Why Consider a Wrap Plan related to your Employee Benefits?

A Wrap Plan is a single welfare benefit plan that combines employee health and welfare benefit plans into one plan. A Wrap Plan can save employers time, filing costs, and ease compliance with reporting and disclosure rules.

The Employee Retirement Income Security Act (ERISA) provides an employer with the option to offer different types of welfare benefit to its employees:

  • Medical, surgical, or hospital care or benefits, or
  • Benefits in the event of sickness, accident, disability, death or unemployment, or
  • Vacation benefits, or
  • Apprenticeship or other training programs, or
  • Day care centers, or
  • Scholarship funds, or
  • Prepaid legal services

ERISA requires welfare benefit plan to be codified in a written plan document, to include the following content:

  • Benefits and eligibility, and
  • Funding of benefits, and
  • Procedures for allocating and delegating plan responsibilities, and
  • Plan amendment and termination procedures, and
  • Designation of named fiduciary, and
  • Required provisions for group health plans, such as HIPPA compliance.

Employers must also provide employees with a Summary Plan Description (SPD) alerting them about their eligibility to participate in the plan.  Many employee welfare benefit plans are provided through insurance, and the companies providing coverage will have documents relating to the plans.  However, those documents are typically drafted to comply only with applicable insurance laws without being ERISA-compliant.

A Wrap Plan bundles the ERISA health and welfare benefits and includes all required disclosures. Rather than amending multiple documents after a new law is passed that affects a plan, an employer can make a single change to the Wrap Plan. Additionally, if an employer has plans that have 100 or more participants or are otherwise subject to the filing requirements to file Form 5500, a Wrap Plan also makes this administrative filing easier too. Rather than filing a separate Form 5500 for each health and welfare pan, a Wrap Plan allows the employer to file a single Form 5500 for all benefits covered by the Wrap Plan.

A Wrap Plan is an effective ERISA compliance strategy that allows employers to reduce the amount of time and cost involved in administering various health and welfare benefit plans.

© 2019 Vandenack Weaver LLC

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New Nebraska Law’s Impact on Filing Requirements for Corporations and Partnerships

LB 512 signed into law on May 30th, 2019, requires all S Corporations, limited liability companies, and partnerships with Nebraska source income to file a Nebraska return for all tax years beginning on or after January 1st, 2019.

Previously, S Corps, LLCs, and partnerships had to file a Nebraska income tax return if they had nonresident owners and were apportioning income.

The Nebraska Department of Revenue (DOR) encourages all S corporations, limited liability companies, and partnerships to e-file their pass-through entity returns. A Nebraska state ID is required when e-filing a pass though entity return.

A pass-through entity without an assigned Nebraska identification number will need to apply for a number before e-filing a 2019 Nebraska tax return. If your business does not have a Nebraska Tax ID Number, follow the link below to the Nebraska Department of Revenue to register your business.

http://www.revenue.nebraska.gov/electron/online_f20.html

© 2019 Vandenack Weaver LLC

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Circuit Split on Data Breach Litigation

On March 25th, 2019, the Supreme Court denied review of a case involving individuals whose personal information held in a database was breached by hackers. Specifically, the issue was whether the parties requesting review had Article III “standing” to sue due to the database breach.

Standing is the authority of a court to hear a case. For the court to exercise such authority, the court will only hear cases based on events that cause actual injuries or create real threats of imminent harm to individuals who brought the case. The D.C. Circuit Court in its ruling of June 21st, 2019 deepened the split among contradicting circuit rulings. The D.C. Circuit Court ruled the petitioning party had standing to bring the case due to the breach of 21.5 million social security numbers, birth dates, and residency details of former, current, and prospective employees. The court held that, the plaintiff’s fear of facing a substantial risk of future identity theft met the burden to establish standing.

While the Sixth, Seventh, and Ninth circuits have similarly concluded that a heightened risk of identity theft is sufficient for individuals to possess standing to sue; the Second, Third, Fourth, and Eighth Circuits have ruled in the opposite direction. Distinct facts from this  latest data breach case include the nature of the defendant being a federal government agency and the alleged identity of the hacker being a foreign government entity where the breach was executed for purposes other than identity theft. Nonetheless, the D.C. Circuit Court found the federal government agency liable as well as Office of Personnel Management’s (OPMs) third-party vendor, despite the contract between the two parties. The Supreme Court may need to review and rule on this crucial issue in the near future given the current split of authority.

