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The IRS has released the 2020 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans. Plan sponsors should update their systems and formulas to include the limits that have been adjusted.

The IRS has released the 2020 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans. Plan sponsors should update their systems and formulas to include the limits that have been adjusted.

To view the chart, click here.

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New “Notice And Access” Safe Harbor Allows Employers To Ditch Paper Disclosures For Retirement Plans


On October 22, 2019, the Department of Labor (“DOL”) released proposed regulations updating the electronic disclosure rules for ERISA notices. Given the significant advances in technology over the last decade, employers have long-awaited a meaningful update to the current, outdated electronic disclosure safe harbor. Although employers may continue to provide paper notices to employees, the DOL anticipates that most employers will migrate to the new, proposed safe harbor for electronic disclosure of ERISA notices. The new safe harbor is expected to create efficiency, increase participant awareness, and result in cost savings for employers. The only downside¾the safe harbor does not apply to health and welfare plans.

What disclosures are impacted by the rule?

The new safe harbor can be used for any ERISA notices required to be distributed to pension benefit plan participants, other than those documents only required to be furnished upon request. In other words, pension benefit statements, Safe Harbor Notices, QDIA Notices, fee disclosures, summary annual reports, and other documents required to be furnished solely because of the passage of time may be disclosed electronically under the new safe harbor. However, disclosures such as the plan document, terminal report, trust agreement, and other documents that only need be to be furnished upon request cannot utilize the new safe harbor for disclosure.

Curiously, the safe harbor only applies to pension benefit plans, as defined in ERISA Section 3(2), including defined contribution (e.g., 401(k) plans) and defined benefit (e.g., pension) plans. The safe harbor does not apply to “employee welfare benefit plans,” which means that group health plans, disability plans, and other health and welfare plans must continue to rely on the old electronic disclosure regulations. The DOL expressed concern about the safe harbor as applied to group health plans, given the special considerations relating to issues such as pre-service claims review, access to emergency health care, and more.

Who can receive retirement plan disclosures electronically?

Participants, beneficiaries, or other individuals (“Covered Individuals”) entitled to ERISA notices can receive the notices electronically if: (1) they provide the employer, as a condition of employment or at the beginning of plan participation, with an e-mail address or smartphone telephone number; (2) they are assigned an e-mail address by the employer; or (3) they are given an internet-based mobile computing device by the employer.

Internet-based mobile computing devices include smartphones with data plans, laptops, tablets, or similar devices. The DOL does not want to specifically limit the regulations to any particular devices, as technology changes quickly over time and they want to avoid ending up with outdated regulations.

What are the notice and access requirements?

The “notice and access” safe harbor requires just that: delivery of a specific notice of internet availability and compliance with certain minimum standards concerning the availability of and access to the notices. A notice of internet availability must comply with certain content requirements and must be furnished electronically to the Covered Individuals no later than the time the notice is available on the internet/website. In other words, if a notice is due to participants on January 1st and is uploaded to the company website on such date, the notice of internet availability must be provided to Covered Individuals on January 1st. For an employer that chooses to provide all notices at the same time each year, the notice of availability must only be provided each plan year, and no more than 14 months following the date the prior plan year’s notice was furnished.

The “access” prong of the safe harbor requires that employers comply with the following requirements: (1) the employer must ensure the existence of an internet website at which a covered individual is able to access covered documents; (2) the notices must be available on the applicable, required dates; (3) each notice must remain available on the website until it is superseded by a subsequent version of the notice; (4) the notice must be presented on the website in a manner calculated to be understood by the average plan participant (must be “readable”); (5) the notice must be presented in a widely-available format or formats that are suitable to be both read online and printed clearly on paper, and must be “searchable”; (6) the notice must be presented on the website in a widely-available format or formats that allow the covered document to be permanently retained in an electronic format; and (7) the website must protect the confidentiality of personal information relating to the Covered Individuals.

Can a Covered Individual opt out?

