HR Focus. Spring OK, I Was Wrong by Steven A. Palazzolo

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1 Spring 2009 Medicare Disclosure 3 Section 409A 4 WARN Act 5 Associational Retaliation 6 Divorce Beneficiary 7 Freeze on Regulations 8 Human Resources Newsletter HR Focus OK, I Was Wrong by Steven A. Palazzolo Well, this has been a pretty good run for me (he said, dripping with sarcasm). A couple of newsletters ago I was suggesting that we kill all the lawyers, which made a bunch of the partners here really happy (note: sarcasm present again), and now I have to admit that I was well, I was just wrong. Wrong about what, you ask? Well, let me tell you. I was wrong about what Congress was going to do. You see, we here at WNJ have been doing a series of programs on the new FMLA regulations, the Americans with Disabilities Amendments Act, and a short section on what we thought the first set of labor and employment law changes would be from the new administration and the 111th Congress. Those of you who have been to these sessions saw me stand up in front of a room full of people, some of you included, on more than one occasion and say in my most authoritative lawyer voice: THE EMPLOYEE FREE CHOICE ACT WILL BE HR 1, THE FIRST BILL CONSIDERED BY THE NEW CONGRESS AND THE FIRST BILL SIGNED BY THE NEW PRESIDENT. (In case you did not get that, the capital letters are to imitate my most convincing lawyer voice.) Guess what? I WAS WRONG! (Thought I should admit I was wrong in my booming lawyer voice, too.) Not only was The Employee Free Choice Act not HR 1 in the 111th Congress, it has not even been introduced yet. What is that you say, not introduced? Yes, not introduced. Now I don t want you to think that this means the new Congress and the new administration have abandoned their commitment to labor and/or employees, because they have not. In fact, the White House Web site, which can be found at says the following about the administration s commitment to civil rights, for example: continued on page 9

2 Editor s Note Dawn Of A New Era As President Obama settles into the White House and the general public grapples with stimulus packages, tax breaks and cuts, foreclosures and myriad economic woes, employers should be aware that change is afoot on the Human Resources scene too. In fact, the change to a Democratic president is shifting focus to quite a few adjustments to laws governing labor and employee benefits. One of the first acts of the Obama Administration was to issue a memorandum to all federal agency heads directing them to suspend or withdraw all proposed or final regulations not yet published and to postpone the effective date of any regulations published but not yet effective. (See story, Page 8) Despite what we proclaimed in the last newsletter, the Employee Free Choice Act was not the first bit of legislation to pass the president s desk (Sorry, Mr. Palazzolo). Instead, employers should be brushing up on employment discrimination, paid sick days, FMLA guidelines, contract negotiations and employment eligibility. An article in today s edition touches on all of these subjects (see story, Page 1) and is worth the time it takes to read. This newsletter also examines a number of court cases that will have an impact on employers either right now or in the immediate future. As HR professionals, you should become familiar with such subjects as associational retaliation, Medicare disclosure obligations, the WARN Act and retirement plan beneficiary designations. Fortunately, we cover all that and more in today s newsletter. The Editors Environmental Consciousness (Or Help Save A Tree) As Warner Norcross & Judd enhances its sustainable business initiative in 2009, we invite you to participate in your own little way. If you would prefer to receive our newsletters in an electronic PDF format instead of a paper version, please contact Nicole Kosheba at nkosheba@wnj.com and we will be happy to make that change. Thanks in advance for joining us in this important mission.

