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Qualified Transportation Fringe Benefits in the Time of COVID – IRS Provides an Overview on Treatment of Unused Amounts and Changes to Elections

Prior to the pandemic, many employees used qualified transportation fringe benefits, such as receiving mass transit passes or paying for on-site parking on a pre-tax basis, to help defray the costs of getting to the office. As a result of the pandemic, many workers are working from home, with no need to pay for on-site parking or reap the benefit of employer-provided mass transit passes. The pandemic has also caused some employees to change their mode of transportation, with many deciding to forgo the use of mass transit to drive their own vehicles to work. A recent IRS information letter outlined some options available to employees whose use of qualified transportation has changed throughout the course of the pandemic. Under the example in the information letter, an employee was no longer using mass transit, and so, no longer needed to use compensation deductions to pay for mass transit passes. Instead,… Continue Reading

Claim Alleging Unauthorized Payroll Deductions for Tobacco Surcharge Preempted by ERISA

In the recent case of Mebane v. GKN Driveline N. Am., Inc., No. 1:18-CV-00892 (M.D.N.C. Nov. 05, 2020), the federal district court held that a claim brought under the North Carolina Wage and Hour Act (“NCWHA”) is preempted by ERISA. The employee-plaintiffs in this case alleged their employer violated the NCWHA by deducting from their paychecks, without express authorization, a monetary penalty for those employees who participate in the employer’s group health plan and use tobacco products (i.e., a so-called “tobacco surcharge”). The defendant-employer filed a motion to dismiss this claim for unauthorized payroll deductions as being preempted by ERISA. The court agreed and dismissed the employees’ claim, ruling that it was preempted by ERISA. The court’s opinion is available here.

Updated Self-Compliance Tool for Mental Health and Substance Use Disorder Parity

The DOL released an updated tool to help employer-sponsored group health plans comply with the federal Mental Health Parity and Addiction Equity Act (“MHPAEA”). In general, the MHPAEA requires that financial requirements under a group health plan (such as copays) and treatment limitations (such as prior authorization) on mental health and substance use disorder benefits be comparable to, and applied no more stringently than, those that apply to medical and surgical benefits under the plan. The DOL last updated the tool in 2018. This updated version includes FAQs issued in 2019, additional compliance examples, best practices for establishing an internal compliance plan, and examples of plan provisions that may indicate a potential MHPAEA violation. In particular, the concept of the “internal compliance plan” is new, and although not required under the MHPAEA, the DOL’s goal for the internal compliance plan was to show how an internal compliance strategy can assist… Continue Reading

Regulations Provide for More Cost Transparency in Health Coverage

The federal Departments of Health and Human Services, Labor, and the Treasury (collectively, the “Departments”) have jointly issued final regulations that are intended to provide for more transparency in health coverage (the “Regulations”). The Regulations have important implications for employer sponsors of certain group health plans (“Plans”) and health insurers. The Regulations do not apply to health plans that are grandfathered under the Affordable Care Act, health reimbursement arrangements, certain other account-based group health plans, or short-term limited duration insurance. The Regulations require two key forms of disclosures (collectively, the “Disclosures”) in order to provide for this improved transparency: Self-Service Disclosure. First, the Regulations require Plans and insurers in the individual and group markets to disclose certain cost-sharing information upon request to a participant, beneficiary, or enrollee (or his or her authorized representative), including (a) an estimate of the individual’s cost-sharing liability for covered items or services furnished by a… Continue Reading

IRS Issue Snapshot Highlights Plan Sponsor Responsibilities to Missing Participants and Beneficiaries

The IRS recently published an Issue Snapshot (the “Snapshot”) on IRS.gov that revisits the steps a plan sponsor must complete in order to locate missing plan participants and beneficiaries. While the Snapshot does not contain any new guidance, its publication is an indication that ensuring plan sponsors are undertaking appropriate steps to locate missing participants and beneficiaries remains an area of focus for the IRS, including when they are conducting plan audits. Under current IRS guidance, plan sponsors should complete the following steps to attempt to locate missing plan participants and beneficiaries: Search for alternate contact information (address, telephone number, email, etc.) held by the plan or any related plan, sponsor, or publicly-available records or directories. Use a commercial locator service, credit reporting agency, or proprietary Internet search tool for locating individuals. Mail a letter via certified mail to the last known mailing address and through any appropriate means for… Continue Reading

