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March 1, 2011
In This Compliance Corner Issue:
- Federal Judge in the District of Columbia Upholds Individual Mandate
- HHS Awards “Early Innovator” Grants to Seven States
- HHS Establishes New Center for Consumer Information and Insurance Oversight
- DOJ Will No Longer Defend DOMA
- DOL Intends to Extend Applicability Date for Service Provider Fee Disclosures
- DOL Initiates Unprecedented Joint Partnership with the American Bar Association
- DOL Issues Advisory Opinion of Interest to Indian Tribal Governments
- Seventh Circuit Issues Decision Relating to Employer’s Selection of Investment Options and ERISA Section 404(c)
- State Updates: CO, HI, PR, VA, WI
HEALTH REFORM UPDATES
FEDERAL JUDGE IN THE DISTRICT OF COLUMBIA UPHOLDS INDIVIDUAL MANDATE
On Feb. 22, 2011, a federal judge in the District of Columbia ruled that Congress was acting within its power in enacting the individual mandate under the Patient Protection and Affordable Care Act (PPACA). Specifically, the judge’s opinion held that Congress has clear authority under the Commerce Clause of the U.S. Constitution to regulate insurance markets. This opinion now means that, of the major federal cases challenging PPACA, three federal courts have upheld the individual mandate, while two federal courts have struck down the individual mandate. The case is likely headed to the Supreme Court. Stay tuned for additional developments.
Click here to learn more.
HHS AWARDS “EARLY INNOVATOR” GRANTS TO SEVEN STATES
On Feb. 16, 2011, the U.S. Department of Health and Human Services (HHS) announced the award of seven cooperative agreements to help “Early Innovator” states design and implement the information technology (IT) infrastructure needed to operate state health insurance exchanges. The states (Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin and a consortium of several New England states) will receive a total of approximately $241 million to develop exchange IT models that may be adopted and tailored in the future by other states.
Click here to view the HHS press release.
HHS ESTABLISHES NEW CENTER FOR CONSUMER INFORMATION AND INSURANCE OVERSIGHT
HHS recently established a new Center for Consumer Information and Insurance Oversight (CCIIO) to help implement many of PPACA’s major provisions. The CCIIO replaces HHS’s former Office of Consumer Information and Insurance Oversight and is responsible for ensuring compliance with the new insurance market rules such as prohibitions on rescissions and pre-existing condition exclusions for children. The CCIIO will also:
- Oversee the new medical loss ratio rules;
- Assist states in reviewing insurance rates;
- Provide guidance and oversight for the state-based insurance exchanges;
- Administer the federal temporary high-risk pool program (known as the Pre-existing Condition Insurance Plan);
- Administer the Early Retiree Reinsurance Program; and
- Compile and maintain data on insurance options.
The new CCIIO website will also provide access to regulations, guidance, and other health care reform information from HHS.
Click here to view the CCIIO website.
FEDERAL UPDATES
DOJ WILL NO LONGER DEFEND DOMA
On Feb. 23, 2011 the U.S. Department of Justice (DOJ) issued a notice entitled “Statement of the Attorney General on Litigation Involving the Defense of Marriage Act”. In the statement, Attorney General Eric Holder announced that President Obama has determined that the DOJ will no longer defend Section 3 of the Defense of Marriage Act (DOMA), which defines marriage as only between a man and a woman. Specifically, President Obama has concluded that DOMA Section 3, as applied to same-sex couples who are legally married under state law, violates the equal protection component of the Fifth Amendment of the Constitution. As a result, the Attorney General stated that the President has instructed the DOJ not to defend DOMA in two cases currently before the U.S. Court of Appeals for the Second Circuit.
According to the statement, the DOJ had defended the law in court up until now because the government was able to advance reasonable arguments for the law based on a less strict standard. However, given the documented history of discrimination against same-sex couples, President Obama now believes that classifications based on sexual orientation should be subject to a more heightened standard of scrutiny than the DOJ previously had been applying in legal challenges to DOMA. Namely, such classifications should be presumed unconstitutional and should be struck down by the courts unless the government can prove that the classification is necessary to advance an important and legitimate government interest.
Click here to view the DOJ statement.