3 Keeping Track of Your Health Plan s Medicare Disclosure Obligations by Norbert F. Kugele Over the last few years, Congress has made a number of changes to the Medicare program, including the creation of the Medicare Part D prescription drug program. It has also been working on reducing the obligations of Medicare to pay benefits when Medicare participants also participate in other health plans known as the Medicare Secondary Payer program. Both of these programs impose disclosure requirements on employer-sponsored health plans. MEDICARE SECONDARY Payer PROGRAM Introduces New REPORTING RequIREMENTS The Medicare Secondary Payer (MSP) program is designed to make sure that in most cases the Medicare program will pay secondary to other health plans including the group health plan that your company sponsors for active employees. The rules also prohibit your company from offering financial or other incentives to individuals who are entitled to Medicare benefits in an effort to get them to opt out of your group health plan. The newest obligation under the MSP program generally requires your company s group health plan to report to the Centers for Medicare and Medicaid Services (CMS) information about actively employed participants who may be Medicareeligible, or about the covered spouse or other family member of an actively employed participant who may be Medicare-eligible. CMS will use this data to identify Medicare beneficiaries who may be covered by a group health plan that should pay primary to Medicare. Failure to report could result in a penalty of up to $1,000 for each day of noncompliance for each individual for whom information should have been submitted and any other penalties and claims permitted under the MSP regulations (such as claims to recover medical expenses a plan should have covered on a primary basis). The good news is that the reporting obligation lies primarily with your insurer (if you have an insured group health plan) or third party administrator (if you have self-insured benefits). If your company has any self-insured health benefits that it administrates in-house, however, your company is also subject to these requirements and may have to report directly to CMS. If you have to report directly to CMS and have not previously entered into a data sharing or exchange agreement with CMS, you will need to do so in April For the most part, a group health plan includes any plan that provides or pays for health care for your employees (including self-employed persons), former employees, others associated or formerly associated with your company in a business relationship, or their families. CMS officials have informally commented that health flexible spending accounts (FSAs) are not considered group health plans, but that health reimbursement accounts (HRAs) are considered group health plans. If you have not yet had a discussion with your insurers or third-party administrators about the MSP reporting program, you should inquire to make sure that they are actively submitting data for your plans. The MSP program also imposes reporting requirements on liability insurance (including self-insurance) and workers compensation insurance that go into effect in June CMS updates MEDICARE Part D NOTICE FORMS for 2009 The Medicare Part D prescription drug program is a voluntary program for those eligible to participate in Medicare. To guard against adverse selection, the program is set up so that individuals who do not elect to participate in the Medicare Part D program when first eligible will have to pay a higher premium (also known as a late-enrollment penalty) for the rest of their lives. A late enrollee, however, will not have to pay the late enrollment penalty if the individual did not sign up when first eligible because he or she had prescription drug coverage that was at least as good as the Medicare Part D program (known as creditable coverage ). To ensure that individuals know whether they have creditable coverage or not, group health plans that cover any prescription drugs, including an employersponsored health plan, must send Medicare-eligible continued on page 10 Human Resources Newsletter Winter 2009 :: page 3

4 IRS Announces Section 409A Correction Program and Income Inclusion Guidance by Justin W. Stemple Thankfully we are now a few months past December 31, 2008, which was the final deadline for deferred compensation arrangements to be in written compliance with Section 409A. Now that your plans are in written compliance and you have had time for a breather from Section 409A, it is time to remind you that Section 409A has not disappeared. To reinforce that point, here is a brief summary of the latest Internal Revenue Service guidance regarding the calculation of taxable income under Section 409A and a correction program for operational failures to comply with Section 409A. Some of this guidance can even be considered favorable to employers and employees! Income Inclusion and Tax Withholding Guidance In Notice , the IRS provided the rules for reporting and withholding for calendar year Most importantly, the Notice continues the IRS previous practice of not requiring employers to report deferred compensation in Box 12 of Form W-2 using code Y for future years until the IRS issues additional guidance. The IRS does not expect to issue additional guidance until the proposed regulations discussed below are finalized. The IRS also has issued proposed regulations explaining how to calculate amounts included in income and the additional taxes under Section 409A when there