May 9, 2013

Yesterday, the Department of Labor released Technical Release 2013-02.  It provided guidance for the Model Exchange Notice and the Model COBRA Election Notice.  A copy of Technical Release 2013-02 follows:

I. Introduction

Many provisions of the Patient Protection and Affordable Care Act (Affordable Care Act) that become effective beginning in 2014 are designed to expand access to affordable health coverage. These include provisions for coverage to be offered through a Health Insurance Marketplace (Marketplace), premium tax credits to assist individuals in purchasing such coverage, employer notice to employees of coverage options available through the Marketplace, and other related provisions. The Departments of Labor, Health and Human Services (HHS), and the Treasury are working together to develop coordinated regulations and other administrative guidance to assist stakeholders with implementation of the Affordable Care Act.

Beginning January 1, 2014, individuals and employees of small businesses will have access to affordable coverage through a new competitive private health insurance market – the Health Insurance Marketplace. The Marketplace offers “one-stop shopping” to find and compare private health insurance options. Open enrollment for health insurance coverage through the Marketplace begins October 1, 2013. Section 1512 of the Affordable Care Act creates a new Fair Labor Standards Act (FLSA) section 18B requiring a notice to employees of coverage options available through the Marketplace.(1)

This Technical Release provides temporary guidance regarding the notice requirement under FLSA section 18B and announces the availability of the Model Notice to Employees of Coverage Options. This Technical Release also provides an updated model election notice for group health plans for purposes of the continuation coverage provisions under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) to include additional information regarding health coverage alternatives offered through the Marketplace.

II. Background On The Notice to Inform Employees of Coverage Options Under the FLSA

Section 18B of the FLSA, as added by section 1512 of the Affordable Care Act, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, an applicable employer must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice:

1. Informing the employee of the existence of the Marketplace (referred to in the statute as the Exchange) including a description of the services provided by the Marketplace, and the manner in which the employee may contact the Marketplace to request assistance;
2. If  the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through the Marketplace; and
3. If  the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

On January 24, 2013, the Department of Labor (the Department) issued guidance stating the Department’s conclusion that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons.(2) The Department explained that this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. The guidance also stated the Department’s commitment to a smooth implementation process including providing employers with sufficient time to comply and select an applicability date that ensures that employees receive the information at a meaningful time. The guidance further stated that the Department expects the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for the Marketplace.

The Department is issuing this temporary guidance and model notice in advance of the expected timeframe announced in the guidance because, since the issuance of the guidance, the Department has received several requests from employers for a model notice on an earlier timeframe so that they may be able to inform their employees now about the upcoming coverage options through the Marketplace. Therefore, employers are permitted to use the model notice and/or rely on this temporary guidance prior to the applicability date stated below(3) to inform their employees earlier.

III. Guidance For The Notice to Inform Employees of Coverage Options Under the FLSA

This section provides temporary guidance on what the Department will consider as compliance with FLSA section 18B, and this guidance will remain in effect until the Department promulgates regulations or other guidance. Future regulations or other guidance on these issues will provide adequate time to comply with any additional or modified requirements.

A. Employers Subject to the Notice Requirement

 The FLSA section 18B requirement to provide a notice to employees of coverage options applies to employers to which the FLSA applies. In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies.(4) The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.(5)

 The Department’s Wage and Hour Division provides guidance relating to the applicability of the FLSA in general including an internet compliance assistance tool to determine applicability of the FLSA. See www.dol.gov/elaws/esa/flsa/scope/screen24.asp.

B. Providing Notice to Employees

Employers must provide a notice of coverage options to each employee, regardless of plan enrollment status (if applicable) or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees.

C. Form and Content of the Notice

Pursuant to the statute, the notice to inform employees of coverage options must include information regarding the existence of a new Marketplace as well as contact information and description of the services provided by a Marketplace. The notice must also inform the employee that the employee may be eligible for a premium tax credit under section 36B of the Code if the employee purchases a qualified health plan through the Marketplace; and a statement informing the employee that if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

D. Timing and Delivery of Notice

Employers are required to provide the notice to each new employee at the time of hiring beginning October 1, 2013. For 2014, the Department will consider a notice to be provided at the time of hiring if the notice is provided within 14 days of an employee’s start date.

With respect to employees who are current employees before October 1, 2013, employers are required to provide the notice not later than October 1, 2013. The notice is required to be provided automatically, free of charge.

The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the Department of Labor’s electronic disclosure safe harbor at 29 CFR 2520.104b-1(c) are met.

E. Model Notice

To satisfy the content requirements for FLSA section 18B, model language is available on the Department’s website www.dol.gov/ebsa/healthreform. 

There is one model for employers who do not offer a health plan and another model for employers who offer a health plan or some or all employees.  Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.

