Benefits Bryan Cave

Benefits BCLP


Main Content

Renew Early? Pay Later?

Renew Early? Pay Later?

May 28, 2013

Authored by: Chris Rylands and Lisa Van Fleet

While we have not heard it first-hand, we have heard through the grapevine that some insurance carriers are out there offering to their clients the ability to “renew early.”  Part of the strategy is, apparently, to delay the application of health care reform provisions.  The following discussion addresses some risks associated with reliance on such a strategy as a means of complying with the employer mandate and the insurance mandates.

EMPLOYER MANDATE:  At the outset, let’s be clear about one fact: this does not get an employer out of play or pay.  The employer mandate rules specifically say that a plan year can only be changed for a valid business purpose and that, in this case, avoiding the shared responsibility tax is not a valid business purpose.  Renewing early is (assuming other legal niceties are satisfied) a change in plan year.  Without a business purpose, the mandate will still apply to that employer effective January 1, 2014.

Note that this restriction also applies to fiscal year plans.  A non-calendar year plan cannot now change its plan year (absent a valid business purpose) and delay the application of the play or pay penalty.  In our view, such an employer would risk losing its ability to rely on the transition relief (which is already fairly skinny to begin with) by engaging in such a practice.  Frankly, even if the employer has a valid business purpose, it is unclear whether changing the plan year would delay the application of the penalty.

Play or Pay: Special Transition Rules For Fiscal Year Plans

Play or Pay: Special Transition Rules For Fiscal Year Plans

May 24, 2013

Authored by: benefitsbclp

Some fiscal year plans may have extra time to comply with the play or pay mandate under either of two special transition rules for fiscal year plans (that is, plans with a plan year other than the calendar year).  There are two transition rules for fiscal year plans.  However, neither is a complete pass and both are highly specific, so employers with fiscal year plans should carefully consider the extent to which they may (or may not) qualify for the relief.

If the employer qualifies for the first transition rule, its compliance obligations will only be delayed for certain of its employees; other employees can trigger penalties.

If the employer qualifies for the second transition rule, transition relief has the potential to apply with respect to a broader spectrum of employees.  The rules are described below.

Relief is available on an entity-by-entity basis.  In other words,  each entity in your controlled group needs to qualify independently for relief.

First Fiscal Year Rule

With respect to any employee, regardless of when hired, an employer is not subject to a penalty if

  •  The employer maintained a fiscal year plan as of December 27, 2012; and
  • Under the eligibility terms of the plan in effect on December 27, 2012, the employee would be eligible for coverage; and
  • The employer offers that employee affordable, minimum value coverage as of the first day of its first fiscal plan year that begins in 2014;

In other words, if

Model Exchange Notice and Revised COBRA Election Form

As noted in our client alert, the DOL recently released guidance on the Exchange/Marketplace notice required to be issued to existing employees no later than October 1, 2013.  Followers of PPACA developments will recall that this notice was originally scheduled for distribution in March 2013, but was delayed at the last minute.  In connection with this guidance, the DOL also revised the model COBRA election notice.  Links to the DOL guidance and model documents are provided below.

The alert describes the requirements of the guidance, but the highlights are summarized below:

  • All employers subject to the Fair Labor Standards Act are required to provide this notice, regardless of whether they provide health coverage or not.  Generally, you’re subject if (i)  you employ one or more employees who are engaged in, or produce goods for, interstate commerce or (ii) you are a hospital; a resident care institution for the sick, disabled, and aged; a school;  or a state and local government agency.  Additional details are in the alert.
  • There are separate model notices for employers that offer coverage and those that do not.
  • If you offer coverage, your notice must state whether the coverage provides “minimum value.”
  • All employees, regardless of whether they have health coverage or are full- or part-time must receive the notice.
  • Existing employees must receive the notice by October 1, 2013.
  • Employees hired on or after October 1, 2013 must receive it

Supreme Court Rules that Equitable “Common Fund Doctrine” May Fill Gap in Plan Language

On April 16, 2013, the Supreme Court handed down its 5-4 decision in US Airways Inc. v. McCutchen, U.S., No. 11-1285, 4/16/13) ruling that while equitable principles cannot trump a plan’s unambiguous terms regarding reimbursement, such principles may aid in properly construing ambiguous or absent plan terms.  The majority opinion held that since the employer plan at issue was silent as to the allocation of attorneys’ fees following a participant’s third-party recovery, it was appropriate to use the equitable “common fund” doctrine (i.e., the doctrine which provides that a litigant (or a lawyer) who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fee from the fund as a whole) to fill that gap.  As discussed more fully below, this decision reminds plan sponsors to carefully craft their reimbursement language to help ensure the desired result.  It’s not just what the provision specifically requires; no gaps regarding important issues should be left unaddressed.

