Northwest Business Litigation

COBRA Subsidy Extended

Today the President signed an extension to the COBRA subsidy (see pages 64-65 regarding section 1010) previously approved by Congress in a rare Saturday session.  The new law extends the eligibility period for the COBRA premium subsidy for an additional two months (through Feb. 28, 2010) and the maximum period for receiving the subsidy for an additional six months (from nine to 15 months).  One immediate effect is to provide eligibility for December terminations that cause a loss of health plan coverage on January 1, which under the previous statute were not eligible for the subsidy. 

Subsidy recipients who had reached the end of the subsidy period before the legislation extended it to 15 months will have additional time to pay the reduced premiums related to the extension.  To continue their coverage they must pay the 35% of premium costs by February 17, 2010 or, if later, 30 days after notice of the extension is provided by the plan administrator.

COBRA Administrators now have some immediate tasks:

(1) For December terminations, provide a new subsidy notice that incorporates the new provisions.

(2) For COBRA beneficiaries that lost subsidy eligibility at the end of November, provide information regarding the extension of the subsidy period through June 30, 2010 (subject to earlier termination for loss of COBRA eligibility).

(3) Update COBRA subsidy Notice forms to reflect the extensions of the eligibility period and the subsidy period for use with future terminated employees.

Join us for a seminar on employee benefits, September 17 at Bridgeport Brewing

Ater Wynne's next Roundtable session, entitled "20/20 Benefits Planning for 2010," will be held on September 17 at Bridgeport in the Pearl.  For more information, go here.

IRS allows "safe harbor" plan cutbacks

Recently, the IRS proposed amendments to the 401(k) "safe harbor" plan regulations.  A "safe harbor" plan is one that complies with certain mandatory employer contribution, vesting and notice requirements.  Safe harbor plans are not subject to many of the discrimination rules that apply to 401(k) plans.  One condition of safe harbor status is the employer must make a mandatory matching contribution to all plan participants that defer, or a 3% of pay contribution on behalf of all eligible employees.  Previous IRS rules allowed employers to drop out of the matching arrangement mid-year.

Until the recent proposal, the IRS refused to allow employers to drop out of the 3% safe harbor arrangement mid-year.  Now, in recognition of the severe economic hardship most businesses are facing, the IRS proposes to allow employers to eliminate the safe harbor contribution mid-year.  The proposal requires the employer to provide notice to plan participants at least 30 days before the contribution will cease to allow them to make any changes to their deferral elections.  The plan will then have to comply with the discrimination requirements for the entire year, not just the post-change period.

The IRS is accepting comments on the proposal through August 18, and expects to issue final regulations shortly thereafter, which allow plan amendments back through May 18.  Employers therefore do not need to wait for the final regulations to implement the proposal.

Ninth Circuit on standing to seek plan benefits

"Standing" is the legal doctrine that requires a plaintiff to have a sufficient stake in a controversy before seeking judicial remedies.  Standing is often an issue in ERISA litigation, where benefit plans may seek to dismiss a participant's claims for lack of standing. 

A recent Ninth Circuit decision, in the case of Poore v. Simpson Paper Co., discussed the standing of participants in a retiree health plan.  The plan provided benefits to members of a union.  The collective bargaining agreement between the employer and the union provided that retirees over age 55 would receive retiree health benefits until they turned 65 or became eligible for Medicare.  The employer specifically reserved the right to alter, amend or cancel the retiree benefit at any time.

Eventually, the employer decided to terminate the retiree health benefit.  A group of retirees sued, claiming that their rights to benefits under the plan had "vested," or become permanent, and were no longer subject to the termination right of the employer.  (ERISA prohibits an employer from eliminating a vested benefit.) 

Initially, the Ninth Circuit held the plaintiffs' benefits had not vested, and as a result they did not have standing.  Without a vested benefit, the participants had no stake in a controversy that the court could resolve.  But after dismissing the case, the court withdrew its initial decision and reversed itself, holding that ERISA provides that plan participants may seek judicial enforcement of plan benefits and that a recent U.S. Supreme Court decision held "plan participant" for ERISA purposes "may include a former employee with a colorable claim for benefits" - without the requirement that the benefit be vested.

