Technology Company Counselor - Legal Issues Confronting Today's Technology Companies

By Gretchen Harders and Michelle Capezza

On May 8, 2013, the Employee Benefits Security Administration of the Department of Labor (the “DOL”) issued Technical Release 2013-02 (the “Release”) providing important guidance under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”) with regard to the requirement that employers provide notices to their employees of the existence of the Health Insurance Marketplace, generally referred to previously as the Exchange. These employee notices must be provided to existing employees no later than October 1, 2013. This deadline is intended to correspond to the open enrollment period for the Marketplace commencing October 1, 2013 for coverage through the Marketplace beginning January 1, 2014. The Release includes temporary guidance and two model employee notices of the Marketplace upon which employers may rely. The Release further provides an updated model election notice for group health plans for purposes of the continuation coverage provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) to include information of the health coverage options offered to individuals through the Marketplace for comparative purposes.

Employee Notice of the Marketplace. The Affordable Care Act amended the Fair Labor Standards Act (“FLSA”) to require employers to issue employees a notice of the health coverage options available under the Marketplace. The FLSA requirement was required to have been satisfied on or before March 1, 2013; however, given the regulatory delays in establishing and approving the Marketplace, the DOL extended the deadline. The guidance under this Release is temporary through the applicability date of October 1, 2013, but may be relied upon until future guidance and regulations are issued.

Which employers are required to comply with the notice requirements?

Whether or not required to “pay or play” under the Affordable Care Act, all employers subject to the FLSA must provide the employee notice. The FLSA generally applies to employers that employ one or more employees and are engaged in or produce goods for interstate commerce. The FLSA also covers, among other things, hospitals, schools, institutions of higher education and federal, state and local government agencies. To determine whether an employer is subject to the FLSA, the DOL provides an internet assistance tool at http://www.dol.gov/elaws/esa/flsa/scope/screen24.asp.

Which employees must receive the notice?

Employers must provide the employee notice to each employee whether or not the employee has part-time or full-time status. It does not matter whether the employee is enrolled or eligible to enroll in a group health plan. A separate notice is not required to dependents or other individuals who may become eligible for coverage under the plan, but are not employees.

What information must the notice provide?

The employee notice must contain the following information:

• The existence of the Marketplace;
• The contact information and description of services offered on the Marketplace;
• A statement that the individual may be eligible for a premium tax credit if the employee purchases a qualified plan on the Marketplace; and
• A statement that if the employee purchases a qualified plan on the Marketplace, the employee may lose the employer contribution to any health benefit plan offered by the employer and all or a portion of employer contributions may be excluded from federal income.

What are the DOL model notice(s)?

The DOL has provided two model employee notices available on its website, one for employers who do not offer a health plan and one for employers who offer a health plan to some or all employees. The Release provides that employers may use the model notice(s) provided the notice(s) include the information described above.

The model employee notice for employers who do not offer health coverage includes the information described above, as well as an explanation of the impact of the availability of employer health coverage on the employee’s eligibility for subsidies on the Marketplace. The model employee notice does not require the employer to provide specific contact information for the Marketplace in the state where the employee resides, but rather refers the employee to the http://www.healthcare.gov website for contact information for the Marketplace in the employee’s area. This model employee notice requires the employer to provide contact information for the employer, including the employer’s EIN. This is the information an employee will need to include in an application for a premium subsidy on a Marketplace.

The model employee notice for employers who do offer health coverage generally includes the same information as the model employee notice for employers who do not offer health coverage. This model employee notice does, however, require the employer to provide contact information to obtain more information about the employer’s health care coverage. The disclosure requires the employer to state whether the health care coverage is offered to all employees and, if not to all employees, a description of those employees eligible for health care coverage. It also requires the employer to state whether it offers dependent coverage and which dependents are eligible. Finally, the employer is required to disclose whether the health care coverage offered meets the minimum value standard and that the cost of coverage is intended to be affordable. The Department of Treasury and Internal Revenue Service recently issued proposed guidance to assist employees in assessing whether the coverage offered provides minimum value. See our prior blog post New Proposed Guidance for Determining Whether Employer-Sponsored Health Plan Provides Minimum Value.

