than those applied to medical/surgical benefit limitations.
The following list summarizes the non-compliant NQTL issues illustrated in the Proposed FAQs.
1. Experimental or Investigative Exclusions
Plans that exclude treatments as "experimental or investigative" must apply standards in the same manner when determining coverage of MH/SUD treatments as they do for medical/surgical treatments. For example, if a plan provides coverage for medical/surgical treatments supported by two trials, the plan cannot deny Applied Behavioral Analysis ("ABA") therapy treatment as "experimental or investigative" for Autism Spectrum Disorder since two trials on ABA therapy exist. Similarly, if a plan defines "experimental or investigative" treatment as treatment with a Hayes Medical Technology Directory rating of less than "B," the plan cannot examine medical/ surgical treatments with "C" ratings for coverage on a treatment-by-treatment while applying a blanket exclusion for MH/SUD treatments rated "C" or lower.
2. Dosage Limits and Formularies
Plans that follow dosage recommendations based upon certain guidelines for treatment of medical/surgical conditions must follow comparable guidelines applied no more stringently when determining dosage limits to treat MH/SUD conditions. Some plans rely on pharmacy and therapeutics ("P&T") committees to determine dosage limits. This is permissible if a P&T committee's process does not result in a parity violation. If a P&T committee deviates from the standard guidelines when setting prescription drug dosage limits for MH/SUD conditions but does not deviate from guidelines when setting dosage limits for medical/surgical conditions, such deviations should be reviewed for MHPAEA NQTL compliance. The Proposed FAQs recommend conducting this review by
assessing whether P&T committee members' expertise in MH/SUD conditions is comparable to their expertise regarding medical/surgical conditions.
3. Condition Exclusions
Plans are not prohibited under the MHPAEA from completely excluding coverage for a condition; such exclusions are not treatment limitation for MHPAEA purposes. Small employers providing group health insurance coverage to employees, however, are subject to the ACA's requirement to provide EHBs. Whether certain MH/ SUD benefits must be covered under the EHB requirement depends on the applicable state's EHB benchmark plan.
4. Fail-First Standards/Step Therapy Protocols
Plans with "step therapy" protocol or "fail-first" policies, i.e., refusing to pay for a higher-cost therapy until a lowercost therapy is shown ineffective, must apply standards comparably among MH/SUD conditions and medical/ surgical conditions. For example, a plan requirement of two unsuccessful attempts at outpatient treatment in a year before covering inpatient treatment for MH/SUD conditions when a prerequisite of just one outpatient attempt in a year for medical/surgical inpatient treatment is a NQTL parity failure under the MHPAEA.
5. Provider Reimbursement Rates
Plan standards for setting provider reimbursement rates need not be identical between MH/SUD and medical/surgical providers under the MHPAEA; however, rate standards must be applied in an analogous manner. For example, a plan reimbursement standard purportedly applicable to both MH/ SUD and medical/surgical benefits cannot in practice result in a reduced reimbursement rate for non-physician MH/ SUD service practitioners as compared to reimbursements provided to medical/surgical physician practitioners.
6. Network Adequacy
Plans that have standards for assessing network adequacy that rely on factors such as distance standards or appointment waiting times must apply these standards
comparably among MH/SUD and medical/surgical networks. This requirement must be satisfied even if a plan already meets state and federal network adequacy standards for MH/SUD services.
7. Residential Treatment Facilities
Plans that cover out-of-net-work inpatient treatment for medical/surgical conditions must also provide coverage on the same basis for MH/SUD conditions. For example, if a plan covers out-of-network inpatient treatments for a medical/surgical condition it cannot exclude coverage provided by an out-of-network residential treatment facility for eating disorders treatment.
8. Related Medical Treatment
Treatments provided for acute physical conditions arising out of complications from MH/SUD conditions are subject to parity rules under the MHPAEA if the plan defines a particular physical health condition as part of the MH/SUD condition. For example, if a plan covers emergency room care, treatment of lacerations resulting from an underlying MH/SUD condition is subject to parity requirements if the plan defines that acute physical condition as a MH/ SUD condition, but if the plan defines all lacerations as a medical condition, the parity rules do not apply.
