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Thursday, May 12, 2016
Presented by:
Mark Holloway, JD and Ed Fensholt, JD
Compliance Services, Lockton Benefit Group
Leaves of Absence and Other Changes in Employment Status
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Thursday, May 12, 2016
Presented by: Mark Holloway, JD and Ed Fensholt, JD
Compliance Services, Lockton Benefit Group
Leaves of Absence and Other Changes in Employment Status
Agenda
Overview
Easy Stuff
Section 125
FMLA
COBRA
Harder Stuff
USERRA
ADA
Really Hard Stuff
The ACA‘s employer mandate and LOAs/reductions in hours
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What Rules Can Apply Here?
Overview
What do we mean by a leave of absence (LOA)?
An employee‘s absence from employment for a temporary period
Some or all of the leave period may be ―job protected‖ under federal or state law
Leave can be paid or unpaid, or a combination thereof
When leave is job-protected, employee on leave cannot be fired or demoted for taking the LOA
Today, we concentrate on the impact of a LOA on employee benefits
We will stay clear of HR-type issues
E.g., ―Mark is a poor performer, but we haven‘t clearly documented that in his reviews. One more thing – he just went out on a FMLA/military/whatever LOA. Please tell me, in writing, we can fire him now and we won‘t get sued.‖
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Overview – What Rules Apply?
Rules contained in tax law and ERISA that come into play with a leave of absence
Section 125
COBRA
Federal laws that can apply to an employee leave of absence*
FMLA (Family and Medical Leave Act)
Uniformed Services Employment and Reemployment Rights Act (USERRA)
Americans With Disabilities Act (ADA)
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*State laws can apply, too (e.g., workers‘ compensation, mandated sick pay or disability coverage, FMLA-like laws). We will not discuss today.
Best Advice of the Webcast
1. Ed, Mark and Scott are not labor lawyers
2. Plan documents, including insurance contracts, need to be clear about what happens to coverage if employee begins LOA
ERISA duty to specify eligibility provisions in your plan and to follow those terms
Insurer – or stop-loss carrier – will base coverage on those terms!
3. Bad things can happen when coverage is provided outside the terms of your plan
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Horror Show #1
―Mark (the poor performer referenced on prior slide) went out on a LOA. We haven't given him any paperwork, but asked he pay premium while he is out. It's been six months and he hasn‘t paid any premium, although the plan has paid claims. I want to throw him off the plan now as he hasn‘t paid.‖
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Horror Show #2
―I just found out that Mark (same person in Horror Show #1) got shot up and has been in an iron lung for four months. My boss, the CFO, asked me to assure him stop-loss will pay this $6M claim.‖
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Horror Show #3
―Mark (see discussions above) died a few weeks ago, just as we were changing life insurance carriers. His widow just called to inquire about the life insurance proceeds since he qualified for waiver of premium. I don‘t think Mark was included on that ‗not actively at work list‘ we provided the new life carrier. Is that a problem?‖
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The Easy Stuff
Section 125 Rules
Beginning an unpaid LOA is a ―change in employment status‖ if it affects the employee‘s eligibility under the plan (e.g., loss of eligibility allows the employee to drop coverage)
For employee, spouse or other dependents
Similarly, return from an unpaid LOA may be a ―change in employment status‖ that allows the employee to resume coverage
Also permitted to make election change upon return if status change while on leave (e.g., birth or adoption of child)
So what qualifies as an ―unpaid‖ LOA?
IRS has never officially addressed, but has indicated it means a totally unpaid leave
Seems OK to argue less 100% of pay = unpaid
Employee getting less than 100% STD benefit might have financial hardship if unable to drop
Employees often will move from paid to unpaid leave status (e.g., as they exhaust PTO and/or disability benefits)
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Section 125 – Some Traps for the Unwary
Health FSAs
If employee drops coverage at start of LOA, expenses incurred during LOA won‘t qualify for reimbursement
Even if the employee resumes participation when returns to work
Exception: Plan invokes catch-up
More on that in a moment
Dependent Care FSAs
Tax law requires employee be gainfully employed or looking for employment
Typically, not the case for a LOA, even if the employee is out on disability
Employee will want to drop at start of LOA and resume when returns
Transit passes (pretax, but not through Section 125)
Same issue
Employee will want to drop at start of LOA and resume when returns
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FMLA
FMLA provides up to 12 weeks of leave for family and medical reasons. Law requires the employee on leave be treated the same as an active employee with respect to health insurance coverage
26 weeks for care needed following military service
Health coverage at onset of FMLA leave:
Employee can continue or revoke coverage during the leave OR
Some employers will require coverage to continue during the leave BUT the employee cannot be required to continue to make payment AND the employer can require this only if required for other leaves
Coverage upon return
Employee has a reinstatement right
Employer can force reinstate IF it does so for other leaves
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FMLA
Payment for coverage during leave may be pre- or post-tax*
Pre-pay (cannot be mandated by plan)
Pay as you go (most employers use)
Catch-up (leaves employer at risk if employee does not return)
FMLA leaves must be treated at least as favorably as non-FMLA leaves
Keep in mind, especially if employer extends life insurance coverage for other types of leaves
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*Many employers use for non-FMLA leaves, too
COBRA
If a covered employee loses health coverage due to a termination of employment or reduction in hours, the employee (including spouse and children) qualifies for up to 18 months of COBRA coverage
Caveat: Employers might risk ACA penalties if COBRA is immediately offered when employees‘ hours are reduced
More on that in a moment
For FMLA leaves, COBRA applies at the end of the leave, even if the employee dropped health coverage during the leave.
