Breaking news from the IRS: Today the IRS announced that the information gathered from the infamous “Questionnaire” is now consolidated in a report prepared by the IRS and posted on its website. The report describes the responses and identifies those areas where additional education, guidance, and outreach is needed; and how the IRS can focus its enforcement efforts to address and avoid non-compliance related to 401(k) plans. It is intended to be a resource for employers to identify areas of noncompliance and to access the correction programs available to them.

In addition to the Labor regulations released yesterday on the disclosure requirements for plan’s provider fees, a comprehensive analysis of the IRS report will be presented at the next regularly scheduled Mitchell-Williams Benefits Roundtable webinar scheduled for 1:00 CST March 13, 2012.

In a press conference this morning, Phyllis Borzi, the Assistant Secretary of Labor of the Employee Benefits Security Administration (“EBSA”), announced that the final regulations under ERISA section 408(b)(2) have been issued. The issuance of this long-awaited regulation governs the specific disclosures pertaining to the contractual relationship plan fiduciaries have with their responsible plan’s service providers. The issuance of these final regulations also work to trigger the sixty-day period for the effective date for plan sponsors to comply with the disclosure requirements under ERISA section 404.

Mitchell-Williams will sponsor a webinar at its regularly scheduled monthly Benefits Roundtable at 1:00 March 13 to provide a more complete explanation of these newly-issued regulations. Meanwhile, it is suggested that sponsors of defined contribution plans and defined benefit plans contact their service providers for information on how they are preparing to respond to the regulations.

Mitchell Williams wishes to make you aware of an ongoing IRS program which is a good resource available to sponsors and administrators of employee benefit plans.  As a part of the Internal Revenue Service’s outreach program, the continuing series of free telephone forums offers informative presentations on an array of employee benefits topics.  This firm recommends that plan sponsors and administrators routinely participate in these forums as part of a “best practice” to identify and correct existing employee plan compliance issues, continue administering its employee benefit plans in accordance with the governing rules and regulations, and as part of a continuing fiduciary training program.  It is also good practice to document the attendance of your plan officials who participate in any training program to maintain a permanent record of all training exercises. 

The next IRS free telephone forum will discuss participant loan issues. The phone forum is conducted by IRS personnel with the Employee Benefits Division and is scheduled for 1:00 CST.  September 12, 2011.  Employers and administrators with specific questions relating to the topic are invited to submit the questions in advance of the scheduled telephone forum.

According to the IRS website, the presenters will focus on the Code section 72 treatment of loans as distributions under their taxability, and their relationship with the prohibited transaction rules of Code section 4975.  The presenters will also identify the frequent issues pertaining to participant loans and acceptable methods of correction.

Presenters will be David Boyd, Manager EP Mandatory Review, and Kathleen Wack, Employee Plans Revenue Agent.

For more information, the IRS website directs interested persons to go to: http://www.irs.gov/retirement/article/0,,id=218995,00.html.

Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) introduced legislation intended to shore up opportunities for 401(k) participants to lose retirement savings through “leakage.”    While participants appreciate the access loans and hardship distributions gives them to their 401(k) plan deferrals and earnings,  this access often results in the permanent withdrawals of tax-deferred assets (e.g. “leakage”).  

Please click below to download the full article.

For those of you who attended the recent Mitchell-Williams Tax Seminars in either Rogers or Little Rock, I talked about the interim final regulations addressing events which would cause a health care plan to lose its grandfathered status.  Being that “grandfathered” plans are exempt from many of the requirements mandated under the health care reform act (i.e. the Patient Protection and Affordability Act), employers want to understand which decisions they can make without impacting the grandfathered status of their plans. 

Interim Final Regulations were issued  describing what events an employer could take without impacting the grandfathered status of its group health plan, and which events would cause it to lose the grandfathered status.  As a result of the comments received by the HHS to the interim final regulations, it has reconsidered its position on the one event when an employer’s changing of insurance providers would cause a group health plan to lose a grandfathered status.  According to the HHS, the comments cited four general concerns:  (1) that insured plans had more restrictions than did self-insured plans; (2) the interim final regulations do not consider situations where a provider must be changed because of circumstances outside of the sponsor’s control – such as a provider that ceases covering employer-plans; (3) the grandfather status would be adversely impacted by an insurer transferring a policy to a related party; and (4) the insured-plan sponsors who wanted to retain its grandfathered status would be precluded from “shopping” their business to more competitive providers.  

The Department of Health and Human Services published new guidance on its web-page yesterday afternoon:  “Following review of the comments submitted on this issue and further review and consideration of the provisions of section 1251 of the Affordable Care Act, the Departments have determined it is appropriate to amend the interim final regulations to allow a group health plan to change health insurance coverage (that is, to allow a group health plan to enter into a new policy, certificate, or contract of insurance) without ceasing to be a grandfathered health plan…”

Based on this guidance the new definition of a “grandfathered plan” is a group health plan or policy which was in effect on March 23, 2010,  continually covers at least one participant, and which does not experience a “material change”.  By regulation, the term “material change” is defined as one of five events: (1) eliminating or significantly reducing benefits; (2) raising co-insurance or co-payments; (3) raising deductibles; (4) reducing employer contributions; or, (5) adding or increasing an annual limit,.  Changes to premiums or plan changes to comply with the Act or other laws, replacing a third party administrator, changing the plan structure from a health reimbursement arrangement to major medical for example, or changes to a provider network or a prescription drug formulary, will not amount to a material change.

