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Updated: 18 weeks 16 hours ago

EBSA issues array of guidance on mental health parity

Mon, 04/30/2018 - 18:43

EBSA has released an array of guidance on the Mental Health Parity and Addiction Equity Act (MHPAEA), including proposed Frequently Asked Questions, an enforcement fact sheet, a self-compliance tool, and a revised draft disclosure template. In addition, the DOL has released a report to Congress that outlines its current implementation and enforcement actions in furtherance of the MHPAEA.

Background.

In general, MHPAEA requires that the financial requirements (such as coinsurance and copays) and treatment limitations (such as visit limits) imposed on mental health or substance use disorder (MH/SUD) benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical/surgical benefits in a classification.
With regard to any nonquantitative treatment limitation (NQTL), the MHPAEA final regulations provide that a group health plan or health insurance issuer may not impose an NQTL with respect to MH/SUD benefits in any classification unless, under the terms of the plan (or health insurance coverage) as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the NQTL to MH/SUD benefits in the classification are comparable to, and are applied no more stringently than the processes, strategies, evidentiary standards, or other factors used in applying the limitation to medical/surgical benefits in the same classification. MHPAEA also imposes certain disclosure requirements on group health plans and health insurance issuers.

FAQs on NQTL.

The proposed FAQs, which were prepared jointly by the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (Departments), were developed consistent with Section 13001(b) of the 21st Century Cures Act. Section 13001(b) requires that the Departments issue clarifying information and illustrative examples of methods that a plan or issuer offering group or individual health insurance coverage can use to disclose information in compliance with MHPAEA. Section 13001(b) also directs the Departments to issue clarifying information and illustrative examples of methods, processes, strategies, evidentiary standards, and other factors that plans and issuers may use regarding the development and application of NQTLs.

Experimental treatment.

The FAQs first address whether it is permissible for a plan to deny claims for Applied Behavioral Analysis (ABA) therapy to treat children with Autism Spectrum Disorder under the rationale that the treatment is experimental or investigative. With respect to medical/surgical conditions, the plan approved treatment when supported by one or more professionally recognized treatment guidelines and two or more controlled randomized trials.
A medical management standard limiting or excluding benefits based on whether a treatment is experimental or investigative is an NQTL under MHPAEA. Although the plan as written purports to exclude experimental or investigative treatment for both MH/SUD and medical/surgical benefits using the same standards, in practice, it imposes this exclusion more stringently on MH/SUD benefits, as the plan denies all claims for ABA therapy, despite the fact that professionally recognized treatment guidelines and the requisite number of randomized controlled trials support the use of ABA therapy to treat children with Autism Spectrum Disorder. Accordingly, because the plan applies the NQTL more stringently to mental health benefits than to medical/surgical benefits, the plan’s exclusion of ABA therapy as experimental does not comply with MHPAEA.
Likewise, a plan does not comply with the MHPAEA where it defines experimental or investigative treatments as those with a rating below “B” in the Hayes Medical Technology Directory, but the plan reviews and covers certain treatments for medical/surgical conditions that have a rating of “C” on a treatment-by-treatment basis, while denying all benefits for MH/SUD treatment that have a rating of “C” or below, without reviewing the treatments to determine whether exceptions are appropriate. Although the text of the plan sets forth the same evidentiary standard for defining experimental as the Hayes Medical Directory ratings below “B,” the plan applies a different evidentiary standard, which is more stringent for MH/SUD benefits than for medical surgical benefits because the unconditional exclusion of treatments with a “C” rating for MH/SUD benefits is not comparable to the conditional exclusion of those treatments with a “C” rating for medical/surgical benefits. Because of the discrepant application of the evidentiary standard used by the plan, the fact that the plan ultimately denies some medical/surgical benefits that have a rating of “C” does not justify the total exclusion of treatments with a “C” rating for MH/SUD.

Dosage limits.

The FAQs also provide that a plan does not comply with MHPAEA where it follows professionally-recognized treatment guidelines when setting dosage limits for prescription medications, but the dosage limit set by the plan for buprenorphine to treat opioid use disorder is less than what professionally-recognized treatment guidelines generally recommend. However, the dosage limits set by the plan with respect to medical/surgical benefits are not less than the limits such treatment guidelines recommend. If the plan follows the dosage recommendations in professionally-recognized treatment guidelines to set dosage limits for prescription drugs in its formulary to treat medical/surgical conditions, it must also follow comparable treatment guidelines, and apply them no more stringently, in setting dosage limits for prescription drugs, including buprenorphine, to treat MH/SUD conditions.

Particular condition or disorder.

A large group health plan or large group insurance coverage that provides benefits for prescription drugs to treat both medical/surgical and MH/SUD conditions but contains a general exclusion for items and services to treat bipolar disorder, including prescription drugs, is permissible under the MHPAEA although if the plan is insured, it would depend on whether state law permits such an exclusion for large group insurance coverage. Generally, MHPAEA requires that treatment limitations imposed on MH/SUD benefits cannot be more restrictive than treatment limitations that apply to medical and surgical benefits. An exclusion of all benefits for a particular condition or disorder, however, is not a treatment limitation for purposes of the definition of “treatment limitations” in the MHPAEA regulations. Small employer group health insurance coverage and individual health insurance coverage are subject to the requirement to provide essential health benefits, and the determination of whether certain benefits must be covered under the requirements for essential health benefits depends on the benefits in the applicable State’s EHB benchmark plan.

Step therapy.

The FAQs also address a situation where a health plan requires step therapy for both medical/surgical and MH/SUD in-patient, in-network benefits. The plan requires a participant to have two unsuccessful attempts at outpatient treatment in the past 12 months to be eligible for certain inpatient in-network SUD benefits. However, the plan only requires one unsuccessful attempt at outpatient treatment in the past 12 months to be eligible for inpatient, in-network medical/surgical benefits.
This is probably not permissible under the MHPAEA, according to the FAQs, because refusing to pay for a higher-cost therapy until it is shown that a lower-cost therapy is not effective (commonly known as “step therapy protocols” or “fail-first policies”) is an NQTL. Although the same NQTL – step therapy – is applied to both MH/SUD benefits and medical/surgical benefits for eligibility for inpatient, in-network services, the requirement for two attempts at outpatient treatment to be eligible for inpatient, in-network SUD benefits is a more stringent application of the NQTL than the requirement for one attempt at outpatient treatment to be eligible for inpatient, in-network medical/surgical benefits. Unless the plan can demonstrate that evidentiary standards or other factors were utilized comparably to develop and apply the differing step therapy requirements for these MH/SUD and medical/surgical benefits, this NQTL does not comply with the MHPAEA.

Reimbursement rates.

A plan also does not comply with the MHPAEA where its plan documents state that in-network provider reimbursement rates are determined based on the providers’ required training, licensure, and expertise. However, medical/surgical benefits, reimbursement rates are generally the same for physicians and non-physician practitioners. For MH/SUD benefits, the plan pays reduced reimbursement rates for non-physician practitioners. While a plan is not required to pay identical provider reimbursement rates for medical/surgical and MH/SUD providers, a plan’s standards for admitting a provider to participate in a network (including the plan’s reimbursement rates for providers) is an NQTL.

ERISA disclosure.

The FAQs also address several issues relating to ERISA disclosures for MH/SUD benefits. The MHPAEA final regulations provide express disclosure requirements. Specifically, the criteria for medical necessity determinations with respect to MH/SUD benefits must be made available by the plan administrator or the health insurance issuer to any current or potential participant, beneficiary, or contracting provider upon request. In addition, under MHPAEA, the reason for any denial of reimbursement or payment for services with respect to MH/SUD benefits must be made available to participants and beneficiaries.

Updated provider network.

DOL regulations provide that, if an ERISA-covered plan utilizes a network, its SPD must provide a general description of the provider network. The list of providers in that SPD must be up-to-date, accurate, and complete (using reasonable efforts). The list may be provided as a separate document that accompanies the plan’s SPD if it is furnished automatically and without charge and the SPD contains a statement to that effect. Moreover, an ERISA-covered plan must disclose a summary of material modifications or changes in the information required to be included in the summary plan description not later than 210 calendar days after the close of the plan year in which the modification or change was adopted.

Information provided electronically.

ERISA-covered plans and issuers that utilize provider networks are permitted to provide a hyperlink or URL address in enrollment and plan summary materials for a provider directory where information related to MH/SUD providers can be found. While ERISA-covered plans must provide an SPD that describes provisions governing the use of network providers, the composition of the provider network, and whether, and under what circumstances, coverage is provided for out-of-network services under ERISA Sec. 102 and the DOL’s implementing regulations, such information could be provided electronically, for instance in a hyperlink or URL address, provided the DOL’s electronic disclosure safe harbor requirements are met.

Revised draft model disclosure form.

In addition, the Departments are soliciting comments on a revised draft model form that participants, enrollees, or their authorized representatives could — but would not be required to — use to request information from their health plan or issuer regarding nonquantitative treatment limitations that may affect their MH/SUD benefits, or to obtain documentation after an adverse benefit determination involving MH/SUD benefits to support an appeal. A draft form was issued on June 16, 2017, and based on the feedback received through that solicitation, the Departments have revised the form, which can be found at https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/mental-health-parity/mhpaea-disclosure-template-draft-revised.pdf.

Comments.

Public comments are invited on the proposed FAQs and should be submitted by June 22, 2018, to E-OHPSCA-FAQ39@dol.gov. Comments are also requested on any aspect of the draft model form, including ways to reduce burden on individuals, families, health care providers, States, group health plans, health insurance issuers, and other stakeholders. Send comments on these disclosure issues to: Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-EBSA, Office of Management and Budget, Room 10235, 725 17th Street, N.W., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email: OIRA_submission@omb.eop.gov.