 F. Paperwork Reduction Act Statement

The notice specified by this guidance is a collection of information approved under OMB Control Number 1210-0149, which currently is scheduled to expire on November 30, 2013. The Department notes that a federal agency cannot conduct or sponsor a collection of information unless it is approved by OMB under the PRA, and displays a currently valid OMB control number, and the public is not required to respond to a collection of information unless it displays a currently valid OMB control number. See 44 U.S.C. § 3507. Also, notwithstanding any other provisions of law, no person shall be subject to penalty for failing to comply with a collection of information if the collection of information does not display a currently valid OMB control number. See 44 U.S.C. § 3512. A covered employer’s response to this collection is mandatory. See 29 U.S.C. § 218b. Each individual response is estimated to take less than 15 seconds, as an employer may send a copy of the same notice to each affected employee. Send comments about this information collection, including suggestions for reducing its burden, to G. Christopher Cosby, Department of Labor, Employee Benefits Security Administration, Office of Policy and Research, 200 Constitution Ave, NW, N-5718, Washington, DC 20210 (cosby.chris@dol.gov). Do not send a copy of the notice to this address.

 IV. Background and Guidance for the Model COBRA Election Notice

In general, under COBRA, an individual who was covered by a group health plan on the day before a qualifying event occurred may be able to elect COBRA continuation coverage upon a qualifying event (such as termination of employment or reduction in hours that causes loss of coverage under the plan).(6) Individuals with such a right are called qualified beneficiaries. A group health plan must provide qualified beneficiaries with an election notice, which describes their rights to continuation coverage and how to make an election. The election notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives the notice of a qualifying event.

 The election notice is required to include:

• The name of the plan and the name, address, and telephone number of the plan’s COBRA administrator;
• Identification of the qualifying event;
• Identification of the qualified beneficiaries (by name or by status);
• An  explanation of the qualified beneficiaries’ right to elect continuation coverage;
• The date coverage will terminate (or has terminated) if continuation coverage is not elected;
• How to elect continuation coverage;
• What will happen if continuation coverage isn’t elected or is waived;
• What continuation coverage is available, for how long, and (if it is for less than 36 months), how it can be extended for disability or second qualifying events;
• How continuation coverage might terminate early;
• Premium payment requirements, including due dates and grace periods;
• A statement of the importance of keeping the plan administrator informed of the addresses of qualified beneficiaries; and
• A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the plan’s summary plan description (SPD).

Some qualified beneficiaries may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the Marketplace. Qualified beneficiaries may also be eligible for a premium tax credit (a tax credit to help pay for some or all of the cost of coverage in plans offered through the Marketplace).

The Department of Labor has a model election notice that plans may use to satisfy the requirement to provide the election notice under COBRA. This notice is being revised to help make qualified beneficiaries aware of other coverage options available in the Marketplace. As with the earlier model, in order to use this model election notice properly, the plan administrator must complete it by filling in the blanks with the appropriate plan information. Use of the model election notice, appropriately completed, will be considered by the Department of Labor to be good faith compliance with the election notice content requirements of COBRA.

The model election notice is available in modifiable, electronic form on the Department’s website at www.dol.gov/ebsa/cobra.html. A clean copy is available, as is a redline from the prior model notice to help interested stakeholders identify the changes.

V. For Further Information Contact

Amy Turner or Elizabeth Schumacher, Employee Benefits Security Administration, Department of Labor, at 202-693-8335. Additional information for employers regarding the Affordable Care Act is available at www.healthcare.gov and www.dol.gov/ebsa/healthreform.

Footnotes

1. The Secretary of Labor has delegated responsibility for FLSA section 18B rulemaking to the Employee Benefits Security Administration (EBSA) within the Department of Labor. See Q2 in ACA Implementation FAQ Part V, available at www.dol.gov/ebsa/faqs/faq-aca5.html.
2. See FAQs about Affordable Care Act Implementation Part XI, Question 1 available at www.dol.gov/ebsa/faqs/faq-aca11.html.
3. See section III. D of this notice.
4. See  www.dol.gov/compliance/guide/minwage.htm.     
5. Id.

For more information on COBRA continuation coverage requirements applicable to group health plans, see “An Employer’s Guide to Group Health Continuation Coverage Under COBRA,” available at  www.dol.gov/ebsa/publications/cobraemployer.html

In light of the Affordable Care Act prohibition against health plans with an annual dollar limit on essential benefits, which takes effect in the plan year beginning on or after January 1, 2014, there have been concerns about whether Health Reimbursement Arrangements (HRAs) will be permissible in 2014 and after.

The three federal agencies implementing the Affordable Care Act (HHS, DOL, and the Treasury) recently released a set of answers to frequently asked questions (FAQs) addressing the future of HRAs. The answers discuss guidance on how an employer can provide HRA coverage and stay in compliance with the new regulations. In general, the guidance confirms that in order for an HRA to be permissible, an employee must be enrolled in other primary group medical coverage that complies with the annual dollar-limit.

