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In This Issue:
- COBRA
Premium Assistance Extension
- IRS
Identifies Common Errors in Small and Top-heavy 401(k) Plans
- DOL
Enforcement Efforts
- Model Employer
CHIP Notice Now Available in Spanish
- COBRA
Participant Denied Disability Extension
- State
Updates: DC, MI, OH and VA
COBRA Premium Assistance Extension
On March 2, 2010, the
Temporary Extension Act of 2010 was enacted and effective immediately. The Act
allows those who experience an involuntary termination of employment
through March 31, 2010 (extended from the previous Feb. 28, 2010) to be
treated as assistance-eligible individuals for purposes of the COBRA
premium assistance. The law also changes the eligibility to receive premium
assistance for those who have experienced a reduction in hours followed by
a termination of employment. The law did not change the length of time
available for subsidy assistance which continues to be 15 months. In order
to be considered an assistance-eligible individual, an employee must have
experienced a reduction in hours between Sept. 1, 2008 and March 31, 2010.
However, the termination of employment must have occurred on or after March
2, 2010 and on or before March 31, 2010. The individual must receive a
revised General Notice within 60 days of the termination of employment.
Click here
for more information.
IRS Identifies Common Errors in Small and Top-heavy 401(k) Plans
The Internal Revenue
Service (IRS) recently completed two examinations under its Learn, Educate,
Self-Correct, and Enforce (LESE) initiative to test and measure the compliance
levels of defined contribution retirement plans. Using randomly selected
Form 5500 returns, the projects produced findings in two major areas: small
plans with assets from $100,000 to $250,000 and top-heavy plan errors.
One of the top errors found
for small plans was the failure to secure adequate bonding of plan
fiduciaries who handle retirement plan assets. Under ERISA, the amount of
bonding should not be less than 10 percent of the amount of funds handled
(not less than $1,000 or more than $500,000) with exceptions. Other top
errors included failing to amend plans on a timely basis to comply with
statutory and regulatory changes, failure to timely submit Form 1099-R,
failure to timely deposit elective deferrals, top-heavy failures, joint and
survivor waiver failures, impermissible distributions, and failure to
include into income "deemed distributions" relating to defaulted
loans from the plan.
The second project
examined approximately 50 plans with between three and eight participants
which were expected to have top heavy plan errors. In general, a 401(k)
plan is top heavy when more than 60 percent of the present value of
benefits goes to key employees. If a plan is deemed top-heavy, it must
apply certain accelerated vesting and contributions to all eligible non-key
employees. The most common errors the IRS found were failure to test for
top heaviness, improper exclusion of eligible employees, and allocation
errors related to compensation and contributions.
In all of the errors
found, the IRS has addressed correction procedures within the 401(k)
"Fix-it Guide." Additionally, the LESE project report also
contains tips on avoiding the common errors found by the IRS.
Click here to view the project report.
Click
here to view the "Fix-it Guide."
DOL Enforcement Efforts
The Employee Benefits
Security Administration (EBSA) division of the Department of Labor has
released statistics surrounding its ERISA enforcement efforts. In 2009, the
EBSA conducted 3,669 civil investigations and 287 criminal investigations
regarding ERISA violations of employee benefit plans. This resulted in 115
criminal indictments and $1.36 billion in recovered assets and penalties.
In regards to the COBRA subsidy specifically, the EBSA received 9,897
appeals from individuals denied the COBRA subsidy. Of those received,
almost 70 percent (6,886) were approved. These statistics show the
importance of compliance in light of the DOL's enforcement efforts.
Click here for more information.
Model Employer CHIP Notice Now Available in Spanish
The EBSA has released the
Model Employer CHIP Notice in Spanish. As a reminder, the notice must be distributed
to eligible group health plan individuals who reside in a state with a
Medicaid or CHIP premium assistance program. The relevant states are listed
on the model notice. The EBSA has also revised the contact information for
Kansas, Louisiana, and Washington in the English version. Please note that
the revised contact information does not require an additional notification
if the employer has already distributed the previously available version.
Click
here to view the revised English version.
Click
here to view the Spanish version.
