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 Any Group Health Plans Exempt From the Federal Mental Health Parity?

QUESTION: We are wondering if our company’s medical plan might qualify for an exemption from the federal mental health parity requirements. What exemptions are available?

ANSWER: The federal mental health parity requirements apply to most employer-sponsored group health plans, but there are a few exceptions. As a reminder, the mental health parity rules under the Mental Health Parity Act (MHPA) and the Mental Health Parity and Addiction Equity Act (MHPAEA) require parity between medical/surgical benefits and mental health or substance use disorder benefits in the application of annual and lifetime dollar limits, financial requirements (such as deductibles, copayments, coinsurance, and out-of-pocket maximums), quantitative treatment limitations (such as number of treatments, visits, or days of coverage), and nonquantitative treatment limitations (such as medical management standards). However, some exceptions apply:

  • Small Employer and Small Plan Exemptions. An exception is available for small employers that employed an average of at least two (one in the case of an employer residing in a state that permits small groups to include a single individual) but no more than 50 employees (100 or fewer employees for certain non-federal governmental plans) on business days during the preceding calendar year. When determining whether an employer qualifies as a small employer, certain related employers (including members of a controlled group or an affiliated service group) are treated as one employer. An employer not in existence throughout the preceding calendar year will determine whether it is a small employer based on the average number of employees that it reasonably expects to employ on business days during the current calendar year. There is also an exception for plans with fewer than two participants who were current employees on the first day of the plan year (including retiree-only plans). Note that if an employer provides coverage through a group policy purchased in the small group insurance market, that group policy will be required to cover mental health and substance use disorder services in a manner that complies with the mental health parity requirements.
  • Increased Cost Exemption. An increased cost exemption is available for plans that make changes to comply with the mental health parity rules and incur an increased cost of at least 2% in the first year that the MHPAEA applies to the plan (generally, the first plan year beginning on or after October 3, 2009, unless a later date applies, e.g., because the plan ceased to qualify for an exemption) or at least 1% in any subsequent plan year. Plans that comply with the parity requirements for one full plan year and satisfy the conditions for the increased cost exemption are exempt from the parity requirements for the following plan year (i.e., the exemption lasts for one plan year). After that year ends, the plan must again comply with the parity requirements for a full year before it may (potentially) qualify for the exemption again. Given the complexity of administering coverage with an every-other-year exemption, use of the increased cost exemption may be impractical.
  • Excepted Benefits. The federal mental health parity requirements do not apply to group health plans that provide only excepted benefits (e.g., certain limited-scope dental or vision plans and most health FSAs).

Self-insured non-federal governmental plans could previously opt out of the requirements, but the Consolidated Appropriations Act, 2023 eliminated that right as of December 29, 2022. No new mental health parity opt-out elections may be made on or after that date and opt-out elections expiring on or after June 27, 2023, may not be renewed. 

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 

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