Proposed EEOC Regulations Impose Additional Requirements On Wellness Programs
On April 20, 2015, the U.S. Equal Employment Opportunity Commission ("EEOC") published proposed regulations addressing how employers can implement wellness programs that comply with the Americans with Disabilities Act ("ADA"). Although the ADA generally prohibits employers from making disability related inquiries or requiring medical exams, these activities are permissible as part of a voluntary wellness program. The EEOC's proposed regulations ("Proposed Regulations") include guidance on (i) the requirement that wellness programs be voluntary; (ii) employers' abilities to offer incentives for participation in the programs, (iii) the notice employers must provide to employees regarding the information obtained from the programs and the requirement to keep medical information confidential, and (iv) the design of wellness programs. The Proposed Regulations apply to all health programs, which include wellness programs regardless of whether they are offered as part of a group health plan or group health insurance coverage. However, some portions of the Proposed Regulations, including the notice requirement and incentive limitations, apply only to wellness programs that are part of or provided by a group health plan or a health insurance issuer offering group health insurance in connection with a group health plan.
Background and HIPAA Regulations
Wellness programs generally fall into two categories: participatory or health-contingent. Participatory programs do not provide any reward nor include any conditions for obtaining a reward based on an employee satisfying a particular health standard. Examples of participatory programs include fitness center reimbursements or rewards for participating in health risk assessments ("HRAs") without requiring any further action by employees to achieve a specific health standard.
Health-contingent programs require that a participant satisfy a standard related to a particular health factor to obtain a reward. Programs may be activity-only, which require employees to perform or complete a certain activity, such as a diet or exercise program, prior to obtaining a reward. Alternatively, health-continent programs may be outcome-based, which require that an employee attain or maintain a certain health standard to receive a reward, such as not smoking or attaining certain results on a biometric screening.
The EEOC is not the first administrative agency to regulate wellness programs. In 2013, the IRS, U.S. Department of Labor, and Health and Human Services Department issued final regulations on wellness programs based on statutory changes made by the Affordable Care Act (the "2013 Regulations"). The 2013 Regulations set forth criteria that could be used by group health plans to design wellness programs that complied with the nondiscrimination requirements of the Health Insurance Portability and Accountability Act ("HIPAA").
The EEOC, however, took the position that compliance with the 2013 Regulations may not be sufficient to satisfy ADA requirements. In fact, the EEOC filed lawsuits against three different employers in 2014 alleging that their wellness programs violated the ADA by financially penalizing employees who did not participate in the programs. At the core of the EEOC enforcement actions was the question of what constitutes a "voluntary" program. These actions were met with criticism given that the EEOC failed to issue any rules or guidance on the topic as employers had been attempting to comply with the existing 2013 Regulations. The Proposed Regulation provide more restrictive requirements for wellness programs than the 2013 Regulations.
Highlights of the Proposed Regulations Include Additional Requirements for Employers
The Proposed Regulations include the following:
• Meaning of "Voluntary": For a wellness program that includes a disability-related inquiry or medical examination to be "voluntary" under the ADA, the employer must not: (i) require employees to participate; (ii) deny access to health coverage or generally limit coverage under its health plans for non-participation; or (iii) take any other adverse action or retaliate against, interfere with, coerce, intimidate, or threaten employees (such as by threatening to discipline someone who does not participate or fails to achieve certain health outcomes).
• Incentives: To promote participation in wellness programs, employers are allowed to offer both financial and in-kind incentives in the form of a reward or penalty totaling no more than 30% of the cost of employee-only coverage. These incentive limitations apply only to programs that are part of a group health plan and include either participatory programs asking disability-related questions or conducting medical examinations, or health-contingent programs that require participants to satisfy a health standard.
o INSIGHT: The 2013 Regulations provide that the tobacco cessation incentives can equal up to 50% of the cost of coverage. In its guidance, the EEOC indicates that a program which simply asks if a participant is a smoker would not be subject ADA, so incentives could go up to 50% and not run afoul of the Proposed Regulations. However, if a blood test or biometric screening is used to determine the presence of tobacco, it would be subject to the ADA and the reward could not exceed 30%. Furthermore, the 30% maximum under the 2013 Regulations only applies to health contingent rewards, and the Proposed Regulations would apply to both health contingent and participatory rewards.
o INSIGHT: The 2013 Regulations provide that incentive amounts up to 30% of the total cost of family coverage may be provided under a wellness program, if dependents are allowed to participate in the program, whereas the Proposed Regulations would use the cost of employee-only coverage in determining the maximum incentive allowed.
• Notice: In addition, if the wellness program is part of a group health plan, employers must provide participants with a written notice that participants are reasonably likely to understand and that explains the medical information that will be obtained, how the information will be specifically used, who will receive it, the restrictions on the disclosure of such information, and the methods that will be used to ensure the information is not improperly disclosed.
o INSIGHT: The 2013 Regulations require a notice for health contingent wellness programs as well, but the notice requirement in the Proposed Regulations is more burdensome in that it requires more information and is required for both participatory and health contingent programs.
