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Employee Benefits Blog

Insights on Employee Benefits and Executive Compensation

Employer Shared Responsibility Payments and Reporting Requirements Under the Affordable Care Act: Code Sections 6055 and 6056

Posted in Health and Welfare Plans

The Affordable Care Act (ACA) imposes reporting requirements on certain employers offering minimum essential coverage and those large employers subject to the employer shared responsibility requirements. Recently issued draft forms indicate how employers will comply with these reporting requirements.

Read the full article.

Full D.C. Circuit to Rehear ACA Premium Tax Credit Case

Posted in Health and Welfare Plans

The full U.S. Court of Appeals for the D.C. Circuit has vacated the 2-1 panel decision issued July 22, 2014, in Halbig v. Burwell, which struck down the Internal Revenue Service (IRS) Rule providing for Affordable Care Act (ACA) premium tax credits to be available to lower income exchange customers, regardless of their state of residence.  The plaintiffs’ brief is due October 3, 2014, and the government’s opposing brief is due a month later on November 3, 2014, to precede oral arguments on December 17, 2014.  It is likely that the full D.C. Circuit would not render its opinion before mid- to late Spring 2015.  This has the effect of preserving the status quo with respect to the availability of premium tax credits, at least until the full D.C. Circuit renders its decision.

Meanwhile, the plaintiffs have sought review by the Supreme Court of the United States in King v. BurwellHalbig’s sister case in which the U.S. Court of Appeals for the Fourth Circuit upheld that same IRS Rule.  The Clerk of the Supreme Court has granted the government an extension until October 3, 2014, to respond to the petition for certiorari.  The plaintiffs have urged the highest court render its decision as quickly as possible to resolve the circuit split.  If the Supreme Court accepts King for review before mid-January, it could issue a ruling in the current term, which is scheduled to end in late June 2015.

Among the highest profile legal challenges to the ACA, Halbig and King seek to invalidate a May 2012 IRS Rule providing that health insurance premium tax credits will be available to all taxpayers nationwide, regardless of whether they obtain coverage through a state-based exchange or a federally facilitated exchanges (FFE).  The plaintiffs (represented by the same lawyers in both cases) argued that the plain language of the ACA limits the availability of premium tax credits to only those taxpayers who reside in the 14 states (plus the District of Columbia) that set up their own exchanges, and thus nullifies the IRS Rule’s application to the 36 states operating exchanges through the FFE.  Plaintiffs’ argument is based on language providing that premium tax credits are only available for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].”  ACA § 1401(a), enacting 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added).  The government counters that other provisions of the ACA make clear that the subsidies are to be made available in the FFE states as well.

There are also two similar cases awaiting decisions by federal trial courts on motions for summary judgment.  First, in Pruitt v. Burwell, pending in federal district court in Muskogee, Oklahoma, the state complains that the availability of the premium tax credit in FFE states forces the state to choose between the costs of providing coverage to its employees or paying the IRS a significant financial penalty.  Second, in Indiana v. IRS, pending in federal district court in Indianapolis, the state and 39 of its public school districts argue that the IRS Rule directly injures the state and school districts in their capacities as employers by subjecting them to increased compliance costs and administrative burdens.  On August 12, 2014, the plaintiffs survived the government’s motion to dismiss based upon lack of standing inIndiana v. IRS, although the court dismissed one aspect of the case because of the delay in enforcing the employer mandate.  Oral arguments on the merits are set for October 9, 2014.

The McDermott Difference

McDermott Will & Emery filed amici curiae (“friend of the court”) briefs in both Halbig and King on behalf of 34 deans, chairs and faculty members from schools of public health across the country, arguing that the IRS rule permitting tax credits should be upheld.  We will continue to monitor these cases closely.  If you have any questions, please contact your regular McDermott lawyer or an author.

Equity Investors: Be ForeWARNed

Posted in Employment, Labor

The Worker Adjustment Retraining and Notification Act (WARN Act) requires certain employers to give employees 60 days’ notice of plant closings and mass layoffs.  The goal of the WARN Act is to “provide workers and their families transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market.”  Employers who violate the WARN Act are liable to affected employees for up to 60 days of compensation and benefits.

On December 10, 2013, the Second Circuit in Guippone v. BH S&B Holdings LLC addressed whether a holding company (HoldCo) and certain investors (Investors) should be deemed “employers” under the WARN Act, and thus liable for violations thereof.  The Investors created various entities to purchase and manage Steve & Barry’s Industries, Inc., which it acquired out of bankruptcy.  HoldCo served as the holding company and sole managing member of another entity (Holdings), which employed the plaintiff and putative class members.  After the acquisition, Holdings experienced its own financial issues and subsequently filed bankruptcy.  On the same day of the bankruptcy filing, Holdings began sending WARN Act notices and termination to employees.  The plaintiff in Guippone filed a complaint against HoldCo and the Investors seeking damages on behalf of the terminated employees.

The Second Circuit adopted the following non-exclusive factors from the Department of Labor regulations to determine whether related entities are “single employers” under the WARN Act: (i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from a common source and (v) the dependency of operations.  Although equity investors are typically shielded from WARN Act liability, the court held that these five factors should also be applied to determine whether equity investors who exercise control over an operating company’s decision to terminate employees should be subject to WARN Act liability.  The court clarified that application of the five factors requires a fact-specific inquiry, no one factor is controlling, and all factors need not be present for liability to attach.

Ultimately, the court affirmed the district court’s order granting the Investors’ motion to dismiss, but reversed the district court’s order granting summary judgment in favor of HoldCo, instead finding that the evidence would have allowed a jury to conclude that Holdings was so controlled by HoldCo that it lacked the ability to make any decisions independently.

