DOL Issues Final “Joint Employer” Rule

The U.S. Department of Labor (“DOL”) has published a final rule, which takes effect on March 16, 2020, outlining the new four-factor approach DOL will use to determine whether, under the Fair Labor Standards Act (“FLSA”), a business is a “joint employer” of another company’s employees and thus jointly and severally liable for wage and hour obligations.  The new rule comes as good news for employers because it establishes a concrete and narrow standard for determining joint employer status and is expected to provide clearer guidance to federal courts making joint employer determinations.

The final rule represents the first time in 60 years that DOL has issued a joint employer rule, although over the decades it has issued guidance both expanding and contracting the scope of the definition and potential liability.  Furthermore, the rule is consistent with a series of actions that DOL, under the Trump administration, has taken to rescind the previously broader definition of “joint employer” under the Obama administration (including its June 7, 2017 withdrawal of employee-friendly Administrator’s Interpretation guidance documents from 2015 and 2016).

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2019 Required Amendments List Includes Change Affecting 403(b) Plans

We recently wrote about Rev. Proc. 2019-39, which provides for remedial amendment periods for 403(b) plans and establishes deadlines for 403(b) plans to adopt discretionary amendments and amendments that correct form defects.  Rev. Proc. 2019-39 also announced the IRS’s intent to include changes to § 403(b) requirements on its annual Required Amendments List (the “List”).  The List is issued annually and includes statutory and regulatory changes that become effective during the year in which it is published, or which became effective after publication of the previous year’s List.

The Service has kept its promise, issuing IRS Notice 2019-64 on December 4, 2019.  Notice 2019-64 contains the 2019 Required Amendments List, which applies to 403(b) plans as well as qualified plans, and is the first Required Amendments List to include changes to § 403(b) requirements.  Only one change affecting 403(b) plans (as well as qualified defined contribution plans) is included on the 2019 List: sponsors must amend 403(b) plan documents to comply with two of the provisions of the final hardship distribution regulations.  (The List also covers certain amendments to cash balance and other hybrid defined benefit plans.)

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IRS Proposes Sweeping § 162(m) Regulations

Earlier this week, the IRS issued long-awaited proposed regulations under Section 162(m) of the Internal Revenue Code.  Our colleagues at Covington’s Tax Reporting & Withholding Blog published a comprehensive summary and analysis of the proposed regulations.  As you will see, the proposed regulations fell short of proposing workable solutions for public companies wrestling with the changes brought about by the Tax Cuts and Jobs Act, and would pull in new categories of companies that were not previously subject to the Section 162(m) limitation on deductible executive compensation.  Please visit the Tax Reporting & Withholding Blog for more information.

DOL Proposal for Electronic Disclosure of ERISA Pension Documents

In October, the U.S. Department of Labor released a proposed rule that would increase plan administrators’ ability to make certain required ERISA pension disclosures through electronic, rather than paper, delivery.  Below is a summary of the proposed rule with some highlights on aspects of the proposal that have been questioned by interested parties and might be changed.

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Group Health Plans Face Automatic Public Disclosure of Negotiated Rates and Plan Payments

The Departments of Health and Human Services, Labor and Treasury released a new “Transparency in Coverage” proposed rule that requires most group health plans and issuers to publicly disclose negotiated rates with in-network providers and historical data showing amounts paid for covered items or services furnished by out-of-network providers.  In addition, group health plans and issuers would be required to create a self-service website through which participants could obtain estimates of out-of-pocket costs for covered items or services.  The proposed rule implements provisions of the Affordable Care Act and is intended to help consumers shop for medical services from lower-cost, higher-value providers.

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Will Your Group Health Plan’s Anti-Assignment Clause Defeat Provider Claims?

Many lawsuits against employer group health plans hinge on the enforceability of the plan’s anti-assignment provision. ERISA does not give providers the right to sue for plan benefits. A provider’s lawsuit must be derived from the participant’s right to plan benefits. In other words, the participant must assign his or her right to the provider. Even with such an assignment, a provider will lack standing to bring a lawsuit if the ERISA plan has a valid and enforceable anti-assignment clause. (ERISA itself generally prohibits assignment of retirement plan benefits, but the ERISA prohibition on assignment does not apply to health and welfare plans.)

