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Seyfarth Synopsis: On March 28, 2024, Washington State’s Governor, Jay Inslee, signed into law a bill that creates a new state-run retirement program called “Washington Saves.”  Under the program, “covered employers” must give “covered employees” the opportunity to contribute a portion of their pay to an individual retirement account (“IRA”) on a pre-tax basis in order to save for retirement. 

Which Employers Must Comply With Washington Saves?

Only “covered employers” must comply with Washington Saves.  A “covered employer” is an employer that:

  • has been in business in Washington State for at least two (2) years;
  • has a physical presence in the State as of the immediately preceding calendar year;
  • does not offer a qualified retirement plan, such as a 401(a), 401(k), 403(b) plan, to their “covered employees” (employees who are at least age 18) who have been continuously employed for at least one year; and
  • employs, and at any point during the immediately preceding calendar year employed, employees working a combined minimum of 10,400 hours (which translates to approximately 5 full-time or full-time equivalent employees.)
Continue Reading Washington Saves; Washington State’s New State-Mandated Retirement Program
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Seyfarth Synopsis: The FTC approved a final rule to implement a nationwide ban on non-compete agreements between employers and their workers. The rule would supersede most state laws regarding noncompete provisions except where a state law prohibition is stricter.

On April 23, 2024, the Federal Trade Commission (FTC) approved in a 3-to-2 vote a final rule (“Final Rule”) which bans post-employment non-compete clauses between employers and their “workers,” including independent contractors. The Final Rule will become effective 120 days after being published in the Federal Register. As of the date of this post, the Final Rule has not been published in the Federal Register. If it becomes effective, the Final Rule would supersede any contrary state laws. 

The ban covers not just traditional non-compete provisions, but any restrictive covenant with a worker that acts to prevent the worker from taking a position with another employer or starting a separate business. For example, the Final Rule explains that an overbroad confidentiality provision could prevent an employee from working for other employers in the same field and, therefore, may be treated as a prohibited non-compete restriction. On the other hand, the ban provides an exception for covenants not to compete as part of a sale of a business, and it grandfathers certain agreements with “senior executives” that are entered into prior to the effective date.

The ban’s scope is very broad and leaves many questions open for interpretation. To assist our clients, Seyfarth has published a multidisciplinary legal update and FAQs. For access, please click here.

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Seyfarth Synopsis: The agencies have finalized a portion of their proposed rules impacting so-called “junk insurance” regarding short-term limited-duration insurance, but deferred finalizing the more significant changes that would have impacted most fixed indemnity policies. 

In early April 2024, the Treasury Department, Department of Labor, and Health and Human Services (the “agencies”) issued final rules regarding short-term limited-duration insurance (STLDI). Avid readers of this blog may recall our earlier post on the proposed rules, found here, which impacted STLDI as well as other issues surrounding excepted benefits. The new final rules primarily address the STLDI portion of the proposed rules, and generally adopt them as proposed. Aside from a new notice requirement, the agencies delayed finalizing the rules on fixed indemnity insurance, but warned that the delay should not be an endorsement of the abusive practices that have emerged in this space.

Continue Reading Agencies Defer Final Action on Junk Insurance, While Suggesting Caution Against One Last “Binge”

In 2024, we commemorate a significant milestone in the landscape of employee benefits law: the 50th Anniversary of the Employee Retirement Income Security Act (ERISA). Enacted on Labor Day in 1974 by President Gerald Ford, ERISA has since served as a cornerstone in safeguarding the retirement and welfare benefits of American workers.

Here at Seyfarth, our employee benefits team is thrilled to embark on a celebration of this momentous occasion. Join us as we delve into the evolution of ERISA over the last half-century, sharing insights on its historical significance and its enduring impact on employers nationwide.

Throughout the year, we’ll be posting regular nuggets of knowledge, exploring the intricacies of ERISA’s development and its current implications for employers. From its inception as a response to concerns about pension abuses, to the shift to 401(k) plans and the focus on health and welfare benefits, ERISA has undergone significant transformations, shaping the way businesses approach their employee benefits.

But our journey doesn’t stop at reflection; we’re also looking ahead. As we celebrate ERISA’s past, we’ll dare to envision its future. What will ERISA look like in the next 50 years? How will it adapt to changing workforce dynamics, emerging technologies, and evolving societal needs? These are questions we’ll explore as we peer into the crystal ball of employee benefits law.

