Sponsors of group health plans in the First Circuit must now describe any contractual limitations period, if the plan applies one, in the letter advising a participant of a final adverse benefit determination. In light of the decision of the U.S. Court of Appeals for the First Circuit in Santana-Diaz v. Metro. Life Ins. Co., No. 15-1273, 2016 WL 963830 (March 14, 2016), the failure to include such a description would preclude the application of a contractual limitations period. ERISA does not prescribe a statute of limitations for initiating a civil action. However, as discussed in our 2015 Mid-Year Client Advisory, a plan sponsor may limit the amount of time a participant has to initiate a lawsuit under ERISA by adding a contractual limitations period to its plan. The limitations period should be included in the plan document and the SPD and, until recently, it was a “best practice” to make the limitations period known in adverse benefit determination letters. Following Santana-Diaz, however, including a description of the applicable limitations period in the final benefit determination is now a necessity for plan sponsors in the First Circuit.
In the first decision issued since the passing of Justice Scalia, the Supreme Court of the United States held that ERISA preempts a Vermont statute requiring third party administrators of self-insured group health plans to report claims information to state health care databases. Gobeille v. Liberty Mut. Ins. Co. addresses two important issues for benefit plans: (1) the scope of ERISA preemption; and (2) mandated reporting to state maintained “all-payer claims databases” (APCDs), which an increasing number of states are attempting to create in an effort to assess the cost, quality, and utilization of health services. Employers should benefit from the broad ERISA preemption standard re-affirmed in the majority opinion authored by Justice Kennedy. Plan sponsors, insurance carriers, and third party administrators should also take comfort in avoiding a patchwork of state APCD reporting requirements that may create foot faults for these entities.
Late last month the IRS released, in the form of 26 Q/As in Notice 2015-87, guidance on the application of various provisions of the Affordable Care Act to employer-sponsored health coverage. The Notice covers a number of important issues, including the effect of health reimbursement account contributions, cafeteria plan flex credits, and employer opt-out payments on an employee’s cost of coverage for purposes of determining affordability under Code § 4980H(b). The Notice also addresses the application to government entities of the employer shared responsibility rules, information reporting for applicable large employers, health savings account matters for persons eligible for benefits through the Department of Veterans Affairs, COBRA continuation coverage for carried over health flexible spending account balances, and penalty relief for employers that make a good faith effort to comply with the ACA reporting rules.
Regarding employer opt-out arrangements, for months the IRS has stated, informally in various settings, that an employer should include the value of an opt-out payment in determining and reporting an employee’s cost of coverage. (An opt-out payment is taxable income provided to an employee for waiving coverage under the employer’s health plan.) Under this rule an opt-out payment might cause an employee’s cost of coverage to become unaffordable, thereby potentially subjecting the employer to an assessable payment. Though the statutory and regulatory basis for this position is somewhat thin, a senior official at the IRS confirmed this view to us last summer.
Oddly enough, Notice 2015-87 both confirms and retreats from this position. Specifically, it provides that until the issuance of further guidance a payment under any opt-out payment arrangement in place prior to December 17, 2015 need not be reported on Form 1095-C and will not, on its own, cause an employer to be subject to a shared responsibility penalty. Further (as confirmed by communication with the principal author of the Notice) and again until IRS guidance states otherwise, a payment under a conditional opt-out arrangement (for example, one requiring an employee to show proof of coverage under the spouse’s plan in order to receive the payment) adopted at any time need not be reported on Form 1095-C and will not, on its own, cause an employer to be subject to a shared responsibility penalty.
Though the Notice provides that, for the time being, opt-out payments under certain arrangements need not be added to an employee’s cost of coverage for purposes of reporting and determining affordability, such payments will be added to an employee’s cost of coverage for purposes of determining (i) the employee’s eligibility for a subsidy on the Exchange, and (ii) whether the employee might be exemption from a penalty under the individual mandate.
This Client Advisory highlights certain developments regarding the Affordable Care Act (most significantly, the delay of the ACA reporting requirements and the “Cadillac” tax), discusses the EEOC’s proposed rules for wellness programs and the outcome of recent EEOC wellness program litigation, reviews important cases recently decided by and pending before the U.S. Supreme Court, and provides updates regarding church plan litigation and the Department of Labor’s proposed fiduciary rule. We also offer thoughts about what employers can expect to see in 2016 in the way of agency enforcement activities. Since 2016 is a presidential election year, few observers expect to see much, if any, significant legislation enacted by Congress. But regulatory agencies, entering the final year of the Obama administration, may be more active and productive in 2016.
At this time of year many employers finalize welfare plan designs for 2016 and gear up for open enrollment. And this summer, many employers are in the process of reviewing updated pre-approved defined contribution plan documents provided by their record keeping firms. With those efforts in mind, this Client Alert is devoted to three benefit plan design and documentation topics driven by the recent release of EEOC proposed rules for wellness programs, recent cases that suggest ways to limit exposure to benefit claims through plan language, and best practices in reviewing pre-approved defined contribution plan documents.