Employer Sponsors & Health Plans Face Rising Risk From Mental Health & Substance Abuse Coverage Violations

March 20, 2020

Employer and union-sponsored health plans, their sponsors, fiduciaries and administrators should heed the reminder of the importance of ensuring their health plans properly comply in form and operation with the mental health and substance abuse parity mandes of the Mental Health Parity and Addiction Equity Act (MHPAEA)  in when the  U.S. Department of Labor (“DOL”) Employee Benefit Security Administration (“EBSA”) released its 2020 Report to Congress: Parity Partnerships: Working Together (the”2020 Report”) available for review here.

In addition to exposing the health plan administrators and othr fiduciaries to potential claims denial or fiduciary responsibility claims brought by participants or beneficiaries, the Department of Labor or both, administrative penalties by the EBSA, or both, the MHPAEA mental health and substance abuse parity rules are among 40 federal mandates that when violated can rigger the automatic $100 per violation per day employer excise tax penalty under Internal Revenue Code Section 6039D.  As a consequence, violations of the MHPAEA are particularly risky and potentially expensive for private employers, their health plans and the plan administrators and fiduciaries that administer it.

To avoid violation of the MHPAEA, covered health plans generally must cover mental health and substance abuse care and treatment on the same terms in form and in operation as other similar benefits, as well as comply with special notice and claims administration requirements.  Comparability of mental health and substance abuse coverage is determined in accordance with complicated federal regulations,  Meeting these requirements in operations is often tricky, particularly when health plans attempt to apply tools to manage hospitalization or other treatments.  For additional information about MHPAEA, C. Stamer, What Should I Know About the MHPAEA and 21st Century Cures Act (2018).

Along with the 2020 Report, Along with releasing the report, EBSA also is continuing its efforts to educate plan sponsors, fiduciaries, administrators about the importance of compliance with the federally imposed group health plan mental health and substance abuse coverage mandates of the Mental Health Parity and Addiction Equity Act  (“MHPAEA”). Consequently, along with its release of the 2020 Report, EBSA reminded plans, employers and other interested parties of the following previously published EBSA guidance about the MHPAEA mandates:

MHPAEA Enforcement Authority

MHPAEA enforcement is split between the EBSA and the Department of Health & Human Services Centers for Medicare & Medicaid Services (“CMS”) depending on the nature and sponsorship of the health program. 

Pursuant to its enforcement authority under Title I of the Employee Retirement Income Security Act of 1974 (ERISA), EBSA is responsible for enforcement of the MHPAEA with respect to approximately 2.4 million private employment-based group health plans.  In contrast, CMSenforces MHPAEA and other applicable provisions of Title XXVII of the Public Health Service Act (PHS Act) with respect to non-federal governmental group health plans, such as plans for employees of state and local governments. Sponsors of self-funded, nonfederal governmental plans may elect to exempt those plans from (opt out of) certain requirements of Title XXVII of the PHS Act, including MHPAEA.  In addition, CMS enforces MHPAEA with respect to health insurance issuers selling products in the individual and fully insured group markets in states that elect not to enforce or fail to substantially enforce MHPAEA. Currently, CMS is responsible for enforcement of MHPAEA with regard to issuers in four states: Missouri, Oklahoma, Texas and Wyoming. In these states, CMS reviews health insurance policy forms of issuers in the individual and group markets for compliance with MHPAEA prior to the products being offered for sale. In addition, CMS has collaborative enforcement agreements with five states: Alabama, Florida, Louisiana, Montana, and Wisconsin. These states perform state regulatory and oversight functions with respect to the federal requirements, including MHPAEA. However, if the state finds a potential violation and is unable to obtain compliance by an issuer, the state will refer the matter to CMS for possible enforcement action. CMS also performs market conduct examinations, where issuers are audited for compliance with applicable federal requirements, including MHPAEA, in states where CMS is responsible for enforcement and in states with a collaborative enforcement agreement when the state requests assistance.

EBSA FY 2019 Enforcement Against Private Employment Based Health Plans

The Fiscal Year (“FY”) 2019 Fact Sheet reports that in FY 2019, EBSA investigated and closed 186 health plan investigations in FY 2019 (and 3,758 health plan investigations since FY 2011). Of these:

  • 71 investigations involved fully-insured plans, 91 investigations involved self-insured plans, and
  • 24 investigations involved plans of both types (the plan or service provider offered both fully-insured and self-insured options).
  • 183 of these closed investigations involved plans subject to MHPAEA, which were reviewed for MHPAEA compliance. Of these, 68 investigations involved fully-insured plans, 91 investigations involved self-insured plans, and 24 investigations involved plans of both types (the plan or service provider offered both fully-insured and self-insured options).
  • EBSA cited 12 MHPAEA violations in 9 of these investigations.
  • Of these 9 investigations, 1 investigation involved a fully-insured group health plan, 3 investigations involved self-funded group health plans, 2 investigations involved partially self-funded group health plans and 3 were service provider investigations.
  • EBSA benefits advisors answered 90 public inquiries, including 62 complaints, in FY 2019 related to MHPAEA (and answered 1,445 inquiries related to MHPAEA since FY 2011)

