DC Circuit Court Invalidates Significant Provisions of the DOL Association Health Plan Rules

On March 28, 2019, the U.S. District Court for the District of Columbia found significant provisions of the Department of Labor’s (DOL’s) final rule expanding the availability of association health plans (AHPs) to be unlawful. In State of New York et. al. v. United States Department of Labor, the Court held that the rule’s interpretation of “employer” to include working owners and groups without a true commonality of interest was unreasonable and, “clearly an end-run around the [Affordable Care Act]” with the purpose of “avoid[ing] the most stringent requirements of the [Affordable Care Act].” The court set aside those parts of the regulation and remanded the rule to the DOL to determine how the rule’s severability provision affects the remaining part of the rule.

The DOL is reviewing the decision and could decide to revoke the rule, revise it in a way that complies with the court’s ruling, or appeal the decision to the Court of Appeals for the D.C. Circuit.

Background
Trade associations often offer health insurance to their members. Historically, these associations identified themselves as employers or employee organizations under the Employee Retirement Income Security Act of 1974 (ERISA) to claim ERISA preemption from state insurance regulation. Then, in 1983, Congress amended ERISA to give states regulatory authority over self-insured multiple employer welfare arrangements (MEWAs) and some regulatory authority over fully insured MEWAs. AHPs are one type of MEWA.

The Affordable Care Act (ACA) added reporting requirements for MEWAs, imposed criminal penalties on MEWA fraud, and authorized the DOL to take immediate action to address fraudulent MEWAs. It also dropped an exception from the “guaranteed availability” provision of the Public Health Service Act that had previously existed for bona fide association plans. As a result, an insurer that offers coverage through an association must offer the same plan to non-members who want it (and are aware of it). Associations themselves are not subject to guaranteed availability requirements.

The ACA also defined large group, small group, and individual plans, without reference to how they were offered (i.e. whether as an AHP or otherwise). Prior to the new rule, AHPs continued to exist, but largely subject to the ACA rules. This “look through” doctrine considers only whether the participating individual or employer is obtaining individual, small group, or large group coverage – it does not “look” at the AHP as a whole to determine whether the small group or large group rules apply. This means that small group coverage obtained through an AHP was regulated under the same standards that applied to the small group market. This includes many of the ACA’s most significant small group rules, such as coverage of preexisting conditions, rating rules, and the essential health benefits requirements.

However, if an association could be treated as an employer who is sponsoring a single health plan for its members, the AHP would be regulated as a group health plan under ERISA. Group health plans are subject to various reporting, disclosure, fiduciary and other requirements imposed by ERISA, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), COBRA, and some, but not all, of the Affordable Care Act’s market reforms. Group health plans are also exempt from most state regulation. Although insurers that insure group health plans are subject to state laws and regulations with respect to the insurance policies, states cannot regulate the underlying employer-health plan. As a large group health plan, an AHP would not have to comply with many of the ACA’s most significant consumer protections (such as coverage of essential health benefits or rating rules) that apply in the individual and small group markets, or many state requirements.

Prior to the new rule, the DOL had interpreted this AHP exception narrowly to apply only when a “bona fide” group of employers is bound together by a commonality of interest (other than simply providing a health plan) with vested control of the association so that they effectively operate as a single employer. Thus, eligible association members had to share a common interest, join together for purposes other than providing health insurance, exercise control over the AHP, and have one or more employees in addition to the business owner and spouse. AHPs offered by general business groups or that include individual members do not qualify, a position the DOL reaffirmed as recently as 2017.

The Final Rule
This exception—where an AHP can be treated as a group health plan under ERISA—was the target of the DOL’s final rule on AHPs, which was issued in June 2018. The DOL’s final rule made it much easier for an association to be considered a single multi-employer plan under ERISA. The final rule relaxed a long-standing “commonality of interest” requirement that associations must exist for a reason other than offering health insurance and allowed self-employed “working owners” to enroll in AHP coverage. The rule also included nondiscrimination protections that prohibit associations from conditioning membership based on a health factor (although not other factors such as gender, age, geography, and industry). The rule did not disturb state regulatory authority over AHPs but left open the possibility that the DOL would grant exemptions for AHPs from state requirements in the future.

The final rule also included a severability provision, which provides that the rest of the rule would remain operative even if parts of the rule were found to be invalid or unenforceable. The preamble cited an example regarding working owners: if a federal court rules that the working owners provision is void, this provision should be severed from the rest of the regulation and thus would not impact, for example, the ability of an association to meet the final rule’s updated commonality of interest test.