Yes.  The safe harbor includes a “global” opt out provision. Covered Individuals may elect to opt out of electronic disclosure and receive all notices in paper. Covered Individuals may also maintain electronic disclosures, but request that the employer furnish them, free of charge, a paper copy of a notice (or all of the notices) as soon as reasonably practicable. For individuals that opt out, the employer must establish and maintain reasonable procedures governing requests or elections for paper copies.

The proposed regulations require employers to send an initial notification of default electronic delivery and the right to opt out to ensure that all participants and beneficiaries accustomed to receiving paper notices are aware of the new method for electronic disclosure and have the opportunity to choose to continue to receive paper copies.

Effective Date

Generally, the proposed regulations will be effective 60 days after publication of a final rule in the Federal Register. The DOL has proposed the new safe harbor apply to employee benefit plans as of the first day of the calendar year following the publication of the final rule. The Department has requested comments with regard to providing an earlier effective date.


For more information on the details of the proposed regulations and implementing the safe harbor going forward, including special rules for severance of employment and other circumstances, please contact Caroline Nelsen at 402-633-9575 or e-mail her at

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Participant Data And Fiduciary Liability: The Current Regulatory Environment, The Vanderbilt Lawsuit, And Best Practices For Benefit Plan Sponsors


With cybersecurity risks on the rise and increased awareness of the sophisticated ability of hackers in the modern world, many plan sponsors have expressed growing concerns that they may have fiduciary liability with respect to protection of participants’ personal information. By now, most plan sponsors have become accustomed to complying the Health Insurance Portability and Accountability Act (“HIPAA”) with respect to participant data within their employer-sponsored health plan. However, employers are not accustomed to applying such standards in the retirement plan context. Given the heightened cybersecurity risks in today’s digital society, employers serving as plan sponsors of retirement and welfare benefit plans should begin to implement policies and procedures to protect participant data and carefully monitor their service providers as they handle participant data.

In recent years, there has been a push for regulation governing protection of personally identifiable information (“PII”) in the retirement plan context. In 2011, an ERISA advisory council that serves as an advisor to the Secretary of Labor issued a report urging the Department of Labor (“DOL”) to issue guidance or regulations relating to the obligation of plan fiduciaries to protect the PII of plan participants and beneficiaries. The counsel expressed concern over insecurity of plan financial data, asking the DOL to provide guidance on whether ERISA fiduciaries must secure PII and develop educational materials for participants. Specific areas of concern included theft of PII or money from accounts, unsecured/unencrypted data, hacking into plan administration and service provider systems, outdated password protections, phishing emails, and stolen hardware. The counsel met again in 2016 and once again urged the DOL to issue guidance and hoped that the report could serve as a reference for plan sponsors to secure plan data and assets from cybersecurity risks.

To date, the DOL has issued no direct guidance on cybersecurity considerations for PII within retirement and welfare plans. However, a new argument has emerged under ERISA fiduciary standards that the “prudent man” rule, exclusive benefit rule, and the obligation to select and monitor service providers include the obligation to maintain the privacy and security of plan data and monitor service providers’ use of the data. Under ERISA, fiduciaries must act prudently, taking the course of action that a similar, prudent man would in like circumstances and with like knowledge. Furthermore, ERISA requires fiduciaries to act only for the exclusive benefit of plan participants and their beneficiaries. Finally, ERISA fiduciaries must prudently select and monitor a plan’s service providers.

Some have begun to use Interpretive Bulletin 96-1 as a reference point to establish a requirement of prudence in service provider selections, including the prudent selection of a service provider that securely maintains electronic plan data. Additionally, one of the arguments in a lawsuit against Vanderbilt University stated that the University failed to protect plan assets by allowing third parties to market services to participants, referring to participant and financial data held by the plan as “plan assets” protected by fiduciary obligations. In that case, the plaintiffs argued that the University allowed the plan’s recordkeeper to obtain access to participants’ private and sensitive information, including investment choices, account information, contact information, proximity to retirement, age, and more, in order to market and sell its own insurance products to participants outside the plan. The plaintiffs claimed that such an action violated the University’s fiduciary duty to work for the exclusive benefit of the participants. Unfortunately, the parties recently came to a settlement agreement before the courts had a chance to rule on whether ERISA protections will apply to personal plan information.

