Categories
Technical Memorandum

FAQ for Guidance on COVID-19 Legislation

The Department of Labor, Health and Human Services, and Treasury Provide Further Guidance on COVID-19 Legislation 

Since the enactment of the Families First Coronavirus Response Act (FFCRA) on March 18, 2020, the Department of Labor, the Department of Health and Human Services and the Department of the Treasury have released a series of Frequently Asked Questions (FAQs) to guide employers in the implementation of the law’s provisions.  The most recent set of FAQs was released on June 23, 2020.

The June FAQ contains 18 questions on a variety of subjects. The following are some of the more relevant questions and answers.

Are Self-Funded Health Plans Required to Comply With the Provisions of the FFCRA?

The answer is yes.  The FAQ says that:

The statute and FAQs make clear that the requirements apply to both insured and self-insured group health plans.

While we don’t really think that this was ever in doubt, the Departments felt the need to clarify the application of the FFCRA.

What COVID-19 Tests Must Be Required?

The FFCRA and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) mandate that group health plans must cover the cost of testing for Covid-19.  Apparently, the Departments felt that there was some confusion about which tests must be covered.  The FAQs clarify that the following tests are covered:

  • A test approved, cleared or authorized under the Federal Food, Drug, and Cosmetic Act;
  • A test for which the developer has requested or intends to request emergency use authorization (EAU) from the FDA;
  • A test that is developed in and authorized by a State that has notified the Secretary of HHS of its intention to review the test; or
  • Any test that the Secretary of HHS determines to be appropriate.

The FAQs go on to say that no test has yet been approved under the Federal Food, Drug, and Cosmetic Act.  The tests, which are authorized, because the developer has sought an EAU are listed on the FDA’s website.  In addition, any tests, which have been authorized by a state, are also shown on the FDA’s website.  Finally, the FAQ says that no other test has been approved by the Secretary of HHS.

In a previous FAQ, the Departments said that a Covid-19 test must be covered “when medically appropriate for the individual, as determined by the individual’s attending health care provider”.  Apparently, the Departments thought there was some confusion about the term “individual’s attending health care provider”.  The June FAQs make clear that the term is not limited to the health care provider “directly” responsible for providing care to the patient.  It includes any provider who “makes an individualized clinical assessment to determine whether the test is medically appropriate for the individual in accordance with current accepted standards of medical practice”.  This means that an individual, who goes to the emergency room or an urgent care center with symptoms and sees somebody other than his primary care physician, can still be given a Covid-19 test that must be paid for by the individual’s group health plan.

Finally, the FAQs clarify that the FFCRA and the CARES Act also cover tests that can take place at home.  In addition, if an individual receives multiple tests, the FAQs confirms that each test must be covered by the individual’s group health plan.

What Tests are Not Covered?

With the country beginning to reopen and people going back to work, this may be the most important part of the FAQs.  The Departments address the question whether tests for “surveillance or employment purposes” must be covered.  In other words, if an employer requires an employee to show a negative test before returning to work, do those tests have to be covered?

The answer is no.

In the FAQ, the Departments say that:

Clinical decisions about testing are made by the individual’s attending health care provider and may include testing of individuals with signs or symptoms compatible with Covid-19, as well as asymptomatic individuals with known or suspected recent exposure to SARS-CoV-2 . . . However, testing conducted to screen for general workplace health and safety (such as employee “return to work” programs), for public health surveillance for SARS-CoV-2, or for any other purpose not primarily intended for individualized diagnosis or treatment of COVID-19 or another condition is beyond the scope of . . . the FFCRA.

Do the FFCRA and the CARES Act Protect a Patient From Balance Billing?

The answer is maybe.

The FAQs state that the FFCRA, as amended by the CARES Act, provides that an in-network health care provider can only charge an employee the amount negotiated by the provider and the plan.  An employee cannot be charged any additional amount.  In addition, an out-of-network provider can only charge the amount shown on its public website or a lesser amount negotiated by the plan with the provider.  Again, an employee cannot be charged any additional amount.