In July 2018, 12 states— California, Delaware, the District of Columbia, Kentucky, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia, and Washington —filed a lawsuit challenging the final rule for violating the Administrative Procedure Act. The states argued that the DOL’s new interpretation of “employer” was inconsistent with the text and purpose of ERISA, that the goal of the final rule was to undermine the ACA, and that the DOL was changing long-standing interpretations of ERISA to do so. The states argued that by picking and choosing the circumstances under which an association meets the definition of an “employer” under ERISA, the rule disregards the intent of Congress when adopting the ACA to establish three distinct sets of rules for three distinct markets (the individual, small group, and large group markets). The states also alleged that the rule increased the risk of fraud and harm to consumers, required states to devote significant resources to preventing that risk, and jeopardized the ability of states to adopt stronger protections.

The lawsuit asked the court to hold the AHP rule invalid, to vacate and set it aside, and to enjoin the DOL from implementing or enforcing the rule.

The Decision
Judge Bates held that the DOL failed to reasonably interpret ERISA and that significant provisions of the final rule—on bona fide associations and working owners—must be set aside. The bona fide association standard failed to meaningfully limit the types of associations that qualify to sponsor an ERISA plan. This violates Congress’s intent that only an employer association acting “in the interest of” its members falls under ERISA. The working owner provision is inconsistent with the text and purpose of ERISA, which is to regulate benefit plans that arise from employment relationships. By extending the rule to include working owners, the DOL impermissibly extended ERISA to plans outside of an employment relationship.

Judge Bates held that the states were challenging only parts of the new rule—i.e., the new standards for bona fide associations, commonality of interest, and working owners under 29 C.F.R. 2510.3-5(b), (c), and (e). Because the states did not challenge the rule’s other changes related to nondiscrimination and organizational structure, the court did not address those requirements, holding that they are “collateral” to the rule’s three main requirements. Instead of invalidating the entire rule, Judge Bates therefore remanded the rule to DOL to consider how the rule’s severability provision affects the remaining portions.

The Decision Regarding “Bona Fide Association”
Historically, the DOL wanted to ensure that an association had a “sufficiently close economic or representational nexus to the employers and employees that participate in the plan.” This analysis centered on 1) whether the association is a bona fide organization that has purposes and functions unrelated to providing benefits; 2) whether the employers share some commonality and genuine organizational relationship unrelated to providing benefits; and 3) whether the employers that participate in a benefit program exercise control over the program.

In the final rule, the DOL maintained the same three criteria—primarily purpose, commonality of interest, and control—for determining whether an association acts in the interest of an employer and is thus a bona fide employer under ERISA. However, the final rule reinterprets these criteria in a way that the Court found too significantly departs from the DOL’s prior guidance and in a way that fails to limit ERISA’s exemptions to only associations that act “in the interest of” employers. This unlawfully expands ERISA’s scope and conflicts with the statutory text. Judge Bates discussed each of these three criteria individually and then considers them together.

First, the final rule relaxed the requirement that associations exist for a reason other than offering health insurance. Under the final rule, an association’s principal purpose could be to provide benefits so long as the group or association had at least one “substantial business purpose” unrelated to providing benefits. DOL’s examples of a “substantial business purpose” range from resource-intensive activities (e.g., setting business standards or practices) to de minimis activities (e.g., publishing a newsletter).

This new interpretation of the “primary purpose” test fails to set meaningful limits on the character and activities of an association that qualifies as an “employer” under ERISA. Under the final rule, sponsoring an AHP may be the association’s only purpose so long as the association does de minimis activities that qualify as a “substantial business purpose.” Judge Bates concludes that this is “such a low bar that virtually no association could fail to meet it.” As such, the standards are too broad fail to identify defining characteristics of a subset of organizations that would fall under ERISA’s scope.

Second, employers must show a “commonality of interest” to form an association sponsoring an AHP. Under the final rule, an association can show commonality of interest among its members if they are either 1) in the same trade, industry, profession, or line of business; or 2) in the same principal place of business within the same state or a common metropolitan area even if the metro area extends across state lines. This change significantly relaxed the prior “commonality of interest” standard, making it easier for employers—tied only by being in the same line of business or geographic area—to band together and form an association for the sole purpose of offering health coverage.

Judge Bates explained, “ERISA imposes a common interest requirement, not merely a something-in-common requirement.” The geography test “effectively eviscerates” the commonality of interest required under ERISA and impermissibly exceeds the scope of the statute.