is a violation of Section 409A. There are two key concepts in the proposed regulations. The first key concept is that a violation of Section 409A relating to unvested amounts will not result in taxable income under Section 409A. This is extremely important, and essentially allows employers a second bite at the apple for Section 409A compliance with regard to unvested amounts. Vested amounts would be taken into income upon a violation of Section 409A and taxed accordingly. The second key concept is that a violation of Section 409A is not permanent. A violation will result in taxable income for the year of the violation, but does not taint future years if the plan is amended to comply with Section 409A for future years. An employer will need to report taxable income for a compliance failure in one year, but by correcting the failure future taxation can be avoided. This is very good news and a significantly beneficial change from what appeared to be the draconian result of taxation of all past, present and future amounts of deferred compensation upon a violation of Section 409A. Correction Program In Notice , the IRS expanded a previously announced correction program for operational compliance failures. Note that this program covers only operational failures. The IRS has requested comments on a potential document correction program, which would be welcome relief, but at this point there is no such program. Although the new correction program expands on the previous program, it remains very limited. The program can only be used to correct unintentional and inadvertent operational failures. Correction can only be made through specific methods provided by the IRS in certain limited circumstances, such as: Correction of operational failures within the same taxable year as the failure. Correction of operational failures for non-insiders by the end of the taxable year following the taxable year of the failure. A limitation of the amount that can be included in income under Section 409A for failures involving limited amounts ($16,500 for 2009). continued on page 8 The proposed regulations include significant detail on how to calculate the amount of taxable income under Section 409A, including specific information for different types of plans (e.g., account balance plans, non-account balance plans, stock rights, separation pay, reimbursement and in-kind benefit arrangements, split-dollar plans, foreign arrangements and other plans). If you have a violation of Section 409A, these regulations will need to be analyzed closely to calculate the amount of taxable income and additional taxes under Section 409A. The IRS has requested comments on the proposed regulations. We will provide you with more information when the final regulations are issued. page 4 ::

5 Heed This Warning: Notification Required Before Mass Layoffs, Closings by Robert J. Chovanec The Worker Adjustment and Retraining Notification Act (WARN) is a federal law that requires a covered employer to give 60 days advance notice of a plant closing or mass layoff. If an employer fails to give the required notices, it is liable to the affected employees for pay and benefits during the 60-day notice period. Or, if less than 60 days notice is given, the employer is liable for pay and benefits for the difference between the required 60-day notice period and the period of notice actually given. If you are downsizing, you need to make sure that you don t violate WARN. Determining whether you may have a WARN event can be complicated, requiring detailed calculations as to how many employees are affected, whether they are laid off, terminated, or work reduced schedules, and the dates of each termination, layoff, or reduction in hours. WARN covers employers with 100 or more employees (excluding part-time employees in some circumstances). Part-time employees are defined as those who work an average of less than 20 hours per week, or who have been employed by the employer less than 6 of the preceding 12 months. Separate legal entities (such as a parent corporation and subsidiaries) may be consolidated for purposes of the 100-employee test under the labor law single employer standards, depending on the degree of common ownership, common management and control of labor relations, and integration of operations. The employees who are entitled to WARN notice are those who suffer an employment loss in connection with a plant closing or mass layoff. An employment loss is defined as a termination of employment, a layoff exceeding six months, or a reduction of hours of 50 percent or more during each month of any six-month period. A plant closing is a permanent or temporary shutdown of a single site of employment, or a facility or operating unit within a single site of employment, that causes an employment loss for 50 or more employees (other than part-time employees) over a 30-day period, or over a 90-day period unless the employer can show that different employment losses outside the 30-day period were due to different causes. For example, if a covered employer terminates 10 employees each month for six months in order to close a plant, WARN would never be triggered, because 50 employees would not be affected over any 90-day period. Conversely, if the employer terminates 20 employees per month, WARN will be triggered in the third month unless the employer can show that the terminations in some months had different causes than the terminations in others. If the employer hasn t given the required notice, it will be liable to all employees for the pay and