Seyfarth Synopsis: As employers continue to struggle with strategies for safely re-opening their workplaces, we have previously discussed the possibility of mandating a vaccine or providing incentives for getting the vaccine. [Here] As employers shift their focus toward the cost of COVID hospitalizations (which studies show are a much greater risk for unvaccinated individuals), employers are increasingly considering imposing a premium differential between vaccinated and unvaccinated covered participants. Imposing such a premium differential is doable, but likely creates a group health plan wellness program, which implicates both HIPAA (under rules issued by HHS), and the ADA and GINA (governed by the EEOC) wellness program rules.

There are myriad intricacies to consider when setting up a wellness program. We will hit some of the highlights here:

HIPAA Wellness Programs

HIPAA’s rules divide the world of wellness programs into two main categories:

  1. Participation-only programs. These are programs that do not require any conditions for receiving a reward and have very few requirements associated with them, except that they must be available to all similarly-situated individuals.
  2. Health-contingent programs. These are programs that base rewards on satisfying a standard related to a health factor, which are further subdivided into

(i) activity-only, and

(ii) outcomes-based programs

While at first blush it may seem like getting a vaccine is participation-only as a person simply needs to get the shot, and does not need to remain free from COVID-19, there is some thought that it may actually be health-contingent because not everyone can get the vaccine due to underlying health conditions.

Most practitioners do not believe such a program is a health-contingent “outcomes-based” program, as the reward does not depend on staying COVID-19-free. However, at least one consultant has taken the position that this type of program could even be outcomes-based if having simply received the vaccine is considered a “health status.”

Although HHS has not provided any direct guidance here, we think it is more likely that such a program would be a health-contingent “activity-only” program. In general, a health-contingent activity-only wellness program must meet the following requirements:

  • Incentive Limit:
    • Limit the incentive to 30% of the cost of coverage (this limit is increased to 50% if the program includes a tobacco cessation component);
    • The limit is based on the overall cost of coverage — i.e., the COBRA rate — applicable to the value of coverage elected — i.e., self-only, family, etc.;
    •  This incentive would need to be combined with any other “health contingent” wellness program offered under the plan when determining whether the incentives exceed the limit (except that if any incentive is linked to smoker status, the limit is increased to 50%)
  • Reasonable Alternative
    •  A reasonable alternative must be offered to persons who cannot get vaccinated because it is medically inadvisable or, as a result of the overlay of Title VII, due to a sincerely held religious belief.
    • Participants must be notified of the availability of the reasonable alternative in all materials substantially describing the program.
  • Annual Opportunity to Qualify:
    • Provide an opportunity to qualify for the reward at least once per year
  •  Be uniformly available to all similarly situated individuals; and
  •  Not be a subterfuge for discrimination.

(Note: There are additional requirements for health contingent wellness programs that are outcomes-based programs.)

EEOC and the ADA

The EEOC has modified its wellness program rules a few different times in the last few months. Ultimately, we read the current loosening of the EEOC’s wellness program rules as the administration’s attempt to not discourage incentives.

If the wellness program is for a health-contingent activity-only program, the EEOC is okay if the plan meets the HIPAA/HHS standards. (The new EEOC wellness program rules will also allow an incentive for participatory programs that is not overly large (i.e., considered coercive).)

Similarly, recent EEOC guidance has indicated that vaccine status alone is not a “medical exam or disability-related inquiry” under the ADA. So, if an employer simply requests proof of vaccination status but does not require the employee to get the vaccine directly from the employer (or its contractor), the program is arguably outside of the scope of the EEOC’s wellness guidelines entirely.

Affordable Care Act

For ACA purposes, if the “incentive” is structured as an increased premium, the employer must treat all employees as if they failed to get vaccinated and were required to pay the increased amount for purposes of determining the affordability of coverage, regardless of whether that’s the case. However, there are ways for plan sponsors to mitigate this concern. For instance, the employer could design its “penalty” as a deductible increase rather than a premium increase, which would not impact affordability. (It would impact minimum value, but the employer likely has more flexibility there.) Similarly, because the ACA only requires that employers offer one affordable option, the employer could link the incentive only to its higher-cost benefit options (leaving untouched its lower-cost, “affordable” option.)

