Welfare Benefits Law Update

Stanley Benefits www.stanleybenefits.com P. O. Box 29329, Greensboro, NC 27429-9329 Contact: Allison Grimm, J.D. Phone: (336) 544-6615, Email: agrimm@stanleybenefits.com Linked In Profile: www.linkedin.com/in/allisongrimm/

Welfare Topics (Learning Objectives) DOMA Update Understand how to administer benefits to same sex couples Increased DOL and IRS scrutiny of welfare benefit plans Understand that regulators are now focusing on welfare benefits and not just retirement plans Learn what to be looking for in terms of compliance

Welfare Topics (Learning Objectives) Welfare Wrap Documents Learn what they are Understand benefits of using wrap documents Self-audit of Form 5500 Filings Understand when Form 5500 filing required for welfare plans Learn about voluntary correction programs if Form 5500s have been filed late or not at all

DOMA Update June 26, 2013 Supreme Court ruling in United States v. Windsor Held that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional Section 3 defined marriage and spouse as excluding same sex partners Section 2 of DOMA is still good law Allows states to define marriage Does not require one state to recognize another state s definition of marriage States (including NC) do not have to recognize same sex marriage

Effect on Employee Benefits IRS Rule IRS Revenue Ruling 2013-17 (Aug. 20, 2013) Ruling for federal tax purposes (which impacts employee benefit plans) Terms spouse, husband and wife, husband, and wife include an individual married to a person of the same sex if they were lawfully married under state law Term marriage includes a marriage between persons of the same sex but not domestic partnerships, civil unions, etc. Employers do NOT have to provide coverage to same-sex spouses for welfare benefits [NOTE: rule is different for retirement plans!!!] Language of documents should be reviewed

Lawfully Married Place of Celebration Rule If couple was married in state that recognizes same sex marriages, then for federal tax purposes, the couple is considered lawfully married Does NOT matter where they live now

Department of Labor Rule DOL Technical Release 2013-04 (Sept. 18, 2013) Ruling for ERISA purposes Adopted rule recognizing terms spouse and marriage based on state of celebration of marriage

Health Benefits Employers are not required to offer coverage to same sex spouses in states where same sex marriage is not recognized Check insurance policy if fully insured or plan document if self-insured (and review reinsurance contracts) Windsor and Rev. Rule 2013-17 provide the tax implications if coverage IS offered to same sex spouses Premiums can be paid with pre-tax dollars Employers do not have to treat premiums paid by company as wages or imputed income to the employee as in the past Same sex spouses and their children are eligible to receive benefits under health FSAs, HSAs, and HRAs

Plan Interpretation Questions Health plan does not define spouse Strong argument that plan provides benefits to same sex spouses because they are considered legally married under ERISA and the Code Health plan defines spouse as opposite sex spouse in state where same sex marriages not recognized Plan language clear and benefits not available to same sex spouses Potential for sex discrimination claims EEOC has taken position that discrimination against gay and lesbian employees may violate Title VII Potential violation of Equal Pay Act Proposed federal legislation, passed by Senate on November 7, 2013, would prohibit discrimination in employment based on sexual orientation and gender identity

Cafeteria Plans Same sex couples married after June 26, 2013 should be permitted to change their cafeteria plan elections (just like opposite sex couples) Changes in coverage should be permitted as changes in marital status, not significant changes in the cost of coverage Employers must treat amounts paid for coverage elected by same-sex spouse under cafeteria plan as pre-tax salary reductions Treat same sex couples the same as opposite sex couples

Summary Place of Celebration Rule Do NOT have to provide same sex benefits to spouses (welfare benefits) Consult legal documents governing plan But if you DO provide same sex benefits, then treat same as opposite sex spouses

Increased DOL and IRS Scrutiny of Welfare Plans Administration of health and welfare benefit has grown more complex in recent years. Historically, employers, CFOs and HR professionals have concentrated on retirement plan compliance. Health, life, accident, disability and other welfare benefits have been on the back burner. Audits by the Department of Labor, particularly of health and welfare plans, were rare.

It s A New Day for Welfare Plans Patient Protection and Affordable Care Act ( ACA ) and the Health Insurance Portability and Accountability Act ( HIPAA ) have pushed health plans to the forefront. Other laws protecting employee rights with respect to benefits make benefit plan administration more complex and time-consuming. More laws more chances to mess up!

