Category Archives: Employee Benefits

Benefit Plan Deadlines Extended – COBRA, Special Enrollment, Plan Disclosures and More

Contributed by Kelly Haab-Tallitsch, May 11, 2020

hand holding megaphone – benefits

On April 29, 2020, the Department of Labor (DOL) and the Treasury Department issued guidance extending certain timeframes related to employee benefit plans due to the COVID-19 outbreak. The agencies acknowledge that plan sponsors, participants and beneficiaries may have difficulty meeting the standard timeframes due to the national emergency and the extensions are intended to help maintain group health plan coverage.

Relief for Participants and Beneficiaries

A joint final rule issued by the DOL and Treasury provides that all group health plans, disability plans, other employee welfare benefit plans subject to the Employee Retirement Income Security Act (ERISA) must disregard the period from March 1, 2020 until 60 days after the COVID-19 National Emergency ends (or such other date as the agencies announce), referred to as the “Outbreak Period,” in determining certain notice and payment deadlines.  

This includes:

  • The 60-day COBRA election period;
  • Due dates for making COBRA premium payments; 
  • The 30-day (or 60-day as applicable) HIPAA special enrollment period;
  • The 60-day period for participants to notify a plan of a COBRA qualifying event (e.g. divorce); and
  • The deadlines for filing a claim for benefits, an appeal, or a request for an external review of a denied claim.

The final rule provides examples of how these extensions work in practice, based on the assumption that the National Emergency ended on April 30, with the Outbreak Period ending on June 29 (60 days after the end of the National Emergency).

  • Electing COBRA – Individual A experiences a qualifying event for COBRA purposes as a result of a reduction of hours below the hours necessary to meet the group health plan’s eligibility requirements. Individual A is provided a COBRA election notice on April 1, 2020. The Outbreak Period is disregarded for purposes of determining Individual A’s COBRA election period. The last day of Individual A’s COBRA election period is 60 days after June 29, 2020, which would be August 28, 2020.
  • Special Enrollment – On March 31, 2020, Individual B gave birth and would like to enroll herself and the child into her employer’s plan; however, open enrollment does not begin until November 15. The Outbreak Period is disregarded for purposes of determining Individual B’s special enrollment period. Individual B may exercise her special enrollment rights for herself and her child into her employer’s plan until 30 days after June 29, 2020, which is July 29, 2020. 
  • COBRA Premium Payments – On March 1, 2020, Individual C was receiving COBRA continuation coverage under a group health plan. Monthly premium payments are due by the first of the month. Individual C made a timely February payment, but did not make the March payment or any subsequent payments during the Outbreak Period. As of July 1, Individual C has made no premium payments for March, April, May, or June. Does Individual C lose COBRA coverage, and if so for which month(s)? Under the terms of the COBRA statute, premium payments are timely if made within 30 days from the date they are first due. In calculating the 30-day period, however, the Outbreak Period is disregarded, and payments for March, April, May, and June are all deemed to be timely if they are made within 30 days after the end of the Outbreak Period. Accordingly, premium payments for four months (i.e., March, April, May, and June) are all due by July 29, 2020. Individual C is entitled to COBRA continuation coverage for these months if she timely makes payment. Individual C is eligible to receive coverage under the terms of the plan during this interim period even though some or all of Individual C’s premium payments may not be received until July 29, 2020.

Relief for Plan Sponsors

The joint final rule also states the Outbreak Period shall be disregarded when determining the date for providing a COBRA election notice. This provides additional time (if needed) for employers to notify qualified beneficiaries of their rights to elect COBRA continuation coverage.

Additionally, the DOL’s Employee Benefits Security Administration (EBSA) issued EBSA Disaster Relief Notice 2020-01 allowing additional time for plan sponsors to furnish benefit statements, annual funding notices, and other required notices and disclosures required under the Employee Retirement Income Security Act (ERISA). The notice provides that an employee benefit plan will not violate ERISA for a failure to timely distribute a notice, disclosure, or document due during the Outbreak Period, as long as the plan and responsible fiduciary act in good faith and furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances. This includes Summary Plan Descriptions, Summaries of Material Modifications, benefit determinations, annual funding notices, periodic benefit statements, summary annual reports, participant fee disclosures, QDIA notices, and blackout notices.

