Compliance Requirements for Church Plans

Transcription

1 Compliance Requirements for Church Plans A plan that is established and maintained for employees or their beneficiaries by a church or an organization that is controlled by or associated with a church (e.g., certain hospitals, schools, and universities) that is tax exempt under Code 501 is also exempt from other health and welfare obligations. Generally, church plans are not required to comply with COBRA and ERISA. To assist clients in understanding what compliance requirements and issue-specific considerations apply to church plans in contrast to ERISA plans, Arthur J. Gallagher has assembled the chart below. Please note that an indicates that type of plan must comply with that requirement. Compliance Considerations Comments Penalties for Noncompliance ERISA Plan Church Plan Section 125 (Cafeteria Plan Rules) Changes in Election Rules Requirement to have a plan document. Churches are subject to the same Section 125 limitations on permissible election changes as other employers sponsoring cafeteria plans (Section 125 plans). Employers sponsoring cafeteria plans must have written cafeteria plan documents. Not adhering to the IRS rules could jeopardize the status of the cafeteria plan whereas not adhering to carrier rules could result in unintended self-insurance. If there is no written cafeteria plan (or the written plan does not comply with applicable requirements regarding content and timing of adoption), then the 2007 proposed rules indicate that the plan is not a cafeteria plan and employees' elections between taxable and nontaxable benefits

2 will result in gross income. Failing to operate the cafeteria plan according to its written terms will have the same result. Depending on which nondiscrimination tests the cafeteria plan fails, highly compensated participants and key employees (as applicable) who make salary reductions will be taxed on the amount of those salary reductions plus any cash-out amounts or other taxable benefits available under the plan (e.g., long term disability coverage treated as though purchased with after-tax dollars). Nondiscrimination Testing Although there may be no individuals in the church setting with titles that resemble those of their officer counterparts in the corporate sector, church employees who have the authority (but not the title) of an officer will be considered officers for purposes of the Key Employee Concentration Test. Therefore churches must run the Key Employee Concentration Test. Self-Insured Nondiscrimination Testing (Section 105(h)) Self-insured church plans are not exempt from testing under Section 105(h). Highly compensated individuals must include some or all reimbursements in income (including all salary reductions and cash). Fully Insured Nondiscrimination Testing (Section 9815(a)) To date, regulations regarding fully insured nondiscrimination testing for non-grandfathered health plans have not been issued. $100 per day for each individual that is discriminated against. 2

3 DCAP Nondiscrimination Testing (Section 129) Church plans do not have owners that can be counted for the ownership portions of the nondiscrimination tests applicable to DCAPs. Thus, churches do not need to run the More-Than-5% Owners Concentration Test for DCAPs. Life Insurance Nondiscrimination Testing (Section 79) Section 79 nondiscrimination requirements for group term life insurance include an exemption for certain church plans maintained for church employees. Americans with Disabilities Act (ADA) The ADA prohibits discrimination and guarantees that people with disabilities have the same opportunities to employment opportunities, to purchase goods and services, and to participate in State and local government programs and services. Age Discrimination Employment Act (ADEA) Generally, the ADEA applies to church employers with 15 or more employees. However, an exception If a DCAP discriminates in favor of highly compensated employees, then the benefits provided to highly compensated employees will be included in their gross income. If the life insurance plan is discriminatory, key employees lose the exclusion from income for the first $50,000 of coverage. The Department of Justice Civil Rights Division enforces the ADA through complaints and lawsuits as well as may impose civil penalties of up to $75,000 for the first violation and $150, 000 for subsequent violations. Noncompliance with the ADEA can result in an EEOC charge and corrective actions. Private lawsuits 3