• Program Design: Wellness programs must be reasonably designed to promote health or prevent disease, such that the program has a reasonable chance of improving health or preventing disease in participants, and must not be overly burdensome, a scheme to violate the ADA or other discrimination laws, or implement highly suspect methods to promote health and prevent disease. An example of an acceptable program would include biometric screenings for the purpose of alerting employees to health risks. Examples of unacceptable programs would include asking employees to provide medical information through HRAs without providing feedback about risk factors or using the information to design programs or treat specific conditions or imposing an overly burdensome amount of time or participation to obtain a reward or requiring unreasonably intrusive procedures.
The Proposed Regulations also require that employers must make reasonable accommodations to enable employees with disabilities to fully participate in employee health programs, including the ability to earn any reward or avoid any penalty offered as part of the programs. The Proposed Regulations also make clear that compliance with the Proposed Regulations and 2013 Regulations does not relieve employers of complying with all other employment nondiscrimination laws, such as those prohibiting discrimination on the basis of race, sex, national origin, or age.
To the extent an employer's wellness program satisfies the 2013 Regulations, but may not satisfy the Proposed Regulations, prompt action and wellness program re-design may be necessary to comply with the laws once final regulations are issued. King & Spalding will continue to monitor developments regarding the Proposed Regulations as they proceed through the comment period (through June 19, 2015), and is happy to assist employers with any questions they may have regarding the design of wellness programs as it relates to this new guidance.
IRS Announces New Correction Methods for Common Retirement Plan Errors
Author, James P. Cowles*, Atlanta, +1 404 572 3455, email@example.com.
The IRS recently made helpful revisions to the Employee Plans Compliance Resolution System ("EPCRS). EPCRS is an IRS program that permits plan sponsors to correct certain retirement plan errors and avoid substantial penalties, including a possible plan disqualification. The full text of EPCRS is here.
Revenue Procedure 2015-27
Increased Flexibility for Overpayment Corrections
An overpayment failure is a payment made to a participant or beneficiary in excess of the amount permitted under the terms of the plan or an Internal Revenue Code ("Code") limitation. For example, a benefit calculation error may result in a pension plan making monthly payments in excess of the benefit amount permitted under the plan's terms.
Before the changes made by Rev. Proc. 2015-27, plan sponsors were generally required to take reasonable steps to have overpayments returned to the plan, including contacting the person to whom an overpayment was made and requesting that he or she return the excess amount, plus earnings.
Rev. Proc. 2015-27 permits a plan sponsor, or someone else (e.g., a service provider that made the overpayment error), to contribute an amount equal to the overpayment, plus earnings, to the plan without requesting a return of the excess amount from the recipient. Alternatively, the plan may be retroactively amended to permit the overpayment.
[K&S Insight: Unfortunately, it appears that plan sponsors may still need to contact participants and/or beneficiaries and inform them that the overpayment was not eligible for rollover.]
The IRS has requested further comments regarding methods of correcting overpayments and it intends to issue additional guidance in the future on this issue.
Extra Time to Correct Excess Annual Additions
Excess annual additions under Code Section 415(c) may now be "self-corrected" by distributing excess amounts no later than 9½ months after the plan's limitation year (currently excess annual additions must be distributed within 2½ months after the plan's limitation year). The Code Section 415(c) limit for 2015 is the lesser of $53,000 or 100% of the participant's compensation.
The model forms found in EPCRS Appendix C have been replaced by a new Form Series, 14568-A through 14568-I. The model acknowledgement letter found in Appendix D of EPCRS has also been revised.
User Fees Reduction for RMD and Loan Failures
The fees for correcting a required minimum distribution failure or a plan loan failure have been significantly reduced to further encourage plan sponsors to use EPCRS.
Determination Letter Applications
Currently, a voluntary correction program (VCP) application under EPCRS for a correction that requires a corrective amendment to a plan must generally also include an application for a favorable determination letter. A favorable determination letter application will no longer be required if (1) the corrective amendment is made to a volume submitter or prototype plan and the plan sponsor has reliance on the IRS opinion or advisory letter following the adoption of the amendment or (2) more than 12 months has passed since the plan was terminated and all assets have been distributed.
Longer Time to Adopt Amendments
Plan sponsors will have until the later of (a) 150 days after the date of an IRS compliance statement or (b) 90 days after a favorable determination letter is issued to adopt a corrective amendment.
The changes made by Revenue Procedure 2015-27 are effective July 1, 2015. However,plan sponsors may elect to apply the new procecures earlier.
Revenue Procedure 2015-28
Currently, EPCRS has the same correction method for a failure to implement either an automatic elective deferral (e.g., automatic enrollment or escalation) or an affirmative election made by a participant.
The current correction method requires the plan sponsor to make a qualified nonelective contribution (QNEC) to the plan on behalf of affected participants equal to the sum of 50% of the amount that would have been deferred had the elective deferral been timely implemented, plus 100% of the matching contribution that would have been received, plus earnings.
The popularity of automatic enrollment and escalation arrangements in 401(k) and 403(b) plans has increased in recent years. The downside to these arrangements (and a reason why some employers do not include such arrangements in a plan) is that if the "automatic" contribution is not timely implemented, the resulting failure and correction can be expensive (these failures are often not discovered for months or years later during an audit).