Concerning the focus of the EBSA investigated MHPAEA violations, EBSA reports the investigations focused on the following categories:

  • Annual dollar limits: dollar limitations on the total amount of specified benefits that may be paid in a 12-month period under a group health plan or health insurance coverage for any coverage unit (such as self-only or family coverage).
  • Aggregate lifetime dollar limits: dollar limitations on the total amount of specified benefits that may be paid under a group health plan or health insurance coverage for any coverage unit.
  • Benefits in all classifications: requirement that if a plan or issuer provides mental health or substance use disorder benefits in any classification described in the MHPAEA final regulation, mental health or substance use disorder benefits must be provided in every classification in which medical/surgical benefits are provided.
  • Financial requirements: deductibles, copayments, coinsurance, or out-of-pocket maximums.
  • Treatment limitations: includes limits on benefits based on the frequency of treatment, number of visits, days of coverage, days in a waiting period, or other similar limits on the scope or duration of treatment. Treatment limitations include both quantitative treatment limitations (QTLs), which are expressed numerically (such as 50 outpatient visits per year), and nonquantitative treatment limitations (NQTLs), which otherwise limit the scope or duration of benefits for treatment under a plan or coverage.
  • Cumulative financial requirements and QTLs: financial requirements and treatment limitations that determine whether or to what extent benefits are provided based on certain accumulated amounts including deductibles, out-of-pocket maximums and annual or lifetime day or visit limits.
  • Other ERISA violations (such as claims processing and disclosure violations) affecting mental health and substance use disorder benefits.

Along with the EBSA enforcement, private participants and beneficiaries of private employer sponsored health plans also can bring lawsuits to recover benefits and other relief for violatons of MHPAEA.  Along with the actual damages, attorneys’ fees and other costs of enforcement, a successful MHPAEA enforcement also typically will reveal the sponsoring employer or union’s failure to make the required self-disclosure and excise tax payments mandated for violations under Internal Revenue Code Section 6039D, triggering added penalties beyond the initial penalties triggered by the uncorrected violation.  Furthermore, delayed discovery of these violations also makes correction particularly costly for self-insured plans and their sponsors as deadlines for submitting expenses to qualify for stop loss reimbursement often will have passed by the time the liability comes to light.  Accordingly, employer and other health plan sponsors, their fiduciaries and adminstrators generally will want to audit and monitor their health plan’s compliance with the MHPAEA throught the calendar year and as plan year or stop loss filing deadlines approach to mitigate these exposures.  

More Information

We hope this update is helpful. For more information about the these or other health or other legal, management or public policy developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297.  

Solutions Law Press, Inc. invites you receive future updates by registering on our Solutions Law Press, Inc. Website and participating and contributing to the discussions in our Solutions Law Press, Inc. LinkedIn SLP Health Care Risk Management & Operations Group, HR & Benefits Update Compliance Group, and/or Coalition for Responsible Health Care Policy.  

About the Author


Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications. As a significant part of her work, Ms. Stamer has worked extensively domestically and internationally with business, government and community leaders to prepare for and deal with pandemic and other health and safety, financial, workforce and other organizational crisis, change and workforce, employee benefit, health care and other operations planning, preparedness and response for more than 30 years.  As a part of this work, she regularly advises businesses and government leaders on an an  demand and ongoing basis about preparation of workforce, health care and other business and government policies and practices to deal with management in a wide range of contexts ranging from day to day operations, through times of change and in response to operational, health care, natural disaster, economic and other crisis and change.

Author of “Privacy and the Pandemic Workshop” for the Association of State and Territorial Health Plans, “How to Conduct A Reduction In Force,” and a multitude of other highly regarded publications and presentations on workforce, compliance, health care and health benefits, pandemic and other health crisis, workers’ compensation and occupational disease, business disaster and distress and many other topics, Ms. Stamer has worked with employers, insurers, health industry organizations and providers and domestic and international community and government leaders on pandemic and other health and safety, workforce and performance preparedness, risks and change management, disaster preparedness and response and other operational and tactical concerns throughout her adult life. A former lead advisor to the Government of Bolivia on its pension privaitization project, Ms. Stamer also has worked internationally as an advisor to business, community and government leaders on crisis preparedness and response, workforce, health care and other reform, as well as regularly advises and defends organizations about the design, administration and defense of their organizations workforce, employee benefit and compensation, safety, discipline and other management practices and actions.

