ERISA: Basics and In Context

1. This UBA Employer Webinar Series is brought to you by United Benefit Advisorsin conjunction with Jackson Lewis For a copy of this presentation, please go to www.UBAbenefits.com. Go to the Wisdom tab and scroll down to HR Webinar Series and click. Under Employer Series click the Registration and Presentation link. Click the red Presentation button to see the slides.

2. Presented by: Joe Lazzarotti (Morristown, NJ) lazzarottij@jacksonlewis.com June 10, 2014 2 p.m. – 3:30 p.m. ERISA: Basics and In Context

3. About the Firm Represents management exclusively in every aspect of employment, benefits, labor, and immigration law and related litigation Over 775 attorneys in 55 locations nationwide Current caseload of over 6,500 litigations and approximately 500 class actions Founding member of L&E Global

4. Disclaimer This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances.  Indeed, health care reform law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.).  The solutions to any given business’s health care reform compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals,  whether the employer has a collectively-bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors.  IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.)

5. Topics for Discussion • Key Features and Structure of ERISA • ERISA Preemption • The Summary Plan Description • Voluntary Benefits and ERISA • Annual Reporting Requirement • Church Plans • Fidelity Bonds • Leave of Absence Conundrum

6. Key Features and Structure ofERISA • Significance of ERISA Coverage • Reporting and Disclosure • Fiduciary Requirements • Preemption • Enforcement; limitations on claims and remedies; but plaintiffs can get attorneys’ fees • Favorable standard of review (to Plan) • Participants protected from interference with benefits • Jurisdiction • DOL has ruling and enforcement jurisdiction • IRS has concurrent enforcement authority

7. Key Features and Structure of ERISA • What does ERISA cover? • ERISA covers employee benefit plans, not employee benefits • Employee welfare benefit plans and employee pension benefit plans • Welfare Plan, Defined • any plan, fund, or program…established or maintained by an employer or by an employee organization, or by both,…for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 302(c) of the Labor Management Relations Act…

8. ERISA: Welfare Plans • Can you have an ERISA plan without a plan document? • Yes, employers cannot escape ERISA coverage by maintaining an informal or unwritten plan or failing to comply with ERISA’s requirements. • Plans can exist based on written guidelines, internal policy statements, corporate manuals or by descriptions in employee handbooks. • A “plan, fund or program” will be established for purposes of ERISA if, from the surrounding circumstances, a reasonable person can ascertain: • the intended benefits • a class of beneficiaries • the source of financing, and • procedures for receiving benefits

9. ERISA: Welfare Plans • Types of welfare benefit plans • Health insurance – medical, dental, vision, HFSA, on-site clinic/health provider • Group life insurance • Long-term disability income • Business travel insurance • Pre-paid legal services • Short-term disability income only if provided through insurance or a trust fund, and in excess of state mandated disability benefits (CA, HI, NJ, NY, PR, RI) • Severance pay • Retiree only?

10. ERISA: Welfare Plans • Are these benefits welfare benefit plans subject to ERISA? • Employee assistance plans • Wellness programs • Executive medical reimbursement • Cancer policies • Long-term care plans

11. ERISA: Welfare Plans • Exclusions from welfare benefit plans • Payroll practices to the extent paid from general assets – short term disability • On-premises facilities (to the extent of treatment of minor injuries or illness or rendering first aid in case of accidents) • Holiday gifts • Sales to employees • Hiring halls • Remembrance funds • Strike funds • Certain group or group-type insurance programs

12. ERISA: Welfare Plans • Other plans not subject to ERISA • Cafeteria plan • Dependent care assistance program • Adoption assistance, educational assistance if unfunded, transportation benefits • Health Savings Account (“HSA”), per Department of Labor (“DOL”) Field Assistance Bulletin 2004-1 (April 7, 2004)

13. Key Statutes and Regulatory Environment • Employee Retirement Income Security Act (ERISA) • Consolidated Omnibus Budget Reconciliation Act of 1986 • IRS coverage regulations; DOL notice regulations • Health Insurance Portability and Accountability Act of 1996 • Portability, nondiscrimination, administrative simplification • DOL, HHS and IRS regulations • Children‘s Health Insurance Program Reauthorization Act of 2009 • Genetic Information Nondiscrimination Act of 2008 • Women’s Health and Cancer Rights Act of 1998

14. Key Statutes and Regulatory Environment • Employee Retirement Income Security Act (ERISA) (ctd.) • Newborns' and Mothers' Health Protection Act of 1996 • Mental Health Parity and Addiction Equity Act of 2008 • Internal Revenue Code • Sections 104, 105 and 106 • Section 125 plans • Dependent care flexible spending plans • Health flexible spending plans • Fringe benefits (IRS Pub. 5137, Jan. 2014)

