Archive for the 'ERISA' Category

EEOC Opinion Letter – An ERISA Plans Requirement of a HRA to in Order to Obtain Health Coverage Violates the ADA

May 11th, 2009

The U.S. Equal Employment Opportunity Commission (EEOC) issued an opinion letter in March which recently became public regarding the use of health risk assessments (HRA) and the Americans with Disability Act (ADA).  While opinion letters from the EEOC are not official opinions, this letter does provide guidance for employers to clarify the use of HRAs.

The letter indicates an employer’s requirement that employees participate in a health risk assessment in order to obtain coverage under the employer’s self-funded health plan violates the ADA.  The circumstances that the EEOC official assessed were where the employer had employees take an assessment that involved answering a short health-related questionnaire, taking a blood pressure test, and providing blood for use in a blood panel screen.  Information from the assessment went directly and exclusively to the employee, and the employer received only aggregate information.  Employees who declined to participate in the assessment and their family members became ineligible for coverage under the health plan.

The ADA requires disability-related questions or medical examinations to be job-related and consistent with necessity or, part of a voluntary wellness program.  The EEOC stated that in the above instance, the HRA was neither job-related nor consistent with necessity.  As part of a wellness plan, refusing to participate in an HRA would penalize an employee, violating ADA.

However, the letter did reaffirm that disability-related inquiries and medical examinations are permitted as part of a voluntary wellness program, and that a wellness program is voluntary if employees are neither required to participate nor penalized for non-participation.  In the case the EEOC considered, employees were both required to participate and were penalized for non-participation.  The opinion letter may be found here.

This is important guidance in clarifying what an employer can and cannot do with regarding to its wellness efforts.  Please contact us if you have any questions or need more information on this letter or other wellness guidance.

Child Health Insurance Program (CHIP) Expansion Affects Both ERISA and Insured Employer-Sponsored Health Plans

March 18th, 2009

On Feb. 4, 2009, President Obama signed into law an expansion of the Children’s Health Insurance Program (CHIP) which includes provisions that affects employer-sponsored group health plans.  CHIP was formerly known as the State Children’s Health Insurance Program (SCHIP).  It is a federal-state program designed to decrease the number of individuals without health care coverage.

The new law gives provides for added flexibility in order to cover children whose annual family income exceeds 200% of the federal poverty level ($22,050 for a family of four in 2009).  In addition to the income changes, the new law also includes a provision allowing legal aliens to participate in CHIP.  These changes will result in up to 4 million additional children being covered by CHIP.

In order to encourage more cost-effective coverage of CHIP-eligible individuals, the new law permits (but does not require) states to provide premium assistance to qualifying children (and, in some cases, their employed parents) to help pay employer group health plan premiums.  It is unknown how many states will adopt such a program or when the programs will be operational.  According to a recent Kaiser Family Foundation study, currently six states have state assistance programs – Florida, Idaho, Illinois, Oregon, Utah, and Virginia.

Qualified Coverage

CHIP applies to “qualified employer-sponsored coverage”, which is defined as group health plan or health insurance coverage offered through the employer which meets the following requirements:

  • The coverage must be “creditable coverage” for Health Insurance Portability and Accountability Act (HIPAA) purposes;
  • The employer contribution toward the cost of any premium for the coverage must be at least 40%; and
  • The coverage must be available to individuals in a manner that would be considered to be a nondiscriminatory group for eligibility purposes under Internal Revenue Code’s Section 105(h) rules.

Qualified employer-sponsored coverage does not include:

  • A health flexible spending arrangement (such as a Health Flexible Spending Account or a Medical Reimbursement Account); or
  • A high deductible health plan (for Health Savings Account purposes).

Premium Assistance

The permitted premium assistance available for employers to offer to qualifying children is the incremental difference in cost to the employee between the cost of enrolling only the employee under the employer sponsored coverage and the cost of enrolling the employee and the low-income child under the employer-sponsored coverage.  If premium assistance is also provided to the parent of a low-income child, the amount of the subsidy is increased to take into account the cost of enrollment of the parent (or the family, if allowed by the state) in the employer-sponsored coverage.  A state is allowed to provide the premium assistance subsidy either as a direct reimbursement to an employee for out-of-pocket expenditures, or as a reimbursement to the employee’s employer.

Under the new law, employers are allowed to opt-out of being reimbursed for the premium subsidy.  If an employer chooses to opt-out, the employer is effectively removed from the subsidy process, and the state will then make its reimbursement for the subsidy directly to the employee.  This opt-out option will allow the employer to continue to withhold the full amount of the employee contribution required for coverage of the employee and the low-income child under the employer’s group health plan.

