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Mandatory coverage


Guest Sieve
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Guest Sieve

On what basis can an employer mandate that full-time employees must be covered under a health-care plan of some sort (e.g., provided by the employer, or on a spouse's plan, or on an individual plan)? Does the fact that the employee must pay for employer-provided coverage change the answer?

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Guest Sieve

I'm bumping this back up.

I know that many employers require that employees be covered under the employer-provided health care arrangement unless proof is provided that the employee is otherwise covered (such as through a spouse's plan). If this is fully employer paid coverage , then I see no problem. But, if the employee is required to pay a portion of the premium, is this permissible?

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Larry,

I don't know of anything ERISA that prohibits it, but you may want to check state payroll laws.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Is the participation a condition of employment or is it just an employee benefit plan demand ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest Sieve

Yes, it would violate MI payroll rules--except that, of course, DOL's position is that automatic contributions (negative elections) for welfare plans preempts state payroll laws. Frankly, I don't know how it has worked administratively--the issue first arose when we saw a statement in the employee handbook that we were asked to review.

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... of course, DOL's position is that automatic contributions (negative elections) for welfare plans preempts state payroll laws.

Larry,

Do you have a cite for that DoL position? The reason I ask is that Congress implicitly recognized that ERISA does not generally preempt state payroll laws when enacting § 902(f) of the Pension Protection Act of 2006. There, state wage laws are preempted for auto enrollment in a pension plan (albeit you are speaking of a welfare plan) only if certain conditions spelled out in § 902(f) are met.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest Sieve

If your arguments are correct--that there is no ERISA preemption of negative election plans, absent PPA '06--then you must be suggesting that negative election welfare plans or cafeteria plans (or, for that matter, 401(k) plans absent PPA '06) are not permissible if they violate state payroll rules. DOL certainly would not agree with that position, whether or not it was a welfare or a pension negative election (although I don't have a cite for this DOL position re: negative election preemption).

I would note, however, that the PPA '06 Committee Report with regard to ERISA Section 514(e) indicates that "[n]o inference is intended as to the effect of conflicting State regulations prior to the date of enactment", so I don't believe the fact that preemption of ACAs is now statutory in any way leads to the conclusions (i) that there is/was no preemption with regard to those time periods or those issues not covered by new Section 514(e), or (ii) that these PPA '06 provisions provide some implicit recognition that 514(a) preemption isn't broad enough to cover the 514(e) waterfront and therefore 514(a) preemption does not cover negative election arrangements.

Also, what is there in the statute or regulations that mandates that the preemption provisions of Section 514(e) and the regs either change or limit the general preemption provisions of ERISA Section 514(a), which still can be interpreted to provide broad preemption extending to more issues (such as welfare plans) than the presumably limited pension application of ERISA Section 514(e)? It doesn't mean that courts will accept the general DOL interpretation of preemption as it relates to negative elections, but it certainly means that Section 514(a) preemption remains alive & well (since it was not repealed). (Note that 514(a) preemption extends only "insofar as [state laws] may . . . relate to any employee benefit plan" while 514(e) preemption has no "insofar as" language, making 514(e) preemption, apparently, broader on its face as it relates to pension plans.)

And, while we're on preemption, the ERISA Section 514(e) regs have always seemed to me to be overly broad--i.e., they are much broader than the statute, extending preemption even to plans that do not contain an ACA (as required by the statute). (See DOL Reg. Section 2550.404c-5(f)(2).) There was not a single word in the proposed regulations about preemption--only a request in the preamble for comments and then, BANG, final regs covering preemption were issued--and the preemption issue was addressed in a reg that is not even found under the proper ERISA Section provision (i.e., it is not issued as a 2560.514 reg). Note that the same type of preemption regulation--i.e., contrary to the statute and without the opportunity for public hearing on proposed preemption rules--was overturned by the Supreme Court a few weeks ago in Wyeth v. Levine (http://www.supremecourtus.gov/opinions/08pdf/06-1249.pdf) (dealing with potential preemption of state labeling laws in the face of FDA labeling rules).

There were, according to Bush regulators, approximately 50 such attempts to add preemption to regulations in a similar fashion (not provided by the statute and without opportunity for public comment prior to issuance of final regulations), and the hope apparently had been that the preemption provisions of the regs would hold up and, basically, legislate what Congress had not. The Supremes were not to be fooled, however. The ERISA preemption reg (in 2550.404c-5(f)(2) might well be swept up by this decision, so I would not put much weight on the broader preemption provision of the reg (that an ACA is not required for Section 514(e) preemption) based on the conclusion of Wyeth.

If you are interested, here, in part, is what the Court said in Wyeth (without cites and with some text omitted):

In prior cases, we have given "some weight" to an agency's views [but] we have not deferred to an agency's
conclusion
that state law is pre-empted. Rather, we have attended to an agency's explanation of how state law affects the regulatory scheme. While agencies have no special authority to pronounce on pre-emption absent delegation by Congress, they do have a unique understanding of the statutes they administer and an attendant ability to make informed determinations about how state requirements may pose an "obstacle to the accomplishment and execution of the full purposes and objectives of Congress." The weight we accord the agency's explanation of state law's impact on the federal scheme depends on its thoroughness, consistency, and persuasiveness.