The model employee notice includes optional information that an employer may provide to the employee based on the Marketplace Employer Coverage Tool to better understand their coverage choices, including whether the employee is eligible in the next three months for employer coverage, whether the employer offers a health plan that meets the minimum value standard, the premium for employee-only coverage under the lowest-cost plan that meets the minimum value standard if the employee received the maximum discount for any tobacco cessation program, and what changes the employer will make for the next plan year. Although this information is optional, it may be to an employer’s benefit to demonstrate, where appropriate, that its plan is providing minimum value and is affordable.

When must the employee notice be provided and what are the acceptable delivery methods?

Current employees before October 1, 2013 must be provided with the notice no later than October 1, 2013. Beginning October 1, 2013, the employer must provide each new employee the notice at the time of hire, which will be considered timely provided in 2014 if provided within 14 days of the employee’s start date.

The employee notice must be provided free of charge in writing in a manner calculated to be understood by the average employee. The employee notice may be provided by first class mail or electronically if in accordance with the DOL’s electronic disclosure safe harbor.

COBRA Model Notice. Under COBRA, an individual who was covered by a group health plan the day before a qualifying event occurred may be eligible to elect COBRA continuation coverage. These qualified beneficiaries must be provided with an election notice within 14 day after the plan administrator receives notice of a qualifying event. The COBRA election notice is required to include specific information.

The DOL updated its model COBRA election notice to provide information about the Marketplace for the purposes of informing qualified beneficiaries that they may also be eligible for a premium tax credit to pay for coverage offered through the Marketplace. It also includes clarification on the limit on pre-existing conditions exclusions beginning in 2014. Such information is not specifically required under the Affordable Care Act and should have no impact on whether an employer is subject to the employer responsibility penalties if in fact a former employee obtains coverage on the Marketplace.

The Release provides that the use of the model COBRA election notice completed appropriately will be considered good faith compliance with the COBRA election requirements. The model COBRA election notice does not provide a specific deadline or compliance date. Employers may wish to review their existing COBRA election notices for changes relating to the Affordable Care Act.

Employers have long been waiting for specific guidance from the DOL on the employee notice requirements. Now that it is here, compliance should be addressed well before the October 1, 2013 deadline.

by Joan A. Disler, Michelle Capezza, and Gretchen Harders

Now that the Supreme Court of the United States has upheld essentially all of the provisions of the Obama administration’s Affordable Care Act (“ACA”), employers are faced with looming deadlines to bring their group health plans into compliance with the ACA’s numerous new requirements. We have prepared for employers a timeline of the highlights of the upcoming deadlines for compliance with the ACA that apply to non-grandfathered group health plans.

Click here to access a copy of the timeline (PDF).

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act or JOBS Act.  In light of the sharp decline in the number of companies entering the U.S. capital markets through IPOs over the last ten years, Congress recognized a need for this legislation since small companies are critical to economic growth and job creation.  To promote growth and assist small companies in gaining access to capital, the JOBS Act amends the securities laws in several ways, which include the following:

(i)                  Establishes a new category of issuers known as “Emerging Growth Companies” (EGCs) which are issuers that have total annual gross revenues of less than $1 billion (after December 8, 2011).  EGCs  are exempt from certain regulatory requirements until the earliest of the date (a) five years from the date of their IPO, (b) they have $1 billion in annual gross revenue or (c) they become a large accelerated filer (i.e. a company with worldwide public float of $700 million or more);

(ii)                While EGCs must comply with SEC-mandated quarterly and annual disclosures, they would be exempt from Section 404(b) Sarbanes-Oxley requirements regarding auditor attestations of management’s assessment of its internal controls, for a transition period of up to 5 years.  EGC management would still need to establish and maintain internal controls over financial reporting and its CEO and CFO would still need to certify the company financial statements;

(iii)               Allows EGCs to provide audited financial statements for the two years prior to registration rather than three years.  Within a year of an IPO, the EGC would report three years’ worth of financial statements;

(iv)              Provides exceptions to rules on mandatory audit firm rotation;

(v)                Exempts EGCs from certain requirements under Dodd-Frank legislation such as the say on pay requirements and disclosure of median compensation ratios of all employees compared to the CEO.  EGCs would still comply with corporate governance and listing requirements including board member independence rules;

(vi)              Provides for more communications and information flow to investors and special provisions for providing draft registration statements for non-public review.  On April 10, 2012, the SEC Division of Corporate Finance issued FAQs addressing questions relating to the confidential submission of registration statements;

(vii)             Provides special exemptions in connection with solicitation and advertising to accredited investors;

(viii)           Establishes new thresholds for registration; and

(ix)              Sets forth special rules for a “Crowdfunding” exemption-Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure. This allows for aggregate sales to all investors up to $1 million using web-based platforms (up to the greater of $2000 or 5% of the annual income/net worth of such investor (with additional requirements)).

