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  • BC Network
    Tuesday, June 19, 2018

    Employers who offer high deductible health insurance plans to their employees typically also offer Health Savings Accounts (“HSAs”). HSAs allow employees to pay for uninsured medical expenses with pre-tax dollars and are set-up under Internal Revenue Code Section 223. HSAs are subject to annual contribution limits—single individuals may contribute up to $3,450 for 2018, families may contribute up to $6,900 for 2018, and individuals over the age of 55 may contribute an extra “catch-up contribution.” In most years, determining an employee’s maximum allowable contribution to an HSA is straightforward—an employee is either covered by a high deductible health plan or not, their spouse or dependent(s) are either covered by a high deductible health plan or not, and the employee is either at least age 55 or younger. However, in the year that an individual turns 65, determining the maximum allowable HSA contribution can become tricky. Read on to learn more about this complicated issue!

    Background

    HSAs may only be used by “eligible individuals,” as defined in Internal Revenue Code Section 223(c)(1). To qualify as an eligible individual, an individual must be enrolled in a high deductible health insurance plan. In addition, to be an “eligible individual,” an individual may not be enrolled in any other health plan, including Medicare. Eligibility to contribute to an HSA is determined on a month-to-month basis, so if an individual enrolls in any other non-high deductible health plan, that individual ceases being an eligible individual for the HSA in that month and for the remaining months of the year.  Note, they do not lose eligibility retroactively for months preceding their enrollment.

    The Problem

    The rules for HSA eligibility frequently create problems for employees with HSAs in the year that they turn 65 and start taking Social Security benefits. This is because when an individual who is 65 commences Social Security benefits, that individual is automatically enrolled in Medicare Part A. In fact, there is no way to “opt out” of being enrolled in Medicare Part A — and once an employee or spouse is enrolled in Medicare Part A, they are no longer eligible to make contributions to an HSA.

    To complicate the contribution calculation, in the year an employee turns age 65 and commences Social Security benefits, enrollment in Medicare Part A will apply retroactively up to six (6) months. If someone commences Social Security benefits within six months of turning 65, they receive Medicare Part A coverage beginning in the month they turn 65. If an individual commences Social Security benefits more than six months after turning 65 the individual is enrolled in Medicare Part A retroactively six months prior to their application.

    The Solution

    Because enrollment in Medicare Part A makes an individual ineligible to contribute to an HSA, the year an individual is enrolled in Medicare they must pro-rate their HSA contribution. The individual prorates the HSA contribution based on how many months of the year they are an “eligible individual.” The two examples below demonstrate the pro-rating calculation:

    Example 1

    Joe turned 65 in January, 2017 and elected to contribute the maximum amount for a single employee to his HSA account for the year. Joe retired in September (9 months after he turned 65), and commenced Social Security benefits at that time.  When he commenced Social Security benefits in September, Joe was automatically enrolled in Medicare Part A. Because Joe was enrolled in Medicare more than 6 months after he turned 65, he received Medicare Part A coverage six (6) months retroactively, to April. This means that Joe was only an eligible individual for HSA purposes for 3 months out of the year (January – March). Consequently, Joe must pro-rate his HSA contribution for 2017 based on how long he was an eligible individual. Based on these facts, for 2017, Joe may contribute the sum of the following amounts:

    • 3/12 x the Maximum Single Contribution; and
    • 3/12 x the Catch Up Contribution

    If during 2017 Joe contributed a greater amount to his HSA than the amount calculated above, he has until the due date of his federal tax return, with extensions, to remove the excess amount without penalty. For tax purposes, the “excess amount” includes the excess contributions and any interest earned on those excess contributions. Joe should contact either his HSA provider or his employer to remove the excess amounts from the HSA. Finally, Joe should include any excess amounts as income on his tax return.

    If Joe contributes a greater amount to his HSA than the amount calculated above and he does not remove the excess amount by the time he files his taxes, Joe will be required to pay income tax plus a 6% penalty tax on the excess amount in his HSA. Joe will be required to pay the 6% penalty tax on the excess amount each year until he removes the amount (including interest) from his HSA.