MHPAEA and ERISA Disclosure Requirements
Besides the Proposed FAQs, the agencies issued a revised sample disclosure request form to assist participants and beneficiaries who request information regarding MH/SUD benefits and claim denials. Under the Employee Retirement Income Security Act ("ERISA"), plans must disclose information under a proper request for documents within 30 days of receipt and may face a $110 per day penalty for any failure to comply. Although participants do not have to use the actual form when requesting information, they are entitled to the form's requested information. Plans should note that a participant is entitled to more information upon request as to the medical necessity for a denial of MH/SUD benefits than what may be provided for in an explanation of benefits ("EOB").
Guidance also highlighted the importance of providing updated provider directories. ERISA-covered plans must provide an "up-to-date, accurate, and complete" list of providers in its summary plan description ("SPD"). Alternatively, lists can be provided separately as an accompaniment to the SPD if furnished automatically and without charge. In addition, such plans must disclose a summary of material modifications ("SMM") or changes in the SPD within 210 days after the close of the plan year in which the modification was made. In addition, the ACA requires plans to provide a summary of benefits and coverage ("SBC") that includes an internet address (or other contact information) where participants can obtain a list of in-network providers.
Parity on Paper Does Not Assure Parity in Practice
To ensure that plans do not violate MHPAEA parity rules, particularly provisions that set non-quantitative treatment
limitations (NQTLs), plan sponsors should look beyond the written policies in their plan documents to implementing those policies in practice with special attention to areas such as exclusion and reimbursement standards, formulary design, network access, provider listings, and step-therapy protocols/fail first policies. Plan vendors providing prescription drug or MH/SUD carve-out benefits should be included in parity evaluations conducted by the plan. Plans should also review their internal processes for responding to ERISA disclosure requests on MH/SUD benefits in a timely, complete manner.
Documents and guidance discussed above can be found on the DOL EBSA website at: www.dol.gov/agencies/ebsa. If you have questions on MHPAEA parity, or if you are interested in conducting a parity evaluation, our team of experienced benefits attorneys are available to assist on these and other benefit plan compliance matters.
Finding Missing Participants in a Regulatory Fog
By Raymond P. Turner
The perennial qualified retirement plan administrative problem of locating unresponsive or missing participants and beneficiaries has intensified in the past year due to new published guidance or audit positions taken by each of the three federal agencies primarily responsible for regulating qualified retirement plans: the Internal Revenue Service ("IRS"); the Department of Labor ("DOL"); and the Pension Benefit Guaranty Corporation ("PBGC"). These agencies' actions signal the growing concern of the federal government over the increasing dollar amount of accrued vested retirement benefits for which the payees cannot be found.
The new published procedures and resources for finding the missing, however, are simultaneously helpful and somewhat inconsistent. This inconsistency has arisen at the same time the DOL has laid out in several plan examinations a very aggressive interpretation of the fiduciary duties of plan administrators as to the missing participants that
appear unjustified under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code (the "Code"). This article seeks to clarify the current regulatory landscape and to inform and assist employers sponsoring qualified plans in dealing with this problem of the unknown.
We first examine when and how the problem of missing or uncommunicative participants or beneficiaries arises in the life of a qualified plan and the implications and consequences of failing to locate participants. Although the issue can arise any time communication with a participant or beneficiary is necessary or desired, the following four sections focus on the most critical plan events.
Generally, a terminating defined benefit or defined contribution plan must distribute all of its plan assets,
which normally are held in trust, in order for the plan and its trust, together with the Form 5500 reporting and administrative duties associated with it, to "go away." This final asset distribution, with possible exceptions for administrative necessity under federal law, generally is expected to occur within one year after the formal board or other action is taken to formally terminate the plan. Missing or unresponsive participants or beneficiaries pose a significant obstacle to ending a plan's life.
The principal guidance to terminating a defined contribution plan remains DOL's Field Assistance Bulletin ("FAB") No. 2014-01 issued in 2014. This FAB makes the initial important point that the DOL views the efforts of plan fiduciaries of a terminating defined contribution plan such a 401(k) plan to locate missing participants or beneficiaries to be a fiduciary function under ERISA. The FAB then sets forth, in no particular order, the following required search steps that fiduciaries at a minimum should take before abandoning those efforts and using certain enumerated distribution options:
Use Certified Mail. The DOL considers this an easy and cost-effective method. It has provided a model safe harbor notice that could be used for such mailings, although it does not foreclose the use of other-worded notices.