Small and mid-sized businesses which sponsor or administer 401(k) or Profit-Sharing Plans may want to take advantage of a free on-line seminar to be held January 27, 2011 and hosted by Pension & Investments.  The seminar is scheduled from 10:00 AM – 5:00 PM Eastern Standard Time

According to the notice Pension and Investments published today, the seminar is “for small and midsize employers sponsoring defined contribution plans, as well as for advisers and other providers of services to those plans. Uncertainties abound: the economy; what legislation and regulation will come from Washington; which investment options and option providers are best for your plan; and how best to ensure plan participants have an adequate income at retirement.”

The seminar is described to be in “straightforward language, and will provide time-tested strategies from experts and your peers. Whether your objective is to build your business and best help your clients, or make prudent decisions for your plan participants, this conference will provide the answers you need.”
This conference may be a part of a larger training program which the pan administrator, investment committee, and other fiduciaries should participate in on a routine basis.

For those who don’t know Pension & Investments, it bills itself as “Independent, Trusted, Unbiased.  Founded in 1973, Pensions & Investments is the industry’s leading institutional investment newspaper. P&I reaches a qualified audience of 165,000 investment professionals every other week.”  You can learn more about this conference and how to register by going on line to:  http://www.pionline.com/

On June 22, 2010, the Wage and Hour Division (WHD) of the US Department of Labor issued Administrator’s Interpretation No. 2010-3 which provides a broad interpretation of a “son or daughter” for purposes of the Family Medical Leave Act.   An employee who assumes the role of caregiving for a child is entitled family leave regardless of their legal or biological relationship to the child. This clarification of the law now extends FMLA to non-traditional families, including families in the lesbian, gay, bisexual, and transgender community, who have often been denied family leave. The FMLA allows workers to take up to 12 weeks of unpaid leave during any 12-month period for the birth or placement of a son or daughter, to bond with a newborn or newly placed son or daughter, or to care for a son or daughter with a serious health condition.

Consequences to employers subject to the family and medical leave requirements and who don’t currently use this broader interpretation of “son or daughter” include:

• assuring that the current internal  policies and practices comply with the interpretation and that all personnel managers understand the employees’ rights under FMLA.
• Extending eligibility, vesting, and years of service rules under the qualified plans (e.g. 401(k) and Health Plan) to persons who take FMLA in accordance with the expanded interpretation of the rules.
• Applying the COBRA eligibility requirements to persons who take FMLA under the expanded rules and terminate employment during the 12 weeks leave instead of returning to active work
• As there is no effective date prescribed in the DOL’s interpretation, employers need to determine when to adopt the interpretation as part of their  internal policy and procedures.  For instance logistics need to be considered, the qualified plan administrators need to consider what if any changes are need to the plans or policies and need to formally adopted them accordingly.  Employers need also determine how to  treat  those employees who are currently on a leave other than under FMLA for reasons which would now qualify as an FMLA leave

The DOL’s ERISA Advisory Committee has proposed changes to the current participant communication requirements.  Presently, in an attempt to avoid liability from non-compliant communications (and in my opinion as the result of hyper-conservative legal counsel) plan administrators create participant communications full of language directly borrowed or excerpt from regulations and statutes.  Then there is all the added self-serving language which works to produce the voluminous, almost indecipherable, and techno-worded participant communications. 

Under the leadership of the ERISA Advisory Committee, efforts to reverse this trend are now underway.  The DOL is a decade behind the IRS in its efforts to revise its regulations and enforcement to better meet the practical needs of the participants in ERISA-qualified plans.  This effort has hopes that the DOL will take its first step into the 21^st century.  If the movement materializes into meaningful reform, then plan administrators should expect some relief from the compliance and resource stress of meeting the current requirements and plan participants will be the direct beneficiaries.

 http://www.dol.gov/ebsa/publications/2009ACreport2.html

Yesterday, the President signed H.R. 4691 titled “Temporary Extension Act” for the purpose of extending certain benefits and programs which expired on February 28, including the COBRA premium subsidy.  There are 4 things for plan administrators to first consider in light of the new 30-day COBRA subsidy extension:

1. The Legislation.  The legislation provides some differences from the previous extension requirements and assigns plan administrators with an additional notice requirement:

a.  Temporary Extension Act Assistant Eligible Individuals.  An assistant-eligible individual(“AEI”) under this extension includes any qualifying beneficiaries who are involuntarily terminated after the enactment of the Act (i.e. March 2^nd) PLUS it includes those qualifying beneficiaries who were involuntarily terminated after March 2, 2010, AND who previously experienced a qualifying event for reason of a reduction in work hours BUT (1) did NOT previously elect continuation coverage, or (2) elected and discontinued continuation coverage.   