Third, the final rule required a group or association to have an organizational structure and be functionally controlled by its members, in both form and substance, either directly or by electing a board or other representatives. The control test does limit the types of associations that qualify as employers by ensuring that employer members direct the actions and decisions of the association with respect to the AHP. However, this prong fails too because it cannot overcome concerns about the lack of common interest among employers. The control test is only meaningful if employers’ interests are already aligned. If employer members have opposed interests, the control test—through, say election of officers—would only further the interests of some, but not all, employers within the association.

Collectively, these three criteria fail to limit “bona fide associations” to those acting “in the interest of” their employer members under ERISA. Under the final rule, groups of employers with no common characteristic other than presence in the same state could qualify as a single employer under ERISA so long as that group had an election-based officer structure and some incidental business-related project. This, in Judge Bates’ view, is not enough to show that an association and its members are connected by a true employment nexus. In addition, the rule would impermissibly enable groups that resemble commercial insurance providers to qualify as an “employer” for purposes of offering an AHP under ERISA, which has long been forbidden.

The DOL argued that the final rule’s nondiscrimination requirements balance its less stringent standards for commonality of interest and purpose. Judge Bates disagrees. The nondiscrimination provision governs how qualifying associations can structure their AHP premiums but does nothing to limit which associations qualify under the final rule. Because of this, the nondiscrimination provision does not impact the court’s analysis.

The Decision Regarding “Working Owners”
Historically, AHP enrollment has been limited to the association members’ employees, former employees, and their families or beneficiaries. This has meant that individuals—including sole proprietors with no common law employees—generally have not been able to enroll in group health AHPs.

The final rule expanded the availability of AHP group coverage to self-employed individuals referred to as “working owners.” Under the rule, a working owner without common law employees can qualify as both an employer and an employee for purposes of enrollment in a group health AHP. This “dual treatment” would allow a self-employed individual to be an employer (to participate in the AHP and offer group coverage) and an employee (of their own business to qualify for the health coverage offered by the AHP). Because of this, two sole proprietors without employees could band together to form an association and then offer an ERISA plan to themselves.

Judge Bates found this to be absurd. Rather than “interpreting” ERISA, the DOL rewrote the statute, ignoring the law’s definitions and structure, caselaw, and ERISA’s 40-year history of excluding employers without employees. A working owner’s membership in an association does not bring him under ERISA: joining an association cannot transform a sole proprietor into an “employer” or “employee” under the statute. Further, Congress did not intend for working owners without employees to be included under ERISA because ERISA’s focus is on benefits arising from employment relationships. Working owners employ no one: one does not have an employment relationship with oneself.

Implications
The most immediate impact of the decision is that it prevents the formation of self-insured AHPs under the new rule. The rule would have gone into effect for new self-insured AHPs beginning on April 1.
Another question is what happens to the existing AHPs that have been formed under the rule already. For example, AHPs formed on the basis of the expanded commonality of interest under the final rule will need to consider whether they can comply with the historical bona fide association requirements. In addition, because the final rule has been vacated, those AHPs offering coverage to working owners and small employers no longer qualify as ERISA plans under the rule. Since they no longer qualify as ERISA plans, they are governed under the ACA’s rules in the individual and small group market and subject to state regulation. Given this, these AHPs may need to come into compliance with the ACA’s individual and small group market protections.

Finally, States, and the DOL, may want to take enforcement action against AHPs presumably could, relying on state law or the prior “look through” doctrine. It is not yet clear what (if any) guidance the DOL, or potentially the Department of Health and Human Services, might give or whether they will announce an enforcement stance for AHPs currently offering non-ACA-compliant coverage.

In the meantime, DOL is reviewing the decision and could decide to revoke the rule altogether, revise it in a way that complies with the decision, or appeal the decision to the Court of Appeals for the D.C. Circuit.

Prior Post regarding the Final Rule

DOL Issues Final Rules Expanding Association Health Plans: New Opportunities for Small Employers to Reduce Costs?

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a final rule under Title I of the Employee Retirement Income Security Act (ERISA) that creates new opportunities for groups of employers to band together and be treated as a single “employer” sponsor of a group health plan. The final rule adopts a new regulation at 29 CFR 2510.3-5. This post summarizes the major provisions of the rule.

The general purpose of the rule is to clarify which persons may act as an “employer” within the meaning of ERISA section 3(5) in sponsoring a multiple employer “employee welfare benefit plan” and “group health plan,” as those terms are defined in Title I of ERISA. The essence of the final rule is to set forth the criteria for a “bona fide group or association” of employers that may establish a group health plan that is an employee welfare benefit plan under ERISA. The rule sets forth 8 broad criteria that must be satisfied.