SOURCE: [Proposed] FAQs about mental health and substance use disorder parity implementation and the 21st Century Cures Act, Part 39.
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PBGC releases strategic plan for 2018-2022

Mon, 04/30/2018 - 18:29

The Pension Benefit Guaranty Corporation (PBGC) has released its Strategic Plan for 2018-2022. The Government Performance and Results Act Modernization Act of 2010 requires federal agencies to develop a new strategic plan every four years..

Management priorities and factors

The PBGC has identified five priorities to effectively manage its insurance programs. The PBGC said that focusing on these five priorities will help it strengthen its insurance programs, manage resources, and improve customer service. They include:

  • Encouraging continuation and maintenance of voluntary private pension plans for the benefit of their participants;
  • Enhancing production quality and reducing the inventory of unissued benefit determination letters;
  • Completing implementation of enterprise risk management;
  • Addressing workforce challenges to prevent an impact on the PBGC’s ability to carry out its mission; and
  • Continuing to improve the internal control environment.
Strategic goals

According to the PBGC, its three strategic goals flow directly from the purposes the Corporation was created to accomplish. They are to:

  • Preserve plans and protect the pension of covered workers and retirees;
  • Pay benefits on time and accurately; and
  • Maintain high standards of stewardship and accountability.

The PBGC accomplishes the first goal by:

  • Encouraging plan sponsors to continue to maintain their defined benefit plans;
  • Protecting workers and retirees when plans are at risk;
  • Creating a regulatory environment that minimizes burdens;
  • Uniting more missing participants with their pension;
  • Encouraging flexibility to preserve plans through changes in legislation and regulations; and
  • Aiding policy makers to address the impending insolvency crisis in the Multiemployer Insurance Program.

As to the second goal, the PBGC will focus on:

  • Providing exceptional customer service to pensioners;
  • Ensuring regular monthly benefit payments continue without interruption; and
  • Providing accurate and timely benefit calculations subject to the limits set by law.

For the third goal, the PBGC will show its commitment by:

  • Providing exceptional customer service;
  • Seeking opportunities to improve the PBGC’s finances;
  • Maintaining a high performance workforce; and
  • Maintaining effective information technology and security programs.

Source: Pension Benefit Guaranty Corporation, Strategic Plan FY 2018-2022.
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Pretext found in bank’s use of sales figures from FMLA leave period to support firing employee

Fri, 04/27/2018 - 18:30

A bank’s reasons for terminating an employee three months after he returned from FMLA leave for a work-related injury could be evidence of pretext, a federal district court in New York found, denying the bank summary judgment on the employee’s FMLA and disability claims. On the issue of causation, the employee also had temporal proximity on his side as well as evidence his former supervisor lied about the reasons for his termination; discussed demoting him while he was on leave; offered his position to someone else while he was on leave; and questioned whether he was “actually injured” and made other derogatory comments. Although the bank contended it fired him for a well-documented history of performance problems, including bad numbers and a lack of leadership, the court found the bank’s use of his sales numbers for the period in which he had been on leave could well establish pretext.
A branch manager at one of the employer’s bank branches since July 2012, the employee was involved in a car accident on June 12, 2014, suffered injuries, took workers compensation, and was granted FMLA leave the next day. He returned to work on July 30, 2014, but was terminated on October 29, 2014. He sued the bank under the FMLA and New York state law alleging retaliation for his taking leave. He also brought claims for disability discrimination, though he alleged them under Title VII, not the ADA. The bank moved for summary judgment, and a magistrate recommended denying the motion as to the FMLA and New York law retaliation claims. The employee also sought leave to amend his complaint to assert his disability discrimination claim under the ADA, which the magistrate recommended he be allowed to do. The employer objected to the magistrate’s recommendations.

FMLA retaliation prima facie case.

The employer contended that the employee failed to “establish causation between his leave or alleged disability and termination,” and that the magistrate erred in finding such a causal link. It cited evidence of the employee’s “long history of documented performance issues pre-leave.” According to the employer, this impacted two elements of the prima facie case-that he was qualified for his position within the meaning of the FMLA and that his termination did not take place under circumstances from which retaliation could be inferred. The court rejected these arguments, analyzing the evidentiary record and agreeing with the magistrate’s conclusion that the employee established all elements of his prima facie case.

Was he “qualified?”

Under Second Circuit law, an employee’s burden to show qualification for the position is “minimal,” according to the court, requiring only that he possess the basic skills necessary to perform it. The employer raised a series of performance issues relating to “leadership,” “failure to implement… [various] policies, procedures, and programs,” and poor sales. These, however, did not undermine the employee’s showing of qualification. Indeed, as the court pointed out, the employer retained him for more than two years after these issues surfaced.

Causation.

As for the inference of causation, the employee relied on the temporal proximity between his leave and his termination, which was three months, as well as the statements and actions of his former supervisor, including that he: (1) lied about the reasons for his termination; (2) discussed demoting him while he was on leave; (3) offered his position to someone else while he was on leave; and (4) questioned whether he was “actually injured” and made other derogatory comments. The court agreed with the employee that these were sufficient to support the causation element. The court highlighted the supervisor’s statements critical of the employee’s taking leave, though it noted that those statements were made three months before termination, which is at “the outer limits of what courts in this Circuit consider probative of retaliatory animus.” Combined with the other evidence noted above, these statements and their timing sufficed for the employee to meet the “minimal” burden.

Pretext.

The court also agreed with the magistrate that the employee had proffered sufficient evidence for a jury to find that the stated reasons for termination were pretextual. The employer contended that its reasons for terminating the employee were legitimate-including his poor sales numbers and lack of leadership. The court rejected the employee’s attempt to use the same evidence supporting his prima facie case causation element, temporal proximity and the supervisor’s statement, to establish pretext, as the remarks were directed generally at performance issues, not the taking of leave, the court noted. But even when the remarks critical of the employee’s taking leave are considered, the court characterized those as, at most, “isolated remarks” insufficient to withstand a motion for summary judgment on the pretext element.
The court also noted that evidence the employer considered terminating the employee during leave does not demonstrate pretext. Even if the employer had terminated the employee while on leave, that alone would not be actionable without evidence that FMLA leave was the cause, the court added. Instead, the employee needed evidence of retaliatory animus. The court found such evidence, however, in the employer’s inconsistent explanations for the termination.

Retaliation.

The employee also argued that the employer’s use of sales figures during the time he was on leave as grounds for termination constitutes direct evidence both of retaliation and pretext. While the court disagreed with the employee that consideration of figures during time periods when an employee is on leave necessarily means that the leave was a “negative factor,” in this case the record was sufficient to make that determination. The employer argued that, in fact, in terms of percentage, the two quarters when the employee was on leave were two of his best, even though they still fell below goal. Adding those quarters to the consideration improperly added two more sub-par quarters, and the cumulative effect of adding those, even though the employee was on leave, could not be ignored. A reasonable juror could conclude that the leave played a role in the termination, under these facts, the court held.

ADA claim.

The employee had brought disability discrimination claims under Title VII and New York law. While the New York law claims were brought under the proper statutory law, the employee sought leave to amend his federal claims to allege violation of the ADA after acknowledging that Title VII does not allow for such claims. Because the employee has always asserted disability discrimination claims under state law and under the incorrect federal statute, it held that the employer would suffer no prejudice if the employee were granted leave to amend to allege the proper federal statute.

SOURCE: Philippe v. Santander Bank, (E.D.N.Y.), No. 1:15-cv-02918-MKB-CLP, March 31, 2018.
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EP examiners told not to challenge 403(b) plans for violating RMD rules for missing participants

Fri, 04/27/2018 - 18:23

The IRS’s Tax Exempt and Government Entities (TE/GE) has issued internal guidance for the Employee Plans (EP) Examination staff, directing the examiners not to challenge a 403(b) plan for failing to satisfy required minimum distribution (RMD) standards under certain circumstances. The guidance applies to examinations open on and after the date of issuance. It will be incorporated into the Internal Revenue Manual by February 23, 2020.
The IRS notes that this memo addresses only the application of Code Sec. 403(b)(10) to certain circumstances involving a 403(b) plan’s actions concerning benefits when a plan is unable to locate participants and beneficiaries. The memo does not address the application of any other requirements or other applicable law, including Title I of ERISA.
In general, Code Sec. 403(b)(10) provides that a 403(b) contract must satisfy requirements similar to the requirements of Code Sec. 401(a)(9) in order to be receive favorable tax benefits. According to the RMD standards, distribution of a participant’s accrued benefit under a 403(b) plan must commence after the attainment of age 70 and a half of the participant or, in the case of a participant who is not a 5% owner of the plan sponsor, the participant’s retirement. In certain cases, plans have been unable to commence or make a distribution to a terminated participant due to the plan’s inability to locate the participant.

Search requirements

For purposes of Code Sec. 403(b)(10), EP examiners are instructed not challenge a 403(b) contract for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due, if the plan has taken the following steps:

  • searched plan and related plan, sponsor, and publicly-available records or directories for alternative contact information;
  • used any of the search methods below:
    • a commercial locator service;
    • a credit reporting agency; or
    • a proprietary internet search tool for locating individuals; and
  • attempted contact via United States Postal Service (USPS) certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).

The IRS states that for 403(b) plans that have not completed the above steps, EP examiners may challenge those plans for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due. The IRS cautions that this memo is not a pronouncement of law and is not subject to use, citation, or reliance as such.

Source: IRS TE/GE Memorandum (TE/GE-04-0218-0011)
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Spencer’s Benefits NetNews – April 27, 2018

Fri, 04/27/2018 - 18:03
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Departments committed to reviewing employer plans for MHPAEA compliance

The Department of Health and Human Services, the Department of Labor, and the Department of the Treasury (the Departments) plan to devote resources to the review of employer-sponsored health plans and the extension of widespread correction for Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) compliance, including the re-adjudication of improperly denied claims. The Mental Health and Substance Use Disorder Parity Action Plan also noted that dedicated MHPAEA enforcement teams will be conducting investigations of behavioral health organizations and insurance companies for MHPAEA compliance.