Special Enrollment Period

The new law also creates a new HIPAA special enrollment period to allow employees and dependents to enroll in an employer group health plan when they either lose Medicaid or CHIP eligibility or first become eligible for state premium assistance.  Employers will have to notify employees of the availability of state premium assistance and respond to state agency requests for information about an employee’s or a family member’s plan coverage.  The special enrollment provisions take effect April 1, 2009.  However, the premium assistance notice and disclosure provisions won’t be effective until model notices and forms are issued.

Under existing HIPAA rules, most group health plans (whether insured or self-insured) are required to allow employees to enroll themselves and certain family members in employer plan coverage under certain circumstances (such as loss of other coverage or adding dependents due to marriage, birth, adoption or placement for adoption).  Group health plans must notify employees of these special enrollment rights either before or at the time of enrollment in the plan.

The expanded CHIP law gives employees and their dependents who are eligible for but not enrolled in an employer group health plan a special enrollment period if either of two events occurs:

  • They lose Medicaid or CHIP coverage because they are no longer eligible, or
  • They become eligible for a state’s premium assistance program.

Unlike the existing HIPAA special enrollment rights, which allow a 30-day enrollment period after a qualifying event, under the new CHIP requirements, employees have 60 days from the date of the Medicaid/CHIP event to request enrollment in the employer’s group health plan.  In order to qualify for this midyear enrollment right, individuals must experience a Medicaid/CHIP qualifying event and provide the plan timely notice of the event and an enrollment request.

Current HIPAA rules require plans to provide notice of employees’ special enrollment rights at or before the time they can enroll in the plan.  CHIP does not address how or when employers should provide notice of the new special enrollment rights.  However, because the new Medicaid/CHIP qualifying event amends the HIPAA special enrollment provisions, it is believed that employers must revise their current notices of special enrollment to describe the new Medicaid/CHIP provisions – including the 60-day period to request enrollment.  At the very least, employers should include updated notices in enrollment materials for newly eligible employees beginning on April 1, 2009.  Additionally, employers may wish to notify all employees about their new special enrollment rights on or before the provision’s April 1, 2009 effective date.

Many employers that sponsor group health plans offer Section 125 cafeteria plans.  Under current cafeteria plan rules for electing benefits paid with pretax contributions, plans may allow employees to make midyear elections if they (or their family members) experience certain life events or status changes, such as gaining or losing Medicare or Medicaid eligibility or losing CHIP coverage.  Cafeteria plan rules also permit midyear elections for events triggering any mandated HIPAA special enrollment right, which will now include Medicaid/CHIP triggering events.

However, in contrast to the mandatory special enrollment period triggered by HIPAA-specified events, midyear cafeteria plan elections are completely optional – employers may choose to include some, all or none of the IRS-approved status change events in their cafeteria plans.  Therefore, an employee could have a HIPAA special enrollment right to join an employer’s health plan, but unless the employer’s cafeteria plan recognizes eligibility for HIPAA special enrollment as a status change allowing midyear elections, the employee will have to pay for health coverage using after-tax contributions.  Employers that already include HIPAA special enrollment events as grounds to permit midyear cafeteria plan elections may need to update their existing documentation and communication materials to make the scope of these events clear.  Employers that do not currently allow employees to make midyear pretax election changes for HIPAA special enrollments may want to consider adding them now.

Employer Notice and Disclosure Obligations

CHIP requires employers to notify employees about the availability of state premium assistance.  Additionally, employers must respond to any requests from state agencies about the group health plan coverage provided to specific employees and family members.  However, it appears that neither of these requirements is immediately effective.

The Departments of Labor and Health and Human Services must jointly develop and issue model national and state-specific notices within one year of CHIP’s enactment (February 4, 2009) for employers’ use.  Employers must provide the notice to employees starting with the first plan year beginning on or after the date the model notices are issued in final form.  Once the notice obligations become effective, employers may include these notices when distributing certain other benefits information to employees, such as:

  • Plan materials informing employees that they are eligible for group health plan coverage;
  • Annual open enrollment materials; and
  • Summary plan descriptions (SPDs).

Under the new law, employers will be required to respond to state agency requests for information about an employee’s or a family member’s plan coverage.  There is currently no deadline for when the model form for such responses will be issued.  However, once the model form is issued, employers must use it for any state agency requests in the first plan year starting on or after the issue date of the model form.

Once issued, the model form will require the following information from the group health plan:

  • Employee/dependent eligibility for group health plan coverage;
  • The plan administrator’s name and contact information;
  • A description of the plan’s benefits;
  • Premiums and cost-sharing amounts for plan coverage; and
  • Other relevant plan information.