Whether an HRA will be considered permissible under the Affordable Care Act’s annual dollar limit rules will depend on whether the HRA is an “integrated” HRA or a “stand-alone” HRA. While the DOL has never specifically defined those terms, “integrated” was commonly understood to mean that an employee who elected major medical plan coverage would also have an HRA; and, the only way to have an HRA was to also have major medical plan coverage. In contrast, a “stand alone” HRA would allow an employee to participate even if the employee did not participate in the major medical plan.

Why does this matter? The DOL has said that it is relatively easy for an “integrated” HRA to satisfy the ACA rule that a plan not have any lifetime dollar limits on essential health benefits. An integrated HRA satisfies this rule by relying on the coverage provided by the major medical plan. What about a stand‐ alone HRA? The DOL has provided only limited relief for such an HRA and has implied that stand‐alone HRAs may be eliminated entirely in 2014.

The FAQs provide that:

• Individual Policies Not Sufficient. Stand‐alone HRAs used to purchase individual coverage ARE NOT considered integrated with the individual coverage and therefore such HRAs violate the annual limit and lifetime limit requirements.

• Must Participate in Both HRA and Major Medical Plan. HRAs offered to employees who do not enroll in the underlying group health plan violate the ACA. In other words, to be “integrated” the coverage needs to be identical: the employee must be “in or out” for both the major medical plan and the HRA.

• Grandfathered HRAs for Pre‐2014 Contribution. Generally, amounts credited before 2014 under an existing HRA will be “grandfathered” in 2014 and beyond. So, even if future DOL guidance effectively eliminates HRAs ‐‐ a real possibility, especially for stand‐alone HRAs ‐‐ current amounts in the HRA could continue to be used until they were exhausted.

Key takeaways: The rules regarding HRAs are being tightened. It is suggested in this guidance that HRAs would need to be integrated with an underlying group health plan or they will be considered in violation of the law. Employers that offer HRAs must carefully examine each HRA option to assure that it is permissible in 2014. Also note that the ACA lifetime and annual limits are not applicable to retiree‐only HRAs.

This morning HHS, DOL and Treasury announced two important rules – final SBC regulations and additional information regarding the automatic enrollment and employer penalty requirements.

Summary of Benefits and Coverage (SBC)

As noted during a prior update, the agencies have delayed the application of the final SBC rules to the first plan year on or after September 23, 2012.  Effectively, this means that SBCs must be issued for the 2013 calendar year, as well as new hires and special enrollments beginning January 1, 2013.  Although additional clarification may be needed from the agencies, it appears that employers have until December 1, 2012 to issue SBCs effective for the 2013 calendar year.  Our team will be preparing an analysis of these rules for distribution next week.  The public announcement can be found at the following link:

http://www.hhs.gov/news/press/2012pres/02/20120209a.html

Auto Enrollment and Employer Penalty Requirements

Separately, the IRS issued Notice 2012-17.  The Notice provides information on questions from employers and other stakeholders regarding the provisions of the Affordable Care Act governing automatic enrollment, the employer penalty, and the 90-day limitation on waiting periods.  The Notice also outlines various approaches that the agencies are considering proposing in future regulations or other guidance. Our team will also be preparing and analysis of the Notice for distribution next week.  The Notice can be found at the following link:

http://www.irs.gov/pub/irs-drop/n-12-17.pdf
Mark L. Stember
Kilpatrick Townsend & Stockton LLP
Suite 900 | 607 14th Street, NW | Washington, DC  20005-2018
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Frequently Asked Questions from Employers Regarding Automatic Enrollment, Employer Shared Responsibility, and Waiting Periods

February 9, 2012

Introduction

Many provisions of the Patient Protection and Affordable Care Act (Affordable Care Act) that become effective beginning in 2014 are designed to expand access to affordable health coverage. These include provisions for automatic enrollment of full-time employees in an employer’s health plan, shared responsibility of employers regarding health coverage, coverage to be offered through State-based Affordable Insurance Exchanges (Exchanges), premium tax credits to assist individuals in purchasing coverage through Exchanges, and other related provisions. The Departments of Labor, Health and Human Services, and the Treasury (the Departments) are working together to develop regulations and other administrative guidance that will respond to questions and assist stakeholders with implementation.

This Technical Release, which is being issued in substantially identical form by the other two Departments, provides information on questions from employers and other stakeholders regarding the provisions of the Affordable Care Act governing automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods. Also outlined below are various approaches that the Departments are considering proposing in future regulations or other guidance. Comments and input are welcome on all intended proposals below.

Background

Automatic Enrollment

Section 18A of the Fair Labor Standards Act (FLSA), as added by section 1511 of the Affordable Care Act, directs an employer to which the FLSA applies, and that has more than 200 full-time employees, to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law), and to continue the enrollment of current employees in a health benefits plan offered through the employer. Section 18A further requires adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled.