    Example 2

    Jack and Janet are married and both are enrolled in Jack’s employer’s high deductible health plan. Each year the couple contributes the maximum allowable family contribution to their HSA. In 2019, Janet turns age 65 and retires while Jack continues to work. Janet turns 65 in July and commences Social Security benefits in October. Because she applies for benefits within 6 months of turning 65, her Medicare Part A coverage applies retroactively to the month in which she turned 65, July. As a result, Janet is an eligible individual for purposes of making HSA contributions for only 6 months out of 2019 (January – June). Jack turns 65 in 2020 and has not yet commenced Social Security benefits, so he remains an eligible individual for HSA contributions for 2019. In 2019, because Janet was only an eligible individual for half of the year (January – June), to determine the appropriate amount to contribute to their HSA Jack and Janet should add up the following amounts:

    • 6/12 x the Maximum Allowable Family Contribution for 2019, for the months that both Jack and Janet were eligible individuals (January – June);
    • 6/12 x the Catch Up Contribution for 2019, for the months that Janet was an eligible individual (January – June);
    • 6/12 x the Maximum Allowable Single Contribution for 2019, for the months that Jack was an eligible individual and Janet was not (July – December); and
    • 1 x the Catch Up Contribution for 2019, because Jack was an eligible individual all year.

    If at the end of 2019 Janet and Jack discover that they contributed more to their HSA than the amount calculated above, they may remove the excess contributions and any interest earned on the excess contributions by the due date of their federal tax return, with extensions, without penalty. Janet and Jack should contact their HSA provider or employer to remove the excess amounts from the HSA and include the excess amounts as income on their tax return.

    Like Joe, if Jack and Janet contribute a greater amount than the amount calculated above to their HSA in 2019, and they fail to remove the excess amount by the time they file their taxes, Jack and Janet will be required to pay income tax plus a 6% penalty tax on the excess amount in their HSA. And, like Joe, until Jack and Janet remove the excess amount from their HSA, they will be required to pay a 6% penalty tax on the excess amount.

    As illustrated above, especially when a spouse is contributing to the HSA and is enrolled in Medicare in a year different from the employee, these rules can become somewhat complicated. Reach out to the Bryan Cave Leighton Paisner LLP Employee Benefits team to learn more!

    Tuesday, June 5, 2018

    Last year when the IRS announced that the initial remedial amendment period for 403(b) plans will end March 31, 2020, the natural reaction to this very important (but rather remote) deadline was to immediately put it on the to-do list, somewhere near the bottom, where it has been languishing ever since.  If this describes your reaction, you are certainly not alone.

    We think it is a good time to move this to the front burner and take some action.  As you may recall, 403(b) plan sponsors were required to adopt a written plan document for existing 403(b) plans on or before December 31, 2009.  At the time, there were no pre-approved 403(b) plans and no determination letter program was available for 403(b) plan sponsors to gain assurance that the document satisfied the requirements of section 403(b) and applicable regulations.  In order to provide a system of reliance for 403(b) plans, the IRS announced the commencement of a 403(b) pre-approved plan program and, on March 31, 2017, it issued the first opinion letters and advisory letters for prototype and volume submitter plan documents under the program. If a plan sponsor retroactively adopts a pre-approved plan by the last day of the remedial amendment period, it will automatically be deemed to have corrected any form defects in the plan document it previously adopted and will be considered to be in compliance with applicable plan document requirements back to January 1, 2010.

    Instead of adopting a pre-approved plan document, a plan sponsor could amend an individually designed plan to correct any form defects prior to the end of the remedial amendment period.  Unfortunately, last year the IRS decided not to move forward with its original intention to establish a determination letter program for individually designed 403(b) plans.  As a result, at this time, adoption of a pre-approved plan document is the only way to obtain assurance from the IRS that a 403(b) plan document is compliant.