As we embark on this commemorative journey, we invite you to join the conversation. Follow #SeyfarthEB and #ERISAis50 on LinkedIn and subscribe to our blog www.beneficiallyyours.com for updates, insights, and perhaps a bit of speculation about the future of ERISA. Together, let’s celebrate 50 years of ERISA and look forward to the next chapter in the ever-evolving landscape of employee benefits law.

Seyfarth Synopsis:  As foreshadowed in our earlier post, the first complaint was filed in what is expected to be a wave of litigation alleging breach of fiduciary duty in selecting and monitoring welfare plan vendors.  While the facts of this particular case may make it somewhat distinguishable from the circumstances involved in most employer-sponsored plans, it does provide early insight into how future litigation may proceed.  

Click here to read the full update.

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Over the last year, there has been an onslaught of state legislation enacting limits on gender-affirming care for minors. Access to gender-affirming care has become a flashpoint at the forefront of the culture wars, with state legislation largely following party lines. While diagnoses of gender dysphoria for minors aged 6-17 have steady increased, with one of the largest upticks seen in 2021, individuals seeking the type of medical care that is targeted by state legislation remains small. In 2021, records indicate that across the entire United States, gender affirming care for minors resulted in 1,390 minors beginning puberty blockers, 4,231 minors beginning hormone therapy, and 282 minors having top surgery; an exceedingly small number when placed against the backdrop of the large amounts of political capital that have been expended implementing state treatment restrictions.

Seyfarth undertook an effort to track and record treatment restriction laws along with any new or existing treatment requirements, specifically from the point of view of health insurance plan sponsors and administrators. These efforts are contained in the Gender-Affirming Care Coverage Survey. This survey specifically tracks and organizes the full spectrum of state law including where coverage is required for insured plans and which states currently do not have active coverage bans. It also tracks states where there is currently no coverage ban for plans, but the state has passed treatment restrictions aimed at providers. The survey further notes where courts have upheld the treatment restrictions, and where the treatment restrictions are currently enjoined. Lastly, the survey actively tracks and records states where coverage for insured plans is prohibited under the state insurance code.

This Survey is a living document, which is regularly updated and reviewed by Seyfarth’s in-house Survey Team. The landscape related to state legislation and gender-affirming care is quickly changing. The treatment restrictions are likely to face larger questions of legality in both the ERISA preemption and sex discrimination context. The goal of this Survey is to help group health plan administrators and sponsors make informed plan design and compliance decisions related to the coverage of gender-affirming care for minors. Please contact a Seyfarth attorney to discuss the specific implications for your plan and the geographic areas in which it is operated.

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This article was originally posted to Seyfarth’s Global Privacy Watch blog.

Employers looking to enhance their suite of employee benefit programs, and focused on lessons learned during the pandemic on wellbeing, are interested in providing greater access to wellness tools. And, the vendors who support those tools are more than happy to provide them. Global spend in the health and wellness market would be around $24.8 billion in 2023 according to a study by Kilo Health. Wellness apps and wearables abound in all sorts of areas — from counting steps to nutrition to mental health to physical fitness to financial fitness. These tools are relatively inexpensive to provide and easily accessible to the workforce – many times with just a simple download to a smartphone. And, best of all they’re completely private with no middle man, and only the employee seeing their own data and progress. Right?  Well — not so fast. 

Federal Law

HIPAA is the federal statute that protects the privacy and security of individually identifiable health information, called Protected Health Information or PHI. Many people (plan sponsors and covered participants alike) assume that the wellness apps and the data they contain are protected by HIPAA. However, HIPAA does not address all types of health information.  For HIPAA to apply, the information must be created or maintained by a “covered entity”.  Covered entities are generally health care providers (e.g., doctors, hospitals, pharmacies) and health plans. 

Where the developer or license holder of a health application is a covered entity, and that entity maintains the application and the data that it collects, the underlying data will receive the protections of HIPAA. For example, a pharmacy may be the entity who is supplying patients with the access to the online application to manage their medications. In that case, the provider will have to design its security systems and protocols to meet HIPAA’s high standards.

However, many times the developer of a wellness application is not a health care provider and the application is not utilized by a provider for detecting, curing, mitigating, treating or preventing diseases. Common examples of these types of applications are those that track individuals’ walking steps or offer a tracker for weight or blood pressure. In this case, reviewing the privacy policy of the application and making an informed decision before loading personal information is critical.

