PPI in the News Compliance Corner - May 26, 2022 Archive
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The IRS recently released an updated Form 720, Quarterly Federal Excise Return, and instructions. The new versions reflect the PCOR fee applicable rate increase announced in IRS Notice 2022-4.

Specifically, the form and instructions now indicate that the PCOR fee for policy and plan years ending on or after October 1, 2021, but before October 1, 2022, is increased to the applicable rate of $2.79, multiplied by the average number of lives covered under the policy or plan. The fee for policy and plan years ending on or after October 1, 2020, but before October 1, 2021, remains at the applicable rate of $2.66, multiplied by the average number of lives covered under the policy or plan.

PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee doesn’t apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is required for retiree-only plans. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.

Affected employers should be aware of the availability of the updated form and instructions and ensure they file and pay the applicable fee by the July 31 deadline.

Instructions for Form 720 »
Form 720 »

On May 6, 2022, the US Court of Appeals for the Eighth Circuit ruled in Skelton v. Radisson Hotel Bloomington, et al. that a life insurer, when assuming a fiduciary role to determine eligibility and enrollment, must maintain an effective enrollment system. Specifically, the system must sync lists of eligible enrolled participants maintained by the insurer and employer.

The plaintiff in this case, Corey Skelton, sued his late wife Beth Skelton’s employer, Radisson Hotel Bloomington (“Radisson”), and the group life insurance carrier, Reliance Standard Life Insurance Company (“Reliance”), for mishandling the family’s supplemental life insurance enrollment. Radisson served as life plan administrator with Reliance designated as claims review fiduciary. After initially waiving supplemental coverage at the time of her hire, Ms. Skelton enrolled in the maximum supplemental life insurance offered under the plan, $238,000. The life plan provides that when an employee requests supplemental life insurance after her initial hire period, an Evidence of Insurability (EOI) form is required. Reliance must then approve the request before the insurance becomes effective. The parties disputed whether Ms. Skelton ever completed an EOI form. Regardless, Radisson sent Ms. Skelton a benefit verification document and began charging her supplemental life premiums. Thereafter, while she was on medical leave, Reliance approved Ms. Skelton’s life waiver of premium claim, relieving her of paying premiums while unable to work.

Following Ms. Skelton’s passing, Reliance denied her supplemental life benefit asserting the required EOI was not received. Radisson acknowledged that Ms. Skelton was incorrectly charged premiums for supplemental coverage that Reliance had not approved. Reliance’s “bulk billing” system, whereby Radisson collected premiums from employees and remitted them in one monthly check along with only the total number of employees insured, contributed to this error. Reliance’s system did not collect information that would allow it to assess whether Radisson sent any mistakenly billed premiums to Reliance.

After settling with Radisson, Mr. Skelton proceeded to judgment against Reliance in federal district court. He was successful, with the court finding Reliance breached its ERISA fiduciary duty to ensure premiums were not collected until coverage was effective. On appeal by Reliance, the Eighth Circuit agreed with the district court, describing Reliance’s enrollment administration as “a haphazard system of ships passing in the night.” Reliance failed to communicate with Radisson which employees sought coverage but still needed to submit an EOI. Combined with Radisson’s anonymous bulk checks, neither entity learned which employees the other one thought were or were not enrolled. Reliance could not be willfully blind to its faulty enrollment system, which allowed Reliance to profit on a broken promise to Ms. Skelton that she would not pay premiums until her application was approved. The Eighth Circuit found that as an ERISA fiduciary, Reliance had a duty to verify that premiums came only from properly enrolled, eligible participants.

The Skelton case serves as another illustration of how plan fiduciaries can set themselves up for failure in administering life insurance coverage. Employers should work with their life insurance carriers to maintain a safeguarded system for verifying enrollment and collecting premiums. Life plans using bulk billing should consider conducting an eligibility audit with their carrier and legal counsel.

Skelton v. Radisson Hotel Bloomington, et al. »

The IRS, DOL and HHS recently asked the Fifth Circuit to stay an appeal they had filed on the Texas federal court case vacating key parts of the independent dispute resolution (IDR) process in the No Surprises Act (NSA) interim final rule. The court granted the hold to pause the legal challenge on May 3.

In the Texas federal court case, the plaintiffs challenged the rule’s presumption that the qualifying payment amount (QPA), which is the median contracted rate for an item or service for a geographic region, is the correct out-of-network (OON) payment amount. Specifically, they argued that such a presumption is inconsistent with the NSA statutory language, which allows for equal consideration of the QPA and other factors (e.g., the provider’s level of training and experience, patient acuity, case complexity) when determining the OON payment rate. Furthermore, the plaintiffs asserted that the defendants improperly circumvented the required notice and comment process when issuing the rule. (For more information on the court ruling, please see our prior article.)

