Employee Benefits Alert - August 2015

by Franczek Radelet P.C.

Retirement Plans

IRS Issues Guidance on Benefit Suspension Voting under MPRA

As we have written in prior alerts, the Multiemployer Pension Reform Act of 2014 (MPRA) permits trustees of financially troubled multiemployer plans to reduce vested participant benefits in certain circumstances when a plan would be unable to pay them fully. After a plan’s trustees have approved benefit suspensions, and after the suspensions have been approved by the Department of Treasury, in consultation with the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) (collectively, the “Agencies”), the MPRA gives affected participants and beneficiaries the opportunity to vote on the benefit reductions (with some exceptions). 

The Internal Revenue Service (IRS) issued temporary regulations providing guidance on participant voting under the MPRA. In addition, the IRS issued a notice of proposed rulemaking seeking public comments on the proposed rules. The temporary rules provide that a participant vote occurs in three steps. First, ballot materials must be distributed to eligible voters. Second, the eligible voters cast their ballots and the votes are tabulated. Third, the Agencies determine whether a majority of the eligible voters has voted to approve or reject the proposed benefit suspension.

The MPRA requires that ballots contain a statement in opposition to the benefit suspension, if any. These temporary rules provide guidance regarding the content requirements applicable to the opposition statement. The temporary rules also state that although a plan sponsor cannot distribute the ballots, it must furnish a list of eligible voters so that ballots can be distributed on its behalf. The plan sponsor must also furnish the list of eligible voters to Treasury within seven days after a benefit suspension has been approved. 

In addition, the plan sponsor is responsible for paying all costs associated with distribution of the ballots, including printing, assembling, and mailing costs. The rules also provide guidance regarding the time period for which voting must remain open, and states that the Agencies will certify whether the majority of eligible voters approved or rejected the suspension within seven days after the end of the voting period.

These temporary rules are applicable on and after June 17, 2015 and are due to expire on June 15, 2018. 

Arbitration Fee Payment at Issue in Withdrawal Liability Timeliness Dispute

In a decision that illustrates why attention to detail is keenly important with respect to withdrawal liability claims, a federal district judge in the Northern District of Illinois ruled that genuine issues of material fact remain regarding the timeliness of an employer’s initiation of arbitration in a withdrawal liability dispute based on the employer’s failure to pay the correct arbitration initiation fee amount.

In Divane v. Paldo Sign & Display Co., No. 1:140-CV-00636 (N.D. Ill., Aug. 26, 2015), the court denied the multiemployer plan trustees’ motion for summary judgment regarding the timeliness issue, reasoning that while the Seventh Circuit Court of Appeals has held that the failure to pay the American Arbitration Association’s (AAA) filing fee renders an arbitration untimely, it has not decided whether paying the incorrect amount has the same effect.

The employer, Paldo Sign & Display Co., contributed to a multiemployer pension fund, the Electrical Contractors Association of the City of Chicago and Local Union 134, I.B.E.W. Joint Pension Trust of Chicago (the “Fund”). In July 2012, Paldo withdrew from the Fund and was assessed withdrawal liability totaling approximately $170,000. Paldo sought to initiate arbitration to dispute the Fund’s assessment. The Fund’s co-counsel at first incorrectly advised Paldo that the PBGC withdrawal liability rules and procedures applied. When the error was discovered, Paldo sent a demand for arbitration to the Fund’s designated arbitration forum, the AAA, along with a filing fee of $975. The $975 filing fee was based on what Paldo believed was the correct withdrawal liability amount, not what the Fund had assessed. The Fund’s trustees argued that Paldo had paid the incorrect filing fee because a different amount of withdrawal liability was owed, and therefore claimed that Paldo had not timely initiated arbitration. If an employer does not timely initiate arbitration to dispute a withdrawal liability assessment, the amount assessed by the fund is generally considered final and not subject to later challenge in court.

The court ruled that although Paldo paid the incorrect fee, the Fund was not entitled to summary judgment because there was a genuine issue of material fact regarding whether Paldo’s payment of the incorrect fee makes its initiation of arbitration untimely. 

Again, the lesson here is that details are critically important in withdrawal liability matters. Employers are advised to promptly seek competent counsel when faced with a withdrawal liability demand.

Health & Welfare Plans

IRS Issues Draft Instructions and Forms for 2015 ACA Information Reporting

The IRS issued draft forms and instructions to be used by employers to fulfill their information reporting obligations under the Affordable Care Act (ACA) for the 2015 calendar year. As we have written in previous alerts, the ACA requires employers to report certain health coverage information, which will be used by the IRS to enforce the employer shared responsibility/ employer mandate and individual mandate components of the law.