        (Read Intelliconnect) »

EBSA health investigations remained steady last year, more than half involved mental health parity

EBSA closed 347 health investigations in FY 2017 (compared to 330 in FY 2016), according to the FY 2017 Mental Health Parity and Addiction Equity Act (MHPAEA) Enforcement Fact Sheet. Of these 347 closed investigations, 187 involved plans subject to MHPAEA and were, therefore, reviewed for MHPAEA compliance. The fact sheet also notes that of these 187 investigations where MHPAEA applied, EBSA cited 92 violations for MHPAEA noncompliance.

        (Read Intelliconnect) »

EBSA issues array of guidance on mental health parity

EBSA has released an array of guidance on the Mental Health Parity and Addiction Equity Act (MHPAEA), including proposed Frequently Asked Questions, an enforcement fact sheet, a self-compliance tool, and a revised draft disclosure template. In addition, the DOL has released a report to Congress that outlines its current implementation and enforcement actions in furtherance of the MHPAEA.

        (Read Intelliconnect) »

Working with multiple benefits vendors can be confusing for employees

More than 40 percent of employees find that dealing with multiple vendors to access their benefits is confusing, according to recent research from HealthAdvocate. The survey, Driving Benefits Engagement: Strategies to Optimize Employee Health and Well-Being Programs, found that working with multiple benefits vendors also leads to a fragmentation of vendor/partner/internally developed tools (43 percent). Other issues with utilizing multiple vendors are lack of utilization (40 percent) and technology issues with integrating systems (35 percent).

        (Read Intelliconnect) »

New fathers take under a week of paid parental leave if any at all

While a majority of Americans support fathers receiving paid parental leave, few men take advantage of such programs, and those who do take only one week or less, according to a new study from Ball State University. “Paid Paternity Leave-Taking in the United States,” a study led by Ball State sociology professor Richard Petts, found current U.S. paternity leave policies seem to limit access and contribute to inequality between men and women.

        (Read Intelliconnect) »

CMS streamlines, simplifies, empowers, unburdens exchange regulations

The HHS Notice of Benefit and Payment Parameters for 2019 adopts payment parameters and provisions related to the risk adjustment and risk adjustment data validation programs, cost-sharing parameters, and user fees for federally-facilitated exchanges (FFEs) and state exchanges on the federal platform as described in the advance release and fact sheet for the final rule. The amendments to the regulations advance the Administration’s goals to streamline state and issuer requirements, simplify eligibility and enrollment processes for consumers, increase state flexibility, improve affordability, strengthen program integrity, empower consumers, promote stability, and reduce unnecessary regulatory burdens imposed by the Patient Protection and Affordable Care Act (ACA) in the individual and small group health insurance markets. The proposed rule was published in the Federal Register (82 FR 51052) on November 2, 2017.

        (Read Intelliconnect) »

New Jersey lawmakers approve bill mandating 40 hours of paid sick leave annually

Thu, 04/26/2018 - 18:41

The New Jersey Legislature passed a bill that would require employers to provide 40 hours of earned sick leave annually to employees within the state. Employees would accrue earned sick leave at the rate of one hour for every 30 hours worked. Employers would be required to pay employees for earned sick leave at the same pay rate and with the same benefits that the employee normally earns.
The bill, A. 1827, cleared the Assembly on March 26 by a 50-24 vote, and the Senate on April 12 by a 24-12 ballot. The measure is headed to the desk of the state’s Democratic Governor, Phil Murphy.
Under the measure, employers are not required to let employees accrue or use in any benefits year, or carry forward, more than 40 hours of earned sick leave. For employees that have commenced employment prior to the effective date of the bill, accrual of earned sick leave would begin on the bill’s effective date. Other employees will start accruing earned sick leave upon commencement of their employment. Employees would be able to use the earned sick leave beginning on the 120th day after employment commences, unless the employer agrees to an earlier date, and then as soon as the earned sick leave accrues.

Use of earned sick leave.

A. 1827 provides that employees may use earned sick leave for these purposes:

  • Diagnosis, care, treatment, or recovery related to the employee’s illness;
  • Care of a family member during diagnosis, care, treatment, or recovery related to a family member’s illness;
  • Certain absences resulting from the employee or a family member being a victim of domestic or sexual violence;
  • Time during which the employee is not able to work because of a closure of the employee’s workplace, or the school or place of care of a child of the employee, in connection with a public health emergency or a determination that the presence of the employee or child in the community would jeopardize the health of others; or
  • Attending school-related conferences, meetings, or events, or to attend other meetings regarding care for the employee’s child.

Employers would be permitted under the bill to require “reasonable documentation” where an employee seeks leave for three or more consecutive days. Use of foreseeable earned sick leave may be barred on certain dates and “reasonable documentation” required where employees use sick leave that is not foreseeable during those dates.

Payment for unused leave.

Employers may also offer payment for unused earned sick leave in the final month of the benefit year. If the employee declines a payment for unused earned sick leave, or agrees to a partial payment, the employee may carry the leave forward to the following year. If the employee accepts the full payment, the employer must make the entire accrual for the following year available to that employee at the beginning of that year.

Exemptions.

There is an exemption for public employers that provide sick leave pursuant to another New Jersey law. The benefits of A. 1827 would be waivable by an employee representative during collective bargaining negotiations.

Retaliation.

The bill would also bar retaliatory actions against an employee for using or requesting to use earned sick leave, or for filing a complaint about an employer violation of the bill’s provisions.

Effective date and preemption.

A. 1827 would be effective 180 days after it is enacted. After the effective date of the bill, counties and municipalities would be barred from adopting new requirements concerning earned sick leave. Moreover, the bill’s provisions would preempt existing local requirements.

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Tax Exempt and Government Entities issues FY 2017 EP accomplishments

Thu, 04/26/2018 - 18:22

The IRS has released the Tax Exempt and Government Entities (TE/GE) report on fiscal year (FY) 2017 accomplishments, which includes actions taken by Employee Plans (EP). The report covers EP examinations, compliance checks, determinations, voluntary compliance, and EP Technical.

Examinations

For FY 2017, EP completed 6,487 examinations, consisting of specialty programs (1,687), traditional casework (3,486), and focused supplemental work (1,314). The specialty programs included EP Team Audit (EPTA)/Large Case, multiemployer plans, IRC 403(b)/457 plans, cash balance plans, hybrid 401(k) plans (such as those with the age-weighted new comparability feature), and leveraged/non-leveraged employee stock ownership plans.
The traditional casework consisted of a variety of plan types (profit-sharing, money purchase, and defined benefit) from within the risk-based audit program, as well as taxpayer and interagency referrals, 401(k) plans, claims, reported funding deficiencies, and non-bank trustee investigations. Focused supplemental work encompassed project work supplemented by the Emerging Issues program, the Learn, Educate, Self-correct, Enforce (LESE) program, the Individual Retirement Arrangement (EPs, SAR-SEPs, SIMPLES) program, and the Form 5500-EZ (one participant plan) program.

Compliance checks

Through the Employee Plans Compliance Unit (EPCU), EP identified areas of non-compliance in plan form and operation through compliance check contacts and continued with its mandated programs: (1) collection of multiemployer certifications and validations; (2) review non-bank trustee’s notifications; and, (3) review pension plan funding for funding deficiencies. During FY 2017, 3,564 compliance checks were initiated and 3,768 compliance checks were closed.
Projects conducted in FY 2017 included:

  • SIMPLE plans,
  • Merger/consolidations/transfers/spinoffs relating to Form 5310A filings,
  • Issues surrounding terminated/partially terminated plans,
  • Inflated assets and/or unusual investments,
  • SEP plan issues including coverage of employees, and
  • 403(b) plan document requirements.
EP Determinations

Individually Designed Plans (IDP) Program. Case receipts for the EP Determinations IDP program for FY 2017 was 4,680, consisting of 3,553 for individually designed plans — Form 5300, 909 for terminations — Forms 5310 and 5316, and 218 for adopters of modified volume submitter plans — Form 5307. Case closures totaled 10,024 for FY 2017.
Pre-Approved Plan (PAP) Program. For the EP Determinations PAP program, case receipts for FY 2017 were 286 and case closures totaled 750.

EP Voluntary Compliance

The FY 2017 EP Voluntary Compliance program case receipts were 4,183 and the case closures totaled 3,169.

EP Technical

The report noted that EP Technical produced 12 Issue Snapshots job aids that provide analysis and resources for a given technical tax issue to be used by employees while working cases.

Source: Tax Exempt and Government Entities FY 2017 Accomplishments
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New fathers take under a week of paid parental leave if any at all

Wed, 04/25/2018 - 19:12

While a majority of Americans support fathers receiving paid parental leave, few men take advantage of such programs, and those who do take only one week or less, according to a new study from Ball State University. “Paid Paternity Leave-Taking in the United States,” a study led by Ball State sociology professor Richard Petts, found current U.S. paternity leave policies seem to limit access and contribute to inequality between men and women.

“Paternity leave is especially important to study because it represents a version of family leave-taking that is rare in comparison to maternity leave, yet it offers substantial possibilities for alleviating work-family conflicts and encouraging increased father involvement, mothers’ well-being, and gender equity in the divisions of domestic and paid labor responsibilities,” Petts said. “This study expands prior research on paternity leave as well as confirms previous findings.”

National data used.

The Ball State research findings are based on data taken from three national studies, including the 2012 General Social Survey (GSS), which contains reports on attitudes about family leave. In addition, two national longitudinal studies offer information on paid paternity leave-taking: the Fragile Families and Child Wellbeing Study (FFCW) and the National Longitudinal Study of Youth 1997 (NLSY97).

