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Monthly Benefits Update - June 2014


July 2, 2014

By Trevor Holmes

Monthly Benefits Update - June 2014 [pdf]

Supreme Court Decisions

Affordable Care Act’s Contraceptive Mandate Struck Down for Closely Held, For-Profit Employers

In Burwell v. Hobby Lobby, the Supreme Court held that regulations under the Affordable Care Act that require employer group health plans to provide contraceptive coverage violate the Religious Freedom Restoration Act (RFRA). The case came to the Court through a challenge to the requirement that employer group health plans provide certain preventive services, including contraception. RFRA generally provides that the government may not substantially burden a person’s right to exercise his or her religion. In the opinion, the Court reasoned that a “person” under RFRA includes closely held, for-profit corporations. Accordingly, the decision means that a privately held company no longer needs to provide contraceptive coverage as part of its group health plan in order to comply with the ACA’s preventive services coverage mandate, provided that the employer’s owner(s) have a religious objection to offering contraceptive coverage under the plan.

The Hobby Lobby decision has broad implications for both for-profit and religious non-profit employers (such as religiously affiliated higher education institutions, hospital systems, and charities). A more detailed summary of the Hobby Lobby decision and its implications will be included in Franczek Radelet’s annual Supreme Court Review to be published in late July. 

Presumption of Prudence in Employer Stock Fund Claims No Longer Valid

Fiduciaries of employer stock funds offered under 401(k) and employee stock ownership plans (ESOPs) will no longer be able to rely on the long-standing “presumption of prudence” after the Supreme Court’s ruling in Fifth Third Bancorp v. Dudenhoeffer. Before Dudenhoeffer, a number of Circuit Courts of Appeals applied an employer-friendly presumption when evaluating participant claims that plan fiduciaries were imprudent and therefore breached their fiduciary duties under ERISA by failing to remove the employer stock fund from the plan’s investment options (or take other actions to protect plan participants) in light of a drop in the value of the company’s stock. Under this presumption, fiduciaries only had a duty to act with respect to the employer stock fund if they had information that the company was facing imminent collapse. Although the Supreme Court’s decision in Dudenhoeffer eliminates the presumption of prudence, the decision will still require participants to demonstrate at the motion to dismiss stage that plan fiduciaries acted imprudently. Thankfully for employers and plan fiduciaries, the Supreme Court made it clear that participants cannot assert that fiduciaries should have acted on public information when the employer’s stock is publicly traded. The Court also clarified that plan fiduciaries of publicly traded employer stock funds are not required to take action when in possession of inside information. 

A more detailed summary of the Dudenhoeffer decision and its implications for employers and plan sponsors will be included in Franczek Radelet’s forthcoming annual Supreme Court Review.

Affordable Care Act 

Final Regulations Issued on Affordable Care Act Orientation Periods

Under the Affordable Care Act, employers sponsoring group health plans may impose up to a 90-day waiting period for health coverage to otherwise eligible employees. Under a final rule that was issued by the IRS, the Department of Labor, and the Department of Health & Human Services, employers may also add an additional “orientation period” of up to one month before the 90-day waiting period begins. The final rule provides relief from the strict 90-day waiting period limitation, and should prove helpful to employers and plan sponsors that were struggling to implement a 90-day waiting period.

The orientation period provided for in the final rule is designed to give employers an additional period of time to determine whether the employee is right for the job and to initiate training and orientation activities. Other than limiting orientation periods to one month, the final rule does not specifically require employers to use the orientation period for any particular purpose. The final rule also contains specific guidance on how to determine the length of a particular orientation period, which is tied to the calendar month rather than a specific number of days. To determine when an orientation period starts, employers are required to add one calendar month and subtract one calendar day starting at the employee’s date of hire. As a simple example, for an employee who starts work on January 4th, the last day of the orientation period would be February 3rd.

Final Regulations Issued on Affordable Care Act Small Business Tax Credit

Under Code Section 45R, certain small employers may be eligible for a tax credit toward the purchase of health coverage on an exchange for their employees. The Treasury Department has issued final regulations that set forth the conditions under which an employer may be eligible for this credit. Specifically, employers that have no more than 25 full-time employees whose annual average wages are no more than $50,000 (adjusted for inflation) are entitled to the tax credit. The tax credit may be up to 50% of the cost of premium payments for employee coverage purchased through a Small Business Health Options (SHOP) exchange depending on how large the employer is and how much its workers are paid. Tax-exempt employers are entitled to a similar credit of up to 35% of the cost of premium payments for similar costs of employee health coverage.

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