COVID-19 Webinar Series: The Latest Local, State and Federal Mandates Impacting the Workplace

Families First Coronavirus Response Act: What It Means For Employers

Contributed by SmithAmundsen’s COVID-19 Task Force (Kelly Haab-Tallitsch, Rebecca Dobbs Bush, Suzannah Overholt, and Jeff Risch), March 15, 2020

On March 14, 2020, the U.S. House of Representatives passed House Bill 6201 (HR6201). The legislation seeks to protect private sector workers and government employees during the COVID-19 pandemic. However, the legislation does not apply to any private sector employer with 500 or more employees. To be clear, the current legislation will regulate only those private sector employers who employ less than 500 employees. The Senate is expected to take up the bill early this week. The legislation would take effect within 15 days of enactment and expire on December 31, 2020.

HR6201 contains major changes to the FMLA as it seeks to provide job protected paid leave to any employee who has been on the job for at least 30 days – for up to 12 weeks – related to the COVID-19 pandemic. The legislation also mandates up to 80-hours of paid sick leave for reasons related to COVID-19. It also provides $1 billion in additional funding to the Unemployment Insurance (UI) System and encourages states to relax UI eligibility requirements. Tax credits are provided to employers to help offset the financial cost of the paid leave.

Highlights of the legislation include:

PAID TIME OFF:

Emergency Paid Sick Leave – up to 80-hours for ALL employees working for a private employer with less than 500 employees or any public sector employer

HR6201 requires employers with fewer than 500 employees and all government employers to provide all employees up to 80-hours of paid sick leave, paid at the employee’s regular rate of pay in order to:

  1. self-quarantine if diagnosed with COVID-19;
  2. seek a diagnosis or care for symptoms of COVID-19; or
  3. comply with an order or recommendation by a public health official or health care provider to self-isolate due to exposure to or symptoms of COVID-19.

Additionally, this paid sick leave entitlement must also be available – at two-thirds the employee’s regular rate of pay – for employees to care for a family member for such purposes or to care for a child (under 18 years of age) whose school has closed or paid child care provider is unavailable due to the coronavirus.

Full-time employees are entitled to 2 weeks (80 hours) of paid leave and part-time employees are entitled to the average number of hours that they work in a typical two-week period. Paid sick leave under HR6201 must be provided in addition to any paid time off provided under an employer’s existing policies and employers may not require employees exhaust existing accrued paid time off prior to using emergency paid sick leave. The bill ensures employees who work under a multiemployer collective agreement are also provided such benefits that meet the requirements of the Act.

EXPANDED COVERAGE FOR FMLA:

Paid Family and Medical Leave — up to 12 weeks for employees employed for 30 or more days by a private employer with less than 500 employees or any public sector employer

Employees of employers with fewer than 500 employees or government employers, who have been on the job for at least 30 calendar days, have the right to take up to 12 weeks of job-protected leave under the Family and Medical Leave Act to be used for any of the following reasons:

  • To comply with a requirement or recommendation by a public health official or health care provider that the presence of the employee in the workplace would jeopardize the health of others due to the employee’s exposure to or symptoms of coronavirus;
  • To care for a family member who is adhering to a requirement or recommendation by a public health official or health care provider to quarantine due to exposure to or symptoms of coronavirus; and
  • To care for a child (under 18 years of age) of an employee if the child’s school or place of care has been closed, or the child-care provider is unavailable, due to coronavirus

The first 2-weeks of time off for the above reasons are unpaid under the FMLA, but the Emergency Paid Sick Leave Law requires that an employee is paid during that time period, as described above.  After the first 2-weeks of leave under the FMLA, employees will be entitled to receive a benefit from their employers that will be no less than two-thirds (2/3rd) of the employee’s usual pay. The bill ensures employees who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan are provided with leave.