4 may exist for certain employees who fall within a ministerial exception. may result in backpay damages including lost wages, pension, insurance, vacation, profit-sharing, accrued sick leave, and other economic benefits of employment. COBRA Offer and, if elected, provide COBRA Continuation Coverage COBRA General/Initial Notice COBRA Election Notice COBRA Notice of Unavailability COBRA Notice of Early Termination Although church plans are statutorily exempt from COBRA, if, as discussed below, a church plan may voluntarily elect ERISA coverage under Section 410(d), then a plan will also be subject to COBRA continuation. ERISA Penalties: Under ERISA, there is a potential for lawsuit against the employer for failure to provide COBRA coverage (in addition to the notice penalties below). Failure to provide the COBRA Initial Notice or COBRA Election Notice in a timely manner carries penalties up to $110 per day from the date of failure to comply. No family, per day, maximum under ERISA. IRS Penalties: Non-deductible excise tax of up to $100 per day per violation during the noncompliance period. If a violation occurs to more than one qualified beneficiary in the same family, the maximum excise tax is $200 per day for that violation and that family. The IRS has the option to waive all or part of a penalty tax. 4

5 Employers liable for an excise tax failure must self-report the violation by filing IRS Form 8928 and pay the tax by the due date for filing their federal income tax returns. ERISA ERISA preemption of state law ERISA Fiduciary Liabilities ERISA Trust Requirements and Plan Assets Form 5500 Filings Generally, church plans do not have the benefit of ERISA preemption of state law. Thus, applicable state law will apply to church plan cafeteria plans and underlying benefit plans. However, the Church Plan Parity and Entanglement Prevention Act of 1999 provides that, for purposes of certain state insurance laws, a church plan is deemed to be a single employer plan rather than a multi-employer welfare plan (i.e., a MEWA) thereby avoiding some very restrictive state insurance laws. The Act does not address mandatory state benefits; thus, unless a specific exemption is provided, state mandated benefits must be provided under fully insured church plans (e.g., New York s state contraceptive mandate Seek legal counsel to discuss what the implications are on a state-bystate basis. But see the Issue Specific chart below for more information regarding contraceptive coverage and same-sex marriage. Participants and beneficiaries may bring suit for breach of fiduciary duty. Employers may be liable for: breach of fiduciary duty lawsuits by participants and/or beneficiary; DOL enforcement actions; civil penalties (if ERISA's prohibited transaction rules are violated); and/or criminal prosecution. One Form 5500 for each ERISA plan must be filed for each plan year. Those subject to this filing are those generally 100 or more employees at the beginning of the plan year. Penalties can be imposed for any refusal or failure to 5

6 Form M-1 Filings (Only required for Multiemployer Welfare Arrangements ( MEWAs )) Mandatory coverage for adopted children does not contain an exemption for religious employers). However, there is some debate as to whether a church may elect under Code Section 410(d) to subject itself to ERISA Title II for both its retirement and health and welfare benefits. Clearly, a plan may do so for its retirement benefits, but the debate continues for health and welfare benefits. The DOL has taken the position that a church cannot make an election for its health and welfare benefits; however, the courts have taken the opposite view. So, it may be possible for a church to elect ERISA coverage and thus ERISA preemption of state law. Under Title I of ERISA, a group health plan subject to ERISA that provides coverage for the dependent children of participants or beneficiaries must also provide coverage to dependent children who are placed with participants or beneficiaries for adoption. The provisions of Title I of ERISA file a required Form 5500 of up to $2,140 (indexed annually) per day, per Form 5500, starting from the date of the administrator's failure or refusal to file the Form Penalties may be assessed not just for late or unfiled Form 5500s but also for incomplete or otherwise deficient Form 5500s. Criminal penalties may also be imposed on any person who willfully violates the Form 5500 reporting rules. Willful violators may be subject to a fine of up to $100,000, imprisonment for not more than ten years, or both. In the case of a violation by a corporation or similar organization, the fine will not exceed $500,000. In the event of no filing, an incomplete filing, or a late filing, a penalty may apply of up to $1,558 per day (indexed annually) that the administrator of the MEWA fails or refuses to file a complete report No special enforcement provisions are provide under ERISA. However, an affected participant 6

7 Plan Document generally do not apply to church plans; thus, church plans are not required to cover adopted children under this requirement. sue to recover benefits, interest, and attorney's fees. Penalties of up to $110 per day may be imposed against the plan administrator for failing to provide a copy of the plan document to a participant or beneficiary within 30 days after the individual s written request. Additionally, failure to comply with the requirements may be considered a breach of fiduciary duty. Participants and beneficiaries may bring suit to enforce the disclosure requirement and potentially the breach of fiduciary duty. Also, during a DOL investigation, the DOL investigator is likely to require a plan administrator to immediately produce any applicable plan documents. Failure to provide plan documents requested by the DOL may result in penalties of up to $152 per day not to exceed $1,527 (adjusted annually). Criminal penalties may be imposed on any individual or company that willfully violates any disclosure requirement under Title I of ERISA, which includes the plan document 7

