The Nuts and Bolts of ERISA Welfare Plans 27th Annual National Institute on Health and Welfare Benefit Plans October 6-7, 2016 Presented by: Sally Doubet King Mark L. Stember Vanessa Scott
Evolution of Federal Legislation Prior to 1974, the two major legislative acts applicable to employee benefit plans were: Welfare and Pension Plans Disclosure Act (WPPDA), and Internal Revenue Code of 1954 (IRC) Employee Retirement Income Security Act of 1974 (ERISA) was enacted amid Watergate hearings and Nixon s resignation 2
ERISA Purposes to establish minimum vesting, participation, and funding standards for pension plans to establish minimum standards of fiduciary conduct for trustees, administrators and others dealing with all types of employee benefit plans to provide for enforcement through civil and criminal sanctions to require adequate public disclosure of the administrative and financial affairs of plans through reporting to the government and disclosure to participants 3
ERISA Structure ERISA as originally enacted had four parts: Title I - Protection of Employee Benefit Rights Title II - Amendments to Internal Revenue Code Relating to Retirement Plans Title III - Jurisdiction, Administration, Enforcement, Joint Pension Task Force, etc. Title IV - Plan Termination Insurance 4
Post-ERISA Legislation Since 1974 there has been a steady flow of legislation affecting employee benefits Over four dozen separate pieces of legislation Both major and minor changes Some amendments only to IRC Some amendments to ERISA and IRC Some amendments to ERISA, IRC and Public Health Service Act (e.g., COBRA, HIPAA insurance reforms, Genetic Nondiscrimination in Insurance Act (GINA), Mental Health Parity and Addiction Equity Act (MHPAEA), Patient Protection and Affordable Care Act (PPACA) Some freestanding laws that directly affect employee benefit plans (e.g., HIPAA privacy and security rules, FMLA, ADEA, ADA, EEOC wellness rules) Bottom line: You must keep abreast of changes 5
ERISA Administrative Roles As originally enacted, ERISA produced fragmented administrative roles for: Internal Revenue Service Department of Labor Pension Benefit Guaranty Corporation 6
ERISA Administrative Roles Other legislation has added administrative roles for other agencies, including: Securities and Exchange Commission (SEC) Equal Employment Opportunity Commission (EEOC) Department of Health and Human Services (HHS), including Centers for Medicare and Medicaid Services (CMS), Office of Civil Rights (OCR) and Office of Consumer Information and Insurance Oversight (OCIIO) 7
Welfare Plans Several important sets of rules must be followed for welfare plans: Certain tax rules under the Internal Revenue Code (usually vary by type of benefits provided) Certain provisions of ERISA Title I (applicable to all ERISA welfare plans; some special rules for group health plans); Under other laws, including HIPAA Administrative Simplification rules, amended by HITECH Act and PPACA Medicare Modernization Act of 2003 (MMA) (establishing the Medicare Part D program) Prohibitions against discrimination based on genetic information under GINA (employment decisions and health plan decisions) Maintenance of health coverage while on FMLA Mental Health Parity and Addiction Equity Act (MHPAEA) 8
Welfare Plans Analysis begins with the basics: Is there a plan? If so, is the plan covered by ERISA? What are the applicable rules in IRC? What are the applicable ERISA Title I rules? What other Federal rules apply? 9
What is a Plan? As defined in ERISA 3(3): An employee benefit plan or plan means an employee welfare benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan. 10
What is a Welfare Plan? An employee welfare benefit plan (ERISA 3(1)) is: any plan, fund or program established or maintained by an employer, employee organization, or both, providing participants and beneficiaries through the purchase of insurance or otherwise 11
Employee Welfare Benefit Plan, cont. medical, surgical or hospital care or benefits, benefits in the event of sickness, accident, disability, death, unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services any benefit described in 302(c) of LMRA (other than pensions on retirement or death and insurance to provide such pensions) 12
Who is an employer? Person acting directly as, or on behalf of, an employer Person includes an individual, partnership, joint venture, corporation, trust, or employee organization (also controlled group of companies, as defined under IRC) Includes a group or association of employers Includes employee organizations, including unions 13
Types of Plans by Plan Sponsor Single-employer or corporate plans Multiemployer or Taft-Hartley plans Multiple Employer Welfare Arrangements (MEWAs) 14
Who is the Plan Sponsor? Employer Employee organization Association of employers Joint board of trustees 15
What Kinds of Arrangements Are Not Welfare Plans? Payroll Practices On-Premises Facilities Holiday Gifts Sale to Employees Hiring Hall Facility Remembrance Funds 16