On December 22, 2010, the Departments issued frequently asked questions (FAQ) on section 18A of the FLSA, which noted that the statute provides that employer compliance with the automatic enrollment provisions of section 18A shall be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].”⁽¹⁾ That FAQ also stated that it is the view of the Department of Labor that, until such regulations are issued, employers are not required to comply with section 18A. Finally, the FAQ indicated that the Department of Labor intends to complete this rulemaking by 2014.

Employer Shared Responsibility

The employer shared responsibility provisions, contained in section 4980H of the Internal Revenue Code (Code), provide that an applicable large employer (for this purpose, an employer with 50 or more full-time equivalent employees) could be subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. Generally, this may occur where either:

1. The employer does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or
2. The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable relative to an employee’s household income or does not provide minimum value.

For purposes of section 4980H, a “full-time employee” is an employee who is employed on average at least 30 hours per week.

The Treasury Department and the Internal Revenue Service (IRS) have requested and received comments on a number of issues and potential approaches to interpreting and applying the employer shared responsibility provisions. In particular, IRS Notice 2011-36 (2011-21 I.R.B. 792)⁽²⁾ described and requested comments on a possible approach that would use a “look-back/stability period safe harbor” method that employers might use in determining whether current employees (those who are not newly-hired or transferred) are full-time employees for purposes of the employer shared responsibility provisions. Comments were also requested on potential rules for determining full-time status of new employees and employees who move into full-time status mid-year.

In addition, Treasury and the IRS have described (in IRS Notice 2011-73 (2011-40 I.R.B. 474))⁽³⁾ a safe harbor allowing employers, for purposes of determining whether they owe an assessable payment under section 4980H(b), to use an employee’s Form W-2 wages (as reported in Box 1) instead of household income in determining whether coverage offered is affordable. Treasury and the IRS requested and received comments on the safe harbor.

90-Day Limitation on Waiting Periods

Public Health Service (PHS) Act section 2708, as added by the Affordable Care Act, provides that, in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days.⁽⁴⁾ PHS Act section 2704(b)(4), ERISA section 701(b)(4), and Code section 9801(b)(4) define a waiting period to be the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. In previous regulations, the Departments defined a waiting period to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.⁽⁵⁾ Unlike Code section 4980H, PHS Act section 2708 does not distinguish between full-time and part-time employees.

In addition to requesting comments on the employer shared responsibility provisions, IRS Notice 2011-36 requested comments on behalf of the Departments regarding the 90-day waiting period limitation under PHS Act section 2708, including how rules relating to the potential look-back/stability period safe harbor method for determining the number of full-time employees under Code section 4980H should be coordinated with the 90-day waiting period limitation.

Discussion

The following questions and answers respond to inquiries the Departments are receiving regarding automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods. As discussed above, the questions and answers below provide information and identify various approaches that the Departments are considering proposing in future regulations or other guidance. Guidance that employers may rely upon with respect to the issues addressed below will be provided with sufficient lead time for employers to comply. Comments are requested on these approaches.

Q1. What is the current timeline for issuing guidance on automatic enrollment under FLSA section 18A?

A1. The Department of Labor has been working with stakeholders to ensure that it has the necessary information and data to develop regulations relating to automatic enrollment, and is sensitive to stakeholder concerns regarding the need for adequate time to comply with any regulations that are ultimately issued. In addition, the Department of Labor is aware of the need to coordinate the work it will be undertaking to develop guidance relating to automatic enrollment with the guidance being developed regarding other related Affordable Care Act provisions, including the employer shared responsibility provision and the 90-day limitation on waiting periods, described above.

In view of the need for coordinated guidance and a smooth implementation process, including an applicability date that gives employers sufficient time to comply, the Department of Labor has concluded that its automatic enrollment guidance will not be ready to take effect by 2014. It remains the Department of Labor’s view that, until final regulations under FLSA section 18A are issued and become applicable, employers are not required to comply with FLSA section 18A.

Q2. Do Treasury and the IRS intend to issue proposed regulations or other guidance permitting employers to use an employee’s W-2 wages as a safe harbor in determining the affordability of employer coverage, as outlined in IRS Notice 2011-73?

A2. Yes. As described in Notice 2011-73, Treasury and the IRS intend to issue proposed regulations or other guidance permitting employers to use an employee’s Form W-2 wages (as reported in Box 1) as a safe harbor in determining the affordability of employer coverage.

Q3. Do Treasury and the IRS intend to issue proposed regulations or other guidance addressing how the employer shared responsibility provisions under Code section 4980H and the 90-day waiting period limitation under PHS Act section 2708 are coordinated?

