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IRS Updates 401(k) Hardship Distribution Rules – Are You Ready?

Contributed by Kelly Haab-Tallitsch, November 21, 2020

Document with 401(k) plan

On September 23, 2019 the IRS issued final regulations updating the rules governing hardship distributions from 401(k) and 403(b) plans. They are generally similar to the proposed regulations issued late last year and primarily reflect changes made by the 2018 Tax Cuts and Jobs Act and the Bipartisan Budget Act of 2018.

Some of the changes in the final regulations are mandatory, requiring employers to take action by January 1, 2020.

  1. Eliminates of the 6-month contribution suspension requirement

Beginning January 1, 2020, 401(k) and 403(b) plans will no longer be able to suspend contributions following a hardship distribution. Plans are required to eliminate the suspension period that barred participants who take a hardship distribution from making new contributions to the plan for 6 or more months.

2. Eliminates the plan loan requirement

The new rule removes the requirement that participants take a loan from the plan before taking a hardship withdrawal. Unlike the elimination of the 6-month suspension period, this change is optional. Plans may continue to require participants take a plan loan before being eligible for a hardship withdrawal.

3. Expands contribution sources available for hardship distributions

The final rule permits (but does not require) a 401(k) plan sponsor to allow hardship distributions of elective deferrals, QNECs, QMACs, and all earnings thereon. Previously, employees could only withdraw elective deferrals (and not earnings).  Earnings on 403(b) contributions and certain 403(b) plan QNECs and QMACs remain ineligible for hardship withdrawals.

4. Provides disaster relief

To take a hardship withdrawal, employees currently must show an immediate and heavy financial need that involves one or more of the following: (1) purchase of a primary residence; (2) expenses to repair damage or to make improvements to a primary residence; (3) preventing eviction or foreclosure from a primary residence; (4) post-secondary education expenses for the upcoming 12 months for participants, spouses and children; (5) funeral expenses;  and (6) medical expenses not covered by insurance.

The final rule adds a seventh safe harbor category for expenses resulting from a federally declared disaster.

5. Eases hardship verification requirements

Under current rules, plan administrators must take into account “all relevant facts and circumstances” to determine if a hardship withdrawal is necessary. The new rule requires only that a distribution not exceed the amount of the employee’s need (including taxes), that the employee first obtains any other distributions available under the plan, and that the employee represents that he or she has insufficient cash or liquid assets “reasonably available” to satisfy the financial need.

Employee representations can be made over the phone, if the call is recorded, or can be made in writing or by e-mail. A plan administrator may rely on an employee’s representation unless the plan administrator has actual knowledge to the contrary. Plans are required to apply this standard starting in 2020.

Plan Amendments Required

401(k) plans that permit hardship distributions will need to be amended to reflect the new rules by December 31, 2021, but operational changes must comply with the new rule beginning January 1, 2020.

DOL Proposes Changes to the Fluctuating Work Week Overtime Method

Contributed by Sara Zorich, November 19, 2019

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Employee time sheets on table with coffee and calculator 

The US Department of Labor (DOL) has issued a proposed amendment to the regulation governing the fluctuating workweek (29 CFR 778.114). The fluctuating workweek can be used to calculate overtime for an employee whose hours fluctuate from week to week based on the nature of the job. The DOL’s proposed amendment is to clarify that there is no issue with paying a bonus, shift premium, or additional pay to someone who is being paid via the fluctuating workweek method, but such extra payment will increase the regular rate of pay for calculating overtime unless the additional pay meets an exclusion from the Fair Labor Standards Act. This is a change in position since in 2011, during the Obama administration, the preamble to 29 CFR 778.114 added language that any additional pay other than the salary was inconsistent with the fluctuating workweek.

The fluctuating workweek method allows an employer to pay a non-exempt employee a salary and then pay overtime at a 0.5 multiplier. This method is only applicable if the following conditions are met: (1) the employee works hours that fluctuate from week to week; (2) the employee receives a fixed salary that does not vary with the number of hours worked in the workweek, whether few or many; (3) the amount of employee’s fixed salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours the employee works is greatest; (4) the employee and the employer have a clear and mutual understanding that the fixed salary is compensation (apart from overtime premiums) for the total hours worked each workweek regardless of the number of hours; and (5) the employee receives overtime compensation at a rate of not less than one-half the employee’s regular rate of pay for that workweek.

