PPI in the News Compliance Corner - February 3, 2022 Archive
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On December 28, 2021, the Eleventh Circuit Court of Appeals (Eleventh Circuit) affirmed a lower court’s decision granting summary judgment in favor of Allstate Insurance Company (“Allstate”) in an ERISA class action lawsuit. The case, Klaas v. Allstate Ins. Co., was brought by two groups of retirees who challenged Allstate’s decision to stop paying their life insurance premiums.

For several decades, Allstate offered eligible employees life insurance benefits that continued into retirement. The summary plan descriptions (SPDs) provided to employees described the retiree life insurance benefits as “provided at no further cost” to the retiree. Additionally, employer representatives described the benefits, both orally and in writing, as “paid up” and “for life.” However, the SPDs contained reservation-of-rights provisions that allowed Allstate to change, amend or terminate the plan at any time. The SPD language also specified that participants and beneficiaries did not have vested rights in the plan’s benefits.

In 2013, Allstate decided to stop paying the life insurance premiums for employees who retired after 1990. Allstate chose 1990 as the cut-off date because no SPD before that time contained a reservation-of-rights provision. The change was scheduled to take effect at the end of 2015 and was communicated in advance to the affected retirees. In response, the retirees brought the ERISA class action lawsuits, in which they claimed Allstate denied plan benefits to which they were entitled and violated fiduciary duties by making written and oral misrepresentations about the benefits.

The lower court granted summary judgment in Allstate’s favor on both claims. The retirees appealed the decisions to the Eleventh Circuit, which affirmed the lower court’s ruling.

The Eleventh Circuit’s decision centered upon the language of the SPD, which they noted was statutorily established by ERISA as the primary document for communicating the plan benefits and terms to participants. In the court’s opinion, the SPD language “unambiguously” gave Allstate the right to change, amend, or terminate the plan at any time. As a result, the court found it unnecessary to consider extrinsic evidence, such as representations by Allstate employees, to interpret the SPD terms. The SPD also explicitly stated that employees did not have vested rights to plan benefits. Accordingly, the court concluded that the retirees failed to demonstrate a denial of any benefits due under the plan terms. Additionally, the court found the retirees’ breach of fiduciary duty claims time barred.

For employers, the opinion emphasizes the importance of ensuring the SPD language clearly reflects when plan benefits are non-vested and subject to future change or cancellation. The decision also serves as a reminder that employer benefit communications, whether oral or in writing, should be consistent with the SPD.

202014104.pdf (uscourts.gov) »

On January 14, 2022, the DOL published a final rule adjusting civil monetary penalties under ERISA. The annual adjustments relate to a wide range of compliance issues and are based on the percentage increase in the consumer price index for all urban consumers (CPI-U) from October of the preceding year. The DOL last adjusted certain penalties under ERISA in January of 2021.

Highlights of the penalties that may be levied against sponsors of ERISA-covered plans include:

• Failure to file Form 5500 maximum penalty increases from $2,259 to $2,400 per day that the filing is late
• Failure to furnish information requested by the DOL penalty increases from $159 to $161 maximum per day
• Penalties for a failure to comply with GINA and a failure to provide CHIP notices increase from $120 to $127 maximum per day
• Failure to furnish SBC penalty increases from $1,190 to $1,264 maximum per failure
• Failure to file Form M-1 (for MEWAs) penalty increases from $1,644 to $1,746 per day

These adjusted amounts are effective for penalties assessed after January 15, 2022, for violations that occurred after November 2, 2015. The DOL will continue to adjust the penalties no later than January 15 of each year and will post any changes to penalties on their website.

To avoid the imposition of penalties, employers should ensure ERISA compliance for all benefit plans and stay updated on ERISA’s requirements. For more information on the new penalties, including the complete listing of changed penalties, please consult the final rule below.

Final Rule »

The DOL, Department of the Treasury and HHS recently released the 2022 Mental Health Parity and Addiction Equity Act (MHPAEA) Report to Congress, which is delivered every two years. In conjunction with the report, the DOL’s EBSA published a fact sheet summarizing MHPAEA enforcement efforts for fiscal year 2021.

