Question About Eligibility Language

[awnielsen]

I review a lot of plans where eligibility is written as "Full-time employees working 30 hours per week".

 

To me, this raises multiple concerns:

 

First, it doesn't account for variable hour employees of ALEs and lookback/measurement/etc.  

 

Second, and more concerning to me, is that the language is loose.  If an employee hits 30 hours in one week, is that employee not then eligible?  Especially if 'Full-time' is not a defined term?  

 

There has to be a better way of drafting that, right?  Or am I just picking nits?

 

Thanks in advance!

[CuseFan]

My context is for retirement plans, but agree with you that such language is too loose and open to a lot of different interpretations, which may be the intent so plan sponsors can interpret as they want. This can be dangerous when plan sponsors are not consistent with such interpretations from year to year. 

I would not use such a provision in a retirement plan. I would either simply specify an hours requirement for a specified time frame, or if "full time" is required for eligibility then that term must be specifically defined by clear and concise criteria. 

[QDROphile]

I don’t think one can be too exacting about plan terms. Sometimes I wonder if I should be chagrined at the number of my posts that that assert something like, “the plan document sucks.”

That said, sometimes it is appropriate to be vague, though not ambiguous. The issue with an artfully vague provision is that the fiduciary responsible for interpreting the provision has to apply it and might not be cued in to the intent behind the vagueness, and eventually may have to solidify the meaning over time as the provision is consistently applied. Also, the fiduciary may be uncomfortable with interpretation, especially if the fiduciary is unskilled or inexperienced (such as “the employer”, whoever that is at the moment — a dig at those who think it is OK to designate the employer as plan administrator).

I hope you are not the fiduciary responsible for interpreting plan terms. As you describe the terms, the plan document sucks. If you are not, consult the poor fiduciary who is, as questions come up. If you are the fiduciary, consult the plan sponsor to determine the intent behind the provision, then to the extent feasible and consistent with qualification requirements and any history of interpretation/application, create a written interpretation that implements the appropriate intent and eliminates the uncertainties.

[Brian Gilmore]

The ACA aspect is a really tricky one here.  It can easily subsume the whole wrap plan document/SPD if you really go into the details.

Here's my take on how to handle:

https://www.newfront.com/blog/compliance-fast-where-to-define-eligibility-for-health-plans

Four Eligibility-Related Areas Typically Addressed Outside Wrap SPD

There are a few areas that deserve additional attention when determining if and how to address eligibility in the wrap SPD:

1) ACA Employer Mandate
Applicable Large Employers (ALEs) need to offer minimum essential coverage that is affordable and provides minimum value to full-time employees (and their children to age 26) to avoid potential ACA employer mandate penalties. There are two different measurement methods available to determine whether employees are full-time (i.e., averaging a least 30 hours of service per week) for purposes of the ACA: the monthly measurement method and the look-back measurement method.

The ACA full-time status determination methodology is unendingly complex, particularly with respect to the look-back measurement method. Attempting to fully explain the many intricate details of the measurement, administrative, and stability periods, for example, would be so lengthy that it would likely overwhelm all other content in the wrap SPD.

Accordingly, best practice will typically be to include a “fail safe” type provision in the wrap SPD addressing the employer’s ALE status and that certain aspects of the applicable measurement method may qualify the employee for eligibility. Employers wishing to provide a more comprehensive description of the ACA full-time employee definition should generally refer to a separate company policy that is not restricted by the confines and multiple competing objectives of the wrap SPD.

[Peter Gulia]

QDROphile, since I so often am largely in harmony with your clear-minded observations about ways to administer employee-benefit plans, I hope you’ll teach me your reasons about why it’s unwise to name “the employer” as an employee-benefit plan’s administrator.

Assuming a typical situation in which no outside service provider will serve, is your suggestion that the governing documents ought to name a particular human or set of humans? Or is your idea more than that?

Is limiting the oversight responsibility of the employer’s governing body a part of your reasoning?

Is an element of your reasons that naming “the employer” could set up a claimant’s argument that she reasonably believed the person she received a written (including emailed or texted) or oral statement from was someone with implied authority to act for “the employer” as the plan’s administrator?

Do you have further or different reasons about why it’s unwise to name the employer as the plan’s administrator?

I’m seeking to learn (likely about situations I have not experienced).

[awnielsen]

1 hour ago, QDROphile said:

I hope you are not the fiduciary responsible for interpreting plan terms.

Thankfully, no.  I do draft some SPDs and plan docs, but not a large volume.  I see these when clients send me what I ask clients what they have been using so I have a reference.  So many don't know the difference between a plan doc, an SPD, or an SBC.  

[Brian Gilmore]

3 hours ago, Peter Gulia said:

Assuming a typical situation in which no outside service provider will serve, is your suggestion that the governing documents ought to name a particular human or set of humans? Or is your idea more than that?

Is limiting the oversight responsibility of the employer’s governing body a part of your reasoning?

@Peter Gulia Lots of discussion these days about whether the retirement plan fiduciary committee model should be adopted on the health plan side.  I assume that's the reference from @QDROphile.

I've set out some thoughts on that issue if you're interested here: 

• https://www.newfront.com/blog/the-pros-and-cons-of-a-health-and-welfare-plan-fiduciary-committee