Start-ups and emerging growth companies should take the time to explore the JOBS Act and the related guidance being issued.  The new law may address a particular hurdle previously faced which would allow certain companies to move forward and grow.

On February 2, 2012, the U.S. Department of Labor (“DOL”) issued final regulations under Section 408(b)(2) of ERISA.  As a result, there is a new due date of July 1, 2012 by which certain service providers must make compensation disclosures to responsible plan fiduciaries of defined benefit and defined contribution plans (such as pension and 401(k) plans).  This provides an extension of the April 1, 2012 due date issued under prior guidance.  The regulations set forth the types of information that must be disclosed so that the plan fiduciaries can assess the reasonableness of the compensation paid for necessary services and identify potential conflicts of interest in order to avoid a prohibited transaction with respect to the arrangement (and penalties which would result).   Plan fiduciaries should be in contact with their service providers to obtain these disclosures as soon as possible.  Time will be needed to analyze the information received, and to ensure that existing contracts/arrangements are reasonable. Disclosures are also required reasonably in advance of the dates contracts/arrangements are entered into, renewed or extended.  This extension also further extends the due date for the participant-level disclosures that plan fiduciaries of participant-directed individual account plans such as the 401(k) plan are required to make to participants under Section 404(a) of ERISA so that the participants have the information they need to sufficiently manage their individual accounts.  The new due date for these disclosures is no later than August 30, 2012 (which was May 31, 2012 under prior guidance) and the issuance of the first quarterly participant statements to include required information is now November 14, 2012.

On February 9, 2012, the DOL, and the U.S. Departments of Treasury and Health and Human Services issued the final regulations regarding the Summary of Benefits Coverage and the uniform glossary for group health plans under the Patient Protection and Affordable Care Act. The requirements to provide a Summary of Benefits Coverage, notice of modification, and uniform glossary apply for disclosures to participants and beneficiaries who enroll or re-enroll in group health coverage through an open enrollment period (including re-enrollees and late enrollees) beginning on the first day of the first open enrollment period that begins on or after September 23, 2012.  For disclosures to participants and beneficiaries who enroll in group health plan coverage other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees), the requirements apply beginning on the first day of the first plan year that begins on or after September 23, 2012.   The requirements under these rules are also applicable to health insurance issuers beginning on September 23, 2012. These regulations set forth numerous guidelines concerning the contents, format, language, and other parameters of the Summary of Benefits Coverage, the uniform glossary, and notices of modifications.  Failure to comply with these rules can include penalties and excise taxes under ERISA and the Code.

Plan sponsors and fiduciaries should ensure that they have a process in place to review and prepare for the respective disclosures and related tasks.

On November 17, 2011, the Departments of Labor, Treasury and Health and Human Services issued a set of Frequently Asked Questions About Affordable Care Act Implementation (Part VII) and Mental Health Parity Implementation.  In FAQ 1, the Departments noted that they received many comments on the proposed regulations concerning the requirement to provide group health plan participants and beneficiaries with a summary of benefits coverage that accurately describes the benefits and coverage available under the plan and a uniform glossary of terms (“SBC”).  The FAQs provide that the Departments intend to issue, as soon as possible, final regulations that address these comments and other feedback on the proposed regulations and requirements.  The Departments stated that until final regulations are issued and applicable, plans and issuers are not required to comply with the SBC requirements.  Although the FAQs do not provide information regarding when the final regulations will be issued, they do state that “it is anticipated that the Departments’ final regulations, once issued, will include an applicability date that gives group health plans and health insurance issuers sufficient time to comply”.  Thus, it appears that there will not be a March 23, 2012 effective date for compliance with the SBC requirements.  However, the issuance of the final regulations and the applicability date will need to be monitored.  It would be advisable to continue preparations for compliance with the SBC requirements under current guidance (i.e., gathering and organizing necessary information) and then make any necessary modifications once the final regulations are issued during a final review prior to implementation.