benefits that they would have received during the 60-day notice period. A mass layoff is a reduction in force that is not a plant closing and that causes an employment loss over a 30- or 90-day period for 50 or more employees (other than part-time employees) who also comprise 33 percent of the total active work force at the single site of employment (including salaried and hourly employees). If 500 employees (other than part-time employees) suffer an employment loss as part of a mass layoff, the 33 percent test does not apply. Once again, if an employee does not receive the required 60 days notice before the beginning of the layoff, the employer is liable. If all of the above isn t complicated enough, it gets even worse. Under the WARN regulations published by the Department of Labor, each employment loss starts a new 30- and 90-day period. This can be very important when deciding whether there has been a mass layoff, because the total employment at the site, for purposes of applying the 33-percent test, is defined by the regulations to be the total of actively employed employees as of the date that each 30- or 90-day period begins. If this seems confusing, that s because it is, and is one illustration of why it is so important to understand the details of WARN if you are in a situation that could trigger the WARN requirements. continued on page 7 Human Resources Newsletter Winter 2009 :: page 5

6 Courts Aren t Clear On Associational Retaliation under Title VII by Sarah A. Luke What is Associational Retaliation? In addition to prohibiting employers from engaging in unlawful discrimination on the basis of race, color, religion, sex, or national origin, Title VII of the federal Civil Rights Act of 1964 also prohibits employers from retaliating against employees who have opposed any practice deemed unlawful under Title VII. Such opposition is considered a protected activity under Title VII. Several federal courts have considered extending this protection from retaliation to employees associated with individuals who have engaged in a protected activity. As courts explore extending the reach of Title VII s protections to those associated with employees engaged in protected activities, employers face the challenge of ensuring compliance in an area where the current state of the law is unclear. Which Courts Have Recognized ASSOCIATIONAL RETALIATION? Several U.S. District Courts have recognized a cause of action for retaliation intended to protect those associated with employees engaged in protected activities. Those courts have reasoned that such an extension of Title VII s protection is necessary to promote the remedial goals of Title VII and discourage employers from engaging in unlawful discrimination. For example, in Thurman v. Robertshaw Control Co, the District Court for the Northern District of Georgia found that a cause of action could exist where a husband s termination occurred after his wife filed a charge of gender and age discrimination against their common employer. Similarly, the District Court for the Western District of New York found that an employee had stated a cause of action for retaliation where he alleged his employer retaliated against him for assisting his wife, a co-employee, in filing a sexual harassment complaint in Murphy v. Cadillac Rubber & Plastics, Inc. Likewise, in EEOC v. Nalbandian Sales, Inc., the District Court for the Eastern District of California opined that the EEOC s longstanding policy of recognizing third-party claims coupled with the timing of the charge of discrimination filed by plaintiff s sister and the employer s refusal to re-hire the plaintiff indicated a causal connection sufficient to support a claim of associational retaliation. Which Courts Have Refused to Recognize ASSOCIATIONAL RETALIATION? Three Federal Circuit Courts of Appeals have declined to extend Title VII s protections to cover third parties associated with employees engaging in protected activities: The Third Circuit Court of Appeals addressed this issue of third-party retaliation claims in Fogelman v. Mercy Hospital. The plaintiff in Fogelman argued that the termination of his employment constituted an act of retaliation against his father, a former employee of the defendant who had filed suit alleging disability discrimination. The court reasoned that the plain language of the Americans with Disabilities Act did not permit such a claim. Although that case specifically addressed retaliation under the Americans with Disabilities Act, the Fogelman court opined that it would employ the same analysis to Title VII claims. continued on page 11 Thus, consistent with the EEOC regulations on this topic, many U.S. District Courts have reasoned that where an employer has discriminated against an individual because of his or her association with a person who has filed a charge of discrimination under Title VII, such discrimination constitutes the manifestation of an intention to retaliate against the person filing the charge. Those courts have extended Title VII s protection to spouses of employees, employed by a common employer, who suffer adverse employment actions following their spouse s exercise of statutory rights. page 6 ::