Check Related Plan and Employer Records. This includes checking records under other of the employer's plans, such as a group health plan, to obtain more up-to-date information, or requesting that the administrators or vendors of such related plans search their records for a more current address. Privacy concerns are to be addressed by having the plan fiduciary of the related plan contact the missing participant or beneficiary and request that the individual contact the searching plan fiduciary.
Check with Designated Plan Beneficiary. Fiduciaries are expected to try to identify and contact any designated beneficiaries, such as spouse or children, to locate the participant.
Use Free Electronic Search Tools. This method entails "reasonable use" of free internet search tools, including search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries, and social media.
If after exhausting these methods, the missing participant or beneficiary still cannot be located, fiduciary duty requires consideration of whether additional search steps are appropriate in view of the size of the participant's account and of the terminating plan when balanced against the cost of further search efforts. Such additional methods could include use of other internet search tools, commercial locator services, credit reporting agencies, information brokers, investigation databases, and other services that may require the payment of charges.
Should all of the foregoing search steps and application of general fiduciary duty fail to locate missing participants or beneficiaries or obtain distribution directions from them, the plan fiduciary must select an appropriate distribution option. The first and preferred option is to distribute the missing participant's benefits into an "individual retirement plan," such as an IRA. This option furthers the policy goal of preserving the participant's funds for retirement and further defers or avoids income taxes and withholding and penalty taxes for early distributions, since IRAs continue to grow tax-free until the funds are withdrawn. DOL has published a safe harbor regulation for satisfying fiduciary duties when making mandatory rollover distribution to individual retirement plans. It has created similar standards in an ERISA regulation applicable to the creation of distribution IRAs by terminating plans. These standards require prudent choice of the IRA and custodian to effectively preserve principal and avoid excessive fees and expenses when compared to other IRA products.
If an acceptable IRA solution cannot be found for depositing the participant's direct rollover distribution, the fiduciary may (i) open an interest-bearing, federally insured bank account in the name of the missing participant or beneficiary or (ii) transfer the account
balance to a state unclaimed property fund. DOL considers these two options to be decidedly second-rate choices to be used only as a true last resort. The FAB states that in most cases a fiduciary will violate ERISA fiduciary duties by causing the negative tax consequences that eventually occur if the distribution were made to other than an IRA.
We have seen clients open insured bank accounts in the name of the terminating plan or its trust "for the benefit of" the missing participant. On its face, this is not a true distribution out of the trust for the plan, but rather a new bank account held by, and in the name of, the still existing trust. This practice raises the very real possibility that the plan has not distributed the missing participant's plan assets and remains liable for filing annual Forms 5500.
Lastly, state unclaimed property fund, or "escheat," laws are frequently a cumbersome distribution option. Additionally, DOL has concluded that for ongoing plans (rather than terminating plans), ERISA preempts any state law that purports to require unclaimed plan benefits to go into the state's unclaimed property fund.
The FAB also concludes that 100% income tax withholding (a common practice at one time among some plan fiduciaries to deal with missing participants) is not an acceptable option and would violate ERISA's fiduciary duty requirements.
Expansion of PBGC Missing Participants Program One generally positive development for the terminating plan sponsor and administrator comes from the PBGC. For many years, PBGC has provided an outlet for transferring funds for missing participants and beneficiaries in terminating defined benefit plans subject to Title I of ERISA. PBGC recently expanded its Missing Participants Program to cover (for plans terminating on or after January 1, 2018) defined contribution plans such as 401(k) plans, and other types of defined benefit plans not previously covered. A terminating defined benefit plan has generally been permitted to pay vested benefits of missing participants either to an insurance company that can provide an annuity to a participant or to the Missing Participant
Program. In the expanded program, a terminating 401(k) or other defined contribution plan can pay over benefits of such participants to the PBGC under its Program or to a private financial institution. More information about this expanded missing participant's program is available at www.PBGC.gov/prac/missing-participants-program. Form MP-200 and schedules A and B are used for reporting and transfers of benefits under terminating defined contribution plans.
