Beware the Snake in the Grass: COBRA Election Notice Considerations During The COVID-19 Pandemic

With most of the nation on lockdown due to the COVID-19 pandemic, many employers are in the unfortunate position of having to lay off workers or significantly reduce their hours. If these workers also lose employer-sponsored health coverage, they will experience a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), triggering the requirement to send COBRA election notices describing the employee’s (and spouse’s) right to elect to temporarily stay on their employer’s health plan. In these difficult times, employers should review their notices to ensure they are compliant with COBRA and provide adequate information to employees. Compliance is especially important because COBRA notices have become the subject of a growing trend of class action lawsuits filed by ex-employees alleging that their former employers did not provide sufficient notice of their COBRA rights.

Generally, COBRA requires notices to be drafted in a manner that the average plan participant can understand, and must provide specifics about continuation coverage, such as the contact information for the administrator, how to elect coverage, and how much coverage costs. The DOL has issued model notice letters to help employers meet these requirements.

Continue reading “Beware the Snake in the Grass: COBRA Election Notice Considerations During The COVID-19 Pandemic”

Benefit Plan FAQs on COVID-19 Part 5

Hardship Distributions During the COVID-19 Outbreak

As the COVID-19 outbreak continues, retirement plan sponsors will likely receive questions from employees about ways in which they can access funds in their retirement plan accounts. While we wait for any potential Congressional action to ease access to retirement plan accounts, we look to the hardship distribution rules that apply now regardless of Congressional relief. Hardship distributions are one way an employee can receive an in-service distribution of elective deferral contributions (and, depending on the plan provisions, other types of contributions) from their accounts, provided the employee has an immediate and heavy financial need and the distribution is necessary to meet that need.

The IRS’s recently issued final regulations added a new type of safe harbor hardship distribution event, for losses related to a federally-declared disaster. Under the final regulations, an employee may be deemed to have an immediate and heavy financial need when the employee incurs expenses and losses (including loss of income) as a result of a disaster declared by the Federal Emergency Management Agency (“FEMA”), provided the employee’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the particular disaster. Historically, the IRS announced similar relief on a piecemeal basis (for example, allowing certain hardship distributions for Hurricane Maria and the California wildfires in 2017).

Continue reading “Benefit Plan FAQs on COVID-19 Part 5”

Benefit Plan FAQs on COVID-19 Part 4

HIPAA in the Time of Coronavirus

Group health plans and other entities covered by the Health Insurance Portability and Accountability Act of 1996 (HIPPA) should consider the bulletin released by the Department of Health and Human Services (Bulletin) as a reminder that their HIPAA obligations continue to apply even during a public health emergency, such as the Novel Coronavirus Disease (COVID-19) outbreak.

The Bulletin reiterates the circumstances under which HIPAA currently permits an individual’s protected health information (PHI) to be used and disclosed in an emergency situation and those circumstances applicable to group health plans are generally discussed below. Plan sponsors may want to review their group health plan’s use and disclosure procedures to confirm these permitted exceptions are correctly included.

Continue reading “Benefit Plan FAQs on COVID-19 Part 4”

Normal Cafeteria Plan Mid-Year Election Change Rules Apply – For Now

As of the date of this post, there has been no legislation or IRS guidance allowing plan sponsors to permit cafeteria plan participants to make COVID-19 related mid-year election changes, other than those which also meet the current requirements of the employer’s cafeteria plan and applicable law.  However, employers may find themselves faced with an increase in employee requests to change their cafeteria plan elections in response to employees’ rapidly changing circumstances in light of COVID-19.

The table below highlights a few of the mid-year election change requests anticipated as employees and employers respond to the social distancing and economic impact of COVID-19.  Plan sponsors should confirm that their plan is not more restrictive than the general mid-year election changes permitted by law which are described here, and as with any mid-year election change request, a change is permitted only when it is consistent with the event and the terms of the plan.

Continue reading “Normal Cafeteria Plan Mid-Year Election Change Rules Apply – For Now”

Benefit Plan FAQs on COVID-19 Part 3

Mandates for Employer Group Health Plan Testing Coverage and Paid Leaves of Absence Included in Congress’s “Phase 2” Coronavirus Legislation

On Wednesday, March 18, 2020, the U.S. Senate approved and President Trump signed into law, the Families First Coronavirus Response Act (Act). Among other important relief initiatives to assist Americans in fighting the coronavirus (COVID-19) pandemic, the Act may have immediate impact on certain employer-provided health and welfare benefits, including health plans, time off programs and short-term disability plans.

