PPI in the News Compliance Corner -June 9, 2022 Archive
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On May 25, 2022, the Department of Labor’s (DOL) Wage and Hour Division released a Fact Sheet and series of FAQs on FMLA leaves taken for mental health-related reasons. The new guidance does not change existing law. Rather, it serves to emphasize that mental health conditions should not be treated any differently than physical health conditions in FMLA administration.

Under FMLA, eligible employees working for covered employers may take job- and benefits-protected unpaid leave for their own serious mental or physical health condition, or to care for a spouse, child, or parent’s serious mental or physical health condition. A serious mental health condition is one that requires either: 1) inpatient care in a hospital or treatment center; 2) continuing treatment by a healthcare provider for an incapacitating condition lasting more than three consecutive days; or 3) treatment at least twice a year for a chronic condition that causes occasional periods of incapacitation. Employers may require a healthcare provider’s certification supporting FMLA leave but cannot require a diagnosis.

The Fact Sheet provides the following examples of FMLA leaves that may be taken for the employee’s own mental health condition or as caregiver leave for certain family members:

• Leave for the employee’s mental health condition .
  Example: Karen is occasionally unable to work due to severe anxiety. She sees a doctor monthly to manage her symptoms. Karen uses FMLA leave to take time off when she is unable to work unexpectedly due to her condition and when she has a regularly scheduled appointment to see her doctor during her work shift.

• Caregiver leave for family member (spouse, child or parent) with a mental health condition.
  Example: Wyatt uses one day of FMLA leave to travel to an inpatient facility and attend an after-care meeting for his fifteen-year-old son who has completed a 60-day inpatient drug rehabilitation treatment program.

• Caregiver leave for disabled adult child with a mental health condition.
  Example: Anastasia uses FMLA leave to care for her daughter, Alex. Alex is 24 years old and was recently released from several days of inpatient treatment for a mental health condition. She is unable to work or go to school and needs help with cooking, cleaning, shopping, and other daily activities as a result of the condition.

• Military caregiver leave for mental health conditions.
  Example: Gordon’s spouse began to have symptoms of PTSD three years after she was honorably discharged from military service overseas. Gordon uses FMLA leave for two weeks to transport his spouse to and from outpatient treatment at a Veteran’s Administration hospital and to assist her with day-to-day needs while she is incapacitated.

The FAQs elaborated on these examples. Specifically, as to caregiver leave for a disabled adult child with a mental health condition, “disability” is defined by the ADA; that is, a mental or physical condition that substantially limits one or more major life activity, such as working. The FAQs further note that caregiver leave includes participating in a spouse’s, child’s, or parent’s treatment program in addition to providing physical and psychological care.

The Fact Sheet and FAQs stress two final points related to FMLA administration. First, employers must maintain employee medical (including mental health) records confidential and separate from routine personnel files. However, an employee’s manager may be informed of the employee’s need for leave and any work duty restrictions or accommodations. Second, employers must not discourage leave by threatening to disclose an employee’s or family member’s mental health condition or otherwise interfere with an employee exercising their FMLA rights.

Again, this latest DOL guidance does not change existing FMLA rules in any way. It simply reiterates that mental health conditions should be treated no differently than physical health conditions in administering FMLA leaves.

Fact Sheet #280: Mental Health Conditions and the FMLA »
FAQs: Mental Health and the FMLA »

The IRS recently updated its descriptions of the tax rules applicable to the employer-provided parking benefit. Employer paid parking that is a “qualified transportation fringe” (QTF) is excluded from employees’ gross income up to the statutory limit (e.g., $280 per month in 2022) under IRC Code Section 132(f). A QTF includes qualified parking, which is on or near the employer’s business premises or at a location from which the employee commutes to work by mass transit facilities, commuter highway vehicle, carpool or car service.

The value of employer-provided parking is its fair market value (FMV), determined based on all the facts and circumstances, including the cost that an individual would incur in an arm’s length transaction for parking at the same site or in a comparable lot in the same general location.