 1) The final rule establishes a general legal standard that requires that a group or association of employers have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer such coverage to its members.

Although the final rule does not define the term “substantial business purpose,” the rule contains an explicit safe harbor under which a substantial business purpose is considered to exist in cases where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan. The final rule also states that a business purposes is not required to be a for-profit purpose. For example, a bona fide group or association could offer other services to its members, such as convening conferences or offering classes or educational materials on business issues of interest to the association members.

2) Each employer member of the group or association participating in the group health plan (the “Association Health Plan” or “AHP”) must be a person acting directly as an employer of at least one employee who is a participant covered under the plan.

3) A group must have “a formal organizational structure with a governing body” as well as “by-laws or other similar indications of formality” appropriate for the legal form in which the group operates in order to qualify as bona fide.

4) The functions and activities of the group must be controlled by its employer members, and the group’s employer members that participate in the AHP must control the plan. Basically – act like an employer sponsored group health plan, not like an insurance company.

5) The group must have a commonality of interest. Employer members of a group will be treated as having a commonality of interest if they satisfy one of the following:

  • the employers are in the same trade, industry, line of business or profession; or
  • each employer has a principal place of business in the same region that does not exceed the boundaries of a single State or a metropolitan area (even if the metropolitan area includes more than one State)

6) The group cannot offer coverage under the AHP to anyone other than employees, former employees and beneficiaries of the members of the group. Again, act like an employer sponsored group health plan, not like an insurance company.

 7) The health coverage must satisfy certain nondiscrimination requirements under ERISA. For example, an AHP:

  • cannot condition employer membership in the group or association on any health factor of any individual who is or may become eligible to participate in plan;
  • must comply with the HIPAA nondiscrimination rules prohibiting discrimination in eligibility for benefits based on an individual health factor;
  • must comply with the HIPAA nondiscrimination rules prohibiting discrimination in premiums or contributions required by any participant or beneficiary for coverage under the plan based on an individual health factor; and
  • may not treat the employees of different employer members of the group or association as distinct groups of similarly-situated individuals based on a health factor of one or more individuals.

8) The group cannot be a health insurer.

 The final rule also describes the types of working owners without common law employees (i.e. partners in a partnership) who can qualify as employer members and also be treated as employees for purposes of being covered by the bona fide employer group or association’s health plan.

Implications of the final rule will take some time to play out. The administration has stated that its intention behind the final rule is to allow “small employers – many of whom are facing much higher premiums and fewer coverage options as a result of Obamacare – a greater ability to join together and gain many of the regulatory advantages enjoyed by large employers.” The Congressional Budget Office estimated that 400,000 previously uninsured people will gain coverage under AHPs and that millions of people will switch their coverage to more affordable and more flexible AHP plans and save thousands of dollars in premiums.

For our part, we are evaluating the potential to assist smaller employers to save costs and improve the benefits in their health plans by establishing groups and associations to provide AHPs, and we will update our clients as those opportunities mature.

More from EBSA on Association Health Plans:

Final Rule

Fact Sheet

Frequently Asked Questions

News Release

IRS Posts Explanation and Forms of Letters Used to Close Employer Mandate Inquiries

The IRS has posted an explanation of the various Letters 227, which the IRS will use to acknowledge the closure of an Employer Shared Responsibility Payment (ESRP) inquiry, or to provide the next steps to the Applicable Large Employer (ALE) regarding the proposed ESRP. There are five different 227 letters:

  • Letter 227-J acknowledges receipt of the signed agreement Form 14764, ESRP Response, and that the ESRP will be assessed. After issuance of this letter, the case will be closed. No response is required.
  • Letter 227-K acknowledges receipt of the information provided and shows the ESRP has been reduced to zero. After issuance of this letter, the case will be closed. No response is required.
  • Letter 227-L acknowledges receipt of the information provided and shows the ESRP has been revised. The letter includes an updated Form 14765 (PTC Listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
  • Letter 227-M acknowledges receipt of information provided and shows that the ESRP did not change. The letter provides an updated Form 14765 (PTC Listing) and revised calculation table. The ALE can agree or request a meeting with the manager and/or appeals.
  • Letter 227-N acknowledges the decision reached in Appeals and shows the ESRP based on the Appeals review. After issuance of this letter, the case will be closed. No response is required.