DOL INTENDS TO EXTEND APPLICABILITY DATE FOR SERVICE PROVIDER FEE DISCLOSURES
On Feb. 11, 2011, the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration announced that it intends to extend the applicability date for the new disclosure rules under ERISA section 408(b)(2) from July 16, 2011, to Jan. 1, 2012. On July 16, 2010, the DOL issued interim final regulations requiring that certain service providers to ERISA pension plans, including 401(k) plans, disclose information to assist plan fiduciaries in determining the reasonableness of contracts and arrangements. In addition to extending the applicability date, the announcement also indicates that the extension will allow the DOL sufficient time to make sure the final rule is right, which may include providing a summary document to assist plan fiduciaries in their review of the new fee disclosures. The extension should be welcome news for service providers and plan fiduciaries in their efforts to comply with the new fee disclosure requirements under ERISA section 408(b)(2).
Click here to view the DOL news release.
DOL INITIATES UNPRECEDENTED JOINT PARTNERSHIP WITH THE AMERICAN BAR ASSOCIATION
The DOL has recently initiated an unprecedented joint partnership: an attorney-referral arrangement with the American Bar Association (ABA). As of Dec. 13, 2010, employees with unresolved Fair Labor Standards Act (FLSA) or Family Medical Leave Act (FMLA) complaints with the DOL now have another option: a toll-free phone number to a local ABA-approved lawyer who may be able to help. According to the DOL, in a typical year, it receives 35,000 employment-related legal complaints. In the past, for those cases where the DOL lacked the resources to prosecute a particular case, it informed individuals of their right to bring a private action under the FLSA or FMLA. Now, with the new partnership, the DOL will connect these individuals to a local attorney referral service that will provide access to attorneys to assist with their claims. In addition, once the DOL has conducted an investigation, employees will now be provided information about the DOL’s determination regarding violations at issue and back wages owed. Further, the DOL has also developed a special process for complainants and representing attorneys to quickly obtain certain relevant case information and documents when available.
Click here to learn more.
DOL ISSUES ADVISORY OPINION OF INTEREST TO INDIAN TRIBAL GOVERNMENTS
On Feb. 2, 2011, the DOL issued Advisory Opinion 2011-03A discussing whether a Domestic Relations Order (DRO) issued under tribal law by the family court of the Navajo Nation, a federally recognized tribe, would be considered a “judgment, decree, or order … made pursuant to a State domestic relations law” within the meaning of section 206(d)(3)(B)(ii) of ERISA.
Although certain definitions of “governmental plans” under ERISA do include plans maintained by Indian tribal governments, this opinion is interesting because section 206(d)(3)(B)(ii) of ERISA does not apply to Indian tribal governments. As a result, the opinion reached the conclusion that the Navajo Nation is not a state for this purpose, meaning that neither ERISA nor any other federal statute exists that recognizes a DRO issued by a tribal court of the Navajo Nation. But, it is important to keep in mind that a state may adopt a law requiring that a DRO issued by a tribal court of the Navajo Nation must be considered a valid qualified DRO. This opinion should serve as a reminder to plan administrators and advisors that when a DRO is received, the administrator must follow appropriate procedures to determine whether the DRO is in fact considered to be qualified under state authority with appropriate jurisdiction.
Click here to view DOL Advisory Opinion 2011-03A.
SEVENTH CIRCUIT ISSUES DECISION RELATING TO EMPLOYER’S SELECTION OF INVESTMENT OPTIONS AND ERISA SECTION 404(C)
In what has become a divisive topic among the courts, on Jan. 21, 2011, the U.S. Court of Appeals for the Seventh Circuit issued a decision in Howell v. Motorola, Inc., regarding whether the safe harbor protections for fiduciaries under ERISA section 404(c) apply to an employer’s investment fund selection for its participant-directed 401(k) plan. There is disagreement among the federal circuit courts as to whether the protection available for fiduciaries under a qualified retirement plan is available for the selection of investment alternatives made available to participants. The DOL has previously stated its position that the ERISA section 404(c) safe harbor does not protect the selection of plan investment options and the decision to continue offering particular investments. In the Howell decision, the Seventh Circuit agreed with the DOL’s position, as well as previous decision issued by the Fourth Circuit. However, the Fifth Circuit has previously rejected this position. It is important to note that these cases are not binding, legal precedent outside the jurisdiction of the respective Circuits. Stay tuned for additional developments.
