AARP Sues for Injunction of EEOC Wellness Program Rules

Among other things, the lawsuit says the Equal Employment Opportunity Commission failed to adequately justify its reversal of position and ignored comments on the proposed rules that expressed concern.

The AARP has filed a lawsuit alleging that the Equal Employment Opportunity Commission’s (EEOC)’s final wellness program rules under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) are arbitrary, capricious, an abuse of discretion, and not in accordance with law. The AARP is asking that the rules be invalidated.

The AARP starts its complaint by saying that the EEOC rightly argued in 2014 in a lawsuit against Honeywell International that because an employer imposed heavy penalties on employees through a coercive wellness program, employees stood to “lose the fundamental privilege under the ADA and GINA to keep private information private.” Yet, the complaint says, in 2016, the EEOC issued regulations under the ADA and GINA that allow employers to impose heavy financial penalties on employees who do not participate in employee wellness programs. On average, these penalties would double or even triple those employees’ individual health insurance costs, the AARP claims.

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The lawsuit notes that ADA and GINA generally prohibit employer requests for employees’ (and dependents’) medical data—including virtually all queries likely to reveal disability-related or genetic information—because of Congress’ conclusion that such revelations lead to employment discrimination. Improper employer questions themselves constitute illegal discrimination under both statutes and, while the ADA and GINA include narrow exceptions for medical inquiries in the context of wellness programs, each law requires participation in such programs’ collection of medical or genetic data to be strictly “voluntary.”

“For fifteen years, consistent with Congress’ intent, the EEOC maintained that employee wellness programs implicating confidential medical information are voluntary only if employers neither require participation nor penalize employees who choose to keep their medical and genetic information private,” the AARP says in the complaint.

NEXT: A reversal of the EEOC’s position

The lawsuit claims the 2016 final rules depart starkly from the EEOC’s longstanding position. Under the 2016 ADA rule, employers may penalize employees by up to 30% of the full cost of individual health insurance premiums (both employee and employer contributions), if they invoke their right to keep medical information confidential. Under the 2016 GINA rule, employers may charge an additional 30% penalty—for a total, under both rules, of up to 60% of the full cost of individual health insurance premiums—where an employee keeps a spouse’s medical information confidential.

Garrett A. Fenton, member at Miller & Chevalier in Washington, D.C., says, “While the ADA and GINA regulations' 30% limits on permissible wellness incentives are not specifically written to be cumulative, it is possible, under certain facts, for an employer to offer separate incentives of up to 30% of the cost of coverage, effectively amounting to a total of 60%. In theory, an employer could provide for up to a 30% wellness incentive in connection with a disability-related inquiry or medical examination of an employee (e.g., a blood draw and comprehensive health risk assessment), and separately provide for up to an additional up-to-30% wellness incentive in connection with a health questionnaire that solicits information about a spouse's current or prior diseases or disorders. This seems to be the scenario that the AARP had in mind in referring to the potential for an employer to offer incentives (or penalties) amounting to up to 60% of the cost of coverage.”

He adds, “It is important to keep in mind that the ACA/HIPAA regulations on wellness programs could operate to limit the aggregate incentives to 30% (or, for programs involving tobacco use, 50%) of the total cost of coverage for any eligible employees and dependents, if and to the extent that the wellness incentives are offered under a group health plan, and are of the "health-contingent" variety. Granted, a mere health questionnaire that solicits current or prior health information from an employee's spouse, for example, is not likely to be considered a health-contingent wellness program under those rules.”

The AARP says the EEOC failed to adequately justify its reversal of position and ignored comments on the proposed rules that expressed concern. The AARP’s comments described the particularly heavy toll that the penalties/incentives would take on older workers, who are more likely to have the less-visible disabilities—or conditions likely to be perceived as disabilities—and medical histories that are at risk of exposure to discrimination through non-job-related medical inquiries and exams.

The AARP, on behalf of its aggrieved members, filed the lawsuit against the EEOC for declaratory judgment and permanent injunctive relief under the Administrative Procedure Act.

It contended that many of its members would have standing to sue in their own right because they will be adversely affected by the rules. However, the interests that AARP seeks to protect on behalf of its members are germane to AARP’s purposes: addressing the needs and representing the interests of people age fifty and older and fighting to protect older people’s financial security, health, well-being, and civil rights, including protections from discrimination in employment.