Key findings.

The research includes these key findings:

  • A majority support paid parental leave for fathers: 54 percent of all GSS respondents, including 47 percent of male respondents.
  • Among fathers who take paid leave, most take one week or less. Only 14 percent of fathers who take leave use more than two weeks.
  • Men with higher levels of income are more likely to take paid leave and spend longer periods of time with newborns.
  • Fathers who work part-time are less likely to take paid leave and take shorter leaves.
  • Fathers who engaged in parenting activities prior to the child’s birth were more likely to take paid leave, and longer periods of leave, than fathers who were not involved prenatally.

“Fathers with higher incomes are more likely to be in a financial position that allows them to take time off work when a new child is born,” Petts said. “This privileged position may suggest that the opportunity cost of taking leave is higher for fathers with high incomes than for fathers with lower incomes—especially if wage replacement is less than 100 percent. Alternatively, higher incomes may be linked to greater benefits and autonomy in one’s career.”

Workplace leave benefits.

All high-income countries, except the U.S., have national policies mandating paid maternity leave. The only U.S. policy that includes provisions for parental leave is the Family and Medical Leave Act, which allows employees to take up to 12 weeks of unpaid leave after childbirth or other family or medical reasons. Petts observed that because the U.S. does not offer statutory paid paternity leave, access is overwhelmingly dependent on workplace policies.

“This structure exacerbates the diverging destinies of families because more advantaged fathers have greater access and abilities to take paid leave than less advantaged fathers,” Petts said. “Future research should further assess the consequences of these disparities and examine the ways in which paternity leave-taking may influence families. Such knowledge will be important as policymakers seek to determine how changes in family leave policies may benefit American families.”

SOURCE: www.bsu.edu
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Combined plans must satisfy minimum aggregate allocation gateway for nondiscrimination testing on basis of equivalent benefits

Wed, 04/25/2018 - 18:56

A combination of plans must satisfy the minimum aggregate allocation gateway of IRS Reg. §1.401(a)(4)-9(b)(2)(v)(D) to be eligible for testing for nondiscrimination on the basis of equivalent benefits, according to an IRS Chief Counsel memorandum. The guidance was issued regarding a floor-offset arrangement where benefits under a defined benefit plan were offset by benefits under a defined contribution (DC) plan only for nonhighly compensated employees (NHCEs), so that for NHCEs who participated in both plans, benefits were eliminated under the defined benefit plan.
An employer maintains a cash balance plan and a profit-sharing plan. All employees are eligible to participate in the profit-sharing plan. The cash balance plan covered two groups of participants. The first group of participants consists of the owner-employees of the employer, all of whom are highly compensated employees. These participants receive the lesser of (1) the maximum pay credit so that the resulting annual benefit will not exceed the limitations of Code Sec. 415(b), and (2) the maximum pay credit that enables the plan to comply with Code Sec. 401(a)(4). The second group of participants (all of whom are NHCEs) consists of the lowest-paid group of employees who are not owner-employees and who perform at least one hour of service during the plan year. This lowest-paid group is limited to the number of employees necessary so that the plan covers the lesser of 40% of the total number of employees for the plan year or 50 employees. This second group of participants receives an annual pay credit of 1% of compensation.
The accrued benefit of an owner-employee under the cash balance plan is the single life annuity payable at age 65 that is the actuarial equivalent of the current balance of the cash balance account. For a participant who is not an owner-employee, the accrued benefit under the cash balance plan is the single life annuity payable at age 65 that is the actuarial equivalent of the current balance of the cash balance account, offset by the single life annuity payable at age 65 that is the actuarial equivalent of the participant’s vested account balance attributable to employer contributions under the profit-sharing plan. Because the benefits for this second group of participants attributable to employer contributions under the profit-sharing plan is larger than the benefits payable under the cash balance plan absent the offset, the offset for this second group of employees reduces the benefit under the cash balance plan to zero.

Nondiscrimination in contributions or benefits

The special rule of IRS Reg. §1.401(a)(4)-3(f)(9) (under which an employee’s accrued benefit under a plan includes that portion of the benefit that is offset by benefits under another plan) applied only to the extent that the benefit was attributable to pre-participation service or past service. Therefore, the offset was taken into account in determining whether the combination of plans was primarily defined benefit in character within the meaning of IRS Reg. §1.401(a)(4)-9(b)(2)(v)(B) or consisted of broadly available separate plans within the meaning of IRS Reg. §1.401(a)(4)-9(b)(2)(v)(C). Because, after the offset, the NHCEs received no benefit under the defined benefit (DB) plan, the combination of plans was not primarily defined benefit in character. Similarly, the combination did not consist of broadly available separate plans because the defined benefit plan did not satisfy the applicable conditions set forth in IRS Reg. §1.401(a)(4)-9(b)(2)(v)(C). Thus, the DB/DC plan must satisfy the minimum aggregate allocation gateway of IRS Reg. §1.401(a)(4)-9(b)(2)(v)(D) to be eligible for testing for nondiscrimination on the basis of equivalent benefits.

Minimum participation

Moreover, the NHCEs were not taken into account for purposes of satisfying the requirements of Code Sec. 401(a)(26). The special rule of IRS Reg. §1.401(a)(26)-5(a)(2)(iii) (under which an offset of benefits under a defined benefit plan by benefits under another plan is disregarded) could not be used for an offset that applied only to a subset of participants in the defined benefit plan. Because the offset should be taken into account and reduced the benefits of NHCEs under the defined benefit plan to zero, the NHCEs did not benefit under the defined benefit plan within the meaning of Code Sec. 401(a)(26)(A) and IRS Reg. §1.401(a)(26)-2(a), and did not have meaningful benefits under the plan’s prior benefit structure as specified in IRS Reg. §1.401(a)(26)-3(c).

Source: Chief Counsel Advice Memorandum 201810008
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Employees not entitled to compensation for FMLA-protected breaks, DOL opinion letter says

Tue, 04/24/2018 - 18:38

The Department of Labor has published an opinion letter addressing compensation for 15-minute rest breaks required by an employee’s serious health condition. The letter responded to a request for an opinion as to “[w]hether a non-exempt employee’s 15-minute rest breaks, which are certified by a health care provider as required every hour due to the employee’s serious health condition and are thus covered under the FMLA, are compensable or non-compensable time under the FLSA.”
Rest breaks up to 20 minutes in length are generally compensable because the breaks predominantly benefit the employer, according to the opinion letter. However, the specific FMLA-protected breaks described in the inquiry differ significantly from ordinary rest breaks commonly provided to employees. Here, the 15-minute breaks “are required eight times per day and solely due to the needs of the employee’s serious health condition as required under the FMLA.”
Because these FMLA-protected breaks are given to accommodate the employee’s serious health condition, the breaks predominantly benefit the employee and are non-compensable, the letter states. This conclusion comports with both regulations and case law. Moreover, the text of the FMLA itself further confirms that employees are not entitled to compensation for the FMLA-protected breaks at issue. The FMLA expressly provides that FMLA-protected leave may be unpaid, and it provides no exceptions for breaks up to 20 minutes in length.
That said, the letter goes on to stress that employees who take FMLA-protected breaks must receive as many compensable rest breaks as their coworkers receive. Thus, if an employer generally allows all of its employees to take two paid 15-minute rest breaks during an 8-hour shift, an employee needing 15-minute rest breaks every hour due to a serious health condition should likewise be compensated for two 15-minute rest breaks during his or her 8-hour shift.

SOURCE: FLSA2018-19, April 12, 2018.
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Bipartisan retirement savings bill would encourage employee savings

Tue, 04/24/2018 - 18:32

Senate Finance Committee (SFC) Chairman Orrin G. Hatch (R-UT) and ranking member Ron Wyden (D-OR) on March 8, 2018 introduced the bipartisan Retirement Enhancement and Savings Bill of 2018 (RESA, S. 2526). The measure aims to increase employer incentives to encourage employee retirement savings.
“This legislation creates workable, voluntary solutions to help workers better save for their future,” Hatch said in a joint press release. According to Hatch, the bill would authorize multiple employer plans, which would allow smaller employers to join together to sponsor one retirement plan for their employees.
“This bipartisan bill gives employers incentives to make it easier for their employees to save,” Wyden said. Additionally, the bill would allow individuals over 70 to make tax-free contributions to their Individual Retirement Arrangements (IRAs), according to Wyden. “These types of provisions are key to addressing our country’s savings crisis,” he added.

Multiemployer pension plans

The bipartisan bill’s introduction comes just days after Senate Majority Leader Mitch McConnell (R-KY) named Hatch co-chair of the bipartisan, bicameral Joint Select Committee on the Solvency of Multiemployer Pension Plans. The Bipartisan Budget Act of 2018, signed into law on February 9, 2018, creates the new joint select committee consisting of 16 members chosen by Leadership in the House and Senate. As named, the committee is tasked with drafting recommendations to improve the solvency of multiemployer pension plans.
“Despite remaking the U.S. tax code to better promote savings and investment, there is still more work that needs to be done to bolster retirement savings and address the shortcomings that have plagued multiemployer pension plans across the country,” Hatch said in a statement. “While resolving this issue is long overdue, there continues to be a great deal of bipartisan support in Congress for a comprehensive solution to the union-run multiemployer pension system.”

Source: S. 2526
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Regulation of FIAs under BICE again upheld as not being arbitrary and capricious

Mon, 04/23/2018 - 18:19

The Tenth Circuit has affirmed a summary judgment order issued by a federal trial court to the Department of Labor in response to a challenge to the decision by the Agency to remove fixed indexed annuities from coverage under PTE 84-24, and subject them to the requirements of the Best Interest Contract Exemption. The appeals court, in an opinion that mirrored the trial court’s reasoning, determined that the DOL provided adequate notice of its decision, did not arbitrarily distinguish between FIAs and fixed annuities, and considered the financial impact of the rule on the industry.