8 Summary Annual Report ( SAR ) Summary of Material Modification ( SMM ) Summary of Material Reduction ( SMR ) Summary Plan Description ( SPD ) rules. The penalty per conviction could be up to $100,000 or imprisonment for up to ten years. A fine imposed on a company can be increased up to $500,000. There are no specific penalties in the ERISA statute or regulations for failure to prepare or furnish a required SPD, SAR, SMM, or SMR. However, participants and beneficiaries may bring a lawsuit to enforce any provision of ERISA. The SPD (along with unincorporated SMMs and SMRs) must be furnished in response to the written request of a participant or beneficiary. If a plan sponsor does not provide a requested SPD, SMM, SMR, and/or SAR within 30 days after an individual makes a written request, the plan sponsor may be penalized up to $110 per day. In addition, under ERISA's general enforcement provisions, participants and beneficiaries may bring suit to enforce the requirement. Also, during a DOL investigation, the DOL investigator is likely to require the plan sponsor 8

9 to immediately produce and distribute any required but missing applicable SPDs. Failure to provide plan documents (e.g., SPD) requested by the DOL may result in penalties of up to $152 per day not to exceed $1,527 (adjusted annually). Criminal penalties may be imposed on any individual or company that willfully violates any disclosure requirement under Title I of ERISA, which includes the SPD, SMM, SMR, and SAR rules. The penalty per conviction could be up to $100,000 or imprisonment for up to ten years. A fine imposed on a company can be increased up to $500,000. If the plan is fully insured, the legal consequences of having faulty claims procedures will fall directly on the insurer. If the plan is selfinsured, then the potential consequences of noncompliance are: (1) claimants not being required to exhaust the plan's claims procedures; and (2) breach ERISA Claims Procedures Although church plans are exempt from ERISA, PPACA now also requires church plans to comply with the DOL claims procedures, so technically, this requirement extends to church plans. 9

10 Family and Medical Leave Act (FMLA) Generally, churches are subject to FMLA and thus must handle employee benefits during FMLA leave as prescribed by FMLA. However, there is an exception for certain employees called a ministerial exception providing that certain employees are not covered by FMLA if they fall within the definition of a ministerial employee. Health Insurance Portability and Accountability Act (HIPAA) Portability/Genetic Information Nondisclosure Act ( GINA ) HIPAA's portability requirements apply to church group health plans, unless an exception applies, such as for qualifying health FSAs or certain dental or vision plans. There is also a limited exception from the HIPAA nondiscrimination rules for certain church plans. of fiduciary duty lawsuits that may be subject to increased scrutiny. Violations of FMLA can result in DOL investigations, corrective actions, and damages. IRS: Excise tax of $100 per day for each individual to whom the failure relates. The minimum excise tax imposed after a notice of examination generally is $2,500, but may be increased to $15,000 if violations are more than de minimis. The maximum excise tax for unintentional failures for a single employer plan is the lesser of 10% of the amount paid by the employer for group health plans during the preceding tax year, or $500,

11 DOL: DOL may bring a civil action to enforce the HIPAA portability requirements found in ERISA, and may impose a civil penalty for failure to provide documents to the DOL upon request. HHS: CMS may impose a penalty of up to $114 per day (indexed annually), on each responsible entity, for each individual affected by a violation. The minimum excise tax imposed after a notice of violation is generally $2,847, but may be increased to $17,084 (indexed annually) if violations are more than de minimis. GINA: The penalty amount is $114 per day (indexed annually) of noncompliance for each individual to whom the failure relates. Lawsuits: Participants, beneficiaries, and fiduciaries may bring suit under ERISA's enforcement provisions. Nondiscrimination rule for Church Plans: A church plan is not treated as failing to meet the HIPAA nondiscrimination if it meets the following requirements continuously since July 15, 1997: 11