Although there is no direct guidance from the DOL on fiduciary standards as applied to the privacy and security of participant data, it is likely in the coming years the DOL will find that retirement and welfare plan fiduciaries have a responsibility to safeguard participant data in compliance with the prudence standard, given the common knowledge of cybersecurity risks in today’s society. Specifically, plan sponsors should be aware of their duty to monitor service providers and their security measures in place for protecting plan data. Going forward, plan sponsors should implement security policies and procedures relating to the protection of PII and participant data. Some companies have formed cybersecurity committees for purposes of implementing these procedures and increasing awareness internally about the seriousness of cybersecurity. Further, in choosing service providers, plan sponsors should exercise due diligence in questioning the providers’ security measures, breach reporting practices, and contract provisions relating to the protection of plan data.

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HIPAA-Covered Entity Exemption To CCPA, Don’t Be Mistaken – You May Still Have To Comply


With the California Consumer Privacy Act’s (CCPA) compliance deadline fast approaching (January 1, 2020), companies are preparing to comply with the additional complex data privacy and security requirements. HIPAA-Covered Entities may mistakenly overlook the fact that the CCPA does not wholly-exempt personal information collected by HIPAA-Covered Entities, but in turn only exempts information already protected by HIPAA. HIPAA, the Health Insurance Portability and Accountability Act, requires health care organizations, employer-sponsored group health plans, healthcare clearinghouses, and other Covered Entities to ensure the privacy and security of Protected Health Information (“PHI”). Although the CCPA exempts data that constitutes PHI, a HIPAA-Covered Entity or related Business Associate must still protect personal data (or even health data) that is covered by the CCPA but does not satisfy the definition of PHI under HIPAA.

HIPAA-Covered Entity Data Could Be Subject to CCPA

What type of data is governed by HIPAA and, as a result, exempt from the CCPA? PHI is defined as “individually identifiable health information” held or transmitted by a Covered Entity or its Business Associate, in any form or medium, whether electronic, paper, or oral. For example, health information, demographic data, medical histories, test results, and insurance information are forms of PHI if they can reasonably be used to identify a patient. Identifiers coupled with health information such as names, geographic locations, dates, contact information, social security numbers, and more can also constitute PHI. If the data amounts to PHI, that data is exempt from the CCPA.

Not all data collected by a HIPAA-Covered Entity amounts to PHI. For example, employment records held in the hands of an employer (rather than held by the group health plan sponsored by the employer) are not PHI. Any data collected by a HIPAA-Covered Entity that is not PHI will be subject to the CCPA (to the extent the entity is subject to the CCPA). However, the CCPA provides for an exception. When a Covered Entity or health care provider maintains health information in the same manner as PHI, even though the health information is not PHI, the CCPA rules do not apply. That being said, applying HIPAA privacy and security rules to non-PHI could be a burdensome task and cause confusion amongst a Covered Entity’s employee population.

What This Means for HIPAA-Covered Entities

Start your data mapping now. To determine what information is collected that is not protected under HIPAA and, to what extent the CCPA applies to such data, you must understand what categories of information are collected, who it is received from, what’s being done with the data and who it is shared with. From there, you can formulate a CCPA plan that correlates and flows with obligations under HIPAA to ensure efficiencies throughout your data compliance program.

As you are reviewing CCPA application to your entity, reach out to our experienced privacy and ERISA team to partner with you to develop a practical plan that minimizes risk and syncs to your already existing HIPAA obligations. Here is a link for more information about our team: Privacy Team

Want to learn more about CCPA, click here to read Tackling The California Market From The Midwest? What A Business Needs To Know About The California Consumer Privacy Act (CCPA)

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Employee Benefits Statutory Civil Penalties


Calendar Year 2019

The following summary describes the most common penalties applicable to retirement, health, and welfare plans in 2019 through ERISA and other federal laws. This list serves as an important reminder that noncompliance with laws relating to your company’s benefit plans could result in significant penalties.