Board Certified in Labor and Employment Law By the Texas Board of Legal Specialization, Scribe for the ABA JCEB Annual Agency Meeting with OCR, Vice Chair of the ABA International Section Life Sciences Committee, and the ABA RPTE Employee Benefits & Other Compensation Group and and a former Council Representative, Past Chair of the ABA Managed Care & Insurance Interest Group, former Vice President and Executive Director of the North Texas Health Care Compliance Professionals Association, past Board President of Richardson Development Center (now Warren Center) for Children Early Childhood Intervention Agency, past North Texas United Way Long Range Planning Committee Member, and past Board Member and Compliance Chair of the National Kidney Foundation of North Texas, and a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer also shares her extensive publications and thought leadership as well as leadership involvement in a broad range of other professional and civic organizations. For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.  

About Solutions Law Press, Inc.™

Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources available here such as: 

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Self Insured Plan & Contract Amendments Likely Required To Waive Deductibles, Expand Other Coronavirus Coverage

March 11, 2020

Following up on the White House’s announcement yesterday that by major health insurers, Medicare and Medicaid to cover medically necessary testing and expand coverage for treatment of 2019 Novel Coronavirus (“coronavirus), without applying deductibles or coinsurance and offer expanded telemedicine and other coverage for coronavirus care, the Internal Revenue Service (“IRS”) today issued guidance giving health plans confirming health plans waiving deductibles won’t violate the Internal Revenue Code health savings account high deductible health plan rules.  However many employer or other sponsors of self-insured health plans may need to amend their health plans and take other steps if they want their health plans to provide similar coverage.  Meanwhile the Centers for Disease Control (“CDC”) released updated guidance to help businesses, schools, and other organizations to operate safely during the current outbreak.

Coronavirus Testing & Other Health Coverage

Major health insurers agreed in a Whitehouse Coronavirus Taskforce meeting yesterday to cover medically necessary testing and extend coverage to medically necessary treatment. The agreement only technically binds Medicare, Medicaid and other government programs  and private insurers participating in the meeting. It does not automatically extend coverage or waive deductibles for self-insured employer or union sponsored health plans which provide coverage for an estimated 61 percent of covered U.S. worker and their families. Self-insured plan sponsors wishing to provide similar coverage and waive deductibles generally will need to take specific action to amend their plans and related contractracts and communications.

Vice President Pence announced the agreement with insurers yesterday saying among other things:

I’m pleased to report, as you requested, Mr. President, that all the insurance companies here — either today or before today — have agreed to waive all copays on coronavirus testing and extend coverage for coronavirus treatment in all of their benefit plans.

And, at your direction, Medicare and Medicaid, last week, already made it clear to Medicare and Medicaid beneficiaries that coronavirus testing and treatment would be covered. These private insurance carriers have extended that as well.

They’ve also agreed to cover telemedicine so that anyone, particularly among the vulnerable senior population, would not feel it necessary to go to a hospital or go to their doctor. They’ll know that telemedicine is covered.

While the announcement indicates that insurers involved in the meeting plan to expand coverage and waive deductibles,  self-insured employer and union sponsored plans aren’t technically covered by the agreement.  While  many employers sponsoring self-insured health plans will want their health plan to provide similar coverage as part of their risk management response to the coronavirus outbreak. Self-insured plan sponsors and fiduciaries should confirm appropriate plan language is adopted and that their stop loss insurance carriers are on board or other arrangements are made to plan for and cover costs, and that other plan vendors are on board to handle responsibilities. This is particularly critical as failing to make the necessary amendments could result in an absence of stoploss insurance to cover additional cost. And relatively small workforce is with few people seeking the care, this might not make a material difference in plan costs. If several workers seek treatment, however, the absence of stoploss insurance coverage for the claims could both impact coverage for those particular items if the deductible under the policy has been met as well as could affect whether those claims count overall aggregate coverage losses. The bottom line is, make sure that your documentation matches your Promise or your extension of coverage will likely be truly 100% self insured. Likewise employers and other plan sponsors in the plan administrators of these plans are reminded that the law generally requires that they provide written notice of the changes to plan members in a timely fashion. Having plan administration services and other vendors on board also is important to ensure that the claims are appropriately and timely processed to avoid violation of plan terms and other rules.

In the meantime, the widespread lack of understanding among plan members about the distinction between insured and self-insured plans coupled with the breadth of the unqualified announcement by the White House is likely to fuel confusion by covered individuals and their providers.  Not only will covered persons and providers need to know whether the program is insured or self-insured, they also will need to confirm how each of these programs implements the expanded coverage.

IRS Guidance Clears Way For High Deductible Health Plans To Raise Deductibles

Employers and health plans wishing to waive deductibles for coronavirus testing will not have to worry that waiving the deductible will violate IRS high deductible health plan (“HDHP”) rules, however.  Earlier today, the IRS provided relief allowing high deductible health plans to pay these expenses without disqualifying their programs for high deductible health plan treatment under the Code in Notice 2020-15. The Notice provides that, until further guidance is issued, a health plan that otherwise satisfies the requirements to be a HDHP under Code section 223(c)(2)(A) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP.  Also due to this guidance, an individual covered by the HDHP will not be disqualified from being an eligible individual under section 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).