Example:
Bill starts an unpaid FMLA leave on 1-5-16 and chooses to make pay-as-you-go contributions while on leave. Bill doesn‘t pay January‘s premium and is dropped from coverage. On March 15, Bill exhausts his 12 weeks of FMLA and resigns.
Bill qualifies for up to 18 months of COBRA measured from March 15, even though he dropped coverage while on FMLA leave
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The Harder Stuff
USERRA
If a covered employee loses health coverage due to being called to active military duty for longer than 30 days, COBRA-like continuation coverage is available for up to 24 months
Employees tend not to take USERRA unless substantially subsidized and employer offers some differential pay
Upon return from uniformed service while eligible for USERRA protection…
Coverage reinstated with no waiting period
Plan may decline to cover injuries sustained or aggravated due to the uniformed service
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Americans With Disabilities Act (ADA)
ADA protects from discrimination disabled employees who can perform the essential functions of a job
Law requires reasonable accommodation for the disabled employee
ADA enforced by a loosely-organized, impulsive and litigious EEOC
Another snarky comment: EEOC has bad track record litigating these type issues
EEOC has challenged ―no-fault‖ employee termination provisions (e.g., employees who do not return to active employment after six months on leave are terminated)
Argument is no discrimination because rule applies uniformly to all employees (disabled and non-disabled)
Sears settled EEOC lawsuit on this very issue in 2009
http://www.eeoc.gov/eeoc/newsroom/release/9-29-09.cfm
―The era of employers being able to inflexibly and universally apply a leave limits policy without seriously considering the reasonable accommodation requirements of the ADA are over,‖ Hendrickson said. ―Just as it is a truism that never having to come to work is manifestly not a reasonable accommodation, it is also true that inflexible leave policies which ignore reasonable accommodations making it possible to get employees back on the job cannot survive under federal law. Today‘s consent decree is a bright line marker of that reality.‖
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Americans With Disabilities Act (ADA)
EEOC‘s position
Extended LOA is a reasonable accommodation for a disabled employee unless doing so would be an undue hardship for the employer
http://www.eeoc.gov/policy/docs/accommodation.html#leave
Agency recommends employer engage employee in an interactive process
―How much longer do you need to be out?‖
The shorter the duration, the more likely extension of leave will be viewed as ―reasonable‖
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This is a labor law issue, not an employee benefits issue. Best to consult with labor counsel on this topic
See warning on slide #10
The Really Hard Stuff
The ACA and the Look-Back Measurement Method
ACA introduced the concepts of measurement periods, administrative periods and stability periods for employers using the ―look back measurement method‖ to determine FTEs
There are initial measurement, administrative and stability periods (for new variable hour, part-time and seasonal employees)
There are standard measurement, administrative and stability periods…once an employee (whether an FTE or variable hour/part-time) has been employed through an entire standard measurement period, he or she is considered an ―ongoing‖ employee, and FTE status for an ensuing standard stability period is based on hours of service over the preceding standard measurement period
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New Slide
New Employees
New variable hour employees (and part-time, and seasonal employees) have their hours of service tracked over initial measurement periods of up to 12 months
Followed by a brief initial administrative period (the ―sorting out‖ window)
Followed by an initial stability period, during which the employee is treated as an FTE or not, based on average hours or service over the initial measurement period
A new variable hour/part-time/seasonal employee who averages 30+ hours of service per week over the IMP needs a coverage offer by the first day of the initial stability period, or the employer risks penalties
After they‘re employed through an entire standard measurement period, their status as an FTE or otherwise is determined based on average hours of service over standard measurement periods
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New Slide
New Employees
New FTEs have their status determined month-to-month until they‘ve been employed for an entire standard measurement period
Usually a moot point because benefits are offered quickly, and status doesn‘t change right away
The coverage offer must come by the first day of the fourth full calendar month of employment, or the employer risks penalties
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New Slide
New Variable-Hour Employee – Moves to Full-Time During Initial Measurement Period
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Move from Variable-Hour to Full-Time Position
Make the coverage offer by the first day of the fourth full calendar month following the change in status
This makes sense because, if the employee had been hired into a FT position, the coverage offer would have had to come by the first day of the fourth full calendar month
What if before that "first day of the fourth full calendar month" date the employee completes his initial measurement period, has averaged 30+ hrs/week, and arrives at the first day of the initial stability period?