*     *     *

While beyond the scope of this legal update, employers should also be cautious of how they structure the program considering collective bargaining obligations, HIPAA privacy concerns and Section 125 requirements (for mid-year implementations). We will continue to monitor trends in this space with an eye toward any agency indications as to whether they intend to regulate these types of programs.

On July 26, 2021, the U.S. Internal Revenue Service (“IRS”) issued Notice 2021-46, providing additional guidance on the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and premium assistance and tax credit provisions of the American Rescue Plan Act of 2021 (“ARPA”). As described in our Legal Update , ARPA requires employers to cover 100% of the cost of continuing group health coverage under COBRA from April 1, 2021 through September 30, 2021 for assistance eligible individuals (i.e., individuals who lose coverage due to an involuntary termination of employment or reduction of hours ). On May 18, 2021, the IRS issued guidance in IRS Notice 2021-31 as we described in our prior blog post to provide clarification for employers, plan administrators, and health insurers regarding this subsidy. Notice 2021-46 expands on that guidance.

The key points from IRS Notice 2021-46 are summarized below.

How Does the Subsidy Apply to Assistance Eligible Individuals Who Are Entitled To Extended Coverage Periods?

Notice 2021-46 clarifies that assistance eligible individuals may be entitled to the COBRA subsidy for extended coverage periods (e.g., disability extensions, second qualifying events or an extension under State mini-COBRA laws), even if the assistance eligible individual didn’t elect extended coverage before April 1, 2021.

The Notice provides an example of an individual who is involuntarily terminated and elects COBRA continuation coverage effective October 1, 2019. The individual’s 18-month COBRA continuation period would have lapsed March 31, 2021. However, on March 1, 2020, a disability determination letter was issued by the Social Security Administration providing that the individual was disabled as of November 1, 2019. This disability determination entitles the individual to the 29-month extended COBRA continuation coverage, but the individual failed to notify the plan of the disability determination by April 30, 2020, which is 60 days after the date of the issuance of the disability determination letter (as would normally be required to qualify for the COBRA disability extension period). However, under the EBSA Disaster Relief Notices 2020-01 and 2021-01, the individual has one year and 60 days from the issuance of the disability determination letter to notify the plan of the disability to extend COBRA continuation coverage. On April 10, 2021, the individual notifies the plan of the disability and elects ongoing COBRA coverage from April 1, 2021. Assuming the individual is not eligible for other disqualifying group health plan coverage or Medicare, the individual is an assistance eligible individual and is entitled to the COBRA premium assistance.

Does Eligibility For Other Health Coverage That Does Not Include Vision or Dental Benefits Terminate an Assistance Eligible Individual’s Eligibility For the COBRA Subsidy for Vision-Only or Dental-Only Coverage?

Yes. Eligibility for the COBRA premium assistance ends when the Assistance Eligible Individual becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all of the benefits provided by the COBRA coverage.

Which Entity May Claim the Tax Credit For the COBRA Subsidy?

Where a group health plan (other than a multiemployer plan) subject to COBRA covers employees of two or more employers, each common-law employer is generally treated as the premium payee entitled to claim the premium assistance tax credit with respect its own employees and former employees, even where such common-law employers are part of a controlled group.

The Notice also clarifies that an entity that provides health benefits to employees of another entity, but is not a third-party payer of their wages, will not be treated as a third-party payer for purposes of applying Notice 2021-31. For example, if a group health plan covers employees of two or more unrelated employers in a multiple employer welfare arrangement (“MEWA”), the entity entitled to claim the tax credit is generally the common law employer; the association that sponsors the MEWA is not entitled to claim the tax credit for the COBRA subsidy.

