San Francisco Healthcare Ordinance Stands
The United States Supreme Court has denied review of the Ninth Circuit decision upholding San Francisco’s employer mandated healthcare ordinance. In Golden Gate Restaurant Association v. City and County of San Francisco, the Ninth Circuit rejected the GGRA’s legal challenge to the ordinance and held that the ordinance was not preempted by ERISA. Our prior post on the case is here. With the Supreme Court’s denial of review of the Ninth Circuit decision, the GGRA is without further legal avenues to challenge the enforceability of the ordinance.
COBRA Subsidy Extended Again
One more time! The 65% government subsidy provided to individuals who lost group health coverage because of an involuntary termination has again been extended to May 31, 2010. Under the Continuing Extension Act of 2010, employees who lose group health coverage because of an involuntary termination through May 31, 2010 may be eligible for the COBRA subsidy. The maximum duration of the COBRA subsidy remains at 15 months. Employers will need to notify those individuals who are eligible for COBRA continuation coverage that they may be eligible for a COBRA subsidy. This notice must be given within a 60-day period beginning on the date of the involuntary termination of employment. Employers will also need to refund or credit premiums paid by qualifying individuals who already started to pay the full COBRA premium after March 31, 2010.
COBRA Subsidy Eligibility Extended Again
Here we go again. The 65% government subsidy provided to individuals who lost their jobs between September 1, 2008 and February 28, 2010 has again been extended to March 31, 2010. Under the Temporary Extension Act of 2010 employees who lose their jobs through March 31, 2010 may be eligible for the COBRA subsidy. The Act further provides that persons who experience a reduction in hours during the period from September 1, 2008 through March 31, 2010 may qualify for the subsidy. This change will require a new notice to those experiencing a reduction of hours. Stay tuned for safe harbor notices. Guidance is not yet out.
Safe Harbor Rule for Small Employer Remittances to 401(k)
One of the big audit issues raised by the U.S. Department of Labor (the "DOL") in audits of 401(k) plans has been how quickly an employer transfers amounts withheld from an employee's paychecks as an elective deferral to the plan's trustee. The DOL has regulations that require amounts withheld to be deposited with the trustee for the 401(k) plan as soon as is practical, but in no event later than 15 days. Many employers think this rule permits them fifteen 15 days. The DOL has a different opinion. On audit, the DOL usually examines an employer's deposit history and uses an average which often is as little as one or two business days. Remittances made outside the due date are treated as prohibited transactions (a loan from the plan to the employer) and are subject to a punitive sanction.
Now the good news. Recognizing that small employers (employers with less than 100 participants in their 401(k) plan) often have difficulty meeting the standard above, the DOL has officially confirmed a seven day safe harbor rule for small plans only. Effective immediately, as long as an employer has less than 100 participants, if amounts withheld as elective deferrals are deposited with the plan's trustee within seven days, the deposit will be deemed to be timely. No relief, however, for large employers. The "as soon as is practical" rule will continue to apply to employers with 100 or more participants in their 401(k) plans.
Congress Enacts Legislation Extending COBRA Subsidies and Eligibility Period
President Obama recently signed legislation enacted by Congress to extend the eligibility period for the COBRA subsidy by two months, to February 28, 2010. The legislation also extends the maximum period for receiving the subsidy to 15 months (the maximum was previously 9 months). The Department of Labor has issued a new fact sheet regarding COBRA subsidies, which is available here. Additional reference material is available on the Department of Labor website at www.dol.gov/cobra. Employers should review their employee notices and practices for compliance with the new legislation and extended eligibility and coverage periods.
When Conducting Layoffs Consider Potential Impact on 401(k) Plan
When laying off employees, do not forget to consider how that lay off might affect your 401(k) plan. Employees are always fully vested in their elective deferrals and rollovers, but matching contributions and profit sharing contributions are usually subject to vesting requirements. Upon termination of employment, terminated employees are typically paid only the vested portion of their employer sourced accounts, with the non-vested portion being forfeited.
When a qualified retirement plan terminates, all participants in the plan must be fully vested in all of their accounts in the plan. Likewise, when a qualified retirement plan has a “partial termination” all affected participants must become fully vested in all of their accounts in the plan.
What constitutes a partial termination is not clearly defined, but there are some guidelines. Partial terminations typically come in two ways, horizontal and vertical terminations. Vertical partial terminations usually involve the cessation of participation in a plan by a significant number of employees due to a corporate event such as lay-offs, plant closings, acquisitions or mergers. Horizontal partial terminations involve a reduction in benefits for a significant number of employees. For example, where an employer terminates its matching contribution for all employees at location A while the employer continues to match elective deferrals for all employees at location B, a horizontal partial termination might have occurred.