The NSA provisions apply to both insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2022. Amongst other items, NSA provisions protect participants from surprise bills for OON emergency and air ambulance services, as well as certain OON services received at in-network facilities. The NSA limits participant cost-sharing for covered OON services, leaving plans and insurers to address the balance of the bill from an OON provider. In states with an applicable All-Payer Model Agreement or specified state law, the OON provider rate is determined by the Model Agreement or state law. (For more information on the rule, please see our prior article in the October 14, 2021, edition of Compliance Corner.)

Until the agencies issue future IDR rulemaking, employers should keep in mind that the agencies have already revised their IDR process guides because of the Texas federal court’s decision to require the certified IDR entity to consider additional credible information in addition to the QPA. Further, the Federal IDR Portal is already live (For more information on the revised IDR process guides, please see our prior article in the April 28, 2022, edition of Compliance Corner.)

Texas Med. Assoc. v. HHS, 2022 WL 542879 (E.D. Tex. 2022); on appeal to 5th Cir., No. 22-40264, Doc. 00516304229 (May 3, 2022) »

On May 19, 2022, the IRS released Notice 2022-28. This notice provides guidance concerning the tax treatment of PTO donated by employees (through their employers) to charities assisting Ukraine.

Under employer leave-based donation programs, employees can elect to donate vacation, sick or personal leave in exchange for their employers making cash payments to charitable organizations described in section 170(c) of the Internal Revenue Code. Any such payments made by an employer before January 1, 2023, will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Employees whose leave funds the qualified employer leave-based donation payments will not be treated as having constructively received gross income or wages (or compensation, as applicable). Accordingly, employers should not include the amount of qualified employer leave based donation payments in Box 1, 3 (if applicable) or 5 of the electing employees’ Form W-2. Employees donating leave under these circumstances cannot claim that donation as a charitable donation.

Employers may deduct qualified employer leave-based donation payments under the rules of section 170 or the rules of section 162 of the IRC if the employer otherwise meets the respective requirements of either section of the Code.

Employers with leave-based donation programs should be aware of this notice.

IRS Notice 2022-28 »

On May 13, 2022, the IRS released Notice 2022-27, which extends the COVID-19 temporary relief from the physical presence requirement for certain retirement plan elections.

Under IRS regulations, certain retirement plan participant elections (such as a spousal consent to a waiver of a qualified joint and survivor annuity) must be witnessed in the physical presence of a plan representative or a notary public. An electronic system can be used to satisfy the physical presence requirement if the system provides the same safeguards for the elections.

Previously, the IRS issued Notices 2020-42, 2021-3 and 2021-40 providing relief from the physical presence requirement for participant elections witnessed by a notary public of a state that permits remote electronic notarization or a plan representative if certain conditions were satisfied. Those notices provided relief from 2020 to June 30, 2022. (For further details on IRS Notices 2020-42, 2021-3 and 2021-40, please see, respectively, our June 11, 2020, January 7, 2021, and July 8, 2021 Compliance Corner editions.)

Notice 2022-27 provides an additional six-month extension of this temporary assistance through December 31, 2022. The relief is optional, i.e., a participant can still have an election witnessed in the physical presence of a notary accepted by a plan.

Additionally, the IRS confirmed that they are reviewing comments from stakeholders that they received pursuant to the previous notices. That feedback was sought on whether relief from the physical presence requirement should be made permanent.

Sponsors of retirement plans should be aware of the further extension of temporary relief from the physical presence requirement for participant elections.

Notice 2022-27 »

On April 27, 2022, in Hawkins, et al. v. Cintas Corp., et al., the Sixth Circuit Court of Appeals affirmed that ERISA §502(a)(2) fiduciary breach claims belong to the plan and require the plan’s consent for arbitration. As a result, participants cannot be forced to arbitrate such claims without the plan’s consent.

In this case, two retirement plan participants brought a putative class action suit against their former employer, Cintas Corporation (Cintas), for breach of fiduciary duties owed to the company’s retirement plan. First, they alleged that Cintas only offered participants actively managed plan investment funds, rather than more cost-efficient passively managed funds. Second, they claimed that Cintas imprudently charged the plan expensive recordkeeping fees.

However, the participants had each signed employment agreements that contained arbitration provisions requiring arbitration of employment-related claims, including those arising under ERISA. Therefore, Cintas moved to compel arbitration and stay the class action lawsuit, asserting that the participants were bringing claims covered by the arbitration provisions.

