Archive for May, 2008

Is Your ERISA Plan Up-to-Date?

May 29th, 2008

The Employee Retirement Income Security Act was enacted in 1974.  Since then, more than 75 laws have been passed that affect employee benefit plans and the protections afforded them by ERISA.  Many of these subsequent laws have mandated extensive changes to benefit plans.

The following are some of the major laws passed along with a very brief description of a few of the provisions contained within the statute:

  • National Defense Authorization Act (NDAA) – amends the Family and Medical Leave Act (FMLA) to create 2 new FMLA leave entitlements and modifies some Department of Defense contracting requirements.
  • Pension Protection Act of 2006 (PPA) –  makes several modifications to retirement plans including funding requirements for defined benefit plans, authorizing the use of cash balance and hybrid pension plans and requiring more disclosure to plan participants.
  • American Jobs Creation Act of 2004 (AJCA) – provides significant new rules for non-qualified deferred compensation plans, including the enactment of Internal Revenue Code Section 409A.
  • Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) – expands the Medicare program including prescription drug coverage for post-65 and disabled Medicare beneficiaries and provides for a Medicare subsidy, which is excludable from income, payable to employers who provide retiree health coverage that is at least actuarially equivalent to the Medicare drug benefit.
  • Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) – provides significant changes to retirement plans including increasing the allowable participant elective deferrals, allowing “catch-up” contributions, increasing compensation limits for some pension plans and changing the definition of compensation for deduction purposes.
  • Health Insurance Portability and Accountability Act of 1996 (HIPAA) –  limits restrictions that a health plan can place on benefits for preexisting conditions, defines numerous offenses relating to health care and sets civil and criminal penalties for them and establishes regulations for the use and disclosure of Protected Health Information (PHI).
  • Older Workers Benefit Protection Act of 1990 (OWBPA) – allows retirement plans to continue to have minimum age for eligibility and to have subsidized early retirement benefits provided it is voluntary.
  • Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) –  requires specified employers to offer continuation of group health plan coverage to beneficiaries who no longer qualify for coverage due to certain events.
  • Pregnancy Discrimination Act of 1978 (PDA) – requires employers to cover costs of pregnancy, childbirth and related medical conditions under the same terms as other medical conditions.

The above information is just a small portion of what is required by these laws as applied to benefit plans.  Additionally, there are many more laws that impact employee benefits plans then those few described above.  For example, the PPA, in addition to the brief overview already provided, requires additional extensive compliance for retirement plans and makes some of the other changes under previous laws mandatory.

Benefit plans and operational policies and procedures that have not remained current with new requirements are at risk for being non-compliant and subject to fines and penalties.  All employers should review their ERISA plans, including retirement and heath and welfare plans, as well as their operational policies and procedures, to verify that their plans, policies and procedures have been updated and amended for all applicable changes in the law.

Once plans, policies and procedures are current, employers need to remain vigilant to ensure continued compliance with changing laws.  Employment and benefits counsel can assist employers in reviewing and updating their existing plans to ensure compliance with all applicable laws, as well as assisting employers to proactively update their policies, plans and procedures as required for future changes.

Genetic Information Nondiscrimination Act (GINA) Signed Into Law

May 28th, 2008

President Bush signed the Genetic Information Nondiscrimination Act (GINA) of 2008 on May 21st.  GINA is designed to protect against discrimination in health insurance and employment based on genetic information.

This new law makes changes to the Health Insurance Portability and Accountability Act (HIPPA), the Public Health Service Act (PHSA) and the Internal Revenue Code (Code).  The provisions relating to health plans are effective as of May 8, 2009 and those relating to employment are effective November 8, 2009.  Additionally, the law provides that where states have more restrictive protection in place, the state law will continue to apply and employers will need to comply with the state law in addition to GINA.

This law prohibits health plan sponsors and health insurers from restricting enrollment or adjusting premiums based on genetic information.  It also restricts them from requesting or requiring genetic testing.  There are a few limited exceptions to these requirements and genetic information may be used by health plans for payment determinations.  However, the information must be handled in the same manner that other HIPAA-protected information is handled. 

Additionally under GINA, federal anti-discrimination laws such as Title VII of the Civil Rights Act (Title VII) and the American with Disabilities Act (ADA) are broadened.  Employers are prohibited from discriminating based on genetic information.  This includes discriminating in hiring, training and retraining, compensation and/or other terms and conditions or employment.  Employers may not segregate or classify employees based on genetic information in any manner that would deprive them of employment opportunities and they may not request, require or purchase genetic information.  Further, employers are prohibited from disclosing personal genetic information.

Under the new law, genetic information includes an individual’s or family member’s genetic tests, diseases and disorders and any request for or receipt of genetic services.   This includes genetic test results and participation in genetic research as well as the manifestation of a particular disease or disorder.  It does not include information such as a person’s gender or age.  However, there are some limited circumstances under which an employer may acquire genetic information. 

The Department of Labor (DOL) has been tasked with issuing final regulations on the health insurance provisions by May 21, 2009.  Additionally, the DOL will enforce the new law and has the authority to assess penalties.

Civil penalties of up to $100 per day per individual for violations may be imposed.  Additionally, if violations are not corrected, a minimum penalty of $2,500 for de minimis violations or $15,000 for material violations may be imposed.  There is a cap on penalties of the lesser of 10% of the amount paid by the plan sponsor during the preceding taxable year or $500,000.  However, under certain circumstances the DOL may waive penalties.

Employers, health plan sponsors and insurers will need to become familiar with the new requirements under the law.  They will need to ensure their practices are compliant with the new requirements and make certain that any genetic information they have about employees is treated with strict confidentiality, as required.  Employers should seek the advice of their benefits counsel to fully understand the law and its impact on their current and future practices and procedures.

