Go Your Own Way (Or Maybe Not): New Heightened Fiduciary Standards are Coming to Group Health Plans

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by Bret Busacker

There has been a shift taking place in ERISA litigation and compliance that could significantly impact group health plan fiduciary requirements. We anticipate group health plan fiduciary standards will evolve along the same lines as what occurred in the 401(k) industry after the ERISA 408(b)(2) rules became effective in 2012.

401(k) plans for years have been subject to fee disclosure and relatively well-defined fiduciary standards of conduct. Much of the improvement in 401(k) fiduciary practices over the past decade can be attributed to the ERISA 401(k) fee disclosure requirements that went into effect in 2012 under ERISA 408(b)(2) and the resulting fee litigation fueled by the ERISA 408(b)(2) fee disclosure rules. As a result of the ERISA 408(b)(2) and the related litigation, employers and plan fiduciaries, often with the aid of counsel, have become significantly more proficient in monitoring fees and negotiating agreements with 401(k) plan TPAs and investment service providers.

The Consolidated Appropriations Act (CAA) in 2021 extended the ERISA 408(b)(2) fee disclosure requirements to group health plans. Based on what took place in the 401(k) industry after 2012 when the ERISA 408(b)(2) disclosure went into effect, we anticipate the ERISA 408(b)(2) fee disclosure requirement, now also applicable to group health plans, will make it easier for plan participants to bring breach of fiduciary duty claims against employer and plan fiduciaries. There are already several such cases currently making their way through the courts.

In addition to the ERISA 408(b)(2) fee disclosure requirement, group health plan fiduciaries now have a better line of sight into the structure and economics of their group health plans than ever before. This insight comes in the form of a series of new disclosure requirements that require plans to obtain and publish network and out of network payment rates, and to report plan drug and service cost information to HHS. Further, the CAA now requires employers to prepare periodic reports demonstrating compliance with the Mental Health Parity rules. These new rules give employers and plan fiduciaries unprecedented leverage with their service providers through increased transparency and improved awareness of the structure and economics of their group health plans.

With this greater knowledge and understanding comes more risk of criticism that an employer or plan fiduciary could have looked closer—and should have looked closer—at fees and plan design in carrying out their fiduciary responsibilities. We think these new group health plan transparency and disclosure rules will drive new litigation against group health plan fiduciaries similar to what occurred in the retirement plan industry after ERISA 408(b)(2) became effective for 401(k) plans.

Employers and plan fiduciaries should be considering now how to formalize appropriate compliance structures to ensure that reasonable fiduciary standards are being applied to group health plan administration. Our general recommendation is to adopt similar group health plan governance structures and practices that are now common in 401(k) plan administration. These governance structures may take on different forms than what we see in the 401(k) industry, but employers should be thinking now how best to match step with the shifting fiduciary standards applicable to group health plans.

Don’t Know Much About History … But I Do Know How Employers Can Help Their Employees With Student Loan Debt!

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by Elizabeth Nedrow

Employers try to provide a benefits package that employees appreciate and understand. Beyond the traditional offerings like 401(k), match, medical and dental, employers often try to be responsive to employees’ requests for other programs and features they would find useful (example – fertility benefits). One of the current requests employers may be hearing from their employees is request for assistance with student loan debt. Congress has been hearing those pleas, as well, and has provided employers with two potential avenues for giving relief to their employees. Read more

The Time Has Come, A Fact’s A Fact: Consider Adding a Welfare Plan Committee

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by Brenda Berg

The time may have come to add a welfare plan committee to your company’s governance of employee benefit plans. New legal obligations and other developments impose fiduciary risks for welfare plans similar to what already exist for retirement plans.

Most employers that sponsor a 401(k) plan or other retirement plan set up a committee to administer and oversee the plan. This is generally a best practice to ensure that the plan is properly administered in compliance with employee benefits laws and, for plans subject to the Employee Retirement Security Act of 1974 (ERISA), to have a process for following ERISA fiduciary duties. Fiduciary duties include acting prudently and in the best interests of participants, such as in overseeing service providers and monitoring plan fees. Read more

It Doesn’t Have To Be That Way: Negotiating Good Service Provider Agreements Is More Important than Ever

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by Bret F. Busacker

It may be an understatement to say that compliance with benefit plan laws and regulations is becoming increasingly more complicated. In my experience, the COVID era has brought about some of the widest-sweeping changes on the burden of administering benefit plans in some time.