Certain small employers can be exempt from this expanded FMLA coverage if they meet a “viability” exception.  While we can assume the general intent behind the exception, the precise mechanism and process for such an exception is subject to US DOL regulation yet to be published.

The Act also clarifies that individuals that are subject to a multiemployer collectively bargained agreement and whose employers pay into a multiemployer plan must be provided with leave and benefits on par with the benefits provided under the Act.

PAYROLL CREDIT FOR PAID LEAVE

HR6201 provides a refundable tax credit applied to the employer portion of the Social Security payroll tax equal to 100 percent of paid sick leave and family leave wages paid by an employer for each calendar quarter, subject to the following caps: Sick leave wages paid with respect to employees who must self-quarantine, obtain a diagnosis or care for symptoms, or comply with a self-isolation recommendation or order from a public health official or health care provider are capped at $511 per day for purposes of the payroll tax credit; Sick leave wages paid to employees caring for a family member or for a child whose school or place of care has been closed, are capped at $200 per day; and  Family leave wages under the expanded FMLA taken into account for each employee are capped at $200 per day and $10,000 for all calendar quarters.

If the credit exceeds the employer’s total Social Security payroll tax liability for any calendar quarter, the excess credit is refundable to the employer. Employers may elect to not have the credit apply. A similar refundable tax credit is available for self-employed individuals.

SmithAmundsen’s Labor & Employment COVID-19 Task Force is continuing to monitor all local, state and federal orders and legislative initiatives in these unprecedented times. Be assured that we will continue to provide updates where and when warranted. We will also be providing ongoing webinars on the subject to try and help employers operate as effectively and safely as possible. With that in mind, please do not hesitate to contact your SA relationship attorney in the days and weeks ahead for direct guidance. We are here 24/7.

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.

Gig Workers: An Evolving Trend or a Class Action Waiting to Happen?

Contributed by Rebecca Dobbs Bush, June 4, 2019

The workplace is changing: Millennials, Generation Z-ers, and Baby Boomers looking to supplement their retirement income. These individuals are more interested in autonomy and avoiding bad managers, office politics and lengthy, non-productive staff meetings. Plus, the tax-savvy individual knows the economic advantage of having access to traditional business deductions through a Schedule C, rather than being limited to the standard deduction or itemizing as a W-2 employee would be.

Business concept. Isolated on white

More and more businesses also seem to be interested in the advantages of a gig workforce, also called freelancers, subcontractors, contingent workforce, and more. After all, it allows a business to gain access to skills and talent without having to commit to hiring an individual as a full-time employee. According to Deloitte’s 2018 Global Human Capital Trends study, more than 40% of workers in the U.S. are employed in “alternative work arrangements.” These arrangements include contingent, part-time, or gig work.

So, is it a win-win for all involved? The problem is that current employment laws are simply not evolving at the pace required to keep up with this modern-day independent contractor. With this, a minefield is created for the unwary business. 

Under the Obama administration, the DOL had issued broad guidance suggesting that gig workers were likely to be considered “employees.” That guidance was rescinded with the change in administration. Then, on April 29, 2019, the DOL issued an atypical, 10-page opinion letter on the subject. The opinion letter lays out a detailed analysis of all the relevant factors for independent contractor status and then comes to the conclusion that the gig workers at issue are not employees.

For now, if your business is participating in the trend of the gig worker, you want to make sure the relevant factors are met. Those factors and the analysis change depending on which law the issue is being examined under. Some of the more common factors are: control, permanency of the relationship, integrality to business operations, ability to sustain a profit or loss, accountability for operating expenses, etc. In other words, is the individual truly operating as a stand-alone business? 