A3. Yes. Treasury and the IRS intend to issue proposed regulations or other guidance under Code section 4980H (which imposes shared responsibility on large employers with respect to coverage of full-time employees). That guidance is expected to address the intersection of the Code section 4980H rules and the PHS Act section 2708 rules applicable to the 90-day waiting period limitation and will be coordinated with upcoming tri-Department proposed rules under PHS Act section 2708 (discussed below). Treasury and the IRS are mindful of employers’ requests for safe harbors and simplicity and will seek to accommodate those requests to the extent feasible and consistent with the terms of the statute.

The upcoming guidance is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the employer responsibility payment under Code section 4980H.

Q4. For purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee for purposes of Code section 4980H, do Treasury and the IRS intend to issue proposed regulations or other guidance allowing employers to use a look-back/stability period safe harbor, based on the approach outlined in IRS Notice 2011-36?

A4. Yes. Having reviewed the comments in response to IRS Notice 2011-36, Treasury and the IRS intend to issue proposed regulations or other guidance that would allow employers to use a “look-back/stability period safe harbor” method based on the approach outlined in the Notice for purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee. Accordingly, it is anticipated that the guidance will allow look-back and stability periods not exceeding 12 months.

For a description of anticipated guidance regarding newly-hired employees, see Q&A-5.

Q5. For purposes of determining whether a newly-hired employee is a full-time employee, do Treasury and the IRS intend to issue proposed regulations or other guidance under Code section 4980H?

A5. Yes. Treasury and the IRS also intend to issue proposed regulations or other guidance that will address how to determine whether a newly-hired employee is a full-time employee for purposes of Code section 4980H.

As stated in Q&A-3, the upcoming guidance is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the employer responsibility payment under Code section 4980H. The guidance is also expected to provide that, in certain circumstances, employers have six months to determine whether a newly-hired employee is a full-time employee for purposes of section 4980H and will not be subject to a section 4980H payment during that six-month period with respect to that employee. Treasury and the IRS intend to propose an approach under which the period of time that an employer will have to determine whether a newly-hired employee is a full-time employee (within the meaning of section 4980H) will depend upon whether, based on the facts and circumstances, (a) the employee is reasonably expected as of the time of hire to work an average of 30 or more hours per week on an annual basis and (b) the employee’s first three months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis.

Specifically, it is intended that the upcoming proposed regulations or other guidance would provide, for purposes of section 4980H, that:

• If a newly-hired employee is reasonably expected to work full-time on an annual basis and does work full-time during the first three months of employment, the employee must be offered coverage under the employer’s group health plan as of the end of that period in order to avoid the possibility that the employer would be subject to a section 4980H payment after the end of that three-month period.
• If, based on the facts and circumstances as of the time of hire, it cannot reasonably be determined that a newly-hired employee is expected to work full-time, the following rules will apply for purposes of determining whether the newly-hired employee is considered a full-time employee in applying section 4980H with respect to the employer’s group health plan:
  • If the employee works full-time during the first three months of employment, and the employee’s hours during that period are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis, the employee will first be considered a full-time employee for purposes of section 4980H as of the end of that three-month period. (If the employee works part-time during the first three months of employment, then no section 4980H penalty applies during the first or second three month period.)
  • If the employee works full-time during the first three months of employment, but the employee’s hours during that period are reasonably viewed, as of the end of that period, as not representative of the average hours the employee is expected to work on an annual basis, the plan is permitted an additional three-month period to determine the employee’s status, and no section 4980H payment would be required with respect to that employee during the first or second three-month periods. (If the employee works part-time during the second three months of employment, then no section 4980H penalty applies during the first, second, or third three-month period.)

This policy describes the applicability of a potential section 4980H payment with respect to newly-hired employees. Forthcoming guidance is expected also to coordinate the rules for newly-hired employees with those applicable to other employees (including employees who are transferred from one employment classification or status to another).

The following examples illustrate the intended approach described above:

Example 1: Newly-hired employee expected to work full time

Facts: Employer D, an applicable large employer (i.e., an employer with at least 50 full-time equivalent employees), hires Employee X as a computer programmer on December 1. Employee X is expected to work full-time on an annual basis and does work full-time for the months of December, January, and February. Employer D offers health coverage to its full-time workers (and their dependents).

Conclusion: Employee X must be able to enroll in coverage beginning in March or the employer potentially would be subject to a section 4980H payment. However, failure to offer coverage to Employee X during the first three months (December-February) would not subject Employer D to a potential section 4980H payment.

Example 2: Newly-hired employee who seasonally works full-time

Facts: Same as Example 1 except that Employer D hires Employee Y as a salesperson who is expected to work full-time during the holiday season and part-time the rest of the year. Employee Y works an average of 35 hours per week in December, January, and February and 20 hours per week in March, April, and May.

Conclusion: If, based on the facts and circumstances at the end of the period, the three-month period of December through February is reasonably viewed as not representative of the average hours Employee Y is reasonably expected to work on an annual basis, Employer D may use a second three-month period (March-May) as a look-back period. Failure to offer coverage under Employer D’s group health plan to Employee Y during the first (December-February) and the second (March-May) three-month periods would not subject Employer D to a potential section 4980H payment. (Failure to offer coverage to Employee Y for June also would not subject Employer D to a potential section 4980H payment because Employee Y was determined to be part-time during the March-May look-back period.)