IRS Announces 2019 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2019 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2019, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,500 (up from $3,450 in 2018), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,000 (up from $6,900 in 2018).

High deductible health plans. For calendar year 2019, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage (unchanged from 2018), and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage (up from $6,650 and $13,300 in 2018).

Rev. Proc. 2018-30

IRS Grants Relief Raising the 2018 Annual HSA Contribution Limit for Family Coverage Back up to $6,900

On April 26, 2018 the Internal Revenue Service issued Revenue Procedure 2018-27, which provides relief for 2018 for taxpayers with family coverage under a High Deductible Health Plan (HDHP) who contribute to a Health Savings Account (HSA). For 2018, taxpayers with family coverage under an HDHP may now treat $6,900 as the maximum deductible HSA contribution.

History

The $6,900 annual limitation was originally published in 2017, in Revenue Procedure 2017-37.

In March 2018, as discussed in our prior post, the IRS reduced the maximum 2018 deductible HSA contribution for taxpayers with family coverage under an HDHP by $50, to $6,850, due to a change in the inflation adjustment calculations for 2018 under the Tax Cuts and Jobs Act.

Now, with the issuance of Revenue Procedure 2018-27, the IRS has announced this relief for affected taxpayers, which allows the $6,900 limitation to remain in effect for 2018.

Question: Do we Need to Offer COBRA Coverage to the Domestic Partner of a Terminated Employee?

Hypothetical: Employer’s self-insured medical plan covers domestic partners. An employee with EE + Domestic Partner coverage terminates employment. We offer the employee COBRA coverage, but do we need to also offer COBRA to the domestic partner?

Answer: COBRA does not require you to offer continuation coverage to the domestic partner. The COBRA regulations at 26 CFR 54.4980B-3 provide that only a covered employee, or their spouse or their dependent child is a qualified beneficiary under COBRA (plus any child who is born to or placed for adoption with a covered employee during a period of COBRA coverage).

While COBRA does not require the employer to offer continuation coverage, the employer ought to check their plan documents to see whether the Plan Documents provide continuation coverage to domestic partners. If the Plan document provides continuation coverage for domestic partners, then the Plan must offer it.

IRS Revises 2018 Annual HSA Contribution Limit for Family Coverage to $6,850 (down from $6,900)

The IRS has issued Rev. Proc. 2018-18, which revises the previously-published annual limitation on deductions under Code § 223(b)(2)(B) for 2018 for an individual with family coverage under a high deductible health plan. The originally published limitation was $6,900. It has now been reduced to $6,850.

Why the Change?

The recently enacted Tax Cuts and Jobs Act requires cost of living adjustments be made using the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), which over time will reduce the cost of living adjustments made to various IRS limits.

What to Do

Employers making Health Savings Account (HSA) contributions for employees (either directly, or through their cafeteria plans) should review the elections made by their employees and adjust those elections to avoid exceeding the $6,850 limitation for 2018. Likewise, individuals making HSA contributions should revise any automatic contribution schedule they have established to avoid exceeding the limit.

The following chart summarizes various significant employee benefit Plan limits for 2016 through 2018:

Type of Limitation 2018 2017 2016
415 Defined Benefit Plans $220,000 $215,000 $210,000
415 Defined Contribution Plans $55,000 $54,000 $53,000
Defined Contribution Elective Deferrals $18,500 $18,000 $18,000
Defined Contribution Catch-Up Deferrals $6,000 $6,000 $6,000
SIMPLE Employee Deferrals $12,500 $12,500 $12,500
SIMPLE Catch-Up Deferrals $3,000 $3,000 $3,000
Annual Compensation Limit $275,000 $270,000 $265,000
SEP Minimum Compensation $600 $600 $600
SEP Annual Compensation Limit $275,000 $270,000 $265,000
Highly Compensated $120,000 $120,000 $120,000
Key Employee (Officer) $175,000 $175,000 $170,000
Income Subject To Social Security Tax  (FICA) $128,400 $127,200 $118,500
Social Security (FICA) Tax For ER & EE (each pays) 6.20% 6.20% 6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays) 1.45% 1.45% 1.45%
SECA (FICA Portion) for Self-Employed 12.40% 12.40% 12.40%
SECA (Med. HI Portion) For Self-Employed 2.9% 2.9% 2.90%
IRA Contribution $5,500 $5,500 $5,500
IRA Catch-Ip Contribution $1,000 $1,000 $1,000
HSA Max. Contributions Single/Family Coverage $3,450/ $6,850 $3,400/ $6,750 $3,350/ $6,750
HSA Catchup Contributions $1,000 $1,000 $1,000
HSA Min. Annual Deductible Single/Family $1,350/ $2,700 $1,300/ $2,600 $1,300/ $2,600
HSA Max. Out Of Pocket Single/Family $6,650/ $13,300 $6,550/ $13,100 $6,550/ $13,100

 

 

Supreme Court Rejects “Yard-Man” Inference of Vesting of Retiree Health Benefits

The United States Supreme Court has ruled in the case of CNH Indus. N.V. v. Reese, that courts cannot simply infer lifetime vesting of retiree health benefits from a collective bargaining agreement. Instead, lifetime vesting must be expressly written into the agreement.