On the other hand, where an employer is considering enhancing its benefits offering to include access to a wellness application or device, that benefit may be offered under and as part of its health plan. A clear example of this could be a heart monitor used for an individual complaining of an irregular or racing heartbeat. But, also a fitness tracker provided as part of the health plan’s wellness benefit could fall into this category. In that case, the wellness vendor will likely be functioning as a business associate to the health plan, and the individually identifiable health data collected on the app or device will be HIPAA PHI. This means that the vendor and the health plan will need to enter into a HIPAA compliant business associate agreement that lays out the possible uses of the PHI and how it is to be secured.

State Law

Where an ERISA health plan is not involved, and HIPAA therefore would not apply, employers should still consider the implications of state law. A number of states are getting into the privacy game by passing their own privacy laws. As part of these initiatives, the states are attempting to plug the holes around health data privacy which are present in the scope of HIPAA. For example, California, Texas, and Florida all endeavor to regulate the use of health data when used for purposes of “profiling”. Washington State passed a privacy statute directly pointed at health information.

However, almost all states’ privacy laws, with the exception of California’s, have an exclusion for information collected in the scope of an employment relationship. While providing benefits (and collecting information) related to workforce well-being is definitely an interest to the employer, the scope of the exclusion in these state privacy laws has not been litigated. As such, it is not clear if work place-adjacent activity, like the provision of wellness apps, would be covered by the employee exception in any given state.

Effectively, what this means is that even if HIPAA doesn’t apply to the employer’s provision of wellness apps or wearables, it is possible that a state law will apply. Therefore, it is possible that the employer will need to have its own privacy compliance program related to the collection and use of the wellness data.

Ultimately, employers who are deploying wellness apps need to consider the privacy implications at both the federal and state level before roll-out. If not, it is possible that the employer may generate privacy law liability without fully understanding its risk.

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Seyfarth Synopsis: As previously reported here, on December 20, 2023, the IRS issued Notice 2024-2 (the “Notice”) providing guidance on several outstanding questions related to provisions under SECURE 2.0. This blog post summarizes the guidance under the Notice for in-service distributions to terminally ill employees that qualify for a waiver from the 10% early withdrawal tax that normally applies to early distributions from retirement plans.  In the Notice, distributions qualifying for relief from the early withdrawal tax are referred to as “terminally ill individual distributions” (“TI Distributions”). 

TI Distributions In General

  • What is a TI Distribution? A TI Distribution is an in-service distribution to a “terminally ill individual.” Notably, there is no independent right to receive a TI Distribution. Rather, the participant must otherwise be eligible to receive an in-service distribution (e.g., an age 59½, disability or hardship withdrawal) under the qualified retirement plan. In order for the in-service distribution to qualify as a TI Distribution, it must also meet additional requirements described below.
  • What is the advantage of having an in-service distribution classified as a TI Distribution? TI Distributions are exempt from the 10% early withdrawal tax. Also, participants have the right to repay TI Distributions as described below.
  • If a plan does not provide for TI Distributions, may a participant treat an in-service distribution as a TI Distribution? Yes. If the participant receives an otherwise permissible in-service distribution, like a hardship withdrawal, and that participant meets the requirements for a TI Distribution, then the participant may treat the distribution as a TI Distribution on his or her tax return to avoid paying the 10% early withdrawal tax. In that situation, when filing his or her taxes, the employee will need to claim on Form 5329 that the distribution is a TI distribution and retain the physician’s certification (see below) in his or her tax records.
  • Under which plans may a participant take advantage of the new TI Distribution rules? The guidance confirms that TI Distribution tax treatment will apply to in-service distributions from all “qualified retirement plans,” which include 401(k), 403(b) and defined benefit pension plans, as well as individual retirement accounts.

Terminally Ill Individuals and Certification

  • Who is a “terminally ill individual”? A “terminally ill individual” is someone who has been certified by a “physician” as having an illness or physical condition reasonably expected to result in death within 84 months of the date of the “certification of terminal illness.”
  • Who is a “physician”? A “physician” is a person who is State-qualified to practice medicine or osteopathy.
  • What must be included in the “certification of terminal illness”? A physician’s “certification of terminal illness” must include several items, including:
    • A statement that the participant has an illness or physical condition reasonably expected to result in death within 84 months after the date of certification;
    • A summary of the evidence used to support such certification;
    • The name and contact information of the physician;
    • The date the participant was examined and the date of the certification; and
    • The signature and attestation of the physician attesting to the information provided in the certification.

Self-certification by the participant is not permitted.