The EBSA Fact Sheet provides general statistics related to group health plans. EBSA estimates there are two million employment-based group health plans covering 137 million participants and beneficiaries. EBSA is tasked with enforcing the MHPAEA with respect to those plans. This is accomplished through approximately 340 investigators and 100 benefit advisors. Benefit advisors provide education and compliance assistance to participants. Advisors may work with plans on voluntary compliance related to a specific incident, whereas investigators review the overall plan design and work with the fiduciaries and administrators on broader plan compliance issues.

In fiscal year 2021, EBSA benefit advisors answered 175 public inquiries related to MHPAEA, of which 144 were complaints. Overall, EBSA investigated and closed 148 plan investigations. Only half of those were subject to MHPAEA. All those plans were reviewed for compliance, and 14 violations were discovered related specifically to financial requirements:

• Cost-sharing (including deductibles, coinsurance, copayments, out-of-pocket limits)
• Quantitative treatment limits (such as number of visits, days in a waiting period, days of coverage)
• Non-quantitative treatment limits (a non-numerical limitation on benefits, such as pre-certification approval procedures)

CMS is also involved in the enforcement of MHPAEA with respect to non-federal governmental group health plans and health insurers selling fully insured group health products in states that do not enforce the MHPAEA. In this role, CMS received three MHPAEA-related complaints in fiscal year 2022. CMS caseworkers reviewed and found no violations. Additionally, CMS closed four market conduct examinations and reviewed four non-quantitative treatment limit (NQTL) analyses, as required by the CAA. Regarding the market conduct examination of an insurer, CMS cited one violation related to financial requirements that resulted in a payment of benefits and interest totaling $5,309.23. CMS cited no violations related to the NQTL reviews.

The EBSA Fact Sheet did not include statistics related to cases including the NQTL comparative analyses because those reviews have not yet been closed. However, the more detailed Congressional Report includes a summary of current findings. The NQTL comparative analysis from 156 plans and issuers were reviewed, and each one was initially found insufficient in the information provided. The report indicates that the following were the most common deficiencies:

• Failed to identify the benefits, classifications or plan terms to which the NQTL applies.
• Failed to describe in sufficient detail how the NQTL was designed or how it is applied in practice to MH/SUD benefits and medical/surgical benefits.
• Failed to identify or define in sufficient detail the factors, sources and evidentiary standards used in designing and applying the NQTL to MH/SUD and medical/surgical benefits.
• Failed to analyze in sufficient detail the stringency with which factors, sources and evidentiary standards are applied; and/or
• Failed to demonstrate parity compliance of NQTLs as written and in operation.

The EBSA also obtained sufficient information to make initial compliance determinations that 30 plans had non-compliant NQTLs. In other words, they were immediately found to violate MHPAEA.

The most commonly occurring violation was the limitation or exclusion of applied behavioral analysis (ABA) therapy or other services to treat autism spectrum disorder. This violation was discovered in an EBSA investigation of a third-party administrator (TPA) providing claims administration services to self-insured group health plans. This TPA defaulted to a plan design where ABA treatment was an excluded benefit, and an employer had to opt in for such coverage. As a result, hundreds of their employer clients excluded ABA treatment. The EBSA considers this exclusion to be a potential violation of the MHPAEA. After working with the EBSA, the TPA will default its platform to include coverage for ABA treatment allowing an employer to opt out only if it affirmatively states that it wishes to retain the exclusion, has consulted with legal counsel concerning the exclusion, and wishes to contend that the exclusion is compliant with MHPAEA.

Employers should be aware of the EBSA’s efforts to make sure that benefit plans comply with the MHPAEA. The report includes many other specific examples of plan designs that are a red flag to the EBSA. If an employer identifies a potential risk with their plan, they should contact their consultant and work with outside counsel and the respective carrier to review and resolve as necessary.

EBSA MHPAEA Enforcement Fact Sheet »
2022 MHPAEA Report to Congress »

The DOL, IRS and HHS recently released a process guide for certified independent dispute resolution (IDR) entities with detailed guidance on the various aspects of the Federal IDR process under the No Surprises Act (the Act) that took effect on January 1, 2022. The Act was enacted as part of the Consolidated Appropriations Act, 2021 (CAA) passed by Congress in late 2020.