ERISA Penalties.

  • Furnish Reports. Failure to furnish reports (e.g., pension benefit statements) to certain former participants and beneficiaries or maintain records: $30 per employee.
  • COBRA. Failure to provide an initial COBRA notice or an election notice on a timely basis, as required by COBRA: $110 per day.
  • Form 5500. Failure or refusal to properly file annual Form 5500 report required by ERISA § 104: Up to $2,194 per day.
  • Notification of Benefit Restrictions. Failure to notify participants under ERISA §10(j) of certain benefit restrictions and/or limitations arising under Internal Revenue Code §436: Up to $1,736 per day.
  • Notification of Automatic Contribution Arrangement. Failure to furnish automatic contribution arrangement notice under ERISA §514(e)(3): Up to $1,736 per day.
  • Form M-1. Failure of a multiple employer welfare arrangement to file report required by regulations issued under ERISA §101(g): Up to $1,597 per day.
  • Information Requested by DOL. Failure to furnish information requested by the Secretary of Labor under ERISA §104(a)(6): Up to $156 per day, not to exceed $1,566 per request.
  • Blackout Notice. Failure to furnish a blackout notice under ERISA § 101(i): Up to $139 per day.
  • Right to Divest Notice. Failure to furnish a notice of the right to divest employer securities under ERISA § 101(m): Up to $139 per day.
  • CHIP Notice. Failure by an employer to inform employees of Children’s Health Insurance Program (CHIP) coverage opportunities (each employee is a separate violation): Up to $117 per day.
  • State Coverage Coordination. Failure by a plan administrator to timely provide to any State the information required to be disclosed regarding coverage coordination under ERISA §701(f)(3)(B)(ii); each participant/beneficiary is a separate violation: Up to $117 per day.
  • GINA.
    • Failure by any plan sponsor of a group health plan, or any health insurance issuer offering health insurance coverage in connection with the plan, to meet the requirements of ERISA §§702(a)(1)(F), (b)(3), (c) or (d); or §701; or §702(b)(1) with respect to genetic information: Up to $117 per day during non-compliance period.
    • Minimum penalty for de minimis failures to meet genetic information requirements not corrected prior to notice from the Secretary of Labor: $2,919 minimum.
    • Minimum penalty for failures to meet genetic information requirements which are not corrected prior to notice from the Secretary of Labor and are not de minimis: $17,515 minimum.
    • Cap on unintentional failures to meet genetic information requirements: Up to $583,830.
  • CSEC. Failure of Cooperative and Small Employer Charity Act (CSEC) plan sponsor to establish or update a funding restoration plan: Up to $107 per day.
  • Prohibited Distribution. Distribution prohibited by ERISA §206(e): Up to $16,915 per distribution.
  • SBC Distribution. Failure to provide Summary of Benefits Coverage under Public Health Services Act §2715(f): Up to $1,156 per failure.

Multi-Employer Plans.

  • Failure of a multiemployer plan to certify endangered or critical status under ERISA §305(b)(3)(C) treated as a failure to file annual report: Up to $2,194 per day.
  • Failure to furnish certain multiemployer plan financial and actuarial reports upon request under ERISA §101(k): Up to $1,736 per day.
  • Failure to furnish estimate of withdrawal liability upon request under ERISA §101(l): Up to $1,736 per day.
  • Failure by a plan sponsor of a multi-employer plan in endangered status to adopt a funding improvement plan or a multiemployer plan in critical status to adopt a rehabilitation plan. Penalty also applies to a plan sponsor of an endangered status plan (other than a seriously endangered plan) that fails to meet its benchmark by the end of the funding improvement period: Up to $1,378 per day.

Health Care Reform.

