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IRS Revises VCP User Fees

For submissions made on or after January 2, 2018, the user fee to correct a qualified plan operational failure under the IRS’s Voluntary Correction Program (“VCP”) will be based on the total amount of net plan assets rather than the number of participants in the plan. Net plan assets are generally determined using the amount listed on the most recent Form 5500 filed for the plan. Additionally, alternative or reduced fees for certain corrections have been eliminated. Therefore, in some cases fees will be significantly lower than under the prior fee schedule, but in other cases, they will be higher because the prior fee schedule based the fee on the number of affected participants, not the number of total participants. Below is the new, simplified fee schedule for VCP submissions, followed by the prior fee schedule. New Fee Schedule: Net Plan Assets   VCP Fee  • $0 to $500,000  … Continue Reading

Federal Courts Enjoin Religious and Moral Exemptions under ACA’s Contraceptive Coverage Mandate

In December 2017, two federal district courts granted nationwide preliminary injunctions from enforcement of the interim final rules providing for religious and moral exemptions from the contraceptive coverage mandate under the ACA issued in October 2017 by the U.S. Departments of Health and Human Services, Labor, and the Treasury (collectively, the “Departments”). Please see our earlier discussion of these exemptions. Both federal courts held that the Departments impermissibly bypassed the notice and comment rulemaking requirements of the Administrative Procedures Act and that the plaintiffs, consisting of six states, sufficiently demonstrated they would be harmed without an injunction. The timing of these injunctions is a cause for concern for any plan sponsors who have already acted in reliance on the interim final rules. The U.S. Department of Justice has indicated it disagrees with these rulings and may appeal. View Commonwealth of Pennsylvania v. Trump. View State of California v. Health and… Continue Reading

DOL Proposed Regulations Make Association Health Plans a More Viable Option for Some Employers

The DOL recently issued proposed regulations which broaden the criteria under ERISA for determining when a group of employers may join together as a single employer to sponsor a single group health plan under ERISA, in the form of an “association health plan” (“AHP”). Joining an AHP could be a more viable option for many small employers. Various federal and state laws affecting employer-sponsored health coverage, including the Affordable Care Act (the “ACA”), impose requirements that differ based on whether employer-sponsored health coverage is insured or self-funded and, if insured, whether it is offered in the “small group” or “large group” insurance market. The status of coverage as either small or large group coverage generally depends on how many employees the employer has and affects the employer’s compliance obligations under the ACA and other laws. Under current DOL guidance, a group of small employers that want to associate in order… Continue Reading

EEOC Wellness Regulations Vacated Beginning in 2019

We previously reported that the U.S. District Court for the District of Columbia required the EEOC to reconsider its wellness regulations under the Americans with Disabilities Act (the “ADA”) and the Genetic Information Non-Discrimination Act (“GINA”). The court recently granted a motion filed by the American Association of Retired Persons (“AARP”) to amend that judgment and vacate the permitted 30 percent incentive level under the applicable ADA and GINA regulations, effective as of January 1, 2019. Generally, the ADA and GINA regulations permitted wellness programs to provide incentives of up to 30 percent of the cost of coverage under an employer group health plan without such programs being considered “involuntary.” Employers should be aware that new guidance regarding permitted incentives under the ADA and GINA may be issued later this year to be effective as of January 1, 2019. View AARP v. U.S. Equal Employment Opportunity Commission.

PBGC Expands Missing Participants Program to Terminated Defined Contribution Plans

The PBGC issued a final rule on December 22, 2017, that expands the missing participants program from covering only terminated PBGC-insured, single-employer defined benefit plans to also covering defined contribution plans (“DC Plans”), such as 401(k) plans, PBGC-insured multiemployer plans, and non-PBGC-insured defined benefit plans sponsored by professional service organizations that terminate on or after January 1, 2018. Participation will be voluntary for DC Plans and professional service organization plans, and terminating DC Plans will have the option of transferring all missing participants’ benefits to the PBGC in lieu of establishing an IRA. There would be a one-time fee upon the transfer of assets to the PBGC, and thereafter participant accounts would not be reduced by ongoing maintenance fees. After a participant is located, the PBGC would pay his or her initial account balance with interest to the participant when located. View the PBGC’s Missing Participants Program webpage. View the… Continue Reading

Extension of Due Dates for 2017 Individual Statements under Affordable Care Act Information Reporting