Cash-Outs and Distributions at Normal Retirement and Death
In ongoing, non-terminating plans required to distribute at death or normal retirement age or under the plan's provisions on small account "cash-outs" (e.g., accounts under $5,000) plan fiduciaries do not have any directly applicable guidelines similar to the DOL's FAB 2014-01 for terminating plans, except for the DOL guidance on automatic rollovers of benefits of more than $1,000 and less than $5,000. Because of this guidance gap and the more aggressive audit positions being taken by the DOL, industry groups such as the American Benefits Council have formally urged DOL to adopt ongoing missing participant standards similar to that of the FAB for terminating plans.
The DOL safe harbor for cash-out distributions between $1,000 and $5,000 require the fiduciary to make a prudent selection of an IRA provider and of the investments initially made in the IRA for the missing participant. Certain disclosures also are required. One might expect that the FAB standards could provide the basis for DOL guidance to fiduciaries with ongoing plans, but so far, this has not officially been the case.
Plan administrators often must self-correct or make a Voluntary Correction Program ("VCP") application to the IRS for the purpose of correcting some plan qualification failures such as failure to follow the Code requirements or some plan provision. In that event, the IRS EPCRS plan correction procedures require that any corrective
payments, adjustments, or notices be paid or made to any affected prior employee-participants of the plan. In a VCP application, the plan administrator must specify in writing how such missing participants (or beneficiaries) will be located. The former "IRS Letter Forwarding Program" for locating participants and beneficiaries to whom additional benefits under a plan are due was abolished in 2012. Under current IRS procedures, "reasonable actions" must be taken to find all current and former participants and beneficiaries to the whom additional benefits are due, but who have not been located after a mailing to the last known address. Those actions include, but are not limited to, mailing to the last known address using certified mail, or use of an additional search method such as a commercial locator service, a credit reporting agency, or internet search tools. Reassuringly, the IRS procedures state that a plan will not be considered to have failed to correct a failure due to the inability to locate an individual if reasonable actions to locate the individual have been taken under these standards.
Although the DOL is not required to accept for ERISA purposes a plan correction made under the IRS EPCRS procedures, it often does. Whether this is changing in light of recent DOL positions taken in audits of ongoing plans is open to question.
Required Minimum Distributions (RMDs)
Under the Code any qualified defined contribution or defined benefit plan must began to distribute benefits to participants by the April 1 following the year they attain age 70 or, if later, upon retirement if the participant is not a 5% owner of the plan sponsor. Any failure to make or begin such distributions for a participant means (i) the plan has a qualification failure since this requirement is in the Code and in virtually every qualified plan document, and (ii) a plan participant who should have received a RMD is liable for an excise tax equal to 50% of the amount of the required distribution not timely received. Thus, the stakes are high if the IRS or the DOL disagrees with a plan fiduciary or sponsor that an RMD could not be made because the participant is missing.
In an October 19, 2017, Memorandum to employee plan examiners, the IRS set forth standards to be applied in IRS plan audits to determine whether a plan has made reasonable efforts to locate participants or beneficiaries to whom RMD distributions are due. Those standards give a discreet list of steps that a plan can follow to avoid being found in violation of the RMD distribution requirements. The IRS has recently expanded these search standards to apply to examiners in 403(b) plan audits. The standards generally strike the same moderate tone as the IRS procedures for missing participants in plan corrections.
Recent Audits of Ongoing Plans by an Agitated DOL
In response to research data and other growing evidence that the accrued vested benefits of missing participants and qualified plans have increased greatly in recent years, as Jackson Lewis has previously reported, the DOL has taken aggressive and disturbing positions in ERISA audits of ongoing qualified plans. These positions contrast sharply with the tone of the IRS guidance applicable to plan correction or RMD settings.
For example, DOL has asserted that an ongoing plan's failure to locate missing participants constitutes an ERISA breach of fiduciary duty even if the plan's written procedures and plan terms have been followed. Declaring this chore to be a fiduciary duty is not surprising, especially since FAB 2014-01, applicable to terminating plan scenarios, specifically affirms this duty. But, in these audits, DOL examiners are asserting a more general fiduciary duty that goes beyond following the letter of the FAB's procedures or of applicable plan language. Perhaps most disturbing is the assertion in audit that a prohibited transaction or other fiduciary breach may result when a qualified plan forfeits benefits owed to unresponsive or missing participants even where the affected benefits are subject to the plan's clear provisions for reinstatement of benefits if the participant later reappears and makes a claim.