Q6. When PHS Act section 2708 (which imposes a 90-day limitation on waiting periods) becomes effective in 2014, will it require an employer to offer coverage to part-time employees or to any other particular category of employees?

A6. No. Many employers make distinctions in eligibility for coverage based on full-time or part-time status, as defined by the employer’s group health plan (which may differ from the standard under Code section 4980H). PHS Act section 2708 does not require the employer to offer coverage to any particular employee or class of employees, including part-time employees. PHS Act section 2708 merely prohibits requiring an otherwise eligible employee to wait more than 90 days before coverage is effective. Furthermore, nothing in the Affordable Care Act penalizes small employers for choosing not to offer coverage to any employee, or large employers for choosing to limit their offer of coverage to full-time employees, as defined in the employer shared responsibility provisions.

Q7. How do the Departments intend to address the application of the 90-day waiting period limitation in PHS Act section 2708 to an offer of coverage by an employer?

A7. Having reviewed the comments in response to IRS Notice 2011-36, the Departments intend to retain, for purposes of PHS Act section 2708, the definition in existing regulations that the 90-day waiting period begins when an employee is otherwise eligible for coverage under the terms of the group health plan. This is the definition of waiting period used for purposes of Title XXVII of the PHS Act, Part 7 of ERISA, and chapter 100 of the Code.⁽⁶⁾ Under this approach, if a plan were to provide that full-time employees are eligible for coverage without satisfying any other condition, and an employee were hired as a full-time employee, the waiting period (if the employer were to choose to impose one) for that employee would begin on the date of hire and could not exceed 90 days. Consistent with PHS Act section 2708, eligibility conditions that are based solely on the lapse of a time period would be permissible for no more than 90 days.

Other conditions for eligibility under the terms of a group health plan would generally be permissible under PHS Act section 2708, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. For example, eligibility conditions such as full-time status, a bona fide job category, or receipt of a license would be permissible.

The upcoming guidance under section 2708 is also expected to address situations in which, under the terms of an employer’s plan, employees (or certain classes of employees) are eligible for coverage once they complete a specified cumulative number of hours of service within a specified period (such as 12 months). It is anticipated that, under the upcoming guidance, such eligibility conditions will not be treated as designed to avoid compliance with the 90-day waiting period limitation so long as the required cumulative hours of service do not exceed a number of hours to be specified in that guidance.

Comments are requested on how this possible approach would apply to plans that credit hours of service from multiple different employers and plans that use hours banks.

Example 3: Employee ineligible under terms of plan by reason of job classification

Facts: Same as Example 1 except that Employer D’s plan does not cover computer programmers.

Conclusion: Unlike Code section 4980H, in which the determination of full-time status is governed by a statutory standard (working an average of 30 hours per week), the waiting period limitation under PHS Act 2708 applies only to employees who are otherwise eligible under the terms of the plan. Because Employee X is excluded under the plan’s eligibility criteria, and the plan’s terms are not designed to avoid compliance with PHS Act section 2708, the plan’s eligibility provision does not violate PHS Act section 2708.

Example 4: Part-time employee, hours of service requirement

Facts: Employer E hires Employee Z to work 20 hours per week. Employer E’s plan requires part-time employees to complete 750 hours of service in order to participate. Solely for purposes of illustration in this example, it is assumed that upcoming guidance under PHS Act section 2708 permits plans to require part-time employees to complete up to, but no more than, 750 hours of service in order to participate.

Conclusion: Part-time employees who work 20 hours per week will complete 750 hours of service in 37½ weeks or just under 9 months. The waiting period under PHS Act section 2708 begins when Employee Z satisfies the cumulative service requirement, thereby becoming eligible (but for the waiting period) for coverage under the plan. Employer E must provide coverage to Employee Z no later than 90 days after Employee Z completes 750 hours of service, which is about one year after Employee Z is hired and begins working part-time. (No Code section 4980H payment applies because Employee Z is part-time.)

Join us on Friday, July 30th from 2:00 – 3:00 p.m. for an event commemorating this important anniversary.  Former U.S. Congressman Tony Coelho, author and sponsor of the ADA, will share his thoughts on the Act and Christine Griffin, Deputy Director, Office of Personnel Management, will deliver closing remarks.  The webcast will be available online at http://www.dol.gov/dol/media/webcast/live.htm.

The highlight of the event is the induction of Justin Dart, Jr. and Helen Keller into the Department’s Labor Hall of Fame.  Dart is widely regarded as the “father of the Americans with Disabilities Act.”  Keller’s story as an advocate who was deaf and blind taught the world that every worker has something positive to contribute when they are given an opportunity. 