What Kinds of Arrangements Are Not Welfare Plans? Certain Insurance Programs Certain Scholarship Programs Equity compensation arrangements Voluntary programs funded with employee contributions with limited employer involvement 17
Certain Deferred Compensation Plans Treated as Welfare Plans Secretary of Labor has regulatory authority to exempt certain types of benefits from the pension plan rules and treat them as welfare plans: Severance pay arrangements Supplemental retirement income payments (i.e., COLAs for retirees) 18
Typical Benefits Offered Under a Welfare Plan Health Benefits (including wellness and disease management programs, may include EAP) Dental Vision Group Term Life Insurance Long-Term Disability Short-Term Disability 19
Typical Benefits Offered Under a Welfare Plan, cont. Dependent Care Assistance Group Legal Services Educational Assistance Statutory Fringe Benefits 20
Group Health Plans Largest group of welfare plans May be fully-insured or self-insured May be funded or unfunded Benefits may be provided through: a stand-alone plan multiple plans a cafeteria plan (IRC 125) a HSA (IRC 223) in conjunction with a high deductible health plan (HDHP) a Health Reimbursement Arrangement (HRA); integrated with an HDHP or for Medicare-eligible retirees 21
Taxation Exclusion of employer contributions and value of benefits received from income on receipt (employees) Code 105 Code 106 Tax deduction for employer contributions Tax-free accumulation of assets from which benefits are provided 22
Tax Issues Nondiscrimination Rules Various rules that prohibit discrimination regarding eligibility and/or benefits in favor of highly compensated employees Benefits subject to nondiscrimination rules: Self-insured health benefit plans, extended to insured plans by PPACA (rules delayed) Cafeteria (or flexible benefit ) plans Group-term life insurance plans 23
Tax Issues Benefits subject to nondiscrimination rules: Group legal services plans (but tax exclusion no longer applies IRC 120) Qualified tuition reduction programs and education assistance programs Dependent care assistance programs Benefits funded through a VEBA or 501(c)(9) trust 24
Tax Issues Benefits not subject to nondiscrimination rules Supplemental life insurance Long-term disability Paid and unpaid leave 25
Tax Issues Benefits not subject to nondiscrimination rules Work-related fringe benefits Automobile allowance Professional dues and memberships Board certifications CME Time and Travel Cellular phone (subject to certain conditions) 26
Tax Issues Funding Funding of welfare plans not required Can be paid from general assets of employer If plan sponsor decides to fund, many different methods, including: Insurance Self-insurance VEBA 401(h) account 27
ERISA Issues Coverage Is the plan subject to ERISA? Coverage determined under ERISA 4: all employee benefit plans established or maintained by employers, employee organizations, or both, unless exempt under 4(b) exempt employers include: governments, churches, church-related entities 28
ERISA Issues Coverage ERISA: Applies regardless of size of employer Applies to both insured and self-insured plans Applies to taxable and tax-exempt employers; for profit and not-for profit employers (except governments, churches and church-related entities) Does not apply to plans covering only selfemployed individuals 29
ERISA Issues Applicable Rules Reporting and disclosure (part 1) Generally subject to ERISA s reporting and disclosure requirements Unless they can satisfy one of the available exemptions: Less than 100 participants Separate welfare plan top-hat exception Must be unfunded, insured or some combination 30
ERISA Issues Applicable Rules Fiduciary responsibility (part 4) Administration and Enforcement (part 5), including Claims and appeals (ERISA 503) Causes of action/remedies (ERISA 502) Interference with protected rights ( 510) Health care continuation (part 6) 31
ERISA Issues Applicable Rules Portability, access, renewability (part 7), including rules added by: Health Insurance Portability and Accountability Act of 1996 (HIPAA) Newborns and Mothers Health Protection Act of 1996 (NMHPA) Mental Health Parity Act of 1996, as amended by Emergency Economic Stabilization Act of 2008 (EESA) Women s Health and Cancer Rights Act of 1998 (WHCRA) Michelle s Law Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act (PPACA) 32
ERISA Issues Applicable Rules Group health plans also subject to: HIPAA administrative simplification rules (e.g., medical privacy and security), as amended by HITECH and PPACA Requirement to issue certificate of creditable prescription drug coverage under Medicare Modernization Act (MMA) Requirement to maintain coverage under FMLA Rules prohibiting discrimination based on genetic information added by the Genetic Information Nondiscrimination Act of 2008 (GINA) 33