The question that neither the FFCRA, nor the CARES Act, answers is what if an out-of-network provider does not have a published rate or has not negotiated a lesser amount with the plan.  Can the employee be balanced bill for any amount?  The FAQs do not really answer this question; although they do say that “the Departments interpret the provisions of section 3202 of the CARES Act as specifying a rate that generally protects participants, beneficiaries, and enrollees from balance billing for a COVID-19 test”.  However, instead of providing a real solution, they simply note that a provider that fails to comply with the provisions of the CARES Act, regarding the publication of its cash price for a test, is subject to a monetary penalty.  The assumption is that all providers will either publish the cash price on their website or will negotiate a price with the employee’s plan in order to avoid a civil penalty.  As a result, this situation will never arise.

For questions about the June FAQs, the FFCRA, the CARES Act or your group health in general, please contact RMC Group.

Categories
Retirement Plans Technical Memorandum

Notice 2020-50 Expands Rights Under the CARES Act

On June 19, 2020, the IRS issued Notice 2020-50, expanding the relief for Coronavirus-Related Distributions (CRDs) from qualified retirement plans provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

What are Coronavirus-Related Distributions?

Section 2202(a) of the CARES Act provides special tax treatment for certain distributions from qualified retirement plans.  Generally, distributions from a qualified retirement plan are taxable in the year in which they are made and are also subject to an additional tax of ten percent (10%), if the participant is younger than 59½ years old.  The CARES Act provides that a CRD may be included in the recipient’s taxable income ratably over a three-year period, rather than entirely in the year of distribution.  In addition, the CARES Act exempts CRDs from the 10% tax on early distribution.  So, what is a CRD?

A Coronavirus-Related Distribution is essentially any distribution from a qualified retirement plan made to a “Qualified Individual” on or before December 31, 2020.

Who is a Qualified Individual?  

Section 2202(a)(4) of the CARES Act defines a “Qualified Individual” as any individual:

  • who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 19 (referred to collectively as COVID-19) by a test approved by the CDC;
  • whose spouse or dependent is diagnosed with COVID-19; or
  • who experiences adverse financial consequences as a result of:
  • being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19;
  • being unable to work to lack of childcare; or
  • the closing or reduction of hours of a business owned or operated by the individual due to COVID-19.

At the time that the CARES Act was passed, some observers noted that the definition of Qualified Individual was incomplete.  Certain persons who could be adversely affected by the COVID-19 pandemic were left out of the definition.  For example, what about a person whose spouse was unable to work due to lack of childcare?

Notice 2020-50 to the Rescue!

In Notice 2020-50, the IRS expands the group of persons who are Qualified Individuals and can take advantage of the provisions of the CARES Act.  Notice 2020-50 provides that a Qualified Individual includes an individual who experiences adverse financial consequences as a result of:

  • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • the individual’s spouse of a member of the individual’s household being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • closing or reducing hours of a business owned or operated by the individual’s spouse of a member of the individual’s household due to COVID-19.

Rarely does the IRS expand on a taxpayer’s rights.  However, in Notice 2020-50, the IRS corrected what many observers saw as shortcomings of the CARES Act.

Other Important Provisions of Notice 2020-50

  1. The CARES Act requires an employee to certify to her employer that she is in fact a Qualified Individual. The employer can rely on the certification by the employee, unless the employer has “actual knowledge to the contrary”.  There was some confusion whether this imposed a duty on the employer to investigate the truth of the employee’s certification.  Notice 2020-50 says that this requirement “does not mean that the administrator has an obligation to inquire into whether an individual has satisfied the conditions . . .”  Rather, an employer may not rely solely upon the certification of the employee only if the employer “already possesses sufficiently accurate information to determine the veracity of a certification”.   In addition, Notice 2020-50 provides sample language for an acceptable certification.
  2. As stated above, the CARES Act provides somewhat of a tax holiday to a Qualified Individual. While a distribution from a qualified retirement plan is generally includable in taxable income in the year of distribution, the CARES Act permits a Qualified Individual to include a CRD in taxable income ratably over a three-year period.  Notice 2020-50 clarifies that this is an election on the part of the Qualified Individual.  The Qualified Individual may choose instead to include the entire CRD in taxable income in the year of receipt.  However, this election may not be changed.  All CRDs must be treated in the same manner as reflected on the Qualified Individual’s 2020 tax return.
  3. The CARES Act also permits a Qualified Individual to recontribute a CRD to a qualified retirement plan. Unlike the tax treatment of a CRD, whether a CRD will be recontributed to a qualified retirement plan, or the manner in which it will be recontributed, does not have to be determined before the filing of the Qualified Individual’s 2020 tax return.  Notice 2020-50 says that the decision can be made at any time during the three-year period and provides for the filing of amended returns to reflect the recontribution of all or a portion of the CRD,

In Notice 2020-50, the IRS expanded many of the rights created by the CARES Act.  This does not often happen.