7 Supreme Court Says Beneficiary Designation Trumps Waiver in Divorce Decree by Lisa B. Zimmer The Supreme Court, in a rare unanimous opinion, has held that a former spouse s waiver of her interest in her ex-spouse s retirement plan benefits through a divorce decree was not effective because it conflicted with the retirement plan s express terms for designating beneficiaries and waiving benefits. Case Facts The facts in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan should be familiar to most plan administrators. William Kennedy participated in his employer s savings and investment plan (SIP). The SIP required participants to make all beneficiary designations in the manner prescribed by the plan administrator. The plan administrator created specific forms for naming/revoking a beneficiary. William Kennedy originally designated Liv Kennedy, his wife, as his beneficiary. William and Liv subsequently divorced. In the divorce decree, Liv waived all rights to her interest in William s retirement and pension benefits. William never removed Liv as his beneficiary under the SIP. When William died, the plan administrator paid his entire SIP account to Liv in accordance with his beneficiary designation form on file, rather than to William s estate. The estate sued, claiming that the divorce decree amounted to a waiver of the SIP benefit on Liv s part, and that the plan administrator violated the Employee Retirement Income Security Act of 1974, as amended (ERISA), by paying the benefits to William s designee, Liv. Supreme Court Decision The Supreme Court found that ERISA establishes a bright-line requirement to follow plan documents in distributing benefits. Under the terms of the SIP, Liv was William s designated beneficiary. The SIP provided an easy way for William to change his beneficiary, but he did not. The SIP provided a way for Liv to disclaim her interest in William s SIP account, but Liv did not follow it. The Supreme Court, therefore, held that the plan administrator did its statutory ERISA duty by paying benefits to Liv in accordance with the plan documents. Next Steps for Plan Administrators Review Plan Documents and Forms. Plan administrators should review their plan documents, including SPDs and forms, to ensure that they clearly describe the process for naming/revoking a beneficiary. Generally, this means the documents should put participants on notice of the need to submit a new beneficiary designation form when they divorce in order to remove a former spouse as a beneficiary. Note that some plans provide for the automatic revocation of a designation of a participant s spouse as the participant s beneficiary upon their divorce. For those plans, the plan documents should notify participants of the effect of a divorce upon a beneficiary designation, specify the default beneficiary if no further action is taken, and describe the process for determining a deceased participant s marital status before benefits will be distributed. Adopt Formal Waiver Procedure. Under Kennedy, a beneficiary may waive his right to a participant s benefits without violating ERISA s anti-alienation rule, but the waiver must comply with the plan s waiver procedure. Accordingly, plan administrators may want to consider adopting a formal waiver procedure. WARN continued A valid WARN notice must meet specific requirements in the regulations. Notice must be given to each affected employee or to a union that represents the employee. Notice must also be given to state and local officials. The notice must forecast a 14-day period during which each employee will experience an employment loss, and making that forecast can obviously be difficult. Conditional WARN notice can be given in narrow situations specified by the regulations. There are exceptions to the obligation to give WARN notice, including an unforeseeable business circumstances exception and an exception for a layoff that the employer could not know would exceed six months, but the exceptions require the employer to prove specific facts, and also require that the employer must have given as much notice as possible. The bottom line is that WARN is complicated and has traps for the unwary. Consider yourself warned. Human Resources Newsletter Winter 2009 :: page 7

8 President s Freeze on Regulations Impacts Pending and New Department of Labor Regulations by Lisa B. Zimmer The final fee disclosure regulations had been sent to the Office of Management and Budget for review and approval but had not yet been released for publication when the memorandum was issued. Accordingly, the status of these regulations is in limbo pending decisions by President Obama s appointees. We will use every tool at our disposal to block the implementation of this harmful regulation. U.S, Representatives George Miller and Robert Andrews One of the first acts of the Obama Administration was a memorandum issued to all federal agency heads directing them to suspend or withdraw all proposed or final regulations not yet published and to postpone the effective date of any regulations published but not yet effective. Several Department of Labor regulations are immediately impacted by this memorandum: The final regulations on required fee disclosures to plan fiduciaries by service providers. The final regulations on fee disclosures to participants (collectively, the final fee disclosure regulations ). The final regulations setting forth the ground rules for providing investment advice to defined contribution plan participants (the final investment advice regulations ). This does not mean that service provider fee disclosure is a dead issue, however. Democratic U.S. Rep. George Miller, chair of the House Committee on Education and Labor, which has jurisdiction over ERISA, has already said that he will introduce legislation to mandate disclosure of service provider compensation. The final investment advice regulations were