It argued that neither the claims asserted nor the relief requested requires individual AARP members to participate in the lawsuit.

The complaint may be viewed here.

Addressing the Most Serious DC Plan Leakage Problem

Providers, industry groups and regulators agree efforts are needed to reduce defined contribution retirement plan cashouts.

Addressing the issue of defined contribution (DC) retirement plan leakage has been a task on which players in the retirement industry have been working for years.

There are already strict requirements for when a DC plan participant can take a hardship withdrawal. It has been recommended that DC plan sponsors limit the number of loans participants can take or limit the accounts from which they can take loans. It has also been noted that there is nothing in the law that says participants must pay loans in full upon termination of employment, but the problem with allowing ex-participants to continue to make repayments may be with the recordkeeper

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However, hardship withdrawals and participant loans are not the biggest leakage problem DC plans have. “Without a doubt, cashouts are biggest portion of retirement plan leakage,” says Employee Benefit Research Institute (EBRI) Research Director Jack VanDerhei, based in Washington, D.C. An analysis conducted by VanDerhei for EBRI in 2014 found approximately two-thirds of the leakage impact is associated with cashouts that sometimes occur at job change.

A demonstration provided by Retirement Clearinghouse shows that in just more than 30 years, total cashouts could reach $282 billion, and rollovers to other qualified plans would be only $14.7 billion among 8.4 million participants. Its analysis did not include appreciation, so these amounts would be larger if average returns were included. Retirement Clearinghouse has introduced an innovation that it hopes could change these numbers.

NEXT: Introducing auto-portability

Currently, under the Employee Retirement Income Security Act (ERISA), DC plan sponsors are allowed to automatically force out participant account balances less than $5,000. For amounts between $1,000 and $5,000, the amounts must be placed in a safe harbor individual retirement account (IRA).

Spencer Williams, president and CEO of Retirement Clearinghouse, explains that its automatic portability solution would use the demographic data from that rollover, send it to recordkeepers to see if there is a match in their system and if one is found, automatically rollover the employee’s IRA account to his new plan.

Retirement Clearinghouse’s demonstration shows that in just more than 30 years, under auto-portability, cashouts would be reduced to $144.3 billion, and rollovers would be $133.5 billion among 77.5 million participants.

VanDerhei says until there is legislation to address cashouts, automatic roll-ins are the best way of trying to do something that will use employees’ inertia for their own good. “If we can link those relatively small amounts from the past employer to the future employer, we’ve seen over and over the size of the account balance increases,” he tells PLANSPONSOR. “And if we can get employees’ balances up to a sweet spot for a particular age, they will see their balances as significant enough to not take out of the plan.” Williams says that sweet spot starts at $10,000 and goes up to $20,000.

“The probability of cashing out drops from 90% to 30% when a participant’s account goes over $20,000,” Williams tells PLANSPONSOR. He notes that auto-portability can help participant accounts get to $20,000 much sooner, and it also makes rollovers easier for participants.”

NEXT: Regulations, legislation and employee education

VanDerhei says he has no knowledge of anyone trying to address the cashout problem legislatively. This past summer, the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings issued a report recommending that to prevent leakage from retirement plans, policymakers must ease the process for transferring savings from plan to plan. But, VanDerhei says just because the Bipartisan Policy Center made proposals for addressing the DC retirement system’s problems doesn’t mean anyone will try to issue a legislative package for all or any of its suggestions.

The Internal Revenue Service (IRS), however, has made attempts to make the plan-to-plan rollover process easier: by introducing an easy way for a receiving plan to confirm the sending plan’s tax-qualified status; issuing new guidance for allocating pre-tax and after-tax amounts among distributions that are made to multiple destinations from a qualified plan; and introducing a new self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan.

VanDerhei says employees do get frustrated with what they have to do to rollover their assets to a new plan, so making that easier is key.

However, he also notes that with the new financial wellness interest among employers, information directed at a DC plan participant at the point of termination of employment could have an impact. “If they realize what [cashing out] will cost them in the long run and how it will affect their total retirement savings, it could modify the behavior of some participants,” VanDerhei says. He adds, however, that there are some people, no matter what the plan sponsor does or says, who need the money and will cash out.

“In any case, automatic provisions trump anything plan sponsors can do with education,” VanDerhei concludes. “It will still allow employees access to their cash if they need it, but the default will be best for them in the long run.”

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