Business & Other Disruptions Response

Government, healthcare and other leaders are urging businesses and individuals to limit contact and care to guard against the virus because of its strength and ability to spread quickly. The U.S.’s top infectious-disease specialist told lawmakers the pathogen “is 10 times more deadly than the seasonal flu.”

Accordingly, health and government officials are urging all segments of society to take precautions. CDC, for instance has published the resources to help businesses, schools and others keep their people and locations safe here.

Unfortunately the strategy for ending the pandemic brings its own draconian side effects. Along with dealing with the threat of the disease itself, the efforts to manage the disease outbreak, many businesses also are forced to deal with demand losses, supply and business interruptions, staffing shortages, unanticipated expenses and a wide range of other operational and financial disruptions that are side effects of the outbreak and its management.

The outbreak has and continues to prompt the cancellation of a plethora of business, trade, government, school, and sports and entertainment events.  Notable for its involvement in heath care and related insurance matters, the National Association of Insurance Commissioners (“NAIC”) is one of a growing number of event sponsors that are allowing workers to work from home, are cancelling or banning participation in   live meetings and other events and/or are converting from live to virtual formats in response to the outbreak.   Trade and business associations, entertainment and sports and otehr venures also are impacted.  For instance, the NAIC announced its decision to move its meetings to a purely virtual format today.  According to the announcement, the National Spring Meeting that had been scheduled to take place in Phoenix next week is cancelled.  Instead, the NAIC announced the following tentative schedule:

A revised schedule with dates, times and call-in numbers will be available on Naic.org next week. 

Concerning the reasons for its decision, the NAIC explained:

Recently, the number of confirmed cases of COVID-19 has exceeded 100,000 worldwide, including over 1000 confirmed U.S. cases in 36 jurisdictions. Given rapidly changing information and out of an abundance of caution for the safety of our members, guests and staff, the NAIC officers, in consultation with NAIC members, have decided to hold the Spring National Meeting in a virtual-only format. 

The NAIC is only one of a multitude of events cancelled or converted to a virtual format in the wake of fears of the coronavirus outbreak as US officials try to stem the spread of the virus.  See e.g., Coronavirus updates in Texas: Community spread, school cancellations and more; Colleges and Universities Cancel Classes and Move Online Amid Coronavirus Fears; Coronavirus and sports: Seattle Mariners will move their home games, Golden State Warriors will play without fans and CBI is canceled.  

Along with limiting contact, for instance, many businesses and organizations are “deep cleaning” their facilities to address potential virus contamination. Some biological experts point out however that this deep cleaning involves substantial expenditures which do little to guard against new exposures brought by others coming into a business, school or other workplace. Some biological contamination experts suggest that organizations should consider investing in resources specified ultraviolet lights or other tools that could help control exposures on a longer-term and more recurrent basis. Experts emphasize that remediation and prevention efforts need to recognize that exposures are likely to occur recurrently over a period of time across the life of this and future virus outbreaks.

The financial consequences of staffing or supply shortages, declines in product or services demands, event cancellations, cleaning and other costs and a host of other side effects present such a widespread risk to many businesses that many are facing layoffs or even bankruptcy or other restrucuring.  While President Trump and other federal and state leaders are promising employment tax holidays and other relief to try to mitigate some of these financial effects, businesses impacted by these disruptions should begin assessing and planning to execute options to mitigate losses and manage these risks as soon as possible to maximize their potential ability to take advantage of options to restructure debt or contractual obligations, adjust workforce staffing, and make other adjustments successfully to weather the pandemic storm and fallout.  When considering these options, businesses will want to understand the relative complete costs of reductions in hours, furloughs, contractual adjustments and other options to make and execute their choices as well as possible.

More Information

We hope this update is helpful. For more information about the these or other health or other legal, management or public policy developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297.  

Solutions Law Press, Inc. invites you receive future updates by registering on our Solutions Law Press, Inc. Website and participating and contributing to the discussions in our Solutions Law Press, Inc. LinkedIn SLP Health Care Risk Management & Operations Group, HR & Benefits Update Compliance Group, and/or Coalition for Responsible Health Care Policy.  

About the Author

Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications. As a significant part of her work, Ms. Stamer has worked extensively domestically and internationally with business, government and community leaders to prepare for and deal with pandemic and other health and safety, financial, workforce and other organizational crisis, change and workforce, employee benefit, health care and other operations planning, preparedness and response for more than 30 years.  As a part of this work, she regularly advises businesses and government leaders on an an  demand and ongoing basis about preparation of workforce, health care and other business and government policies and practices to deal with management in a wide range of contexts ranging from day to day operations, through times of change and in response to operational, health care, natural disaster, economic and other crisis and change.