Reminder: Tell Participants that the Subsidy Period is Ending

As we mentioned in our previous Legal Update, ARPA requires plan sponsors to notify participants 15-45 days before their COBRA subsidy ends. Participants will need to be informed (i) when their subsidy ends, and (ii) how much their non-subsidized COBRA premium will be. Employers may already have sent this notice on a “one-off” basis to COBRA qualified beneficiaries whose 18 or 36 months of COBRA coverage has ended or will end before September 30th. However, the subsidy will expire on September 30, 2021 for all COBRA qualified beneficiaries (even if they may still have time remaining in their 18 or 36 month COBRA period); thus, employers may need to do one last bulk mailing. The mailing needs to go out any time between August 16, 2021 and September 15, 2021. The Department of Labor’s model notice is here.

Please contact Irine Sorser ([email protected]), Kelly Pointer ([email protected]) or any member of Seyfarth’s Employee Benefits Group if you would like further information about these updates.

By: Mark Casciari and Michael Cederoth

Seyfarth Synopsis: The Court of Appeals for the Ninth Circuit recently rejected the application of the doctrine of equitable estoppel to prevent a plan trustee from enforcing the clear terms of the plan.  So, it bears repeating that drafters of ERISA plans are well advised to draft as clearly and carefully as possible.

In Wong v. Flynn-Kerper, 999 F.3d 1205 (9th Cir. 2021), an ESOP trustee sued to enforce the terms of the Plan. The operative Plan terms mandated that the Plan not pay more than fair market value for company stock, as determined at the time of the transaction by an independent appraiser. The Plan sought revision of a transaction where the Plan had promised to pay for stock, by alleging that the stock was overvalued.  The Plan claimed that the independent appraiser was unaware that the Plan sponsor was carrying substantial uncollectable debt and facing mounting attorney’s fees and administrative penalties.

The defendant holder of the promissory note attempted to invoke the doctrine of equitable estoppel to dismiss the claim, relying on a side agreement between the defendant and the trustee that affirmed an obligation to pay for the stock even if overvalued. The defendant thus argued that the Plan was equitably estopped from reducing the value of the note. The district court agreed and granted the defendant’s motion to dismiss.  The Ninth Circuit reversed, holding that the doctrine of equitable estoppel could not be invoked against an ERISA plan trustee to contradict the terms of the plan. Allowing the terms of the side agreement to prevail, the court stated, would plainly violate those Plan terms mandating that the Plan not pay more than fair market value. The Ninth Circuit thus joined the Fourth Circuit in barring the defensive use of equitable estoppel to contradict an ERISA plan’s express terms. See Ret. Comm. of DAK Ams. LLC v. Brewer, 867 F.3d 471 (4th Cir. 2017).

We note as well that the Ninth Circuit did not apply a wholesale ban on the application of equitable estoppel in ERISA actions.  Rather, the court said that equitable estoppel could apply if,  in addition to meeting the traditional elements of equitable estoppel, a party established (1) extraordinary circumstances, (2) that the provisions of the plan are ambiguous, and (3) that the representations made about the plan were an interpretation, and not a modification, of the plan.

Takeaway — We have previously discussed the importance of careful drafting of ERISA plans. See here and here. That admonition bears repeating. As the Supreme Court has stated:  “The plan, in short, is at the center of ERISA.” See US Airways, Inc. v. McCutchen, 569 U. S. 88 (2013). And even the Ninth Circuit agrees in Wong v. Flynn-Kerper.

Friday, July 30, 2021
2:00 p.m. to 3:30 p.m. Eastern
1:00 p.m. to 2:30 p.m. Central
12:00 p.m. to 1:30 p.m. Mountain
11:00 a.m. to 12:30 p.m. Pacific

On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance.

In this webinar, Seyfarth attorneys review the interim final rule, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Plan eligibility;
  • The amount of SFA;
  • The application process;
  • Conditions and restrictions on receipt of SFA, including limitations on reductions in contributions and increases in benefits, and investment restrictions;
  • Withdrawal liability considerations; and
  • What’s Next

Register Here

By: Mark Casciari, Tom Horan, and James Nasiri

Seyfarth Synopsis: In a recent decision highlighting the potential for far-reaching responsibility for withdrawal liability payments, the Court of Appeals for the Seventh Circuit affirmed a judgment against two individuals contending that their ownership interest in the contributing company’s principal place of business was a purely passive investment.