Whether a partial termination occurs will depend upon the facts and circumstances of each individual case. There are four primary factors the courts have considered. First, the courts consider the relative percentage of employees involved. Second, the courts consider whether there is a likelihood that the employer will derive a significant benefit from the action (many 401(k) plans provide that forfeitures are used to reduce future employer contributions). Third many courts consider whether it was external events or action by the employer that led to the cessation of coverage. Finally, many courts consider the potential of the cessation to benefit highly compensated employees.
Remember that failure to fully vest may be correctable under programs currently available to employers. These programs often provide amnesty and permit the plan sponsor to remedy actions already taken.
Same Sex Marriage - What Does It Mean for California Employers?
On May 15, 2008, the California Supreme Court held that same sex couples have a constitutional right to marry. California and Massachusetts are now the only states which recognize such marriages. The decision became effective on June 16, 2008, resulting in a wave of same sex marriages throughout the State. Despite the significant publicity surrounding both the Court's decision, and the onset of actual marriage ceremonies, the decision appears to extend, but not necessarily alter, the obligations of California employers to same sex couples. Since 2005, California law has required California employers to grant the same rights, privileges and benefits to registered domestic partners – which in most cases are same sex couples – as granted to married spouses. Now, in addition to granting those rights to registered domestic partners to the same extent as offered to traditionally married spouses, such benefits may also be required to be granted to same sex spouses.
Recognize, however, that any federally mandated right or benefit may not be granted to either same sex spouses or registered domestic partners. Federal law does not recognize such unions. Consequently, registered domestic partners, and now same sex spouses, are not entitled to COBRA, FMLA or any other federally provided right or benefit (there are over 1,100 rights/benefits provided to married couples, which under federal law, must be a man and woman). Recognize also that FMLA/CFRA may not run concurrently in situations involving same sex spouses or registered domestic partners, in addition to other differing treatment (state/federal income tax deductions, Section 125 benefit plans, etc.).
It appears a measure will be placed on California's November ballot seeking to amend the California Constitution to require marriages be between a man and a woman only, similar to federal law. If this passes, the effect on same sex marriages being entered now is unclear. However, the measure does not appear to have retroactive effect, and thus should not invalidate those marriages.
California employers should carefully review their benefit plans and policies to ensure registered domestic partners, and now same sex spouses, are being extended appropriate rights and benefits.California Legislature Considers Statewide Paid Sick Leave Bill
Posted by Connor J. Moyle
San Francisco Assemblywoman Fiona Ma recently introduced a bill that, if passed, would make California the first state in the nation to force employers to provide sick leave benefits to their employees.
Under Assembly Bill 2716 (“AB 2716”) (which is modeled after the San Francisco Paid Sick Leave Ordinance that has been discussed in numerous entries on our blog), any employee who works in California for 7 or more days in a calendar year – even those not necessarily based in California – would be entitled to paid sick time. Employees would accrue sick leave at a rate of at least one hour for every thirty hours worked, and would be eligible to use accrued sick time beginning on their 90th calendar day of employment. Small business employers (defined as those with 10 or fewer employees during at least 20 calendar weeks of the current or preceding year) could limit an employee’s use of paid sick time to 40 hours or 5 days in each calendar year. All other employers would be allowed to cap usage at 72 hours or nine days per year.
AB 2716 also contains provisions prohibiting retaliation against employees for requesting and/or using paid sick leave. Much like the San Francisco law, the new bill imposes posting, notice, and recordkeeping requirements on employers. Note that under AB 2716, employees may use their paid sick time for the diagnosis, care or treatment of health conditions of the employee or an employee's family member, or for leave related to domestic violence or sexual assault. Unused sick leave may be carried over from year to year.
If passed, this bill would be extremely harmful to California employers, placing yet another burden on them that does not exist in the majority of other states, which is likely to help accelerate the exodus of California employers that have the ability to move to more business-friendly states. The timing of this bill is particularly puzzling as many California employers, particularly small employers, are struggling to survive in today's difficult economic market. Because this bill was only recently introduced, it is difficult to determine if it will pass through the Legislature, and whether its form and requirements will change along the way. Please contact us directly if you have any questions regarding AB 2716 and its potential impact on your business. We also urge you to make your lobbyists aware of this legislation so that your views can be heard.
