Monthly Benefits Update - February 2014 [pdf]

Health & Welfare Plans

Health Care Reform: IRS Issues Final ACA “Pay or Play” Regulations

The IRS issued final regulations regarding the employer shared responsibility provisions under the Affordable Care Act (ACA), also known as the “pay or play” rules. Please see our separate alert, which covers this item in more detail.

Health Care Reform: Seventh Circuit Rejects Notre Dame’s Request for Injunction Against ACA Contraception Mandate While Supreme Court Challenges Are Pending

A three-judge panel on the Seventh Circuit Court of Appeals rejected the University of Notre Dame’s request for a preliminary injunction that would permit the university to avoid complying with the ACA‘s contraception mandate while the legal validity of the mandate is pending review by the United States Supreme Court. Guidance issued by the Department of Health and Human Services (HHS) on the mandate states that employers who object to the mandate on religious grounds may contract with third-party insurers to provide contraceptive services, rather than providing the services directly. The university, a Catholic institution, is claiming that complying with the mandate, even indirectly by contracting with a third-party insurer, violates its religious beliefs.

By a 2-1 margin, the panel affirmed the district court’s denial of a preliminary injunction. The panel ruled that it did not have the power to prevent the university’s third-party health insurer from offering contraceptive services because the insurer was not part of the lawsuit. The panel, however, made clear that it was only ruling on the requested injunction, and was not weighing in on the broader question of the mandate’s legal validity.

As summarized in our November 2013 alert, the Supreme Court has agreed to hear oral arguments on a consolidated case brought by two for-profit businesses challenging the validity of the contraception mandate on religious grounds. In addition, the Supreme Court has granted a temporary injunction enjoining enforcement of the mandate against a non-profit religious entity while the case is being decided on the merits by the Tenth Circuit Court of Appeals.

Health Care Reform: Agencies Issue Final and Newly Proposed Rules on Waiting Periods

The Internal Revenue Service (IRS), Department of Labor (DOL), and HHS (collectively, the “Agencies”) simultaneously issued final and proposed regulations regarding health plan eligibility waiting periods under the ACA. Like the proposed rules that were issued in March 2013, the final rules state that employers may not impose a time-based waiting period longer than 90 calendar days (including weekends and holidays) after an employee’s hire date. An employer may also impose a cumulative service-based requirement not exceeding 1,200 hours as long as any waiting period (not exceeding 90 days) begins the day after an employee has satisfied the service requirement.

The final rules also clarify that an employee who is re-hired may be treated as being newly eligible for coverage upon re-hire, and may therefore be required to satisfy the plan’s eligibility plan criteria anew. The regulations provide that the same analysis would apply to an employee who moves to a job classification that is ineligible for coverage, but then moves back to an eligible job classification. In both situations, the rules state that the waiting period and eligibility criteria must be reasonable under the circumstances. For example, the termination/re-hire and change of job classifications cannot be a subterfuge to avoid compliance with the 90-day waiting period rules.

These final rules take effect for plans beginning on or after January 1, 2015. For plan years beginning in 2014, the Agencies will consider employers compliant with the ACA if they comply with either these final rules or the proposed rules issued in March 2013.

The Agencies also issued proposed rules providing that employers may impose a maximum “reasonable and bona-fide employment-based orientation period” of one month in addition to any waiting period. In the preamble to the regulations, the Agencies stated that during the orientation period, they envision that an employer and employee could evaluate whether the employment situation was satisfactory for each party, and standard orientation and training processes could begin. The proposed rules state that the maximum orientation period would be determined by adding a calendar month and subtracting a calendar day from an employee’s hire date (for example, the last permitted orientation day for an employee with a hire date of May 3 would be June 2). If the next calendar month does not have a corresponding date, the last permitted orientation day is the last day of the next calendar month (for example, the last permitted orientation day for an employee with a start date of January 31 would be February 28, or February 29 in a leap year). These proposed rules may be relied on at least through the end of 2014. The Agencies are inviting comments on the proposed rules, which must be received by April 25, 2014.