To learn how your qualified retirement plan is impacted by the CARES Act or Notice 2020-50, call your RMC representative.

Categories
Technical Memorandum

Notice 2020-29 Makes Health Flexible Savings Accounts More Flexible

In June, 2020, the Internal Revenue Service (IRS) issued Notice 2020-29 to provide increased flexibility under section 125 of the Internal Revenue Code (Code) in connection with employer-sponsored health coverage, health Flexible Spending Arrangements (FSAs) and dependent care assistance programs.

What is Section 125?

Section 125 of the Code sets forth the rules for what is commonly known as a “cafeteria plan”.  A cafeteria plan is a written plan maintained by an employer under which an employee can choose between cash and “qualified benefits”.  A “qualified benefit” is any benefit, which is excluded from an employee’s taxable income under another section of the Code and may include employer-sponsored health plans and FSAs, which are excludable under sections 105 and 106 of the Code, and dependent care assistance programs, which are excludable under section 129 of the Code.  In simple terms, under a cafeteria plan, an employee can choose to receive his or her full salary, as taxable income, or divert a portion of that salary on a tax-exempt basis to pay for certain benefits, such as medical care.

What is a Health FSA?

A health FSA is an account maintained by the employer for the benefit of an employee.  It is funded by salary reductions by the employee and used to reimburse the employee for qualified medical expenses.  The amount that an employee may divert to a health FSA is limited.  In 2020, an employee may contribute up to $2,750 to his or her health FSA.

In order to avoid FSAs turning into plans of deferred compensation, an employee was initially required to spend all of the funds in his or her FSA during the applicable plan year.  Any funds not spent were forfeited.  This was known as the “use-it-or lose-it” rule.  Over time, two exceptions to the “use-it-or-lose-it” rule were adopted by the IRS – the grace period rule and the carryover rule.

What is the Grace Period Rule?

The first exception is the “grace period” rule.  Under the grace period rule, a plan may allow an employee to apply unused amounts, left over at the end of the plan year, to qualified medical expenses incurred during the first two months and 15 days of the next plan year.

What is the Carryover Rule?

The “carryover” rule permits an employee to carryover a limited amount to the next plan year for qualified medical expenses incurred during the entire following plan year.  The amount that an employee could carryover from 2019 to 2020 was $500.  That amount has been increased for the 2020 plan year to $550.

A plan can provide for either a grace period or a carryover, but not both.  In addition, a plan can provide for neither.

What Does Notice 2020-29 Do?

Generally, an employee must make an election regarding his or her employer’s cafeteria plan before the start of the applicable plan year.  Mid-year changes to an employee’s election may be made only in limited circumstances.

In Notice 2020-29, the IRS recognizes the impact of the Covid-19 crisis on the health of employees and provides greater flexibility in making changes mid-year.  More specifically, Notice 2020-29 provides that an employer may amend its plan to allow an employee to:

  1. make a new election to participate in an employer-sponsored health plan on a prospective basis, if the employee initially declined to participate in the plan;
  2. revoke an existing election to participate in an employer-sponsored health plan and make a new election to participate on a prospective basis in a different plan sponsored by the employer;
  3. revoke an existing election to participate in an employer-sponsored health plan and not participate in any plan offered by the employer as long as the employee attests in writing that the employee either is enrolled or will enroll in another health plan, not sponsored by the employer, such as a plan sponsored by the employee’s spouse;
  4. revoke an election, make a new election or decrease or increase an existing election regarding a health FSA on a prospective basis; and
  5. revoke an election, make a new election or decrease or increase an existing election regarding a dependent care assistance program on a prospective basis.

Notice 2020-29 also permits an employer to make a change to its plan to extend its plan’s grace period.  If a plan has a grace period that ends in 2020 or if the plan has a plan year that ends in 2020, the employer can extend the grace period to December 31, 2020.  This extension of time is also available to plans that provide for a carryover, notwithstanding the rule that a plan can either have a grace period or a carryover, but not both.