The DOL also has asserted that plan administrators must perform annual searches for missing participants by using varying search methods each year and that they should contact current and former employees who were contemporaries of the participant when he or she was employed. In addition, administrators have been urged to keep indefinitely searching for missing participants even if past efforts have proved this would be a fruitless and inefficient process for the plan and the employer.
These plan audits frequently have focused on the RMD distribution requirements and distribution of accrued vested benefits that are merely available to missing participants should they come forward and make a claim. One of the chief sources of data for DOL is Form 8955-SSA, the annual registration statement identifying separated participants with deferred vested benefits.
The American Benefits Council and other employee benefit organizations have complained, sometimes bitterly, about these overzealous positions being taken by DOL. They have called for definitive guidance directly applicable to missing participants in ongoing plans (similar to the specific guidance in FAB 2014-01) and that is more consistent with the IRS guidance to its examiners (discussed above) relating to RMD distribution compliance.
Updating Plan Administrator Practices
For terminating plans the DOL's FAB 2014-01 and the expanded PBGC missing participants program (for 2018 and later terminations) are generally welcome developments and should be followed or used in appropriate circumstances.
For ongoing plans, however, the aggressive recent audit positions taken by the DOL are jarring and confusing, especially given the more easily satisfied examination standards promulgated by the IRS for RMD compliance. Until this confusion and uncertainty is resolved by the federal government, administrators should engage in annual "procedural due diligence" practices similar to the carrying out and documentation of periodic reviews by 401(k) investment committees of a plan's investment options menu. Plans should undertake and record annual (or more frequent) search efforts with varying search tools and agencies. Establishing such a record will better protect a plan from a finding of a breach of fiduciary duty or a prohibited transaction if the plan is audited by the DOL. Of course, the better solution would be for the DOL to respond to the broad criticism of its arbitrary audit positions and promulgate reliable, practical guidance, which ideally would resemble its guidance for terminating plans.
New Family and Medical Leave Tax Credit
Under the Tax Cuts and Jobs Act of 2017, employers who have a written policy that provides qualifying full-time employees with at least two weeks of paid family and medical leave annually and pays them at least 50% of the wages they would receive normally are eligible to claim a general business credit under the new Internal Revenue Code 45S.
Under 45S, "family and medical leave" is leave for one or more of the following reasons:
Birth of a child;
To care for the employee's spouse, child, or parent with a serious health condition;
A serious health condition that makes the employee unable to perform the functions of his or her position;
Any qualifying exigency due to an employee's spouse, child, or parent being on covered active duty in the Armed Forces; or
To care for a service member who is the employee's spouse, child, parent, or next of kin.
However, employer-provided paid vacation, personal leave, or medical or sick leave (other than leave specifically for one of the purposes stated above) is not considered family and medical leave for this section.
The credit is calculated as a percentage of the wages paid to the qualified employee while on family and medical leave. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee's wages. The maximum credit percentage is 25%.
The credit is available for wages paid after December 31, 2017, and is available only for wages paid until December 31, 2019. The IRS put out some non-binding guidance as FAQs to assist with administration.
Multiemployer Pension Plan Successor Liability
In Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc., No. 16-2840 (7th Cir. Mar. 12, 2018), the Seventh Circuit rejected a "Big Buyer" loophole in determining whether multiemployer plan successor liability may apply to the purchaser of assets. The Court emphasized the necessity of focusing on all prongs of the six-factor business continuity test. For details of the decision, see our article, Multiemployer Pension Plans: Potential Successor Liability from Buyer's Attempts to Continue Seller's Business.
Supreme Court Rejects `Yard-Man Inference' Again
In a case on whether union retirees and their spouses were promised health care benefits for life, the U.S. Supreme Court rejected the Sixth Circuit's finding of ambiguity in the applicable collective bargaining agreement and held the "only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collectivebargaining agreement expired in May 2004." CNH Industrial N.V., et al. v. Reese, et al., 138 S. Ct. 761 (2018). The Court rejected the Sixth Circuit's attempt to revive its "Yard-Man inference," which once was used to presume
lifetime vesting. In this case, the inference was used to render a collective bargaining agreement ambiguous as a matter of law (allowing courts to consult extrinsic evidence about lifetime vesting). The Supreme Court affirmed that collective bargaining agreements are to be read under ordinary contract law principles. Accordingly, the judgment in a similar case, Kelsey-Hayes Co. v. International Union, 138 S. Ct. 1166 (2018), was vacated and the case was sent back to the Sixth Circuit for further consideration.