Treat him as an FTE then…just like any other variable-hour employee who averaged 30+ hrs/wk during the initial measurement period
New Full-Time Employee – Moves to Variable-Hour/Part-Time Position
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Move from full-time position before completing an entire standard measurement period…what‘s the rule?
Remember that an employer using the look-back measurement method nevertheless applies the monthly measurement method to newly hired FTEs until they've been employed through an entire standard measurement period
It‘s usually a moot point because the employer offers benefits anyway, and promptly
So…when you have a new FTE who, before the end of the first full standard measurement period, moves into a variable-hour/part-time position, you simply continue to use the monthly measurement method to determine the employee‘s FTE status
Of course, once the employee completes an entire standard measurement period, his or her status as an FTE or PTE for the ensuing plan year (standard stability period) is based on average hours over that standard measurement period
Ongoing Employee – Moves From FT to PT Status
What happens if an ongoing employee moves from FT to PT status during a standard stability period (plan year)?
Three options…two are fairly intuitive, one is complex
Of the two intuitive options, both have advantages and disadvantages
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Amended Slide
Ongoing Employee – Moves From FT to PT Status
Example:
Mark is a long-time employee of MegaWorld Industries, which operates a calendar-year health plan.
Mega links its health plan eligibility rule to FTE status under the employer mandate (i.e., if you‘re an ACA FTE, you're eligible for coverage)
Mega‘s standard measurement period runs from Nov 1 – Oct 31, and its standard administrative period from Nov 1 – Dec 31. The standard stability period is the calendar year plan year.
Mark is considered an ACA full-time employee for calendar year 2016 and is offered health coverage on that basis
Because Mark averaged at least 30 hours worked over the preceding standard measurement period (Nov 1, 2014 – Oct 31, 2015)
Mark moves to part-time status, effective April 15, 2016
What are MegaWorld‘s options for Mark‘s health insurance after April 15?
Remember that under the lookback measurement method, Mark has earned the right to be treated as an FTE for 2016, regardless of his actual average hours of service per month in 2016
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Ongoing Employee – Moves From FT to PT Status
Option 1: Continue to treat Mark as an FTE, and thus eligible, at least through the 2016 plan year (the 2016 standard stability period)
This is the most common approach by employers; it‘s less complicated and more (mostly) intuitive…except for the COBRA piece (see next slide)
If Mark averages fewer than 30 hours of service per week from Nov 1, 2015 – Oct 31, 2016, he'll be considered a PTE for 2017, and lose eligibility on Jan 1, 2017.
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Ongoing Employee – Moves From FT to PT Status
What about COBRA?
A COBRA qualifying event occurs if an employee has a reduction in hours AND a loss of coverage within 18 months thereafter…
Where this happens, the COBRA qualifying event – the event triggering the COBRA notice obligation – is the reduction in hours
In our example the reduction in hours occurred in April, 2016…and the related loss of eligibility (Jan 1, 2017) occurred within 18 months of that date. That makes the reduction of hours in April the COBRA "qualifying event," which triggered a COBRA notice obligation at that time…
But why send a notice then, when eligibility will linger for several months? Intuitively, employers (and employees, for that matter) will view the later actual loss of coverage as the COBRA qualifying event, and won't want to (or think to) send a COBRA election notice prior to Jan 2017…
…But waiting to send the COBRA notice until months later means the plan has failed to issue a COBRA election notice on a timely basis (up to $110/day penalties…possible but probably not likely)…
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Ongoing Employee – Moves From FT to PT Status
Optional COBRA Approach: Treat the later loss of coverage, not the earlier reduction in hours, as the COBRA qualifying event. Start the COBRA notice clock, and the COBRA 18-month clock, then
The 18-month COBRA coverage period begins then, on Jan 1, 2017, in our example
Wrinkles With the Optional COBRA Approach:
Ideally, the plan should be amended to say it‘s using this ―deferred notice‖ rule
Employer might not want to start the COBRA clock this late. What if dental and vision coverage is also lost, and COBRA notices are going out for those benefits, upon the switch to PT status?