Under this standard, the FDA's 2006 preamble [that state law "frustrate
the agency's implementation of its statutory mandate"] does not merit deference. When the FDA issued its notice of proposed rulemaking in December 2000, it explained that the rule would "not contain policies that have federalism implications or that preempt State law." (noting that the "proposed rule did not propose to preempt state law"). In 2006, the agency finalized the rule and, without offering States or other interested parties notice or opportunity for comment, articulated a sweeping position on the [labeling act's] preemptive effect in the regulatory preamble. The agency's views on state law are inherently suspect in light of this procedural failure.

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A DoL Advisory regarding payroll deductions for group health without employee permission:

George,

Thanks for the citation. It is interesting that the 1994 Advisory Opinion cited in the 2008 one for which you gave the citation, dealt with a New York law that required "written authorization for employee wage deductions of contributions or payments for 'insurance premiums, pension or health and welfare benefits,' and 'similar payments for the benefit of the employee,' clearly 'relates to' benefits provided under employee benefit plans in that it is specifically designed to affect employee benefit plans and seeks to restrict the choices of such plans with regard to the administration of their funding policies." Thus, the New York law was found to be preempted by ERISA.

In the 2008 Advisory Opinion addressing Kentucky's anti-reduction payroll law, the statute did not specify that it applied to 'insurance premiums, pension or health and welfare benefits' or 'similar payments for the benefit of the employee', but the DoL nevertheless found preemption "to the extent that [the Kentucky statute] is interpreted to limit, prohibit, or regulate the funding of employee benefit plans covered" by ERISA.

ERISA 514(a) provides that ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan". I seem to recall caselaw that does not preempt a general application of a state law in which ERISA plans are swept up in but not singled out for application of that state law.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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So, it seems that unless you fit within the preemption safe harbor of PPA '06 § 902(f) for automatic payroll reductions to a QRP, the PPA '06 Committee Report with regard to ERISA § 514(e) observation that "[n]o inference is intended as to the effect of conflicting State regulations prior to the date of enactment" is Congress's explicit recognition and preservation of uncertainty of ERISA preemption of state payroll laws with respect to default payroll reductions to fund any other ERISA benefits. Rather than clarify a point of law, Congress sought to dangle certainty in front of just those that would abide by a few new rules for automatic payroll reductions to a QRP. Outstanding work!

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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John and others:

This may sound like a dumb question, but can a section 125 plan ever be considered employer money?

Don Levit

Under the Internal Revenue Code, the dollars are considered employer contributions for tax purposes even though reduced from the paychecks at the employee's election. It's part of the fiction necessary under section 125 to avoid constructive receipt.

Under ERISA if it applies to the 125 plan, those are participant/employee contributions.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Don

I do not see where it says anything about funding the VEBA through a cafeteria plan.

It talks about a VEBA and a related cafeteria plan and it talks about providing cafeteria plan benefits through a VEBA, but I do not see any mention of funding through a cafeteria plan.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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George:

That is why I posed the question of whether the money in a cafeteria plan is considered "employee" contributions.

If a cafeteria plan is used to fund the VEBA, how could the contributions be employer contributions?

And, if they are employee contributions, how can they be after-tax contributions?

Don Levit

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Where does it say that the cafeteria plan is used to fund the VEBA ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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It says that the benefits are funded by the VEBA. The benefits under the cafeteria plan are health etc. So it says that the health etc benefits are funded by the VEBA. It does not say that the cafeteria plan funds the VEBA.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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It says that the benefits are funded by the VEBA. The benefits under the cafeteria plan are health etc. So it says that the health etc benefits are funded by the VEBA. It does not say that the cafeteria plan funds the VEBA.

George:

If you had taken the time to read the entire section 7.25.9.14 on VEBA funded Cafeteria benefits you would have noticed that Para 4 states that contributions to a 401k plan (which are permitted to be made via a 125 plan) cannot be routed through a VEBA trust because contributing to a pension plan is not a permissible benefit in a VEBA trust (see 7.25.9.6.8). Clearly the IRS is acknowledging that the contributions from the 125 plan are being routed to the VEBA trust as employer contributions. If the IRS did not intend to allow funds contributed to the cafeteria plan to be deposited in the VEBA trust to pay for benefits permitted under a VEBA trust there would be no need for the IRS to explicitly state that a VEBA trust can only cover benefits permitted under IRC 501©(9).

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George:

That is why I posed the question of whether the money in a cafeteria plan is considered "employee" contributions.

If a cafeteria plan is used to fund the VEBA, how could the contributions be employer contributions?

And, if they are employee contributions, how can they be after-tax contributions?

Don Levit

I thought there was statement in proposed reg 1.125-2 that employee salary reduction contributions are to be treated as employer contributions under a cafeteria plan to the extent the compensation has not been actually or constructively received.

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