In February 2018, a trucking company ceased all operations and withdrew from the Local 705 Teamsters Multi-Employer Pension Fund.  The fund sent the company, and the individuals who owned its principal place of business, a demand for payment of withdrawal liability.

The company and the individuals did not request review of the demand.  The fund then commenced litigation to collect on its demand.

The Seventh Circuit affirmed a judgment in favor of the fund and against the contributing company and individuals.  The decision is reported as Local 705 International Brotherhood of Teamsters Pension Fund v. Pitello, 2021 WL 2818326 (7th Cir. July 7, 2021).

The court explained that withdrawal liability extends to all “trades or businesses” under common control with the withdrawing employer, on a joint and several liability basis.  The court said that joint and several liability does not extend, however, to parties with purely “passive or personal investments.”

The individuals argued that their ownership of the at-issue property should not be deemed a trade or business because they: (1) never received any rent or tax benefits as a result of the company’s use of the property, (2) purchased the property 18 years earlier and held it purely as an investment, (3) did not lease it to anyone after the company ceased operations, and (4) never employed anyone to manage the property.

The court found that another company the individuals owned did charge rent for the property after the contributing company ceased operations.  The court thus reasoned that “whatever value the[y] received through their rent-free arrangement with [the company] had been lost,” and the decision to generate replacement rental income thereafter made clear that their ownership of the property was a business venture.

Moving forward, this decision should serve as a reminder that courts are willing to entertain expansive definitions of who may be jointly and severally liable for withdrawal liability. See our articles that address the complexity of judicial review on the scope of liability.  No Partnership, No Common Control, No Withdrawal Liability: Private Equity Funds Not Liable for Portfolio Company’s Multiemployer Plan Withdrawal Liability | Beneficially Yours and The Ninth Circuit Hammers Out A New Successorship Liability Test Under The MPPAA | Beneficially Yours.  All companies and individuals in this space also should become familiar with the PBGC’s interim final rule on the Special Financial Assistance provisions of the American Rescue Plan Act, which sets forth rules on employer withdrawals and withdrawal liability settlements.  See PBGC Issues Much Anticipated Interim Final Rule on Special Financial Assistance Under American Rescue Plan Act | Beneficially Yours.

Friday, July 30, 2021
2:00 p.m. to 3:30 p.m. Eastern
1:00 p.m. to 2:30 p.m. Central
12:00 p.m. to 1:30 p.m. Mountain
11:00 a.m. to 12:30 p.m. Pacific

On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance.

In this webinar, Seyfarth attorneys review the interim final rule, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Plan eligibility;
  • The amount of SFA;
  • The application process;
  • Conditions and restrictions on receipt of SFA, including limitations on reductions in contributions and increases in benefits, and investment restrictions;
  • Withdrawal liability considerations; and
  • What’s Next

Register Here

By: Seong Kim, Ronald Kramer, and Alan Cabral

Seyfarth Synopsis:  On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance. Seyfarth has prepared a Legal Update summarizing the interim final rule and will be holding a webinar on the rule on July 30, 2021.

On July 9, 2021, the Pension Benefit Guaranty Corporation (“PBGC”) issued extensive guidance in an interim final rule (the “Interim Final Rule,” “Rule,” or “regulation”) to implement the American Recue Plan Act’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer defined benefit pension plans.  Under the SFA Program, an eligible plan will receive the funds required for the plan to pay all benefits due from the date of the SFA payment and ending on the last day of the plan year ending in 2051.

The Interim Final Rule, set forth in new Section 4262 of the PBGC’s regulations, provides guidance to plan sponsors on the SFA application process, including what plans need to file to demonstrate eligibility for relief; calculating the amount of SFA; assumption requirements;  the PBGC’s review of SFA applications; and other restrictions and conditions.  The Interim Final Rule also sets forth the order of priority in which applications will be reviewed and provides much anticipated clarification on the calculation of withdrawal liability and the assumptions to be used for SFA.