Employers providing qualified parking benefits should review the IRS website at the link provided below and document how they determine the value of the parking benefit in case of an audit. The updated IRS page also includes a key checklist for auditors to review an employer’s parking benefit that may be helpful for employers to prepare their documents and keep their records relating to their parking benefit.

IRS Webpage: Qualified Parking Fringe Benefit (April 25, 2022) »

On May 23, 2022, in Zahuranec v. Cigna Healthcare, Inc., et al., the Sixth Circuit Court of Appeals affirmed a district court decision that upheld a self-funded plan’s subrogation and reimbursement rights.

The plaintiff-appellant, Lisa Zahuranec, was a plan participant who suffered serious complications after undergoing bariatric surgery. The plan approved and paid for the surgery, although it did not meet medical necessity criteria. Zahuranec received a settlement from a medical malpractice suit brought against the physicians who performed the surgery. She then brought ERISA claims against Cigna in an effort to avoid reimbursing the plan from her settlement proceeds. (Cigna, the claims administrator, had sought to enforce the plan’s subrogation and reimbursement provisions.)

In Zahuranec’s first ERISA claim, she sought enforcement of the plan terms. She asserted that the surgery was not a “benefit” under the plan because it did not meet medical necessity criteria. Therefore, the procedure was not subject to the plan’s subrogation and reimbursement provisions. Next, in her ERISA breach of fiduciary duty claims, she argued that Cigna made a material representation that the procedure was medically necessary by approving the surgery. Finally, she brought an equitable estoppel claim, seeking to estop Cigna from seeking subrogation.

The Sixth Circuit rejected all these arguments and affirmed the district court’s decision to dismiss all claims. In the court’s view, the plan had the right to seek subrogation and reimbursement because Zahuranec had received payment for a covered expense (as defined by the plan terms) that had been paid as a plan benefit. Additionally, Cigna did not breach a fiduciary duty by deciding the plan would pay for the surgery; this determination was a coverage decision that the plan language made clear was neither a recommendation nor guideline for treatment. Finally, Zahuranec’s equitable estoppel claim failed. Here, the court noted that she had not demonstrated the element of detrimental reliance on Cigna’s promise that the surgery was medically necessary since the surgery was paid for by the plan.

The case reinforces a plan’s right to pursue subrogation and reimbursement rights, as specified in the plan language, for benefits paid by the plan. It also serves as a reminder that plans should pay attention to what benefits are payable under plan terms.

Zahuranec v. Cigna Healthcare, Inc., et al. »

On May 20, 2022, the IRS, DOL and PBGC (the agencies) released a final rule announcing changes to the Form 5500 and Form 5500-SF and related instructions. These changes will go into effect for the 2022 annual reports. (Remember that Forms 5500 are due by the end of the seventh month after the end of the plan year.)

The changes to the forms and instructions mostly implement annual reporting changes for defined benefit plans. Specifically, the agencies are adding new questions and revising existing questions on Schedules MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information), SB (Single-Employer Defined Benefit Plan Actuarial Information), and R (Retirement Plan Information). They are also modifying the contribution and benefit attachments required to accompany the filings.

The final rule also adds new characteristic code options to be reported on line 8 of Form 5500 and line 9 of Form 5500-SF, which report data on defined contribution multiple employer plans, including pooled employer plans. The instructions will also be amended to request additional plan sponsor and plan administrator information on Part II of Form 5500 and Form 5500-SF.

The notice provides illustrations of the changes to the forms and instructions. Advance copies of the 2022 forms will go out later this year after the agencies have published a third notice addressing other necessary revisions.

Sponsors of retirement plans should be aware of the upcoming changes to Form 5500.

Annual Information Return/Reports »

On May 25, 2022, the IRS announced that it will revise Form 5300, Application for Determination for Employee Benefit Plan, and its instructions. The revisions will allow plans to submit the form electronically.