If you choose to engage gig workers, make sure to avoid these common mistakes:

  • Do not treat the individuals as employees. Do not even use the word “hire.” Instead, you are “engaging” their services, or “contracting” with them. And, commit to the arrangement in writing.
  • Do not be tempted to offer them benefits. Putting them in your health plan or letting them participate in a 401(k) will jeopardize any argument that they are not otherwise an employee. If it walks like a duck, quacks like a duck….
  • Do not make them sign a non-compete agreement. A critical factor in most cases is whether the individual is free to take on work from others or whether they are completely dependent on your business for work. If the individual is subject to a non-compete agreement and effectively being prevented from working for others, you will not win on this factor.

Because of the amount of exposure involved with a misclassification lawsuit, it is worthwhile to have competent employment counsel review your situation and any independent contractor agreement or contracts that you are using to help you make sure it’s being handled in the best possible manner to strengthen the individual’s status as an independent contractor.

Save the Date! SmithAmundsen Complimentary Webinar on August 3rd — Employee Compensation and Benefits: Common Mistakes and Missed Opportunities

Employee pay and benefits plans can be one of the most significant expenses for an employer. Avoiding costly compliance mistakes and leveraging plans to effectively reward key employees is critical in today’s environment. Join Kelly Haab-Tallitsch and William Scogland on Thursday, August 3 at 12:00 PM CT for the latest installment of our Labor & Employment Quarterly Series as they discuss common mistakes and missed opportunities in designing and administering compensation and benefit programs. Specific topics include:

  • Additional qualified plan opportunities for highly compensated employees
  • Using equity or phantom equity to retain key personnel
  • Common 401(k) mistakes
  • Traps to avoid in a merger or acquisition
  • And more!

Register for the webinar here!

Cash-in-Lieu of Benefits May be Subject to Overtime

Contributed by Kelly Haab-Tallitsch, August 25, 2016

Compensation to employees who opt out of health insurance or other benefits, known as a “cash-in-lieu” program, can be an attractive option for both employers looking to manage skyrocketing health care costs and employees looking for a little extra cash. But a recent ruling by the Ninth Circuit Court of Appeals highlights a significant risk to employers of such programs.

In Flores v. City of San Gabriel, 2016 WL 3090782 (June 2, 2016), the first case of its kind, the court held that under the Fair Labor Standards Act (FLSA) cash payments made to an employee in lieu of benefits must be included in the employee’s regular rate of pay for the purpose of calculating overtime.

Health Insurance and MoneyThe employer in Flores, the City of San Gabriel, sponsored a flexible benefit plan that provided employees with a certain monetary allowance to purchase health insurance and other benefits. Employees who opted out of some or all of the benefits received a cash payment for the amount of their remaining allowance. The employer did not include these cash-in-lieu of benefits payments in the employees’ regular rates of pay when it calculated overtime. A group of employees sued, alleging that the exclusion of the cash-in-lieu payments from overtime calculations was a violation of the Fair Labor Standards Act and they had been underpaid for the overtime hours they worked.

The court in Flores agreed, ruling that the employer’s cash-in-lieu-of benefits payments were “compensation for services” (similar to other types of bonuses) that must be included in the regular rate of pay for overtime purposes. The court also held that the employer’s actions were a willful violation because it did not do enough to determine if it was complying with the law. As a result the employer was liable for double the amount of unpaid overtime compensation for the three year period before the complaint was filed.

Cash-in-lieu of benefits programs were already dealt a blow in late 2015 when Treasury Department guidance indicated that most cash-in-lieu payments will be included in the determination of a health plan’s “affordability” for purposes of the Affordable Care Act’s (ACA) employer mandate.

What Does This Mean for Employers?

The City of San Gabriel has asked the Ninth Circuit to reconsider its decision, but until and unless the decision is actually overturned, employers operating in the Ninth Circuit should review their cash-in-lieu of benefit programs and payroll practices to ensure compliance with the FLSA.

The court’s ruling in Flores is a groundbreaking decision and it’s too early to tell whether courts outside of the Ninth Circuit will rule similarly. Employers outside of the Ninth Circuit who offer (or are considering) cash payments to employees who opt out of health benefits should consult with counsel to assess the impact of legal developments in this area.