There has been major evolution around service provider fee disclosure, DOL reporting and disclosure on mental health parity and disclosure of plan costs, new claims procedure rights, expanded expectations around Cyber Security protections, and expansion of the use of ESG and crypto currency (and on-again, off-again regulatory efforts). Read more

You Can’t Touch That: Permitting Cashouts of PTO May Create Tax Traps for Employees and Employers

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by Bret F. Busacker

As we approach year end, employers should give some thought to reviewing their PTO policies for the coming year. One of the most common tax traps that we see is employers offering employees the right to cash out their PTO.

“It’s their PTO, and if they have accumulated a large balance, then we want to encourage them to get the large PTO accrual off the books,” is a common explanation we hear from employers.

Not so fast. Giving an employee a choice between current cash and rolling over PTO hours accelerates the taxation of the employee’s PTO hours (even if the employee never elects to cash them out). Many employers are surprised to learn that an obscure IRS rule known as “constructive receipt” generally requires an employer to treat PTO as taxable wages at the earliest time the employee is able to elect to cash out the PTO. Read more

I’m Leaving On A Jet Plane…Is Abortion Care Travel a Covered Benefit?

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by Benjamin Gibbons

The focus of this week’s post is on an emerging hot topic, abortion care travel reimbursement. Reimbursement for travel to obtain abortion care was already something being considered by a number of companies in response to the recent Texas fetal heartbeat law and similar laws in other states. With the recently leaked Supreme Court draft opinion that stands to overturn Roe v. Wade, both the need for such a benefit and employers’ interest in offering travel reimbursements has increased significantly. If Roe is overturned, access to abortions will be largely prohibited in the 13 states with so called “trigger laws” and could be significantly restricted in at least 13 other states. Read more

I Feel Good… I Knew That I Would… Wellness Program Reminders

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by Alex Smith

With employers considering the imposition of health plan premium surcharges on participants who are COVID unvaccinated, a recent court decision highlights the importance of complying with the HIPAA wellness program requirements.

A federal district court in Ohio recently rejected a portion of Macy’s motion to dismiss the Department of Labor’s (DOL’s) enforcement action with respect to the tobacco surcharges on health plan premiums Macy’s imposed as part of its wellness program.  In its enforcement action, the DOL focused on the lack of a reasonable alternative standard for some of the years covered by the enforcement action and the lack of retroactively refunding the surcharge to participants who earned the right to avoid the surcharge later in the plan year for certain years in which a reasonable alternative standard was made available. As background, health contingent wellness programs are required to provide a reasonable alternative standard for earning the incentive (avoiding the surcharge) under HIPAA. Read more

Let’s Get Physical – Proposed PHIT Act Would Make Certain Sports and Fitness Expenses Tax Deductible

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by Alex Smith

Earlier this year, the Personal Health Investment Today Act of 2021 (the PHIT Act) was introduced in the U.S. Senate, where the legislation remains currently pending. If enacted, the PHIT Act would amend the Internal Revenue Code of 1986 to include “qualified sports and fitness expenses” among the expenses that may be deducted as tax-deductible medical expenses. In addition, individuals would be able to pay for “qualified sports and fitness expenses” using pre-tax dollars through their health savings account (HSA) or health care flexible spending account (Health FSA). Read more

We Didn’t Start the Fire . . . But We Can Make Sure Employees Are Aware of What Benefits We Offer That Might Help Dampen It

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by Leslie Thomson

Are you providing the benefits your employees desire? Many employers are making changes to their benefit programs as the COVID-19 pandemic continues. The pandemic has decreased access to routine health care services, increased mental health issues, and increased employees’ stress levels as a result of financial concerns and/or juggling working from home while caring for and homeschooling children. Many employers have made changes to their benefit programs to help employees cope with these and other issues, such as:

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Moves Like Jagger … But Is It Deductible? Taxation of Job Search and Moving Expenses

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by Beth Nedrow

Job mobility is a fact. Employees are more mobile than ever – changing jobs multiple times in a career. When an employee transitions between jobs and incurs job search and moving expenses, are those expenses deductible? If the employer pays for them, is it taxable income? Here are a few tips.

Job search expenses like travel for interviews, printing resumes and the like used to be deductible by the employee, at least to some extent. Unfortunately, the 2017 TJCA removed the 2% miscellaneous itemized deduction starting in 2018, so employees can’t deduct these expenses anymore.

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