HHS Releases Guidance on Disclosure of Mental Health Information Under HIPAA

The HHS Office for Civil Rights issued guidance in question-and-answer format clarifying when a provider may release information regarding a patient’s mental health to family members, friends, law enforcement, and others. The guidance provides that when a patient is present and has the ability to make health care decisions, providers may communicate information regarding the patient’s mental health to family members, friends, and others that “the patient has involved in his or her health care or payment for care, so long as the patient does not object.” The provider may ask the patient for permission to share the information, tell the patient that the provider plans to share it, or infer that the patient does not object from the circumstances, under the provider’s professional judgment, according to the guidance. However, when a patient is not present or is incapacitated, a provider may share such information as long as the provider determines, based on professional judgment, that doing so is in the best interests of the patient.

The guidance also states that when a provider “believes in good faith” that a patient might harm herself or others, and that disclosing mental health information to law enforcement, family members, or others is necessary to “prevent or lessen a serious or imminent threat” to the patient or others, the provider may, “consistent with applicable law and standards of ethical conduct…alert those persons whom the provider believes are reasonably able to prevent or lessen the threat.”

In addition, the guidance provides that psychotherapy notes are treated differently from other mental health information, and may not be disclosed without a patient’s authorization, except as required by law (such as reporting of abuse and serious and imminent harm created by the patient). Psychotherapy notes are defined as “notes recorded by a health care provider who is a mental health professional documenting or analyzing the contents of a conversation during a private counseling session or a group, joint, or family counseling session and that are separate from the rest of the patient’s medical record.” Psychotherapy notes do not include information about medication prescription and monitoring, session start and stop times, or certain other treatment information.

Retirement Plans

IRS Addresses Correction Method for Failure to Timely Provide Safe Harbor 401(k) Notice

In its retirement plan newsletter, the IRS stated that plan sponsors of safe harbor 401(k) plans who fail to issue safe harbor notices to employees on a timely basis may be required to make different corrections for different employees, depending on the impact of the non-issuance on each employee.

For example, the newsletter stated, if the non-issuance of the notice resulted in an employee being unable to make elective deferrals to the plan, then the plan sponsor may need to make a corrective contribution to the plan. On the other hand, if an employee was otherwise informed of the plan’s features and the method for making elective deferrals, the failure to provide the notice may be treated as an administrative error and corrected by ensuring that notices are timely delivered in the future. 

Failures to provide safe harbor notices may be corrected using either the Self-Correction Program (SCP) or the Voluntary Correction Program (VCP) under the IRS’s Employee Plans Compliance Resolution System (EPCRS), depending on the severity of the error. Generally, plan sponsors must provide the safe harbor notice to eligible participants 30 to 90 days before the beginning of each plan year. To employees who are due to become eligible, the notice must generally be provided no earlier than 90 days and no later than the eligibility date.

Executive Compensation

IRS Clarifies Position on Substantial Risk of Forfeiture in Final Section 83 Rules

The IRS issued final regulations regarding the definition of “substantial risk of forfeiture” under Code Section 83. These regulations have a particular impact on the timing of taxation of employer transfers of stock and other equity rights to employees under an equity compensation plan or otherwise. Code Section 83 generally requires that property transferred in connection with the performance of services is taxable when the property is no longer subject to a “substantial risk of forfeiture.” The final regulations state that a substantial risk of forfeiture exists (1) where the employee is required to perform future service, or (2) where there is a forfeiture condition that is related to the purpose of the transfer. 

The final rules do not substantively change the definition of “substantial risk of forfeiture” from the proposed rules released in May 2012, but they clarify that (1) a substantial risk of forfeiture may be established only through a service condition or a condition related to the purpose of the transfer; (2) both the likelihood that the forfeiture event will occur and the likelihood that the forfeiture event will be enforced must be considered in determining whether a substantial risk of forfeiture exists, and (3) transfer restrictions (e.g. lock-up periods and limited trading windows) do not create a substantial risk of forfeiture, including restrictions that carry the potential for forfeiture, disgorgement of some or all of the property, or other penalties. The regulations provide, however, that a substantial risk of forfeiture does exist as long as a transfer of property could carry liability under the insider trading restrictions under Section 16(b) of the Securities Exchange Act of 1934.