Employment Law Updates

UNEMPLOYMENT BENEFITS EXTENDED

Under a law recently enacted by the state legislature, eligible employees are now able to collect unemployment benefits for up to 52 weeks.  Previously, those eligible for unemployment benefits were only entitled to receive benefits for up to 26 weeks.  This bill went into effect immediately upon passage.

UPDATE ON THE COBRA SUBSIDY PROGRAM

As you have probably heard by now, on February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (routinely referred to as the “stimulus bill” or “ARRA”).  Since ARRA was enacted, the Department of Labor, the Internal Revenue Service, and the State of Oregon have been busy filling in the gaps regarding the COBRA premium subsidy programs.  Here are some highlights:

 

1.         What is an involuntary termination?    

An involuntary termination occurs when employment is severed by the employer and the termination was not due to the employee’s implicit or explicit request.  An involuntary termination also occurs if there was a temporary layoff with recall rights and during the layoff, the employee’s hours were reduced to zero and the employee suffered a loss of health coverage.  However, if an employee’s hours are reduced but are still greater than zero, the mere reduction in hours does not create an involuntary termination, even if the employee loses health coverage because of the reduction in hours.

 

2.         Is the entire COBRA premium subject to the subsidy?        

That depends.  Some employers provide continuation coverage to persons not entitled to it under COBRA.  For example, pursuant to COBRA, only the employee, spouse and dependent children are entitled to COBRA continuation coverage.  However, many employers also offer continuation coverage to same-sex domestic partners and others who live in the employee’s household.  In that case, the COBRA premium subsidy only applies to the premiums for coverage for the employee, spouse and dependent children.  For example, assume the premium to continue coverage for a former employee, her dependent child and her same-sex domestic partner totals $1,000 per month.  Only that portion of the $1,000 premium attributed to the employee and the employee’s dependent child is eligible to the COBRA premium subsidy.  The balance of the premium (that attributed to the same-sex domestic partner) will need to be paid entirely by the former employee.

 

3.         If an assistance eligible individual is eligible for other group health plan coverage but does not enroll in the other plan, can the individual still receive the COBRA premium subsidy? 

No.  For traditional COBRA purposes, once the person is eligible for and enrolls in another group health plan coverage, he/she is no longer eligible for COBRA continuation coverage.  However, for purposes of the COBRA premium subsidy, once the individual is merely eligible to enroll in another group health plan, the person is disqualified from receiving the subsidy.

OREGON LAW UPDATED IN RESPONSE TO THE COBRA SUBSIDY PROVIDED IN THE ARRA

For those employees working for smaller employers not subject to COBRA, Oregon has recently updated its insurance continuation laws to be more aligned with the recent federal COBRA subsidy program.  On April 28, 2009, Governor Kulongoski signed into law a bill that (1) extends the amount of time former employees can continue coverage through the state continuation program from six months to nine months; (2) gives some Oregonians a second opportunity to decide to continue coverage; and (3) requires insurers to notify all employer groups and individuals whose jobs ended between Sept. 1, 2008 and Dec. 31, 2009 of the possibility that they qualify for this program.  Oregonians who worked for small employers and lost their jobs on or after Sept. 1, 2008, should receive a notice in the mail no later than June 1, 2009, that further describes the subsidy and gives instructions on how to sign up. 

COBRA PREMIUM SUBSIDY – WHAT EMPLOYERS NEED TO KNOW

As you may have heard, the stimulus bill signed by President Obama on February 17, 2009 provides up to a nine-month COBRA subsidy for eligible employees who are involuntarily terminated between September 1, 2008 and December 31, 2009.  During the subsidy period, eligible individuals will be required to pay only 35% of the COBRA premium.  The remaining 65% of the COBRA premium is initially borne by the employer, but will be reimbursed by the federal government when the employer seeks a credit on employment taxes or requests direct reimbursement. 

 

Only employees who have been involuntarily terminated are eligible for the COBRA premium subsidy – so employees who have resigned or have retired are not eligible for the subsidy.  For employees who were previously involuntarily terminated and originally declined COBRA coverage, the former employer must provide them with a written notice of their right to elect coverage by April 17, 2009, along with any forms necessary for them to establish their eligibility for the premium subsidy.  The employees will have 60 days after receiving the notice to elect COBRA coverage.  Should someone in that group elect COBRA coverage, the coverage will be effective retroactive to March 1, 2009.  The COBRA premium subsidy applies to all premiums due from the former employee – even that portion of the premium related to coverage for family members.  Also, the COBRA premium subsidy is available to qualified beneficiaries who elect COBRA as a result of the involuntary termination.