This case has important implications for private equity funds and other equity investors.  Although the Second Circuit dismissed the case with respect to the Investors, it did so only because the plaintiff had not presented sufficient evidence to satisfy the five-factor test for determining single players.  The implication that equity investors could find themselves liable for WARN Act claims serves as a reminder to current or future investors to ensure that legal separateness exists, is vigilantly enforced and that the company’s executives retain operational autonomy, especially with respect to closings and mass layoffs.

View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans

Posted in Retirement Plans

Every year the Internal Revenue Service (IRS) and Department of Labor (DOL) conduct thousands of audits of employee benefit retirement plans.  While IRS audits focus on compliance with the Internal Revenue Code, and DOL audits focus on violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA), a review of these audits over the last five years reveals that auditors at both agencies are increasingly focused on the internal controls employers maintain for their employer benefit plans.

Please click here to read the full article View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans, published by Bloomberg BNA Pension & Benefits Daily on 8/13/14.

Developments Impacting Benefits for Same-Sex Spouses

Posted in Employment, Health and Welfare Plans

As federal and state agencies and courts further examine the implications of the Supreme Court of the United States’ ruling on same-sex marriage in U.S. v. Windsor, the laws and regulations governing employee benefits for employees’ same-sex spouses continue to be clarified.  As a result, employers should monitor additional guidance as it is issued and continue to reevaluate the same-sex spousal benefits offered under their employee benefit plans.

Read the full article.

Employment Verification

Posted in Employment

Immigration and Customs Enforcement (ICE) takes its enforcement of employment eligibility verification requirements seriously, and employers need to ensure compliance with Form I-9 procedures even if they participate in the E-Verify program, McDermott Will & Emery attorney Joan-Elisse Carpentier writes in this BNA Insights article.

Carpentier looks at recent cases involving ICE sanctions against employers for I-9 violations and concludes that the agency will continue to ramp up its enforcement efforts.  As a result, she recommends that employers conduct internal audits to ensure compliance in order to prepare for a possible ICE audit.

Read the full article.

OCR to Begin Phase 2 of HIPAA Audit Program

Posted in Health and Welfare Plans, Privacy and Data Security

The U.S. Department of Health and Human Services’ Office for Civil Rights (OCR) will soon begin a second phase of audits (Phase 2 Audits) of compliance with Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy, security and breach notification standards (HIPAA Standards) as required by the Health Information Technology for Economic and Clinical Health (HITECH) Act. Unlike the pilot audits during 2011 and 2012 (Phase 1 Audits), which focused on covered entities, OCR will conduct Phase 2 Audits of both covered entities and business associates.  The Phase 2 Audit Program will focus on areas of greater risk to the security of protected health information (PHI) and pervasive noncompliance based on OCR’s Phase I Audit findings and observations, rather than a comprehensive review of all of the HIPAA Standards.  The Phase 2 Audits are also intended to identify best practices and uncover risks and vulnerabilities that OCR has not identified through other enforcement activities.  OCR will use the Phase 2 Audit findings to identify technical assistance that it should develop for covered entities and business associates.  In circumstances where an audit reveals a serious compliance concern, OCR may initiate a compliance review of the audited organization that could lead to civil money penalties.

The following sections summarize OCR’s Phase 1 Audit findings, describe the Phase 2 Audit program and identify steps that covered entities and business associates should take to prepare for the Phase 2 Audits.

Read the full article.

UK Based Employees Who Refuse to Work Their Notice Period

Posted in Employment

If an employee walks out, refusing to work his notice period, can an employer elect to keep the contract of employment alive, without paying the recalcitrant employee?

In the case of Sunrise Brokers LLP v Rodgers [2014] EWHC 2633 (QB), the High Court held that the answer to this question is yes.

Read the full article.

PBGC Coverage May No Longer Apply to Puerto Rico-Only Qualified Retirement Plans

Posted in Retirement Plans

Employers that sponsor defined benefit qualified retirement plans benefiting only Puerto Rico employees should be aware that Pension Benefit Guaranty Corporation (PBGC) coverage may no longer apply. Last year, the PBGC withdrew old prior opinion letters (Opinion Letters 77-172 and 85-19) regarding PBGC coverage in Puerto Rico and Guam. Those opinion letters articulated the PBGC’s position at that time, that Title IV of the Employee Retirement Income Security Act (ERISA) (providing for PBGC coverage), may apply to defined benefit plans covering only Puerto Rico participants if the Puerto Rico plan is either qualified under Section 401(a) of the U.S. Internal Revenue Code or has been operated in practice in accordance with the requirements of Section 401(a) for at least the five preceding years. Earlier this year, in remarks made at an enrolled actuaries meeting, PBGC officials stated that, going forward, PBGC will determine that a plan is not covered under Title IV of ERISA if (1) the plan’s trust is created or organized outside of the United States (e.g., Puerto Rico) and (2) no election under ERISA section 1022(i)(2) has been made. As a result, it appears the new PBGC position is that Puerto Rico-only qualified plans generally are not covered under Title IV of ERISA (although dual-qualified plans with Puerto Rico participants are covered). Since few Puerto Rico plans have made an election under ERISA section 1022(i)(2) due to the strict U.S. laws applicable to such arrangements, this new PBGC position will affect a number of Puerto Rico-only defined benefit plans. PBGC officials also stated that if the PBGC determines that a plan is not covered under Title IV of ERISA, it may refund up to six years of premiums.

Employers with Puerto Rico-only defined benefit plans should consider whether PBGC coverage of their plan is still possible or desired. If not, a refund of PBGC premiums should be sought.