Additional Rules Issued Regarding Coverage of COVID-19 Preventive Care

Federal agencies issued a new interim final rule that applies to group health plans that are subject to the Affordable Care Act (“ACA”) and not grandfathered under the ACA. These plans are required to cover, without cost-sharing, qualifying coronavirus preventive services (including recommended COVID-19 immunizations) within 15 business days after the date the preventive service either (i) receives an A or B rating from the United States Preventive Services Task Force or (ii) has a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention. Coverage must be provided for any qualifying coronavirus preventive service received in-network or out-of-network. If there is no negotiated rate between the plan and provider, the plan must pay the provider the prevailing market rate for such service. The new rules are effective upon being published in the Federal Register and apply until the end of the public health… Continue Reading

Investigating and Settling Potential HIPAA Privacy and Security Violations

Since the beginning of 2020, the U.S. Department of Health and Human Services, Office for Civil Rights (“OCR”) has announced six substantial settlements with HIPAA covered entities (either health care providers or health plans) for potential violations of the HIPAA privacy and security rules (“HIPAA Rules”) related to safeguarding protected health information (“PHI”). OCR is the federal agency responsible for enforcement of the HIPAA Rules. These settlements generally arose from investigations pursued by OCR following the receipt of a breach report by the covered entity and involved settlement payments ranging from $25,000 to $6.85 million (the second largest HIPAA settlement payment in OCR history). The settlements also imposed a corrective action plan on each covered entity, with two years of monitoring by OCR. Findings by OCR during its investigations included one or more of the following infractions by the subject covered entity: Neglected to implement HIPAA policies and procedures; Failed… Continue Reading

Federal Tax Withholding and Reporting Requirements for Distributions from a Qualified Retirement Plan to a State’s Unclaimed Property Fund

Third party administrators for employer-sponsored qualified retirement plans often recommend to employers that unclaimed account balances for mandatory cash-outs of small amounts (under $1,000) be remitted to the unclaimed property fund for the participant’s state of residence. The IRS recently clarified in Rev. Rul. 2020-24 that amounts remitted to a state’s unclaimed property fund are subject to withholding under Section 3405 of the Internal Revenue Code (the “Code”) and, in the event the amounts distributed exceed $10, reporting under Section 6047 of the Code. A plan sponsor will not be treated as failing to comply with the withholding and reporting requirements with respect to payments made before the earlier of January 1, 2022 or the date it becomes reasonably practicable for the plan sponsor to comply with such requirements. An employer that sponsors a qualified retirement plan should discuss this guidance with their plan’s third-party administrator to ensure that any… Continue Reading

IRS Expands Reasons for Self-Certification of Eligibility for a Waiver of the 60-Day Rollover Requirements

The Internal Revenue Code provides that amounts distributed from a qualified plan or individual retirement arrangement (“IRA”) will be excluded from income if they are transferred to an eligible retirement plan within 60 days following the day of receipt. The IRS previously announced in Rev. Proc. 2016-47 (the “Prior Rev. Proc.”) that individuals who fail to rollover retirement plan distributions into a new retirement plan or IRA within 60 days may self-certify to the new plan’s administrator or the IRA’s trustee that the individual qualifies for a waiver of the 60-day rollover requirement. The Prior Rev. Proc. listed 11 reasons that support waiving the 60-day rollover requirement, which include an error committed by a financial institution, a lost or uncashed distribution check, or the death or serious illness of a family member. In Rev. Proc. 2020-46, the IRS expanded this list to include instances in which the distribution was made… Continue Reading

IRS Announces 2021 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2021. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2021: Compensation limit used in calculating a participant’s benefit accruals: increased to $290,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $19,500. Annual additions to a defined contribution plan: increased to $58,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,500. Annual benefit limit for a defined benefit plan: remains unchanged at $230,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: remains unchanged at $185,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $130,000. View the full list of 2021 plan limits in Notice 2020-79 here.

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