Health Savings Account Seesaw
The IRS has been revising and reversing the revision of the originally published contribution limit for a Health Savings Account ("HSA") associated with a High Deductible Health Plan ("HDHP"). In 2017, the IRS published the HSA contribution limit for family coverage as $6,900. In December 2017, the President signed the Tax Cuts and Jobs Act, which changed the calculation method for inflation, resulting in a family contribution limit of $50 less than earlier published. In March 2018, the IRS published the reduced limit, instantly thrusting some participants into the position of over-contributing by as much as $50. The IRS assesses a 6% excise tax to the employee for excess HSA contributions not timely refunded. By April, the IRS acknowledged the associated hardships on employers and plan administrators by the reduction and reversed the limit back to the original Family Contribution $6,900 limit announced in 2017. The revenue procedure reversing the earlier reduction also included instructions aimed at those who received a refund of any excess contributions plus associated earnings to enable those participants to put that money back in the HSA account.
401(k) Hardship Changes
The Bipartisan Budget Act of 2018 made changes related to hardship distributions from retirement plans. For plan years beginning after December 31, 2018, a participant may request a hardship distribution without first exhausting all loan options and without ceasing contributions for six months. A participant also may access Qualified NonElective Contributions ("QNECs") and Qualified Matching
Contributions ("QMACs") in addition to elective deferrals, and the earnings on each of these sources. The Treasury Department must issue regulations within a year of the Act. The IRS has not indicated whether these changes are required for all plans offering hardship distributions.
Recent IRS Issue Snapshots
The Internal Revenue Service's Tax Exempt and Government Entities (TE/GE) Knowledge Management team periodically issues research summaries called "Issue Snapshots" on tax-related issues for practitioners. Recent Issue Snapshots on retirement plans covered the following topics: (i) how to change interest crediting rates in a cash balance plan; (ii) the spousal consent period for using accrued benefits as security for loans; (iii) the treatment of Section 401(a)(17) and 415(c) limitations in a defined contribution plan in a short plan year; (iv) borrowing limits for participants with multiple plan loans; (v) qualification requirements for nonelecting church plans; (vi) vesting schedules for matching contributions; and (vii) the use of plan forfeitures for qualified nonelective and matching contributions. The Issue Snapshots can be a helpful resource for answers to common retirement plan questions.
Employer Shared Responsibility Payment "227 Letters"
Employers have begun receiving from the IRS one of five variations of Letters 227, acknowledgment letters sent to close the Employer Shared Responsibility Payment ("ESRP") inquiry or to provide the next steps for the Applicable Large Employer ("ALE") in the ESRP process.
The five variations are:
Letter 227-J: Acknowledges IRS receipt of a signed response, Form 14764 (sent by the employer in response to the original Letter 226J), and that the ESRP will be assessed after issuance of this letter. The case is closed and no response is required.
Letter 227-K: Acknowledges IRS receipt of employer information and shows the ESRP is now zero. The case is closed and no further action is required.
Letter 227-L: Acknowledges IRS receipt of employer information and provides a revised assessment calculation and Form 14765. As with the original form 14765 and Letter 226J, the employer can agree or request a meeting and appeal.
Letter 227-M: Acknowledges IRS receipt of the employer information, reflects no change to the ESRP, and includes an updated original assessment Form 14765. The employer may agree with the amount or request a meeting or appeal.
Letter 227-N: Acknowledges the appeals decision and reflects an ESRP based on the appeals review. After this letter, the case is closed and no response is required.
As with the initial Letters 226J, it is important to read the Letter 227 carefully, provide all necessary documentation, and respond by the required response date, if applicable.
Changes to Retirement Plan Loan Offset 402(f) Special Tax Notices
In general, plan participants who terminate employment with an outstanding loan from their 401(k) plan, or other qualified plan, are immediately deemed to be in default of their loans and the remaining account balance is permanently reduced by the outstanding loan. This is a "plan loan offset" and is most often a taxable distribution to the participant, unless they can repay the loan and roll the amount into an IRA or another employer plan within 60 days.