Fixed-indexed annuities removed from PTE 84-24

As part of the release of sweeping series of fiduciary conflict of interest rules, the DOL amended existing PTE 84-24, which allows insurance agents and brokers, and insurance companies, to receive compensation for recommending specified insurance and annuity contracts and investment company securities (e.g., mutual fund shares) to plans and IRAs. As amended, PTE 84-24 (currently effective for transactions occurring on or after July 1, 2019), will allow fiduciaries and other service providers to receive reasonable compensation (e.g., insurance commissions, other than revenue sharing) when plans and IRAs purchase insurance contracts, fixed annuity contracts, securities of registered investment companies, or engage in certain related transactions.
However, the new rules effectively revoke the exemption under PTE-84-24 for annuity contracts that do not qualify as a fixed rate annuity, such as FIAs. Thus, the purchase by a plan or IRA of such products will not be covered by PTE 84-24. However, transactions involving annuity contracts that are not fixed rate annuity contracts, such as variable and index annuities, may be exempt in compliance with the conditions stipulated under the Best Interest Contract Exemption (BICE).
Violations of APA and RFA charged. Market Synergy Group (MSG), a licensed insurance agency that works with insurance companies to develop specialized, proprietary FIAs and other products for exclusive distribution, in partnership with a network of independent market organizations (IMOs), brought suit under the Administrative Procedures Act and the Regulatory Flexibility Act, challenging the removal of FIA transactions from coverage under PTE 84-24. The trial court denied a request for preliminary injunction and issued summary judgment to the DOL, affirming the Agency’s decision-making process. The Tenth Circuit affirmed, essentially adopting the lower court’s reasoning.

Final rule logical outgrowth of proposed rule

In initially determining whether the DOL provided adequate notice of the final rule in its Notice of Proposed Rulemaking, the Tenth Circuit explained that a final regulation must be a “logical outgrowth” of the proposed rule. The court agreed with the trial court that the final rule was a logical outgrowth of the proposed rule that should have been anticipated.
MSG, stressing that the proposed rule distinguished between securities and insurance products that are not securities, maintained it could not anticipate the DOL treating FIAs as transactions under BICE because FIAs are not securities. However, the court noted that the DOL also specifically requested public comment as to whether removing variable annuities from PTE 84-24, but leaving FIA and fixed rate annuities, struck the appropriate balance of its concerns. Thus, the DOL provided a description of the subjects and issues involved in its regulatory review that was sufficient to apprise Market Synergy of the need to submit relevant comments.
In further support of its conclusion that the final rule was a logical outgrowth of the proposed rule, the trial court noted that the public comments indicated that other recipients of the DOL notice discerned the possibility of the change reflected in the final rules. The other commenters also made points that Market Synergy would have made, rendering any allegedly insufficient notice harmless error. The Tenth Circuit added that while the comments do not by themselves resolve the issue of notice, they do indicate that various parties anticipated that the final rule would remove FIAs from PTE 84-24.

DOL did not arbitrarily treat FIAs different from fixed annuities

MSG continued to stress on appeal that the DOL’s treatment of FIAs was arbitrary and capricious because FIAs are identical to fixed annuities, other than with respect to the method by which interest is credited to the annuity. Noting that, under the arbitrary and capricious standard of review, an Agency is only required to articulate a rational connection between the facts and the regulation, the court deferred to the DOL’s perspective that FIAs are inherently complex products under which returns can vary widely, posing a risk to retirees and other investors that exceeds that under fixed annuities. Equally valid and supported by evidence was the DOL’s view that the complicated payment structures of FIAs invited conflicts of interest that required the additional protections afforded by BICE.

Consideration of state regulations

MSG next claimed that the DOL rule unreasonably infringed on state regulations. However, the court, after noting that there was no uniform state standard governing the issue, found that the DOL did attempt to design the regulation to work cohesively with the state requirements in place. As the DOL did consider state regulations, its decision was not arbitrary and capricious.

DOL considered impact of final rule

As a final matter, MSG maintained that the DOL violated the APA by failing to consider how the regulation would affect the FIA industry, suggesting that the DOL exceeded its statutory authority to promulgate only “necessary and appropriate” regulations. The trial court found that the DOL’s Regulatory Impact Analysis thoroughly addressed the effect of the rule change on the independent annuity distribution channels, as well as whether the independent distribution channels could operate under BICE. The DOL’s conclusion that the costs of the rule were justified by the greater market efficiency promised by reduced conflicts of interest, the court explained, was reasonable.
Noting that its review was limited to the arbitrary and capricious standard, the Tenth Circuit concurred with the lower court. The DOL’s conclusion that the benefits to investors from the new rule outweighed the cost of compliance was reasonable and thus, the court stressed, was not arbitrary and capricious.

Source: Market Synergy Group, Inc. v. United States Department of Labor (CA-10)

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CMS streamlines, simplifies, empowers, unburdens exchange regulations

Mon, 04/23/2018 - 17:52

The HHS Notice of Benefit and Payment Parameters for 2019 adopts payment parameters and provisions related to the risk adjustment and risk adjustment data validation programs, cost-sharing parameters, and user fees for federally-facilitated exchanges (FFEs) and state exchanges on the federal platform as described in the advance release and fact sheet for the final rule. The amendments to the regulations advance the Administration’s goals to streamline state and issuer requirements, simplify eligibility and enrollment processes for consumers, increase state flexibility, improve affordability, strengthen program integrity, empower consumers, promote stability, and reduce unnecessary regulatory burdens imposed by the Patient Protection and Affordable Care Act (ACA) in the individual and small group health insurance markets. The proposed rule was published in the Federal Register (82 FR 51052) on November 2, 2017.

Essential health benefits (EHB).

The final rule provides states with additional flexibility in how they select their EHB-benchmark plan as established by ACA section1302 for plan years beginning in 2020. States will be able to:

  • choose from one of the 50 EHB-benchmark plans that other states used for the 2017 plan year;
  • replace one or more of the ten required EHB categories of benefits under its EHB-benchmark plan used for the 2017 plan year with the same categories of benefits from another state’s EHB-benchmark plan used for the 2017 plan year; or
  • select a set of benefits to become its EHB-benchmark plan, provided the EHB-benchmark meets the scope of benefits requirements and other specified requirements.

These options are subject to additional requirements, including two scope of benefits conditions.

Qualified health plan (QHP) certification standards.

The final rule expands states’ role in the QHP certification process established by ACA section1301 for FFEs if the state has a sufficient network adequacy review process for plan years 2019 and beyond. State-based exchanges that use the federal platform (SBE-FPs) to enforce FFE standards for network adequacy and essential community providers’ requirements have been eliminated. SBE-FPs will have the flexibility to establish their own standards.

Special enrollment periods (SEPs).

CMS has aligned the enrollment options for all dependents who are newly enrolling in exchange coverage through an SEP and added to an application with current enrollees regardless of the SEP under which the dependent qualifies. Pregnant women who are receiving health care services through Children’s Health Insurance Program (CHIP) coverage for their unborn child will be allowed to qualify for a loss of coverage SEP upon losing access to this coverage. Finally, CMS exempts consumers from the prior coverage requirement that applies to certain SEPs if they lived in a service area without QHPs available through an exchange during a recent enrollment period for which they were eligible.

Risk adjustment.

The risk adjustment model, established under section 1343 of the ACA will be recalibrated for the 2019 benefit year using blended coefficients from the 2016 enrollee-level External Data Gathering Environment (EDGE) data and 2014 and 2015 MarketScan data. CMS will provide states with the flexibility to request a reduction to the otherwise applicable risk adjustment transfers in the individual, small group, or merged market by up to 50 percent beginning with the 2020 benefit year in states where HHS operates the risk adjustment program.
CMS made numerous changes to HHS-Risk Adjustment Data Validation (HHS-RADV) audits used to validate the accuracy of diagnosis codes submitted by issuers for the risk adjustment transfer calculation. The final rule implements a simplified approach to making payment adjustments as a result of HHS-RADV error rates that will only adjust an issuer’s risk score when the error rate for a group of hierarchical condition categories (HCCs) is an outlier relative to the error rates for that group of HCCs for all issuers in HHS-RADV for the benefit year being validated.

Premium tax credit (APTC).

For households for which trusted data sources such as the Internal Revenue Service and the Social Security Administration reflect income below 100 percent of the federal poverty level by more than a reasonable threshold amount, CMS will generate annual income inconsistencies when those households attest to income that is higher than the amount found in income data received from the exchange. CMS removed the requirement prohibiting exchanges from discontinuing APTC because the tax filer failed to file a tax return and reconcile APTC paid for past benefit years, if the exchange does not first send notice directly to the tax filer (see ACA sections 1331, 1411, 1412).

Medical loss ratio (MLR).

CMS has amended the regulations mandated by section 1331(b)(e) of the ACA to reduce the burden associated with the Quality Improvement Activity reporting requirements, modified the information a state must provide to justify a request to adjust the 80 percent MLR standard in the individual market, and amended provisions to provide more flexibility to states by permitting request for adjustments under certain circumstances.

Small Business Health Options Program (SHOP).

CMS has streamlined the SHOP enrollment process in the SHOP exchanges (see ACA section 1321) using the federal platform for employers to use an issuer-based enrollment approach, allowing SHOPs to eliminate the online enrollment process and employers to enroll directly with an exchange-registered agent, broker, or issuer. SHOP exchanges are no longer required to provide employee eligibility, premium aggregation, and online enrollment functionality and for plan years beginning on or after January 1, 2018.

Rate review.