ERISA Issues Fiduciary duties Plan must be in writing, including provisions specifying: named fiduciary allocation of fiduciary duties funding policy (must indicate if benefits are going to be paid from general assets) plan amendment procedures basis for contributions to and payments from the plan If funded, generally assets must be held in trust DOL no-action position re: cafeteria plans 34
ERISA Issues Fiduciary duties ERISA 3(21) adopts a functional test : A person is a fiduciary to the extent that the person: (1) exercises any discretionary authority or discretionary control over the management of the plan or the management or disposition of its assets; 35
ERISA Issues Fiduciary duties (2) renders investment advice regarding plan assets for a fee or other direct or indirect compensation, or has the authority or responsibility to do so, or (3) has any discretionary authority or control over plan administration 36
ERISA Issues Fiduciary duties Other plan fiduciaries may include: Plan administrator Trustees Service providers (such as TPAs and UROs) are generally not fiduciaries, but may become fiduciaries if they agree to be fiduciaries or if they exercise discretion or control over plan administration or management 37
ERISA Issues Fiduciary duties ERISA 404(a) sets forth basic fiduciary duties: Loyalty ( solely in the interest and for exclusive purpose ) Prudence Diversification Adherence to plan documents to extent they are consistent with the law 38
ERISA Issues Fiduciary duties These duties include: Prudently selecting and hiring other fiduciaries, advisors and experts (if authorized under the plan) Continuing duty to monitor Delegation of fiduciary functions to others if plan permits Co-fiduciary liability possible 39
ERISA Issues Fiduciary/Settlor Not all decisions relating to a plan are fiduciary decisions Some decisions are settlor or employer decisions and are not actionable under ERISA as fiduciary acts This distinction is based on the Common Law of Trusts 40
ERISA Issues Fiduciary/Settlor Common settlor functions: Design decisions (establishment of plan, termination of plan, benefits provided, employees included/excluded) Plan amendments But implementation of a settlor decision is a fiduciary act The line between settlor and fiduciary functions is often hard to draw, particularly when the plan sponsor is also a fiduciary (e.g., plan administrator) 41
ERISA Issues Claims/Appeals ERISA 503 prescribes rules governing claims and appeals Rules are both procedural and substantive DOL regulations flesh out statutory requirements (1977/2000) 42
ERISA Issues Claims/Appeals General rule: every employee benefit plan must: provide adequate notice in writing when claim is denied setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant afford reasonable opportunity for a full and fair review by the appropriate named fiduciary of the denial decision 43
ERISA Issues Claims/Appeals DOL regulations amplify statutory requirements Original regulations issued in 1977 preceded current managed care environment Updated in 2000; effective beginning in 2002 General approach: Plans must ensure that claims are decided in accordance with governing plan documents plan provisions are applied consistently for similarly situated claimants they can demonstrate consistency in decision making if challenged 44
DOL Claims Regulations Define claim Create separate rules for health claims, disability claims, and pension and other welfare plan claims Distinguish between types of health claims Pre-service Post-service Concurrent Urgent Establish different time frames for deciding each type of claim NOTE: Claims administered by HMOs for ERISA plans no longer exempt from compliance with DOL claims regulations 45
ERISA Issues Right to Sue Governed by ERISA 502, 29 USC 1132: (a)(1)(a) penalties for failure to provide documents (a)(1)(b) claims for benefits (a)(2) breach of fiduciary duty with relief to plan (a)(3) violation of ERISA (including breach of fiduciary duty) brought by individual (a)(5) by the Secretary for violation of ERISA (a)(6)-(a)(8) by the State/Secretary for specific violations (a)(4), (a)(9) and (a)(10) apply solely to pension plans 46
ERISA Issues Right to Sue Standing: Participants Beneficiaries Fiduciaries Department of Labor 47
ERISA Issues Remedies ERISA does not allow recovery for: Punitive damages Pain and suffering Consequential damages 48
ERISA Issues Remedies ERISA does allow plaintiffs to recover: Benefits wrongfully denied Prejudgment interest Attorneys fees Equitable relief Mertens Great-West v. Knudson Sereboff v. MAMSI 49
ERISA Issues Preemption ERISA 514 governs General rule: State laws that relate to ERISA-covered plans are preempted Exceptions ( savings clause ): state laws governing insurance, banking and securities generally applicable state criminal laws Exception to exceptions ( deemer clause ) states can t deem ERISA plans to be insurers 50
ERISA Issues Preemption When does a state law relate to and ERISA-covered plan? reference to connection with 51