Form 5300 is used to request a determination letter from the IRS for the initial qualification of a defined benefit or a defined contribution plan and the exempt status of any related trust. Starting on June 1, 2022, the form can be submitted electronically via Pay.gov, along with a single PDF file (not exceeding 15MB). This PDF must contain the following:

• Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization
• Prior Determination Letter
• Opinion/Advisory Letter
• Cover Letter
• Amendments (any prior plan documents being submitted along with any applicable amendments)
• Current Plan Document
• Adoption Agreement
• Trust Document
• Other applicable documents (any additional documents not listed above)

If the total number of documents causes the PDF to exceed the 15MB limit, then documents can be removed from the PDF and faxed separately to the agency. The agency will accept paper forms until June 30, 2022. The user fee for a Form 5300 submitted on or after January 3, 2022, is $2,700 (or $4,000 for multiple employer plans) if the plan does not qualify for the zero-dollar user fee in Notice 2017-1. Applicants must pay the user fee through Pay.gov for an electronic submission using a bank account, credit card or debit card.

Applicants can expect a response to applications within 145 days.

Employers or plans seeking qualification of a defined benefit or a defined contribution plan and the exempt status of any related trust should be aware of this development.

IRS: Employee Plan News, May 25, 2022 »

Employers are increasingly choosing to offer fertility benefits to employees. However, it is important to ensure that such a benefit offering is properly structured.

To the extent the fertility benefits program provides medical care, it would generally be considered a group health plan and thus subject to the ACA, ERISA, COBRA and other laws. “Medical care” for this purpose is broadly defined to include amounts paid for “the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.”

Under the ACA, group health plans are subject to specific requirements (e.g., coverage of preventive services without cost-sharing). ERISA imposes fiduciary obligations, claims review procedures, plan document and Form 5500 filing requirements. COBRA requires continuation of medical coverage for a minimum of eighteen months following certain losses of eligibility.

A stand-alone program typically cannot satisfy these group health plan requirements independently. Accordingly, perhaps the simplest way to offer fertility benefits is to amend/expand the coverage provided directly under the group major medical plan, which is already satisfying ACA, ERISA, COBRA and other requirements. This approach would be coordinated with the insurer or stop-loss carrier.

Alternatively, the fertility benefits could be offered through an integrated HRA, made available to only those employees enrolled in the employer’s major medical plan (or confirmed to be enrolled in another group medical plan, such as a spouse’s, although this adds administrative complexities). The employer could determine the types of fertility expenses and dollar amounts of the HRA reimbursements.

Generally, to be eligible for tax-free HRA reimbursement, the expense must be for medical care (as defined by Code §213(d)) for the employee or their spouse or dependent (but not a surrogate). Infertility expenses eligible for tax-free HRA reimbursement may include procedures such as IVF (including temporary storage of eggs or sperm) to overcome an inability to have children. However, expenses related to the long-term storage (typically greater than one year) of eggs and sperm would not qualify. Furthermore, medical expenses must be for services incurred during the coverage period and not just prepayment for such services.

Please see IRS Publication 502 , “Fertility Enhancement,” and our June 10, 2021, Compliance Corner article.

If the employer offers an HSA-qualified HDHP, the fertility HRA would need to be designed as a post-deductible HRA to preserve the employees’ HSA eligibility. The HRA could not pay any benefits until the HDHP annual statutory minimum deductible ($1,400 self-only/$2,800 family in 2022) was satisfied.

The HRA would need to satisfy applicable compliance requirements. As a self-funded plan, these obligations would include, but not be limited to, Section 105 nondiscrimination testing and the PCORI fee filing and Form 720 reporting (although simplified reporting may apply).

Additionally, the employer should recognize that a fertility benefit vendor typically receives protected health information from covered entities (e.g., healthcare providers and/or the health plan) that are directly subject to regulation under the HIPAA Privacy Rule. So, a business associate agreement should be in place between the vendor and the covered entity.

Finally, given all the compliance considerations, it is always advisable for an employer to review the fertility benefits offering, structure and any related contracts with their counsel to ensure all legal requirements are satisfied.