Compensation and Benefits Insights - October 2016

DOL Finalizes ACA Retaliation Protections for Employees

Author, Laura Westfall, New York, +1 212 556 2263, lwestfall@kslaw.com

Final regulations were issued by the Department of Labor (“DOL”) on October 12, 2016 (“Final Rules”) governing employee retaliation protections under the Patient Protection and Affordable Care Act of 2010, as amended (the “ACA”). Although the Final Rules are substantially unchanged from the interim final rule issued by the DOL back in February 2013 (the “Interim Final Rule”), employers should be aware that the Final Rules include several clarifications which serve to expand the scope of the ACA’s retaliation protections.

Protections from Retaliation  for Seeking Subsidized ACA Exchange-Based Coverage

Under the ACA’s employer “pay or play” mandate, an applicable large employer (an “ALE”) is subject to a penalty under Section 4980H of the Internal Revenue Code of 1986, as amended (the “Code”), if a full-time employee of such ALE purchases coverage from a public ACA health insurance exchange (an “Exchange”) and receives a premium tax credit or a cost-sharing reduction (i.e., a subsidy) in connection with such coverage. Because the amount of an ALE’s potential “pay or play” penalty directly correlates to the number of such ALE’s employees who receive subsidized coverage on an Exchange, Section 1558 of the ACA added Section 18C of the Fair Labor Standards Act (“FLSA”) to protect employees from retaliation for seeking financial assistance in connection with their Exchange coverage.

INSIGHT.  The Final Rules state that the types of “retaliation” prohibited under the ACA’s retaliation protections include not only discharging or firing an employee, but also intimidating, threatening, restraining, coercing, blacklisting or disciplining, an employee with respect to the employee’s compensation, terms, conditions, or privileges of employment because the employee (or an individual acting at the request of the employee) has engaged in any activity covered by the ACA’s retaliation protections.

As amended by Section 1558 of the ACA, Section 18C of the FLSA prohibits employers from retaliating against an employee because they know or suspect the employee has “received” a tax credit or cost-sharing reduction for coverage on an Exchange. The Final Rules, issued by the DOL’s Occupational Safety and Health Administration (“OSHA”), which enforces whistleblower protections under many federal laws, expand the scope of the protections set forth in the Interim Final Rule, by clarifying that an employee has “received” a premium tax credit or cost-sharing reduction not only when a premium tax credit is allowed on the individual’s tax return, but also when an Exchange finds the employee eligible for a premium tax credit or for a cost-sharing reduction.

INSIGHT.  An Exchange’s determination as to whether an employee is eligible for a premium tax credit or a cost-sharing reduction generally takes place when the employee first applies for coverage on the Exchange, and as such, could occur many months before the Exchange sends the employer a Section 1411 Exchange Notice (i.e., the notice informing an employer that an employee is receiving subsidized coverage on the Exchange).

Protections from Retaliation for Whistleblowing

In addition to the premium tax credit and cost-sharing reduction protections, Section 18C of the FLSA also protects employees from retaliation because they:

• Provided, or are about to provide, information to their employer, the federal government, or a state attorney general relating to a violation of, or an act or omission that the employee reasonably believes is a violation of, any provision of Title I of the ACA;
  
  
• Testified, or are about to testify, in a proceeding about a violation of, any provision of Title I of the ACA;
  
  
• Assisted or participated, or are about to assist or participate, in a proceeding about a violation of any provision of Title I of the ACA; or
  
  
• Objected to or refused to participate in any activity, policy, practice, or assigned task that the employee reasonably believed was a violation of any provision of Title I of the ACA, or any order, rule, regulation, standard, or ban under Title I.

INSIGHT. Title I of the ACA includes a range of health insurance market reforms that apply to almost all employer-sponsored group health plans, such as the prohibition on lifetime and annual dollar limits on “essential health benefits,” the requirement for non-“grandfathered” plans to cover certain recommended preventive cost services with no cost sharing, and the prohibition on pre-existing condition exclusions.