12 (1) the plan requires evidence of good health of both any employee of an employer with ten or fewer employees, and any self-employed individual; and (2) the plan requires evidence of good health of any individual who enrolls after the first 90 days of initial eligibility. Noncompliance may result in maximum criminal fines of $250,000 and 10 years imprisonment as well as $112 - $55,910 in civil penalties per violation up to $1,677,299. Privacy and Security Violations may also lead to HHS audits, fines, compliance reviews, corrective actions, resolution agreements, and/or lawsuits by HHS or state attorney generals. Medicare Secondary Payer (MSP) Generally, the MSP statute prohibits a group health plan from taking into account the Medicare entitlement of a current employee or a current employee's spouse or family member. Failure to comply with the MSP requirements may result in an IRS excise tax equal to 25% of group health plan expenses incurred during the calendar year. If the plan was responsible to pay for the item or service, then CMS may recover the lesser of the amount 12

13 that Medicare paid as primary payer or the amount that should have been paid under the group health plan. Medicare Part D Disclosure Medicare Part D requires group health plan sponsors to disclose to Part D eligible individuals and to the Centers for Medicare and Medicaid Services (CMS) whether the coverage is creditable (i.e., whether its actuarial value equals or exceeds the actuarial value of defined standard Part D coverage) or not creditable. No specific penalties are imposed for failure to comply with Medicare Part D. However, employers that do not comply with such requirements are likely to encounter adverse employee relations issues because employees that enroll late will face higher premiums on a permanent basis if their prior coverage was not creditable. Additionally, employers may be liable under other laws such as ERISA s fiduciary duties. Mental Health Parity and Equity Addiction Act (MHPAEA) Generally, plans may not impose different financial or nonquantitative requirements on mental health or substance use disorder benefits than on medical or surgical benefits. Michelle s Law Michelle s Law prohibits employers from terminating health coverage Participants, beneficiaries, and the DOL may use ERISA's civil enforcement provisions to file lawsuits to enforce MHPAEA's requirements. Penalties of $100 per day per each individual to whom a failure relates 13

14 for one year after the date on which a child s medically necessary leave of absence begins unless, under the terms of the plan, coverage would otherwise terminate as of an earlier date. If continued coverage for a dependent child under an employer-sponsored group health plan is dependent on the child s status as a student and the child is no longer enrolled as a student due to a serious injury or illness. may be imposed as well as DOL audit and corrective actions. Affected individuals may sue to recover payment of benefits due under the plan because of Michelle's Law and damages for unpaid benefits. PPACA Cadillac Plan Tax Cap on contributions to health flexible spending accounts (health FSAs) Claims and Appeals Generally, church plans are only subject to the PPACA requirements that are set forth in the Internal Revenue Code (the Code). However, many of PPACA s provisions appear in the PHSA, ERISA, and the Code; thus, many provisions also apply to church plans. Beginning in 2022 and beyond, there will be a 40% excise tax on value of healthcare coverage in excess of $10,200 for self-only coverage and $27,500 for other than self-only coverage. $100 per day for each individual affected by the violation. If the plan is fully insured, the legal consequences of having faulty claims procedures will fall directly on the insurer. If the plan is selfinsured, then the potential 14

15 consequences of noncompliance are (1) claimants not being required to exhaust the plan's claims procedures; and (2) breach of fiduciary duty lawsuits that may be subject to increased scrutiny. $100 per day for each individual affected by the violation. Clinical Trial Coverage (for nongrandfathered plans) Employer Shared Responsibility Mandate Penalty for failure to provide minimum essential coverage and at least one full-time employee receives premium tax credit equals 1/12 of $2,000 (as adjusted annually) x the number of full-time employees minus 30 per month. Penalty for failure to provide affordable coverage or minimum value is Lesser of 1/12 of $3,000 (as adjusted annually) per employee receiving tax credit or the $2,000 (as adjusted annually) level penalty (i.e., $2,000 x (number of full-time employees - 30)). There are no specific penalties for failure to provide a timely and complete Exchange Notice to employees. The DOL has indicated Exchange/Marketplace Notice *Although not clear, it appears that church employers may be subject to the requirement to provide a Marketplace Notice to employees Maybe, see comments 15

