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

[QDROphile]

Last time, years ago, when I explained my aversion to naming the “employer” as plan administrator, I got pushback with the perfectly reasonable explanation that with respect to “small” employers my concerns were not well founded and my recommendations were impractical. A fair point. For sole proprietors, and some other businesses with a limited number of active owners, naming the employer as plan administrator is probably not worth much worry. I hope that those active owners understand that they are fiduciaries, and what that means, including potential personal liability.
 

With respect to more complex businesses, the concerns are based on a corporate and agency law. To avoid need for a legal treatise, the practical question to address when the employer is the plan administrator is, “Who is the fiduciary?” Or, asked another way, “Who will be the warm body sitting behind the defendant’s table in a fiduciary lawsuit?” That person has an interest in 1) knowing that they are a fiduciary because without that knowledge, it is impossible to act in accordance with fiduciary standards (attention is the first requirement of a prudent person), and 2) being covered by appropriate insurance (e.g. E&O, D&O, special ERISA policies).

To illustrate, if I were a plaintiff’s lawyer or the Department of Labor pursuing a claim of fiduciary breach, and a corporation were the “employer” named as plan administrator (without further specific identification or express delegation), I would name every individual board member and executive officer personally as defendants. And let us not forget the poor HR administrator, who is always on the front line of dealing with benefits and may be a fiduciary by default because they are forced by practicalities to engage in fiduciary activity without the pleasure of being named as a fiduciary. Maybe most of those people could get themselves dismissed, but it would not be fun or happy. This is how the “small employer” exception makes sense. A single owner who also handles all executive functions is on the hook as “employer” no matter what because there is no one else to bother. 
 

That is the crux of it. How best to identify the plan administrator, and to align fiduciary responsibility, depends on the organization, its personnel, and its circumstances. There is not an arrangement that fits all, and the appropriate arrangement is often not given any thought when a plan is adopted or restated. I suspect you were asking for some specific models. I am playing the lawyers card of “it depends”.* The organization could name the “employer” as plan administrator, but then a lot of other actions and documentation would be required to achieve the proper identification and alignment. For the most part, that ain’t gonna happen. Even if it does, the Department of Labor can be so ham-fisted that it won’t understand or respect the niceties, and it likes as many people as possible to sweat personal liability.

*For a corporation, how about designating the CEO as plan administrator, with authority to delegate, including the authority to designate other named fiduciaries. Depending on circumstances, the CEO will delegate authority rather than directly undertake the functions. The CEO’s corporate responsibility for oversight of company business, and fiduciary responsibility for oversight of persons the CEO names as fiduciary, overlap nicely. For a large organization, corporate or partnership (e.g. professional services), I like fiduciary committees, which can be designated as plan administrator, and populated by a CEO or equivalent. The CEO is still a fiduciary for this purpose.

[Peter Gulia]

QDROphile, thank you for your helpful and thought-provoking explanation.

[austin3515]

I just want to clarify that almost no TPA or compliance provider every aggressively pursues cumbersome and complex provisions.  However, beggers cannot be choosers.  I really really want that new business, so I don't get choose their plan design for them 👍.  It's always the biggest clients, who by the way have had those provisions for decades at times, that are at issue.

Now Congress did us all a favor with SECURE Act (if you want to take a glass half full view of the world).  Now when we go to clients and tell them your "plan document sucks" there is some real meat on the bone, since the LTPT stuff in my view is technically, figuratively and literally impossible to comply with.