Under the No Surprises Act, providers are prohibited from imposing balance bills for emergency services and air ambulance services provided by out-of-network providers, as well as nonemergency services provided by out-of-network providers at in-network facilities in certain circumstances (e.g., an out-of-network anesthesiology or radiology service provided at an in-network healthcare facility). As an integral part of the Act, the regulations established the Federal IDR process for out-of-network providers, plans and insurers to resolve payment disputes if the parties cannot agree on the payment amount after they attempt to hold an open negotiation.

The guide includes information on how the parties to a payment dispute may initiate the Federal IDR process. Additionally, it describes the detailed requirements of the Federal IDR process, such as the associated fee that the participating parties are responsible for paying and the procedures the certified IDR entities must follow in making a payment determination. Moreover, the guide describes certified IDR entities’ requirements to fulfill confidentiality standards, record keeping requirements and the process for revocation of IDR certification. The guide also explains how parties may request an extension of certain time periods for extenuating circumstances.

(For more information on the Act and the interim final rules, see the articles published in the July 8, 2021, November 11, 2021 and January 19, 2022 editions of Compliance Corner.)

Employers, particularly self-insured plan sponsors, should be aware of the new Federal IDR process.

Federal Independent Dispute Resolution (IDR) Process Guidance for Certified IDR Entities (December 2021) »

On January 13, 2022, the IRS released a draft of the 2022 Publication 15-A, the Employer’s Supplemental Tax Guide. This publication supplements Publication 15 and contains specialized and detailed employment tax information. The IRS updates Publication 15-A each year to incorporate any recent administrative, reporting or regulatory changes.

The 2022 updates include information on the redesigned Form W-4P and the new Form W-4R. Form W-4P will now be used to request withholding on periodic pension or annuity payments. The new Form W-4R will be used to report additional withholding on nonperiodic payments and eligible rollover distributions. Although the new versions of these forms are available in 2022, the IRS does not require their use until January 1, 2023.

The publication also announces that the rate of social security tax on taxable wages paid in 2022 for qualified sick and family leave taken after March 31, 2021, and before October 1, 2021, is 6.2% each for the employer and employee or 12.4% for both. Qualified sick and family leave wages paid in 2022 for leave taken after March 31, 2020, and before April 1, 2021, aren’t subject to the employer share of the social security tax; therefore, the tax rate on those wages is only 6.2%.

Although the IRS will finalize this form, employers should be aware of the availability of the updated publication and most recent modifications.

Draft Publication 15-A »

On January 18, 2022, the IRS released Notice 2022-6, which provides updated guidance regarding when payments from qualified retirement plans (including 401(k) plans) are considered substantially equal periodic payments that are not subject to the 10% premature withdrawal tax on early distributions. Notice 2022-6 modifies and supersedes Revenue Ruling 2002-62.

Substantially equal period payments are plan distributions based on the life expectancy of the account owner (or account owner and beneficiary) that must be taken at least annually. Three methods are available to calculate the payment amounts:

1. The required minimum distribution (RMD) method
2. The fixed amortization method
3. The fixed annuitization method

Generally, the payments must continue unchanged until the later of five years or until the account owner reaches age 59½.

Notice 2022-6 does not substantially change these distribution methods but provides certain related clarifications and modifications. For example, the guidance explains that for an account owner using the RMD or fixed amortization method, the new life expectancy tables (issued in 2020) should be used for any series of payments beginning on or after January 1, 2023, and may be used for payments beginning in 2022. Additionally, an account owner that begins payments before 2023 using the RMD method may switch to an updated life expectancy table without such change being treated as a modification of payments.

The notice also updates the interest rate that may be used to apply the fixed amortization method or the fixed annuitization method. As modified, the maximum rate is the greater of 5% or 120% of the federal midterm rate.

Furthermore, the notice provides guidance on the determination of the account balance used to apply the fixed amortization and fixed annuitization method. Specifically, the account balance on any date within the period that begins on December 31 of the year prior to the date of the first distribution and ends on the date of the first distribution will be treated as determined in a reasonable manner.

Sponsors of qualified retirement plans that permit periodic payments after employment termination should be aware of this update and consult with their service providers regarding implementation.

N-2022-06 (irs.gov) »

On January 24, 2022, the Supreme Court of the United States held that the District Court and Seventh Circuit Court of Appeals erred in dismissing the petitioner’s case in Hughes v. Northwestern University. The Court rejected the notion that participants’ having the authority to choose their investments excuses allegedly imprudent fiduciary decisions.

