When Are Disability Benefit Programs Exempt From ERISA?

When Are Disability Benefit Programs Exempt From ERISA?

QUESTION: I am reviewing our company’s employee benefit programs and confirming that they are treated appropriately for ERISA compliance purposes. Our disability program provides income-replacement benefits to employees who are unable to work because of illness or injury; payments commence once an employee is out of work for more than two weeks. Benefits are paid from the company’s general assets, not from a trust or separate account. Am I right that for this reason, our program is not an ERISA plan, or do additional conditions apply?

ANSWER: You are correct that a DOL regulation exempts certain “payroll practices,” including disability payments, from ERISA-plan status. You are also correct that the main condition of this regulatory exemption (often referred to as a safe harbor) is that the payments come from the employer’s general assets. It sounds like your program meets this requirement—but several other elements also must be considered to determine whether your program falls within the exemption. If a disability program has any of the following features, the payroll practice safe harbor is not available, and the program is most likely subject to ERISA:

  • Trust or Separate Account. As noted above, making payments from the employer’s general assets is a key component of the exemption, so funding the program through a trust or separate account will take it outside the safe harbor. It is, however, generally permissible to earmark funds for the program within the employer’s general assets, so long as the funds remain available for other purposes, such as to pay the employer’s creditors.
  • Insurance. Payment of benefits through insurance is not payment from the employer’s general assets, so using insurance will take the program outside the safe harbor.
  • Paying More Than Normal Compensation. To fall within the safe harbor, the program may pay eligible employees only their normal compensation, or less (for example, 60% of normal compensation).
  • Paying Benefits to Former Employees. The safe harbor covers only payments to employees while absent from work, not to former employees—the exemption does not apply if payments continue after an individual terminates employment. You will need to consider the duration of benefits available under the program and ensure that it does not extend beyond when the company considers termination of employment to occur. For example, if an employee who does not return to work is treated as having terminated employment before exhaustion of the disability benefits available under the program, the program does not fall within the safe harbor. As a practical matter, long-term disability programs are more likely to provide benefits beyond termination of employment and thus not meet the requirements, even if paid from the employer’s general assets.

Although it is possible that an arrangement that does not fall within the regulatory exemption may still avoid ERISA’s application under the general standard (a plan, fund, or program established or maintained by an employer to provide ERISA-listed benefits to employees), such a result is unlikely. Thus, any variations from the safe harbor requirements should be discussed with legal counsel. As a final caution, if your company wishes to treat this program as not subject to ERISA, make sure that any program documents, descriptions, and employee communications are consistent with this intent. Even though an employer generally cannot make a non-ERISA arrangement subject to ERISA by simply calling it an ERISA plan, the employer’s treatment is a factor—at least one court has found that treating a potentially exempt payroll practice as an ERISA plan was a “strong reason to find ERISA coverage.” If the company uses a single “umbrella” or “wrap” document to bundle multiple benefit programs, the document should specify which programs are—and are not—intended to be subject to ERISA.

Source: Thomson Reuters

When Are Disability Benefit Programs Exempt From ERISA?

Are PCOR Fees Plan Expenses?

QUESTION: Our company sponsors a calendar-year self-insured major medical plan subject to ERISA. Are we permitted to treat Patient-Centered Outcomes Research (PCOR) fees as plan expenses?

ANSWER: The DOL has indicated that PCOR fees generally are not permissible plan expenses under ERISA since they are imposed on the plan sponsor and not the plan. As background, PCOR fees, which are used to fund research on patient-centered outcomes, are payable annually by sponsors of self-insured plans (and insurers, but we focus here on plan sponsors) through plan years ending before October 1, 2029. By statute, the fee for a self-insured plan is to be paid by the “plan sponsor,” which in most cases means the employer or employee organization that established or maintains the plan.

This means that plan assets (e.g., trust assets or participant contributions) should not be used to pay PCOR fees since ERISA’s prohibited transaction rules prohibit plan assets from being used to offset employer obligations. However, multiemployer plan assets may be used to pay PCOR fees since the plan sponsor liable for a multiemployer plan’s fee is generally an independent joint board of trustees with no source of funding other than plan assets.

Source: Thomson Reuters

What do all these employee benefit acronyms stand for?

What do all these employee benefit acronyms stand for?

Everyone in the employee benefits field uses acronyms like COBRA, FSA, and CDHC. What do these and other employee benefit acronyms stand for? 

