Monthly Archives: March 2015
Tuesday, March 31, 2015

CoupleIn a prior post, we discussed which couples do not have federal FMLA rights under the new regulatory definition of “spouse.” Now that we know who can and can’t take FMLA leave as a husband or wife, the next question is: What limitations May an employer can put on FMLA leave when both spouses work for that employer?

  • Eligible spouses are entitled to a combined total of 12 weeks of leave (i.e., not 12 weeks each) during the applicable 12-month period for leave taken:
    • For the birth or placement of a child;
    • To care for the child after birth; and/or
    • To care for an employee’s parent with a serious health condition.

Note that this limitation applies only to the identified reasons for leave. This limitation does not apply, for example, with respect to leave to care for an employee’s child with a serious health condition. In that situation, both parents would be permitted to take up to 12 weeks of leave each to care for the child.

  • Eligible spouses are entitled to a combined 26 weeks of leave during the applicable 12-month period for leave taken for a combination of military caregiver leave and one of the foregoing reasons.
  • Where spouses use a portion of their entitlements for the foregoing reasons, they are each entitled to the difference between the amount of leave they have taken individually for such reasons and the 12 (or 26) weeks of leave for other purposes.

So, to look back at the example of the child with a serious health condition above, if both parents took six weeks to bond with that child after birth, each parent would still have six weeks of FMLA leave in the applicable 12-month period available to care for the child if the child became sick with a serious health condition.

In our next post: Does My Employee Get To Take FMLA Leave Even Though She/He Has A Stay-At-Home Spouse?

Friday, March 27, 2015

Couple with DogThe U.S. Department of Labor’s issuance of a final rule amending the definition of “spouse” in the federal Family and Medical Leave Act (“FMLA”) regulations has inspired us to prepare a new series of FMLA-related blog posts on the subject of “FMLA Rules for Couples.”

We start our discussion by asking what may not seem like the obvious question in light of the new rule: Which couples do not have FMLA rights under the new definition of spouse?

The answer is relatively straight-forward: Couples who are not legally married under U.S. laws, or whose lawful marriage outside the U.S. could not have been entered into in at least one U.S. state, are not considered “spouses” for purposes of the FMLA.

Thus, while opposite-sex couples in lawful marriages, same-sex couples in lawful marriages, and even couples married under common law all have FMLA rights as spouses, the FMLA does not provide the rights of a husband or wife to:

  • Individuals in a civil union;
  • Individuals who are domestic partners;
  • Individuals who are dating, living together, friends with benefits, etc. (i.e., not married).

Keep in mind, of course, that we are talking about the FMLA rights of spouses. The above rules do not mean, for example, that an unmarried parent (mother or father) would not be entitled to FMLA leave to bond with his or her newborn, or newly placed adoptive or foster, son or daughter (assuming the parent has a biological, legal, or in loco parentis relationship to the child). But the unmarried parent would not be entitled to FMLA leave to care for that child’s other parent.

Also, some state-law equivalents of the FMLA may have broader/different definitions and leave rights. So while the employee may not be eligible for leave under federal law, he or she may be entitled to leave under state law.

Up next: Leave Limitations when Spouses Work for the Same Employer

Tuesday, March 24, 2015

CalendarIn a rule published on March 19, 2015, the Department of Labor (“DOL”) indicated that a year can last 14 months, at least when it comes to the disclosure of fees, expenses and other investment-related information by participant-directed individual account plans, such as 401(k) plans.  That rule is based on comments (complaints?) about the requirement under the applicable regulations to provide that information to participants “at least annually.”  The DOL initially defined that phrase in the regulations so as to require disclosure of investment-related information at least once every 12 months, and subsequently indicated that each disclosure had to be furnished within 365 days of the prior disclosure.  The DOL originally took that rather rigid position to prevent inconsistencies, delays and possible manipulation in the timing of annual fee disclosures.  For example, if the DOL had said the disclosures had to be provided “once per plan year” then one disclosure could, theoretically, be provided on December 31 of one year and the following year’s disclosure could be provided on January 2, which would be of little help to participants (and might cause the record keeper to quit). However, the DOL  also recognized that the fixed annual deadline in the original rule could create administrative difficulties, such as a constantly creeping deadline that would get earlier and earlier as time went one (because, for example, an anniversary of the prior year’s disclosure fell on a weekend).  Accordingly, the DOL invited comments on how to provide plan administrators with appropriate flexibility while assuring participants were provided investment-related information on a regular and consistent basis.