  • Failure to offer coverage to 95% of eligible full-time employees with Minimum Essential Coverage. Penalty applies if one full-time employee receives federal premium subsidy for marketplace coverage: $2,500 per full-time employee (minus the first 30).
  • Failure to offer affordable coverage (less than or equal to 9.56% in 2018 and 9.86% in 2019) or failure to provide “minimum value” coverage (60%+ of total allowed costs): $3,750 per full-time employee receiving a subsidy or $2,500 per full-time employee (minus the first 30).
  • Failure to comply with health care reform mandates: $100 per day.
  • Failure to file a correct 1094 or 1095 or failure to file the information returns on a timely basis: $270 for each return.
  • Failure to furnish correct 1095 payee statement on a timely basis or failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information: $270 for each return.

Miscellaneous Penalties.

  • MHPAEA. Failure to comply with MHPAEA requirements: $100 per day for each individual to whom a failure relates.
  • HIPAA. Failure to comply with HIPAA: Excise tax of $100 per day for each individual to whom the failure relates; civil penalties of $100 to $50,000 per violation, capped at $1.5 million per calendar year.

This summary is not intended to be a comprehensive list of all federal penalties that could apply to an employee benefit plan. Additionally, state and local law penalties are not included in this summary.

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New Flexibility For Health Reimbursement Plans


In an effort to reverse another aspect of the Affordable Care Act (“ACA”), the Trump Administration published a proposed rule in late October that would allow employers to reimburse employees for medical expenses through a stand-alone health reimbursement account (“HRA”).  Health care reform imposes a large excise tax on arrangements that reimburse employees for health care expenses without also providing a group health plan to employees.  The penalty was intended to drive employers to purchase group insurance plans for their employees but posed a huge challenge for small employers who saw such reimbursements as a natural alternative to offering employee health care coverage.  In the wake of rising health care costs, the Internal Revenue Service (“IRS”) recognized the burden such prohibition posed on small employers.  As a result, in 2017, the IRS chipped away at the prohibition by allowing employers with less than 50 full-time employees to offer special stand-alone HRAs, known as “Qualified Small Employer Health Reimbursement Accounts” or “QSEHRAs.”  The government now takes one step further by proposing to allow both small and mid-size employers to offer HRAs to their employees, even if they do not offer traditional group coverage.  The Proposed Rule intends to accomplish two major goals: (1) permit HRAs to be integrated with individual health insurance coverage; and (2) expand the definition of benefits in order to allow reimbursement for stand-alone dental, limited scope vision, and other plans.

i.                     The Proposed Integration Rules

HRAs are tax-free, employer-funded accounts used to pay for out-of-pocket, qualified medical expenses.  HRAs have been part of the health care market for years, but the ACA tried to discourage the use of HRAs to prevent employers from pushing employees with health risks into the individual market.  Currently, employers can only offer an HRA to their employees if it is “integrated” with a major group medical plan sponsored by the employer.  Under the new Proposed Rule, employers would be able to offer HRAs to employees with individual health insurance coverage if certain conditions are met.  For example, under the Proposed Rule, an employer cannot offer a stand-alone HRA and a traditional group health plan to the same group or class of employees.  Additionally, while HRA reimbursement amounts can vary to reflect age-based health coverage pricing, reimbursement amounts cannot vary based on the health-risk posed by the employee.  In other words, the general rule requires that the HRA integrated with individual health insurance coverage be offered on the same terms to all employees of the same class (e.g., full-time, part-time, seasonal, etc.).

ii.                   Limited Excepted Benefits under the Proposed Rule

The Proposed Rule also offers employers the opportunity to offer an HRA to its employees, even if its employees do not have any major medical coverage at all.  Under the Proposed Rule, an HRA will be considered a “limited excepted benefit” exempt from the integration rules if: (1) the HRA is not an integral part of the plan; (2) the HRA does not provide reimbursements in excess of $1,800 per year; (3) the HRA does not reimburse premiums for certain health insurance coverage; and (4) the HRA is made available under the same terms to all similarly situated individuals.  The HRA is not an “integral part of the plan” if the participant is offered the opportunity to enroll in an employer-sponsored group health plan.  Additionally, the HRA cannot reimburse the participant for premiums for individual health insurance coverage, coverage under a group health plan, or Medicare parts B or D.  Rather, the HRA could reimburse employees for premiums for dental plans, limited scope vision plans, or other “excepted benefits.”