Unfortunately, the law does not address how employers should respond to state requests for information prior to the model form being issued.


CHIP does provide for non-compliance penalties.  Employers that fail to provide the required employee notice may be subject to a penalty of $100 per day for each violation.  Each employee who does not receive the notice is considered a separate violation.  Additionally, plan administrators that do not respond to state information requests face similar penalty assessments.

Next Steps for Employers

Because the new Medicaid/CHIP special enrollment right’s effective date is just around the corner, employers need to take several steps immediately.

1.    Confirm with vendors that qualifying employees and family members will be able to enroll in group health plans.

2.    Revise existing HIPAA special enrollment rights notices to include Medicaid/CHIP triggering events by the April 1, 2009 effective date.

3.    Revise any other employee communications that describe HIPAA special enrollment rights (such as SPDs and open enrollment materials).

4.    Amend cafeteria plan documents as necessary to reflect the new Medicaid/CHIP special enrollment right and the 60-day period to request plan enrollment.

5.    Establish procedures to respond to state requests for information about coverage provided to specific employees and family members.

Please contact our office for more information or to speak with benefits counsel about the new Medicaid/CHIP law and its impact on your business.

Employment and ERISA Law Considerations When Reducing or Laying Off Employees

January 7th, 2009

According to the Administrative Office of the U.S. Courts, for the 12-month period ending June 2007, there were a total of 23,889 business bankruptcy filings.  For the same period ending June 2008, business bankruptcy filings had increased by more than 40% (33,822 filed for the 12-month period ending June 2008).  With the downturn of the U.S. economy, many companies are struggling to reduce costs in order to remain in business.

Unfortunately, during tough times, companies are forced to make hard decisions in order to survive.  One of the largest expenses for most companies is human capital and the associated costs, such as salaries and employee benefits programs.  As companies analyze whether to use terminations and/or layoffs as a means to control or reduce costs, they need to ensure that the analysis includes consideration of legal risks involved and ensure that the ultimate course of action complies with any applicable laws.  Some of the laws that should be taken into consideration include the Family Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Older Workers Benefit Protection Act (OWBPA), the Employee Retirement Income Security Act (ERISA), Equal Employment Opportunity (EEO) laws and the Consolidated Omnibus .Budget Reconciliation Act (COBRA).

For example, when determining which employees will be terminated and/or laid off, companies need to ensure that the criteria used is objective and does not create a disparate impact on a protected class.  One of the most common mistakes companies make is to use compensation as criteria for determining which employees will be reduced.  In many cases, employees with the highest wage rates in positions generally tend to be older because their salaries have increased with their work experience and time in a position.  Employers should ensure that they are using objective, legitimate business criteria to make their selections, so they do not leave themselves open to an age discrimination claim.

Additionally, depending on the size of the employer and the number of employees being laid off, companies may need to comply with The Worker Adjustment and Retraining Notification Act (WARN).  WARN is a federal law that requires that employers with greater than 100 employees (excluding part-time employees) provide 60 calendar days advance notice of mass layoffs.  A mass layoff is defined as a layoff that either (1) involves at least 50 employees who make up at least 33% of the employer’s work force, or (2) involves at least 500 employees.  Additionally, some states have enacted their own versions of the WARN Act that have lower thresholds which trigger a notice period.  This analysis can be complex for employers to determine whether these laws will apply to them, especially if there have been intermittent lay-offs of some workers during periods of slow downs.

Making the decision to reduce headcount in order to help a company survive is probably one of the toughest decisions an employer can make.  Frequently, an employer is focused on its financial situation and can overlook potential legal pitfalls associated with the decision. 

Companies should consult with legal counsel when they face these difficult situations so that they ensure they comply with all applicable laws and that they have as much legal protection as possible.  Please contact our office with any questions you have or for additional information.

Cycle D 2008 Cumulative List of Changes for ERISA Qualified Plans Available

December 9th, 2008

The Internal Revenue Service (IRS) released Notice 2008-108, which contains the 2008 Cumulative List of Changes in Plan Qualification Requirements.  According to the IRS, this list is principally to be used by plan sponsors of individually designed plans which are considered Cycle D plans.  Generally, a plan is considered a Cycle D plan if the plan sponsor’s EIN ends in either 4 or 9, or if it is a multiemployer plan under §414(f).

According to the Notice, the IRS will begin accepting determination letter applications for Cycle D plans on February 1, 2009.  The submission period for Cycle D plans will end on January 31, 2010.