The Ninth Circuit did not reach the merits of the plaintiffs' claim -- whether they were entitled to retiree health benefits -- but merely that they had standing to pursue the claim.  This decision is a reminder of the statutory intricacies of ERISA, and the difficulties both participants and plans have in resolving a dispute.

Washington State expands domestic partnership law

On April 23, 2009, SB 5688, an expanded version of the original State Registered Domestic Partnership (SRDP) Act. was delivered to Governor Christine Gregoire, who is expected to sign it into law.  The new law expands on previous domestic partnership laws providing same-sex domestic partners all the rights and benefits that Washington state offers married couples.  To be registered as partners, couples must share a home, must not be married or in a domestic relationship with someone else, and be at least 18 years of age.  Unmarried hetersexual senior couples also are eligible for domestic partnerships if one partner is at least 62.  Lawmakers stated that provision is necessary to help seniors who are at risk of losing pension rights and social security benefits if they remarry.

Among the rights and benefits provided by the law are:

• the right to use sick leave to care for a domestic partner;
• the right to wages and benefits when a domestic partner is injured, and to claim unpaid wages upon the death of a domestic partner;
• the right to unemployment and disability insurance benefits;
• the right to worker's compensation coverage;
• insurance rights, including rights under group policies, policy rights after the death of a domestic partner, conversion rights, and continuing coverage rights;
• rights related to adoption, child custody, and child support; and
• business succession rights.

Employers need to continue to pay attention to the domestic partnership law so that their policies are implemented in a nondiscriminatory manner.  For example, a domestic partner will now have the right to use sick leave to care for an ill partner.  The law does not, however, supersede federal law, which does not recognize domestic partnerships. 

DoL and IRS issue guidance on Stimulus Bill's COBRA subsidy

In February, I wrote about employers' new obligations under the Stimulus Bill's COBRA Subsidy.  Since then, the Department of Labor has published a variety of additonal information for employers on their responsibilities, including several model notices to qualified beneficiaries.   In addition, the IRS recently issued guidance in a question and answer format that address a number of issues that have arisen regarding the law's requirements.  For example, the guidance provides detailed information on the meaning of "involuntary termination" under the new provisions.  The IRS provides additional information here.  For those employers offering Oregon state continuation coverage, information is available here on attempts to pass related legislation in Oregon.

Stimulus Bill's COBRA subsidy creates new obligations for employers

The economic stimulus package signed into law by President Obama on February 17, 2009, amends the Consolidated Economic Budget Reconciliation Act (COBRA), and creates new and immediate obligations for employers. The new law provides a subsidy to employees of 65% of the applicable COBRA premium, leaving the employees responsible for only 35%.  Here's how it works:

• The program is mandatory for employers required to offer COBRA continuation health coverage, and also for employers obligated to provide COBRA-like continuation coverage under federal and state law (including, e.g., government employers and employers with fewer than 20 employees who must provide continuation coverage under state law).
• Eligible employees are those who are involuntarily terminated from employment and have a qualifying event between September 1, 2008 and December 31, 2009. Individuals whose employment terminated before February 17, 2009, have 60 days to enroll, even if they initially chose not to elect coverage. The 60-day election period runs from the date the individual receives the required special COBRA notice.
• Employers have to pay the 65% of the premiums being subsidized, but get to reduce payroll taxes in the same amount for everyone who opts into the program. If the applicable premiums exceed the payroll taxes, the employers will be reimbursed directly through a program established by the Department of the Treasury.
• Premium assistance is available for up to nine months. The subsidy terminates if the employee becomes eligible for new employer-sponsored health care coverage or Medicare. The availability of premium assistance does not extend the period of COBRA coverage for which the individual is otherwise eligible.
• Assistance is phased out for taxpayers with a gross income in excess of $125,000, up to a maximum of $145,000, at which point no premium assistance is available (limits are higher for those filing jointly).
• Employers must provide notice of the availability of premium assistance. The Department of Labor will be publishing model notices.
• The law is effective for premiums due as of March 1, 2009.
  

Covered employers must review terminations back to September 1, 2008, to determine whether the terminations were involuntary and a new eligibility notice is required.

U.S. Supreme Court weighs in on beneficiary designations and ERISA plans

Divorce can be a painful event for retirement plans as well as for the parties involved.  A recent U.S. Supreme Court case illustrates some of the difficulties that Plan administrators face from strict statutory requirements and forgetful plan participants. 