The reporting obligations are set forth under Sections 6055 and 6056 of the Internal Revenue Code. The IRS had previously issued final versions of these forms and instructions for use in reporting for the 2014 calendar year, for which reporting was voluntary. The first required reporting is for the 2015 calendar year. For 2015 calendar year reporting, certain information will need to be provided to individuals no later than February 1, 2016 (the actual deadline in January 31, 2016, which falls on a Sunday). The reporting to the IRS must be done no later than March 31, 2016 if filing electronically (February 28, 2016 if not filing electronically).       

Large employers (generally, employers with 50 or more full-time employees) must use Forms 1094-C and 1095-C (the “C-series” forms) to fulfill their reporting obligations. Draft instructions for the 2015 “C-series” forms are found here. Health insurance carriers and small employers who sponsor self-insured health plans will use Forms 1094-B and 1095-B (the “B-series” forms) for reporting. The 2015 draft instructions for the “B-series” forms are found here.

The draft forms contain several important corrections and clarifications that were not present in the forms previously issued for 2014 reporting, as summarized below.


The draft instructions state that an automatic 30-day extension to the March 31 (or February 28) IRS filing deadline is available by filing IRS Form 8809 by the original due date. An additional 30-day extension may be available due to hardship. An extension of the January 31 deadline to furnish statements to individuals is available only upon receiving approval from the IRS.


The draft instructions provide guidance on what type of changes will require employers to file corrected forms. For example, large employers will need to file corrected Forms 1095-C if any of the following information is incorrect: name, Social Security Number, EIN, offer of coverage, premium amount, safe harbor and other relief codes, or covered individuals’ information.   

Contributions to Multiemployer Plans

The instructions also clarify that an employer contributing to a multiemployer plan (that provides welfare coverage that is affordable and provides minimum value) is deemed to have made an offer of coverage to an employee for each month for which the employer is required to contribute to the multiemployer fund on that employee’s behalf. Importantly, the instructions also clarify that contributing employers are not required to report specific months that employees were actually eligible for and enrolled in multiemployer fund coverage as was indicated in prior instructions. Thus, employers should only need a statement from the multiemployer fund certifying that it provides minimum value coverage to employees and their dependents. The employer can then identify the months for which it made contributions and determine that the coverage was affordable for purposes of meeting its own reporting obligations.

98 Percent Offer Method

If an employer certifies that it made offers of coverage for each calendar month to at least 98 percent of employees for whom it is required to report, that employer is not required to identify which of the reported employees are full-time or provide a count of full-time employees for any calendar month. The 2015 draft instructions for the C-series forms clarify that employees who are in permissible waiting periods (referred to as “Limited Non-Assessment Periods”) need not be counted for purposes of the 98 Percent Offer Method. In other words, even though employees in Limited Non-Assessment Periods are not receiving offers of coverage, they do not count against an employer seeking the 98 Percent Offer Method relief who otherwise provides offers of coverage to 98 percent of employees not in Limited Non-Assessment Periods for whom the employer is required to report.


The draft instructions also provide other reporting guidance related to COBRA issues, including reporting offers of coverage for new hires and employees who terminate employment. The instructions address the differences in reporting COBRA offers for employees who terminate employment versus employees who are eligible for COBRA due to a reduction in hours, among other issues.

Supplemental Coverage

The draft instructions for the B-series forms state that filers are not required to report minimum essential coverage that is supplemental to other minimum essential coverage. For example, coverage that supplements government-sponsored coverage like Medicare or TRICARE, or coverage of an individual in a second plan by the same plan sponsor need not be reported (the plan sponsor is only required to report one type of minimum essential coverage). However, coverage is not considered as being provided by the same plan sponsor (and is therefore not supplemental) if it is not reported by the same reporting entity. For example, a self-insured health reimbursement arrangement (HRA) that is provided in addition to an insured group health plan are not provided by the same reporting entity and are not considered supplemental for ACA reporting purposes because different entities have reporting obligations with respect to each of those plans. 

The employer mandate went in effect in 2015 on a transitional basis for employers with 100 or more full-time employees. It will take full effect in 2016 when it applies to employers with 50 or more full-time employees. 

IRS Proposes Requiring Plans to Offer Inpatient Care to Satisfy ACA’s Minimum Value Requirements

The IRS issued proposed rules stating that employer-sponsored health plans must provide “substantial coverage” for inpatient hospitalization and physician services in order to satisfy the ACA’s definition of minimum value. The rules state that employer-sponsored plans whose share of the cost of such services is less than 60 percent will also fail the ACA’s minimum value requirements. Large employers (generally employers with 50 or more full-time employees) may face penalties under the ACA’s employer mandate if they do not offer health coverage that meets the minimum value requirement.   