Author of “Privacy and the Pandemic Workshop” for the Association of State and Territorial Health Plans, “How to Conduct A Reduction In Force,” and a multitude of other highly regarded publications and presentations on workforce, compliance, health care and health benefits, pandemic and other health crisis, workers’ compensation and occupational disease, business disaster and distress and many other topics, Ms. Stamer has worked with employers, insurers, health industry organizations and providers and domestic and international community and government leaders on pandemic and other health and safety, workforce and performance preparedness, risks and change management, disaster preparedness and response and other operational and tactical concerns throughout her adult life. A former lead advisor to the Government of Bolivia on its pension privaitization project, Ms. Stamer also has worked internationally as an advisor to business, community and government leaders on crisis preparedness and response, workforce, health care and other reform, as well as regularly advises and defends organizations about the design, administration and defense of their organizations workforce, employee benefit and compensation, safety, discipline and other management practices and actions.

Board Certified in Labor and Employment Law By the Texas Board of Legal Specialization, Scribe for the ABA JCEB Annual Agency Meeting with OCR, Vice Chair of the ABA International Section Life Sciences Committee, and the ABA RPTE Employee Benefits & Other Compensation Group and and a former Council Representative, Past Chair of the ABA Managed Care & Insurance Interest Group, former Vice President and Executive Director of the North Texas Health Care Compliance Professionals Association, past Board President of Richardson Development Center (now Warren Center) for Children Early Childhood Intervention Agency, past North Texas United Way Long Range Planning Committee Member, and past Board Member and Compliance Chair of the National Kidney Foundation of North Texas, and a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer also shares her extensive publications and thought leadership as well as leadership involvement in a broad range of other professional and civic organizations. For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.  

About Solutions Law Press, Inc.™

Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources available here such as: 

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating your profile here.


ADEA Age Discrimination Ban Applies To All State & Local Government Employers

November 6, 2018

State and local political subdivisions employing fewer than 20 employees should reconfirm the defensibility of their employment policies and practices under the Age Discrimination and Employment Act (ADEA) and the Fair Labor Standards Act (FLSA) and various other laws in light of the unanimous[1] ruling issued this morning by the United State Supreme Court holding that the ADEA applies to all state and local political subdivisions regardless of size.

In its ruling in Mount Lemmon Fire District v. Guido, – U.S. -, 2018 WL 5794639 (November 6, 2018) released this morning, the United States Supreme Court unanimously ruled that the ADEA applies to all state and local subdivisions regardless of the number of employees the political subdivision employs.

The Supreme Court’s ruling arose from an ADEA lawsuit brought by John Guido and Dennis Rankin against a small Arizona fire department, the Mount Lemmon Fire District (District) challenging their layoff by the District. Faced with a budget shortfall, the District laid off Guido and Rankin, who at the time were the District’s two oldest full-time firefighters. Guido and Rankin sued the Fire District, alleging that their termination violated the Age Discrimination in Employment Act of 1967 (ADEA), 81 Stat. 602, as amended, 29 U. S. C. §621 et seq. The Fire District sought dismissal of the suit on the ground that the District was too small to qualify as an “employer” within the ADEA’s compass.

In response to Guido and Rankin’s lawsuit, the District asserted that was not covered by the ADEA  because its employment of fewer than 20 employees rendered it “too small” to qualify as an “employer” as defined by 29  U. S. C. §630(b).  In its ruling against the Fire District this morning, the Supreme Court rejected this numerosity defense, holding instead that the ADEA applies to all political subdivisions regardless of the size of their workforce.

In the unanimous opinion authored by Justice Ginsburg, the Supreme Court pointed out that the ADEA definition of “employer” distinguishes between private sector employers and State and local political subdivisions.  The Supreme Court noted that before 1974, State and local political subdivisions were exempt from the ADEA.  In 1974, however, Congress added a special definition of “employer” for States and political subdivisions to the ADEA and FLSA when it amended the ADEA and FLSA to apply to all State and local government employers regardless of their size.    Thus, since 1974, the ADEA and FLSA definitions of “employer” have read as follows:

“The term ‘employer’ means a person engaged in an industry affecting commerce who has twenty or more employees . . . . The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State . . . .” 29 U. S. C. §630(b); 29 U. S. C. §203(d), (x).

In construing this definition, the Supreme Court weighed whether the phrase “also means” added new categories to the definition of “employer” or merely clarified that States and their political subdivisions are a type of “person” included in §630(b)’s first sentence. While acknowledging that various Courts of Appeals previously have reached differing conclusions concerning the appropriate interpretation, the Supreme Court ruled that the phase “also means” added a new category to the definition of “employer” for purposes of the ADEA.  Accordingly, the Supreme Court rejected the District’s claim that the ADEA definition of “employer” includes the requirement of employment of at least 20 employees applicable to the ADEA’s private sector definition of “employer.  Accordingly, the Supreme Court unanimously ruled that the ADEA applies to all State and local political subdivisions.