The final rule (1) exempts student health insurance coverage from the federal rate review process; (2) increases the default threshold for rate increases subject to review to 15 percent from 10 percent; (3) permits states with Effective Rate Review Programs to have different submission deadlines for issuers that only offer non-QHPs; and (4) reduces the advanced notification that states must give CMS about the posting of rate increases from 30 days to 5 business days if the state will be posting prior to the date specified by CMS.

Related documents.

CMS also issued a Final Annual Issuer Letter to provide operational and technical guidance to issuers that want to offer QHPs in FFEs for plan years beginning in 2019; new guidance expanding hardship exemptions; and a bulletin extending the transition period of the ACA’s compliant coverage in the individual and small group health insurance markets for until 2019.

SOURCE: HHS final rule, advance release, scheduled to be published in the April 17 Federal Register.

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Benefits claim of employee who claimed prior misclassification was preempted by ERISA

Fri, 04/20/2018 - 18:54

Granting dismissal of an employee’s (who was a former independent contractor) claim that his prior misclassification resulted in denial of the value of the benefits plan he would have received had he been properly classified, the federal district court in Massachusetts found that this portion of his claim was preempted by ERISA. The state law causes of action under the Massachusetts independent contractor law “related to” the employee benefit plans covered by ERISA, concluded the court, citing First Circuit precedent supporting preemption.

Started as an independent contractor.

Although the employee was ultimately classified as an employee of Restoration Hardware in May 2014, he began working for the company doing store maintenance as an independent contractor in April 2013. In his amended complaint, he sought wages, reimbursement for expenses, and the value of benefits under the employer’s benefits plan that he would have received had he been classified as an employee. Restoration Hardware moved to dismiss only his claim for benefits, arguing it was preempted under ERISA.

Did his claims “relate to” ERISA benefit plans?

And the court agreed. It was undisputed that the benefit plans were covered by ERISA, so the issue came down to whether the state law causes of action that the now-former employee asserted “relate to” the employee benefit plans covered by ERISA. Three categories of state laws “relate to” ERISA plans, the court explained, to the extent that they are preempted: (1) state laws that mandate employee benefit structures or their administration, (2) state laws that bind plan administrators to a particular choice, and (3) state law causes of action that provide “alternative enforcement mechanisms” to ERISA’s enforcement regime.” The third category was the issue here.

“Alternate mechanism for obtaining ERISA plan benefits.”

The operative precedent was a First Circuit decision from 2000: Hampers v. W.R. Grace & Co., Inc., which reasoned that the failure to include an employee in the employer’s benefit plan was the basis both for that employee’s state law contract claim and his ERISA-benefits claim, which the First Circuit said “suggests that the state law claim is an alternative mechanism for obtaining ERISA plan benefits.” Because that employee, in trying to prove that the employer behaved wrongfully, “relied on the terms of” the underlying benefit plan, the First Circuit ruled that his claim was preempted, because “a cause of action ‘relates to’ an ERISA plan when a court must evaluate or interpret the terms of the ERISA-regulated plan to determine liability under the state law cause of action.” Plus, that employee also measured his damages by reference to the benefit plan, and the First Circuit had held that ERISA preempted state law causes of action for damages where the damages must be calculated using the terms of an ERISA plan.”
Also weighing on the court was its own decision in Remington v. J.B. Hunt Transport, Inc., in which the employees also filed claims under the Massachusetts independent contractor statute and the Wage Act, contending that their wrongful misclassification as independent contractors damaged them as to the benefits to which they would have been entitled had they been classified as employees. In that case, the court ruled that the benefits-related portion of the claim was preempted. Although the employee here cited precedent from other circuits holding that a complaint that merely requires reference to the terms of an ERISA-covered plan to determine damages is not preempted by ERISA, the court said that until the First Circuit revisits its view as articulated in Hampers, however, it was bound to follow it.

SOURCE: Lavery v. Restoration Hardware, Inc., (D. Mass.), No. 17-10856, March 28, 2018.
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Fifth Circuit vacates fiduciary rule as unreasonable exercise of DOL authority

Fri, 04/20/2018 - 18:48

A divided Fifth Circuit panel has vacated the fiduciary conflict of interest rules, including the Best Interest Contract Exemption (BICE) and revised Prohibited Transaction Exemption (PTE) 84-24, as an invalid exercise of regulatory authority by the Department of Labor. The fiduciary rule, in expanding the parties subject to loyalty and prudence as investment advice fiduciaries, the panel opined, conflicts with the traditional common law understanding of fiduciary responsibility expressed in ERISA and was an unreasonable, arbitrary and capricious exercise of authority in an area best left to Congress. A pointed dissent found the rule to be well reasoned and consistent with the DOL’s authority to prescribe rules necessary to carry out the protective purposes of ERISA.
Note: The variant reactions that followed the court’s sweeping ruling must be tempered by the fact that the opinion was written by one of the most conservative judges (Edith Jones) from one of the most conservative appellate courts in the country. The opinion (which reads in part more like an appellate brief) to the extent it is not modified by the full court, may also be limited to states within the Fifth Circuit (Louisiana, Mississippi, and Texas). Moreover, the decision is at clear odds with a recent ruling from the Tenth Circuit, upholding the DOL’s regulation of fixed indexed annuities under BICE (see Market Synergy Group, Inc. v. United States Department of Labor, CA-10 (2018), No. 17-3038). Thus, while the unanimous panel decision is subject to reversal following review by the full Tenth Circuit, the divergence in the Circuits clearly invites review by a Supreme Court that, as currently constituted, may be receptive to claims of executive and regulatory overreach.

Effect of APA vacatur.

There is some uncertainly as to the scope of the Fifth Circuit’s ruling. The opinion may be limited to parties within the Fifth Circuit. However, practitioners have noted that, pursuant to the vacatur remedy under the APA, when an agency’s action is set aside as arbitrary and capricious or otherwise unlawful, the rule is effectively invalidated nationwide. Thus, the impact of vacating the rule would not be limited to individual petitioners or to the states within the jurisdiction of the reviewing court.

DOL enforcement moratorium.

Following the Fifth Circuit’s ruling, the DOL has indicated that it will not be enforcing the fiduciary rule, pending further review. Thus, while the fiduciary rule has not been definitively invalidated (outside the Fifth Circuit), the DOL also will not be enforcing the rule anywhere in the country. However, the Fifth Circuit opinion may certainly factor into the DOL review of the rule, which it has been conducting pursuant to a directive from the White House in April 2017. Accordingly, short of defending the rules as written, the DOL may propose new regulations or exemptions to address the Fifth Circuit’s concerns, such as by further excluding transactions involving brokers and insurance agents that the court targeted as constituting “mere sales conduct.”

Fiduciary rule challenged as beyond DOL authority

The U.S. Chamber of Commerce, the Indexed Annuity Leadership Council, and the American Council of Life Insurers brought suit challenging the fiduciary rule of ERISA Reg. 2510.3-21, the Best Interest Contract Exemption, and the amendment to PTE 84-24 (collectively, the “fiduciary rule”), essentially alleging that the scope and terms of the rule exceeded DOL authority. In addition to upending compensation structures and exposing Title II advisers to liability, the business groups argued that the new rule would effectively deprive millions of IRA investors of professional investment advice.
In a remarkably thorough opinion, a Texas federal trial court ruled that the fiduciary rule does not exceed the DOL’s statutory authority under ERISA (Chamber of Commerce of the United States of America v. Hugler, DC TX (2017), 231 F. Supp 3d, 152). The fiduciary rule, the court concluded, “better comports” with the broad remedial purposes of ERISA.

Governing standard of review

Under the applicable two-step Chevron analysis, if the intent of Congress is clear and it has spoken directly to the precise question at issue, courts must give effect to the unambiguously expressed intent of Congress (Chevron, USA Inc. v. Natural Resources Defense Council, Inc., (U.S. Sup Ct (1984), 476 U.S. 837)). However, under Chevron Step Two, if Congress has not directly addressed the issue, a court will defer to an agency’s interpretation of ambiguous statutory language that is based on a “permissible construction of the statute.”

Chevron Step One

The trial court initially ruled that the text of ERISA does not foreclose the DOL’s interpretation of what it determined to be an inherently ambiguous statutory provision. ERISA does not specifically define “investment advice,” and expressly authorizes the DOL to prescribe such regulations as it finds necessary or appropriate to carry out the provisions of that statute.
The Fifth Circuit reversed the trial court, finding that the definition of an investment advice fiduciary in ERISA Sec. 3(21)(a)(ii) was not ambiguous, as properly construed, and must be interpreted as reflecting the common law understanding of fiduciary status that requires a relationship of “trust and confidence” between a fiduciary and a client. The fiduciary rule, the court concluded, improperly dispenses with the long-established distinction between fiduciary investment advisers and stock brokers and insurance agents who generally do not assume fiduciary status by merely selling products because they do not have authority or responsibility to render investment advice.

Rule improperly subjects mere sales conduct to fiduciary duties.

Central to the court’s ruling was its understanding of the fiduciary rule as improperly extending fiduciary responsibility to “mere sales conduct,” dispensing with the common law and long standing DOL understanding that investment advice for a fee requires an “intimate,” substantial and ongoing relationship between the adviser and client, which does not typically include sales transactions conducted by stockbrokers and insurance agents. According to the court, had “Congress intended to abrogate both the cornerstone of fiduciary status-the relationship of trust and confidence- and the widely shared understanding that financial salespeople are not fiduciaries absent that special relationship, one would reasonably expect Congress to say so.”

Fiduciary rule breaches statutory harmony.

The majority further noted that the investment advice prong of ERISA Sec. 3(21)is “bookended” by subsections that incorporate common law trust principles by defining individuals as fiduciaries to the extent that they exercise any discretionary authority or control over the management of a plan or its assets. Such control and authority, according to the majority, necessarily implies a special relationship beyond that of an ordinary buyer and seller. Accordingly, in the interest of statutory harmony, the investment advice prong also requires such a special relationship, which would exclude salespeople in ordinary buyer-seller transactions. By contrast, the fiduciary rule’s expansive definition of an investment advice fiduciary is not conditioned on such a special relationship, conflicts with the plain text of ERISA’s investment advice fiduciary provisions, and is inconsistent with the entirety of ERISA’s fiduciary definition. The promulgation of such an overreaching rule, the court held, exceeds the DOL’s statutory authority.