iii.                  The Proposed Rule and QSEHRAs

HRAs under the Proposed Rule are different from QSEHRAs.  QSEHRAs have specific, stringent requirements and only apply to employers with less than 50 full-time employees.  However, QSEHRAs have a higher statutory dollar limit on reimbursements.  While an employer-sponsored QSEHRA can reimburse employees up to $5,050 for individuals and $10,250 for families, a stand-alone HRA under the new Proposed Rule can only reimburse employees for up to $1,800 worth of medical expenses.  In other words, some small employers hoping to reimburse employees up to the highest dollar amount available might find that QSEHRAs are a more attractive option.  Another difference between QSEHRAs and the stand-alone HRAs under the Proposed Rule is the ACA consequences applicable to employers.  Under the Proposed Rule, if group health plan coverage is unaffordable for an employee enrolled in the stand-alone HRA, the employer will be subject to ACA penalties if the employee opts out of coverage and qualifies for a premium tax credit subsidy.  In contrast, QSEHRAs do not impose penalties on employers if the reimbursements do not make health coverage “affordable,” because small employers eligible to establish QSEHRAs are not subject to the pay-or-play mandate.

If you have any questions about the HRAs, QSEHRAs, or the new Proposed Rule, please contact one of our employee benefits attorneys.

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The IRS has released the 2019 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans.  Plan sponsors should update their systems and formulas to include the limits that have been adjusted.

To view the chart, click here.

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Tax Reform Incorporates Employer Credit For Offering Paid FMLA


In light of the current trend toward state-mandated paid family and medical leave laws, recent tax reforms added a provision to the tax code allowing certain employers to claim a business credit based on wages paid to employees on family and medical leave, subject to certain conditions. The new provision, added by the Tax Cuts and Jobs Act, offers a general business credit of up to 25% of wages paid to certain qualifying employees while they are on family and medical leave. The credit will incentivize employers to offer paid family and medical leave, which will also help prepare employers for impending state and local paid leave laws. The credit is generally effective for wages paid in taxable years beginning after December 31, 2017 and is not available for wages paid in taxable years beginning after December 31, 2019. Therefore, employers interested in utilizing the credit should act quickly in the event Congress does not act to extend the credit beyond 2019.

The employer tax credit is calculated as a percentage of the amount of wages paid to a qualifying employee while on family and medical leave (as defined by the Family and Medical Leave Act of 1993 or “FMLA”) for up to 12 weeks per tax year. The credit is available only if the rate of pay for employees on leave is at least 50% of the employee’s normal wages. The credit is a minimum of 12.5% of the wages paid during leave and is increased by 0.25% for each percentage point by which the amount paid to a qualifying employee exceeds 50% of the employee’s wages (up to a maximum credit of 25% of wages paid).

A qualifying employee is any employee under the Fair Labor Standards Act who has been employed for one year or more and, for the preceding year, had compensation that did not exceed the maximum statutory amount. For an employer claiming a Section 45S credit for wages paid to an employee in 2018, the employee must not have earned more than $72,000 in 2017. Employers taking advantage of the credit must reduce deductions for wages and salaries paid or incurred by the amount determined as a credit. Additionally, any wages taken into account for other general business credits may not be used toward the paid family and medical leave credit.

In order to take advantage of the credit, employers must establish written policies and procedures that operate in accordance with the requirements of the new Internal Revenue Code Section 45S as added by the Tax Cuts and Jobs Act. For example, each year, employers must provide at least two weeks of paid family and medical leave to all full-time qualifying employees, and prorate the same benefits for employees working part-time. Additionally, as noted above, whatever paid leave is offered by the employer cannot be paid at less than 50% of the wages the employee normally receives. Employers can offer up to 12 weeks of paid leave annually under their written policies. The credit is available to employers that are not subject to the FMLA, so long as the employer offers paid family and medical leave consistent with the credit’s minimum standards and establishes a written policy governing the leave.