There is a thirty (30) day public comment period starting from the date of publication of the rule in the Federal Register on July 12, 2021.

Seyfarth has issued a detailed Legal Update, too long for a blog post, summarizing the interim final rule which can be accessed here.  It is recommended reading.  (Our earlier Legal Update on the Pension and Executive Compensation Provisions in the American Rescue Plan Act can be accessed here.) 

In addition, there are a number of issues that have not been addressed in this regulation, and we will be issuing a further memorandum soon outlining some of the important open questions.  Seyfarth will also hold a webinar on Friday, July 30, 2021, at 1:00 central to review the regulations in more detail, as well as any considerations for plan sponsors and contributing employers.  Stay tuned to this site for more details and an invite to the webinar.

Seyfarth Synopsis: The IRS has extended its relief from the physical presence requirement related to certain plan elections through June 30, 2022.

Certain elections for distributions from plans require spousal consent provided in the presence of a notary or plan representative. Although states were relaxing their notarization requirements due to the COVID-19 pandemic, many plan administrators were reluctant to accept remote notarizations for plan elections because a “physical presence” requirement remained in the IRS guidance.

In June 2020, the IRS gave temporary relief from the physical presence requirement in the Treasury Regulations related to plan elections. The relief allowed for elections to be witnessed by a notary public of a state that permits remote electronic notarization using live audio-video technology. It also allowed remote witnessing by plan representatives using live audio-video technology if certain requirements were met. See our prior blog post on this relief here.

In January 2021, the IRS further extended this temporary relief through June 30, 2021. The IRS has now extended the relief for another 12 months through June 30, 2022. The guidance also requests specific comments on whether the relief should be permanent. Among other items, the IRS asked for comment about any costs or burdens associated with the physical presence requirement and whether the removal of the physical presence requirement could cause increased fraud, spousal coercion or abuse.

This guidance will provide plan sponsors and plans continued flexibility as plan participants continue to work remotely to some degree, and particularly with respect to former employees, and we expect that plan administrators would welcome the opportunity to continue to use remote authorizations. In fact, given the widespread acceptance of remote work technologies, including video meetings apps, it makes sense that the IRS is considering making the relief permanent. Seyfarth will continue to monitor how the physical presence requirements for plan elections are evolving.

Dismissal of ACA Lawsuit Based Only on Standing Grounds

Seyfarth Synopsis:  In Texas v. California, the Supreme Court rejected another challenge to the Affordable Care Act (“Obamacare” or “ACA”). The Court never reached the merits of the challenge, relying instead on its now robust Article III standing doctrine. The plaintiffs failed to allege injury traceable to the allegedly unlawful conduct and likely to be redressed by their requested relief.

On June 17, in Texas v. California, the Supreme Court dismissed the declaratory judgment challenge to the ACA’s constitutionality brought by Texas and 17 other states (and two individuals), finding that the plaintiffs lacked Article III standing. Our earlier blog post on this case after oral argument explained that the plaintiffs alleged that the ACA’s “individual mandate” was unconstitutional in the wake of Congress reducing the penalty for failure to maintain health insurance coverage to $0.

The Court side-stepped all issues on the merits, and ruled 7-2 that the plaintiffs did not have standing because they failed to show “a concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing the specific statutory provision they attack as unconstitutional.” The majority said that the plaintiffs suffered no indirect injury, as alleged, because they failed to demonstrate that a lack of penalty would cause more people to enroll in the state-run Marketplaces, driving up the cost of running the programs. Similarly, the majority found no direct injury resulting from the administrative reporting requirements of the mandate. The majority found that those administrative requirements arise from other provisions of the ACA, and not from the mandate itself.

Justices Alito and Gorsuch dissented, opining that the states not only have standing, but that the individual mandate is now unconstitutional and must fall (as well as any provision inextricably linked to the individual mandate).

This is the third significant challenge to the ACA over the last decade.