The district court denied both of Cintas’ motions. The court determined that the action was brought on behalf of the plan, and the plan’s consent was necessary for arbitration. Thus, it was irrelevant that individual participants had consented to arbitration through their employment agreements.

On appeal, the Sixth Circuit agreed that the employment agreements did not force the case into arbitration. The court noted that the participants’ claim was not brought under ERISA §503(a)(1)(B) for benefits or rights due to them individually under the plan terms. Rather, the participants filed an ERISA §502(a)(2) suit seeking plan-wide relief that should be brought as a plan claim. Because the arbitration provisions only established the individual participants’ consent to arbitration, their employment agreements do not subject the plan claims to arbitration.

Additionally, the plan document did not contain an arbitration provision or other expression of the plan’s consent to arbitrate. The Sixth Circuit recognized that Cintas could amend the plan document to include an arbitration provision but did not decide whether such a provision would subject § 502(a)(2) claims to arbitration because this matter was not under review. However, the Sixth Circuit noted that all other circuit courts that have addressed the issue have held that ERISA claims are generally arbitrable.

The Sixth Circuit also rejected Cintas’ alternative argument that if plan consent to arbitrate is required, such consent was provided by their participation in the lawsuit to compel arbitration. In the Sixth Circuit’s view, this argument failed to recognize the distinction between Cintas as the plan sponsor and the plan as a legal entity.

Employers that sponsor ERISA plans should be aware that arbitration provisions in employment agreements do not automatically result in all ERISA claims being subject to arbitration. Employers who want ERISA claims, including those brought on the plan’s behalf under § 502(a)(2), to be arbitrated should ensure express consent to arbitrate is reflected in the plan documents.

Hawkins, et al. v. Cintas Corp.,et al., Sixth Circuit Court of Appeals »

Before discussing an employer’s health insurance obligations for an employee on workers’ compensation, it is important to note that workplace injuries and the state requirements surrounding them are employment issues that are outside of our benefits compliance scope. Employers should continue to work within their state’s rules for administering workers’ compensation for an employee that is injured on the job. Those rules may even involve requirements for the employer to provide medical care to address the workplace injury.

We can, however, address the question of what should be done regarding the employee’s group health plan benefits. Specifically, the continuation of group health plan benefits during workers’ compensation depends on whether FMLA must be offered or the terms of the plan.

FMLA
FMLA applies to private employers with 50 or more employees for each working day in 20 or more workweeks in the current or preceding calendar year. It also applies to all public agencies and local educational agencies no matter the size (including public school boards, as well as public and private elementary and secondary schools). An eligible employee who is absent due to their own serious health condition is eligible for up to 12 weeks of unpaid leave. An eligible employee is one who has worked for the employer for at least 12 months, has worked at least 1,250 hours in the last 12 months, works within a 75-mile radius of 49 other employees, and has suffered a serious health condition. Note that an employee’s location for purposes of the 75-mile radius rule is the office to which the employee reports (which is an important distinction given the number of employees currently working remotely).

Importantly, FMLA applies any time an eligible employee is absent from work due to a serious health condition — even if that condition is work-related. This means that an employee who takes leave under workers’ compensation would be eligible for FMLA if the injury for which they are taking leave is a serious health condition, and they work for an employer that is subject to FMLA and are otherwise eligible under FMLA’s eligibility rules.

While on FMLA, the employer must give the employee an opportunity to continue benefits under the same conditions as if the employee were still actively at work. An employee only must pay their normal contribution amount. If active employees contribute to the cost of coverage, an employee on FMLA would as well. If the FMLA leave is paid, then the deduction would be taken as normal. If the leave is unpaid, other arrangements must be made for the premium. For employees who continue their coverage during an unpaid FMLA leave, the following payment options may be provided: prepay, pay-as-you-go and catch-up. The employee may also choose to discontinue coverage during FMLA.

Plans should be mindful of COBRA requirements too. For an FMLA leave, the qualifying event for COBRA would be a reduction of hours and would be triggered if the employee does not return at the end of the 12-week FMLA leave period. The event date would be the last day of the FMLA leave. Even if the coverage was terminated during the leave (for failure to pay premiums), COBRA is still not offered until the end of the 12-week leave period.

Non-FMLA
If FMLA does not apply (either because the employer is not subject to it or the employee is not eligible), then coverage should be terminated according to the employer’s and carrier’s policy for inactive employees on unpaid leave (typically 30-60 days). If active employees must work a certain number of hours per week to remain eligible, and there is no special provision for inactive employees on non-FMLA leave, then an employee on leave due to a work-related injury should be terminated from coverage if that threshold is not met. Then, depending on the circumstances, COBRA or state continuation would be offered for the reduction of hours.