PPI in the News Compliance Corner - May 2, 2018 Archive
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On April 29, 2019, the DOL published a statement regarding the March 28, 2019, district court ruling that invalidated major provisions of the DOL’s final rules on association health plans (AHPs). See our article on the ruling in the April 4, 2019, issue of Compliance Corner. In that decision, the U.S. District Court for the District of Columbia held that the DOL’s AHP rules violated ERISA by impermissibly expanding the scope of AHPs (which are considered multiple employer welfare arrangements, or MEWAs, under ERISA). Until recently, the DOL had not indicated whether it would appeal the decision or request a stay on the holding (meaning the court’s ruling would be on hold pending the appeal — this is a common request made to prevent a court’s ruling from taking effect while issues are still being litigated in court).

The DOL now indicates that it has appealed the ruling. However, at this point there’s no indication that the DOL has requested or that the court has granted a stay. As a result, the court’s ruling is in effect, meaning associations cannot form self-insured AHPs under the new rule. In addition, AHPs that had already formed pursuant to the DOL’s final AHP rules should be paying claims but, going forward, should not be marketing to new enrollees (particularly sole proprietors as so-called “working owners”). According to the DOL’s statement, employers participating in insured AHPs can generally maintain that coverage through the end of the plan year or, if later, the contract term; this is meant to help employees keep their coverage in force. That intention seems to indicate the DOL’s focus on ensuring that participants and beneficiaries are paid health benefit claims as promised.

To that end, the statement also indicates that carriers must generally continue the coverage in force for each participating employer and its covered employees at the employer’s option through the end of the plan year. Then, at the end of the plan year, the carrier would only be able to renew the coverage for an employer member of an AHP if the coverage complies with the relevant market requirements for that employer’s size. This would revert the rating rules to the old DOL rules — making it much more difficult for AHPs to have large group status for ERISA application (ERISA would apply at the individual employer level) and for large/small group rating purposes. Thus, coverage sold to a sole proprietor AHP participant would have to comply with individual market/rating rules, and coverage sold to a small employer AHP participant would have to comply with small group market/rating rules.

States may also have a say in reacting to the district court ruling and DOL appeal. At least one state (Vermont) has published guidance stating that the state won’t be approving new AHPs, and that current AHPs should stop advertising and enrolling new employer groups. We anticipate more states weighing in, and will continue to monitor developments on this issue.

DOL Statement »

CMS recently updated its guidance that provides an overview of the federal market requirements applicable to non-federal governmental plans, including self-funded and fully insured plans. As background, CMS is the entity that oversees compliance and enforcement of the Public Health Service Act (PHSA) and applicable provisions of the ACA for group health plans related to municipal governments, school districts, fire departments, and funds that pool together a number of smaller municipalities.

The guidance gives a general overview of the laws that apply to non-federal governmental plans, including the ACA and PHSA. They also discuss which of these laws don’t apply to these plans.

There is also helpful information regarding the assistance that CMS makes available to help plans remain compliant, including technical assistance, website resources and information, and access to subject matter experts within CMS that have specialized knowledge.

The guidance also discusses CMS’ investigative process. Specifically, investigations into plan compliance generally begin through inquiries or complaints from enrollees or representatives. If CMS discovers a plan is non-compliant, they will initiate enforcement action and work to create a corrective action plan to bring the areas identified into compliance and, if necessary, require that the plan compensate enrollees who did not receive the benefits or processes to which they were entitled. Once the plan documents and processes are fully compliant, CMS will approve notices to enrollees and the appropriate method for compensation (if necessary, for both). CMS will end the investigation only upon confirmation that all steps within the corrective action plan are carried out (usually, this includes compensated enrollees).

While this information is not new, it does serve as a reminder of the importance of compliance for non-federal governmental plans.

Guidance »

Effective April 19, 2019, the IRS expanded the system of correction programs for plan sponsors of retirement plans with the release of Rev. Proc. 2019-19. As background, plan sponsors are permitted to correct certain failures through the Employee Plans Compliance Resolution System (EPCRS) and in some circumstances avoid paying any fees or sanctions. There are three programs in the system: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP).

This revenue procedure allows plan sponsors of a qualified plan, a 403(b) Plan, a Simplified Employee Pension Plan (SEP), or a SIMPLE IRA Plan that satisfy the eligibility requirements to correct certain operational failures or plan document failures under SCP. A plan sponsor may correct an operational failure by plan amendment to conform the terms of the plan to the plan’s prior operations if three conditions are satisfied: 1) the plan amendment would result in an increase of a benefit, right, or feature, 2) the increase in the benefit, right, or feature is available to all eligible employees, and 3) providing the increase in the benefit, right, or feature is permitted under the Code and satisfies the correction principles.

Also, this revenue procedure provides a new correction method for failure to obtain spousal consent for a plan loan. The sponsor must notify the affected participant and spouse so that the spouse can provide consent. If consent is not obtained, the failure must be corrected using either VCP or Audit CAP. Plan loans that are made in excess of loan limits may be corrected only under VCP or Audit CAP.