Via DOL News

The Department of Labor’s Employee Benefits Security Administration COBRA page was updated to add a link to a compliance webcast on the COBRA premium reduction extension provisions being held on January 22 at 1 pm EST. To register, go to https://compx11.eventcenterlive.com/cfmx/ec/register/reg.cfm?BID=1&RegID=284EB0ED

U.S. Department of Labor final rule will expand FMLA for military families and clarify rules for workers and employers

Final rule brings two-year public process to close with common sense reforms for modern workforce

WASHINGTON — The U.S. Department of Labor will publish a final rule on Nov. 17 to update its regulations under the 15-year-old Family and Medical Leave Act (FMLA) — a measure that will help workers and their employers better understand their rights and responsibilities, and speed the implementation of a new law that expands FMLA coverage for military family members.

“This final rule, for the first time, gives America’s military families special job-protected leave rights to care for brave service men and women who are wounded or injured, and also helps families of members of the National Guard and Reserves manage their affairs when their service member is called up for active duty,” said U.S. Secretary of Labor Elaine L. Chao. “At the same time, the final rule provides needed clarity about general FMLA rights and obligations for both workers and employers.”

“This common sense, balanced rule is the product of a two year-long transparent process involving about 20,000 public comments and reflects the careful consideration of the views of FMLA’s stakeholders,” said Victoria A. Lipnic, assistant secretary for the Labor Department’s Employment Standards Administration.

Provisions in the final rule call for increased notice obligations for employers so that employees will better understand their FMLA rights, while revising the employee notice rules to minimize workplace disruptions due to unscheduled FMLA absences. The final rule also contains technical changes that reflect decisions by the U.S. Supreme Court and lower courts.

Featured final rule actions implementing the statutory expansion of FMLA for military families:

Military Caregiver Leave: Implements the requirement to expand FMLA protections for family members caring for a covered service member with a serious injury or illness incurred in the line of duty on active duty. These family members are able to take up to 26 workweeks of leave in a 12-month period.

Leave for Qualifying Exigencies for Families of National Guard and Reserves: The law allows families of National Guard and Reserve personnel on active duty to take FMLA job-protected leave to manage their affairs — “qualifying exigencies.” The rule defines “qualifying exigencies” as: (1) short-notice deployment (2) military events and related activities (3) childcare and school activities (4) financial and legal arrangements (5) counseling (6) rest and recuperation (7) post-deployment activities and (8) additional activities where the employer and employee agree to the leave.

ADDITIONAL REGULATORY PROVISIONS:

The Ragsdale Decision/Penalties: The updated rule contains technical changes to be consistent with the U.S. Supreme Court’s decision in Ragsdale v. Wolverine World Wide Inc. The court ruled that the regulation’s so-called “categorical” penalty (requiring an employer to provide 12 additional weeks of FMLA-protected leave after the employee had already taken 30 weeks of leave) was inconsistent with the statutory limit of only 12 weeks of FMLA leave and contrary to the law’s remedial requirement that an employee demonstrate individual harm. The new rule removes these penalties and clarifies that if an employee suffers individual harm because the employer did not follow the notification rules, the employer may be liable.

Waiver of Rights: The department has finalized its longstanding position that employees may voluntarily settle their FMLA claims without court or departmental approval. However, prospective waivers of FMLA rights will continue to be prohibited.

Serious Health Condition: While the rule retains the six individual definitions of “serious health condition,” it adds guidance on some regulatory matters. First, it clarifies that if an employee is taking leave involving more than three consecutive calendar days of incapacity plus two visits to a health care provider, the two visits must occur within 30 days of the period of incapacity. Second, it defines “periodic visits to a health care provider” for chronic serious health conditions as at least two visits to a health care provider per year.

Light Duty: At least two courts have held that an employee uses up his or her 12-week FMLA leave while on a “light duty” assignment. Under the final rule, time spent in “light duty” work does not count against an employee’s FMLA leave entitlement, and the employee’s right to job restoration is held in abeyance during the light duty period. If an employee is voluntarily doing light duty work, he or she is not on FMLA leave.

Perfect Attendance Awards: The final rule changes how perfect attendance awards are treated to allow employers to deny a “perfect attendance” award to an employee who does not have perfect attendance because he or she took FMLA leave — but only if the employer treats employees taking non-FMLA leave in an identical way.

Employer Notice Obligations: The final rule consolidates all employer notice requirements into a “one-stop” section of the regulations to clear up some conflicting provisions and time periods. Further, the final rule clarifies and strengthens the employer notice requirements to employees in order that employers will better inform employees about their FMLA rights and obligations, and allow for a smoother exchange of information between employers and employees.

Employee Notice: The final rule modifies the current provision that had been interpreted to allow some employees to notify their employers of their need for FMLA leave up to two full business days after an absence, even if they could provide notice sooner. Under the final rule, the employee must follow the employer’s normal and customary call-in procedures, unless there are unusual circumstances.