The Final Rules’ Clarifications and Expansions of the Retaliation Protections

The Final Rules clarify that for purposes of the ACA’s retaliation protections, the term “employee” includes both former employees and job applicants. The Preamble to the Final Regulations states that the plain language of the statute “makes clear that the parties need not have a current employment relationship.”

Some commenters to the Interim Final Rules had expressed the view that the ACA’s retaliation protections should be extended to employees who take preliminary steps, such as gathering information, that are needed to apply for health insurance coverage on an Exchange and to apply for a premium tax credit, citing a particular concern about protecting employees who ask their employers about the health care coverage offered by their employers, in connection with that information-gathering process. Although the Final Rules do not expand the text of the Interim Final Rule to include specific protection of such actions (since the Interim Final Rule generally mirrored the statutory language of the ACA’s retaliation protections), OSHA noted in the Preamble to the Final Rules that OSHA agreed with the commenters’ concerns, and noted that OSHA believes that an employee’s inquiry to an employer to gather information needed to apply for advance payment of the credit for exchange coverage would trigger the ACA’s retaliation protections if the employee can show that the employer’s belief that the employee received a premium tax credit (or the employer’s desire to prevent the employee from taking further action to obtain the credit) contributed to the employer’s action against the employee.

The Final Rules also clarify that while the ACA does allow an ALE to reduce an employee’s hours in order to avoid (or minimize) its “pay or play” penalties, taking such an action because the ALE knows or suspects that an employee is receiving a premium tax credit or a cost-sharing reduction for coverage on an Exchange would likely be illegal retaliation. Threatening to reduce an employee’s hours or take other adverse action to deter an employee from applying for Exchange subsidies is also prohibited by the Final Rules.

Complaint Procedures

Employees experiencing possible ACA retaliation can make a complaint with OSHA. Complaints may be written or oral, may be made in any language, and need not be in any particular form; however, OSHA has made an online complaint form available on its website (available here) which workers may use to electronically file retaliation complaints for any of the federal statutes OSHA administers, including the ACA’s retaliation protections. Complaints must be filed within 180 days of the alleged violation, and employers have 20 days to respond after receiving OSHA notice of the complaint. OSHA issues its findings within 60 days of receiving the complaint. If OSHA determines a violation has occurred, it may order appropriate remedies, including reinstatement, back pay, compensatory damages, and attorney’s fees. The Final Rules include procedures for administrative appeals and judicial review of OSHA’s findings.

Takeaways for Employers

The issuance of these Final Rules highlights just how important it is for employers to take steps to avoid even a “whiff of impropriety” in taking almost any employment action—from interviewing and hiring, to ongoing supervision, to termination--which could be construed as retaliation in violation of the ACA’s retaliation protections. This is especially true right now, as employers are just beginning to receive Section 1411 Exchange Notices from various federal and state Exchanges, notifying them of their employees’ receipt of subsidized coverage on such Exchanges. Further, employers will want to note the expanded scope of the ACA’s retaliation protections under the Final Rules, which may be triggered at earlier points in the employment relationship (or, under OSHA’s interpretation, before the employment relationship even begins).

To the extent employers have not already done so, they may want to consider taking certain proactive steps, such as updating existing anti-retaliation policies to incorporate the ACA’s retaliation protections, in addition to providing training to applicable staff. Affirmative statements could be included in internal policies and handbooks that exercising the ACA’s retaliation protections will not be used as a basis for any employment-related action. In addition, employers may want to consider the feasibility of creating a “firewall” between employees who are authorized to access information relating to whether an employee is eligible to receive subsidized coverage on an Exchange, on the one hand, and employees who customarily make employee disciplinary and termination decisions, on the other.

Please feel free to contact the author of this article or your preferred King & Spalding attorney to discuss these issues in greater detail.