The petitioners in this case were Northwestern University employees that participated in two defined contribution plans offered by the university. They alleged that the plan fiduciaries (1) failed to monitor and control recordkeeping fees, resulting in high plan costs to participants; (2) offered several mutual funds and annuities in retail share classes instead of otherwise identical institutional shares that generally come with lower fees; and (3) offered too many investment options, causing confusion among participants that led to poor investment decisions.

The District Court and Seventh Circuit focused on the fiduciaries’ duty to provide participants with a diverse menu of investment options. They specifically determined that the respondents had provided several low-cost index fund options, which meant that plan participants were not forced to pick the higher-cost investments.

However, the Court stated that the District Court and Seventh Circuit erred in indicating that the participants’ choice over their investments excused the respondents’ alleged violation of the duty of prudence. Instead, the Court reasoned that the courts should’ve considered the precedence set by Tibble vs. Edison Int’l. In Tibble, the Court explained that plan fiduciaries have an ongoing requirement to monitor investments and to remove any imprudent investment from the plan, even when the participants can choose between investment options.

As such, the Court vacated the lower courts’ decision and remanded the case to the Seventh Circuit for it to reevaluate the allegations considering the precedence set by Tibble.

Retirement plan sponsors should take this holding as confirmation that the requirement to monitor and even reconsider plan investments remains. They should work with plan advisors to ensure that they are meeting their fiduciary obligations regarding investment options.

Hughes v. Northwestern University »

Employers must report the creditable status of their prescription drug plan coverage to the Centers for Medicare & Medicaid Services (CMS) within 60 days after the start of the medical plan year (policy year or contract year, regardless of the ERISA plan year).

Plan sponsors must also provide the Notice to Part D Eligible Individuals on the occurrence of five different events:

• On an annual basis prior to October 15 (the first day of the Medicare enrollment period). Thus, the notice must be provided no later than October 14 each year.
• Prior to an individual's initial enrollment period for Part D. For most individuals, the initial enrollment period for Part D is generally concurrent with the initial enrollment period for Part B, which is the seven-month period that begins three months before the month an individual first meets the eligibility for Parts A and B and ends three months after.
• When the individual originally becomes eligible under the group plan. Upon a change in the plan's creditable status, including termination of the prescription drug plan. Timely delivery of the notice allows the individual the opportunity to enroll in Part D if creditable coverage is lost and avoid late enrollment penalties.
• Upon an individual's request.

There are no specific penalties for failing to provide these notices (at least currently), and CMS does not have a process for correcting if a plan fails to provide them. The only specified penalty relates to a retiree plan attempting to receive the retiree drug subsidy. Such a plan would be denied the subsidy if it had not complied with the required Medicare Part D notifications. Note also that plan sponsors have a fiduciary duty under ERISA to comply with all federal laws related to their plans.

However, the real issue here is that Medicare eligible individuals could have delayed enrollment in Part D because they believed their coverage to be creditable based on an incorrect or missing notice. The individual could be penalized when they go to enroll in Medicare. This is because a Medicare eligible individual can only delay Part D (without penalty) if they have creditable coverage. If they have gone without creditable coverage for 63 days or more, they will be limited as to when they can enroll in Part D (annual enrollment starting October 15) and will receive a premium penalty based on the number of months that they did not have creditable coverage.

If an employer failed to provide these disclosures in the past, then they should consider distributing these disclosures as soon as possible and make sure that they are distributed in a timely manner going forward.

On January 19, 2022, Commissioner Conway adopted Emergency Regulation 22-E-03. This regulation creates a special enrollment period in the state that allows enrollment in an individual health benefit plan from January 16, 2022, through March 16, 2022. The commissioner adopted this emergency regulation in response to local wildfires and the rise of the Omicron variant. Any coverage provided by an individual health plan that a person enrolls in during this special enrollment period will have an effective date of the first day of the month following plan selection.

Employers should be aware that this special enrollment period is for qualified individuals applying for new coverage. It does not apply to employees who are enrolled in the employer’s group health plan (if the plan complies with the ACA), absent a separate triggering event.

Emergency Regulation 22-E-03 »

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