The fluctuating workweek method is permissible under the FLSA and under some state laws (including IL, IN, WI and MO). However, employers should review state law for compliance since not all states (including CA) have adopted this method of overtime payment.

The proposed rule will be available for comment for 30 days from November 5, 2019.  After the comment period is over, the DOL will review the comments and determine if any changes to the rule will be made.  Thereafter, the DOL will issue a final rule.  We have seen the DOL acting more swiftly in rulemaking this year but based on the timing of the comment period, we do not anticipate this rule going into effect until sometime in 2020.

 

 

 

BREAKING NEWS: Illinois Recreational Cannabis Law Protections for Employers & the Workplace Clarified!

Contributed by Jeffrey A. Risch, November 15, 2019As Illinois set out to become the first state to legalize recreational cannabis through statutory authority, the legislative intent for protections for employers and the workplace were intended to include some of the strongest in the nation. However, when the dust settled and the statutory framework was analyzed, there appeared to be room for reasonable minds to have differing opinions on what the law actually meant for the workplace.

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clipboard and pen.

On one hand, could employers lawfully implement reasonable, non-discriminatory drug testing policies aimed at prohibiting applicants and employees from lawfully using recreational cannabis and gaining or maintaining employment? On the other hand, would employers be violating the law if they did not hire someone who tested positive for THC or if they could not ultimately demonstrate that an employee was actually impaired while on the job? These sorts of questions lingered. A quick online search trying to find answers would only frustrate HR professionals, safety managers, and business owners further. Clarity was needed.Therefore, through the efforts of several business groups and trade associations (including the Illinois Chamber of Commerce) working across both political aisles, SB1557 passed the Illinois General Assembly on November 14, 2019. While SB1557 includes wrinkles for the licensing, manufacturing and distribution of recreational cannabis in Illinois, it also contains language found below designed to protect employers from litigation.In essence, the language attempts to clear up concern that an employer may have been required to show actual impairment in the workplace vs. simply being able to implement and follow a reasonable, non-discriminatory drug testing policy.   Specifically, Section 10-50 of the law will now read as follows (changes in bold):

(410 ILCS 705/10-50) Sec. 10-50. Employment; employer liability.(a) Nothing in this Act shall prohibit an employer from adopting reasonable zero tolerance or drug free workplace policies, or employment policies concerning drug testing, smoking, consumption, storage, or use of cannabis in the workplace or while on call provided that the policy is applied in a nondiscriminatory manner.(b) Nothing in this Act shall require an employer to permit an employee to be under the influence of or use cannabis in the employer’s workplace or while performing the employee’s job duties or while on call.(c) Nothing in this Act shall limit or prevent an employer from disciplining an employee or terminating employment of an employee for violating an employer’s employment policies or workplace drug policy.(d) An employer may consider an employee to be impaired or under the influence of cannabis if the employer has a good faith belief that an employee manifests specific, articulable symptoms while working that decrease or lessen the employee’s performance of the duties or tasks of the employee’s job position, including symptoms of the employee’s speech, physical dexterity, agility, coordination, demeanor, irrational or unusual behavior, or negligence or carelessness in operating equipment or machinery; disregard for the safety of the employee or others, or involvement in any accident that results in serious damage to equipment or property; disruption of a production or manufacturing process; or carelessness that results in any injury to the employee or others. If an employer elects to discipline an employee on the basis that the employee is under the influence or impaired by cannabis, the employer must afford the employee a reasonable opportunity to contest the basis of the determination.(e) Nothing in this Act shall be construed to create or imply a cause of action for any person against an employer for:

  1. actions taken pursuant to an employer’s reasonable workplace drug policy, including but not limited to subjecting an employee or applicant to reasonable drug and alcohol testing, reasonable and nondiscriminatory random drug testing, and discipline, termination of employment, or withdrawal of a job offer due to a failure of a drug test; , including but not limited to subjecting an employee or applicant to reasonable drug and alcohol testing under the employer’s workplace drug policy, including an employee’s refusal to be tested or to cooperate in testing procedures or disciplining or termination of employment;actions based on the employer’s good faith belief that an employee used or possessed cannabis in the employer’s workplace or while performing the employee’s job duties or while on call in violation of the employer’s employment policies;actions, including discipline or termination of employment, based on the employer’s good faith belief that an employee was impaired as a result of the use of cannabis, or under the influence of cannabis, while at the employer’s workplace or while performing the employee’s job duties or while on call in violation of the employer’s workplace drug policy; orinjury, loss, or liability to a third party if the employer neither knew nor had reason to know that the employee was impaired.