16 based on interstate activities or specific activities (e.g., operating a school). in FAQ guidance that there is no fine or penalty under the law for failing to provide the notice. Significantly, for ERISA plans, failure to comply with federal laws is a breach of general fiduciary duties. Penalty for failure to file a required information return with the IRS is $260 per return ($530 if due to willful neglect (2018 indexed amount)) with a maximum of $3,218,500 per calendar year (2018 indexed amount). Penalties may be reduced if corrective action is taken within 30 days and may be waived if the failure to file timely or accurately is due to reasonable cause. $100 per day per impacted individual. Form W-2 Reporting Only church plans that are selfinsured are exempt from Form W-2 reporting. (fully insured plans only) Insurance Market Reforms These reforms include provisions such as the requirement to cover dependent children to age 26, the ban on lifetime and annual dollar maximums, etc. Handling for MLR rebates by church plans is slightly different from handling by ERISA plans. For church plans, insurers may only make rebates directly to the MLR Rebates The amount of this penalty may not exceed $100 per entity, per day, per individual affected by the violation and are in addition to any other penalties allowed by law. 16

17 employer if the insurer receives a written assurance from the policyholder that the rebate will be used to benefit enrollees. PPACA s patient protections include choice of provider provisions and certain requirements for emergency care coverage for non-grandfathered plans. Patient Protections (for nongrandfathered plans) $100 per day per impacted individual. PCORI Fee $100 per day per impacted individual. $100 per day per impacted individual. Preventive Services (for nongrandfathered plans) Religious employers are exempt from the Patient Protection and Affordable Care Act s contraceptive mandate. A religious employer is an organization that is organized and operates as a non-profit organization and is recognized under 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended. Sections 6033(a)(3)(A)(i) and (iii) of the Code refer to churches, their integrated auxiliaries, and conventions or associations of churches, as well as to the exclusively religious activities of any religious order. (unless eligible organization) (except for exemption from contraceptive mandate) 17

18 Sections 6055 and 6056 Reporting If an applicable large employer or a sponsor of self-insured health coverage, the plan sponsor will be subject to Sections 6055 and 6056 reporting. Penalty for failure to file a required information return (e.g., Forms 1094-B, 1095-B, 1094-C, or C) with the IRS is $260 per return (2018 indexed amount) after August 1 or failure to file) with a maximum of $3,218,500 (2018 indexed amount) per calendar year. The penalties will be doubled if the failure relates to both an IRS information return and an employee statement (Forms B, 1095-C, or simplified statement). Penalties may be reduced if corrective action is taken within 30 days and may be waived if the failure to file timely or accurately is due to reasonable cause. For 2017 calendar year filings, the IRS will not impose penalties on entities that show a good faith effort to comply by filing and furnishing incorrect or incomplete returns and/or statements in 2018 for coverage offered in $1,128 (adjusted annually) for each willful failure. Additional $100 excise tax per participant per day (except for governmental plans) Summary of Benefits and Coverage (SBC) 18

19 Qualified Medical Child Support Orders (QMCSO) Under QMCSOs, employers are required to add coverage for certain dependent children. An affected person may use the ERISA to enforce a QMCSO. Participants may recover benefits, interest, and attorney's fees. Also, states may sue to enforce a QMCSO. Child Support Performance and Incentive Act of 1998 Although church plans are not subject to QMCSO requirements, they are subject to the Child Support Performance and Incentive Act of 1998, which contains similar provisions. National Medical Support Notices (NMSN) Under NMSNs, employers are required to add coverage for certain dependent children. State child support agencies have authority to enforce. An employer may be subject to sanctions or penalties imposed under state law and/or ERISA for failing to withhold income or transmit such withheld amounts to the applicable plan(s). Sanctions or penalties may be imposed under State law against an employer for failure to respond and/or for noncompliance with NMSNs. Newborns and Mothers Health Protection Act (NMHPA) Generally, the NMHPA prohibits group health plans from restricting Penalties of $100 per day penalty for each individual to whom a 19