15. Key Statutes and Regulatory Environment • Other statutes • Americans with Disabilities Act of 1990 • Family and Medical Leave Act of 1993 • Age Discrimination in Employment Act • Pregnancy Discrimination Act • Uniformed Services Employment and Reemployment Rights Act of 1994 • Medicare Secondary Payer (“MSP”) Rules • National Labor Relations Act • State laws to the extent not preempted by ERISA

16. ERISA Preemption • Basic provision: “[ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan…” • “Savings clause”: • Generally applicable criminal laws • State laws regulating banking, securities and insurance • Savings clause allows states to regulate insurance carriers and the terms of insurance contracts issued by such carriers

17. ERISA Preemption • Key issues • Eligibility and continuation coverage • State mandates – such as, San Francisco Healthcare Ordinance • Self funded plans, church plans • “MEWA” status • A Multiple Employer Welfare Arrangement (MEWA) is a welfare benefit plan which benefits the employees of two or more employers • Be familiar with the IRS controlled group rules, not only for ACA purposes • MEWAs are subject to state insurance requirements. This means trouble for self-funded MEWAs

18. The Summary Plan Description The SPD is a written summary of the contents of a plan that is required to be distributed to participants and beneficiaries. What plans must provide SPDs? When must SPDs be provided and to whom? How may SPDs be provided? What are the content requirements for SPDs? Do we need a plan document and a separate SPD?

19. The Summary Plan Description • What plans must provide an SPD • Employee welfare benefit plans • Employee pension benefit plans • Plans not required to provide SPDs • Governmental and church plans • Plans maintained solely for complying with worker's compensation, unemployment, or disability insurance laws • Plans maintained outside U.S. for nonresident aliens • Certain “voluntary” benefits • On-site day care centers

20. The Summary Plan Description • When to Provide…Initially • Participants: no later than 90 days after commencing participation • Beneficiaries: no later than 90 days after beginning to receive benefits • New plans: within 120 days after the plan first becomes subject to the disclosure requirements

21. The Summary Plan Description • When to Provide…Modifications/updates • Within 210 days following the end of the plan year of an amendment by way of a Summary of Material Modification or reissuing the SPD • Within 60 days for material reduction health plan benefits clarify amendment • Update SPD every 5th year unless there have been no amendments that would affect the contents of the SPD • Update SPD every 10th year regardless of whether amendments have been made

22. The Summary Plan Description • Who gets it • Participants and beneficiaries • Includes persons on COBRA and QMCSOs • Employers can provide employees, retirees in different classes different versions of the SPD appropriate to the class, and may omit information not applicable to a particular class; BUT, the company must: • Identify on the first page the class to which the SPD applies, and • that the plan covers other classes, with a reference to a list of those classes

23. The Summary Plan Description • How to provide • Mail • Hand Delivery • Electronically – DOL regulations govern methodology • Employees can access electronic documents at any location where they reasonably could be expected work and access to employer's electronic information system must be an integral part of their employment duties; or • Affirmative consent • Kiosks not permitted

24. The Summary Plan Description • How to provide • Electronic plan documents must meet following requirements: • Necessary and appropriate measures reasonably calculated to ensure actual receipt (e.g., return receipt) • Confidentiality of information • Be consistent with style, format and content required under ERISA • Employee must be notified of the significance of the electronic communication – it includes plan information! • Employee must be notified of the right to obtain the document in paper form and employer must provide it upon request

25. The Summary Plan Description • Format and content • Accurately and comprehensively reflect plan terms, and calculated to be understood by the average plan participant • Limitations, reductions or restrictions on plan benefits described with similar prominence as benefits • Different versions for different classes of employees/retirees • Specific requirements for all plans, welfare and retirement plans – e.g., eligibility (consider ACA requirements), array of “notices” – grandfathered plan, WHCRA, COBRA initial notice, others • Can SPD really be a “summary”?

26. The Summary Plan Description • Format and content • Not required, but some recommended provisions include: • Plan administrator discretion • Coordination of benefits, reimbursement, constructive trust provisions • Indemnity of company employees for acts consistent with plan administration • Reservation of right to amend and terminate plan, particularly in retiree health context

27. The Summary Plan Description • Format and content – “wrap documents” • Why have a wrap-around plan: • Insurance certificates often do not include all of the DOL required information • Language included in certificates drafted to favor carrier • Create single ERISA plan for ease of administration, reporting • Facilitates certain plan disclosures

28. The Summary Plan Description • Foreign language assistance • If plan has • <100 participants at the beginning of plan year, and 25% or more of participants are literate only in the same non-English language; or • 100 or more participants at the beginning of plan year in which the lesser of (i) 500 or more participants, or (ii) 10% or more of all participants are literate only in same non-English language: • Provide translated SPD or • Notice in SPD using the applicable non-English language that assistance in understanding the SPD will be provided

29. The Summary Plan Description • Penalties and Audits • No penalty for not providing • ERISA Sec 502(c) provides that a plan administrator that fails to comply with a participant’s request for SPD within 30 days may be personally liable, in the court's discretion, in an amount up to $110 a day from the date of the failure • The penalty is limited to plan administrators, not insurers • Other exposures for failure to provide • Recent audit activity, including multiple year review of evolution of plan documents and summary plan descriptions

30. Voluntary Benefits • Are group or group-type “voluntary benefits” subject to ERISA…NO, if: • Employer makes no contributions toward cost of coverage; • Participation in the program is completely voluntary for employees; • The sole functions of the employer with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and • The employer receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.