William Kennedy participated in his employer's retirement plan.  Like most plans, it allowed Kennedy to designate a beneficiary who would receive his benefit upon his death.  As many participants do, Kennedy designated his then-spouse.  Several years later, they divorced, and Kennedy's spouse waived her right to the benefit in the divorce decree.  However, Kennedy did not revoke or amend his earlier beneficiary designation on file with the plan before he subsequently died.  The plan, relying on the unrevoked designation, paid the former spouse.  Kennedy's estate, citing the waiver in the divorce decree, filed suit claiming the estate was the correct beneficiary due to the waiver in the decree.

A unanimous Supreme Court in Kennedy v. Plan Administrator upheld the plan's action.  The Court framed the issue as whether the divorce decree waiver superceded the beneficiary designation on file with the plan.  The Court held that ERISA required the plan to operate in accordance with its terms, and those terms were explicit: the plan would pay the designated beneficiary.  The drafters of ERISA decided long ago that they did not want plan administrators to have to make inquiries into participants' intent or investigate outside documents or events.  Doing so would greatly complicate plan administration and increase its cost. 

The message to plan administrators is clear: make sure your plan has a clear beneficiary procedure in place that participants know and understand.  And for participants, make sure you tell the plan who you want to get your benefit by updating your designation form on file.

Government-Mandated health benefits vs. ERISA, Round 5

We previously discussed an ordinance adopted by the city of San Francisco that requires employers to provide their employees with health benefits costing at least certain amounts or to pay those amounts to the city to fund the city's public health care program.  Employer organizations sued to enjoin enforcement, claiming that ERISA preempted the ordinance.  Initially, the employers did well, prevailing in District Court.  In January 2008, however, the Ninth Circuit stayed the District Court decision, allowing the city to begin enforcing the law while the Ninth Circuit considered the appeal.

Today, in Golden Gate Restaurant Association v. San Francisco, the Ninth Circuit ruled in favor of the city, holding that ERISA did not preempt the ordinance.  It also held the city's financing structure did not constitute an ERISA plan.  The court distinguished the San Francisco ordinance from a similar Maryland statute we discussed last year.  The Maryland statute, which was struck down due to ERISA preemption, did not provide anything to Wal-Mart, the sole employer subject to the law.  Instead, it required the employer to provide better benefits or to pay a fee to the state.  In contrast, the San Francisco ordinance offers a choice: provide better benefits or pay a fee for the City to provide benefits to your employees. 

The employers are likely to seek U.S. Supreme Court review.  We will see in Round 6 whether the Supreme Court agrees with the Ninth Circuit view of preemption.

Washington Department of Labor & Industries to issue policy on 'drive-time' wages

On August 8, 2008, the Washington Department of Labor & Industries will issue a draft policy addressing the uncertainy created by the 2007 Washington State Supreme Court decision in Stevens v. Brink's Home Security regarding travel time in company vehicles.  The draft policy is intended as a guide "in the interpretation and application of the relevant statutes, regulations, and policies and may not be applicable to all situations."  The policy states that whether travel or commute time is compensable depends on the specific facts and circumstances of each individual employee, employer, and work week.  If the travel or commute time is considered "hours worked" under the Washington statutes, then it is compensable.  "Hours worked" means all hours when an employee is authorized or required by the employer to be on duty on the employer's premises or at a prescribed workplace.  The policy lays out the three elements of the definition of "hours worked:"

1.  An employee is authorized or required by the employer,
2.  to be on duty,
3.  on the employer's premises or at a prescribed workplace.

If any of the three elements is not satisfied, then the time spent driving in a company-provided vehicle is not considered "hours worked."

The policy states that "time spent driving a company-provided vehicle from the employers' place of business to the job site is considered hours worked.  Time spent driving or riding as a passenger from job site to job site (if the job site is not at the employer's main business location) is considered hours worked."  The policy further states that "time spent driving a company-provided vehicle during an employee's ordinary travel, when the employee is not on duty and performs no work while driving between home and the first or last job site of the day is not considered hours worked."

Employers should examine their personnel policies to be sure that employees have clear guidance regarding company vehicle use.   

See our earlier post about the Brink's case here.