Employee Benefits

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2019 is the year of “tidying up” thanks to the popular Netflix show.   Start the year off by reevaluating your employee benefit plans to determine whether they continue to meet the changing needs of your workforce while complying with changing regulatory requirements.   Here is our top-ten list of changes to consider in 2019 (in no particular order):

  • Update your qualified plan’s 402(f) Notice to include recent changes extending the rollover deadline for loan offsets.
  • Update your hardship withdrawal procedures to comply with recent IRS proposed regulations.
  • Update your plan document to allow forfeitures to fund QNECs, QMACs, or safe harbor matching, thereby, saving your company money.
  • Update your investment policy if you invest in socially responsible investments to capture recent DOL guidance so that the company’s effort to be socially responsible does not result in a breach of fiduciary duty.
  • As a recruiting tool, consider updating your incentive plans to include a deferred compensation option that pays out on significant life events before retirement.
  • Update your deferred compensation arrangements to ensure that there is no question that the agreements comply with Section 409A.
  • Update your disability benefits claims procedure to ensure that it complies with DOL regulations that took effect in 2018.
  • Review your Wellness Programs to ensure compliance with HIPAA, ADA and other laws (particularly with respect to financial incentives).
  • Update your missing participant procedures.
  • Update your fiduciary committee charters and best practices to ensure that they are still really “best practices”.

We look forward to working with you in 2019 and wish you a happy new year.  If you need assistance with any employee benefits matter, including any of the above changes, please contact any member of our Employee Benefits and Executive Compensation group.

McNees Wallace & Nurick LLC is pleased to announce the expansion of its Employee Benefits and Executive Compensation Practice Group with the recent addition of attorney Renee Lieux and specialist Kimberly Weibley.

Renee has focused her practice on executive compensation and employee benefits for nearly 20 years.  She assists both private and publicly traded companies in the formation of executive compensation programs and the negotiation of executive employment agreements.  She designs and assists in the implementation of non-qualified deferred compensation plans, equity compensation plans, and cafeteria plans.   Clients also seek her assistance with the administration, compliance, and termination of defined contribution plans, defined benefit plans, profit sharing plans, 401(k) plans, and employee stock purchase plans.  In addition, Renee advises clients on employee benefits issues arising out of mergers and acquisitions.  Renee has experience counseling clients on ERISA and Section 409A and advising compensation committees of publicly traded companies.

As an Employee Benefits Specialist, Kim assists clients with the design and administration of tax-qualified retirement plans, welfare benefit plans and non-qualified retirement plans. She aids clients with legal compliance issues through the preparation of plan documents, IRS determination letter applications and applications relating to IRS and DOL compliance programs.  Kim has experience in qualified plan design and preparation of plan amendments, SPDs and SMMs.  She also assists clients in the design and drafting of administrative procedures and forms, especially those relating to 401(k) plans, COBRA, QDROs and flexible benefit programs.  Kim has over 15 years of experience working as a benefits professional in private industry and is particularly adept at identifying practical solutions to complex problems.

The McNees Employee Benefits and Executive Compensation Practice Group offers a range of services and leading-edge techniques, with a personalized approach.  Our knowledgeable interdisciplinary group — which includes professionals skilled in tax, labor, general business and litigation — ensures creative, thorough, vigorous and affordable representation.

On February 9, 2018, the Bipartisan Budget Act (the “Act”) was signed into law. The Act directed the IRS to revise regulations governing hardship withdrawal provisions in qualified plans. The legislative goal was to expand the circumstances under which hardship withdrawals may be made and eliminate some of the penalties associated with hardship withdrawals.

On November 14, 2018, the IRS released proposed regulations as directed in the Act. All of the following changes are optional for a qualified retirement plan’s 2019 Plan year and may be implemented operationally, effective January 1, 2019. Plan Sponsors may also wait until the end of the second calendar year that begins after the issuance of final regulations to amend the Plan to conform to the required changes. Key changes outlined in the proposed regulations include:

  • The six-month suspension of 401(k) contributions will be eliminated (Required for hardship withdrawals after January 1, 2020).
  • A new type of qualifying expense related to disaster relief will be added to the list. The IRS indicated that this addition will eliminate delay or uncertainty concerning access to plan funds following a disaster that occurs in an area designated by the Federal Emergency Management Agency for individual assistance (May be made effective for distributions made on or after January 1, 2018).
  • Allow for the Plan administrator to rely upon the participant’s written representation that he/she has insufficient cash or liquid assets to satisfy the financial need, but only to the extent that the plan administrator does not have actual knowledge to the contrary.
  • The requirement that a loan be taken from the plan before a hardship withdrawal is approved can be eliminated (Optional change).
  • Permit hardship distributions from earnings on elective deferrals (Optional change).
  • Permit hardship distributions from QNECs, QMACs, and earnings on these sources (Optional change).