20 benefits for any hospital length of stay in connection with childbirth for the mother or newborn child, following a vaginal delivery to less than 48 hours, or following a cesarean section to less than 96 hours. Pregnancy Discrimination Act Generally this law prohibits discrimination (including eligibility for benefits) on the basis of pregnancy, childbirth, or related medical conditions failure relates, as well as DOL audit and corrective actions. Additionally, participants can sue under ERISA s breach of fiduciary duty and seek payment for benefits claimed under NMHPA. Violations of may result in an EEOC charge and investigation, federal lawsuit filed by the EEOC, or individual lawsuit. Remedies available include: back pay, hiring, promotion, reinstatement, front pay, reasonable accommodation, attorney fees, and more. Title VII Title VII prohibits discrimination in certain respects with regard to employee benefits. However, a ministerial exception may apply for certain individuals. Violations of Title VII may result in an EEOC charge and investigation, federal lawsuit filed by the EEOC, or individual lawsuit. Remedies available include: back pay, hiring, promotion, reinstatement, front pay, reasonable accommodation, attorney fees, and more. USERRA USERRA establishes certain reemployment and benefits rights Complaints of noncompliance can lead to enforcement action by DOL's Veterans' Employment and 20

21 for employees who serve or have served in the uniformed services. Training Service, lawsuits by U.S. Attorney General, and/or individual lawsuits. Women s Health Cancer Rights Act (WHCRA) WHCRA requires group health plans that provide medical and surgical benefits for mastectomies to also provide benefits for reconstructive surgery following a mastectomy. Penalties of $100 per day penalty for each individual to whom a failure relates, as well as DOL audit and corrective actions. Additionally, participants can sue under ERISA s breach of fiduciary duty and seek payment for benefits claimed under WHCRA. Issue Specific Considerations that Depend Upon Whether Plan is Fully Insured or Self-Insured Comments ERISA Plan Church Plan PPACA External Appeals Process State process (if state process applies and is binding or if self-insured ERISA plan voluntarily PPACA makes certain external review processes applicable to both insurers and plans, depending upon whether the plan is fully insured or self-insured. Note that self-insured plans can choose to voluntarily comply with an applicable state process, if available. Fully Insured Self- Insured Fully Insured Self- Insured 21

22 chooses to comply) Federal process (unless plan voluntarily complies with an applicable state process, if available) PPACA makes certain external review processes applicable to both insurers and plans, depending upon whether the plan is fully insured or self-insured. Same-Sex Marriage Ability to Exclude Same-Sex Spouse from the Plan Self-insured ERISA plans are able to craft their own eligibility language that could theoretically exclude samesex spouse while still covering opposite-sex spouses. But in practice, doing so may expose the employer to a charge of sex discrimination with the U.S. Equal Employment Opportunity Commission ( EEOC ). In July 2015, the EEOC issued an administrative ruling stating that discrimination based upon sexual orientation does give rise to a valid claim for sex discrimination under Title VII of the Civil Rights Act of (See Complainant v. Foxx, Agency No FAA03). In addition, in October 2016, the EEOC announced that it had reached an agreement through its conciliation process with a hospital that had denied health insurance benefits to same-sex spouses. As part of its press release, the EEOC Maybe, see comments Probably Not Maybe, see comments 22

23 State Law indicated that the hospital violated Title VII of the Civil Rights Act of 1964, which prohibits any discrimination that occurs on the basis of sex.this is an area where more guidance is needed, and is also an area of risk that selfinsured employers may face should they exclude samesex spouses but cover opposite-sex spouses. Fully insured ERISA plans or fully insured non-erisa church plans are required to follow state law definition of spouse which after the U.S. Supreme Court s Obergefell v. Hodges, decision includes both opposite sex and samesex spouse. Therefore employers that sponsor fully insured benefit plans will generally be required to extend benefits to same-sex spouses, but only if the plan provides coverage to spouses. However, fully insured church plans may be able to exclude same sex spouses if there is a particular state law excluding them. *Without ERISA preemption, church plans may be subject to certain state laws unless the law specific provides an exemption for religious employers or church plans. * * The intent of this analysis is to provide general information regarding the provisions of current federal laws and regulation. It does not necessarily fully address all your organization s specific issues. It should not be construed as, nor is it intended to provide, legal advice. Your organization s general counsel or an attorney who specializes in this practice area should address questions regarding specific issues. 23