In light of the Supreme Court’s ruling, any State or local subdivision that has operated in reliance upon the now discredited interpretations of the ADEA or FLSA definitions of “employer” as applicable only to State or local governmental entities employing at least 20 employees immediately should take all necessary corrective action to bring their policies into compliance with the ADEA and FLSA.  These governmental entities also should seek the advice of qualified legal counsel about the advisability of taking any retrospective action to self-correct any potential past deficiencies in compliance, if any, for which the entity might bear potential liability to the extent that the applicable state of limitations has not run on those claims.

[1] Justice Kavanaugh did not join in the opinion as he took no part in the consideration or decision of the case.

About the Author

Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of management focused employment, employee benefit and insurance, workforce and other management work, public policy leadership and advocacy, coaching, teachings, and publications.

Highly valued for her rare ability to find pragmatic client-centric solutions by combining her detailed legal and operational knowledge and experience with her talent for creative problem-solving, Ms. Stamer’s clients include employers and other workforce management organizations; employer, union, association, government and other insured and self-insured health and other employee benefit plan sponsors, benefit plans, fiduciaries, administrators, and other plan vendors;   domestic and international public and private health care, education and other community service and care organizations; managed care organizations; insurers, third-party administrative services organizations and other payer organizations;  and other private and government organizations and their management leaders.

Throughout her 30 plus year career, Ms. Stamer has continuously worked with these and other management clients to design, implement, document, administer and defend hiring, performance management, compensation, promotion, demotion, discipline, reduction in force and other workforce, employee benefit, insurance and risk management, health and safety, and other programs, products and solutions, and practices; establish and administer compliance and risk management policies; comply with requirements, investigate and respond to government, accreditation and quality organizations, regulatory and contractual audits, private litigation and other federal and state reviews, investigations and enforcement actions; evaluate and influence legislative and regulatory reforms and other regulatory and public policy advocacy; prepare and present training and discipline;  handle workforce and related change management associated with mergers, acquisitions, reductions in force, re-engineering, and other change management; and a host of other workforce related concerns. Ms. Stamer’s experience in these matters includes supporting these organizations and their leaders on both a real-time, “on demand” basis with crisis preparedness, intervention and response as well as consulting and representing clients on ongoing compliance and risk management; plan and program design; vendor and employee credentialing, selection, contracting, performance management and other dealings; strategic planning; policy, program, product and services development and innovation; mergers, acquisitions, bankruptcy and other crisis and change management; management, and other opportunities and challenges arising in the course of workforce and other operations management to improve performance while managing workforce, compensation and benefits and other legal and operational liability and performance.

Past Chair of the ABA Managed Care & Insurance Interest Group and, a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, heavily involved in health benefit, health care, health, financial and other information technology, data and related process and systems development, policy and operations throughout her career, and scribe of the ABA JCEB annual Office of Civil Rights agency meeting, Ms. Stamer also is widely recognized for her extensive work and leadership on leading edge health care and benefit policy and operational issues. She regularly helps employer and other health benefit plan sponsors and vendors, health industry, insurers, health IT, life sciences and other health and insurance industry clients design, document and enforce plans, practices, policies, systems and solutions; manage regulatory, contractual and other legal and operational compliance; vendors and suppliers; deal with Medicare, Medicaid, CHIP, Medicare/Medicaid Advantage, ERISA, state insurance law and other private payer rules and requirements; contracting; licensing; terms of participation; medical billing, reimbursement, claims administration and coordination, and other provider-payer relations; reporting and disclosure, government investigations and enforcement, privacy and data security; and other compliance and enforcement; Form 990 and other nonprofit and tax-exemption; fundraising, investors, joint venture, and other business partners; quality and other performance measurement, management, discipline and reporting; physician and other workforce recruiting, performance management, peer review and other investigations and discipline, wage and hour, payroll, gain-sharing and other pay-for performance and other compensation, training, outsourcing and other human resources and workforce matters; board, medical staff and other governance; strategic planning, process and quality improvement; HIPAA administrative simplification, meaningful use, EMR, HIPAA and other technology, data security and breach and other health IT and data; STARK, antikickback, insurance, and other fraud prevention, investigation, defense and enforcement; audits, investigations, and enforcement actions; trade secrets and other intellectual property; crisis preparedness and response; internal, government and third-party licensure, credentialing, accreditation, HCQIA, HEDIS and other peer review and quality reporting, audits, investigations, enforcement and defense; patient relations and care; internal controls and regulatory compliance; payer-provider, provider-provider, vendor, patient, governmental and community relations; facilities, practice, products and other sales, mergers, acquisitions and other business and commercial transactions; government procurement and contracting; grants; tax-exemption and not-for-profit; 1557 and other Civil Rights; privacy and data security; training; risk and change management; regulatory affairs and public policy; process, product and service improvement, development and innovation, and other legal and operational compliance and risk management, government and regulatory affairs and operations concerns.