The Case

The employer in this case provided health benefits to certain employees who were eligible for benefits under the employer’s pension plan, in accordance with a collective bargaining agreement (CBA). When the CBA expired in 2004, some retirees sued, arguing that their health benefits were vested for life.

While the lawsuit was pending, the Supreme Court decided M&G Polymers USA, LLC v. Tackett, which held that courts must interpret CBAs according to “ordinary principles of contract law.” The trial court in this case then ruled for the retirees, and the Sixth Circuit affirmed, relying on presumptions the 6th Circuit originally established in UAW v. Yard-Man, Inc., even though the Supreme Court had explicitly rejected those presumptions in Tackett. The Sixth Circuit’s decision turned on its holding that the CBA’s 2004 expiration date was inconclusive as to whether the retiree health benefits terminated in 2004 or were vested for life because (1) the CBA specified that certain benefits, such as life insurance, ceased at a time different from other provisions, and (2) the CBA tied health care benefits to pension eligibility. The court acknowledged that Tackett precluded it from inferring vesting based on these plan provisions, but concluded that the provisions nevertheless rendered the CBA ambiguous, allowing consideration of extrinsic evidence that supported lifetime vesting.

The Supreme Court reversed, stating that “inferences applied in Yard-Man and its progeny” do not represent ordinary principles of contract law and therefore cannot be used to generate a reasonable inference that then creates ambiguity. The Court acknowledged that, when a contract is ambiguous, courts can consult extrinsic evidence to determine the parties’ intentions—but a contract is not ambiguous unless it is susceptible to at least two reasonable but conflicting meanings. In this case, the Supreme Court held that the CBA contained a durational clause that applied to all benefits, with no exception for retiree health benefits, and that therefore there is only one reasonable interpretation of the CBA – that it does not vest retiree health benefits for life.

Take-Aways

This case is re-assuring for employers offering retiree medical plans – that they are less at risk of inadvertently creating a vested lifetime retiree health benefit than if the Plantiffs had prevailed in this case. However, the long standing advice still stands: Employers should be explicit in their retiree health plan documents and SPDs that the benefit is not vested and that the employer retains full and unfettered discretion to amend or terminate the plan and the benefits at any time.

IRS Releases Sample Notice CP 220J Notice of Assessment of Employer Mandate Penalty

The IRS has released a sample of Notice CP 220J, which the IRS will use to notify applicable large employers (ALEs) that it has charged them an employer mandate penalty under Code § 4980H for failure to offer adequate health coverage to full-time employees and their dependents.

The release of Notice CP 220J  follows last year’s release of Letter 226J (the initial letter that the IRS will use to notify employers of the assessment of proposed employer mandate penalties) and Forms 14764 (Employer’s response to proposed penalties) and 14765 (list of employees receiving premium tax credit). Employers may use Form 14765 to change information previously reported to the IRS, which could potentially reduce or eliminate employer mandate penalties.

Employers receiving a Notice CP 220J will have three choices:

  • Pay the assessment
  • File a claim for refund on Form 843, Claim for Refund and Request for
    Abatement.
  • If you want to take your case to court immediately, include a written request to issue a Notice of Claim Disallowance. Employers will then have two years from the date of the notice of disallowance to file suit in the United States District Court that has jurisdiction or the United States Court of Federal Claims.

Cadillac Tax Delayed to 2022

The legislation passed by Congress and signed by President Trump on January 23, 2018 to continue funding the government through February 8, 2018 also delays the “Cadillac Tax” another two years.

The Cadillac Tax is now not scheduled to become effective until 2022. While it is likely future Congresses will continue to delay, or perhaps eliminate the tax entirely, employers and others that sponsor Cadillac plans should continue to monitor the situation and have contingencies to deal with it if the tax does in fact go into effect.

See our prior post on this related topic: IRS Proposes Various Approaches to Cadillac Tax Implementation