Plan Amendments

The changes made by Notice 2020-29 are permissible, not mandatory.  An employer can choose to amend its plan, or it can choose to not make any changes.  If an employer chooses to amend its plan to adopt one or more of the changes permitted by the Notice, it must do so by written amendment.  An amendment for the 2020 plan year must be adopted by December 31, 2021, and made retroactive.  However, the employer must provide written notice of the amendments to its employees and operate the plan as if the amendments had already been adopted.

Considerations

There are many factors that an employer must take into consideration when deciding whether to amend its plan.  For example, an employer may want to impose conditions on an employee’s election in order to avoid adverse selection.  Contact your RMC representative to discuss the best path forward for your cafeteria plan.

Categories
Retirement Plans Technical Memorandum

What Impact Does the CARES Act Have on Retirement Plans?

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020.  It is 880 pages.  This article provides a summary of the some of the key provisions relating to retirement plans.

1. Covid-19 Related Distributions

The CARES Act provides that section 72(t) of the Internal Revenue Code shall not apply to coronavirus-related distributions from certain qualified retirement plans.  This means that a plan participant will not be subject to the 10% penalty for early withdrawal, as long as the aggregate amount of the withdrawal does not exceed $100,000.  The term “aggregate” refers to all plans maintained by the participant’s employer and any member of a controlled group.

Eligible retirement plans include:

  • IRAs
  • Tax-qualified retirement plans
  • Tax-deferred section 403(b) plans
  • Section 457(b) governmental sponsored deferred compensation plans

The exemption from section 72(t) is effective for distributions made during 2020 – calendar year 2020, not plan year 2020.  In addition, the exemption is available only to a plan participant:

  • Who is diagnosed with Covid-19
  • Whose spouse or dependent is diagnosed with Covid-19
  • Who is furloughed or laid off, has work hours reduced or is unable to work due to lack of childcare or is otherwise unable to work due to Covid-19

An employer is required to confirm that the participant meets one of these conditions but can rely on the participant’s certification.

The participant can elect whether to repay the distribution or to have the distribution included in income.  If the participant elects to repay the distribution, it must be repaid in full within three years after the date the distribution is received.  A participant who elects to not repay the distribution is taxed on the distribution ratably over three taxable years beginning with the year of the distribution.

2. Plan Loans

The CARES Act increases the amount of loans that a “qualified individual” can take from a retirement plan.  Beginning on March 27, 2020, for a 180-day period, the loan amount is increased to the lesser of $100,000 or 100% of the participant’s nonforfeitable accrued benefit under the plan.  Prior to this change, the amounts were $50,000 and 50%, respectively.

The CARES Act also changes the terms of loan repayments.  If the due date of any loan repayment occurs between March 27, 2020, and December 31, 2020, the due date is extended for one year.  Subsequent due dates are extended for one year as well.

An employer may need to amend its plan document in order to provide these enhanced rights to its employees.

3. Required Minimum Distributions

The CARES Act provides a temporary waiver of required minimum distributions for participants who turn age 72 in calendar year 2020.

4. Minimum Required Contributions

The CARES Act delays the due date of any employer-contribution to a defined benefit plan required to be made during calendar year 2020 to January 1, 2021.  However, any delayed payment accrues interest from the original due date to the date of payment.  In addition, an employer may elect to treat the plan’s adjusted funding target attainment percentage (“AFTAP”) for the last plan year ending before January 1, 2020, as the AFTAP for the plan year, which includes calendar year 2020.

5. Filing Deadlines

The CARES Act gives the Department of Labor the right to extend any filing deadline under ERISA for a period of one year as a result of the Covid-19 pandemic.

6. Education Assistance

The CARES Act amends section 127(c) of the Internal Revenue Code to include repayment of an employee’s qualified education loan in the definition of non-taxable “educational assistance”.  The payments must be made before January 1, 2021, and are limited to $5,250.

7. Plan Amendments

Some of the provisions of the CARES Act are voluntary, not mandatory.  For example, the provisions regarding coronavirus-related distributions and increased loan amounts apply only if the plan document permits such distributions and loans in the first place.  As a result, a Plan Sponsor may need to amend its plan document in order to afford its plan participants the ability to access such distributions and loans.