Other COBRA-Related Issues
What if Mark‘s eligibility continues, but he stops paying for coverage after a couple months? Is it a COBRA qualifying event to drop his coverage for nonpayment?
How do we deal with affordability? Does Mega just run the risk? How much would it cost us Mega to offer affordable coverage to a PTE…more than the potential Tier 2 penalty?
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Ongoing Employee – Moves From FT to PT Status
Option 2: Cut off Mark‘s eligibility upon the switch to PT status
This is how the employer used to do it (and the way employers using the monthly measurement method are still doing it…); the plan document would have to provide for it
Also might be consistent with how the employer is administering dental and vision benefits
But now, for the remainder of the stability period (and, depending on how late in the current measurement period the change to PT status occurs, maybe for the remainder of the next stability period too) Mark is an ACA FTE but isn‘t receiving a coverage offer
Penalty exposure:
If there are a LOT of Marks (healthcare organizations with staff members who frequently jump from FT to PT or per diem status), there might be one or more months where the employer doesn‘t offer medical coverage to 6% or more of its FTEs
If the nuclear penalty doesn't apply, but Mark goes out and buys federally subsidized coverage in a public health insurance marketplace, Mega pays the ―needle penalty‖ on Mark
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Ongoing Employee – Moves From FT to PT Status
Option 3: Special rule under ACA regs allows Mega to reset Mark‘s status after a three-full-calendar-month tail, if Mark:
Was continuously offered minimum value (MV) and affordable coverage from not later than the first day of the fourth full calendar month of employment, and
The change in employment status is such that had Mark begun his employment in that status he would not have reasonably been expected to average 30+ hrs/week, and
During each of the 3 calendar months following the change in status the employee averaged <30 hours of service per week, then…
Mega may treat Mark as no longer an FTE on the first day of the fourth full calendar month if Mark averages <30 hours of service per week during that month, but…
During the remainder of the standard stability period, Mark must be treated as an FTE for any calendar month during which he or she averages 30+ hours of service per week.
Thus, if this rule applies, Mega can use the monthly measurement method to determine Mark‘s FTE or PTE status for the remaining months in 2016…and 2017!
As long as Mark‘s status doesn‘t change back to one where he‘s expected to have at least 30 hours of service per week.
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Moves From FT to PT Status
Assume instead of moving to part-time on April 15, Mark begins a personal LOA (non-FMLA) and is accruing no hours of service for weeks or months.
Same issues; Mark remains an FTE at least through the current plan year, although Mega might be able to apply the ―three-month tail‖ rule in order to use the monthly measurement method for the fourth and subsequent months
If Mega‘s plan allows Mega to pull the coverage offer due to the reduction in hours, but Mark is still considered an FTE, there will still be affordability issues associated with the COBRA offer
Mega can avoid the affordability issue by terminating Mark‘s employment and offering COBRA (the employer mandate won‘t apply to a former employee)
However, that raises other issues under the ADA, etc.
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This is a labor law issue, not an employee benefits issue. Best to consult with labor counsel on this topic
See warning on slide #10
Ongoing Employee – Moves From PT to FT Status
Suppose Mark had exited the Nov 1, 2014 – Oct 31, 2015, standard measurement period as a PTE, was not offered coverage for 2016, and then on April 15, 2016, moved into a full-time position?
Most employers would have offered benefits then, or shortly thereafter, but what if Mega did not?
Sorry Mark…it‘s not an ACA problem for Mega, because Mark‘s status as a PTE is ―locked in‖ for the 2016 standard stability period (plan year) based on his average hours of service over the prior standard measurement period
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Dropping Employer Coverage Due to Change in Position
What if Mega continues to treat Mark as eligible after his switch to a part-time position, BUT Mark wants OUT of Mega‘s plan…he wants to leap into a public health insurance marketplace where he can buy cheaper ―catastrophic‖ coverage
Cafeteria plan rules lock Mark in to his coverage election under Mega‘s plan…but there‘s a new exception:
If Mega is willing to allow it (and amend its cafeteria plan, as necessary), Mega can let Mark out of his coverage election upon Mark‘s representation that he's leaping to a public marketplace (or governmental coverage, like Medicare or Medicaid) and intends to enroll in coverage there
New coverage must be effective no later than the first day of the second month following the month in which the original coverage is revoked
Mega can take Mark‘s word for it
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Questions?
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Questions? Ask them on Twitter: #LocktonClass Follow us on Twitter @LBGCompliance and @LocktonBenefits
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