COBRA Participant Denied Disability Extension
In Walker v. Rock-Tenn Converting Co.,
the employee was terminated following a disabling injury. He and his wife
timely elected COBRA and continued coverage for 18 months. After 18 months,
their coverage was terminated and the employee sued for the additional
11-month extension available under federal COBRA for disabled individuals.
To be eligible for such extension, the COBRA participant must notify the
plan within 60 days of being determined to be disabled by the Social
Security Administration (SSA). The notice must also be given within the
original coverage period of 18 months. In this case, the employee did not
notify the plan until after the 18 months was exhausted, so the court
rejected his claim for the 11-month extension. The court stated that the
employer's knowledge of the employee's disability was not considered notice
of a SSA disability determination. This case serves as a reminder to plan
administrators that their plan documents and COBRA Election Notice should
include information regarding the disability extension notification
procedures.
Click here for more information.
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District
of Columbia
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The Religious Freedom
and Civil Marriage Equality Amendment Act, which expands the definition of
marriage to include same-sex couples, took effect March 3, 2010 after the
U.S. Supreme Court declined to hear a challenge of the bill. Opponents of
the bill requested the Supreme Court intercede after attempts to repeal
the law using the referendum process had failed. Chief Justice Roberts
wrote the opinion which refused a stay of the Act. The D.C. Court of
Appeals is still considering the issue of whether the D.C. Council may
deny a referendum on the Act, but following Chief Justice Robert's
refusal to stay, the district may now allow same sex couples to apply for
marriage licenses. We will keep you informed of any future guidance
issued as it relates to group health insurance policies.
Click here for more information.
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Michigan
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On Feb. 26, 2010,
Insurance Commissioner Ross issued Bulletin 2010-07-INS related to the
minimum level of coverage required for substance abuse. Section 3425 of
the Insurance Code, 1956 PA 218, MCL 500, requires each insurer offering
health insurance policies to provide coverage for intermediate and
outpatient care for substance abuse in all contracts for group and
individual hospital, medical, etc., other than limited class policies.
The minimum required coverage, per individual per year, is adjusted
annually by March 31 each year using the US Consumer Price Index. The
minimum substance abuse benefit level effective April 1, 2010 through
March 31, 2011 is $3,905.
Click here for more information.
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Ohio
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The Ohio Superintendent
of Insurance released Bulletin No. 2010-01 in response to the passage of
HB 300 which included provisions to extend state continuation
("mini-COBRA") on a temporary basis in order to parallel
federal amendments to COBRA. Effective immediately, continuation coverage
for employer sponsored group insurance policies is available for 15 months,
instead of 12 months. The bulletin clarifies that this is a temporary
change and when the federal subsidy is no longer available to
involuntarily terminated employees, Ohio law will revert back to 12
months of continuation coverage. However, as long as federal law
continues to be amended, Ohio state continuation will permit assistance
eligible employees to receive the subsidy for the number of months
available under federal law.
Click here for more information.
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Virginia
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SB 283, SB 311, and SB
417 are three identical pieces of legislation effective July 1, 2010
making Virginia the first state in the nation to pass a piece of legislation
that seeks to limit, alter, or oppose federal actions regarding health
care reform. Specifically, the bill amends the Virginia statutes to
include a new section entitled, "Health coverage not required."
The bill states that no resident of the Commonwealth of Virginia will be
required to obtain or maintain a policy of individual insurance coverage.
It also states that a resident of Virginia will not be liable for any fee
or penalty as a result of declining to obtain health insurance. The
legislation passed without the governor's signature after both branches
of the legislature accepted the governor's recommendation of changes. If
a federal mandate requiring individual coverage passes, it would override
this legislation.
On March 1, 2010, the
governor signed HB 554 into law. The law amends Virginia state
continuation ("mini-COBRA") from 9 months to 15 months for
individuals who have been involuntarily terminated during the period
beginning Sept. 1, 2008, and ending March 31, 2010, as amended under the
Temporary Extension Act of 2010. The law amends Virginia state
continuation to mirror any extensions that are made to the federal COBRA
subsidy provisions going forward, but only for employees who are
involuntarily terminated. Individuals with qualifying events other than
involuntary termination are only eligible for 90 days continuation.
Click here to view HB 554.
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