Remedial purpose of ERISA does not justify fiduciary rule.

The DOL, throughout the process of developing the fiduciary rule, justified the regulatory scheme as serving ERISA’s purpose of protecting individual retirement assets, thoroughly documenting the sea changes in the marketplace necessitating the rules. The Fifth Circuit panel, however, maintained that “vague notions” of a statute’s basic purpose cannot overcome unambiguous statutory text. In addition, the court noted that Congress was aware of the purposes of ERISA when it drafted Title II, excluding IRA advisers from the duties of loyalty and prudence. In a singularly revealing passage, the court stated: “That times have changed, the financial market has become more complex, and IRA accounts have assumed enormous importance are arguments for Congress to make adjustments in the law, or for other appropriate federal or state regulators to act within their authority. A perceived “need” does not empower DOL to craft de factostatutory amendments or to act beyond its expressly defined authority.”

Fiduciary rule fails reasonableness test

Assuming for the sake of argument some ambiguity in the phrase “investment advice for a fee,” the court next concluded that the DOL’s interpretation was: (1) unreasonable under Chevron Step 2; and (2) arbitrary and capricious, contrary to law, and in excess of statutory authority, in violation of the Administrative Procedures Act (APA). Generally, the court found that the fiduciary rule was unreasonable because it disregarded the “essential” common law trust and confidence standard and was in conflict with ERISA’s statutory text. The court also stated that the DOL’s 40-year process of discovering the “novel” interpretation highlighted the rule’s unreasonableness.
The court cited several specific reasons highlighting the unreasonableness of the fiduciary rule and its incompatibility with the APA.

Rule exceeds DOL authority under ERISA Title II.

The fiduciary rule ignores the statutory distinction in ERISA Title I and Title II delineating DOL authority over employer-sponsored plans and IRAs, impermissibly conflating ERISA plan fiduciaries with IRA financial services providers. The court focused especially on the potential liability (beyond authorized tax penalties) to which brokers and insurance agents are subject under BICE, but not Title II. On this “basic level,” the court ruled, the DOL unreasonably failed to follow statutory guidance and the clear distinction in the scope of its authority under ERISA Titles I and II.

Final rule covers nonfiduciary relationships.

The final rule encompasses relationships and transactions (e.g., sales transactions) that are not fiduciary in nature. The DOL could not rely on its narrow power to issue prohibited transaction exemptions to cure the overreach of the fiduciary rule by implementing BICE. The fact that BICE was “independently indefensible,” the court reasoned, “doomed the entire rule.”

Rule imposes new liabilities on parties previously subject only to tax penalties.

BICE exceeds the DOL’s authority to create conditional PT exemptions by imposing Title I statutory duties of prudence and loyalty on brokers and insurance representatives. According to the court, “the grafting of novel and extensive duties and liabilities on parties otherwise subject only to prohibited transaction penalties is unreasonable and arbitrary and capricious.”

Authorization of private cause of action violates separation of powers.

The BICE provision authorizing a private cause of action against Title II advisers violates the Constitutional separation of powers, as only Congress can create privately enforceable rights. The DOL’s “assumption of non-existent authority to create private rights of action was unreasonable and arbitrary and capricious,” the court stressed.

Fiduciary rule evades Dodd-Frank and infringes on SEC turf.

The final rule unreasonably outflanks Congressional initiatives under the Dodd-Frank Act to secure further oversight over broker-dealers handling IRA investments and the sale of fixed indexed annuities. Specifically, the court focused on provisions in Dodd-Frank prohibiting the SEC from eliminating broker-dealer commissions and the exemption of fixed indexed annuities from SEC regulation. Rather than “infringing on SEC turf,” the court advised, the DOL should have deferred to the Dodd-Frank delegations and supported SEC practices to assist IRA and individual investors.

Novel interpretation of established position.

The DOL’s novel re-interpretation of the established definition of an investment advice fiduciary and its “exploitation” of an exemption provision in a comprehensive regulatory framework is a regulatory abuse of power that, the court concluded, “bears the hallmarks of unreasonableness… and arbitrary exercise of administrative power.”

Fiduciary rule not subject to severance

Finally, the court held that the comprehensive regulatory package was “plainly not amenable to severance.” Accordingly, the court vacated the entire interlocking structure of the fiduciary rule.
Note: The dissent, written by Chief Judge Carl E. Stewart, generally found the DOL’s reinterpretation of the term “rendering investment advice” to be “reasonable and thoroughly explained” and a comfortable fit with ERISA’s broadly protective purposes. According to the dissent, the DOL acted within its delegated authority, and the fact that it imposed additional conditions on conflicted transactions was not contrary to any directive from Congress. The majority’s conclusion that the DOL exceeded its regulatory authority, the dissent maintained, was “premised on an erroneous interpretation” of the grant of authority given by Congress under ERISA and the Internal Revenue Code.

Source: Chamber of Commerce of the United States of America v. United States Department of Labor (CA-5)
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Many small businesses using QSEHRA to offer health benefits for first time, survey finds

Thu, 04/19/2018 - 18:27

More than 70 percent of small businesses that used the new qualified small employer health reimbursement arrangement (QSEHRA) in 2017 did so to offer employee health benefits for the first time, according to The QSEHRA: Annual Report 2018 from PeopleKeep.
Drawing on data from more than 600 small businesses and nearly 4,000 employees, the report offers the industry’s first look at how the new QSEHRA benefit is being used. The report also examines how the QSEHRA compares to traditional group health benefit options, like group health insurance.

New benefits vehicle.

The QSEHRA, which was created through the 21st Century Cures Act in December 2016, is a new vehicle small businesses can use to offer personalized health benefits. With a QSEHRA, businesses offer employees a tax-free monthly allowance. Employees then choose and pay for health care, including insurance policies, and the business reimburses them up to their allowance limit.
There are no minimum contribution requirements, and small businesses can offer different allowances to employees based on whether they have a family.
For the vast majority of small businesses that used the new benefit, the QSEHRA provided a way to offer health benefits for the first time. More than 70 percent of businesses that used the QSEHRA previously offered no health benefits, and the average allowance amount chosen by businesses ($391 per month) represents a maximum cost of between 38 percent and 47 percent less than what small businesses contributed to group health insurance premiums in 2017.
At the same time, more than a quarter of employees that used the QSEHRA were reimbursed for both premium and non-premium expenses—something not possible under a group health benefit.

Key findings.

Some of the key findings from the report are as follows:

  • Among businesses that offered a QSEHRA in 2017, 71 percent did not previously offer employee health benefits. Nearly 20 percent previously gave employees a taxable stipend for health care, and 6 percent previously offered traditional group health benefits.
  • Small businesses gave an average monthly allowance of $391.06 per employee in 2017, or $280.20 per self-only employee and $476.56 per employee with a family. Nearly a quarter (22 percent) of employees received the federal maximum monthly allowance of $412.50 per self-only employee and $833.33 per employee with a family.
  • Smaller companies typically offered higher allowance amounts, with 1-person companies offering an average $387.50 per self-only employee and $645.58 per employee with a family. That’s compared to companies with 31 to 50 employees, which offered an average $246.07 per self-only employee and $309.85 per employee with a famil.
  • U.S. states offering the highest average allowance per employee were South Dakota ($833.33), Connecticut ($638.22), West Virginia ($648.48), Delaware ($564.06), and Maine ($536.36).
  • In 2017, 40 percent of employees submitted at least one premium expense for reimbursement, including 41 percent of self-only employees and 39 percent of employees with a family.
  • Employees were much more likely to submit a premium for reimbursement if they received a larger monthly allowance amount. For example, just 25 percent of self-only employees who received $100 or less submitted a premium as compared to 48 percent who submitted a premium while receiving between $301 and $412.50 a month.

The report also found that employees in 2017 used an average 78 percent of their QSEHRA allowance, or 79 percent among self-only employees and 77 percent among employees with a family. More than half (52 percent) of employees used 100 percent of their QSEHRA allowance, including 24 percent of employees who received the federal maximum allowance. Average QSEHRA allowance amounts are 38 percent smaller than average business contributions to the group premium for single coverage and 47 percent smaller than average business contributions to the group premium for family coverage, according to the report.

SOURCE: www.peoplekeep.com
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IRS reduces user fee for determination letter requests submitted on Form 5310

Thu, 04/19/2018 - 18:15

The IRS has reduced the user fee applicable to a determination letter request submitted on Form 5310 (Application for Determination for Terminating Plan). Appendix A (Schedule of User Fees) of Rev. Proc. 2018-4 has been modified to reflect a reduction of the user fee from $3,000 to $2,300 effective January 2, 2018. In Rev. Proc. 2018-4, the IRS had increased the fee from $2,300 for 2017 to $3,000 for 2018. Applicants who paid the $3,000 user fee listed in Rev. Proc. 2018-4 will receive a refund of $700.
The revenue procedure is effective January 2, 2018. Rev. Proc. 2018-4 is modified.

Source: Rev. Proc. 2018-19
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CCIIO modifies employee counting method for MLR provision

Wed, 04/18/2018 - 18:13

The Center for Consumer Information and Insurance Oversight (CCIIO) has issued technical guidance regarding the employee counting method for determining market size for purposes of the Patient Protection and Affordable Care Act’s (ACA; P.L. 111-148) medical loss ratio (MLR) provision. In addition, the CCIIO has issued technical guidance on the process for a state to submit a request for adjustment to the individual market MLR standard.