31. Voluntary Benefits • Examples of Endorsement • Selecting insurer • Negotiating plan terms, such as eligibility • Putting Company name on plan documents, communications • Recommending plan to employees • Assisting in resolution of claims

32. Annual Report • General rule • Plan administrators of ERISA covered welfare plan (which may include so-called "voluntary" benefits), have an obligation to file a Form 5500 (aka, “annual report") for that plan if there are 100 or more participants in the plan as of the beginning of the plan year (which may or may not be the contract period with the carrier). • Plans with between 80 and 120 participants at the beginning of plan year, may elect same filing status (small vs. large) as previous year. • Many smaller clients either miss this requirement entirely or fail to include certain plans • Filing not required for non-ERISA fringe benefits

33. Annual Report • Who is a participant? For welfare plans, an individual becomes a covered participant on the earlier of: • the date designated by the plan as the date the individual begins participation in the plan; • the date on which the individual becomes eligible under the plan for a benefit subject only to occurrence of the contingency for which the benefit is provided. Thus, simply being eligible to participate is not enough to be a participant for this purpose; or • the date on which the individual makes a contribution to the plan, whether voluntary or mandatory.

34. Annual Report • Due date • In general, the last day of the seventh month after the close of the plan year (for calendar year plans this would be July 31st) • Extension - an automatic 2 ½-month extension is available by filing Form 5558 before the normal due date • Electronic filing required • Consequences of failing to file • DOL can impose fines of up to $1,100/day per day that Form 5500 is missing or incomplete • Breach of fiduciary duty • Delinquent Filer Voluntary Compliance Program

35. Church Plans – Non-ERISA? • Recent federal district court decisions put into question long standing IRS view of what constitutes a “church plan” • Kaplan v. Saint Peter’s Healthcare System, (U.S. D.Ct NJ, March 31, 2014) - church plan exemption applies ONLY IF the plan is established by a church, although a church or a church affiliated organization may maintain a church plan after established. • The Court specifically held that IRS GCM 39007 (7/1/1983), which concluded that a plan established by a Catholic order qualified as a church plan, is wrong because the plan was not established by a church, pointing out that the IRS, DOL and many other courts have been wrongly applying the church plan exemption for 30 years. • See also, Rollins v. Dignity Health, 2013 BL 343403, N.D. Cal., No. 4:13-cv-01450, 12/12/13

36. Church Plans – Non-ERISA? • Implications from a welfare plan perspective • Plans are subject to ERISA requirements, such as SPD and annual reporting requirements • Group health plans must offer COBRA • Subrogation rights may be affected • ERISA preemption will apply

37. Fidelity Bonds Every fiduciary of an employee benefit plan and every person who handles plan funds or other property must be bonded under a fidelity bond. The bond is intended to protect the plan from losses due to fraud or dishonesty Bond must be in place at the beginning of the plan year in an amount equal to at least 10% of the funds handled during the prior reporting year, subject to a minimum of $1,000 and a maximum of $500,000. The bond may name specific individuals or may be a “blanket bond” covering plan officials and employees in general.

38. Fidelity Bonds A plan that does not have funds or property does not need a bond. Participant contributions are plan assets once they can be segregated, but not plan funds or property until actually segregated from employer’s general assets. Plans accepting participant contributions under a cafeteria plan and insured plans accepting contributions will not need a bond unless the contributions are actually segregated from general assets before being used to pay plan benefits. Can add welfare plans to 401(k) plan bond.

39. Leave of Absence Conundrum • The Problem: • Inactive disabled employees: • Banished to “Leave Limbo” • Belief state law requires continued coverage • Coverage continues under benefit plans – company paid! • No COBRA, FMLA notices • No interactive dialogue regarding reasonable accommodations or return to work

40. Leave of Absence Conundrum • Recent Case:Clarcor, Inc. v. Madison National Life Ins. Co., (M.D. Tenn., July 11, 2011) • Self funded health plan • Employee takes full FMLA leave • “Company practice” – following FMLA leave, 6 months of short term disability, continued benefits as if active • Court holds: Madison appears to be entirely correct that the only way to preserve I.K.'s coverage in light of these events was to offer I.K. COBRA coverage as soon as I.K.'s FMLA leave concluded, which Clarcordid not do

41. Leave of Absence Conundrum • Key Issues: • Exposure to medical expenses • FMLA, ADA interactive dialogue requirement • COBRA notice penalties • Workers compensation discrimination • Conversion coverage issues • Solutions?

42. Joe Lazzarotti (Morristown, NJ) lazzarottij@jacksonlewis.com 973-451-6363 ANY QUESTIONS?

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