(f) Nothing in this Act shall be construed to enhance or diminish protections afforded by any other law, including but not limited to the Compassionate Use of Medical Cannabis Pilot Program Act or the Opioid Alternative Pilot Program.(g) Nothing in this Act shall be construed to interfere with any federal, state, or local restrictions on employment including, but not limited to, the United States Department of Transportation regulation 49 CFR 40.151(e) or impact an employer’s ability to comply with federal or state law or cause it to lose a federal or state contract or funding.(h) As used in this Section, “workplace” means the employer’s premises, including any building, real property, and parking area under the control of the employer or area used by an employee while in the performance of the employee’s job duties, and vehicles, whether leased, rented, or owned. “Workplace” may be further defined by the employer’s written employment policy, provided that the policy is consistent with this Section.(i) For purposes of this Section, an employee is deemed “on call” when such employee is scheduled with at least 24 hours’ notice by his or her employer to be on standby or otherwise responsible for performing tasks related to his or her employment either at the employer’s premises or other previously designated location by his or her employer or supervisor to perform a work-related task.

Additionally, much needed clarification for public employers was also included concerning how off duty use of cannabis by certain emergency personnel should be administered. The following was added to Section 10-35. Limitations and penalties:

(410 ILCS 705/10-35)(8) the use of cannabis by a law enforcement officer, corrections officer, probation officer, or firefighter while on duty; nothing in this Act prevents a public employer of law enforcement officers, corrections officers, probation officers, paramedics, or firefighters from prohibiting or taking disciplinary action for the consumption, possession, sales, purchase, or delivery of cannabis or cannabis-infused substances while on or off duty, unless provided for in the employer’s policies. However, an employer may not take adverse employment action against an employee based solely on the lawful possession or consumption of cannabis or cannabis-infused substances by members of the employee’s household. To the extent that this Section conflicts with any applicable collective bargaining agreement, the provisions of the collective bargaining agreement shall prevail. Further, nothing in this Act shall be construed to limit in any way the right to collectively bargain over the subject matters contained in this Act;

These changes help to better assure employers that they have the ability to implement fair, reasonable drug testing policies designed to protect their employees and the public. Recreational consumers will certainly have the legal right to use cannabis, but the employer should have the legal right to say “you better not have THC in your system to become or remain employed here.” Of course, any drug testing policy must be carefully vetted, designed, and implemented. After all, lawyers will be lawyers. 

While many questions still remain and medicinal usage requires a different analysis (for now) it appears employers can take better comfort and be more confident in creating policy designed to maintain a safe and healthy workplace through reasonable drug testing policies. However, employers must continue to carefully examine their own unique industry, risks and risk tolerances, together with their geographic footprint and applicant pool. The drug testing policy and drug-free workplace program for the “widget manufacturer” in Peoria is likely to be vastly different than that of the “accounting firm” in Schaumburg.

Navigating the Legal Risks of a Mandatory Vaccine Program for Employees

Contributed by Allison P. Sues, November 12, 2019

yellow triangle warning sign, Caution – Flu Season Ahead

Flu season is here and that likely means employers can hear sneezing and sniffling up and down the hallways at work.  Sick employees are less productive and their absences can disrupt an employer’s operations.  Worse still, sick employees may come into work and spread an illness to coworkers, exacerbating the problem.  According to the U.S. Center for Disease Control (CDC), recent studies show that flu vaccinations reduce the risk of flu by between 40 and 60 percent.  Given this, employers may wish they could mandate that all employees receive a flu vaccination.  But can they?