These recent proposed rules supplement the proposed rules issued in May 2013 on minimum value coverage. Although the May 2013 rules apply for plan years beginning after November 3, 2014, these recent changes to the minimum value rules do not apply, with respect to a plan that does not provide substantial coverage for inpatient services, before the end of a plan year that begins no later than March 1, 2015. The IRS is requesting comments for the issuance of future guidance for determining whether a plan provides “substantial coverage” for inpatient hospitalization and physician services.

Vendor Chosen for Second Phase of HIPAA Audits, Signaling Audits Coming Soon

An official with the Department of Health and Human Services Office of Civil Rights (OCR) stated that a vendor has been chosen to perform the second phase of compliance audits under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and that this phase of audits will begin shortly. The audits are intended to ensure that HIPAA covered entities, which includes health care providers, clearinghouses, health plans, and their business associates are in compliance with HIPAA regulations regarding the safeguarding of protected health information (PHI). The first phase of HIPAA audits was conducted in 2011 and 2012. 

According to OCR, the majority of the audits conducted during this second phase will be “desk audits” and will not involve an on-site visit by the auditing official, but OCR will be conducting on-site visits as well. The OCR official also confirmed that the agency is currently verifying contact information for covered entities that will potentially be audited during the second phase. In addition, OCR stated that it will issue an updated audit protocol as the second phase of audits draw nearer. 

HIPAA covered entities, especially those who have been contacted by OCR to verify contact information, should consult with counsel and ensure that they are ready for a potential audit.      

General Developments

SEC Adopts CEO Pay Ratio Disclosure Rule

The Securities and Exchange Commission (SEC) adopted a controversial rule by a vote of 3-2 requiring many public companies to disclose the ratio of their chief executive’s compensation compared to the median compensation of their employees. The rule was mandated by the Dodd-Frank Act and first proposed in September 2013. Since its proposal, the SEC has received over 280,000 comments regarding the rule. 

The SEC states that the final rule provides companies flexibility in calculating median employee compensation for disclosure purposes. For example, the final rule permits a company to use either its entire employee population or a statistical sample for the calculation, exclude up to five percent of its total non-U.S. employees from the calculation, and apply cost-of-living adjustments to the calculation for disclosure purposes. The rule requires calculation of median employee compensation once every three years, with certain exceptions.              

The rule becomes effective for fiscal years beginning on or after January 1, 2017.       

Third Circuit Ruling on Notice of Internal Limitations Period Creates Circuit Split

In a decision that illustrates the importance of including in all claim and appeal denial letters a statement of any internal statute of limitations that a retirement or health plan imposes, the Third Circuit Court of Appeals ruled in Mirza v. Ins. Adm’r of Am., Inc., No. 13-3535 (3d Cir., Aug. 26, 2015) that an ERISA plan denying a claim must provide the claimant notice of the plan’s internal limitations period at the time of the claim denial. In Mirza, the plan administrator, Insurance Administrator of America (IAA), denied a welfare claim brought by Dr. Neville Mirza, a physician, under an assignment from a plan participant. IAA’s plan had an internal statute of limitations of one year. At the time it denied Dr. Mirza’s final appeal, IAA informed Dr. Mirza of his right to seek judicial review, but neglected to inform him of the one-year internal statute of limitations. Dr. Mirza brought suit against IAA nineteen months later, which the district court in the District of New Jersey dismissed as untimely. The Third Circuit reversed, holding that the IAA’s failure to provide the claimant notice of the internal statute of limitations violates ERISA’s claim and appeal regulations. The court ruled that the appropriate remedy in this case was to apply New Jersey’s six-year statute of limitations for breach of contract claims.

The Third Circuit now joins the Sixth and First Circuits in holding that plan administrators must include notice of any internal limitations periods in claim and appeal denial letters. By contrast, the Eleventh and Ninth Circuits have held either that plan administrators need not provide notice of internal limitations periods in claim and appeal denial letters in order to comply with the ERISA claim and appeal regulations, or have declined to consider the issue when it was presented. 

Courts have held an ERISA plan’s internal limitations period is enforceable as a general matter as long as it is unambiguously spelled out in the plan’s governing documents. However, as summarized above, there is a circuit split on whether plans must also provide notice of the limitations period in claim and appeal denial letters.

Providing notice of internal limitations periods in claim and appeal denial letters is easy to do, and we always advise clients to err on the side of caution and include clear and complete notice of a plan’s internal limitations period in every claim and appeal denial letter.      

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Franczek Radelet P.C. | Attorney Advertising

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Franczek Radelet P.C.

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