Finally, the EPCRS may not be used to correct the initial failure to adopt a qualified plan or failure to timely adopt a written 403(b) plan document.

The Treasury Department and the IRS invite comments on how to improve EPCRS and expect to update the system in the future based on those comments.

If a plan is currently out of compliance with requirements based on an operational or plan document failure, the plan sponsor should work with their retirement plan consultant to see if they are eligible to use EPCRS to get the plan into compliance.

Rev. Proc. 2019-19 »

On April 23, 2019, in Acosta v. City National Corporation , a panel of the U.S. Court of Appeals for the Ninth Circuit held that City National Corporation and other defendants (City National) violated ERISA by engaging in prohibited self-dealing. As background, City National Corporation sponsors a defined contribution plan and its subsidiary, City National Bank (CNB), serves as the plan’s trustee and record-keeper. As the plan’s record-keeper, CNB received compensation through revenue sharing. CNB also served over 200 other ERISA plans in this capacity.

The DOL brought this case against City National, alleging that they had violated ERISA’s prohibition against self-dealing. Specifically, they argued that CNB had set and approved their own compensation and had failed to maintain a system for tracking how much time its employees actually spent servicing City National’s plan versus other plans. The District Court granted summary judgment in favor of the DOL and the Ninth Circuit affirmed that decision.

In their ruling, the Ninth Circuit affirmed the idea that self-dealing cannot be overcome by claiming the reasonable compensation exemption provided in ERISA. In other words, where a fiduciary engages in self-dealing, it is not enough that the fees that are paid under the arrangement are for reasonable compensation for services. Instead, in this case, the fees paid to CNB were self-dealing, and they needed to be able to prove that the fees were paid in direct compensation for services actually rendered to this plan. This would allow them to offset those amounts against the damages assessed for the self-dealing.

Unfortunately, in this case, the court found that CNB had not actually met their burden of proof in showing that the fees paid directly correlated to the services offered to the plan. They could not prove that CNB employees had directly spent certain time completing tasks for this plan. Instead, all they could provide was a generalized report based on an average of all fees paid to CNB by all the plans they serviced. As such, the court found that they were liable for damages for their self-dealing.

While the case was remanded to the District Court to determine the exact amount of damages, this case presents a warning to plan sponsors. Where fiduciaries of the plan are also offering services to the plan for a fee, it’s important that they keep accurate records of the services that are offered so that they can accurately offset any damages that could be imposed because of self-dealing. Importantly, plans should also consider whether other arrangements need to be made to avoid self-dealing, or whether an independent fiduciary should be called upon to determine fees paid to a fiduciary.

Acosta v. City National Corporation »

On March 28, 2019, the Illinois Department of Insurance published Company Bulletin CB# 2019-03. The bulletin relates to the March 25, 2019, CMS guidance titled “Extension of Limited Non-Enforcement Policy through 2020,” which is CMS’s latest transitional policy extension for so-called “grandmothered plans” in the individual and small group markets. According to the bulletin, plans issued in Illinois continually since January 1, 2014, may renew such coverage for a policy year starting on or before October 1, 2020, so long as the policies do not extend past December 31, 2020.

Company Bulletin CB# 2019-03 »

On April 10, 2019, Westchester County’s Earned Sick Leave Law (ESLL) went into effect. The law generally requires employers with five or more employees to allow employees to earn and use paid sick leave. Employers with fewer than five employees must allow employees to earn and use unpaid sick leave. For purposes of the ESLL, an employee means any person who meets all three of these criteria:

• Is employed for hire by an employer in any employment within Westchester County
• Works for more than 80 hours in a calendar year
• Performs work on a full-time or part-time basis (including domestic workers)

There are certain exclusions for some employees covered by a collective bargaining agreement.

As background, County Executive Latimer signed the Westchester County ESLL on October 12, 2018. The law provides that eligible employees are entitled to accrue a minimum of one hour of sick leave for every thirty hours worked, up to a maximum of 40 hours of sick leave in a given year. Such employees may begin to accrue sick leave at the commencement of employment or 90 days after the ESLL’s effective date, whichever is later. So, employers must begin to allow eligible existing employees who work in Westchester County to begin accruing sick leave as of July 10, 2019.

The law includes a notice requirement that requires employers to provide employees with a copy of the law and written notice of how the law applies to them. Employers must also display a copy of the law in a conspicuous office location in English, Spanish, and any other language deemed appropriate by the County of Westchester.

Employers with employees in Westchester County should be sure that their sick leave and paid time policies satisfy the minimum standards in accordance with ESLL and be prepared to begin tracking the earned sick time of employees working in Westchester County as of July 10, 2019.

Earned Sick Leave Law »
Earned Sick Leave Law Notice »
Earned Sick Leave Employer FAQs »