For those employers outside the healthcare field, the answer is probably not.  The Americans with Disabilities Act (ADA) allows employers to submit their employees to certain health screenings and inquiries depending on what point in the stage of employment the screening or inquiry takes place.  Per the federal regulations supplementing the ADA, employers are generally prohibited from asking any disability-related questions or requesting any medical exams before a conditional offer of employment is extended to the applicant.  Once an offer of employment is made, an employer may require a medical examination if the same examination is used for all entering employees in that job category.  If an employer uses certain criteria from these examinations to screen out employees, those criteria must be job-related and consistent with business necessity. 

As for current employees, the ADA generally prohibits employers from mandating that employees receive any medical testing or vaccinations unless they are job-related, consistent with business necessity, and no more intrusive than necessary.  This is a very difficult standard to meet unless the employer is part of the healthcare field or otherwise requires employees to regularly interact with immune-compromised clients, patients, or customers.

But there are several practices that employers can take to encourage employees to receive vaccines short of job-contingent mandates.  Employees are more likely to get vaccinated if it is easy and affordable to do so.  Employers may want to subsidize the cost of vaccines, allow paid time off to go get vaccines, or offer vaccines at the workplace to reduce any inconvenience. 

As for employers in the healthcare field, courts have repeatedly upheld an employer’s right to require that employees receive vaccinations if they work directly with patients – such as a nurse, doctor, or patient care assistant – or if they handle materials that could spread infection – such as a lab technician. The CDC recommends that these healthcare workers receive vaccinations for hepatitis B, flu, measles, mumps, rubella, chickenpox, tetanus, diphtheria, pertussis, and meningococcal diseases. 

Mandating vaccines, even in the healthcare field, is not without legal risks of which employers should be aware. The U.S. Equal Employment Opportunity Commission takes the position that healthcare employers must consider exemptions for those employees who cannot receive vaccines for reasons related to disability, pregnancy, or religion. Employers should analyze each request for exemption on a case-by-case basis, including review of the employee’s job position, as well as the employee’s particular religious belief or medical documentation corroborating the disability at issue. 

For employees who object to vaccines based on religious grounds, employers should first determine if the employee sincerely holds the religious belief.  Courts do not overly scrutinize this question.  While the belief cannot be social, political, or personal to qualify as a sincerely-held religious belief, courts cast a fairly wide net as to what religious-based beliefs will provide protection under Title VII.  The religious belief may be newly adopted, inconsistently observed, not part of a formal church or sect’s religious practice, or different from the commonly followed tenants of the individual’s religion.  As an example of the broad interpretation of sincerely-held religious beliefs, courts have determined that veganism may constitute a religion where an employee protests receiving a vaccine containing animal products, such as eggs.

For employees who seek an exemption from mandatory vaccines based on their disabilities, the employer may ask for medical documentation corroborating the disability. Some examples of disabilities that may preclude employees from receiving certain vaccinations include life-threatening allergies, diseases that compromise the employee’s immune system, or – in the case of a recent Third Circuit Court of Appeals case – a severe and well-documented anxiety associated with the side effects of receiving vaccines.

Once an employer determines that an employee is objecting to a mandatory vaccine based on a sincerely-held religious belief or documented disability, the employer must determine whether allowing the employee an exemption from the vaccine creates an undue burden on the organization.  For exemptions based on disabilities, the employer may also similarly consider if the exemption would create a direct threat to the employee, his or her coworkers, or the organization’s patients.  This inquiry is often directly related to the employee’s position.  While it may be feasible to exempt a hospital billing clerk from mandatory vaccines, the same is likely not true for a pediatric nurse working with young patients who are particularly vulnerable in the NICU. 

The employer should also consider if there are alternatives that could sufficiently protect the employee and patients short of requiring the vaccine, whether it be requiring the employee to wear a mask or transferring the employee to a position with less patient contact.  If the employer determines that exempting the employee will create an undue burden, it can require the vaccine as a condition of further employment, but this decision should be documented with a clear explanation as to why the vaccine is job-related, no more intrusive than necessary and consistent with business necessity.  The employer must also monitor and ensure that it conducts the exemption consideration and decision process consistently for all employees.