    Action Steps for Plan Sponsors

    • If your plan was established or restated in the last year, confirm whether or not your current document is a pre-approved prototype or volume submitter plan with an opinion or advisory letter. If so, it is likely that no further action is required.
    • If the current plan document does not have an opinion or advisory letter, consider adopting, prior to the end of the remedial amendment period, a pre-approved plan document retroactively to January 1, 2010 or, if later, the plan’s effective date.
    • The IRS has posted a list of pre-approved prototype and volume submitter plan sponsors on its website. If your plan’s current provider is on the list, it may be simplest to adopt that provider’s pre-approved plan; however, consider contacting several providers to obtain additional information prior to making a decision.
    • Be sure to adopt the pre-approved plan document prior to the end of the remedial amendment period.
    • If the plan is individually designed and it is not feasible to restate the plan on a pre-approved plan document, consider having legal counsel review the plan document to determine if any amendments should be adopted to correct a form defect prior to the end of the remedial amendment period.
    • As always, consider working with your legal counsel to assess the status of the plan and consider your options prior to taking action.
    Monday, March 26, 2018

    On August 10, 2017, in In re Mathias, the United States Court of Appeals for the Seventh Circuit held ERISA Section 502(e)(2) venue provisions do not invalidate a forum-selection clause contained in plan documents, in a 2-1 split decision.

    Case Background

    George Mathias sued his employer Caterpillar and its ERISA-governed health plan in the United States District Court for the Eastern District of Pennsylvania, where he resided. The plan documents, however, required any suit to be brought in federal court in the Central District of Illinois, so Caterpillar moved to transfer the case.  Mathias opposed the motion, arguing that ERISA’s venue provision invalidated the plan’s forum-selection clause.  His argument was rejected and Caterpillar’s motion to transfer the case was granted in a decision relying on a Sixth Circuit decision in Smith v. Aegon Cos. Pension Plan, which held that forum-selection clauses in ERISA plans are enforceable and not inconsistent with the text of ERISA’s venue provision.  When the case arrived in the Central District of Illinois, Mathias moved to transfer it back to Pennsylvania with the same argument, and his request was denied. Then, Mathias petitioned for mandamus relief in the United States Court of Appeals for the Seventh Circuit.

    Seventh Circuit Decision

    In a mandamus proceeding, the court can only reverse a transfer decision if the applicant can show that the transfer order is a “violation of a clear and indisputable legal right, or at the very least, is patently erroneous.” In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1295 (7th Cir. 1995).  This high standard was not met here.

    Under ERISA’s venue provision, an action may be brought in the district court where (1) the plan is administered, (2) the breach or violation took place, or (3) a defendant resides or may be found.  ERISA § 502(e)(2) (emphasis added).  The Seventh Circuit cited the Smith decision which found the language in ERISA to be permissive and explained that the statute doesn’t limit parties from contractually narrowing the options to one of the venues listed in the statute.  769 F.3d at 931-32. The Court ultimately found that ERISA venue provisions do not invalidate forum-selection clauses in plan documents.

    Mathias filed a petition in the U.S. Supreme Court for certiorari review. The Department of Labor filed an amicus brief encouraging the Supreme Court to review the case and to invalidate the venue provision in the Caterpillar plan.  The Supreme Court declined to review the case, however.

    Effect of Decision

    For now, employers in the Sixth and Seventh Circuit (Illinois, Indiana, Kentucky, Michigan, Ohio, Tennessee, and Wisconsin) can have confidence that their plan venue selection clauses are enforceable. However, both of these decisions were split decisions.  A more participant-friendly Circuit could reach a different conclusion.

    Friday, February 9, 2018

    We turn once again to the sad and difficult task that plan administrators face when distributing the benefits of a participant who has been murdered by his or her designated beneficiary. Sad for obvious reasons.  Difficult because ERISA and state law may provide different answers.  ERISA directs a plan to honor a participant’s beneficiary designation—meaning that the murderer would receive the benefit. “Slayer statutes” prohibit the murderer from receiving a financial benefit from his or her victim, requiring the plan to disregard the beneficiary designation.

    Our prior blog post suggested three strategies that a plan administrator might employ in the face of uncertainty: interpleader, receipt and refunding agreement, and affidavit of status.  Under the interpleader approach, the plan administrator would pay the benefit into the registry of the court and join each potential claimant as a party defendant. Each claimant would then argue for receipt of the benefit, and the court would award the benefit and issue a judgment upon which the plan administrator may rely for protection against the losing claimants.  This certainty comes at the cost and effort required by litigation in federal court.