2009 Health Savings Account (HSA) Contribution Limits Announced by the IRS

May 21st, 2008

The IRS released Revenue Procedure 2008-29 on May 13th.  This Revenue Procedure details the 2009 inflation adjusted amounts allowed for Health Savings Accounts under Internal Revenue (Code) Section 223(g).  

For calendar year 2009, the annual limitation on deductions is:

  • $3,000 for self-only coverage, or
  • $5,950 for family coverage

HSAs are used in conjunction with High Deductible Health Plans (HDHPs) which are defined under Code Section 223(c)(2)(A).  For the 2009 calendar year, a HDHP is defined as a health plan with:

  • An annual deductible that is not less than:
    • $1,150 for self-only coverage, or
    • $2,300 for family coverage, and
  • Annual out-of-pocket expenses (including deductibles, co-payments and other amounts not including premiums) that do not exceed:
    • $5,800 for self-only coverage, or
    • $11,600 for family coverage

Additionally, the catch-up contribution for those individuals over age 55 is $1,000.  If both spouses are over 55 the catch-up contribution is $2,000.

HSAs have become increasingly popular for individuals and employers as a way to plan for and control healthcare costs.  The numbers of individuals covered under these health plans – High Deductible Health Plans with Health Reimbursement Arrangements – has rapidly increased.  The Government Accountability Office in Washington estimates that 4.5 million people were covered under HSAs in 2007 as opposed to an estimate of a little over 400,000 in 2004. 

Is Your Section 125 Plan Updated for the New IRS Regulations?

May 20th, 2008

The Internal Revenue Service (IRS) released proposed regulations on August 6, 2007 for Section 125 plans.  These proposed regulations consolidate and replace the majority of previously released temporary and proposed regulations affecting Section 125 plans, as well as providing additional clarification in certain areas.  The final regulations issued in 2001 pertaining to the effect of the FMLA on cafeteria plans (§1.125-3) and permitted election changes (§1.125-4) are unchanged by the new regulations. 

These new regulations are due to take effect for plan years beginning on or after January 1, 2009, although employers may rely on the new rules prior to their expected effective date.  Some of the changes and clarifications made by the new proposed regulations include:

  • Reinforcement that a written plan document is required to establish a plan
  • Guidance on the plan participation for former employees and dual-status individuals
  • Provision for an employee to pay for a prior employer’s COBRA premiums through the new employer’s cafeteria plan
  • Clarification that employees are allowed a 30-day window after hire date for elections, even if the benefit will be retroactive to the hire date
  • Extension of the rules for debit-card expense substantiation for dependent care FSAs
  • Guidance on required nondiscrimination testing timing and methodology

Since the regulations affect all employers that allow employees to pay for benefits on a pre-taxed basis, as well as both healthcare and dependent care flexible spending accounts, employers should audit their cafeteria plans to ensure compliance with these new requirements.  While the new regulations shouldn’t require significant changes to the administration or design of previously compliant plans, there could be some necessary updates or compliance issues to be addressed.  With the release of final regulations, employers may see an increase in the IRS’ focus on the compliance of Section 125 plans.

How Hard Can COBRA Bite?

May 15th, 2008

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) provides qualified individuals with the right to continue certain employee benefits under specific circumstances.  Generally, COBRA applies to all employers who had 20 or more employees (full and part time) for 50% of the preceding calendar year.

The IRS is authorized by the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) to assess excise taxes for COBRA failures.  Under TAMRA, the IRS is given the ability to waive the excise taxes if it determines that the failure stems from reasonable cause rather than willful neglect on the part of the employer.  In making this determination, the IRS considers 4 factors:

  • Whether the program provides for proper training of individuals responsible for COBRA operational compliance.
  • Whether the program has written instructions detailing COBRA procedures.
  • Whether the program was designed based on competent professional advice and is updated regularly for changes in the law and/or employer’s situation.
  • Whether the program is monitored by an independent auditor.

If these factors are present and the violations are corrected within 30 days, the IRS can waive the excise taxes for the COBRA violations.  However, if the TAMRA factors are not present in a program, the IRS most likely will not waive any applicable excise taxes.  Any excise tax penalty imposed by the IRS is usually the responsibility of the employer.  Courts have found that outsourcing COBRA administration does not necessarily protect employers from liability under ERISA and related laws.

The excise taxes that the IRS may impose for COBRA non-compliance include $100 per day for each beneficiary affected, with a cap of $200 per day, per family if more than one qualified beneficiary is impacted.  The “non-compliance period” is measured from the date of failure to the earliest of (1) the date of correction or (2) the date 6 months after the last day of the otherwise applicable COBRA coverage period.  The maximum liability for any employer is the lesser of $500,000 or 10% of the total costs of providing group health coverage for the preceding year.

If an employer with 50 single employees violates COBRA requirements for all of its current employees, and the non-compliance period is for 1 calendar year, the IRS excise tax calculation would be:

# of affected employees X per day tax amount X # of days in non-compliance period = total excise tax

 which in this case would be:   50 X $100 X 365 = $1,825,000

As this amount exceeds the maximum liability, it should be capped at the lesser of $500,000 or 10% of the prior year’s total group health care costs.  But even with the maximum cap, the IRS penalties can be significant.

The IRS estimates that as many as 90% of all employers subject to COBRA have plans that do not comply with all COBRA requirements.  The IRS conducts audits of thousands of employee benefit plans each year, many of which include auditing for COBRA non-compliance.  Employers should work with their benefits counsel to ensure that their COBRA programs are designed and administered to comply with the TAMRA “factors” that allow for the waiver of IRS excise taxes if a non-compliance violation should occur.

Next »