© 2019 Vandenack Weaver LLC

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Integrated HRAs

A new option exists for employers when it comes to paying for employee health care coverage. On June 13th, the U.S. Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued a final rule allowing employers to use pretax dollars to subsidize employee premiums in the individual health insurance market. Now, employers of all sizes that do not offer a group coverage plan can fund a new health reimbursement arrangement (HRA) known as individual coverage HRA (ICHRA).

Previously, under the Affordable Care Act, employers were prevented from offering stand-alone HRAs that would allow an employee to purchase coverage on the individual market. That has changed. Employers now have the option to provide their workers and their families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market. The departments posted an FAQs regarding the new regulation. ICHRAs are advantageous to employers because they maintain the tax favored status that apply to a traditional group health plan. Additionally, another employer-sponsored insurance called Excepted Benefit HRAs (EBHRA) allows employers to finance an additional pretax $1,800 per year to reimburse employees for certain qualified medical expenses (such as premiums for vision and dental insurance) even if the employee opts out of enrollment in the traditional group plan.

Qualified Small Employer HRAs (QSEHRA) are still an attractive alternative to group coverage for smaller employers- those with fewer than 50 full-time employees. Under QSEHRAs, employers can give their employees money tax-free to purchase individual health policies through the ACA exchange, similar to ICHRAs. Employees can use these funds to pay all or part of the insurance plan premium or pay for out-of-packet medical costs. While ICHRAs are void of caps on annual allowance amounts, in 2019, QSEHRAs allowance amounts were capped at $5,150 for self-only employees and $10,450 for employees with a family. While ICHRAs are free of caps, employees who choose ICHRAs will not be able to receive any premium tax credit/subsidy for exchange-based coverage. In some instances, if an employer funds an ICHRA or a QSEHRA coupled with individual-market insurance, this will bar the individual-market coverage from becoming part of the Employee Retirement Income Security Act (ERISA).

If employers choose to offer ICHRAs, then the new regulations require a written notice be issued to all employees who are eligible. In this notice, employers need to include a provision that states the ICHRA may make them ineligible for a premium tax credit or subsidy when buying an Affordable Care Act exchange-based plan. ICHRAs will be available for plan years starting on or after January 1, 2020. Employers offering an ICHRA with a plan year that begins on January 1, 2020 should help eligible employees understand that they must enroll in individual health insurance coverage during the open enrollment period, November 1, 2019 through December 15, 2019, for individual health insurance coverage that takes effect on January 1, 2020.

ICHRAs and EBHRA are two new health insurance arrangements that could provide smaller employers with innovative and more cost-effective ways to finance worker health insurance coverage. The IRS has noted that including safe harbor provisions to ensure employers still satisfy the ACA’s affordability and minimum value requirements with ICHRAs will come out later this year.

© 2019 Vandenack Weaver LLC

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Administrative Remedies in Discrimination Claims

By Matthew Dunning

Earlier this week the United States Supreme Court issued its unanimous opinion in Fort Bend County, Texas v. Davis, holding that a plaintiff’s failure to exhaust administrative remedies does not necessarily prevent the person from pursuing employment discrimination claims in court. In a charge filed with the federal Equal Employment Opportunity Commission (“EEOC”), the plaintiff in the case alleged that she was subjected to sexual harassment and retaliation for complaining about that harassment. She was subsequently fired for missing work to attend church services, and claimed that the termination was based on religious discrimination. However, she did not formally amend her EEOC charge to allege religious discrimination, opening the possibility that she had failed to exhaust her administrative remedies.

The plaintiff then filed a lawsuit in federal court, and claimed that she was subject to wrongful discharge based on unlawful harassment, retaliation and religious discrimination. The defendant initially defended the case without raising the failure to exhaust defense, and it was not until years later that the defendant filed a motion to dismiss.  The Court affirmed the finding of the lower appeals court that the motion to dismiss was untimely and should have been raised earlier in the case. This case has now been in litigation for 7 years, and is being sent back to the trial court for further proceedings.