    A recent Seventh Circuit case involves just this approach.  In Laborers’ Pension Fund v. Miscevice, No. 17-2022, the participant was killed by his wife.  At the state criminal court proceeding, the court determined that the wife intended to kill her husband without legal justification but also that she was insane at the time and therefore not guilty of first degree murder.  The plan administrator filed an interpleader action in district court seeking an order on the disposition of the benefits. The wife argued that she was the designated beneficiary under the pension plan and that ERISA preempted the Illinois slayer statute. The estate argued that ERISA did not preempt the Illinois slayer statute, that the statute precluded distribution to the slayer-spouse and that the couple’s minor child should receive the pension benefits of the deceased participant.  The district court awarded benefits to the estate.

    The Seventh Circuit affirmed, holding that ERISA did not preempt the slayer statute. The Court reasoned that when the state statute governs an area of traditional state regulation, the party seeking preemption must overcome the starting presumption that Congress does not intend to supplant state law.  The Court characterized the slayer statute as part of family law and thus an area of law traditionally left to the states and long-predating ERISA.  The Court also noted that ERISA’s interest in uniformity was not a concern because slayer statutes were largely uniform in denying benefits to the killer.  The Seventh Circuit noted that the Supreme Court had not addressed the issue but had commented in Egelhoff v. Egelhoff, 532 U.S. 141, 152 (2001) (holding that ERISA preempted a Washington divorce law invalidating earlier beneficiary designations to a former spouse upon the dissolution of a marriage) that “because the [slayer] statutes are more or less uniform nationwide, their interference with the aims of ERISA is at least debatable.” This comment placed slayer statutes in contrast to the divorce law at issue in Egelhoff.  Having concluded that ERISA did not preempt state law, the Court analyzed the Illinois statute and concluded, as a matter of state law, that the wife’s insanity did not overcome the statute’s denial of benefits to a person who intentionally and unjustifiably caused the death because the wife intended to kill her husband due to an insane belief that he would harm her and her child.

    Laborers’ Pension Fund not only illustrates the successful use of an interpleader action to resolve the dilemma faced by a plan administrator but also adds to the growing body of federal case law holding that ERISA does not preempt state slayer statutes.  While the Supreme Court has declined to resolve this preemption issue at least twice, district court opinions appear to be converging on an answer and the Seventh Circuit adds the weight of circuit precedent to this emerging consensus.

    Wednesday, January 31, 2018

    Bryan Cave is proud to present the third version of our in-house counsel’s guide to data privacy and security. The guide provides an overview of laws relevant to a variety of data matters topics, statistics that illustrate data privacy and security issues, and a breakdown of these data-related issues. It covers a range of privacy and security issues that apply in the HR and employee benefits areas, including HIPAA compliance and enforcement.

    You may download a copy of the 2018 guide by clicking here.

    Thursday, January 18, 2018

    The Internal Revenue Service (“IRS”) has described its recent changes to its Voluntary Correction Program (“VCP”) user fees as “simplification.”  This simplification is achieved by significantly changing the way user fees are determined and by eliminating alternative and reduced fees that were previously available.   At first blush, this simplification appears to result in a general reduction in user fees, however, in certain circumstances, the changes will actually result in significantly higher fees.   If you are the person responsible for issuing or requesting checks for your plan’s VCP application(s), it is important to note the differences from the past fee structure so that you will know what your plan is in for (good or bad) the next time a VCP application is necessary.

    In case you are not familiar with the VCP, the IRS created the program under its Employee Plans Compliance Resolution System, to allow tax-favored retirement plans not currently under examination to correct certain failures that would otherwise result in the loss of tax-favored status.  If a plan sponsor elects to submit an application under the program, the fee that must be paid with each application is called a “user fee.”  This user fee has always been subject to change, but never before has the user fee structure undergone such an extreme makeover from one year to another.

    On the surface, the biggest change to the VCP user fee structure is that for applications submitted prior to January 2, 2018, the user fee was based on the number of plan participants, and for applications submitted on and after January 2, 2018, the user fee is based on the plan’s assets.  The current user fee structure is as follows:

    Plan AssetsUser Fee
    $0-$500,000$1,500
    $501,000 - $10,000,000$3,000
    $10,000,001 or more$3,500

    Previously, the applicable user fee ranged from a low of $500 for plans with 20 or fewer participants to a high of $15,000 for plans with more than 10,000 participants.  As a result, capping user fees at $3,500 under the new fee structure results in a huge break for the largest plans since the prior applicable user fee was $15,000.  However, a plan with 51 participants and $10,000,001 in assets would have previously paid a $1,500 user fee and now it will be required to pay a $3,500 user fee.  In this example, “simple” is not good.