The key to handling requests for exemptions is to ensure that the consideration focuses on the specific concerns of the particular employee and encompasses an open and back-and-forth dialogue with the employee.  Sometimes learning more about the employee’s specific concerns will lead to a solution.  For example, an employee objecting to a vaccine on religious grounds because the vaccine contains animal cells may be willing to accept an alternative version of the vaccination that does not contain the offending material. 

The NLRB Still Has Something To Say About Mandatory Arbitration Agreements

Contributed by Steven Jados, November 5, 2019

In May 2018, the U.S. Supreme Court rejected the argument that the National Labor Relations Act (the “Act”) prohibits mandatory arbitration agreements that contain class and collective action waivers.  But that has not stopped the National Labor Relations Board (NLRB), the federal agency that enforces the Act, from weighing-in and declaring other arbitration agreement provisions unlawful.

As a string of recent NLRB decisions makes clear—the newest of which is Beena Beauty Holding, Inc., 368 NLRB No. 91 (2019)—mandatory arbitration provisions, even in non-union workplaces, that can reasonably be interpreted by employees to limit or interfere with their ability to file unfair labor practice charges with the NLRB are likely unlawful. 

The offending language, from the NLRB’s perspective, is one that generally requires arbitration of all claims relating to an employee’s employment, whether under state or federal law, without exception.  As the NLRB’s decisions show, it does not matter whether the Act or NLRB are specifically mentioned.  Rather, it is a violation of the Act if an arbitration agreement could reasonably be interpreted to prevent employees from filing charges with the NLRB.  In other words, provisions in an arbitration agreement that make arbitration the exclusive forum for violations of the Act are unlawful, whether such provisions are expressly stated or reasonably implied.    

Fortunately, the NLRB has also given insight as to what is acceptable under the Act.  In Briad Wenco, LLC, 368 NLRB No. 72 (2019), the NLRB ruled that the following “savings clause” rendered the employer’s arbitration provision lawful:  “Nothing in this Agreement shall be construed to prohibit any current or former employee from filing any charge or complaint or participating in any investigation or proceeding conducted by an administrative agency, including but not limited to  . . . the National Labor Relations Board . . . .” It is not enough, however, to include language stating that the arbitration provision does not apply to claims “preempted by federal labor laws.” The NLRB has already ruled that such language is insufficient under the Act.  Cedars-Sinai Medical Center, 368 NLRB No. 83 (2019).

Bearing all of this in mind, the bottom line is that even non-union employers should be aware that they—and their mandatory arbitration agreements—continue to be targeted by the NLRB. The addition of a savings clause like the one described in the preceding paragraph may help limit or eliminate the potential for NLRB scrutiny—but we note that arbitration provisions are construed as a whole, so it is best to consult with experienced labor counsel to ensure that arbitration agreements are drafted to limit potential liability and compliance concerns.  

The Doctor is In – At Amazon

Contributed by Suzannah Wilson Overholt, October 30, 2019

Studio macro of a stethoscope and digital tablet with shallow DOF evenly matched abstract on wood table background copy space

Last year we reported on Haven Healthcare, the venture started by Amazon, Berkshire Hathaway and J.P. Morgan. Amazon has now announced a pilot program for its employees in Seattle that puts a modern spin on employer provided health care.

Announced in September, Amazon Care  provides telemedicine and in-person health care services. Employees can see a provider via a mobile app or website and text a nurse on any health topic. If follow-up care is needed, a nurse can make a home visit. Amazon contracted with a private practice for the nurse visits to collect lab samples, perform some testing (e.g. strep throat), administer common vaccines, and perform physical examinations. Courier Care delivers medications to employees’ homes (likely linked to Amazon’s earlier purchase of medication delivery company PillPack).

This announcement follows Amazon’s hiring of a health care technology expert and a physician who supervised a chain of health clinics in Seattle. Amazon strengthened the telemedicine component of Amazon Care last week when it purchased Health Navigator, which supports medical providers through automated technology.  Health Navigator has a tool that recognizes a patient’s written complaints and acts like a doctor would when listening to a patient describe symptoms. The company also has a health “bot” chat function that asks a patient questions and then interprets the answers to recommend next steps for care. A “diagnosis symptom checker” generates a list of possible causes for a symptom based on a patient’s responses to questions. 

