Defense of Marriage Act
Supreme Court Ruling on United States v. Windsor
The U. S. Supreme Court has ruled that a portion of the Defense of Marriage Act (DOMA) is unconstitutional. DOMA limited federal recognition of marriage to opposite-sex spouses. The ruling is limited to eliminating the restriction on what type of marriages are recognized by federal law. Consequently, now federal law defers to state law to determine the marital status of same-sex couples. Employers should review plan definitions of the terms "spouse" and "dependent." Taxation of benefits for same sex spouses is expected to be addressed by the IRS. For a more detailed analysis of the broad impact this decision has on the application of federal laws and several employee benefit issues, view our FR Alert published last week.
Health & Welfare Plans
Health Care Reform: New IRS Form 720 – Quarterly Federal Excise Tax Return
Self-insured health plans, as well as issuers of some health insurance policies, are required to report and pay the Patient-Centered Outcomes Research Institute (PCORI) fee by July 31, 2013. The PCORI fee, under tax code Section 4375 and 4376, was established by the Affordable Care Act to fund a nonprofit institute that will conduct comparative research on the benefits of medical treatments, services, procedures, and drugs. Last December, final regulations were issued regarding this fee by the Internal Revenue Service.
The PCORI Fee is reported and paid using IRS Form 720. The IRS recently issued a revised Form 720 including specific sections on which to report this fee. The Form 720 instructions provide that, generally, the fee is $1 times the average number of lives covered under the plan or policy for plan years ending before October 1, 2013. The instructions also detail different methods for calculating the fee. For example, for self-insured health plans, there are three alternative methods: actual count method, the snapshot method, and the Form 5500 method. However, for plan years beginning before July 11, 2012, and ending on or after October 1, 2012, plan sponsors may determine the average number of lives covered under the plan for the plan year using any reasonable method. The Form 720 can be found here and the instructions for the form can be found here.
Health Care Reform: Seventh Circuit Allows Participant to Seek Money Damages Following Amara Case
The U.S. Court of Appeals for the Seventh Circuit issued a ruling in Kenseth v. Dean Health Plan Inc. interpreting the U.S. Supreme Court’s decision in CIGNA Corp. v. Amara as allowing a health plan participant to seek make-whole relief in the form of money damages for a fiduciary breach by a plan trustee. Plaintiff Deborah Kenseth alleged that her HMO provider breached its fiduciary duties by denying payment for a gastric banding procedure. Kenseth alleged that the plan’s customer call center told her the procedure would be covered when it actually was not under the terms of the plan.
The Seventh Circuit interpreted the Amara case as clarifying that “equitable relief may come in the form of money damages when the defendant is a trustee in breach of a fiduciary duty.” Further, the Seventh Circuit found that under Amara, “[m]onetary compensation is not automatically considered ‘legal’ rather than ‘equitable,” and that, “[t]he identity of the defendant as a fiduciary, the breach of a fiduciary duty, and the nature of the harm are important in characterizing the relief.” This opinion has potentially broad application in circumstances where inaccurate representations are made to plan participants concerning plan benefits.
Health Care Reform: Final Rules Issued on Coverage of Contraceptives Under Preventive Services
The proposed rules from HHS, the Internal Revenue Service, and the Department of Labor’s Employee Benefits Security Administration issued earlier this year used an “accommodation” standard in order to apply the requirement to cover preventive services without cost-sharing, including women’s contraceptive services to nonprofit religious organizations, such as hospitals and universities affiliated with religious groups that object to contraceptive coverage. The final rules recently issued and to be published this week, maintain the accommodation standard. A “religious employer” would generally not be required to cover any contraceptive services that it objects to on religious grounds. Instead, coverage for contraceptive services would be provided without cost-sharing to these organizations’ employees through separate individual health insurance policies provided directly by plan’s insurer (if the plan is fully-insured) or through the plan’s third-party administrator (if the plan is self-insured). A religious employer generally includes churches, other houses of worship, and affiliated organizations, regardless of the religious affiliation of their served communities or employees.