    In addition, the IRS eliminated special reduced user fees for certain common errors such as failures related to minimum distribution requirements or plan loans.  Again, this “simplification” is not good for plans that would previously have benefitted from the reduced user fees.  For example, where a plan would have previously paid a $300 user fee for its VCP application related to a plan loan failure which affected 13 or fewer participants, the applicable user fee is now $3,500 if the plan has $10,000,001 or more in assets.  Orphan plans and group submissions are still eligible for alternative VCP user fees, but gone are the failure-based exceptions to the standard VCP user fees.

    Take heed, and check your plans regularly for compliance, so that your plan isn’t another example of how “simple isn’t always good” with the new VCP application user fees!

    Tuesday, October 31, 2017

    New rules issued by the Trump administration, including both interim final and temporary regulations effective October 6, 2017, significantly expand “who” may object to the Patient Protection and Affordable Coverage Act’s (PPACA) contraceptive coverage mandate and why those entities or individuals may object.

    Background:

    Under the PPACA, the Health Resources and Services Administration (HRSA), a division of the United States Department of Health and Human Services (HHS), has the authority to require that certain preventive care and screenings for women be covered by specific group health plans and health insurance issuers.  HRSA has used that discretion to require, among other things, contraceptive coverage.  HHS, the Department of Labor, and the Department of the Treasury, the agencies tasked with enforcing that requirement, have permitted certain health insurance issuers and group health plans with religious objections, such as non-profit organization and church plans, to receive an exemption or accommodation from this requirement.  As a result of the Hobby Lobby litigation, closely held for-profit organizations with religious objections to contraceptive coverage were added to the list of entities which could request an accommodation; however, accommodations are intended to shift the cost of providing these services and supplies to third-party administrators and health insurance issuers rather than permitting a group health plan to truly not offer the services or supplies.

    The new world order:

    The first interim final rule and associated temporary regulations provide that all non-governmental plan sponsors and health insurance issuers that object to contraceptive coverage based on sincerely held religious beliefs, including student health plans of institutions of higher education, may qualify for an exemption.  Those same entities may request an accommodation rather than exemption if they prefer.  Individual employees, even those employed by governmental entities, are also permitted to object to contraceptive coverage’s inclusion in their health plan based on their sincerely held religious beliefs.

    The second interim final rule provides that the entities and individuals who may request an exemption may also request an exemption because of their sincerely held moral convictions, not just their religious beliefs.

    Conclusion:

    If you, or the group health plan you sponsor, object to contraceptive coverage based on a sincerely held religious belief or moral conviction, it is more likely than not that this expansion now permits you to exclude all or a portion of contraceptive coverage from your plan.

    Thursday, October 19, 2017

    The Internal Revenue Service today released the 2018 dollar limits for retirement plans, as adjusted under Code Section 415(d). We have summarized the new limits (along with the limits from the last few years) in the chart below.

    2018 Qualified Plan Limits

    Type of Limitation20182017201620152014
    Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1))$18,500$18,000$18,000$18,000$17,500
    Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate)$6,000$6,000$6,000$6,000$5,500
    SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals$3,000$3,000$3,000$3,000$2,500
    415 limit for Defined Benefit Plans$220,000$215,000$210,000$210,000$210,000
    415 limit for Defined Contribution Plans$55,000$54,000$53,000$53,000$52,000
    Annual Compensation Limit$275,000$270,000$265,000$265,000$260,000
    Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993$405,000$400,000$395,000$395,000$385,000
    Highly Compensated Employee 414(q)(1)(B)$120,000$120,000$120,000$120,000$115,000
    Key employee in top heavy plan (officer)$175,000$175,000$170,000$170,000$170,000
    SIMPLE Salary Deferral$12,500$12,500$12,500$12,500$12,000
    Tax Credit ESOP Maximum balance$1,105,000$1,080,000$1,070,000$1,070,000$1,050,000
    Amount for Lengthening of 5-Year ESOP Period$220,000$215,000$210,000$210,000$210,000
    Taxable Wage Base$128,700$127,200$118,500$118,500$117,000
    IRAs for individuals 49 and below$5,500$5,500$5,500$5,500$5,500
    IRAs for individuals 50 and above$6,500$6,500$6,500$6,500$6,500
    FICA Tax for employees and employers7.65%7.65%7.65%7.65%7.65%
    Social Security Tax for employees and employers6.2%6.2%6.2%6.2%6.2%
    Medicare Tax for employers and employees1.45%1.45%1.45%1.45%1.45%
    Additional Medicare Tax*.9% of comp
    >$200,000
    .9% of comp
    >$200,000
    .9% of comp
    >$200,000
    .9% of comp
    >$200,000
    .9% of comp
    >$200,000