A Plan Sponsor can administer the plan in accordance with the necessary amendments, even before the amendments are actually adopted.  However, the amendments must be adopted by the last day of the first plan year beginning on or after January 1, 2022.

8. PBGC

The PBGC has announced the extension of filing deadlines, including premium payments.  Any filing due after April 1, 2020, can be delayed until July 15, 2020.  While this is not part of the CARES Act, it is something that affects defined benefit pension plans.

Some of these provisions will require further guidance, and we will update you as that guidance is issued.  If you have any questions how the CARES Act affects your qualified retirement plan, contact RMC Group.

*Revised April 21, 2020

Categories
Health and Benefits Technical Memorandum

Coronavirus Aid, Relief and Economic Security Act [Technical Memorandum]

On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) into law.  The CARES Act is a wide-ranging piece of legislation that impacts almost every aspect of American life.  This article will discuss some of its effects on healthcare.

1. Covid-19 Testing

The Families First Coronavirus Response Act (“FFCRA”) requires group and individual health plans, whether fully-insured or self-insured, to cover the full cost of testing for the Coronavirus.  The FFRCA eliminated deductibles, co-pays and coinsurance in connection with Coronavirus testing.  The problem with the FFRCA was that it was limited to FDA-approved tests.  The CARES Act expands the type of tests, which a health plan is required to cover to include tests that:

  • have been submitted to the FDA for approval;
  • have been developed or authorized by a state; or
  • have been determined by the Department of Health and Human Services to be appropriate for the purpose.
2. Coverage of Covid-19 Vaccines

While the FFCRA requires that health plans cover the cost of testing for the Coronavirus, it does not require that health plans cover the cost of any item or service designed to prevent Covid-19, such as a vaccine.  The CARES Act requires health plans to cover the full cost of any item or service that is intended to prevent or mitigate Covid-19 and that is:

  • an evidence-based item or service that has a rating of A or B in the current recommendations of the U.S. Preventive Services Task Force; or
  • an immunization that has a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved.

A health plan is required to cover the cost of such item or service 15 days after one of the foregoing conditions has been met.

3. Cost of Testing

The CARES Act sets the price that a health plan is required to pay for Covid-19 testing as:

  • the price negotiated between the plan and provider; or
  • if the plan and provider have not negotiated a price, then the price listed by the provider on its public website.

A provider can be charged a fine of $300 per day for failure to list the price on its public website.

4. High-Deductible Health Plans

The CARES Act provides that a high-deductible health plan can pay the full cost of telehealth services without cost-sharing, even if the participant has not met the plan’s deductible for the year.  In addition, the participant can continue to fund an HSA.  This provision is effective for plan years beginning before December 31, 2021.

The CARES Act is not likely to be the final piece of legislation enacted by Congress to fight the Coronavirus pandemic.  We will keep you posted about future developments.  If you have any questions about the CARES Act or how it impacts your health plan, please contact RMC Group.

Categories
Technical Memorandum

IRS Response To The Coronavirus Pandemic

In a press release dated March 25, 2020, the IRS joined other federal agencies in responding to the Coronavirus pandemic. In something that the IRS is calling the “People First Initiative”, the IRS announced changes to certain compliance and collection programs.

IRS Commissioner Charles Rettig said:

IRS employees care about our people and our country, and they have a strong desire to help improve this situation. These new actions reflect just one of many ways our employees are working hard every day to assist the nation. We care, a lot. IRS employees are actively engaged, and they have always delivered for their communities and our country.

Among the features of the People First Initiative are the following:

Existing Installment Agreements

Taxpayers who previously signed Installment Agreements with the IRS will not be required to make payments between April 1, 2020, and July 15, 2020.

In addition, the IRS will not take any action to default a taxpayer during this time. However, a taxpayer who can make the payments required under an Installment Agreement should continue to make those payments. Interest will accrue during this period on any unpaid balances.

Offers in Compromise

A taxpayer who is currently negotiating an offer in compromise with the IRS will have until July 15, 2020, to provide the IRS with any outstanding information request.