In Notice 2018-06, the IRS extended the due date, from January 31, 2018 to March 2, 2018, for employers (including applicable large employers), insurers, and other providers of “minimum essential coverage” in 2017 (“Reporting Entities”) to furnish statements to individuals on IRS Forms 1095-B and 1095-C, pursuant to the Affordable Care Act’s information reporting requirements (the “ACA Reporting Requirements”). The notice also extends the IRS’s transition relief from penalties that the Reporting Entities would otherwise incur for incorrect or incomplete information reported on their 2017 information statements to individuals or returns filed with the IRS. To obtain this transition relief, a Reporting Entity must show that it made a good faith effort to comply with the ACA Reporting Requirements in furnishing statements to individuals and filing its IRS returns. Notably, the notice does not extend the due date under the ACA Reporting Requirements for Reporting Entities to file their 2017… Continue Reading

Fifth Circuit Reverses High-Dollar Damages Award to Out-of-Network Surgery Center

In Connecticut General Life Insurance Company v. Humble Surgical Hospital, L.L.C., the U.S. Court of Appeals for the Fifth Circuit, whose jurisdiction includes Texas, reversed a district court’s award to Humble Surgical Hospital, LLC, an out-of-network medical provider (“Humble”), of (i) over $11 million based on underpaid medical benefit claims administered by Cigna under ERISA-governed group health plans and private insurance policies, and (ii) over $2 million in penalties based on Cigna’s failure to comply with ERISA’s plan documentation disclosure requirements. (See our prior newsletter article regarding the district court’s decision in this case, including a discussion of background facts.) The Fifth Circuit found that the district court failed to apply ERISA’s required “abuse of discretion” analysis to Cigna’s decisions regarding benefit claims for Humble’s services, which decisions were based on exclusionary language in the plan documents and insurance policies. The Fifth Circuit stated that other courts had upheld Cigna’s… Continue Reading

Prior Art Combinations Cannot Substantially Reconstruct the Primary Reference – But POSITAs Are Not Limited to Physically Combinable References

In University of Maryland Biotech Institute v. Presens Precision Sensing, Nos. 2016-2745, 2017-1057 (Nov. 3, 2017) (nonprecedential) (“UMBI”), the Federal Circuit affirmed the USPTO Patent Trial and Appeal Board’s (“PTAB”) inter partes reexamination decision that found U.S. Patent No. 6,673,532 (“the ’532 patent”) invalid as obvious over two prior art references. The Federal Circuit’s decision highlighted that, while “a person of ordinary skill generally would not be motivated to modify a reference by contradicting its basic teachings [or] by making it inoperable for its intended purpose,” portions or elements of a secondary reference may be combined with and adapted to the particular physical arrangement of a primary reference even if the secondary reference discloses a different or incompatible physical arrangement.  Id. at 6 (citations omitted). Background The University of Maryland Biotechnology Institute (“UMBI”) owns the ’532 patent, which is directed to methods for measuring and optimizing the parameters of in… Continue Reading

Employee Compensation and Benefits Changes Under the Tax Cuts and Jobs Act

The following post is a general summary of the changes to the Internal Revenue Code made by the recently enacted Tax Cuts and Jobs Act (the “Act”) that affect employee compensation and benefits: Executive Compensation Updates Loss of Deduction for Compensation in Excess of $1 Million Currently, Section 162(m) of the Internal Revenue Code limits the ability of publicly held corporations to deduct annual compensation paid to a “covered employee” in excess of $1 million, with an exception to this limit for certain performance-based compensation. Beginning on and after January 1, 2018, the Act amends Code Section 162(m) to eliminate the exception for “qualified performance-based compensation” (which includes stock options, stock appreciation rights, and compensation paid upon the attainment of pre-established performance goals) and commissions. There is limited grandfathering relief available under the Act that preserves the deductibility of existing arrangements that pay out after 2017, provided the “written binding… Continue Reading

Delaware Supreme Court Adopts Fairness Standard of Review for Discretionary Equity Compensation for Directors

On December 13, 2017, the Delaware Supreme Court held that discretionary equity compensation grants to directors are subject to an “entire fairness” standard of review, rather than the more deferential “business judgment” rule, even if the equity incentive plan has been adopted and approved by the company’s stockholders. Specifically, the Delaware Supreme Court held that when stockholders have approved an equity incentive plan that gives the company’s directors discretion to grant themselves awards within general parameters, the directors will be required to prove the fairness of their awards to the corporation and will not be able to rely on the business judgment rule unless (i) the directors submit specific compensation decisions related to equity grants to themselves for approval by fully informed, un-coerced, and disinterested stockholders, or (ii) the plan is self-executing (i.e., the plan grants awards to directors over time based on fixed criteria, with the specific amounts and… Continue Reading

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