Medical Certification Process (Content and Clarification): The final rule, which is the result of significant stakeholder feedback (including a September 2007 meeting at the department on “medical certifications”), recognizes the advent of the Health Insurance Portability and Accountability Act (HIPAA) and the applicability of HIPAA’s medical privacy rule to communications between employers and employees’ health care providers. Responding to concerns about medical privacy, the rule adds a requirement that limits who may contact the health care provider and bans an employee’s direct supervisor from making the contact.

The public can view the entire text of the final rule as it will appear in the Federal Register at: http://www.federalregister.gov/page2.aspx#reg_W.

For further information about the FMLA and the proposed regulations, visit the Wage and Hour Division’s Web site at www.wagehour.dol.gov.

Inside This Issue

Effective Jan. 1, 2009, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $185,000 to $195,000. For participants who separated from service before Jan. 1, 2009, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2008, by 1.0530.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $46,000 to $49,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The qualified transportation monthly limits for 2009 are $120 for transit passes and $230 for parking.  (See Rev. Proc. 2008-66.)

• The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,500 to $16,500.
• The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $230,000 to $245,000.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $150,000 to $160,000.
• The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $935,000 to $985,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $185,000 to $195,000.
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $105,000 to $110,000.
• The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,000 to $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.
• The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $345,000 to $360,000.
• The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $500 to $550.
• The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,500 to $11,500.
• The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,500 to $16,500.
• The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $90,000 to $95,000.  The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $185,000 to $195,000.
• The limitation on wages under Section 45A regarding individuals eligible for the Indian employment credit is $40,000 for tax years beginning in 2008 and will increase to $45,000 for tax years beginning in 2009. The termination date of section 45A was recently extended from Dec. 31, 2007, to Dec. 31, 2009, by Section 314 of Division C of the Emergency Economic Stabilization Act of 2008, P.L. 110-343.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). These dollar amounts and the adjustments are as follows:

• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $32,000 to $33,000; the limitation under Section 25B(b)(1)(B) is increased from $34,500 to $36,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $53,000 to $55,500.
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $24,000 to $24,750; the limitation under Section 25B(b)(1)(B) is increased from $25,875 to $27,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $39,750 to $41,625.
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $16,000 to $16,500; the limitation under Section 25B(b)(1)(B) is increased from $17,250 to $18,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $26,500 to $27,750.
• The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $85,000 to $89,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $53,000 to $55,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $159,000 to $166,000.
• The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $159,000 to $166,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $101,000 to $105,000.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

I have received several calls in the last month from clients and past clients. They all had the same story. The DOL was in auditing, and was looking for several items such as plan documents, corporate resolutions, amendments, SPDs, communication pieces for employees, and many other documents. We were able to provide these, but now I am hearing stories from agents regarding other DOL audits that are not going as well because vendors are not cooperating with documentation.

Here are examples of several emails received from concerned brokers:

“I too went through an audit with a client a few months ago but although grueling, I found the DOL to be very helpful in the matter. I did find some of the areas of concern you had with the providers of services not maintaining or sending copies of the proper notices. But after time and much effort we were able to get some of these issues resolved favorably.

Just as a heads up, I was advised by DOL that they are and plan on conducting an extensive amount of audits of all size groups. You are definitely not alone…

Agent in California”

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Subject: Dept. of Labor Audit

Hi all!

I’m not sure how many of you have actually had one of your clients subjected to a “Field Audit” by the DOL, but I assure you, they DO happen, and they are grueling! One of my accounts with 20-25 employees received notice about 4 weeks ago and completed the audit this morning.

Interesting findings were as follows:

(Large Insurer) did not seem to be able to produce the documents they asked for. They were very attentive and responsive, I’m just not sure they send out all of the notifications the DOL seems to think they should be.

My office started contacting (Large Payroll and COBRA provider) immediately after our client was notified of the audit. XXXXXXX as of today DID NOT provide copies of letters sent to employees. Including initial notification and qualifying event notices. They did send a spreadsheet listing who they had sent notices to, but clearly, the documentation I always expected did not seem readily available! I was shocked! So was my client. They had hired XXXXXXX on my advice when they became obligated to comply with COBRA, when I moved the group to (Large Insurer), they started picking up the tab for the service.

I am posting this information for 2 reasons:

First, because I was curious if others had experienced similar problems when clients were subjected to these audits.

Second, to warn my fellow B2B members/participants this CAN happen to your clients. If it happens to be one that has not embraced the responsibility of administering COBRA, you as the agent will have fingers pointing at you!

Agent in LA

My advice is to take the DOL seriously and “get your ducks in a row”.

The seminar is available at this link for your review: Wellness Webinar

The DOL Checklist is available at this link: DOL ERISA Compliance, DOL HIPAA Compliance