In response, commenters extolled the virtues of a grace period.  A grace period would make it easier to consolidate annual fee disclosures with other participant notices (particularly if enrollment periods or the dates for other mailings change), alleviate the difficulties of tracking deadlines on a plan-by-plan or participant-by-participant basis, avoid concerns about synchronizing the timing of necessary information from investment vendors, encourage the expedited provision of information when possible without accelerating all future deadlines, and permit short delays to accommodate changes in investment options.  Basically, it would be puppies, kittens, rainbows, unicorns, and 12b-1 fees.  Based on this rosy picture, the DOL is proposing to amend the regulations to provide that “at least annually” means at least once every 14 months.  Plan administrators can rely on this now and, unless significant adverse comments (complaints?) are received by the DOL before April 20, the amendment will become permanently effective on June 17.  While perhaps a somewhat semantically loose approach, this amendment provides some welcome flexibility in satisfying the annual fee disclosure requirements.

Monday, March 16, 2015

Welcome back to the third and final segment of our 3-part discussion of the ACA reporting and disclosure forms. In Part 1, we focused on the basics: identifying the various forms, the reporting entities (focusing on employer as filers), and deadlines for filing. In Part 2, we discussed the differences between the draft and final forms. In Part 3 we will focus on the penalties for failing to file. For purposes of the following discussion, we will assume the reporting entity is an employer.

Penalties for Non-Compliance: The penalty for failure to comply with the ACA reporting and disclosure requirements is substantial. A separate penalty is assessed for each failure to file a return and each failure to provide information statements on a timely and accurate basis.

465549130These penalties are $100 for each unintentional failure and $250 for each intentional failure. Penalties in a single calendar year may not exceed (i) $1,500,000 for information return failures; and (ii) $1,500,000 for information statement failures.

The way that these penalties would be assessed in a calendar year are as follows. An employer who inadvertently failed to report a full-time employee would incur a $100 penalty. If the employer also inadvertently failed to provide a statement to that employee, it would incur an additional $100 penalty. If such failures were intentional, the employer’s penalty would be $250 per failure ($500 total). Assuming similar violations occurred with respect to other full-time employees, the maximum combined penalty for both violations would be $3,000,000.

Penalty Relief: The employer may obtain a waiver of these penalties if it can establish, to the satisfaction of the IRS, that the failure was due to reasonable cause. In addition, an employer may be entitled to penalty relief with respect to 2015 coverage (reported in 2016) if (i) the returns and statements were timely filed and (ii) the employer made a good faith effort to comply, but, notwithstanding such effort, the returns and statements were incorrect or incomplete.

Third Party Preparer: Generally, an employer may contract with a third party to satisfy its filing and notice obligations, however the employer remains liable for any failures and resulting penalties. Of course, if the employer incurs penalties, it may pursue contractual remedies against the third party preparer to the extent available under the terms of the service agreement.

Additional Guidance: For further details, employers may consult IRS Publication 5196, “Affordable Care Act: Reporting Requirements for Applicable Large Employers.” Employers should also be on the watch for additional guidance, particularly the previously mentioned FAQs.

 

Thursday, March 12, 2015

462876067Welcome back to Part 2 in our 3-part discussion of the ACA reporting and disclosure forms. In Part 1, we focused on the basics: identifying the various forms, the reporting entities (focusing on employer as filers), and deadlines for filing. In Part 2, we will discuss the differences between the draft and final forms. In Part 3 we will focus on the penalties for failing to file.