Notice 2008-108 contains information for plan sponsors about specifically identified plan issues that should be reviewed in determining whether a plan has been properly updated for recent law changes.  Information on legal updates contained in the 2008 Cumulative list includes the:

  • Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
  • Pension Funding Equity Act of 2004 (PFEA)
  • American Jobs Creation Act of 2004 (AJCA)
  • Katrina Emergency Tax Relief Act of 2005 (KETRA)
  • Gulf Opportunity Zone Act of 2005 (GOZA)
  • Pension Protection Act of 2006 (PPA)
  • U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007

According to the IRS, the 2008 Cumulative List does not include any guidance issued after October 1, 2008; any statutes enacted after October 1, 2008; any qualification requirements first effective in 2010 or later; or any statutory provisions that are first effective in 2009 for which there is no guidance identified in the Notice.  If a Cycle D plan submission for determination includes updates based on these excluded items, the IRS will not consider those updates in its determination letter review.  However, in order to be considered qualified by the IRS, a plan must comply with all relevant requirements, whether or not they are reflected in the 2008 Cumulative List.

The Notice also provides special rules for the PPA and the Heroes Earnings Assistance and Relief Act of 2008 (HEART).  Cycle D plans must be amended to include applicable PPA provisions.  However, Cycle D plans, whose first plan year beginning after January 1, 2009 ends on or after February 1, 2010, may defer submission of its plan until Cycle E, provided the Cycle E application is filed timely.  The plan will then be treated as a Cycle E plan only for the initial cycle and all subsequent filings would be made in Cycle D.

Cycle D plans may include HEART Act provisions but the IRS will not consider these updates in issuing determination letters for Cycle D plans.  However, since §107(a) of the HEART Act extends the applicability of qualified reservist distributions to participants ordered or called to duty after December 31, 2007, the IRS will treat an amendment for this HEART provision as if it were included in §1107 of the PPA.

Cycle D plan sponsors should have benefits counsel carefully review their qualified plans to determine what legal changes are required for their plans and which discretionary changes are desired.  For additional information or assistance, contact our office.

Mergers and Acquisitions – Don’t Ignore ERISA Employee Benefit Plans

November 18th, 2008

Generally, there are two different ways that companies can grow their existing businesses – 1) obtaining new customers (organic growth) or 2) merging with or acquiring another company.  Many companies attempt to grow through mergers and acquisitions (“M&A”) as it can allow for the rapid growth of a company’s client base and/or business capabilities.  However, M&As can pose numerous legal challenges to businesses.  One of the most often overlooked area in any M&A deal is employee benefits plans.

During a M&A deal, companies generally perform due diligence across all areas of the target company to identify issues that need to be addressed during the negotiation phase of the deal.  If employee benefits plans are not included in this due diligence, an acquiring company can discover that it has inadvertently become the owner of significant employee benefits plan problems.  While problems that arise in the area of employee benefits plans do not generally become “deal breakers”, ensuring that any and all benefits issues are identified and addressed before the final agreement is signed can avoid major headaches in the future.

Benefit plan issues can vary depending on the type of deal that is being contemplated – either an asset purchase or a stock purchase.  In an asset purchase, the due diligence required for employee benefits plans could be reduced if the agreement does not include the buyer assuming liability for employee benefit plans.  However, even in that situation, due diligence on the benefit plans should still be conducted to ensure that the buyer has a complete picture of the seller’s business.

In a stock purchase deal, or in an asset purchase deal where the buyer is assuming liability for benefit plans, the buyer needs to ensure that significant due diligence is conducted on the existing benefit plans.  Generally, this due diligence should include:

  • Identifying all employee benefit plans, programs and practices currently in existence – both formal written plans and informal, unwritten plans.
  • Obtaining all pertinent documents for each plan identified (e.g., plan documents, summary plan descriptions, Form 5500s, annual nondiscrimination testing and audits, determination letters, third party administrator contracts).
  • Reviewing all documentation to ensure the plans are currently compliant with applicable laws and looking for potential problem areas (e.g., accelerated vesting on change of control, unfunded liabilities, funding arrangements for nonqualified deferred compensation plans).
  • Requesting disclosure on currently pending or threatened claims based on benefit plans and on whether any governmental audits have been commenced or are pending.
  • Identifying potential problems to be addressed during negotiation of the deal.

As stated earlier, issues identified during the due diligence process for employee benefits plans are generally not severe enough to stop a deal from closing.  However, if properly addressed during the negotiation phase, they can be factored in with all the other components in the decision making process.  Where these issues are not properly addressed, they can become a significant concern for the buyer after the deal has completed. 

Benefits counsel can assist in completing comprehensive due diligence of a target company’s benefit plans to ensure that the acquiring company does not get blind-sided by benefit issues in the future.  Please contact our office for additional information or to talk to an attorney about your particular situation.

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