    *For taxable years beginning after 12/31/12, an employer must withhold Additional Medicare Tax on wages or compensation paid to an employee in excess of $200,000 in a calendar year for single/head of household filing status ($250,000 for married filing jointly).

    Tuesday, August 8, 2017

    According to one recent survey, telemedicine services (i.e., remote delivery of healthcare services using telecommunications technology) among large employers (500 or more employees) grew from 18% in 2014 to 59% in 2016.  Common selling points touted by telemedicine vendors include reduced health care costs and employee convenience.  However, state licensure laws imposing restrictions on telemedicine practitioners can often limit the value (or even availability) of telemedicine services to employees.

    But that seems to be changing.

    Texas Law Change

    This summer Texas passed legislation (SB 1107) prohibiting regulatory agencies with authority over a health professional from adopting rules pertaining to telemedicine that would impose a higher standard of care than the in-person standard of care.  With the enactment of SB1107, the Texas Medical Board must revise portions of its existing telemedicine regulations, which had largely been viewed as some of the most restrictive in the country.  Key revisions proposed by the Board at its July meeting included the elimination of the following requirements:

    • Patient must be physically in the presence of an agent of the treating telemedicine practitioner
    • Physical examination of the patient by the telemedicine practitioner in a traditional office setting within the past twelve months
    • Interaction between the patient and telemedicine practitioner must be via live video feed

    However, it appears that the Board will continue its prohibition against the use of telemedicine for prescribing controlled substances for the treatment of chronic pain.

    Prescribing Controlled Substances

    Meanwhile other states have relaxed their rules relating to telemedicine practitioners seeking to prescribe controlled substances.  For example, the Florida Board of Medicine replaced its ban on any prescription of controlled substances using telemedicine with a new rule that allows telemedicine practitioners to issue prescriptions except in the case of controlled substances for the treatment of psychiatric disorders.  Delaware, Indiana, Michigan, Ohio and West Virginia have also expanded the circumstances under which telemedicine practitioners can prescribe controlled substances.

    For more information on the Texas legislation, read this overview from Bryan Cave’s healthcare attorneys.

    Expanded State Licensing of Practitioners

    State licensing laws generally preclude or restrict a provider licensed in one state from delivering medical services to individuals in another state.  Consequently, an out-of-state physician (absent certain exceptions) must obtain a full and unrestricted license to practice medicine on patients in a particular state.  In an effort to facilitate license portability and the practice of interstate telemedicine, the Federation of State Medical Boards developed an Interstate Medical Licensure Compact.  So far, 25 states participate in the Compact or have taken action to become Compact states.  Under the Compact, licensed physicians can qualify to practice medicine across state lines within the Compact if they meet the agreed upon eligibility requirements.

    Employer Compliance Considerations

    These and other actions by states to facilitate the growth of telemedicine may encourage more employers to jump on the telemedicine bandwagon.  However, employers should be aware that as with any group health plan, the provision of a telemedicine program to employees can raise a number of compliance issues under the Affordable Care Act (ACA), Health Insurance Portability and Accountability Act (HIPAA), Employee Retirement Income Security Act (ERISA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA) as well as disqualify individuals participating in a high deductible health from making or receiving contributions to their health savings account.

    Wednesday, July 19, 2017

    Update: On November 24, 2017, the Department of Labor filed a final rule to delay the applicability date of new disability claims procedures regulation by 90 days, through April 1, 2018.