For purposes of the paid leave credit, “family and medical leave” includes leave taken for any of the following reasons: childbirth; placement of a child for adoption or foster care; caring for a spouse, child, or parent with a serious health condition; a serious health condition causing an employee to be unable to perform his or her work functions; qualifying events due to a spouse’s, child’s, or parent’s coverage on active duty or called to duty in the Armed Forces; or, caring for a spouse, child, parent, or next of kin that is a service member. However, employers should recognize that paid vacation leave, personal leave, or medical or sick leave provided by the employer will not be considered family and medical leave unless it specifically covers one of the aforementioned events. Additionally, leave provided under state and local law may not be included in calculating the employer credit. In other words, the Section 45S credit is unavailable regarding paid leave that is required under state or local law.

The IRS intends to provide employers with more guidance on the employer tax credit, including information on how paid family and medical leave will interact with other employer-provided paid leave, state and local leave laws, controlled group rules, and more. Until the IRS issues further guidance, please contact one of the McGrath North Employee Benefits or Labor and Employment attorneys with any questions or concerns.

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New Health Plan Opportunities for Small Businesses


Under new guidance, small businesses now have more opportunity to offer affordable health care coverage to their employees. In June, the Department of Labor issued a Final Rule on Association Health Plans (AHPs) that will allow small employers to group together to buy insurance. The Final Rule is intended to help small businesses and self-employed individuals obtain health care coverage at a lower cost and increase their bargaining power with insurance companies.

The new rules focus on how ERISA defines “employer” for purposes of sponsoring a health plan. Under ERISA Section 3(5), the term “employer” is defined as “. . . any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” Under ERISA, bona fide employer groups or associations could sponsor a joint welfare plan only by satisfying a very high standard.  Specifically, employers intending to establish an association benefit had to demonstrate both a commonality of interests unrelated to providing benefits and a certain level of control over the plan and trust. Employers were prohibited from banding together for the sole purpose of establishing a welfare benefit plan.  If an association or group of employers could meet these criteria, the association or group would be treated as an employer sponsoring a single health plan for its employer members and the plan will be regulated as a group health plan under ERISA.

The Final Rule expands the definition of employer for this purpose and, among other things, allows sole proprietors to participate in AHPs. Under the Final Rule, a bona fide group or association of employers will be treated as a single employer sponsoring a single health plan for its employer members (an AHP) if the following criteria are met:

  1. Purpose. The primary purpose may be to offer health coverage to employer members and their employees only if there is one substantial business purpose for the association that is unrelated to the provision of health coverage. A substantial business purpose exists if the group or association would be a viable entity absent the sponsorship of the health plan. Substantial business purposes include promoting common business or economic interests of a trade or community, and do not have to be for-profit.
  2. Employer Members Acting Directly As Employers. Each employer member must act directly as an employer of at least one employee participating in the plan.
  3. Organizational Structure. The employer members must have a formal organizational structure, including a governing body and bylaws (or similar formality).
  4. Control. The employer members must maintain control over the functions and actions of the association, as well as what employers may become employer members and participate in the plan.
  5. Commonality of Interest. The employer members must either be in the same trade or industry, or maintain their principal place of business in the same state or metropolitan area. A metropolitan area may include more than one state if the metropolitan area sprawls across state lines.
  6. Participation. Participation in the plan must be limited to the employees or former employees (and their beneficiaries) of employer members.
  7. Nondiscrimination. The plan must comply with ERISA’s group health plan nondiscrimination rules governing eligibility conditions, premiums, and contributions. Additionally, the plan cannot condition employer membership on a health factor of an individual who might become eligible to participate.
  8. Sponsor Cannot be a Health Insurance Issuer. The group or association sponsoring the plan cannot be a health insurance issuer or owned or controlled by a health insurance issuer. However, health insurance issuers can participate in the group or association as an employer member.