What Triggers a DOL Audit? Participant complaints and inquiries Random selection Form 5500 errors or omissions Now more easily detectable with EFAST2 filing

Increase in DOL Audit Efforts EBSA concerns that plan sponsors are not managing benefit plans correctly. DOL has estimated that 3 out of 4 plans it audits has had an ERISA violation. EBSA budget for audit activity has been increased. Up to 1,000 additional auditors and enforcement staff hired. One recent study shows that 1 in 3 audits of health and welfare plans resulted in employer fines of $10,000 or more

What is the DOL Looking For? DOL Audit Letter gives employer 10 business days to provide a very long list of documents Plan Documentation Form 5500 ACA Compliance HIPAA Compliance Wellness Plans/Disease Management Programs

Plan Documentation Plan Document First item on the DOL Requested Items List Usually NOT just the plan booklet or certificate Insurance contracts May have a wrap document to incorporate the booklet and contract Plan document(s) must contain the terms of the plan, and required ERISA language

Plan Documentation (cont) Summary Plan Description Second item on DOL Requested Items List Must have updates (Summary of Material Modifications, or SMM ) Contracts with insurance companies For self-insured plans, contracts for claims processing, administrative services and reinsurance Summary of Benefits and Coverage

Form 5500 Form 5500 Must file if plan has 100+ participants at beginning of plan year Exempt if less than 100 participants AND fully insured Exempt if government or church plan Due by last day of 7 th month following end of plan year July 31 for calendar year plan Must file electronically via EFAST2

Compliance with ACA EBSA recently revised its audit letter to request documents demonstrating compliance with ACA. Requests that apply to all plans Requests that apply to grandfathered plans Requests that apply to non-grandfathered plans

Compliance with ACA All Health Plans Notice regarding dependent coverage for children up to age 26 List of individuals whose coverage has been rescinded (i.e. retro termination for reason other than non-payment), and copies of written notices to them Documents showing lifetime and annual limits since September 23, 2010 (not permitted on essential benefits)

Compliance with ACA Grandfathered Health Plans Copies of disclosures to participants regarding grandfathered status Records documenting the terms of the plan in effect on March 23, 2010 Any other documents necessary to verify or clarify status as a grandfathered health plan

Compliance with ACA Non-Grandfathered Health Plans Notices to participants regarding their right to designate a primary physician, and a list of participants who received that notice Copies of documents regarding emergency services benefits Copies of documents relating to preventive services for plan years after September 23, 2010

Compliance with ACA Non-Grandfathered Health Plan Plan s internal claims and appeals procedures Samples of adverse benefit determinations and external review decision notices used after September 23, 2010 Copies of contracts with independent review organizations or TPAs providing external claims review

HIPAA Compliance EBSA has been focused on HIPAA (portability) compliance in recent years, as applied to health plans Enrollment forms Certificates of creditable coverage Related logs and written procedures for requesting certificates Alternative ways for an individual to demonstrate creditable coverage COBRA notices

HIPAA Compliance Pre-existing exclusion notices and explanations of how participants may avoid those requirements by demonstrating creditable coverage Logs of any such notices issued Written procedures for special enrollment rights Copy of written appeal procedures established by the plan

Wellness Plans and Disease Management Programs Materials describing any wellness or disease management program Disclosure statement regarding how individuals may earn rewards using a reasonable alternative procedure if reward is based on ability to meet a standard related to a health factor New proposed wellness rules effective for plan years beginning on or after January 1, 2014: Maximum permissible reward increased from 20% to 30% of cost of health coverage Up to 50% for programs to prevent/cease tobacco use See next slide for reasonable alternative language

Approved Reasonable Alternative Language Your health plan is committed to helping you achieve your best health. Rewards for participating in a wellness program are available to all employees. If you think you might be unable to meet a standard for a reward under this wellness program, you might qualify for an opportunity to earn the same reward by different means. Contact us at [insert contact information] and we will work with you (and if you wish, with your doctor) to find a wellness program with the same reward that is right for you in light of your health status."