To encourage plan sponsors to include automatic enrollment and escalation design features in their plans, Revenue Procedure 2015-28 reduces the correction cost if the correction is identified and completed timely, as follows:
Automatic Deferral Correction: If an automatic deferral election or an affirmative election to contribute more than the automatic contribution rate is not timely implemented, a QNEC equal to 50% of the missed elective deferrals is not required if the elective deferrals, at the correct rate, begin no later than the earlier of (1) the first payroll date following the period ending 9 ½ months after the end of the plan year in which the failure occurred, or (2) the first payroll date following the end of the month after the participant notifies the plan administrator of the failure.
The plan sponsor must still make a QNEC contribution for any missed matching contributions, plus earnings. If the participant did not make an affirmative investment election, the earnings may be determined based on the default investment option under the plan. The QNEC must be made no later than the end of the second plan year following the year in which the failure first occurred.
Affected participants must be notified within 45 days of the correction. The notice must explain the failure and correction, state that a contribution has been made to compensate for missed matching contributions and the participant may increase his or her deferral election to make up for missed deferrals, and include contact information for any questions.
Failures Unrelated to Automatic Contribution
Two safe harbor correction methods for elective deferral failures unrelated to automatic contributions are also included in the Revenue Procedure 2015-28, as follows:
(1) If the failure continues for less than four months, no QNEC for the missed deferral opportunity is required if (a) the correct deferral contribution begins no later than the earlier of (i) the first payroll beginning three months after the failure occurred or (ii) the first payroll after the end of the month in which the plan administrator was notified of the failure, (b) the participant is notified of the failure no later than 45 days after the correction; and (c) a matching contribution is made, including earnings.
(2) If the failure extends beyond three months, but not beyond the second plan year following the plan year in which the error occurred, the failure may be corrected by making a QNEC contribution equal to 25% of the missed deferral (plus any missed matching contributions and earnings). Notice requirements similar to item (1) apply to here as well.
These new safe harbor correction methods are available immediately and can be made for any failures occurring on or before December 31, 2020.
If you have any questions, or if King & Spalding can assist you in any way, please give us a call.
*Non-lawyer Employee Benefits Consultant
May and June 2015 Filing and Notice Deadlines for Qualified Retirement and Health and Welfare Plans
Author, Ryan Gorman, Atlanta, +1 404 572 4609, firstname.lastname@example.org.
Employers and plan sponsors must comply with numerous filing and notice deadlines for their retirement and health and welfare plans. Failure to comply with these deadlines can result in costly penalties. To avoid such penalties, employers should remain informed with respect to the filing and notice deadlines associated with their plans.
The filing and notice deadline table below provides key filing and notice deadlines for the next two months. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. Please note that the deadlines will generally be different if your plan year is not the calendar year. Please also note that the table is not a complete list of all applicable filing and notice deadlines (including any available exceptions and/or extensions), just the most common ones. King & Spalding is happy to assist you with any questions you may have regarding compliance with the filing and notice requirements for your employee benefit plans.
Benefit Statements for Participant-Directed Plans
Deadline for plan administrator to send benefit statement for the first quarter of the plan year to participants in participant-directed defined contribution plans.
Defined Contribution Plans that allow participants to direct investments
Quarterly Fee Disclosure
Deadline for plan administrator to disclose fees and administrative expenses deducted from participant accounts during the first quarter of the plan year. Note that the quarterly fee disclosure may be included in the quarterly benefit statement or as a stand-alone document.
IRS Forms 990 and 990-EZ
Deadline for tax-exempt trusts associated with qualified retirement plans and voluntary employee beneficiary associations (VEBAs) to file Forms 990 or 990-EZ with the IRS for prior year. A 3-month extension may be obtained by filing a Form 8868, which must be filed by this date.
Qualified Retirement Plans*
Voluntary Employee Beneficiary Associations
Deadline for plan administrator to distribute eligible automatic contribution arrangements (EACA) excess contributions and earnings from the prior year to avoid 10% excise tax.
401(k) Plans with EACA
*Qualified Retirement Plans include all defined benefit and defined contribution plans that are intended to satisfy Code §401(a).
PLEASE SAVE THE DATE
The Plan Sponsor Council of America (PSCA) will host a half-day conference on June 4th in New York City that will focus on issues important to defined contribution retirement plan sponsors. Specifically, the event will:
• Provide insight and updates related to DC plan management
• Promote interaction between plan sponsors
• Legislative Update, McGuire Woods LLP
• Participant Behavior, Dimensional Fund Advisors
• Roundtable Discussion led by PSCA with experts from SageView Advisory Group, King & Spalding and PricewaterhouseCoopers
Who Should Attend
Defined Contribution Retirement Plan Sponsors, Fiduciaries, CFOs, Human Resource Leaders, Employee Benefit Plan Managers
Thursday, June 4th 2015
8:30 am – 12:15 pm
Includes continental breakfast and box lunch
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Central Coordinator, PSCA