First Circuit Dismisses Claim That Fidelity Violated Its Fiduciary Duties By Retaining Float

Author, Emily Meyer, New York, +1 212 556 2312, emeyer@kslaw.com

In July, the Court of Appeals for the First Circuit rejected a claim that Fidelity breached its fiduciary duties by retaining “float” earned while Fidelity was handling 401(k) plan distributions. (Float is interest earned in short-term accounts used to facilitate the transfer of contributions to a plan or distributions to a participant or beneficiary.) The court dismissed the case after finding that the float retained by Fidelity was not plan assets. Further litigation is possible, however – the court noted that Fidelity may have violated its fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) in failing to obtain the plans’ approval for the float retention arrangement.

Retention of Float by Fidelity

According to the First Circuit’s opinion, distributions from mutual fund options under the plaintiff participants’ 401(k) plans were handled as follows:  upon a participant or beneficiary’s request for a distribution, the mutual fund transferred the distribution amount to a redemption account owned by Fidelity, which then transferred the cash to its “FICASH” account, where it remained overnight before being transferred back (without interest) to the Fidelity redemption account. The distribution amount was then either disbursed electronically or transferred to a Fidelity disbursement account from which a check was issued. Fidelity used the float earned while distribution amounts were in FICASH overnight and the disbursement account before checks were cashed to defray bank expenses. The plaintiffs alleged that, in failing to credit the float to the plans, Fidelity breached its fiduciary duties.

Decision

After finding that the plaintiffs’ only timely claim was that Fidelity’s retention of float constituted a use of plan assets other than for the plans’ benefit, the First Circuit held that the case could not proceed because the distribution (and associated float) amounts at issue did not constitute ERISA plan assets. The court based its conclusion on two aspects of the distribution arrangement:  the fact that the distribution amounts were not routed to the plans before being disbursed to participants and beneficiaries, and the fact that the mutual funds, not the plans, bore the risk of loss with respect to any distribution amounts lost before receipt by the participant or beneficiary. The opinion noted that the Court of Appeals for the Eighth Circuit, in 2014’s Tussey v. ABB, Inc., reached the same conclusion about the plan asset status of float retained by Fidelity.

DOL Position

In a friend of the court brief submitted in support of the plaintiffs, the Department of Labor (“DOL”) stated that Fidelity’s retention of float was an improper use of plan assets. The DOL argued that the case should proceed even if the court disagreed with that conclusion, however, as the plaintiffs had also alleged that Fidelity was not expressly permitted to retain float under the governing plan documents (and therefore had violated its fiduciary duties whether or not the float constituted plan assets). The First Circuit noted the DOL’s argument but declined to consider it on the grounds that the plaintiffs had not made that allegation on a timely basis.

Impact of Decision

In longstanding guidance, the DOL has taken the position that in order to avoid engaging in a prohibited transaction, service providers must disclose, and plan fiduciaries must understand, how float is earned, and plan fiduciaries must take any float retained by service providers into account in determining whether a service provider’s compensation is reasonable. In addition, both parties must avoid giving the service provider discretion to affect the amount of float it retains. The First Circuit’s decision in the Fidelity litigation and the Eighth Circuit’s decision in Tibble both conflict with this guidance, the premise of which is that float is a plan asset and float retention is a prohibited transaction issue. However, given that both decisions were based on the workings of the particular arrangements at issue rather than the general characteristics of float, future litigation could easily come out a different way, and there is no reason to expect that the DOL will revise its position. As a result, plan sponsors should continue to follow current DOL guidance.

We would be happy to answer any questions you may have about the establishment and disclosure of float retention arrangements.

November and December 2016 Filing and Notice Deadlines for Qualified Retirement and Health and Welfare Plans

Author, Ryan Gorman, Atlanta, +1 404 572 4609, rgorman@kslaw.com

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 common to calendar year plans for the next two months. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is generally 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.