In addition, a taxpayer with an accepted offer in compromise may suspend any payments thereunder until July 15, 2020. However, interest continues to accrue. The IRS will not default a taxpayer under an existing offer in compromise for failure to file delinquent tax returns. However, 2018 and 2019 tax returns should be filed by July 15, 2020.

Field Collection Activities

Any liens and levies initiated by a field revenue officer will be suspended until July 15, 2020. However, field revenue officers will continue to pursue high-income non-filers.

Automated Liens and Levies

New automatic, systemic liens and levies will be suspended until July 15, 2020.

Audits

The IRS will not start new audits until after July 15, 2020. However, this will not apply if the delay would impact the statute of limitations.

The IRS will continue to work on open audits. However, in-person meetings will be suspended during this time. A taxpayer should not ignore outstanding requests for information but should respond to any request received before the date of the press release.

Appeals

The appeals process is not suspended but will proceed remotely. Appeals is not holding in-person conferences but will be conducting conferences over the phone or via videoconference.

Statute of Limitations

The IRS will not allow any statute of limitation to expire. If a limitations period is in jeopardy of expiring, the IRS will ask the taxpayer to agree to an extension. If the taxpayer refuses, the IRS will issue a Notice of Deficiency to protect its rights.

In closing, Commissioner Rettig said:

The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others. We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.

Conclusion

Taxpayers who have experience with the IRS may be surprised to learn that the IRS cares about taxpayers.

Please note that the IRS has not closed during the Coronavirus pandemic. It is still open for business. The IRS will take whatever action it deems necessary to protect its rights. It is important that you remain diligent and do the same.

We will continue to update you as we become aware of new information.

Categories
Business Insurance Captive Insurance Compliance Update Technical Memorandum

Further DOL Guidance on Families First Coronavirus Response Act

Shortly after publishing its FAQ on the Families First Coronavirus Response Act (the “Act”), the Department of Labor (DOL) issued Field Assistance Bulletin No. 2020-1 (the “Bulletin”).

What does the Bulletin mean for business?

The Bulletin announces a temporary delay in the enforcement of the Act, which goes into effect on April 1, 2020.

The DOL states that it will not bring enforcement actions against employers who are making a good faith effort to comply until after April 17, 2020.

If your business is subject to the Act, you should begin making changes to comply with its requirements.

The Bulletin states:

The Department will not bring enforcement actions against any public or private employer for violations of the Act occurring within 30 days of the enactment of the Act, i.e. March 18 through April 17, 2020, provided the employer has made good faith efforts to comply with the Act.

So, the question is, what constitutes a good faith effort to comply with the Act?

The DOL sets forth three conditions, all of which must be present for an employer to be treated as having made a good faith effort to comply:

  1. An employer must remedy any violation, including making all employees whole
  2. The violations must not be willful. A violation is willful if an employer “either knew or showed reckless disregard for the matter of whether its conduct was prohibited”.
  3. The employer provides the DOL with a written commitment to comply with the requirements of the Act in the future.

The stay on enforcement will be lifted on April 17, 2020.

In the meantime, the DOL will take enforcement action against an employer who violates the Act willfully, fails to provide a written commitment to the DOL regarding future compliance with the Act, or fails to remedy the violation.

While not permanent, this temporary stay should give employers some breathing room while trying to figure out how to comply.

Is your business affected by the DOL’s Bulletin?

Categories
Business Insurance Health and Benefits Technical Memorandum

What Employers Should Know About Labor Department’s Guidance On Families First Coronavirus Response Act

On March 24, 2020, the Department of Labor (DOL) issued an FAQ to provide guidance for the Families First Coronavirus Response Act (the “Act”). This is their first effort at answering some questions.

What do we know from this guidance?
1) Paid Leave Provisions Begin April 1st

The Act’s paid leave provisions are effective April 1, 2020, and will extend to December 31, 2020.

This is slightly interesting in that the Act says it will become effective April 2, 2020. The FAQ provides no explanation for why the DOL changed the effective date of the Act’s provisions.

It says the relevant date for making this determination is the date that an employee requests leave under the Act.

So, for example, if, on the date that Jim asks for leave under the Act, the employer has 505 employees, Jim is not eligible for paid leave under the Act.

However, if, a week later, when John asks for leave, the employer has 495 employees, then John is eligible for leave under the Act.