published the day after the memorandum was issued. Even without this memorandum, however, the prospects for the investment advice regulations were uncertain. Several leading Democratic Congressmen already had vowed to stop their implementation. In a joint statement, Miller and another Democratic U.S. Representative, Robert Andrews, declared they will use every tool at our disposal to block the implementation of this harmful regulation. In light of these criticisms, the March 23, 2009, effective date of the investment advice regulations likely will be postponed. In fact, it would not be surprising if the regulations were ultimately withdrawn and then significantly revised before being reissued. So, for the time being, the status quo prevails. Stay tuned! SECTION 409A continued The timing, the status of a participant and the amount involved are all relevant to determining what correction methods, if any, are available. If you have an operational failure to comply with Section 409A, please contact us immediately. The sooner a failure is identified the more likely there is a correction method under this program. guidance on Section 409A, but definitely not the last. Hopefully yet this year we will see final income inclusion regulations and a documentary compliance failure collection program. More Coming The income inclusion regulations and the correction program are the latest IRS page 8 ::

9 OK I WAS WRONG continued Combat Employment Discrimination: President Obama and Vice President Biden will work to overturn the Supreme Court s recent ruling that curtails racial minorities and women s ability to challenge pay discrimination. They will also pass the Fair Pay Act, to ensure that women receive equal pay for equal work, and the Employment Non-Discrimination Act, to prohibit discrimination based on sexual orientation or gender identity or expression. Under the agenda items Poverty, Family and Women, the administration discusses: Extend Paid Sick Days to All Workers: Half of all private sector workers have no paid sick days and the problem is worse for employees in low-paying jobs, where less than a quarter receive any paid sick days. Barack Obama and Joe Biden will require that employers provide seven paid sick days per year. And under the agenda item Family the administration commits to: Expand the Family and Medical Leave Act (FMLA): The FMLA covers only certain people who work for employers with 50 or more employees. Barack Obama and Joe Biden will expand the FMLA to cover businesses with 25 or more employees, and to cover more purposes, including allowing: leave for workers who provide elder care; 24 hours of leave each year for parents to participate in their children s academic activities at school; leave for workers who care for individuals who reside in their home for six months or more; and leave for employees to address domestic violence and sexual assault. What is most interesting to me is I did not see the word union on that Web site anywhere. I could have missed it, but I looked twice. The Supreme Court decision the administration is talking about regarding fair pay is Ledbetter v. Goodyear Tire and Rubber Company. True to their word, Congress and the Obama Administration acted quickly on Ledbettter and introduced HR 11 and S181, the Lilly Ledbetter Fair Pay Act of 2009, which passed on January 29, But wait, that is not all Congress has done. As of the last week of January, Congress had introduced the following employment-related bills: HR 12, the Paycheck Fairness Act. (Designed to strengthen current laws against wage discrimination and help realize the promise of equal pay for equal work.) HR 137, the Employment Eligibility Verification and Anti Identity Theft Act. (To require an employer to take action after receiving official notice that an individual s Social Security account number does not match the individual s name, and for other purposes.) HR 243, the Labor Relations First Contract Negotiations Act of (To amend the National Labor Relations Act to require the arbitration of initial contract negotiation disputes, and for other purposes.) HR 433, the REWARD Act of (To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax equal to 50 percent of the compensation paid to employees while they are performing active duty service as members of the Ready Reserve or the National Guard and of the compensation paid to temporary replacement employees.) So, how is that for sneaky? I told you Congress has not yet introduced the Employee Free Choice Act. But they introduced part of it. HR 243 is one-third of the Employee Free Choice Act, and in my opinion the worst part of it. The high profile card check provisions seem to have gotten lost in the bad publicity generated from taking away the right to a secret ballot election and the obvious disdain Congress seems to feel for the UAW in light of its part in the auto company bailout. Trust me on this; we will be keeping an eye on this bill. I don t know what is going to happen with it, but it has no co-sponsors and that usually means it won t come out of committee. Then again, I have been wrong before. Editor s Note: Darn, he was wrong AGAIN! The Employee Free Choice Act was introduced in both houses of Congress on March 10, just as this newsletter was going to print. To read more about it, visit com/publications and click on our e-bulletin, Congress Considering Employee Free Choice Act. Human Resources Newsletter Winter 2009 :: page 9

