With the economy humming along and unemployment at historic lows, it seems a strange time for a blog post about severance plans. This is the ideal time, however, to start planning for the next phase of the business cycle and the inevitable reductions in workforce that will follow. In connection with this planning, we wanted to remind our readers of the numerous advantages of adopting an ERISA-compliant severance plan. While many employers think they do not have an ERISA-covered plan—because it is not written or is not distributed to employees—they may in fact have a de facto plan if they have a routine policy for providing severance benefits that requires ongoing administrative discretion. Don’t panic: ERISA coverage is generally a good thing.

The Internal Revenue Service (IRS) issued guidance on September 18 that modifies its safe harbor explanations that may be (and typically are) used to satisfy Section 402(f) of the Internal Revenue Code (IRC). IRC Section 402(f) requires plan administrators of 401(a) qualified plans to provide a written explanation of an individual’s rollover rights (of eligible rollover distributions) within a reasonable period of time (i.e., no fewer than 30 days and no more than 180 days) before the date a plan distribution is to be made.

The modifications, described in Notice 2018-74, reflect changes made under the Tax Cut and Jobs Act of 2017 (TCJA) relating to the rollover of qualified plan loan offset amounts and guidance issued in IRS Revenue Procedure 2016-47 (Rev. Proc. 2016-47) on self-certification of eligibility for a waiver of the 60-day deadline for completing a rollover.

The end of summer doesn’t always mean the end of employment for seasonal employees. Employers often rely on the pool of talent they have developed through seasonal hiring when it comes time to fill new or newly vacated ongoing positions. Here are several things to keep in mind when hiring or rehiring a seasonal employee into a year-round, benefits-eligible role.

Employers that do not have large employee populations have for many years struggled to provide competitive health coverage to their employees. In an effort to offer the economies of scale and risk spreading that exist when large numbers of employees are covered in a single group health plan, there have been many attempts to structure health insurance arrangements (typically referred to as multiple employer welfare arrangements, or MEWAs) in which unrelated employers can participate. Unfortunately, many MEWAs have been undercapitalized, unable to provide the cost savings they promoted, and/or noncompliant with state and federal law. Although there has been a recent effort by the US Department of Labor (DOL) (through a final regulation issued in June of 2018) to expand the ability of employer associations to offer group health plan coverage to their members, this effort will primarily benefit small employers who currently obtain health coverage through the individual or small group insurance markets.

In recent weeks, there have been a number of reports that the US Department of Labor (DOL) has been taking a more aggressive approach in enforcement actions involving late participant contributions and loan repayments and other errors self-reported by ERISA plans on their Forms 5500. These reports underscore the importance of timely, full correction when a plan discovers such late contributions and loan repayments, and other fiduciary breaches.

Under applicable DOL rules, participant contributions and loan repayments must be remitted to the plan’s trust as soon as the money can reasonably be segregated from the employer’s assets (and no later than 15 days, unless the plan qualifies for a small plan exception). The DOL’s view is that it is a breach of fiduciary duty when the payments are made into the plan’s trust later than that. The delay is treated as an unauthorized loan of plan assets and, therefore, a nonexempt prohibited transaction. The DOL has treated these breaches as an enforcement priority and regularly reviews this issue during its plan investigations (the DOL having primary investigatory authority of ERISA’s fiduciary duty provisions, and a robust investigatory program). The DOL frequently cites ERISA plan fiduciaries for fiduciary breaches due to such late contributions and loan repayments.

On June 1, New Jersey Governor Phil Murphy signed legislation that imposes new disclosure obligations on state healthcare providers and insurers, and changes the way healthcare providers can charge for out-of-network services. The new law, titled the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act, also has an impact on self-insured health plans subject to ERISA and their participants. As explained below, self-insured health plans subject to ERISA that cover individuals who obtain healthcare in New Jersey will need to determine by the end of August whether to elect to be subject to the act.

In broad brush, the legislation addresses “surprise” out-of-network medical charges, such as charges for services administered during an emergency from providers who are not part of the patient’s network. For nonemergency patients, the statute requires healthcare facilities and professionals to provide information—before the patient receives services—as to the in-network or out-of-network status of the providers, and a disclaimer regarding the responsibility of the patient to pay any additional out-of-network fees. The statute also requires providers to supply each patient, upon request, an estimate of fees, and requires facilities to establish public postings regarding standard charges. Health insurance carriers are required to provide written notice of changes to their network, and provide detailed information about out-of-network services, including the methodology used to determine the allowed amount for out-of-network services.

Two cases decided on May 23 by Judge Esther Salas in the US District Court for the District of New Jersey (Univ. Spine Ctr. v. Aetna, Inc. and Univ. Spine Ctr. v. United Healthcare – both unpublished decisions) reiterate the importance of including clear anti-assignment language in health plans to prevent healthcare providers from circumventing plan terms to obtain payment.

In this age of skyrocketing health costs, plan sponsors typically work with their advisors and insurers to craft reimbursement structures for services under their health plans. This often includes a lower reimbursement rate for certain out-of-network services. In recent years, many plans have had more claims from out-of-network providers trying to circumvent these design decisions and seek full reimbursement from the plans.

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Introduction

The Internal Revenue Service (IRS) recently updated the Examination Steps for General Hardship in the Internal Revenue Manual (IRM) to incorporate the summary substantiation method for safe-harbor hardship distributions. Plan sponsors should consider whether they want to adopt this method of substantiating hardship withdrawals, rather than requiring participants to provide documentation supporting the existence of an “immediate and heavy financial need.”

Background

The IRS issued internal guidance in February 2017 to its employees conducting plan audits, setting forth guidelines for what 401(k) plan sponsors and administrators are required to show as substantiation to support that a hardship withdrawal was due to an immediate and heavy financial need under the safe-harbor standards for a hardship distribution under Treas. Reg. Section 1.401(k)-1(d)(3)(iii)(B).

The Internal Revenue Service (IRS) recently announced that it is requesting comments on the possible expansion of its favorable determination letter program for individually designed plans. Specifically, the IRS is interested in public input on circumstances it should consider in its decision to accept applications for favorable determination involving amended plans, or types of plan amendments, during calendar year 2019. Currently, the IRS only accepts applications for rulings on initial plan qualification or qualification on termination.

Background

Effective January 1, 2017, the IRS eliminated the staggered approach to accepting applications for favorable determination where such applications were accepted in a calendar year for plans in that year’s filing cycle. A plan’s filing cycle was based on the last digit of its sponsor’s employer identification number, and the cycles were identified as Cycles A through E. This elimination effectively terminated the favorable determination letter program for ongoing plans, though the program continued for plans where initial qualification or qualification on termination was sought.