    Plan sponsors are typically forced to wait for last minute guidance to satisfy year-end compliance obligations. As a result, those of us who work with these plans spend the last days of the year frantically ensuring plans are in compliance mode while friends and family ring in the new year with frivolity and festivities. While we can’t guarantee that won’t happen again this year, if it happens to you because you are evaluating the impact of the new disability claim procedures on plans, then shame on you. As discussed below, the information necessary to comply with the new rules is already available. So address these obligations now – then dig out your little-black-dress or tux, and join the year-end frivolity!

    The final rule modifying the disability claims procedures, issued late last year, became effective January 18, 2017, and applies to claims for disability benefits which are filed on or after January 1, 2018.  Plan sponsors should identify their claims procedures, plan documents and SPDs that may need to be updated to reflect the new rule. To assist in that endeavor, the key changes implemented by the new rule are summarized below.

    1. New Independence and Impartiality Provisions. These new provisions are intended to reduce the possibility of unfair claims review. The change requires that “decisions regarding hiring, compensation, termination, promotion, or other similar matters…must not be based upon the likelihood that the individual will support the denial of benefits.” That being said, the regulation does not represent a significant change from prior law as both industry practice and case law have generally protected procedural independence.
    2. New Disclosure Requirements. The new disclosure requirements mandate three new disclosures upon an adverse benefit determination. First, the plan must provide a “discussion of the decision” explaining the basis for disagreeing with views presented by certain professionals. The regulation requires the discussion when the plan administrator disagrees with the (1) “views presented by the claimant to the plan of health care professionals treating the claimant and vocational professionals who evaluated the claimant,” (2) “views of medical or vocational experts whose advice was obtained on behalf of the plan…regard[less of] whether the advice was relied upon in making the benefit determination,” and (3) “disability determination[s] regarding the claimant presented by the claimant to the plan made by the Social Security Administration.” Second, the plan must disclose the specific internal rules, guidelines, protocols, standards and other similar criteria which were relied upon in making the adverse determination. If such guidelines, protocols, etc. do not exist, the plan must make a statement saying so. Third, the plan must make a statement that the claimant is entitled to receive upon request and free of charge all the documents, records, and other information relevant to the claimant’s claim for benefits.
    3. Enhanced Review Rights. The final rule also requires affords enhanced rights to review and respond to new information before the final decision. The plan must promptly disclose (1) “new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination…in connection with the claim;” and (2) new or additional rationales forming the basis of the plan’s determination. The disclosures must be made free of charge and “as soon as possible and sufficiently in advance of the date on which the notice of [an] adverse benefit determination on review is required.”
    4. New Deemed Exhausted Provisions. The new deemed exhausted provision allows claimant to immediately pursue civil enforcement if the plan fails to strictly adhere to all the requirements of the ERISA claims procedures in connection with the claim.
    5. Expanded Definition of Adverse Benefit Determination. The new regulation adds that in the case of a plan providing disability benefits, the term ‘adverse benefit determination’ includes any cancellation or discontinuance of disability coverage that, except to the extent it is attributable to a failure to timely pay required premiums or contributions, has a retroactive effect with respect to a participant or beneficiary.
    6. New Culturally and Linguistically Standards. New standards apply when the claimant’s address is in a county in which ten percent or more of the population is literate only in the same non-English language (e.g. ten percent of the county is literate in Spanish but not English). In those circumstances, a notice will not be culturally and linguistically appropriate unless the plan meets the following requirements: (1) “[t]he plan provide[s] oral language…that include answering questions in any applicable non-English language and providing assistance with filing claims and appeals,” (2) “[t]he plan must provide, upon request, a notice in any applicable non-English language,” and (3) “[t]he plan must include in the English version of all notices, a statement prominently displayed in any applicable non–English language clearly indicating how to access the language services provided by the plan.”
    7. New Disclosure Requirements. The new regulation provides additional requirements to the process of notifying the claimant of the plan’s benefit determination following review. While the prior regulation required a statement of the claimant’s right to bring an action under § 502(a), the new regulation also requires the plan to describe any applicable contractual limitations periods applying to the claimant’s right to bring the action as well as the calendar date upon which the claimant’s rights expire.

    Party on!

    The author thanks St. Louis summer associate Ben Ford for his assistance in researching and preparing this blog post.