DOL Self-Compliance Tool for Group Health Plans DOL recently added a 29 page self compliance tool to its website. Employers may use the tool to conduct a self-audit of its health plan s compliance with ACA. www.dol.gov/ebsa/pdf/part7-2.pd

Summary Increased audits by DOL Unprecedented focus on welfare benefits plans Self-audit is a GREAT idea to see if you are in compliance before the DOL gets there

Correcting and Reporting Fiduciary Errors DOL Delinquent Filer Voluntary Compliance Program http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html See slides 39-43 for discussion of Form 5500 filing issues More than 23,000 annual reports were received through this program in FY 2012 DOL Voluntary Correction Program for fiduciary breaches http://www.dol.gov/ebsa/oemanual/cha15.html Use for late deposits of participant contributions to plans In FY 2012, EBSA received 1,884 applications for the VFCP

Welfare Wrap Document Do you need one? Probably (maybe more than one) Why? Because your benefits booklets, insurance policies and contracts with third party administrators don t contain all the information required by ERISA and DOL regulations Plan Administrators must provide copies of plan documents to participants no later than 30 days after a written request ERISA imposes penalty of up to $110 per day for failure

What is a Welfare Wrap Document? A document that wraps around the documents provided by the insurance company/third party administrator that fills in the gaps Can it do anything else? If it wraps around more than one plan, then only one Form 5500 needs to be filed for all of the plans that are found within the wrap It can also resolve ambiguity in the documents it wraps around (who is deciding the claims for example)

Wrap Document vs Wrap SPD Wrap document wraps around the insurance contracts and/or administrative services agreements Wrap SPD wraps around the coverage booklets provided by the insurance carriers and/or administrative service providers Can you do a combination wrap document/spd? Some courts have ruled that a plan document cannot simultaneously describe itself and summarize itself in one document Other courts have ruled that one document can serve as both plan document and SPD Document should CLEARLY state it is playing both roles!!!!!

Welfare Wrap SPD What is missing? Plan sponsor s name, address and telephone number Plan sponsor s federal tax identification number (EIN#) Type of Plan Description of how the plan is administered Plan administrator s name, address, and telephone number Clear designation of the named plan fiduciary who will be making the benefits determination under the plan

Welfare Wrap SPD What is missing (continued) Designation of agent for service of legal process Plan Number Funding mechanism Procedure for terminating/amending the plan Plan year Who pays the cost of plan benefits Plan administration rules ERISA compliant claims procedures ERISA rights section

Summary Wrap document can help make your welfare plans ERISA compliant Wrap document can reduce the number for Form 5500s you have to file

Self Audit of Form 5500 Filings Form 5500 is the tax return for employee benefit plans (see slide 20 above) Penalty for failure to file $1,100 per day up to a maximum of $30,000 per year (DOL) Up to $15,000 per year (IRS) Fines cannot be paid out of plan assets but must be paid by employers

Correction Program for Late/ Missing 5500 Filings Delinquent Fiduciary Voluntary Compliance Program (DFVC) Established to encourage employers to voluntarily correct their own Form 5500 filings Filing is done with the DOL Substantially reduced DOL penalties Will also abate IRS penalties http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html http://www.dol.gov/ebsa/calculator/dfvcpmain.html

Correction Program for Late/ Missing 5500 Filings Filing: All delinquent Form 5500s for plan must be completed and submitted to proper parties Reduced penalty must be paid by employer: Small Plan Filers (< 100 participants at beginning of plan year): lesser of $10 per day, $750 per filing year, or $1,500 per plan Large Plan Filers (100 or more participants at beginning of plan year): lesser of $10 per day, $2,000 per filing year, or $4,000 per plan

Correction Program Examples Large medical plan did not file Form 5500 for years 2009-2011 Penalties on audit could be over $135,000 ($90,000 from DOL and $45,000 from IRS) for just 2009 Under large plan correction, can correct all three missing years for $4,000 Employer has four separate Plans (e.g., a life, medical, dental, and disability plan), and it filed a Form 5500 for each Plan 45 days late Potential DOL penalty of $198,000! ($1,100/day x 45 days x 4 Plans) Under large plan correction, can correct for $1,800 ($10/day x 45 days x 4 Plans)

Summary Self-audit of Form 5500 Filings is GREAT idea Go to DOL Form 5500/5500SF Filing Search web page to see whether or not you have been filing https://www.efast.dol.gov/portal/app/disseminate?execution=e1s1 If some Form 5500s are late and/or have never been filed, use the DFVC Program and substantially reduce the amount of penalties that can be assessed