ERISA Issues Preemption Framework for analysis post-travelers on when a state law relates to an ERISA plan: Presumption of validity for generally applicable state law regulating an area of traditional state authority, unless the state law conflicts with ERISA mandates benefit structures or alternative enforcement mechanisms or interferes with plan administration And there is clear Congressional intent to preempt 52
ERISA Issues Preemption When does a state law regulate insurance? Old approach: common sense view McCarran Ferguson factors: affects the insurer/insured relationship spreads risk limited to entities within insurance industry Unum v. Ward - not necessary to satisfy all three factors to be saved 53
ERISA Issues Preemption New approach: Kentucky Ass n of Health Plans v. Miller State law must be specifically directed toward entities engaged in insurance; and State law must substantially affect the risk pooling arrangement between the insurer and the insured 54
ERISA Issues Preemption States cannot directly regulate any ERISA-covered plan (regardless of whether it is insured or self-insured) But states may be able to regulate ERISA-covered plans indirectly through regulation of health insurance issuers and insurance products 55
ERISA Issues Preemption Examples: State external review law saved from preemption as law regulating insurance (Rush Prudential v. Moran) State any willing provider law saved from preemption as law regulating insurance (Kentucky Ass n of Health Plans v. Miller) But state HMO law that imposed liability for coverage decisions preempted even if those decisions involve mixed treatment and eligibility issues (Davila v. Aetna) 56
ERISA Issues Other Rules Health insurance continuation (part 6) Added by Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) Applicable to group health plans covering 20 or more employees on 50% of business days in prior year Covers employees of private sector employers and state and local governments Includes all plans self-insured or insured 57
ERISA Issues Other Rules Group health plan portability, access and renewability (part 7), including requirements added by: Health Insurance Portability and Accountability Act of 1996 (HIPAA) Newborns and Mothers Health Protection Act of 1996 (NMHPA) Emergency Economic Stabilization Act of 2008 (EESA, superseding MHPA) Women s Health and Cancer Rights Act of 1998 (WHCRA) Michelle s Law Patient Protection and Affordable Care Act (PPACA) 58
ERISA Issues HIPAA Title I - Insurance reforms (access, portability, renewability) applicable to group health plans and individual policies Title II Fraud and abuse, administrative simplification, including: Electronic transaction standards Medical privacy Security 59
ERISA Issues NMHPA Newborns' and Mothers' Health Protection Act of 1996 Plan or issuer can t require discharge of mother or newborn before: 48 hours for normal delivery 96 hours for Caesarian Notice in SPD Early discharge only by agreement of mother and health care provider No inducements for early discharge permitted Penalties same as HIPAA 60
ERISA Issues Mental Health Parity Mental Health Parity and Addiction Equity Act of 2008, part of EESA Prohibits lower lifetime or annual dollar limits for mental health or substance use disorder benefits compared to medical/surgical Prohibits different financial requirements (e.g., deductibles and copays) and treatment limits (e.g., frequency of treatment, number of visits) than predominant requirements and limits for medical/surgical Must provide out of network coverage if that is provided for medical/surgical Criteria for medical necessity determinations to be disclosed Does not require mental health or substance use disorder coverage 2 exceptions small employer (2-50) 2%/1% cost increase Penalties same as HIPAA No longer subject to a sunset 61
ERISA Issues WHCRA Women s Health and Cancer Rights Act of 1998 Requires certain reconstructive surgery if plan provides benefits for mastectomies Reconstruction of breast Other surgery and reconstruction to promote symmetrical appearance and Prostheses and coverage of physical complications No inducement for lesser care permitted Penalties same as HIPAA Notice to participants at enrollment and annually. State laws enforceable if more generous to individual 62
ERISA Issues Michelle s Law Michelle s Law Requires continuation of group health plan coverage for up to one year for a college student who takes a medically necessary leave of absence that would otherwise cause loss of coverage under the plan Plan may require written certification of illness or injury and the medical need for leave from the treating physician Plans must provide notice of the rules Penalties ERISA 502 and IRC 4980D 63
ERISA Issues Who is a spouse No requirement to cover spouses If spouses are covered, following the decision in U.S. v. Windsor, DOL Tech. Rel. 2013-04, and Obergefell v. Hodges, spouses must include persons lawfully married in any state, including same sex spouses 71187487.2 64