Deviations from Draft Form: The forms themselves are unchanged from previous drafts. Instructions for the “B Forms” are likewise nearly the same. One minor change is that employers may list a TIN for an employee who does not have a SSN available.

Instructions for the “C Forms” include several changes and clarifications worth noting:

  • As with the 1095-B, a TIN may be used where an SSN is not available.
  • Employers that cover non-employees (e.g. COBRA, retirees) may, but are not required to, use the B Forms instead of 1095-C Part III.
  • The C Forms require employers to count their total number of employees, in addition to just full-time employees. The two counting methods from the draft instructions (first or last day of the calendar month) remain, plus now employers may count on the first or last day of the payroll period starting in the calendar month.
  • An employee working for multiple employer members in a calendar month is treated as an employee of only the member for which she worked the most hours that month (i.e. only that employer must file the 1095-C for her, though the employee may also receive the form from other members she worked for).
  • Applicable large employers may use transition relief under which they are deemed to offer coverage to certain employees, even if they don’t actually do it, in order to hit the 2015 70% threshold on 1094-C. However, only actual offers of coverage go on Form 1095-C Part II.
  • With respect to actual offers of coverage:
    • An employer may report offering coverage for a month only if it offers coverage for every day of that month.
    • Offers to employee spouses, even if conditional, count so long as the condition is reasonable and objective (e.g. excluding spouses covered or offered coverage by their own employers).
  • While the draft instructions said that providing each employee with a summary of the offered coverage was acceptable, the final instructions require that a self-insured employer give a copy of the 1095-C to each covered employee.
  • An employer with 50 to 99 full-time employees, though exempt from the employer mandate for 2015, must still file forms 1094-C and 1095-C.
    • The final instructions do not offer further information on using third parties to facilitate reporting by employers.

Additional Guidance: For further details, employers may consult IRS Publication 5196, “Affordable Care Act: Reporting Requirements for Applicable Large Employers.” Employers should also be on the watch for additional guidance, particularly the previously mentioned FAQs.

 

Tuesday, March 10, 2015

160298188The unexpected occurred in 2013 when implementation of the Employer Mandate was delayed due to the inability of the IRS to timely issue the requisite reporting and information forms. Now that those forms have finally been issued, we can readily appreciate why it took so long.

The forms, while deceptively simply in appearance, are challenging to complete properly. In fact, the IRS is currently drafting FAQs to address numerous outstanding questions.

This is Part 1 in our 3-part discussion of the ACA reporting and disclosure forms. In this discussion, we focus on the basics: identifying the various forms, the reporting entities, and deadlines for filing. In Part 2, we will discuss the differences between the draft and final forms. In Part 3 we will focus on the penalties for failing comply with these filing obligations.

Forms: There are 4 forms: 2 information returns (the 1095 series) and 2 transmittal forms (the 1094 series).

  • 1095-B – Health Coverage
  • 1094-B – Transmittal of Health Coverage Information Returns
  • 1095-C Employer Provided Health Insurance Offer and Coverage
  • 1094-C – Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns

Filing Requirements:

The basic requirements for the forms are as follows:

  Insured Health Plan Self-Insured Health Plan
Small employer –(Fewer than 50 full-time equivalent employees (FTEs)) Small employer does not fileInsurer files Form 1095-B File Form 1095-B
Applicable Large Employer(ALE) –(50 to 99 FTEs) ALE control group member files Form 1095-C Parts I and II (not Part III), even though may not be subject to employer mandate in 2015Insurer files Form 1095-B File Form 1095-C Parts I, II and III, even though may not be subject to employer mandate in 2015
ALE –(100 or more FTEs) ALE member files Form 1095-C Parts I and II (not Part III)Insurer files Form 1095-B ALE member files Form 1095-C Parts I, II and III

This chart is adapted with permission from a summary prepared by Linda Mendel with Vorys, Sater, Seymour and Pease.