The Final Rule also expressly allows “working owners” to receive dual treatment as an employer and an employee simultaneously, which permits working owners to participate in AHPs. For purposes of the Final Rule, a “working owner” includes anyone who: (1) has an ownership right in a trade or business (including partners and self-employed individuals); (2) earns wages or self-employment income; and (3) either works 20 hours per week (80 hours per month) or earns wages that cover the working owner’s cost of coverage.

Finally, the Final Rule ensures that no joint-employer liability attaches to the employer members sponsoring an AHP. The Final Rule states “nothing in the final rule is intended to indicate that participating in an AHP sponsored by a bona fide group or association of employers gives rise to joint employer status under any federal or State law, rule or regulation.”

For fully-insured health plans, the rule will take effect starting September 1, 2018. New self-insured AHPs may operate under the new rule starting on April 1, 2019, and for any existing, self-insured AHPs the rule will be effective January 1, 2019.

If you have any questions regarding the Final Rule or AHPs, please contact one of our employee benefits attorneys.

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A Brief Overview of the SEC Proposed Fiduciary Rule Package


After the 2016 publication of the Fiduciary Rule by the Department of Labor (“DOL”), and subsequent Fifth Circuit ruling casting doubt on such rule, the U.S. Securities and Exchange Commission (“SEC”) proposed two rules and an interpretation in order to clarify and provide an overview of the standards of conduct for investment professionals.  On April 18, 2018, the SEC published proposed rules targeting broker-dealers and investment advisers.  In publishing these rules and the interpretation, the SEC aims to raise the standard of conduct for broker-dealers when they provide recommendations to retail investors and reaffirm and clarify the terms of relationships that retail investors have with their investment professionals.  Additionally, the SEC seeks to preserve retail investor access investment services and products, as well as raise retail investor awareness of whether they are a transaction with registered financial professionals.

The SEC is requesting comments on its proposal over the next 90 days.  In general, the SEC rule tracks the principles of the DOL fiduciary rule fairly closely and seems to indicate that the SEC was motivated by elements of the DOL rule and ensuring that broker-dealers are subject to more uniform standards (e.g., best interest standards) without regard to the type of assets at issue (retirement versus non-retirement assets).

The SEC released Fiduciary Rule guidance for Investment Professionals that fills various gaps between investor expectations and legal requirements.  The SEC rule contains three major proposals:

1. “Regulation Best Interest.”  This proposed rule clarifies that broker-dealers shall not put their financial interests ahead of the retail customers’ interests in making recommendations on any securities transaction or investment strategy involving securities to retail customers.

a.  Disclosure Obligation:  Disclose to the retail customer the key facts about the relationship, including material conflicts of interest.
b.  Care Obligation:  Exercise reasonable diligence, care, skill, and prudence, to understand the product; have a reasonable basis to believe that the product is in the retail customer’s best interest; and have a reasonable basis to believe that a series of transactions is in the retail customer’s best interest.
c.  Conflict of Interest Obligation:  Establish, maintain and enforce policies and procedures reasonably designed to identify and then, at a minimum, to disclose and mitigate, or eliminate, material conflicts of interest arising from financial incentives; other material conflicts of interest must be at least disclosed.

2.  “Form CRS.”  The SEC would require both investment advisers and broker-dealers to provide retail investors a relationship summary, which is a standardized disclosure document no more than 4 pages in length that highlights the principal services offered, legal standards of conduct that apply, fees the customer will pay, and conflicts of interest that exist (among other things).
3.  Commission Interpretation of Investment Adviser Standard of Conduct.  The SEC has proposed its interpretation of the fiduciary duty investment advisers owe to their clients in hopes that the interpretation will reaffirm and clarify the principles relevant to fiduciary duty and related legal obligations.

If you have any questions or concerns regarding the new SEC proposed rules and interpretation, please contact one of our employee benefits attorneys.

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