Here’s an explanatory list of common employee benefit acronyms used:

ACA – Patient Protection and Affordable Care Act 

AHP – Association Health Plan 

ASG – Affiliated Service Group 

ASO – Administrative-Services-Only 

ATIN – Adoption Taxpayer Identification Number 

BA – Business Associate 

CDHC – Consumer-Driven Health Care 

CE – Covered Entity 

COB – Coordination of Benefits 

COBRA – Consolidated Omnibus Budget Reconciliation Act 

COLA – Cost-of-Living Adjustment 

CONUS – Continental United States 

DCAP – Dependent Care Assistance Program 

DOL – Department of Labor 

EIN – Employer Identification Number 

EAP – Employee Assistance Plan 

EBHRA – Expected Benefit HRA 

EBSA – Employee Benefits Security Administration 

EEOC – Equal Employment Opportunity Commission 

EFAST2 – ERISA Filing Acceptance System II 

EOB – Explanation of Benefits 

EOI – Evidence of Insurability 

ePHI – Electronic Protected Health Information 

ERISA – Employee Retirement Income Security Act 

FICA – Federal Insurance Contributions Act 

FLSA – Federal Labor Standards Act 

FMLA – Family and Medical Leave Act 

FSA – Flexible Spending Amount 

FUTA – Federal Employment Tax Act 

GHP – Group Health Plan 

HCE – Highly Compensated Employee

HCP – Highly Compensated Participants 

HDHC – High Deductible Health Coverage 

HDHP – High Deductible Health Plan 

Health FSA – Health Flexible Spending Arrangement 

HHS – Department of Health and Human Services 

HIPPA – Health Information Technology for Economic and Clinical Health Act 

HMO – Health Maintenance Organization 

HRA – Health Reimbursement Arrangement 

HSA – Health Savings Account 

ICHRA – Individual Coverage HRA 

IIAS – Inventory Information Approval System 

MCC – Merchant Category Code 

PBM – Pharmacy Benefit Manager 

PCOR Fees – Fees for Patient-Centered Outcomes Research 

PEO – Professional Employer Organization 

POP – Premium-Only Plan 

PPO Plan – Preferred Provider Organization Plan 

QB – Qualified Beneficiary 

QE – Qualifying Event 

QMCSO – Qualified Medical Child Support Order 

QSEHRA – Qualified Small Employer Health Reimbursement Arrangement 

R&C – Reasonable and Customary 

RRE – Responsible Reporting Identity 

SBC – Summary of Benefits and Coverage 

SMM – Summary of Material Modification 

SPD – Summary Plan Description 

TPA – Third Party Administrator 

UCR Rate – Usual, Customary, and Reasonable Rate 

VEBA – Voluntary Employees’ Beneficiary Association 

What do all these employee benefit acronyms stand for?

Proposed regulations aim to expand contraceptive access and eliminate moral exemption for coverage mandate

The Internal Revenue Service, Department of Labor, and U.S. Health and Human Services Department have issued proposed regulations that would provide an additional method for individuals to obtain no-cost contraceptive services if their health plan or insurer does not provide such services due to a religious exemption. Under final regulations issued in 2018, qualifying religious employers and other entities with sincerely held religious beliefs or moral convictions are exempt from the Affordable Care Act’s contraceptive coverage mandate, which generally requires coverage of contraceptive services without cost-sharing. Exempt entities may voluntarily engage in an accommodation process that allows plan participants to receive contraceptive services directly from a TPA or insurer without the employer’s involvement. In an FAQ issued in 2021, the agencies announced they were considering changes to the 2018 regulations “in light of recent litigation”. Here are highlights of the proposal: 

  • Individual Contraceptive Arrangement: Leaving in place the existing religious exemptions and accommodations, the agencies have proposed to add a new “individual contraceptive arrangement” through which individuals enrolled in plans or coverage sponsored or arranged by entities with religious objections could access no-cost contraceptive services without the involvement of their employer, group health plan, plan sponsor, or insurer. A provider or facility that furnishes contraceptive services in accordance with the individual contraceptive arrangement would be reimbursed through an arrangement with an Exchange insurer, which would request an Exchange user fee adjustment to cover the costs. 
  • Moral Exemption Rescinded: The proposed regulations would revoke the 2018 regulations’ moral exemption and accommodation. The agencies explain that “there have not been a large number of entities that have expressed a desire for an exemption based on a non-religious moral objection” and that there is no legal obligation (including under the Religious Freedom Restoration Act) to provide such an exemption. 

Source: Thomson Reuters 

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