10 I was Wondering Q: Does the value of a gift card given to employees for an achievement or for their years of service have to be added to the employees wages for purposes of calculating overtime? A: Probably not. The Fair Standards Labor Act allows employers to exclude discretionary bonuses and gifts from employees wages when calculating overtime. In order to meet this exception, the bonus or gift must truly be discretionary in both availability and amount and must not be part of an agreement or promise the employer made to the employee. So, an employer cannot pay an employee a lower wage but promise the employee that he or she will receive a large Christmas bonus to compensate them, without triggering overtime obligations. On the flip side, an employer can reward an employee for an achievement for years of service with the company, provided the bonus or gift is not based on hours of work, production or efficiency. This exclusion applies only to overtime, and does not affect the taxable basis of this income. Q: We have heard that you need to send COBRA letters certified so you can keep track of them, but someone else told us that we could just make a copy of the postage on the envelope and that is enough verification that the item was sent in the appropriate amount of time. A: It is the plan administrator s obligation to provide the required COBRA notice to the individual s last known address in a manner reasonably calculated to ensure actual receipt. There are a number of permissible methods for providing COBRA notices certified mail, first class mail, 2nd or 3rd class mail with return postage guaranteed, hand delivery, electronic delivery (in certain circumstances). If questions arise, the plan administrator must be able to show that a notice was properly sent but does not need to prove that it was actually received. We generally recommend that a COBRA notice be sent by first class mail and that a post office certificate of mailing be obtained to prove that it was actually deposited in the U.S. mail. A copy of the COBRA notice should be attached to the certificate of mailing and kept in the individual s file. We do not generally recommend that the notice be sent by certified mail return receipt requested since, if the return receipt is not returned or is not signed by the addressee, then questions may be raised and arguments may exist that the plan administrator should have done more. I Was Wondering gives readers an opportunity to ask questions of our HR attorneys. Not all questions will be answered publicly. To submit a question, please send it by to Tim Gortsema at tgortsema@wnj.com. page 10 :: MEDICARE DISCLOSURE continued individuals a notification at least once each year that explains whether the coverage for that year is creditable coverage or non-creditable coverage. There are limited exemptions for plans that contract with a Medicare Part D plan or that contract directly with Medicare to become a Part D plan, and for retiree plans where an employer has successfully applied for the retiree drug subsidy. And while no disclosures are required for health flexible spending accounts (FSAs) or health savings accounts (HSAs), disclosures are required for health reimbursement arrangements (HRAs) if the HRA reimburses prescription drug expenses. If you are not sure whether your prescription drug program is creditable or noncreditable coverage, you should talk to your insurer or thirdparty administrator. The notice of creditable or non-creditable coverage must be provided prior to November 15 of each year which is when the annual open enrollment period for the Medicare Part D prescription drug program begins. Because you may not know which of your participants has family members eligible for Medicare, it is recommended that you provide this notice to all participants in your plan, perhaps as part of your annual open enrollment packet. You should also include the notice in the enrollment materials provided to all employees newly eligible for your group health plan, and provide the notice upon an individual s request. If the status of your prescription drug coverage changes or you drop all coverage of prescription drugs, then you must also promptly provide a new notice to your participants. Keep in mind that if you know that a participant s spouse or dependent lives at a different address than the participant, you will have to mail the spouse or dependent a separate copy of the notice. Although there is no specific form required, Medicare regulations specify certain information that must be included in the notice. CMS has made model forms available, and has recently posted new model forms that were to be used beginning January 1, The forms are available at If you have been using CMS s model forms, you will need to update your forms for MEDICARE Part D Also RequIRES REPORTING to CMS In addition to the notice of creditable or non-creditable coverage that your group health plan must send to Medicare-eligible participants and beneficiaries, your group health plan also must report the status of its prescription drug coverage to CMS. This must be disclosed annually to CMS within 60 days of the start of a new plan year as we discussed in an e-bulletin we sent earlier this year. It can be found at ( January 29, 2009, Your Medicare Part D Disclosure to CMS May Be Due Soon. ) You must file the disclosure electronically at the CMS Web site at cms.hhs.gov/creditablecoverage. Also, if you terminate prescription drug coverage or change the coverage so that creditable coverage becomes noncreditable (or vice versa), you must file a new electronic disclosure with CMS within 30 days of the change.