Amazon Care is not connected to the employees’ regular health care providers, which may limit coordinated care. However, Amazon maintains that the program is a supplement to, not a substitute for, health insurance already offered to its employees. Only employees who participate in Amazon’s health plans can participate in Amazon Care. 

Amazon’s model is a far cry from the employer sponsored health clinics of yesteryear and reflects a growing trend among employers interested in controlling health care costs. Employers hope such clinics will prevent chronic diseases among their workforce through a renewed emphasis on primary care and improve productivity since employees do not have to miss time from work for doctors’ appointments. They are also a recruiting (and retention) tool.  Clinic operators have been exploring ways to use technology or develop new models to extend the reach of their services.  

In 2018, a-third of U.S. employers with 5,000 or more employees offered general medical worksite clinics, up from 24% in 2012. Many of these employers contract with third-party clinic operators, creating a growing market for such companies. Health systems operate about 18% of worksite clinics

Amazon’s model is different, however, because Amazon is self-insured and is creating its own health care system separate from the existing market by contracting directly with providers and acquiring the assets to provide telemedicine services. This appears to be an introduction to Haven Healthcare’s objective and could have wide ranging implications for insurers, health care providers and employers by restructuring the manner in which health care is provided and coordinated. We will continue to monitor this developing trend and provide further updates.  

Avoiding Holiday Pitfalls in the Workplace: Religious Accommodations

Contributed by Brian Wacker, October 23, 2019

The holiday season is fast approaching. What should be a joyful time filled with family, friends and festivities is all too often the opposite for employers: a season filled with legal and logistical challenges with their employees. 

Vacation, holiday and leave on paper note stick on the calendar of December for year end holidays concept

One of these potential challenges is the employer’s legal obligation to accommodate employees’ sincerely-held religious beliefs. Title VII of the Civil Rights Act of 1964, as well as various state legislation such as the Illinois Human Rights Act and the Missouri Human Rights Act, prohibits employment discrimination based on religion. Generally speaking, this means that employers must reasonably accommodate an employee’s sincerely held religious beliefs unless doing so would impose an undue hardship on the employer. 

So what is a “sincerely held belief” and what constitutes a “reasonable accommodation?”  Unfortunately, the answer can often be as clear as eggnog.

For purposes of Title VII and state legislation, the term “religion” is defined broadly.  It includes “all aspects of religious observance and practice, as well as belief,” which courts and the EEOC have interpreted to include not only traditional religions like Christianity, Judaism or Islam, but also religions that are “new, uncommon, nor part of a formal church or sect, only subscribed to by a small number of people, or that seem illogical and unreasonable to others.”  In other words, so long as the employee has articulated a belief in a religion concerning “ultimate ideas” about “life, purpose and death,” courts will find that the belief is religious meriting protection.  And employers should note that this does not only apply to traditional practices of religion; rather, it can also extend to religious dress or grooming based on religious beliefs or practices.

So that employee who seeks an accommodation based on her practice of Satanism?  If she has a sincerely held belief in it, she must be reasonably accommodated. Whether a belief is “sincerely held” can be a tough question to resolve, especially when an employer has suspicion that the request for accommodation is not made in good faith, or when the employee has behaved in the past in a manner markedly different from the professed belief. However, employers should be cautious in making such a determination and not assume that a belief is insincere just because some of the employee’s practices deviate from commonly followed tenets of the religion.

What makes a hardship for an employer “undue?” 

Basically, a hardship is undue if it can be shown that the accommodation would impose “more than a de minimis cost” on the operation of the employer’s business. While this will necessarily be a case-by-case determination, employers should consider the type of workplace involved, the nature of the employee’s duties, the identifiable costs of the accommodation in relation to the employer’s size and the effect the accommodation will have on other employees. If a religious practice will conflict with security or safety requirements, it likely will not need to be accommodated, unless the security or safety requirement is a unilaterally-imposed requirement by the employer and it could be reasonably modified or eliminated.

For far too many employers these days, the holidays bring about more headaches than anything.  Staying up to date on issues, such as religious accommodation requirements, can help you avoid the holiday blues.