On August 12, 2011, the Departments of Treasury and Health and Human Services released Proposed Regulations to provide guidance to individuals who enroll in qualified health plans through State-based Exchanges, as envisioned under the Affordable Care Act, and to provide guidance to Exchanges that make qualified health plans available to individuals and employers.  The Exchanges will be one-stop marketplaces where consumers can buy private health insurance plans.  The premium tax credit is designed to help individuals and families with incomes between 100% and 400% of the federal poverty level (approximately $22,350 to $89,400 for a family of four in 2011) afford health insurance where they are not otherwise eligible for other coverage such as Medicare, Medicaid or affordable employer-sponsored coverage (i.e., the employee only premium exceeds 9.5% of household income or fails to cover 60% of total allowed costs).  These Proposed Regulations provide that the credit may be advanced by the Department of Treasury directly to the insurance company.   Under related employer mandate rules, applicable large employers will be liable for excise taxes effective in 2014 if they have any full-time employees that are certified to receive a premium tax credit or cost-sharing reduction in connection with enrollment in health insurance through a State Exchange and either the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in an employer sponsored plan that provides “minimum essential coverage” or offers such a plan that is unaffordable.  The Proposed Regulations relating to the premium tax credits indicate that it is anticipated that future guidance will provide a safe harbor permitting employers to base the affordability calculation on wages they pay their employees rather than on a household income basis. 

While coordination of efforts appear to be underway as they pertain to the employer mandate and individual mandate under the health reform law, the U.S. Court of Appeals for the Eleventh Circuit also issued a decision on August 12, 2011 ruling that the individual mandate under the Affordable Care Act is unconstitutional.  The Court opined that the individual mandate requires Americans to buy an expensive product from a private insurance company from birth to death and that Congress cannot mandate such purchases.  However, there is now a split in the appeals courts as the U.S. Court of Appeals for the Sixth Circuit has found that the individual mandate is constitutional.

It remains to be seen whether a ruling from the U.S. Supreme Court as to the constitutionality of the individual mandate will be issued prior to 2014 and the impact it will have on the role of the Exchanges and employer mandate taxes.  This issue will need to be followed closely in order to properly plan and maintain employer-provided health coverage. 

Last year, two significant sets of regulations were issued that will affect qualified plan fiduciary responsibility and administration.  Last July, interim final regulations were issued requiring retirement plan service providers to disclose detailed information regarding their fees and potential conflicts of interest to plan fiduciaries.  These service provider disclosures were scheduled to apply to plan contracts and arrangements for services on or after July 16, 2011.  Since those regulations were issued, there has been much discussion surrounding compliance with these rules, including whether a summary format of information might be necessary to help plan sponsors understand and know what to do with the financial information that will be disclosed by plan service providers.  The Department then announced earlier this year that it would extend the compliance deadline to January 1, 2012, but this wasn’t yet official.  In addition, participant-level fee disclosure regulations were issued on October 20, 2010 to be effective for plan years on or after November 1, 2011 with a 60-day transition period.  These rules would require plan administrator’s of 401(k) plans, for example,  to disclose certain plan and fee information to participants who direct their investments.  On June 1, 2011, the Department proposed making the January 1, 2012 extension of the service provider disclosures compliance date official, as well as extending the time a calendar year 401k plan has to furnish the initial participant-level fee disclosures to no later than April 30, 2012 (and up to May 15, 2012 with regard to quarterly statements) in order to provided additional time for compliance and coordination of the two efforts. 

It is important to be mindful of these requirements and the upcoming due dates.  Plan sponsors and fiduciaries of 401(k) plans and pension plans will need to evaluate the reasonableness of the service provider fee disclosures that they will receive and be prepared to terminate contracts/arrangements with service providers that do not comply with the rules. In addition, fiduciaries of 401(k) plans will need to be prepared to organize and distribute the participant-level fee disclosures in accordance with the requirements of those rules.  To the extent there are comments on these proposed effective dates, the Department of Labor is currently soliciting comments on these proposals to extend the effective date of the rules mentioned above.  Comments can be submitted on or before June 15, 2011 and can be submitted electronically to  e-ORI@dol.gov.