Tag Archives: Health Plan

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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Year-End Compliance Checklist

Year end complianceIt’s that time of year again—time to cleanup and close-out the 2014 plan year for your ERISA health and retirement plans. The following is an overview of a few compliance items that should be addressed before the close of 2014.

Group Health Plans

This past year was a big year for health plans. With all the changes associated with the Affordable Care Act (“ACA”) and some big announcements by the IRS and the Supreme Court, there are several new items to add to our year-end checklists. Here are a few of the highlights:

  • Health Flexible Spending Accounts.  The IRS recently announced that the health flexible spending arrangement (“Health FSA”) limit for 2015 was increased to $2,550. Additionally, as announced last year, Health FSAs continue to be permitted to offer limited rollovers of up to $500.
  • New COBRA Notices.  COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, requires group health plans to provide qualified beneficiaries with an election notice that describes their rights to continuation coverage and how to make an election. The election notice must be provided to these individuals within 14 days of the date the plan administrator receives the notice of a qualifying event. The Department of Labor (“DOL”) recently issued new model COBRA notices that reference the ACA Marketplaces (or “exchanges”). Accordingly, employers should modify their COBRA notices and include this new language going forward.
  • Health Reimbursement Arrangements.  The IRS continues to maintain that certain health reimbursement arrangements which operate independently of group health plans must be re-designed or terminated by January 1, 2014. Employers providing reimbursement for individual health insurance policies or other medical care should review their plan design to ensure the arrangement remains permissible.
  • DOMA.  On June 26, 2013, the Supreme Court of the United States ruled in the well-publicized United States v. Windsor that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional. As a result, the IRS and the DOL declared that employee benefit plans must now treat same-sex spouses in the same manner as opposite-sex spouses. To this end, plan sponsors should review the plan documents and gather information to determine the impact of this guidance. Specifically, plans should update eligibility provisions, adjust imputed income practices and review plan definitions of “spouse” to ensure compliance before year end.
  • HIPAA.  In January 2013, the government released final HIPAA regulations which became effective September 23, 2013. Sponsors of group health plans should review and update their plan’s HIPAA materials as necessary to ensure compliance with the new regulations. This review should include the plan’s HIPAA Privacy Notice, Business Associate Agreements and HIPAA Privacy Policies.

Sponsors of group health plans should continue focus their efforts on getting ready for the full onset of the ACA’s employer mandate. Under the mandate, large employers will be subject to significant penalties if they fail to offer health coverage or fail to offer sufficient health coverage to their full-time employees. Employers should have measurement periods in place and should continue to examine their workforce, particularly part-time and/or seasonal employees, in order to finalize their health care reform strategies for 2015.

Retirement Plans

Although the ACA has dominated the employee benefits news this past year, plan sponsors of retirement plans are equally affected by the Supreme Court’s ruling on DOMA. Additionally, retirement plans are subject to a variety of annual disclosure obligations. Here are a few of the year-end compliance highlights:

  • Safe Harbor 401(k) Plans.  Plan sponsors of safe harbor 401(k) plans must provide all participants an annual notice describing the employer’s safe harbor contributions. This notice must be provided to participants at least 30 days (but not more than 90 days) before the first day of the plan year. For most plans, the notice was due December 1, 2014.
  • Automatic Enrollment Features.  Plans that automatically enroll participants are required to provide participants with an annual notice describing the plan’s enrollment and contribution features. This notice must be provided to participants at least 30 days (but not more than 90 days) before the first day of the plan year. For most plans, the notice was due December 1, 2014.
  • Funding Notice for Defined Benefit Plans.  Defined benefit plans are required to provide participants with a funding notice summarizing the plan’s assets and liabilities, its funding status for the previous two years and certain other information. The notices are due no later than 120 days after the close of the plan year. For most large plans, the notice must be provided by April 30, 2015.
  • Qualified Default Investment.  Where participants are allowed to direct their own investments, defined contribution plans are allowed to select a “qualified default investment” in which participants’ assets will be invested if the participant does not select an investment option. The plan sponsor must give participants notice of the plan’s qualified default investment. This notice must be provided to participants at least 30 days (but not more than 90 days) before the first day of the plan year. For most plans, the notice was due December 1, 2014.
  • DOMA.  Pursuant to the Supreme Court ruling and guidance from the IRS, same-sex spouses must be treated as lawful spouses for purposes of maximum benefit limitations, spousal consent rules, rollovers, death benefits, minimum required distributions, availability of in-service hardship withdrawals and assignment of benefits under qualified domestic relations orders. At a minimum, plan sponsors should review the plan documents, policies and procedures to determine whether additional amendments are needed to reflect these changes.

Complying with the IRS and the DOL notice requirements is an important part of the plan administration process. Furthermore, penalties for noncompliance can be significant. Penalties for noncompliance generally begin at $100 per day per affected participant or beneficiary.

Compliance Assistance

We understand this is a busy time of year for many of our clients and that it’s easy to overlook small details. If you have any questions regarding the above items or have any related compliance questions, be sure to contact your McGrath North attorney.

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