2) Independent contractors are not covered under the Act

If an employer has multiple locations, employees in all locations are considered when tallying the total number.

However, if a corporation has an ownership interest in another corporation, the corporations are generally treated as separate entities, unless they are considered joint employers under the Fair Labor Standards Act.

3) The Act Only Applies For Businesses With Under 500 Employees

The FAQ makes clear that the Act does not apply to employers with more than 500 employees.

4) Fewer Than 50 Employees May Be Exempt

Employers with fewer than 50 employees may be exempt from the requirements of the Act. The criteria for the exemption will be addressed in the regulations.

5) Part-Time Employees Are Entitled To Benefits

A part-time employee is entitled to be paid for the average number of hours worked. You calculate their paid leave period based upon the number of hours that the employee is normally scheduled to work. If the normal hours are unknown or the employee’s hours fluctuate, then you can use a 6-month average.

6) Sick Pay and Overtime Are Included, With Capped Hours

When calculating sick pay, overtime hours are included. However, the amount of hours are capped at 80. So, if an employee is scheduled to work 50 hours in one week, you can pay for 50 hours for that week. But, the employee can only be paid for 30 hours the next week.

7) Family And Medical Leave Sick Pay Is Calculated Differently

The payment rates for paid sick leave and family and medical leave under the Act are different. So, it is important for you to determine under which part of the Act the employee seeks to qualify. An employee receiving sick pay is entitled to full pay with a cap of $511 per day. An employee taking family and medical leave is entitled to two-thirds of normal pay.

8) Benefits Are Not Retroactive

The Act is not retroactive. However, it provides a new and separate benefit. So, an employee who took sick pay before April 1, 2020, is still eligible to take sick pay under the Act after April 1, 2020.

We will provide more information as it becomes available from the Department of Labor.

Not sure how these changes affect your company?

Leave a comment below or contact us with your questions.

Categories
Technical Memorandum

Family First Coronavirus Response Act [Technical Memorandum]

On March 18, 2020, President Trump signed into law the Family First Coronavirus Response Act (the “Act”).  The Act contains a number of provisions to provide relief during the Covid-19 crisis.

Here are some of the important features:

1. Emergency Paid Sick Leave Act

The Act provides up to two weeks of paid sick leave to all employees of employers with fewer than 500 employees.  The Act covers both full-time and part-time employees, although part-time employees may not be entitled to a full two weeks of paid leave.  Part-time employees are entitled to paid leave equal to the number of hours they work on average over a two-week period.

Paid leave under the Act is triggered by one of the following reasons:

  • An employee is subject to a federal, state or local quarantine order related to Covid-19.
  • An employee has been advised by a healthcare provider to self-quarantine as a result of exposure to Covid-19.
  • An employee is experiencing symptoms of Covid-19 and is seeking a medical diagnosis.
  • An employee is caring for an individual who is subject to a self-quarantine or isolation order or has been advised by a healthcare provider to self-quarantine.
  • An employee is caring for a child whose school has been closed.
  • An employee has any other qualifying condition under rules to be set forth by the Secretary of the Treasury or the Secretary of Labor.

The Act requires the Secretary of Labor to issue regulations to help employers calculate paid sick leave no later than April 2, 2020.  In addition, the amount of paid sick leave is capped.

2. Emergency Family and Medical Leave Expansion Act

The Act provides up to 12 weeks of Family and Medical Leave if an employee is unable to work because the school or day care facility for a child under the age of 18 has been closed or the child’s babysitter or nanny is unable to work as a result of a Covid-19 emergency declared by the federal, state or local government.  In order to be eligible, an employee must have worked for at least 30 days for the employer.  In addition, the first 10 days of leave may be unpaid.  The Act simply adds another reason an employee may take Family and Medical Leave.  It does not increase the amount of leave available to an employee beyond what is already available under current law.

3. Testing for the Coronavirus

The Act requires that health plans, whether group or individual, and whether fully-insured or self-insured, cover the entire cost of testing for Covid-19 at no cost to the employee.  This means that an employee may not be charged co-pays, deductibles or any other type of cost-sharing.  The testing may occur at a healthcare provider’s office, an urgent care center or an emergency room.  In addition, the Act covers telemedicine visits.  The employee need not obtain preauthorization.  The only requirement is that the testing be for Covid-19.

