Year-End Benefit Reminders
Insight & Impact - Labor & Employment Regulatory Newsletter 12/08/17 John Barlament
ISSUE: Important year-end-related employee benefit legal changes to keep in mind, along with recent developments, include the following.
1. IRS Enforcement of ACA Rules.The IRS announced that it would begin enforcing, in November 2017, the Employer Shared Responsibility Rules ("ESR Rules") which began applying in 2015. These rules generally require "large" employers (usually with 50 or more full-time employees) to offer sufficient health plan coverage or risk a tax penalty.
Affected employers will receive IRS Letter 226J informing them of the penalty. Employers will only have 30 days to respond to the letter and file an appeal. If you believe you might receive such a letter, you should ensure that you have proper documentation in place to respond. Also note that this enforcement is not just theoretical -- we have already seen clients impacted by this shift in enforcement.
2. Reducing Hours to Minimize ESR Rule Risks.Speaking of the ESR Rules, some employers chose to reduce the hours of employees from above 30 hours per week (e.g., 35 or 40 hours per week) to less than 30 hours per week. This "hours management" strategy could reduce an employer's liability under the ESR Rules. However, it could raise risks in other areas, such as the nondiscrimination rules of ERISA Section 510.
Few cases address whether an employer has risk under ERISA Section 510 when it reduces an employee's hours to avoid having to provide health insurance. But that did not prevent plaintiff lawyers from suing Dave & Buster's, the restaurant chain, for its use of this strategy. The plaintiffs claimed that the strategy violated ERISA Section 510. In 2016 Dave & Buster's attempted to have the case dismissed, but that effort failed. On November 17, 2017 a proposed settlement was announced relating to 1,200 employees who were impacted by reduction in hours. The proposed payment to the plaintiffs was $7.4 million. Employers who used this strategy should review the settlement and verify whether the settlement raises additional risks.
3. Delay of Disability Regulations. New disability claims procedure regulations were issued at the end of the Obama administration. The new regulations would require, as of January 1, 2018, additional protections for plan participants who are seeking disability benefits. The disability benefits could be provided in many types of plans, including health plans and even retirement plans -- i.e., not just disability plans are impacted.
The Trump administration announced that they were reviewing the regulations and contemplating: (a) a delay to the effective date; and (b) a substantial change or revocation to the regulations. The day after Thanksgiving the Department of Labor ("DOL") announced that the regulations were being delayed until April 1, 2018. The DOL will use this additional time to determine whether to modify the regulations, scrap the regulations entirely, or keep them all in place, as is.
There have not been a large number of legislative or regulatory changes for retirement plans recently. That very well may change in the near future. Tax reform efforts in the U.S. Senate and House of Representatives will likely lead to retirement plan changes. Those could include a reduction in the amount of pre-tax contributions that can be made to 401(k) retirement plans. Other regulatory changes are still pending. These include a likely delay of certain aspects of a new DOL fiduciary rule.
One interesting new development is October 2017 guidance from the IRS on locating lost or missing participants who must, under Section 401(a)(9) of the Internal Revenue Code (the "Code"), receive a required minimum distribution ("RMD") from a retirement plan. If a plan sponsor cannot find a missing participant and therefore cannot make an RMD, does that cause the plan to violate the Code? Would that violation put the plan's tax-qualified status at risk?
The IRS guidance provides some reassurance that the tax-qualified status will not be at risk, as long as the plan sponsor takes these steps:
(1) Search plan, plan sponsor and public records for alternative contact information;
(2) Use a search method such as a commercial locator service, a credit reporting agency or a proprietary internet search tool for locating individuals; and
(3) Attempt to contact the person through U.S. Postal Service certified mail.
Failing to do so may cause the IRS to (in the words of the IRS guidance), "challenge a qualified plan for violation of the RMD standards". So plan sponsors should take steps to ensure they satisfy these new, IRS-approved steps.
Read more Insight & Impact from December 2017:
- Immigration Compliance Changes for Employers in 2017
- Labor and Employment Legislative Updates
- Nomination of New OSHA Leadership and Changes to the Submission Deadline for Electronic Reporting of Workplace Injuries and Illnesses
IMPACT: Some of these changes are procedural and others pose risks of penalties. Benefits managers should carefully monitor changes as the regulatory environment continues to shift under the Trump administration.
For more information on managing specific terms of employment agreements, please contact your local Quarles & Brady attorney or:
- John Barlament: (414) 277-5727 / [email protected]