Once the final regulations are issued, plan procedures should be reviewed to ensure compliance with the regulations and to determine whether adoption of conforming plan amendments will be necessary. Until then, plan administrators should determine whether they intend to implement any optional changes.

You may contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group if you have any questions regarding this article.

Over the past fifteen years, wellness programs have generated more than their fair share of litigation and regulatory scrutiny – primarily over the issue of whether they comply with the Americans with Disabilities Act.  A related compliance issue that has attracted relatively little attention from courts and regulators is whether, under the Fair Labor Standards Act (FLSA), employees must be paid for time spent participating in wellness-related activities.  This question was addressed in an Opinion Letter (FLSA2018-20) issued by the U.S. Department of Labor’s Wage and Hour Division on August 28, 2018.

Opinion Letter 2018-20 specifically addresses whether an employer must pay employees for time spent in the following activities:

  1. biometric screenings (blood pressure, cholesterol levels, nicotine usage) both during and outside of their regular work hours;
  2. wellness activities such as nutrition classes, employer-facilitated gym classes, telephonic health coaching, participation in Weight Watchers and Fitbit challenges;
  3. attendance at benefits fairs to learn about employer-provided benefits, financial planning and college attendance opportunities.

The Opinion Letter concludes that employees need not be compensated for participating in the above activities if: a) their participation is purely voluntary;  b) they perform no job-related duties while participating; and c) the activities predominantly benefit the employee and not the employer.   In concluding that the activities were predominantly for the employees’ benefit, the DOL noted that participating employees may enjoy lower health insurance deductibles while also learning how to make “more informed decisions” about non-job related health issues.  Moreover, since employees were relieved of all job duties while participating, they were “off duty” as that term is defined in DOL regulations.

This Opinion Letter is helpful assurance for employers who are considering implementation of wellness programs.  If employee participation is strictly voluntary and no work is performed during the course of participating, the time will likely be deemed non-compensable under the FLSA.  However, as many employers have learned, it can be difficult to generate strong employee participation in wellness programs.  Although paying employees for their participation may not be required by the FLSA, some employers choose to do so as an incentive for participation.

If you have any questions regarding wellness programs or the Fair Labor Standards Act, please contact any member of our Labor and Employment Practice Group.

On June 6, 2018, Governor Wolf signed Executive Order 2018-18-03, which is designed to combat the gender pay gap in Pennsylvania. The Executive Order directs all state agencies under the governor’s jurisdiction to:

  • no longer inquire about a job applicant’s current compensation or compensation history at any stage during the hiring process;
  • base salaries on job responsibilities, position pay range, and the applicant’s knowledge, skills, competencies, experience, compensation requests, or other bona fide factor other than sex, except where compensation is based on:
      • a collective bargaining agreement;
      • a seniority system;
      • a system of merit pay increases;
      • a system which measures earnings by quantity or quality of production, sales goals, and incentives
  • clearly identify the appropriate pay range on job postings.

The Executive Order does expressly state that applicants are not prohibited from volunteering information about their current compensation level or salary history in negotiating a salary. However, no agency can request that an applicant disclose current salary or salary history information.

So why the need for the Executive Order? Some argue that by asking an applicant to reveal their current salary or salary history, employers are perpetuating pay inequality between men and women. The reasoning is that because women have been paid less than men historically, asking applicants their salary history and then basing salary determinations on prior pay information further continues the cycle of pay inequality.

While the Executive Order is only applicable to Commonwealth agencies under the Governor’s jurisdiction, it may signal a push to address the gender pay gap throughout Pennsylvania.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice if you have any questions regarding this article.

With increasing frequency, when employees sue their employer or former employer, they also name individual managers or the company’s owners as defendants in their suit.  Under federal EEO laws (e.g. Title VII, ADA, ADEA), individuals generally cannot be held liable for acts of discrimination.  However, employment laws such as the FMLA, FLSA and the Pennsylvania Human Relations Act do allow for individual liability under some circumstances.  In Abdellmassih v. Mitra OSR (February 28, 2018), the U.S. District Court for the Eastern District of Pennsylvania addressed whether individuals may be held liable under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for failing to issue required COBRA notices.