b. TEA-AEI Coverage Elections.  Those AEIs who previously had a qualifying event by reason or a reduction in hours and  are now entitled to make an election for subsidized coverage (referred to here as “temporary extension act AEIs” or “TEA-AEIs”) shall be provided an opportunity to further elect subsidized continuation coverage as if the involuntary termination was the qualifying event.

c. TEA-AEI Special Calculation of Coverage Period Rule – For purposes of calculating the period of entitlement to COBRA coverage, the date of the qualifying event for any TEA-AEI shall be the date of the qualifying event by reason of the reduction in hours and not the involuntary termination.

d. Notice.   The plan administrator is required to provide to qualified beneficiaries and new participants a notice with information of this extension under the same rules as those governing the notices required under the previous notices.

 2. Qualified Beneficiary Notification.   The DOL has not yet posted a model notice or any guidance on how notices should be treated with this new extension.   It is advised that pending DOL notification guidance, plan administrators immediately provide information of their eligibility for subsidized continuation coverage to  qualified beneficiaries who are involuntarily terminated today or after should be informed.

3. AEI Eligibility.  Because of the special eligibility and calculation requirements for TEA-AEI  under the new legislation, it is advised that plan administrators contact their third-party administrator to confirm that:

a. the appropriate procedures are in place to provide an election for subsidized coverage to those who are involuntarily terminated after yesterday and who previously experienced a (1) who did not elect or (2) who elected but discontinued, continuation coverage by reason of a reduction in work hours, and;

b. the COBRA coverage period for TEA-AEIs is calculated from the date of qualifying event be reason of the reduction in hours.

In its February 11, 2010, Weekly, the Employee Benefits Institute of America looked to the regulations set forth in 29 CFR 825.212 to answer that very question. 

The employer’s obligation to provide health coverage under FMLA ends when the employee is delinquent on a premium payment for thirty days, unless the employer has a policy or practice to provide an extended grace period. If the employer does not opt to use any remedial alternatives, such as paying the premium for the delinquent participant, then at least fifteen days before the effective date coverage will be dropped, the employer must provide the participant with a written notice sent to the participant’s most current address of record informing the participant of the date of the impending or retroactive termination of benefits. It seems advisable that the notice also contain and the payment amount and payment receipt date necessary to prevent the termination.

Important for employers to know, is that the regulations under the FMLA require that the employer must reinstate, without a waiting period or pre-existing condition limitations, the equivalent benefits including dependent coverage, to the returning FMLA employee or possibly face restoration of monetary loss and punitive damages. If the employer pays the employee’s portion of the premium while the employee is on FMLA-leave and the employee does not return to employment, then the employer has the right to seek reimbursement from the employee.

All COBRA, HIPAA and other appropriate notifications are to be timely sent to employees on FMLA who do not return to employment at the end of the leave and experience a qualifying experience as a result.

29 CFR 825.212 – Employee failure to pay health plan premium payments.

(a)(1) In the absence of an established employer policy providing a longer grace period, an employer’s obligations to maintain health insurance coverage cease under FMLA if an employee’s premium payment is more than 30 days late. In order to drop the coverage for an employee whose premium payment is late, the employer must provide written notice to the employee that the payment has not been received. Such notice must be mailed to the employee at least 15 days before coverage is to cease, advising that coverage will be dropped on a specified date at least 15 days after the date of the letter unless the payment has been received by that date. If the employer has established policies regarding other forms of unpaid leave that provide for the employer to cease coverage retroactively to the date the unpaid premium payment was due, the employer may drop the employee from coverage retroactively in accordance with that policy, provided the 15-day notice was given. In the absence of such a policy, coverage for the employee may be terminated at the end of the 30-day grace period, where the required 15-day notice has been provided.

(2) An employer has no obligation regarding the maintenance of a health insurance policy which is not a “group health plan.” See Sec. 825.209(a).

(3) All other obligations of an employer under FMLA would continue; for example, the employer continues to have an obligation to reinstate an employee upon return from leave.

(b) The employer may recover the employee’s share of any premium payments missed by the employee for any FMLA leave period during which the employer maintains health coverage by paying the employee’s share after the premium payment is missed.

(c) If coverage lapses because an employee has not made required premium payments, upon the employee’s return from FMLA leave the employer must still restore the employee to coverage/benefits equivalent to those the employee would have had if leave had not been taken and the premium payment(s) had not been missed, including family or dependent coverage. See Sec. 825.215(d)(1) through (5). In such case, an employee may not be required to meet any qualification requirements imposed by the plan, including any new preexisting condition waiting period, to wait for an open season, or to pass a medical examination to obtain reinstatement of coverage. If an employer terminates an employee’s insurance in accordance with this section and fails to restore the employee’s health insurance as required by this section upon the employee’s return, the employer may be liable for benefits lost by reason of the violation, for other actual monetary losses sustained as a direct result of the violation, and for appropriate equitable relief tailored to the harm suffered. [73 FR 68091, Nov. 17, 2008]