11 Associational Retaliation continued Similarly, in Smith v. Riceland Foods, Inc., the Eighth Circuit Court of Appeals declined to extend Title VII s protection to individuals associated with employees exercising their rights under the statute reasoning that to receive Title VII s protection from retaliation, an individual must assist or participate in a protected activity. The plaintiff Title VII of the federal Civil Rights Act of 1964 prohibits employers from retaliating against employees who have opposed any practice deemed unlawful. in Riceland was discharged after his girlfriend, a co-employee, filed a charge of discrimination. The court reasoned that the employer in that case did not have sufficient reason to believe that the plaintiff had assisted his girlfriend in filing her charge of discrimination. Accordingly, it held that the plaintiff s retaliation claim was not legally cognizable. Likewise, the Fifth Circuit Court of Appeals has limited third-party protection from retaliation to instances where the third party has participated in the protected conduct. For EMPLOYERS OPERATING in the STATE of MICHIGAN, the Jury is STILL Out The Sixth Circuit Court of Appeals, the circuit court that governs Michigan employers, is currently considering whether Title VII protections should extend to third-party retaliation claims of co-employees engaged to be married. In Thompson v. North American Stainless, LP, the Court held that an employee whose employment was terminated after his fiancé, who worked for the same employer, filed a charge of gender discrimination had presented a valid claim of retaliation under Title VII. The court reasoned that allowing employers to retaliate against friends and family members of individuals engaged in protected activities would deter such individuals from exercising their rights under Title VII. Just four months after the Sixth Circuit Court of Appeals rendered its decision in Thompson, the same Court vacated its decision pending a re-hearing before a larger panel of judges. The fate of third-party retaliation claims in the Sixth Circuit remains up in the air. However, the election of a Democratic president and the EEOC s renewed focus on retaliation claims will most certainly ensure that this issue will not disappear quickly or quietly. What Can An EMPLOYER Do? Several federal appellate courts have yet to decide whether they will recognize retaliation claims based on association. In the meantime, the federal district courts continue to differ in their treatment of retaliation claims brought by individuals associated with employees engaged in protected activities. Most notably, the Sixth Circuit Court of Appeals is currently tackling this very issue, and its decision could have a profound effect on all employers operating in the state of Michigan. In light of the EEOC s regulations that support the integrity of such claims and in the absent express guidance from the U.S. Supreme Court to the contrary, fact-specific analysis is necessary to ensure employer compliance with this ever-evolving area of employment discrimination law. Human Resources Attorneys Edward Bardelli (616) Andrea Bernard (616) Scott Carvo (616) Robert Chovanec (616) Robert Cleary (248) Sue Conway (616) Gerardyne Drozdowski (616) Robert Dubault (616) Daniel Ettinger (616) Amanda Fielder (616) Scott Hancock (616) Kathleen Hanenburg (616) Inga Hofer (616) Angela Jenkins (616) Gregory Kilby (616) Jonathan Kok (616) Anthony Kolenic Jr. (616) Norbert Kugele (616) Mary Jo Larson (248) Sarah Luke (616) Heidi Lyon (616) John McKendry Jr. (231) Matthew Nelson (616) Dean Pacific (616) Steven Palazzolo (616) Louis Rabaut (616) Janet Ramsey (616) Toni Rumschlag (248) Vernon Saper (616) Paul Sorensen (616) Justin Stemple (616) Karen VanderWerff (616) Donald Veldman (231) Elisabeth Von Eitzen (616) Jennifer Watkins (248) George Whitfield (616) Lisa Zimmer (248) For address corrections, additions or deletions, contact Nicole Kosheba (616) or nkosheba@wnj.com

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