The Tax Cuts and Jobs Act of 2017 reduced that tax burden on these participants by extending the time to make the rollover contribution. Participants who terminate employment with an outstanding loan from their 401(k) plan, or other qualified plan, will have until the due date of their tax return (including extensions) for the year in which the plan loan offset occurred to rollover up to 100% of the plan loan offset amount into an IRA or another employer plan and avoid paying federal income tax and the early withdrawal penalty.
Plan sponsors should review their 402(f) special tax notices to ensure that they include language relating to the new, longer timeframe for rollovers of plan loan offsets.
Third Circuit Holds Anti-Assignment Clauses are Enforceable, But Leaves Room for Workaround
Anti-assignment clauses in ERISA governed health insurance plans are enforceable, the U.S. Court of Appeals for the Third Circuit has held. American Orthopedic & Sports Med. v. Indep. Blue Cross Blue Shield, 890 F.3d 445 (3d Cir. 2018). Noting that neither ERISA's text nor policy shed any light on whether anti-assignment clauses are enforceable, the Court turned to its sister circuits for persuasive authority. It found "no compelling reason to stray away from the black-letter law that the terms of an unambiguous private contract must be enforced" and held that "courts will enforce the terms of an agreement that was freely negotiated between contracting parties." Although affirming the district court's dismissal, the Court stated that a valid power of attorney would "confer...the authority to assert [a] claim on the [participant's] behalf."
Unpaid Contributions are Not Plan Assets, Ninth Circuit Holds
Employers are not fiduciaries under ERISA as to unpaid contributions to ERISA benefit plans, the U.S. Court of
Appeals for the Ninth Circuit has held. Glazing Health & Welfare Fund v. Lamek, 885 F.3d 1197 (9th Cir. 2018). The trust funds argued that, contractually, unpaid contributions were trust assets over which the owners and officers of the company exercised control. Therefore, it contended, those individuals could be sued as fiduciaries to collect contributions. The Ninth Circuit disagreed, concluding that the trust funds' claims were foreclosed by Bos v. Bd. of Trustees (Bos I), 795 F.3d 1006 (9th Cir. 2015), which held that "parties to an ERISA plan cannot designate unpaid contributions as plan assets."
SCOTUS May Decide on ERISA Causation Burden
The U.S. Supreme Court has asked the U.S. Solicitor General to weigh in on when the burden of proof in an ERISA breach of fiduciary duty case shifts from the participants to the fiduciary. The Supreme Court has been asked to review Pioneer Ctrs. Holding Co. ESOP & Tr. v. Alerus Fin., N.A., 858 F.3d 1324 (10th Cir. 2017), a Tenth Circuit decision holding that the fiduciary did not have to prove its alleged breach did not destroy the employees' opportunity to buy the company. The Sixth, Ninth, Tenth, and Eleventh Circuits hold that workers bear the full burden of showing a loss, but the Second, Fourth, Fifth, and Eighth Circuits hold that a fiduciary must show a loss was not its fault upon the employees establishing a basic breach-of-fiduciary case.
Featured Lawyer: Yana Johnson
By Heather C. Panick
This issue's featured employee benefits lawyer is Yana Johnson, a Principal in our San Francisco office. Yana joined the firm in May, coming to Jackson Lewis with almost 20 years' experience in employee benefits and executive compensation. She has a 13-year-old daughter and 11-year-old boy-girl twins.
Tell us about yourself. I grew up in Malibu, California, and now live in Oakland with my family. I attended the University of California-Santa Cruz and majored in Economics.
You went to UC Santa Cruz? Isn't their sports mascot the banana slug? The mascot is actually the "Fighting Banana Slug," but I didn't attend many sporting events--the most
popular sport is ultimate Frisbee. The school is geared more toward those who aren't looking for the fraternity environment, so there is no football team.
As a law student, what drove you to the employee benefits practice area? While working as a summer associate, I did projects for all of the different practice groups in the firm. I did a project for the employee benefits group and I liked the employee benefits people the best and thought they would be the most fun to work with. Turned out I was right.
What has been your favorite thing about Jackson Lewis so far? There are two things that I've really enjoyed since starting with Jackson Lewis: (1) how friendly and helpful everyone is here, it really is a collegial attitude throughout the firm; and (2) the number of benefits attorneys that are
available to ask questions and discuss issues with, who have amazing breadth and depth of expertise.
