Compliance January 11, 2016

PBGC Issues Final Rule for Multiemployer Plan Partitions

The final rule includes minor changes to an interim final rule issued last year in response to public comments.
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On June 19, 2015, the Pension Benefit Guaranty Corporation (PBGC) published an interim final rule to implement the application process and notice requirements for partitions of eligible multiemployer plans under Title IV of the Employee Retirement Income Security Act (ERISA), as amended by the Multiemployer Pension Reform Act (MPRA).

The agency has published a final rule with minor changes to the interim final regulation in response to public comments received. The minor revisions are with respect to information requirements, the time period for PBGC’s initial review of an application for partition, and the coordinated application process for partition and benefit suspension.

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The legislation enables PBGC to expand its efforts to help prevent the insolvency of financially troubled multiemployer pension plans. Under the rule, troubled plans may apply to PBGC for financial assistance to fund a portion of their benefit liabilities in order to remain solvent.

The agency’s partition authority previously was limited to situations involving bankruptcy by some of a plan’s contributing employers. Partitions required benefits to be reduced to PBGC guarantee levels. Under the new rule, plans that are projected to run out of money within 20 years may be able to ask PBGC to approve a partition.

Before PBGC can provide help to a plan, the law requires that the plan must have taken all reasonable measures to remain solvent. Those measures include making certain benefit reductions to ward off larger benefit reductions in the future.

The amendments in the final rule will apply to applications for partition submitted to PBGC on or after January 22, 2016.

Based on a review of financial resources available for partition, PBGC says it expects that fewer than 20 plans would be approved for partition over the next three years (about six plans per year), and that the total financial assistance PBGC will provide to those plans will be less than $60 million per year.

Compliance January 11, 2016

Court Sides with Plan Sponsor in Wellness Program Challenge

Flambeau, Inc.’s requirement that employees participate in a wellness program to participate in its health plan is covered by an ADA safe harbor, a district court found.
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Although the Americans with Disabilities Act (ADA) generally prohibits employers from requiring their employees to submit to medical examinations, Flambeau, Inc.’s requirement that employees complete a health risk assessment and biometric test falls within the ADA’s “safe harbor,” which provides an exemption for activities related to the administration of a bona fide insurance benefit plan, a district court judge found.

Beginning in 2012, Flambeau required employees to complete the assessment and test only if they wanted to participate in the company’s insurance plan. U.S. District Judge Barbara B. Crabb of the U.S. District Court for the Western District of Wisconsin agreed with Flambeau’s argument that when viewed from this perspective, the assessment and testing were entirely voluntary and therefore not prohibited by the ADA.

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According to the court opinion, the information gathered through the wellness program was used to identify the health risks and medical conditions common among the plan’s enrollees. Except for information regarding tobacco use, the health risks and medical conditions identified were reported to Flambeau in the aggregate, so that it did not know any participant’s individual results, indicating that it was not using the wellness program to discriminate against any employees. Flambeau said it used this information to estimate the cost of providing insurance, set participants’ premiums, evaluate the need for stop-loss insurance, adjust the co-pays for preventive exams and adjust the co-pays for certain prescription drugs.

NEXT: Wellness program requirement was a ‘term’ of the health plan

In satisfaction of the ADA safe harbor conditions, Flambeau said the wellness program requirement constituted a “term” of its health insurance plan and that this term was included in the plan for the purpose of underwriting, classifying and administering health insurance risks. 

Crabb agreed, finding that Flambeau distributed handouts to its employees informing them of the wellness program requirement and also scheduled the wellness program’s health risk assessments and biometric testing so that they would coincide with the plan’s open enrollment period. Also, the plan’s summary plan description explained that participants would be required to enroll “in the manner and form prescribed by [Flambeau],” which put employees on notice that there might be additional enrollment requirements not spelled out in the summary plan description. 

In her opinion, Crabb used reasoning found in the 11th U.S. Circuit Court of Appeals decision in Seff v. Broward County. The court in that case found: “The parties do not cite, nor are we independently aware of, any authority suggesting that an employee wellness program must be explicitly identified in a benefit plan’s written documents to qualify as a ‘term’ of the benefit plan within the meaning of the ADA’s safe harbor provision.” 

Crabb rejected the Equal Employment Opportunity Commission’s (EEOC) reliance on a statement in its proposed wellness program regulations. In those regulations, the EEOC says, “The Commission does not believe that the ADA’s ‘safe harbor’ provision applicable to insurance as interpreted by the court in Seff v. Broward County, is the proper basis for finding wellness program incentives permissible.” Crabb noted that the EEOC’s proposed regulation speaks only to the safe harbor’s application to “wellness program incentives.” It says nothing about the safe harbor’s applicability to medical examinations that are part of a wellness program and are used to administer and underwrite insurance risks associated with an employer’s health plan. 

The decision in Equal Employment Opportunity Commission v. Flambeau, Inc. is here.

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