While courts have generally held that anti-assignment provisions are enforceable, states have begun weighing in on the side of providers in an attempt to keep these lawsuits alive. But can a state law invalidate anti-assignment clauses in plans subject to ERISA and mandate that benefits be assignable to a healthcare provider? The Fifth Circuit, in Dialysis Newco, Inc. v. Community Health Systems Group Health Plan, 938 F.3d 246 (5th Cir. 2019), recently invalidated a Tennessee law that sought to do just that.

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Final Regulations Affecting Hardship Distributions Under 401(k) Plans

On September 23, 2019, the Department of the Treasury and the Internal Revenue Service released final regulations amending the rules applicable to hardship distributions from 401(k) plans. The final regulations are substantially similar to the proposed regulations issued on November 14, 2018 (described in this previous blog post), such that plans that have been amended to comply with the proposed regulations will also satisfy the final regulations.

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IRS Issues Ruling on Uncashed Distribution Checks from Qualified Plans

On September 3, 2019, the IRS issued Revenue Ruling 2019-19, which discusses participants’ and beneficiaries’ inclusion of income and qualified retirement plans’ withholding and reporting obligations for uncashed distribution checks.  Although the Revenue Ruling describes only a qualified retirement plan under Code section 401(a), the same reasoning would most likely also apply to a Code section 403(b) plan.  Under the facts of this Revenue Ruling, a qualified retirement plan must make a distribution of $900 to a participant in 2019.  The participant receives the check from the plan but chooses not to cash it in 2019.  The IRS ruled that the participant’s failure to cash the check did not relieve her of the obligation to include the amount of the distribution in her gross income in 2019.  Similarly, the employer, as plan administrator, was obligated to withhold tax on the distribution that was required to be withheld under Code section 3405.  Finally, the employer was required to report the distribution amount on Form 1099‑R, and the participant’s failure to cash the distribution check did not affect this obligation.

These rulings are unsurprising based on existing law, particularly the doctrine of constructive receipt that is codified at Code section 451.  The IRS already ruled on a similar factual situation in Revenue Ruling 68-126, for example.  In that Revenue Ruling, a taxpayer could have received a retirement benefit check in one taxable year by appearing in person and claiming it but instead waited for the check to arrive in the mail in the following taxable year.  The IRS held that “the income is constructively received in the year preceding the year of actual receipt,” and that the retiree therefore had to include the amount of the check in income in the earlier year.  A rule that a participant could choose to delay inclusion in income of a distribution until a later year by simply failing to cash a distribution check in the year the plan issued it would also undermine the requirements to take required minimum distributions under Code section 401(a)(9).

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IRS Announces Remedial Amendment Periods and Deadlines for Correction of 403(b) Plan Form Defects

On September 30, 2019, the Internal Revenue Service issued Revenue Procedure 2019-39, which finalizes important changes to how sponsors and employers can ensure 403(b) plan compliance.  The guidance is a welcome update from the Service, which initiated a regular system of remedial amendment periods for 403(b) plans in 2013, with the first period ending on March 31, 2020.  Most significantly, Revenue Procedure 2019-39:

  • Makes permanent the system of remedial amendment periods, during which an employer may retroactively amend its 403(b) plan or adopt a pre-approved 403(b) plan to correct a “form defect” (e., a defect in the terms of the plan that causes the plan to fail a § 403(b) requirement);
  • Clarifies that a retroactive amendment to correct a form defect is only permitted where the plan has been operated in compliance with the § 403(b) requirement;
  • Establishes deadlines to adopt amendments that correct form defects as well as deadlines to adopt discretionary amendments (e., amendments that do not remedy a form defect);
  • Confirms that the Service will not review individually designed 403(b) plans through a determination letter process;
  • Sets out a cyclical system in which pre-approved 403(b) plan sponsors may seek Service approval of plans; and
  • Announces the Service’s intent to provide additional guidance related to 403(b) plans, including its intent to include changes to the § 403(b) requirements on its annual Required Amendments List and the Operational Compliance List.

The Service intends to issue additional guidance in the next several years to address the procedures announced in Revenue Procedure 2019-39.

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