MLR.

The ACA requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement, known as the MLR. The minimum MLR for large group plans (defined as those with 51 or more employees) is 85 percent. The minimum MLR for individuals and small group plans (defined as those with 50 or fewer employees) is 80 percent. If minimums are not maintained, rebates must be provided to health plan participants.

Counting employees.

Previous CCIIO guidance specified that, for MLR purposes, an employer’s number of employees is determined by averaging the total number of all employees employed on business days during the preceding calendar year, and that each full-time, part-time, and seasonal employee should be included. However, the CCIIO noted that this approach differs from the method utilized for purposes of the HHS-operated risk adjustment program established under ACA section 1343, as well as the methods utilized for rating and other purposes in many states. This has led to increased complexity and reporting burden for issuers, the CCIIO has determined.

Therefore, beginning with MLR reports filed in the 2018 calendar year (i.e., for the 2017 MLR reporting year), health insurance issuers may continue to use the employee counting method specified above. In addition, health insurance issuers may elect to use the same employee counting method that is used for the HHS-operated risk adjustment program. The HHS-operated risk adjustment program defers to the applicable state counting method, unless the state method does not take into account non-full-time employees. In that circumstance, the risk adjustment program utilizes the full-time equivalent method described in IRC Sec. 4980H(c)(2). In addition, when a small employer participating in the SHOP Exchange ceases to be a small employer solely by reason of an increase in the number of its employees and the employer continues to be treated as a small employer for purposes of SHOP participation under ACA section 1304(b)(4)(D) and 45 CFR §155.710(d), an employer should be treated as a small employer for purposes of the MLR program if the issuer elects to use the risk adjustment program’s counting method.

State adjustment to individual MLR standard.

The CCIIO has also issued technical guidance on the process for a state to submit a request for adjustment to the individual market MLR standard. PHSA Sec. 2718(d) provides that the MLR standard in the individual market may be adjusted if the HHS determines it is appropriate on account of the volatility of the individual market due to the establishment of the Exchanges. Starting in 2018, an adjustment may be granted if the state can demonstrate that a lower MLR standard could help stabilize its individual market.

The technical guidance provides the address and format required for state requests for an adjustment of the individual market MLR standard. All requests must be made to the following email address: MLRAdjustments@cms.hhs.gov. The request must include the proposed adjusted MLR standard and an explanation of how the adjustment will help stabilize the state’s individual market, as well as the proposed effective date and duration of the adjustment (up to three years).

SOURCE: https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/MLR-Guidance-Employee-Counting-Method-2018.pdf; https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/MLR-Guidance-State-Adjustments-2018.pdf
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IRS modifies procedures for issuing opinion/advisory letters for pre-approved DB plans with cash balance formula

Wed, 04/18/2018 - 18:01

The IRS has modified procedures for issuing opinion and advisory letters for pre-approved defined benefit (DB) plans containing a cash balance formula. Specifically, the IRS has modified sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36 to allow pre-approved DB plans containing a cash balance formula to provide for the actual rate of return on plan assets as the rate used to determine interest credits. The IRS has also modified section 6.03(7)(c) of Rev. Proc. 2017-41 relating to the rates that are permitted to be used to determine interest credits in pre-approved DB plans containing a cash balance formula. In addition, references to “hypothetical interest” and “hypothetical interest credits” in Rev. Proc. 2015-36 have been changed to “interest credits”, consistent with terminology in Rev. Proc. 2017-41. The modifications are effective March 16, 2018.

Background

Rev. Proc. 2015-36 provides the procedures for requesting opinion and advisory letter for master & prototype and volume submitter plans for the second six-year remedial amendment cycle. In Rev. Proc. 2015-36, the IRS adds procedures for DB plans with cash balance features and sets forth definitions relating to hybrid plans. A cash balance formula is defined as a statutory hybrid benefit formula used to determine all or any part of a participant’s accumulated benefit, under which the accumulated benefit is expressed as the current balance of a hypothetical account maintained for the participant. The hypothetical account balance is described as generally consisting of principal credits and hypothetical interest credits. Sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36 provide that opinion and advisory letters will not be issued for statutory hybrid plans that include provisions that allow a rate used to determine hypothetical interest to be based on the actual return on plan assets or a subset of plan assets or the rate of return on certain regulated investment companies (RICs).
Rev. Proc. 2017-41 modifies and supersedes Rev. Proc. 2015-36 for applications for opinion letters for pre-approved plans submitted for the third (and later) six-year remedial amendment cycles. Rev. Proc. 2017-41 modifies the IRS pre-approved plan letter program by combining the master and prototype and volume submitter plan programs into a new opinion letter program. However, the provisions of Rev. Proc. 2015-36 continue to apply to applications for opinion and advisory letters submitted during the second six-year remedial amendment cycle. Among other things, Rev. Proc. 2017-41 clarifies that for purposes of the definition of “cash balance formula” the “hypothetical account balance generally consists of Principal Credits and Interest Credits.” In addition, Rev. Proc. 2017-41 also deletes the restriction on using a rate that is based on the actual return on plan assets in determining interest credits. This modification allows nonstandardized pre-approved DB plans with a cash balance formula that are submitted for an opinion letter during the third (and subsequent) six-year remedial amendment cycles to provide for a rate that is based on the actual return on plan assets as the rate used to determine interest credits, including a rate that is equal to the actual rate of return on aggregate plan assets.

Actual rate of return on plan assets used to determine interest credits

The IRS explains that, after the release of Rev. Proc. 2017-41, the IRS received comments requesting that plans submitted under Rev. Proc. 2015-36 be permitted to provide for a rate equal to the actual rate of return on aggregate plan assets as the rate used to determine interest credits. The IRS states that it has determined that it is appropriate to allow master and prototype nonstandardized DB plans and volume submitter DB plans that contain a cash balance formula, submitted under Rev. Proc. 2015-36 for the second six-year remedial amendment cycle, to provide for a rate equal to (but not merely based on) the actual rate of return on aggregate plan assets as the rate used to determine interest credits. The IRS also has decided to clarify that, although these plans generally may not provide that the rate used to determine interest credits is based on the rate of return on RICs, the rate used to determine interest credits may be equal to the actual rate of return on aggregate plan assets even if that return includes returns on RICs.
In addition, the IRS has determined that Rev. Proc. 2017-41 should be revised, consistent with these changes to Rev. Proc. 2015-36, to allow pre-approved defined benefit plans that contain a cash balance formula, submitted for the third (and subsequent) six-year remedial amendment cycles, to provide for a rate equal to the actual rate of return on aggregate plan assets as the rate used to determine interest credits (rather than a rate that is merely based on the actual return on plan assets) and to clarify that the rate used to determine interest credits may be equal to the actual rate of return on aggregate plan assets even if that return includes returns on RICs.
Finally, the IRS has decided to modify Rev. Proc. 2015-36 to make clarifying changes to the definition of hypothetical account balance and related clarifications throughout the revenue procedure, where applicable, consistent with Rev. Proc. 2017-41.
The IRS has provided the revised language for sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36 and for section 6.03(7)(c) of Rev. Proc. 2017-41 as well as clarifications to terminology relating to statutory hybrid plans throughout Rev. Proc. 2015-36.

Source: Rev. Proc. 2018-21.
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IRS FAQs address new employer credit for paid family and medical leave

Tue, 04/17/2018 - 18:43

The IRS has issued a set of frequently asked questions (FAQs) that address the new employer credit under Code Sec. 45S for paid family and medical leave. The Tax Cuts and Jobs Act (P.L. 115-97) created the credit, which is generally effective for wages paid in taxable years of the employer beginning after December 31, 2017. It is not available for wages paid in taxable years beginning after December 31, 2019.

Claiming the credit.

The credit is a general business credit employers may claim, based on wages paid to qualifying employees while they are on family and medical leave, subject to certain conditions. An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit. Also, any wages taken into account in determining any other general business credit may not be used in determining this credit.
To claim the credit, employers must have a written policy in place that meets certain requirements, including providing that:

  • at least two weeks of paid family and medical leave (annually) to all qualifying employees who work full time (prorated for employees who work part time), and
  • the paid leave is not less than 50 percent of the wages normally paid to the employee.
Calculating the credit.

The FAQs indicate that the credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The minimum percentage is 12.5% and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages, with a maximum of 25%. In certain cases, an additional limit may apply.

Qualifying employee.

The FAQs indicate that a qualifying employee is any employee under the Fair Labor Standards Act who has been employed by the employer for one year or more and who, for the preceding year, had compensation of not more than a certain amount. For an employer claiming a credit for wages paid to an employee in 2018, the employee must not have earned more than $72,000 in 2017.

Reasons for leave.

For purposes of the credit, “family and medical leave” is leave for one or more of the following reasons:

  • Birth of an employee’s child and to care for the child.
  • Placement of a child with the employee for adoption or foster care.
  • To care for the employee’s spouse, child, or parent who has a serious health condition.
  • A serious health condition that makes the employee unable to perform the functions of his or her position.
  • Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces.
  • To care for a service member who is the employee’s spouse, child, parent, or next of kin.

The FAQs clarify that if an employer provides paid vacation leave, personal leave, or medical or sick leave (other than leave specifically for one or more of the purposes stated above), that paid leave is not considered family and medical leave. In addition, any leave paid by a state or local government or required by state or local law will not be taken into account in determining the amount of employer-provided paid family and medical leave.

Additional information.

The FAQs indicate the IRS expects that additional information will be provided that will address, for example, the following:

  • when the written policy must be in place,
  • how paid “family and medical leave” relates to an employer’s other paid leave,
  • how to determine whether an employee has been employed for “one year or more,”
  • the impact of state and local leave requirements, and
  • whether members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit.

SOURCE: Section 45S Employer Credit for Paid Family and Medical Leave FAQs, April 9, 2018.
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