When Must Forms be Filed: These forms are not required to be filed for 2014, but reporting entities may voluntarily file in preparation for the first required filing which will be respect to 2015. The 2015 forms are due by Feb. 28 (March 31 if e-filing). Form 1095-B or –C must be provided to covered full-time employees by Jan. 31.

Additional Guidance: For further details, ALEs may consult IRS Publication 5196, “Affordable Care Act: Reporting Requirements for Applicable Large Employers.” Employers should also be on the watch for additional guidance, particularly the previously mentioned FAQs.

Thursday, March 5, 2015

176237520In proposed regulations published in the Federal Register on November 26, 2014, the Department of Health and Human Services (HHS) proposed limits on annual out-of-pocket maximums for 2016. In one paragraph of the preamble, HHS proposed to “clarify” that the annual limit for self-only coverage applies to all individuals, including each individual under family coverage.

On February 27, 2015, HHS finalized those regulations. The regulations set the 2016 out-of-pocket limit for self-only coverage at $6,850 and for non-self-only coverage at $13,700, but perhaps more importantly, the Department also finalized its clarification of the application of the out-of-pocket limits. This “clarification” did not find its way into the actual language of the regulations, but was mentioned only in the preamble.  While it is not entirely clear, it appears this “clarification” will not be applied until the 2016 plan/policy year.

This embedded rule means that plans (including self-funded plans) will now have to have embedded out-of-pocket limits for each individual covered under family coverage. For example, using the 2016 limits, if a family plan has an annual out-of-pocket limit of $10,000 and one family member incurs an expense of $20,000, that family member would be responsible for expenses up to $6,850 (the self-only out-of-pocket limit), and the remaining $13,150 would be paid in full by the plan. Additional expenses incurred by that family member would be paid by the plan with no cost sharing for the remainder of the plan year. Although it is not stated expressly in the preamble, the other family members (or a single family member) should be responsible for the remaining $3,150 of expenses under the family cap of $10,000. Of course, after the family group reaches the $10,000 out-of-pocket limit, the group has no further cost sharing for the rest of the plan year.

The preamble provides that the embedded out-of-pocket limit applies to all plans. Sponsors of high deductible plans (HDHPs) that are intended to be compatible with health savings accounts (HSAs) should note that the out-of-pocket limits set by the IRS for HSA compatible HDHPs are lower than the limits set by HHS for Affordable Care Act purposes. For example, for 2015 the HDHP limits are $6,450 for self-only coverage and $12,900 for family coverage while the ACA limits for 2015 are $6,600 for self-only coverage and $13,200 for family coverage. The IRS has not yet announced the HDHP limits for 2016. And, the IRS does not presently require that family coverage apply an embedded out-of-pocket approach like the HHS approach. A family HDHP should be able to comply with both limits if it applies a self-only out-of-pocket maximum that is no higher than the self-only ACA limit and, in all events, pays all expenses for all family members once the group’s expenses reaches the family out-of-pocket maximum established by the IRS for HDHPs (or the family limit established for the plan, if lower).

It is not entirely clear whether the clarification applies for 2015 plan years, which are now underway, or to 2016 and later plan years. The final regulations provide generally that they are effective on April 28, 2015, which is 60 days after the Federal Register publication date, with exceptions for certain provisions other than this cost-sharing clarification. However, the preamble states that “2016 plans must comply with this policy,” which suggests that application of the embedded out-of-pocket maximum is not required until 2016 plan/policy years. Given the lack of clarity around these rules, and the fact that this “clarification” (really, a rule change) is buried in the preamble, it would seem unfair for HHS to apply this rule before 2016, but further clarification would be helpful. At a minimum, plan sponsors that are working on 2016 plan designs should be aware of this rule and take it into account in setting up and pricing their plans.