A recent case provides a reminder for plan administrators of the importance of complying with Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) notice obligations and a good excuse to review health plan COBRA procedures.

In Morehouse v. Steak N Shake, Inc., a former employee brought a suit against her former employer after a workplace injury ultimately led to her losing her employer group health plan coverage. Before her injury, the plaintiff paid for her plan coverage by biweekly payroll deductions. Once injured, the plaintiff went on Family and Medical Leave Act (FMLA) leave and started workers’ compensation benefits. She was not provided a COBRA notice when she began leave. Instead, she continued to be covered under the plan and premiums were deducted from her workers’ compensation benefits. Once her workers’ compensation benefits ended, she was unable to pay her premiums and her plan health coverage was cancelled. She was then terminated from employment following the expiration of the FMLA period. After her plan coverage ended, she purchased health insurance to help pay for surgery to address her injury, but still had more than $30,000 in out-of-pocket costs.

Join Morgan Lewis for the 2019 Global Public Company Academy, launching on January 16. This 18-part webinar series offers advice to public companies and companies intending to go public on topics such as capital markets transactions; federal securities laws compliance; corporate governance; executive, equity, and director compensation; and the responsibilities of board members, as well as provides litigation updates. The webinars are presented by Morgan Lewis’s securities, corporate governance, executive compensation, and litigation lawyers. Participants in the academy are able to pick sessions of particular interest or attend the entire series.

Read more about the 2019 Global Public Company Academy and learn how to register.

Join Morgan Lewis this month for these programs on a variety of topics in employee benefits and executive compensation.

We’d also encourage you to attend the firm’s Global Public Company Academy series.

Visit the Morgan Lewis events page for more of our latest programs.

Companies that provide meals and snacks on their “business premises,” as well as manufacturers of snack or breakroom products, will be particularly interested in a possible expansion of what many have assumed would be a 50% disallowance of deductions for all coffee, doughnuts, fruit, soft drinks, candy, and similar items, effective after 2017. A gap in the regulations points to the possibility that breakroom snacks that are considered de minimis fringe benefits provided on business premises might remain 100% deductible.

Longtime observers of the twists and turns of the Affordable Care Act (ACA) have seen this before—namely, yet another dramatic chapter in the almost 10-year journey of the ACA.

The latest chapter began last week when a Texas district court determined that the ACA is unconstitutional because the individual mandate—starting January 1, 2019—no longer triggers a tax for a violation of the mandate.

Bloomberg Law has just released the fifth edition of “ERISA Class Exemptions,” a book by Morgan Lewis partner Michael B. Richman and retired Morgan Lewis partner Donald J. Myers. The book has been reorganized into two volumes, with the first volume containing the exemption texts and explanations, and the second volume containing the relevant Federal Register notices and other documents. Additional documents are available for download on the Bloomberg Law website.

The IRS on December 4 released Notice 2018-95, which provides transition relief to tax-exempt 403(b) plan sponsors that may not have complied with the “universal availability” rule for part-time employees.

Background on Universal Availability Rule. Code Section 403(b) contains a “universal availability” eligibility rule, which generally provides that all of a tax-exempt employer’s employees must be eligible to make elective deferrals to the employer’s 403(b) plan. This rule only applies to employee elective deferrals and does not require that a tax-exempt employer make employer non-elective or matching contributions available to all employees. There are limited exceptions to the universal availability rule such that an employer can still exclude certain groups of employees from the opportunity to make elective deferrals – including non-resident aliens, students, and employees who normally work fewer than 20 hours per week. However, the exclusions must be applied consistently and to all similarly situated employees. So, for example, if one or more part-time employees who work fewer than 20 hours per week are permitted to make employee elective deferrals, then all similarly situated part-time employees must be given the same opportunity.

Now that two weeks have passed since the Internal Revenue Service released its proposed hardship regulations, most defined contribution plan sponsors have determined which changes to their plan's hardship programs (if any) will be effective beginning January 1, 2019 (for calendar year plans), and which changes will be postponed. One of the changes that we see being almost universally adopted as early as possible is the elimination of the six-month suspension of contributions following a hardship withdrawal. However, there are two consequences of this removal of the suspension requirement that are sometimes overlooked:

  • Communication with Participants. Plans have different procedures to end hardship suspensions—some automatically reinstate contribution elections and others require participants to make new elections following the suspension. In either case, a plan administrator removing the suspension before the six months would otherwise elapse (e.g., January 1, 2019) should consider letting participants know about the change before the end of this year so that the participants do not miss out on making a new deferral election (or are not surprised when a deferral election is automatically reinstated). But even in cases where no change is being made to existing hardships, if the plan is eliminating the suspension for new hardships taken in 2019, the plan administrator should consider notifying participants who apply for hardship withdrawals during these final weeks of 2018 of the imminent change in the plan’s hardship withdrawal rules. In addition, as many plans have outsourced management of the hardship withdrawal program to a recordkeeper or other manager, plan administrators are encouraged to discuss a communication strategy with their recordkeepers or other managers (e.g., affirmatively reaching out to participants, including a description of the change with hardship request forms).
  • Nonqualified Plans. Often overlooked in discussions on eliminating the suspension requirement following hardship withdrawals is the impact this change has on nonqualified deferred compensation plans. By way of background, the suspension requirements in the current hardship regulations (before modification by the proposed regulations) require that participants be suspended from making contributions into all plans sponsored by the plan sponsor, which includes nonqualified plans. In order to accommodate this requirement, the applicable Treasury Regulations governing nonqualified deferred compensation plans subject to Internal Revenue Code Section 409A expressly allow a plan to provide for the cancellation of an otherwise irrevocable nonqualified plan deferral election following a hardship withdrawal. Some nonqualified deferred compensation plans are drafted to provide for the cancellation of a deferral election only if such cancellation is required under the rules governing the defined contribution plan. Other nonqualified deferred compensation plans mandate the cancellation of a deferral election following any hardship withdrawal, regardless of the circumstances. The proposed hardship regulations were silent as to whether a nonqualified deferred compensation plan can continue to cancel deferral elections following a hardship withdrawal. Considering that effective January 1, 2019, suspensions following hardship withdrawals will no longer be required, plan sponsors with nonqualified plans may wish to review the suspension language in their nonqualified deferred compensation plans to determine whether any changes need to be made in light of the proposed regulations.

If you have any questions about these changes or what they mean to your plans, please feel free to reach out the authors or your Morgan Lewis contact.

Join Morgan Lewis this month for these programs on a variety of topics in employee benefits and executive compensation.

We’d also encourage you to attend the firm’s Global Public Company Academy series.

And, don’t forget to attend the firm’s M&A Academy series.

Visit the Morgan Lewis events page for more of our latest programs.

With 2018 coming to a close, retirement plan sponsors should make sure they have addressed any required year-end plan amendments, are preparing any required year-end participant notices, and are looking ahead to any changes in 2019 that may impact their plans. This post focuses on the 2019 changes, while Part 1: Closing Out 2018 concentrated on 2018 year-end obligations.