Mr. Abdellmassih was terminated from his position at a KFC restaurant and sued his employer under a variety of laws.  He named the co-owners of the company as individual defendants with respect to his claims under several laws, including COBRA.  The basis for his COBRA claim was that he was allegedly never issued a COBRA notice after he lost his health coverage due to the termination of his employment.

COBRA provides that a plan administrator who fails to comply with COBRA’s notice requirements may, at a court’s discretion, be held personally liable for up to $100 per day that the required notice is not provided.  Mr. Abdelmassih argued that his former employer’s co-owners served as the health plan’s administrators and, therefore, should be individually liable for the plan’s failure to issue required COBRA notices.  However, upon reviewing the company’s health insurance brochure, the court noted that the owners were not named anywhere in the document – as plan administrators or otherwise.  Indeed, the brochure merely directed employees to contact a human resources representative if they had questions regarding their COBRA rights.  Since the co-owners were not named in the document, the court found there was no basis to impose individual liability upon them under COBRA.  However, Mr. Abdelmassih’s COBRA claim against the corporate entity remained intact.

The lesson of the Abdelmassih case is simple.  When identifying the “plan administrator” in a plan document or summary plan description, avoid naming individuals.  A general reference to the employer (or third party administrator firm) – or the department with responsibility for plan administration (e.g. human resources) –  is the best way to avoid individual liability situations under COBRA.  A quick check of your company’s plan language on this point may save you (or someone in your company) from significant liability!

An ever-increasing number of employers are sponsoring wellness incentives as a means of encouraging employees to developing healthy habits. In turn, employers gain healthier, more productive work forces.  Wellness incentive programs aren’t without their risks, however.  In this podcast, Denise Elliott discusses whether employees are covered by workers’ compensation benefits for injuries sustained while participating in an employer-sponsored wellness program.

The federal Fair Labor Standards Act (FLSA) establishes requirements for minimum wages and overtime pay.  The FLSA’s requirements can be complex, and employers can face significant liability for unpaid wages and liquidated damages by failing to ensure compliance with its myriad requirements.

The FLSA contains a somewhat unique quirk regarding its statute of limitations.  The statute of limitations for FLSA violations is two years.  However, if the plaintiff(s) can show that the violation was willful, the statute of limitations is extended to three years.  In other words, employers who commit willful violations face a potential additional year of damages (if the unpaid wages date back at least three years before the filing of the lawsuit).

In an FLSA case filed against Lackawanna County, the Third Circuit recently clarified what constitutes a willful violation to trigger the third year of liability under the FLSA.  In Souryavong v. Lackawanna County , the County failed to aggregate the hours worked by part-time employees who worked multiple jobs for the County.  For overtime pay purposes, all hours worked by a non-exempt employee for an employer must be recorded and counted.  If the total hours worked in any workweek exceeds 40, the employee is entitled to overtime pay, regardless of whether the hours were worked in one or multiple positions for the same employer.

Thus, it was undisputed that the County violated the FLSA by failing to aggregate weekly the hours worked for these part-time employees.  It also was undisputed that the County was liable for unpaid overtime pay and liquidated damages dating back two years from the date the lawsuit was filed.  What was in dispute was whether the County’s violation was willful, which would trigger a third year of damages.

The plaintiffs claimed that the violation was willful and pointed to testimony by the County’s chief financial officer and HR director that the County had been generally aware of its FLSA obligations since 2007.  The plaintiffs also identified an e-mail from the HR director to two other County officials regarding “wage and hour issues.”

The Third Circuit rejected the plaintiff’s willfulness argument.  Specifically, the Third Circuit found that the evidence did not establish that the County was aware of the specific overtime pay issue (i.e., aggregating hours worked by part-time employees who worked multiple jobs for the County) before or at the time that the FLSA violations occurred.  General awareness of the FLSA’s existence and its general requirements is not enough to prove a willful (i.e., intentional) violation of one of its specific requirements.

There are two important takeaways from the Third Circuit’s Souryavong decision:

  • To prove a willful FLSA violation and get that third year of potential damages, employees will need to prove that the employer actually knew of the specific FLSA requirement at issue at the time of the violation and intentionally did not comply with it. General FLSA awareness is not sufficient to prove a willful violation of a specific requirements.
  • Employers should keep this decision in perspective and understand what it means and what it does not.  Even with the Third Circuit’s favorable decision, the County still was liable for two years of unpaid wages for multiple employees, an equal amount in liquidated damages, an additional $56,000 for the plaintiffs’ attorneys’ fees, and an additional undisclosed amount for its own attorneys’ fees.  FLSA violations present significant potential liability for employers, and it is in every employer’s interest to audit its pay practices and ensure compliance before a lawsuit is filed or a Department of Labor investigation begins.  While this decision confirms that it can be hard to establish a willful violation, employees need to prove only a violation of the FLSA (regardless of whether the violation was intentional) to get two years of damages plus their attorneys’ fees paid by the employer.