Continue reading “Benefit Plan FAQs on COVID-19 Part 3”

Benefit Plan FAQs on COVID-19 – Part 2

COVID-19 and Leave-Sharing Plans

In these difficult times, some employees may want to donate some of their accrued paid-time off, vacation, or leave to help other employees take leave to recover from COVID-19 or to care for family members with COVID-19.  This can be accomplished through a “Leave-Sharing Plan” set up by their employer.

Under normal tax rules, the leave donation would have to be treated as an assignment of income that is taxable to the employee donating the leave.  However, the IRS allows such a donation to be made on a tax-free basis if it is done pursuant to a Leave-Sharing Plan that meets IRS requirements for a “Medical Leave-Sharing Plan” or a “Major Disaster Leave-Sharing Plan.”  Note that in both types of plans, the employee who receives the donated leave will be taxed on the pay for the donated leave.

Continue reading “Benefit Plan FAQs on COVID-19 – Part 2”

Benefit Plan FAQs on COVID-19

IRS Guidance Related to Coronavirus Testing/Treatment for HDHPs/HSAs

Last week, the IRS issued guidance confirming that high-deductible health plans with health savings accounts can provide coronavirus testing and treatment at no cost to participants without affecting eligibility for health savings accounts.  Without this guidance, any non-preventive services provided to such participants before meeting their plan deductible would have disqualified the participants from health savings account eligibility.  This guidance is welcome, as employers attempt to remove obstacles to testing and treatment for coronavirus.

Continue reading “Benefit Plan FAQs on COVID-19”

IRS Says Employer Shared Responsibility Payment Not Subject to Statute of Limitations

The IRS Office of Chief Counsel recently issued a memorandum (https://www.irs.gov/pub/irs-lafa/20200801f.pdf) that responded with a resounding “No” to the question of whether an employer shared responsibility payment (ESRP) imposed under Internal Revenue Code §4980H is subject to any statute of limitations on assessment.

Continue reading “IRS Says Employer Shared Responsibility Payment Not Subject to Statute of Limitations”

Another U.S. Supreme Court Review of Affordable Care Act Could Impact Employer Health Plans

On March 2, 2020, the U.S. Supreme Court granted two petitions by interested states asking the Court to review the constitutionality of the individual health coverage mandate in the Affordable Care Act (ACA) and, if unconstitutional, determine whether other provisions of the ACA also are invalid.

In 2017, Congress changed the penalty tax associated with the individual mandate to zero as part of the Tax Cuts and Jobs Act of 2017. Following that change, a group of states challenged whether the individual health coverage mandate, with no associated penalty for an individual’s failure to purchase coverage, could still be upheld under the taxing power of Congress. In 2018, a Texas district court agreed and held that the other provisions of the ACA also are invalid as they are so closely linked to the individual mandate that they are inseverable. The recent petitions to the Supreme Court followed a ruling issued by the U.S. Court of Appeals for the Fifth Circuit that upheld the Texas district court’s 2018 finding that the individual mandate is unconstitutional, but sent back for further review the district court’s finding that the rest of the ACA also is invalid. This will be the Supreme Court’s third time reviewing the ACA since its enactment in 2010.

Continue reading “Another U.S. Supreme Court Review of Affordable Care Act Could Impact Employer Health Plans”

Actual Knowledge Means Actual Knowledge: The U.S. Supreme Court Resolves Circuit Split over ERISA’s Statute of Limitations for Fiduciary Breaches

In its February 26, 2020, unanimous decision in Intel Corporation Investment Policy Committee v. Sulyma, the United States Supreme Court resolved a circuit split regarding what constitutes “actual knowledge” for purposes of triggering ERISA’s three-year statute of limitations for fiduciary breach claims. (ERISA § 413(2); 29 U.S.C. § 1113(2)). The Court found that a fiduciary’s act of disclosing investment information is necessary, but not sufficient to demonstrate that a participant has actual knowledge of the information contained in investment disclosures. Simply put, to “meet § 1113(2)’s ‘actual knowledge’ requirement … the plaintiff must in fact have become aware of that information.”

Under ERISA, a plaintiff must file a lawsuit within six years of the alleged fiduciary breach, or within three years of the date the plaintiff had “actual knowledge” of the breach. (ERISA § 413; 29 U.S.C. § 1113). Sulyma filed his lawsuit challenging the prudence of the Intel 401(k) plan fiduciaries’ investment decisions more than three years, but less than six years, after Intel provided ERISA-mandated disclosures of the investments at issue.

Continue reading “Actual Knowledge Means Actual Knowledge: The U.S. Supreme Court Resolves Circuit Split over ERISA’s Statute of Limitations for Fiduciary Breaches”