You recently wrote an article for SHRM about blockchain tokens as a form of compensation, tell us what interested you about the possibility of virtual compensation becoming "a thing"? I have a friend in the blockchain business and was curious as to how the IRS would treat it if it were used as compensation.
What do you like best about the benefits practice, now that you've been doing it for 20 years? I keep learning something new all the time!
What would you do if you had more free time? I like yoga, hiking, floral design and mixology. I enjoy formulating new cocktails and sharing them with friends.
Yana Johnson and Kayla Rathjen author "Blockchain Tokens as Compensation Treated Like Equity Awards," published by SHRM.
Monique Warren authors "Was Your Employee Benefit Plan Selected for an Audit? Don't Panic!" published by SHRM.
Yana Johnson discusses joining the firm in "Jackson Lewis Lands L&E Duo to Continue Bay Area Growth," published by The Recorder, and "Jackson Lewis Adds MoFo, Morgan Lewis Pair to SF Roster," published by Law360.
Ren Thorne discusses University of Southern California's pending lawsuit and its impact on future ERISA class actions and litigations in "USC Retirement Plan Battle Could Alter Class Action Landscape," published by Bloomberg Law.
David Sawyer discusses the firm's large local presence in South Florida and how it influenced his decision to
join the firm in "Jackson Lewis Nabs Ex-Ogletree Atty For Benefits Practice," published by Law360.
Charles Seemann comments on the Supreme Court's arbitration ruling and its impact on ERISA class actions in "What High Court Arbitration Ruling Means for Benefits Litigation," published by Bloomberg BNA.
Bruce Schwartz comments on President Trump's tax overhaul impact on settlements from claims of sexual harassment, pay bias, and non-disclosure agreements in "Sexual Harassment Victims Could Lose Under Tax Law Meant to Help," published by Bloomberg.
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Jackson Lewis Attorneys Recognized as `Most Powerful Employment Attorneys'
We are pleased to announce that Jackson Lewis attorneys have been named "Most Powerful Attorneys" of 2018 by Human Resource Executive magazine, including benefits attorney Ren E. Thorne. Produced in partnership with Lawdragon, attorneys are assessed on experience, career accomplishments, professional leadership, client recommendations, and impact within his or her firm and on the legal profession.
Chambers USA Recognizes Jackson Lewis and Its Attorneys in 2018 Edition
We are pleased to announce the firm and 72 of its attorneys have been recognized in the 2018 edition of Chambers USA: America's Leading Lawyers for Business, a prestigious annual guide ranking the leading firms in the U.S. In addition to the firm's national and statewide rankings, Jackson Lewis attorneys earned individual recognition as "Leaders in Their Field." For a list of those individually recognized, click here.
Attorneys from our Employee Benefits practice include: Kelvin C. Berens Randal M. Limbeck Joy M. Napier-Joyce Andrew C. Pickett
Andreas N. Satterfield Jr. Charles F. Seemann III Ren E. Thorne
Association Health Plans--Are They Really an Option to Consider? Brian Johnston hosted Jackson Lewis webinar (recording)
Employees Want It All: Compensation & Benefits Conundrums, Yana S. Johnson at the Jackson Lewis 10th Annual Colorado Employment Law Summit, Denver, CO
For more on what our attorneys are up to in the coming months, go to jacksonlewis.com/events.
PRACTICE CHAIR : Joy Napier-Joyce Baltimore Office (410) 415-2028 Joy.NapierJoyce@jacksonlewis.com
Charles F. Seemann III New Orleans Office (504) 208-5843 Charles.Seemann@jacksonlewis.com
Juan C. Obregon New Orleans Office (504) 208-5891 Juan.Obregon@jacksonlewis.com
Amy M. Thompson Omaha Office (402) 827-4272 Amy.Thompson@jacksonlewis.com
Heather C. Panick Omaha Office (402) 391-1991 Heather.Panick@jacksonlewis.com
Joshua Rafsky Chicago Office (312) 803-2561 Joshua.Rafsky@jacksonlewis.com
Kellie M. Thomas Baltimore Office (410) 415-2029 Kellie.Thomas@jacksonlewis.com
Kathryn W. Wheeler Overland Park Office (913) 982-5762 Kathryn.Wheeler@jacksonlewis.com
Raymond P. Turner Dallas Office (214) 647-2090 Raymond.Turner@jacksonlewis.com
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