Update: San Francisco Health Care Security Ordinance Reporting Requirements
Posted by Nancy G. Berner
San Francisco’s Health Care Security Ordinance requires all covered employers (i.e., those with 20 or more employees) to submit an Annual Reporting Form of health care expenditures. Originally, the Office of Labor Standards Enforcement (“OLSE”) insisted that employers provide this information for 2007, even though the spending requirement was not in effect, so that the City could determine a “baseline” of employers’ health care expenses. However, the OLSE has now decided that filing an annual report for 2007 is voluntary.
In short, while the OLSE encourages employers to begin reporting their annual health care expenditures in 2007, employers may wait another year until they are required to do so. Please contact us directly to discuss any questions you may have relating to your obligations under the Ordinance.
U.S. Supreme Court Sides with San Francisco on Healthcare Security Ordinance
Posted by Nancy G. Berner
San Francisco employers were dealt another blow today with respect to the San Francisco Health Care Security Ordinance (the "Ordinance"). Specifically, earlier today Justice Anthony Kennedy of the United States Supreme Court denied the Golden Gate Restaurant Association’s petition, which – as was reported in a CDF blog entry earlier this week – asked the Court to prevent enforcement of the Ordinance's employer spending requirement until the Ninth Circuit rules on the legality of that spending requirement.
In practical terms, this means that the employer spending requirement remains in place while the underlying appeal moves through the courts. The Ninth Circuit will hold an expedited hearing on the City's appeal on April 17th; employers' initial payments are due on April 30th.
Please contact us directly to discuss any questions you may have relating to your obligations under the Ordinance.
From the Golden Gate to the Supreme Court
Posted by Nancy G. Berner
On Friday, February 8, 2008, the Golden Gate Restaurant Association (“GGRA”) appealed to U.S. Supreme Court Justice Anthony Kennedy seeking, in essence, to stop enforcement of the portion of the San Francisco Health Care Security Ordinance mandating employer spending requirements for employee healthcare. The employer spending requirement was deemed unenforceable by the U. S. District Court in December 2007. The City of San Francisco appealed that decision; the following month, the Ninth Circuit stayed the lower court's ruling during the City’s appeal, meaning that employers must make the mandated payments while the dispute works its way through the appellate process.
It is this latest ruling – namely, that San Francisco employers make payments that may or may not eventually be found enforceable – that the GGRA seeks to overturn. Plainly put, the GGRA has asked the Supreme Court to stay the requirement that employers make required payments until the courts determine whether or not the mandate is legally viable. Justice Kennedy has the option of either acting alone on the GGRA’s petition, or referring it to his colleagues, and has requested a response from the City by 5:00 pm, Wednesday, February 20th.
For the immediate future, however, the law has not changed, and employers must make the mandated payments until and unless the Supreme Court says otherwise. Please contact us directly to discuss any questions you may have relating to this matter.
Emergency Stay Granted Regarding San Francisco's Health Care Ordinance
Posted by Nancy G. Berner
Yesterday the Ninth Circuit Court of Appeals issued an emergency stay permitting the City of San Francisco to implement the Employer Spending Requirement (“ESR”) provision of its Health Care Ordinance while it appeals the recent lower court ruling that found the ESR is preempted by federal law (click here to view the court's order). Although the City’s appeal is distinct from the stay, the court ruled that the City has a “strong likelihood of success” in prevailing on its appeal.
This emergency stay has an immediate impact on employers who employ 50 or more individuals total, with any of those persons working in San Francisco. Specifically, businesses with 50 to 99 employees that are not already spending a minimum of $1.17 per hour on employees who work 10 or more hours per week will now be required to do so; businesses with more than 99 employees that are not spending more than $1.76 per hour for employee healthcare must now spend that amount. Although the court did not articulate an effective date, its ruling in essence means that covered employers are required to immediately begin complying with the ESR.
We will continue to provide updates on this rapidly changing issue. In the interim, please contact us directly to discuss any questions you may have relating to this matter.
Employers Are Taking Steps to Reduce Costs Associated with Employee Benefits
No one disputes that the cost of providing employee benefits, particularly health care coverage, is costly for employers. Some companies are now getting creative in an attempt to stem the spiraling costs associated with these programs. As discussed in an article in BusinessWeek Online, many employers are conducting so-called "dependent eligibility audits," in which these companies demand proof from their employees that their spouses and children qualify for medical benefits. (Click here to review the article.) If employees are not able to demonstrate that their claimed-dependents are actually entitled to benefits, coverage for these dependents is terminated. Incredibly, audits are routinely finding that up to 15% of those claimed as dependents are not actually entitled to coverage.
Please contact us directly to discuss any questions you may have regarding dependent eligibility audits, as well as the benefits related to conducting one in your workplace.