The Act only covers testing for Covid-19.  It does not include treatment for Covid-19.  However, there is nothing in the Act to prevent an employer or a health plan from covering the costs for treatment as well.

4. Tax Credits

The Act also includes tax credits to help an employer pay for the cost of paid sick leave and the expansion of Family and Medical Leave.

This legislation may just be the beginning.  As the crisis develops, Congress may enact other legislation to help Americans deal with the crisis.

Categories
Technical Memorandum

Fiduciary Rule is Dead [Technical Memorandum]

On March 15, 2018, in a group of consolidated cases known as Chamber of Commerce of the United States of America, et al v. United States Department of Labor, the United States Court of Appeals for the Fifth Circuit held that the Department of Labor (DOL) exceeded its authority when it issued the Fiduciary Rule and vacated the Fiduciary Rule in its entirety. On May 7, 2018, DOL issued Field Assistance Bulletin No. 2018-02, which many commentators are interpreting as an indication that DOL will not appeal the Court’s ruling. So, what does this mean for the employee benefits profession?

In technical terms, it means that life goes back to the way it was before April, 2017. The definition of the term “fiduciary” under ERISA reverts to the definition that had existed since 1975, when DOL promulgated a five-part test to determine whether a person is a fiduciary. As described by the Court, under that test, a person is a fiduciary if he:

1.         renders advice . . . or makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property;

2.         on a regular basis;

3.         pursuant to a mutual agreement . . . between such person and the plan;

4.         the advice serves as a primary basis for investment decisions with respect to plan assets; and

5.         the advice is individualized . . . based on the particular needs of the plan.

The Fiduciary Rule revised the definition of “fiduciary” by removing two important elements. First, it eliminated the requirement that advice be provided on a “regular basis”. Second, it eliminated the requirement that the advice be the “primary basis” for investment decisions. This turned the role of fiduciary from a relationship to a transaction. In other words, prior to the Fiduciary Rule, a fiduciary was a person who had a long-standing relationship of trust with a client and upon whose advice the client regularly and primarily relied. Under the Fiduciary Rule, a person who worked with a client in a single transaction and did not have a relationship of trust or was not the person upon whom the client regularly relied for investment advice could be a fiduciary. This is no longer the case.

The Court’s ruling also eliminates the Best Interest Contract Exemption and reverses the amendment to Prohibited Transaction Exemption No. 84-24 (PTE 84-24). Under the Best Interest Contract Exemption, persons who might not otherwise meet the definition of “fiduciary” had to sign a written contract in which they agreed to be treated as a fiduciary and agreed to be subject to suit in state court. The amendment to PTE 84-24, removed indexed annuity contracts from the exemption. In addition, both required that an advisor adhere to the “Impartial Conduct Standards”. Vacating the Best Interest Contract Exemption, as well as the amendment to PTE 84-24, means that an insurance agent or financial planner does not have to sign a written contract with a client pursuant to which he or she agrees to assume the role of fiduciary and submit to suit in state court. It also means that indexed annuity contracts will be treated the same as fixed annuity and life insurance contracts for purposes of the prohibited transaction exemption. Most importantly, it may mean that an advisor is no longer subject to the Impartial Conduct Standards. 1

As a practical matter, however, the Court’s decision may have much less impact. The Impartial Conduct Standards requires an insurance agent or financial planner to:

1.         act in the best interest of the client;

2.         receive no more than reasonable compensation; and

3.         make no materially misleading statements.

Most insurance professionals and financial planners have followed the foregoing standards of conduct for many years, even before they were announced by DOL. While the Court’s decision may have vacated the mandate of the Impartial Conduct Standards, it will not change the way most insurance agents and financial planners conduct their business.

The most important effect of the Court’s opinion, and DOL’s apparent decision to not appeal, may be to remove a psychological impediment to proposing a qualified retirement plan to your client. The Court recognized the importance of retirement planning and the vital role that an experienced and knowledgeable insurance agent can play. The Court also recognized that insurance and annuity products are an important component of a well-designed plan and that Americans should not be deprived of the support of insurance professionals.

1 It is not clear from FAB 2018-02 whether DOL will still attempt to enforce the Impartial Conduct Standards in some other form of guidance.