 

The COBRA premium subsidy is also required for state-mandated continuation coverage.  That means small employers who are not subject to COBRA may still be required to make the subsidy available.  The Department of Labor will be publishing the required notices no later than mid-March 2009.  Employers with questions regarding the COBRA premium subsidy should consult with their employment law attorney to make sure their practices comply with this new law.

REIMBURSEMENTS DONE RIGHT

It is a common business practice for employers to reimburse their employees for certain job-related expenses.  If the reimbursement is made through an “accountable plan,” the reimbursement is not included in the employee’s income.  An accountable plan is a reimbursement or allowance arrangement that meets the following three requirements:  (1) the reimbursed expense has a business connection, (2) the employee is required to adequately account to the employer about the expense, generally by submitting a receipt, and (3) the employee is required to return any excess reimbursement within a reasonable time.  If the accountable plan requirements are not met, the reimbursement is included in the employee’s income and subject to wage withholding and payroll taxes.  For more information on accountable plans, see page 49 of IRS Publication 535.  You can also click here for information on accountable plans.

WATCH THOSE 401(k) FEES

Employers who sponsor 401(k) plans have a fiduciary responsibility, either directly or through their trustees, to determine that the fees incurred in the operation of the plan are reasonable. This should be done when establishing a plan and periodically thereafter.  The Department of Labor has provided a checklist to help you determine the reasonableness of fees.  You can click here for that checklist.  When comparing fees quoted by various vendors, this checklist should be used and then kept in the plan records, as the Department of Labor may request evidence of the process used in agreeing to and monitoring fees.  The Department’s general website relating to retirement plans provides a wealth of information on other topics as well.  You can click here for that website.

MISTAKES HAPPEN—DOL PROGRAM TO ALLOW LATE FILING OF FORM 5500 FOR AN EMPLOYEE BENEFIT PLAN

Each year most pension and welfare benefit plans subject to ERISA must file a Form 5500 to report their financial condition, investments, and operations (some plans need not file Form 5500, such as unfunded or insured plans with under 100 participants).  Very large penalties can be imposed for late filing or non-filing of Form 5500.  The Department of Labor’s Delinquent Filer Voluntary Compliance (DFVC) Program allows plan administrators to voluntarily correct a late or unfiled Form 5500 by submitting a completed Form 5500 and paying a greatly reduced penalty.  For a brief explanation of the DFVC Program, click here.   For answers to frequently asked questions, click here.

MISTAKES HAPPEN—IRS PROGRAM TO CORRECT ERRORS IN ADMINISTERING QUALIFIED RETIREMENT PLANS

Qualified retirement plans must be operated according to the terms of their plan documents and the requirements of the tax code.  Failure to meet this “operational” requirement jeopardizes the plan’s tax favored status.  If an employer’s plan fails this operational requirement, the employer can usually correct the error by using the Internal Revenue Service correction program known as the Employer Plans Compliance Resolution System (EPCRS).  Some errors can be “self-corrected” under EPCRS without asking IRS approval.  Others require submitting an application and supporting documents to the IRS.  To learn more about EPCRS and correcting plan errors, click here.  To see whether you can self-correct an error, look for the Self-Correction Program and the Eligibility Flowcharts links toward the bottom right of the page.

ALLOWING EMPLOYEES MORE CONTROL OVER HEALTHCARE CAN HELP CONTROL EMPLOYER COSTS

As healthcare costs increase, employers that provide health insurance for their employees are trying to control these costs while maintaining benefits.  Some employers do this by changing to “consumer directed health plans.”  By placing some of the costs of healthcare decisions on employees rather than health insurers, consumer directed health plans give employees an incentive to control these costs.  There are a number of different consumer directed health plans, each with its own advantages and limitations.  To learn more about the three major types of consumer directed health plans and how they compare with each other, click here.

FIDUCIARY LIABILITY INSURANCE -- WHY HAVE IT?

Fiduciary liability insurance protects a trustee and the plan administrator of a qualified retirement plan against breaches of fiduciary duty and other errors relating to the administration of the plan and investment decision-making.  This insurance also typically covers the cost of litigation defense.  Premiums generally are based on the amount of coverage and the asset base of the plan.  For example, a policy covering $500,000 of claims on an asset base of approximately $7,000,000 could cost about $700.  Employers usually pay the premium.  For many employers, this cost is money well spent.  (Note that fiduciary liability insurance is not the same as an "ERISA bond," which is required by law.)  The U.S. Department of Labor maintains an informative website that addresses the fiduciary duties of a trustee.