Moreover, the latest ACA decision has implications beyond just that statute. A solid majority of the Court has emboldened its already tough standing requirements that precondition any merits consideration in federal court. Our prior blogs here and here, have explained that the Court is intent on narrowing the door to the courthouse for many cases, including ERISA cases. This is significant because ERISA fiduciary breach cases, in particular, can be brought only in federal court. As such, we expect to see more ERISA defense arguments based on Article III standing deficiencies. And it certainly will not be enough for plaintiffs to mount a challenge under the Declaratory Judgment Act as a way to avoid the very stringent Article III injury in fact requirement.

Seyfarth Synopsis: The DOL has waded into a long-simmering debate about whether audio recordings of phone calls between a plan participant and the plan’s administrator or insurer should be provided to the participant when challenging a benefit determination under the plan, and they have come down squarely on the side of the participant. 

A recent DOL information letter lays out the Department’s view that audio recordings are considered relevant documents that plan administrators, insurers, and third party administrators must provide to a claimant upon request, regardless of how the recording is used in the course of plan administration or a benefit determination.

The DOL’s position was expressed in response to a claimant’s request for an advisory opinion after a claims administrator denied the claimant’s request for audio recordings of a phone call  associated with an adverse benefits determination. The DOL felt that this issue was best addressed through an information letter (as opposed to an advisory opinion) as it invoked established principles under ERISA, which would apply more broadly than to the discreet facts of the claimant’s situation.

In the claimant’s situation, the administrator made a transcript of the call available as an alternative to the audio recording.  It asserted that it was not obligated to provide the actual recordings because they were “not created, maintained, or relied upon for claim administration purposes” and were instead made “for quality assurance purposes.”

In addressing the matter, the DOL turned to its long-standing claims regulations under ERISA Section 503.  These regulations require that a claimant be provided with copies of all documents, records and other information “relevant” to the claim for benefits. The DOL was not persuaded by the claims administrator’s arguments that the phone recordings were not relevant, and it cited to two parts of 29 CFR 2560.503-1(m)(8) in its assertion that audio recordings are indeed relevant records that should be provided to claimants.

  • First, in response to the plan administrator’s argument that the recordings were “not relied upon for claim administration purposes,” the DOL cites 29 CFR 2560.503-1(m)(8)(ii). This section notes that a record is considered relevant if it “was submitted, considered, or generated in the course of making the benefit determination, without regard to whether such document, record, or other information was relied upon in making the benefit determination.” (emphasis added). With this, the DOL is not concerned with whether the recording was used in the course of the benefit determination. Rather, if a recording was generated in the course of a benefit determination, then it is considered relevant and should be produced by the applicable plan administrator, insurer, or third party administrator.
  • Second, in response to the plan administrator’s argument that the recordings were made for quality assurance purposes, the DOL cites 29 CFR 2560.503-1(m)(8)(iii). This section notes that a record is considered relevant if it “demonstrates compliance with the administrative processes and safeguards required pursuant to” the plan’s claims procedures.  Relevance is further established if the record can be used as an administrative safeguard that verifies consistent decision making under a plan. The plan administrator’s quality assurance argument ironically works against the administrator because an audio recording made for the purposes of quality assurance and plan consistency falls squarely into the definition of section (m)(8)(iii) and, therefore, renders the recording relevant. As such, an administrator’s attempt to argue withholding on the basis of quality assurance will be futile and the recording should be produced to the claimant.

Further, the DOL shot down any argument that relevant records include only paper or other written materials, saying that the preamble to their recent amendments to the regulations makes it clear that audio recordings can be part of the administrative record.

Overall, the information letter shines a spotlight on the common practice of insurers and third party administrators to deny access to audio recordings, often even to representatives of the plan administrator. Looking forward, plan administrators should work with their vendors and review the terms of their service agreements to ensure that any requests for relevant documents, records, or information are reviewed under this broad definition and appropriately provided to the claimant upon request. Not doing so risks non-compliance with the DOL regulations and potentially the imposition of substantial penalties if challenged in court.