In a closely watched case for employers, the Third Circuit Court of Appeals, which has jurisdiction in Pennsylvania, New Jersey, Delaware and the U.S. Virgin Islands, recently held that retiree healthcare benefits provided in a collective bargaining agreement (“CBA”) may be subject to modification following the expiration of the CBA.

Grove v. Johnson Controls, Inc. was a class action suit brought on behalf of a group of retirees, who were all former bargaining unit members.  Generally, the retirees alleged that they were entitled to healthcare benefits “for life” pursuant to the terms of the CBAs in place at the time of retirement.  When the employer placed a cap of $50,000 on the amount of benefits to be paid to the retirees, they brought suit.  The retirees argued that their entitlement to healthcare benefits had vested, and that the employer’s decision to cap their benefits was a violation of the Labor Management Relations Act and/or the Employee Retirement Income Security Act.

The appellate court affirmed the lower court’s decision and rejected these arguments.  The court held that the employer was not required to provide retirees healthcare benefits for life, and instead was only required to provide those benefits for the duration of the relevant CBA.  Essentially the court held that when the CBA expired, so did the employer’s obligation to continue to provide retiree healthcare benefits.  In reaching its decision, the court applied ordinary principles of contract interpretation, and noted that those principles provide that all contractual obligations cease upon the expiration of the CBA.

The court’s holding does leave open the possibility that other retirees could establish a vested entitlement to lifetime retiree healthcare benefits if the CBA language supported such a right.

As noted, this is an important decision for employers.  Many employers face significant legacy costs related to retiree healthcare, pension benefits and other post-employment benefits.  In light of Grove, many employers may begin to evaluate their post-employment benefit obligations.  However, these employers must carefully evaluate any such contractual obligations, because as Grove makes clear, whether retiree healthcare benefits are vested for life will be determined on a case-by-case basis with reference to the specific CBA language.

The Secretary of Labor, John Acosta, announced recently that no further delays will apply to the Department of Labor’s new Fiduciary Rule on investment advice conflicts of interest and related prohibited transaction exemptions.  The effective date of the Rule is June 9, 2017, with an enforcement date of January 1, 2018.  The final Fiduciary Rule significantly expands the circumstances in which broker-dealers, investment advisers, insurance agents, plan consultants and other intermediaries are treated as fiduciaries to ERISA plans and individual retirement accounts (IRAs).  When treated as fiduciaries, these individuals are precluded from receiving compensation that varies with the investment choices made or from recommending proprietary investment products, absent an applicable exemption.

Generally, the Fiduciary Rule provides that individuals providing fiduciary investment advice may not receive payments that pose a conflict of interest, unless a prohibited transaction exemption (PTE) applies.  The Rule recognizes several new PTEs, including

1)  “Best Interest Contract Exemption” (BIC Exemption):  Under the BIC Exemption, an advisor and firm may receive commissions and revenue sharing so long as the adviser and firm enters into a contract with its clients that:

  • Commits the firm and adviser to providing advice in the client’s best interest.
  • Warrants that the firm has adopted policies and procedures designed to mitigate conflicts of interest.
  • Clearly and prominently discloses any conflicts of interest that may prevent the adviser from providing advice in the client’s best interests.

2)  Principal Transactions Exemption:  Under this new PTE, an adviser may recommend fixed income securities and sell them from the adviser’s own inventory as long as the adviser adheres to the exemption’s consumer-protection conditions ensuring adherence to fiduciary norms and basic standards of fair dealing.

Financial institutions are advised to adopt policies and procedures ensuring that advisers comply with the Rule’s impartial conduct standards. However, during the transition period (until January 1, 2018), there is no requirement to give investors any warranty of their adoption, and those standards will not necessarily be violated if certain conflicts of interest exist.  Sponsors of ERISA-governed plans, as plan fiduciaries, are advised to clearly identify circumstances where their plan’s record keepers and advisors are acting as fiduciaries, and which services or actions are permitted under the rule’s carve-outs.

Finally, while we recommend complying with the Fiduciary Rule as soon as possible following the June 9th effective date, we note that there exists some uncertainty with the Fiduciary Rule as the DOL (i) continues to evaluate public comments, and (ii) under direction of the Trump Administration, is charged with reexamining the Fiduciary Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.