In Nebraska, there is a statute that allows an aggrieved employee to go directly to court without filing a charge of discrimination with the Nebraska Equal Opportunity Commission (“NEOC”). Plaintiffs lawyers do not typically utilize this statute because remedies available under state law do not include punitive damages, which are available under federal law.  In addition, the lawyers appreciate the NEOC/EEOC process because it can lead to the discovery of information regarding an employer’s defenses, which the attorney can then utilize to develop the case in court.

When facing claims of discrimination, whether the employee is currently employed, or has already been terminated, employers should carefully consider the status and details of the allegations at each stage of the process, and identify the procedural requirements that may apply. For instance, if the person complaining is still an employee, the employer must consistently apply the applicable policies, typically included in an employee handbook. Failure to properly investigate and, if necessary, remediate a complaint of discrimination may, in and of itself, be considered evidence of unlawful discrimination.

Once an employee files a formal charge with the NEOC or EOC, or files litigation, the employer should carefully review all the applicable facts, particularly the timing of the allegations, and work with legal counsel to determine if there are any procedural or other irregularities to raise as defenses.

New Department of Labor proposed rule addressing calculation of employee’s regular rate of pay

For the first time in 50 years, the Department of Labor is proposing a rule to address the calculation of an employee’s regular rate of pay; an employee’s regular rate is used to determine the applicable overtime rate, and the calculation of the regular rate can be an issue in DOL audits, and litigation.

The DOL’s proposed rule includes clarification that the following forms of compensation are not required to be included in the regular rate:

the cost of providing wellness programs

payments for unused paid leave

reimbursed expenses that are not “solely” for the employer’s benefit
certain reimbursed travel expenses

Employers will want to take this opportunity to review existing pay practices, and determine if changes can be made.

Citing Third Party Disclosure, Court Rules Attorney-Client Privilege does not Protect Certain Emails

Communications between attorneys and their clients are generally thought to be confidential under the protection of attorney-client privilege and work product doctrine.  On May 6, 2019, however, the United States District Court Southern District of New York ruled that attorney-client communications, in the form of emails, shared with a public relations firm were neither privileged nor protected by attorney work-product doctrine. In the trademark case of Universal Standard Inc. v. Target Corp., S.D.N.Y., No. 18 Civ. 6042, 5/6/19, Magistrate Judge Gabriel W. Gorenstein demonstrated the narrowness of circumstances in which a company can assert privilege after sharing information with third parties. The court held that since the PR firm hired by Universal Standard was not necessary to the emails between Universal Standard and its attorneys, was not an agent of the company, and was not hired to aid in legal tasks, privilege and work product did not apply to the communications.

 

Universal Standard creates women’s apparel with “size-inclusive” clothing brands and in 2018 brought suit against Target alleging that Target’s “Universal Thread” line of women’s clothing willfully infringed upon its trademark.  During a deposition for the case, Target’s attorney questioned one of Universal Standard’s witnesses about the email chains between Universal Standard, their PR firm, BrandLink, and their attorneys.  Universal Standard objected that the emails were privileged.

 

The court ruled the emails aren’t protected by attorney-client privilege as disclosure to a third party generally eliminates that privilege.  While Universal Standard argued three separate exceptions applied, the court disagreed with their conclusions:

 

  1. BrandLink was not necessary to the understanding of facts between attorney and client: The court said the emails in question involved the public relations strategy relating to the lawsuit; which could have been relayed directly to the attorneys alone to invoke privilege.
  2. BrandLink was not a “functional equivalent” of an employee or agent of Universal Standard: The court cited that BrandLink did not represent the company to third parties, maintain an office at the company, nor seek legal advice from Universal Standard’s counsel, failing the “functional equivalent” standard.
  3. BrandLink was not hired to complete legal tasks: The court noted a distinction regarding privilege in that there is a difference between when a client hires a third party versus when an attorney hires a third party to implement a legal strategy.  As BrandLink was hired for business purposes, the court held this exception did not apply.

 

The Court also rejected Universal Standard’s for work product doctrine protection as “conclusory” when they stated all the emails were created in anticipation of litigation and reflected the opinions of their counsel, as these statements were confined to a single sentence, and, as the court stated, a mere recital of the law.

 

Thus, when communicating with an attorney and the utilizing the convenience of email, it is important to be diligent on who you are including in your communications and what necessity they bring to the privileged conversation.