  • When must a certification of terminal illness be made? In order for a distribution to qualify as a TI Distribution, the certification must be made and dated no later than the date of the distribution.
  • What documentation must a participant give to the plan administrator to qualify for relief from the 10% tax on early withdrawals? In a plan that has been amended to provide for TI Distributions, a participant must provide the physician’s certification of terminal illness to the plan administrator. While the participant does not need to provide the underlying documentation, the participant should keep a copy of such documentation for their tax records. In a plan that is not amended to provide for TI Distributions, a participant does not need to provide the physician’s certification of terminal illness to the plan administrator.

Additional Provisions

  • Is there a limit on the amount that may be distributed as a TI Distribution? No, not directly. But plans may impose a minimum or maximum distribution amount on in-service distributions (e.g., withdrawals at or after age 59½ or hardship distributions), or a limit on the number of in-service withdrawals taken by a participant. If a plan that puts such a limit on a permissible in-service distribution, those same limits would apply if the participant qualifies for a TI Distribution.
  • Can a TI Distribution be repaid to the plan? Yes, if a plan adopts the TI Distribution rules, rules similar to those that apply to the recontribution of birth and adoption distributions apply to TI Distributions. For example, plans that provide for TI Distributions must accept repayments, even if the distribution did not come from that specific plan, as long as the participant is eligible to make rollover contributions to that specific plan. A special rule applies for distributions from a plan that does not specifically provide for TI Distributions. In that case, the participant may repay the distribution to an IRA. In any case, the repayment must be made during the 3-year period beginning on or after the date on which the distribution was received.

Plan Amendments

  • If a plan chooses to recognize TI Distributions, does the plan have to be amended? Yes, the plan must be amended if the plan sponsor chooses to permit these distributions (and accept repayment).
  • If a plan sponsor chooses to amend its plan to apply the special TI Distribution tax rules, what is the amendment deadline? The Notice provided an additional extension of the deadline to adopt SECURE, CARES and SECURE 2.0 amendments (including amendments for Terminally Ill Individual Distributions) to December 31, 2026 for non-governmental and non-collectively bargained plans (December 31, 2028 for collectively bargained plans, and December 31, 2029 for governmental plans).

As always, if you have any questions on how this impacts your retirement plan, please do not hesitate to reach out to your Seyfarth Employee Benefits attorney.

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Seyfarth Synopsis: Under Section 604 of Secure 2.0, sponsors of 401(k), 403(b) and eligible governmental plans may allow employees to designate employer match (including match on student loan repayments) or nonelective contributions as Roth after-tax contributions at the time they are made. This provision was effective for contributions made after December 29, 2022 (i.e., the date Secure 2.0 was enacted). Since the issuance of Secure 2.0, a number of questions relating to this optional provision have been lingering. As previously reported here, on December 20, 2023, the IRS issued Notice 2024-2 (the “Notice”) providing guidance on several provisions under Secure 2.0, including Section 604.  A brief overview of the guidance issued relating to designated Roth employer contributions is provided below. 

Are plans required to allow employees to elect to make Roth employer contributions?

No.  The Notice clarifies – as we expected – that plans may, but are not required to allow participants to designate employer matching and/or nonelective contributions as Roth.  This is the case even if the plan allows employees to make Roth employee contributions.

Continue Reading “SECURE-ing” the Answers to Outstanding Questions on the Rothification of Employer Contributions  

Seyfarth Synopsis: Adding to the holiday joy of employee benefits practitioners nationwide, yesterday the IRS issued guidance on several outstanding questions related to SECURE 2.0. At this time of year, we are especially thankful that the guidance was issued on a day other than the day before or following a national holiday.

The so-called “grab bag” of guidance, IRS Notice 2024-2, provides answers to several outstanding SECURE 2.0 questions, including but not limited to:

  • Required automatic enrollment in newly established 401(k) and 403(b) plans;
  • Providing small financial incentives for contributing to a 401(k) or 403(b) plan;
  • Withdrawals for terminally ill employees that qualify for the 10% early withdrawal tax waiver;
  • Optional treatment of employer contributions as Roth contributions;
  • The safe harbor correction method for errors relating to employee contributions to plans;
  • Mid-year replacement of SIMPLE plans with safe harbor 401(k) plans;
  • Clarification of the accrual rules for cash balance pension plans; and
  • The deadline for amending plans to reflect the CARES and SECURE Acts and SECURE 2.0.

Although the Notice does not provide comprehensive guidance on SECURE 2.0 (notably, it does not include guidance on the mandatory Roth catch-up contribution provision), it does address several important questions that plan sponsors and administrators have been wrestling with over the past year.

We will be providing more substantive information on Notice 2024-2 over the coming days, but in the meantime, Happy Holidays!