ERISA Alert: An Update on Health and Welfare and Retirement Plans
Health and Welfare Plan Update
It is 9:00 p.m., do you know where your health plan data is? As IT systems continue to expand, and data is accessed, moved and stored in many new and different ways, the Office for Civil Rights (OCR), which enforces HIPAA privacy and security with respect to health plans and healthcare providers, recently issued its “Report to Congress on HIPAA Privacy, Security and Breach Notification Rule Compliance For Calendar Years 2015, 2016, and 2017.” In this compliance summary, OCR describes a recent enforcement action involving a health care provider’s use of a cloud-service data storage provider without first entering into a business associate agreement with the service provider. While the health care provider had other issues, the cloud service had ePHI of over 3000 individuals, and a fine of $2.7 million was ultimately assessed for failure to have an appropriate business associate agreement. Employers sponsoring group health plans and others who are subject to HIPAA Privacy and security requirements would be prudent to verify where their protected health information might be stored and transmitted and whether they have business associate agreement in place with all vendors who come into contact with the protected health information. Now is a good time to check with your IT department about where your HR data may be transmitted or stored.
What does your TPA do when a participant requests documents? Requests for documents frequently fall through the cracks when they are sent to a claims administrator. Courts regularly assess penalties for failure to produce documents upon request within 30 days. The U.S. Department of Labor recently issued an information letter reminding group health plans and other benefit plans that participants have a right to appoint someone to act as their authorized representative with respect to the claims process, which includes the right to request documents. Group health plan sponsors should ensure that their claims administrator will forward requests for plan documents to the plan administrator and that there is a process in place for responding to such a request. Group health plans may want to designate and communicate to employees where request for documents are to be submitted to avoid having document requests go answered, and to minimize the risk of penalties and allegations of failure to provide documentation, which might complicate the employer’s position in litigation.
Where is the Affordable Care Act today and how should employers plan for benefits in 2020? Many different parts of the Affordable Care Act have been challenged in a number of courts. The constitutionality of the Affordable Care Act was most recently challenged in a case that is now before the Fifth Circuit Court of Appeals. While briefing was submitted late in March, it is likely that we will not see a final decision that binds all 50 states for some time (or at least not in time for planning for calendar year plans for 2020). So employers who have employees in multiple states will likely not see the issues in this challenge to the Affordable Care Act resolved for some time. Continued compliance with the Affordable Care Act will be required, including the reporting of an employer’s offer of health coverage on Forms 1094-C and 1095-C. The Internal Revenue Service (IRS) recently updated its website on those reporting requirements, removing many of the transitional rules that are expiring. The update included an extension of relief from penalties for failing to report on the Forms 1095-C for 2016 through 2018 if the failure was due to incorrect or incomplete information on such forms. However, it also clearly stated that the good faith effort relief is not provided if you are unable to show a good faith effort to comply such as if you fail to timely file the Forms with the IRS with the IRS, or if you fail to furnish the Form in a timely manner to the individual employees. It also included a reminder that the penalty for failure to file or furnish such statements/reports may apply if the standards for reasonable cause are not met. It is important to remember that the employer must request the waiver of the penalties for reasonable cause. Two new questions were added that clarify that an employer does not count a full-time employee who has coverage under TRICARE or a VA health benefit program in determining if it has 50 full-time equivalent employees and is subject to the employer shared responsibility tax, but employers must consider the employee who has coverage under TRICARE or a VA health benefit program when it determines if it has offered coverage to 95% of its full-time employees. It also added a clarification regarding whether an offer of coverage provided an effective opportunity to enroll.
The Administration’s Health Plan Initiative. Meanwhile, one of the administration’s new initiatives related to association health plans was struck down by the Washington DC District Court, and remanded to the U.S. Department of Labor for it to determine if it can remove the provisions of the association health plan regulation that the court found objectionable. This decision has been appealed to the D.C. Circuit. The association health plan initiative expanded the definition of “employer” under ERISA to treat associations of smaller employers as a single employer so as to allow the association plan to access and use larger employer rules. So if a small employer was counting on an association health plan to provide its employees’ health benefits in 2020, it should verify whether this ruling may impact the availability of such benefits.
Retirement Plan Update
Retirement plan fee litigation settlements make news. Recently, a new settlement of a class action based on fees paid from a 401(k) plan was released.The numbers on these settlements always sound large. Plan sponsors should review their vendor agreements with the service providers to their retirement plans, as well as their fiduciary process for selecting, retaining and monitoring plan record keepers and other service providers. It is important to periodically conduct a check up on a plan’s fiduciary procedures and how such procedures are documented. Plan sponsors should also consider reviewing their insurance coverage to make sure it includes ERISA fiduciary coverage and to identify what is covered and excluded from such coverage.
IRS Backs Off Issuing Guidance on Paying Lump Sums to Pension Plan Participants Receiving Annuity Payments. The IRS had previously opened a project aimed at providing guidance that would have limited an employer’s ability to cash out participants who were currently receiving pension plan payments, by paying a single payment to replace the annuity benefits. Such payments are done as a de-risking transaction to remove the longevity risk and pension liability fluctuations related to the persons paid the single sum representing the future annuity payments. In Notice 2019-18, the IRS announced that it was stopping work on its project to change the minimum required distribution regulations to address this practice; the IRS no longer intends to make such guidance changes. Pension plan sponsors considering a lump sum window program may move forward, but still must be cognizant of a number of requirements, including disclosure, and be mindful of the recent actuarial valuation challenges initiated in litigation.
Retirement Plan Legislation. On April 2, the House Ways and Means Committee voted to pass H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, out of the Committee. The Bill includes a number of changes to 401(k) plans. One of the changes alters the funding rules for community newspapers. Other changes impact the operation of participant loans utilizing credit cards or similar cards, the continued participation of long-term employees whose hours drop below 1000 hours, but remain above 500 hours in a 401(k) plan, new distributions or withdrawals for birth of a child or adoption, and a number of changes related to lifetime income disclosures and selection of lifetime income providers. It also includes other changes related to 403(b) arrangements, benefits for volunteer firefighters and emergency responders. It proposed an increase in the penalties for failure to file retirement plan returns. It is still early in the legislative process, but this legislation includes items that may be able to survive the congressional process and impact benefit plan provisions and administration. A summary of the Bill passed out of Committee can be found here.
Greta E. Cowart has counseled employers for more than 30 years on best practices in human resources and employee relations issues related to benefits and executive compensation. In her practice, Greta routinely develops strategies for effective administration of claims and other disputes, including defense of grievances, and in litigation considering implications under ERISA, while also considering applicable labor and employment laws. Greta also provides fiduciary training and review of fiduciary operations to improve the documentation of the fiduciary process. Greta is a former chair of the Employee Benefits Committee of the ABA Section of Taxation, and has served on the U.S. Department of Health and Human Services CHIP Working Group.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.