A former lead consultant to the Government of Bolivia on its Pension Privatization Project with extensive domestic and international public policy concerns in pensions, healthcare, workforce, immigration, tax, education and other areas, Ms. Stamer has been extensively involved in U.S. federal, state and local health care and other legislative and regulatory reform impacting these concerns throughout her career. Her public policy and regulatory affairs experience encompasses advising and representing domestic and multinational private sector health, insurance, employee benefit, employer, staffing and other outsourced service providers, and other clients in dealings with Congress, state legislatures, and federal, state and local regulators and government entities, as well as providing advice and input to U.S. and foreign government leaders on these and other policy concerns.

Author of leading works on a multitude of labor and employment, compensation and benefits, internal controls and compliance, and risk management matters and a Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer also shares her thought leadership, experience and advocacy on these and other related concerns by her service in the leadership of the Solutions Law Press, Inc. Coalition for Responsible Health Policy, its PROJECT COPE: Coalition on Patient Empowerment, and a broad range of other professional and civic organizations including North Texas Healthcare Compliance Association, a founding Board Member and past President of the Alliance for Healthcare Excellence, past Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; former Board President of the early childhood development intervention agency, The Richardson Development Center for Children (now Warren Center For Children); current Vice Chair of the ABA Tort & Insurance Practice Section Employee Benefits Committee, current Vice Chair of Policy for the Life Sciences Committee of the ABA International Section, Past Chair of the ABA Health Law Section Managed Care & Insurance Section, a current Defined Contribution Plan Committee Co-Chair, former Group Chair and Co-Chair of the ABA RPTE Section Employee Benefits Group, past Representative and chair of various committees of ABA Joint Committee on Employee Benefits; an ABA Health Law Coordinating Council representative, former Coordinator and a Vice-Chair of the Gulf Coast TEGE Council TE Division, past Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee, a former member of the Board of Directors of the Southwest Benefits Association and others.

For more information about Ms. Stamer or her health industry and other experience and involvements, see here or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.

About Solutions Law Press, Inc.™

Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press, Inc.™ resources here such as the following:

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating your profile here.

NOTICE: These statements and materials are for general informational and purposes only. They do not establish an attorney-client relationship, are not legal advice or an offer or commitment to provide legal advice, and do not serve as a substitute for legal advice. Readers are urged to engage competent legal counsel for consultation and representation in light of the specific facts and circumstances presented in their unique circumstance at any particular time. No comment or statement in this publication is to be construed as legal advise or an admission. The author reserves the right to qualify or retract any of these statements at any time. Likewise, the content is not tailored to any particular situation and does not necessarily address all relevant issues. Because the law is rapidly evolving and rapidly evolving rules makes it highly likely that subsequent developments could impact the currency and completeness of this discussion. The presenter and the program sponsor disclaim, and have no responsibility to provide any update or otherwise notify any participant of any such change, limitation, or other condition that might affect the suitability of reliance upon these materials or information otherwise conveyed in connection with this program. Readers may not rely upon, are solely responsible for, and assume the risk and all liabilities resulting from their use of this publication.

Circular 230 Compliance. The following disclaimer is included to ensure that we comply with U.S. Treasury Department Regulations. Any statements contained herein are not intended or written by the writer to be used, and nothing contained herein can be used by you or any other person, for the purpose of (1) avoiding penalties that may be imposed under federal tax law, or (2) promoting, marketing or recommending to another party any tax-related transaction or matter addressed herein.

©2018 Cynthia Marcotte Stamer. Non-exclusive right to republish granted to Solutions Law Press, Inc.™ For information about republication or the topic of this article, please contact the author directly. All other rights reserved.


Stamer Kicks Off Dallas HR 2015 Monthly Lunch Series With 2015 Federal Legislative, Regulatory & Enforcement Update

November 10, 2014

Human resources and other management leaders are watching Washington to see if the change in Congressional control resulting from the November 4, 2014 mid-term election ushers in a more management friendly federal legal environment. Since President Obama took office, the Democrats aggressive pursuit of health care, minimum wage and other federal pro-labor legislation, regulations and enforcement has increased management responsibilities, costs and liabilities.

Nationally recognized management attorney, public policy advisor and advocate, author and lecturer Cynthia Marcotte Stamer will help human resources and other management leaders prepare for 2015 when she speaks on “2015 Federal Legislative, Regulatory & Enforcement Update: What HR & Benefit Leaders Should Expect & Do Now” at the 2015 Dallas HR monthly luncheon series kickoff meeting on January 13, 2014.

About The Program

While November 4, 2014 Republican election victories gave Republicans a narrow majority in both the House and Senate when the new Congress takes office January 3, 2015, the new Republican Majority may face significant challenges delivering on their promises to move quickly to enact more business-friendly health care, guest worker, tax and other key reforms Republicans say will boost the employment and the economy.