For this purpose, the facts at issue in McCutchen are quite simple:

An ERISA plan participant suffered severe injuries in a car accident caused by a third party, and his employer, US Airways, paid nearly $67,000 toward his medical expenses through the company’s group health plan.  By its terms, the plan entitled US Airways to reimbursement of amounts paid if the participant later recovered money from the third party. After filing suit, the participant was awarded $110,000 in damages attributable to his injuries – of

DOL Seeks Input on Guidance Regarding Lifetime Income Illustrations

The DOL’s Employee Benefits Security Administration (“EBSA”) recently released an advance notice of proposed rulemaking  (“ANPR”) focusing on lifetime income illustrations that may be required to be provided to participants in defined contribution retirement plans (including 401(k) and 403(b) plans).  The impetus for the ANPR is the shift from the historical defined benefit (i.e., pension) structure to the defined contribution structure provided over the last several decades, and the corresponding need of employees to focus on the income they need to save to secure their retirement. The ANPR provides an opportunity for early input into the development of proposed regulations; comments will be accepted through July 8th. As described by Assistant Secretary of Labor Phyllis C. Borzi in the DOL’s news release,  EBSA hopes that providing defined contribution plan participants with “a lifetime income illustration might spur better planning for the future.”  EBSA’s goal is to illustrate for workers what their lump-sum retirement savings would actually “look like when they are spread out over all the years of retirement.” The lifetime income topic has been on the DOL’s radar for some time. In fact, in early 2010, the DOL jointly published a request for information (“RFI”) with the Department of Treasury requesting input regarding lifetime income options for those covered in retirement plans.  In that request, the Departments were exploring how they “could or should” enhance potential retirement security of retirement plan participants by “facilitating” access to, and use of, lifetime income products (e.g., annuities) or other mechanisms geared

Collective Bargaining Agreements: Creating Vested Retiree Medical Benefits

Following its December 22, 2011, ruling we discussed previously that retired Kelsey-Hayes (“Company”) union members must arbitrate their claims for fully-paid lifetime retiree medical benefits, the Eastern District of Michigan handed a victory to different class of union retirees facing similar changes to their healthcare coverages.  United Steelworkers of America v. Kelsey-Hayes Co.

Plaintiffs worked at the now closed automobile parts manufacturing plant in Jackson, Michigan. Under the collective bargaining agreements (“CBAs”) with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, the Company was required to establish healthcare coverage for retirees and their dependents and surviving spouses and to contribute the full premium for such coverages.  Before and after the plant closing in 2006, the Company paid all retirees’ healthcare coverage costs.  In September 2011, the Company announced plans to replace the retiree medical plan with individual health reimbursement accounts funded by the Company and to be used by retirees to purchase of individual healthcare policies.   On January 1, 2012, the Company discontinued healthcare coverage for retirees age 65 and older and made a one-time contribution of $15,000 for each retiree and spouse for 2012 and provided for an additional $4,800 credit for 2013.  Any future contributions would be at the discretion of the Company.  Retirees filed suit alleging that the Company’s unilateral modification of their health benefits constituted a breach of the terms of the CBAs in violation of ERISA.

Citing a line of cases addressing

Play or Pay: The Penalties

Play or Pay: The Penalties

May 6, 2013

Authored by: Lisa Van Fleet

Effective January 1, 2014, the Affordable Care Act “play or pay” rules become effective for employers subject to the rules.  These “play or pay” requirements are also referred to as the employer mandate or the shared responsibility requirements of the Affordable Care Act.  Whatever label is applied to the requirements, the law requires that covered employers offer affordable coverage to full-time employees. View a brief description of these requirements provided by Lisa A. Van Fleet, a partner in the Employee Benefits and Executive Compensation Group at Bryan Cave LLP.

Affordability Calculation Undermines Wellness Programs Beginning in 2015

The Affordable Care Act requires that employers offer affordable health care coverage to full-time employee beginning January 1, 2014 (or pay a penalty).  Coverage is affordable if the employee’s contribution toward self-only coverage does not exceed 9.5% of his or her household income.  Until now, it was not clear how wellness plan surcharges would impact the affordability calculations.

Based on the pre-release of guidance that is expected to be published today (May 3), wellness plan surcharges must be included in the premium for purposes of the affordability calculation.  Two exceptions are provided for arrangements that satisfy the wellness plan rules:  (1) surcharges based on tobacco use; and (2) for any plan year beginning prior to January 1, 2015, surcharges for any wellness arrangement, but only to the extent the terms of the wellness arrangement were in effect on May 3, 2013.  Under this guidance, the premium that applies to non-tobacco users is used to test affordability for all employees regardless of tobacco use; however, any other wellness surcharge (except those described above in the transitional relief provision) must be included in the employee’s share of the premium when calculating affordability.

The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.