Click here to learn more.
STATE UPDATES
COLORADO
On Feb. 22, 2011, the Colorado Department of Regulatory Agencies, Division of Insurance released the “2010 Colorado Health Insurance Report”. The report contains information relating to the cost of health insurance and the factors that drive the cost of health insurance premiums on an individual and group basis in Colorado. Of interest to employers, the report includes a discussion of employer-provided health coverage in the state, including small and large group insured plans and self-insured plans, and also includes an overview of Colorado employer-provided health plan premiums.
Click here to view the 2010 Colorado Health Insurance Report.
Click here to view the press release.
HAWAII
On Feb. 23, 2011, Governor Neil Abercrombie signed into law SB 232, which extends the same rights, benefits, protections, and responsibilities of spouses in a marriage to partners in a civil union. The law makes Hawaii the sixth U.S. state, plus the District of Columbia, to grant essentially the same rights as marriage to same-sex couples. The law does not permit same-sex couples to marry in Hawaii, however.
Under the new law, employers that offer fully insured health benefits issued in Hawaii must provide such benefits to parties in a civil union and must recognize same-sex marriages and civil unions performed outside the state. The rights, benefits, protections, and responsibilities provided in the law are available to couples in same-sex or opposite-sex civil unions, where each individual is: (1) 18 years of age or older; (2) not in an existing marriage or civil union; and (3) not related to the other. The law becomes effective on Jan. 1, 2012.
Click here to view SB 232.
Click here to view the press release.
PUERTO RICO
On Jan. 31, 2011, Puerto Rico established a new Puerto Rico Internal Revenue Code (2011 Code) and repealed the Puerto Rico Internal Revenue Code of 1994, as amended almost in its entirety. Section 1081.01 of the 2011 Code contains new rules governing retirement plans intended to be qualified in Puerto Rico, many of which track similar provisions in the U.S. Internal Revenue Code. Section 1081.01 contains new provisions on nondiscrimination testing, compensation, benefit and contribution limits, elective deferrals, tax withholding, and other items. As a result of the 2011 Code, employers sponsoring Puerto Rico-qualified defined benefit and defined contribution plans may need to be amend such plans. The new rules are in effect for 201, although some rules are delayed until 2012.
VIRGINIA
On Feb. 18, 2011, the Virginia Department of Taxation issued Tax Bulletin 11-1. This bulletin was issued due to emergency legislation (HB 1874) being signed by Governor McDonnell, which updates Virginia’s fixed date of conformity to the terms of the federal Internal Revenue Code (IRC) from Jan. 22, 2010 to Dec. 31, 2010. As background, there are a number of states that do not automatically adopt the current version of the federal IRC, and therefore there is a risk in those states that employers will need to impute income to their employees for health insurance benefits provided in accordance with PPACA for state tax purposes. Specifically of interest to employers sponsoring group health plans is the requirement to provide coverage for adult children up to age 26 and the potential state tax implications of providing such coverage when the state tax law does not mirror the federal IRC. As a result of the emergency legislation and Tax Bulletin 11-1, 2010 tax returns filed for the state of Virginia will conform to the IRC in effect on Dec. 31, 2010.
Click here to view Tax Bulletin 11-1.
Click here to view HB 1874.
WISCONSIN
On Feb. 1, 2011, the Wisconsin Office of the Commissioner of Insurance issued Bulletin 2-1-11 relating to new application forms to be used by carriers and their agents for individuals and small employers. Of particular interest to small employers, the new application adds language that informs an employee how to obtain information on electing health insurance coverage through a special election period due to a qualifying event including Medicaid premium assistance under the Children’s Health Insurance Program Reauthorization Act of 2009. Information also has been updated regarding the treatment of genetic information in the medical information section of the application to comply with the Genetic Information Nondiscrimination Act of 2008. Additionally, modifications were made to delete references to a dependent needing to be a full-time student or financially dependent upon the parents since both state and federal law mandate inclusion of adult children as dependents regardless of the adult child’s residency or financial dependency.