Health Care Reform: The National Women’s Law Center (NWLC) Files Administrative Complaints HHS Alleging Sex Discrimination in Plan Coverage
The NWLC filed five administrative complaints with the United States Health and Human Services Department’s Office for Civil Rights against a health care system and several higher education institutions (public and private) alleging the institutions violated ACA Section 1557 by excluding coverage for pregnancy and related medical care for dependents other than a participant’s spouse from their health insurance benefits. Section 1557 of the Affordable Care Act protects individuals from discrimination on the basis of sex, race, color, national origin, age, disability, gender identity, and sex stereotypes under any health program or activity, any part of which is receiving Federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an Executive Agency. The provision was aimed at health insurers selling plans for which consumers can obtain federal subsidies starting with the 2014 plan year, but the NWLC contends the provision also applies to universities and other employers already receiving federal funds. If the advocacy efforts of the NWLC in favor of mandatory pregnancy coverage for dependents other than the participant’s spouse are successful, employers who are recipients of federal grants may be required to provide such coverage under the health plans they sponsor.
Automatic Enrollment Guidance to be Issued
The last time the Employee Plans Compliance Resolution System (EPCRS) was updated under Revenue Procedure 2013-12, it failed to provide additional correction procedures for common mistakes made in administering automatic enrollment and automatic escalation provisions in Section 401(k) and Section 403(b) plans. The Treasury Department is working on guidance for correcting retirement plan automatic enrollment errors as a separate project and plans to issue this guidance before publishing its next comprehensive update of employee plans voluntary correction procedures, a Treasury official said on June 5th.
457(b) Plans Under IRS Scrutiny
The Employee Plans Compliance Unit of Internal Revenue Service will embark on a compliance check project focused on 457(b) plans. The IRS’s focus will be on finding compliance irregularities related to funding, loans, catch-up contributions, and plan sponsor eligibility. According to the IRS announcement, the compliance check will not involve the inspection of books and records for any tax liability. If the IRS finds that a plan has not been established or operated in accordance with Section 457(b), it will inform the sponsor about next steps, which might include a plan audit or a correction submission under IRS’s Voluntary Correction Program. The IRS expects to send questionnaires to about 200 organizations in fiscal year 2013, and another 200 in fiscal year 2014.
“Alter Ego” Theory May Be Used to Impose Withdrawal Liability
In a recent case, Local 134 Board of Trustees of the Toledo Roofers Pension Plan v. Enterprise Roofing & Sheet Metal, the U.S. District Court for the Northern District of Ohio ruled that the trustees of a multiemployer pension plan can use the alter-ego theory to seek a withdrawal liability judgment totaling $624,079 from a company owned by the same family that owned the withdrawing employer. According to the court opinion, the alter-ego liability is an equitable doctrine that allows a court to “bind an employer to a collective bargaining agreement if it finds the employer an alter ego of a signatory employer.” The alter-ego test requires a plaintiff to show “pervasive intermingling of funds and operations” between the two entities. In this case, the court noted that the owner of one of the companies actually played a “major role” in managing both companies, serving as vice president of one of the entities and simultaneously as president and board chairman of the other. Further, the owner served “important managerial functions at both companies” and that there was “nominal consideration” paid when the withdrawing entity’s business was transferred to the second entity.
Illinois Lawmakers Fail to Pass Pension Reform – Bonds Downgraded
The state’s outstanding general obligation bonds were downgraded from “A2” to “A3” by Moody’s Investors Service, following the failed attempt by the Illinois Legislature to pass Pension Reform. The ratings agency said in a statement that: “The negative outlook reflects our expectation that Illinois’ pension liabilities will continue to grow, in the absence of substantive reform efforts, and that annual funding requirements will become unmanageable, particularly if no steps are taken to address the loss of revenue from expiring income tax increases in 2015.” Legislators continue to explore pension reform solutions, and continued meetings have been scheduled for the summer to come up with a legislative solution.