While President Obama and Democrat Congressional leaders say they plan to work with the new majority, President Obama already is threatening to use vetoes, regulations and executive orders to block Republicans from obstructing or rolling back his pro-labor policy and enforcement agenda.   When the new Congress takes office, the narrowness of the Republican Majority in the Senate means Republicans can’t block a Democratic filibuster or override a Presidential veto without recruiting some Democratic support.

As the Democrats and Republicans head into battle again, Board Certified Labor & Employment attorney and public policy advocate Cynthia Marcotte Stamer will help human resources and other management leaders get oriented for the year ahead by sharing her insights and predictions on the legislative, regulatory and enforcement agendas that HR, benefit and other business leaders need to plan for and watch in 2015.  Among other things, Ms. Stamer will:

  • Discuss how management can benefit from monitoring and working to influence potential legislative, regulatory and enforcement developments when planning and administering HR and related workforce policies;
  • Discuss the key workforce and other legislative, regulatory and enforcement priorities and proposals Democrats and Republicans plan to pursue during 2015;
  • Share her insights and predictions about how the narrow Republican majority, Mr. Obama’s lame duck presidency and other factors could impact each Party’s ability to pursue its agenda
  • Share tips management leaders can use to help monitor developments and to help shape legislation, regulation and enforcement through Dallas HR, SHRM and other organizations as well as individually;
  • Learn tips for anticipating and maintaining flexibility to respond to legislative, regulatory and enforcement developments; and
  • More

To register or get more details about the program, DallasHR, or both, see http://www.dallashr.org.

About Ms. Stamer

Board certified labor and employment attorney, public policy leader, author, speaker Cynthia Marcotte Stamer is nationally and internationally recognized and valued for her more than 25 years of work advising and representing employers, insurers, employee benefit plans, their fiduciaries and advisors, business and community leaders and governments about workforce, employee benefits, social security and pension, health and insurance, immigration and other performance and risk management, public policy and related regulatory and public policy, management and other operational concerns.

Throughout her career, Ms. Stamer continuously both has helped businesses and their management to monitor and respond to federal and state legislative, regulatory and enforcement concerns and to anticipate and shape federal, state and other laws, regulations, and enforcement in the United States and internationally.

Well known for her leadership on workforce, health and pension policy through her extensive work with clients as well as through her high profile involvements as the Founder and Executive Director of the Coalition for Responsible Healthcare Policy and its PROJECT COPE: the Coalition on Patient Empowerment, a founding Board member of the Alliance for Health Care Excellence, a Fellow in the American College of Employee Benefit Counsel, the American Bar Association (ABA), and the State Bar of Texas leadership and other involvements with the ABA including her annual service leading the annual agency meeting of Joint Committee on Employee Benefits (JCEB) representatives with the HHS Office of Civil Rights and participation in other JCEB agency meetings, past involvements with legislative affairs for the Texas Association of Business and Dallas HR and others, and many speeches, publications, and other educational outreach efforts, Ms. Stamer has worked closely with Congress and federal and state regulators on the Patient Protection & Affordable Care Act and other health care, pension, immigration, tax and other workforce-related legislative and regulatory reforms for more than 30 years. One of the primary drafters of the Bolivian Social Security reform law and a highly involved leader on U.S. workforce, benefits, immigration and health care policy reform, Ms. Stamer’s experience also includes working with U.S. and foreign government, trade association, private business and other organizations to help reform other countries’ and U.S. workforce, social security and severance, health care, immigration, privacy and data security, tax, ethics and other laws and regulations. Ms. Stamer also contributes her policy, regulatory and other leadership to many professional and civic organizations including as Vice President of the North Texas Healthcare Compliance Professionals Association; Immediate Past Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Committee and its current Welfare Benefit Plans Committee Co-Chair, a Substantive Groups & Committee Member; a member of the leadership council of the ABA Joint Committee on Employee Benefits; Past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group and a current member of its Healthcare Coordinating Council; the current Vice Chair of the ABA TIPS Employee Benefit Committee, and the past Coordinator of the Gulf Coast TEGE Council TE Division.

The publisher and editor of Solutions Law Press, Inc. who serves on the Editorial Advisory Boards of Employee Benefit News, HR.com, InsuranceThoughtLeadership.com and many other publications, Ms. Stamer also is a prolific and highly respected author and speaker,  National Public Radio, CBS, NBC, and other national and regional news organization, Atlantic Information Services, The Bureau of National Affairs, HealthLeaders, Telemundo, Modern Healthcare, Business Insurance, Employee Benefit News, the Employee Benefits News, World At Work, Benefits Magazine, InsuranceThoughtLeadership.com, the Wall Street Journal, the Dallas Morning News, the Dallas Business Journal, CEO Magazine, CFO Magazine, CIO Magazine, the Houston Business Journal, and many other prominent news and publications.  She also serves as a planning faculty member and regularly conducts training and speaks on these and other management, compliance and public policy concerns for these and a diverse range of other organizations. For additional information about Ms. Stamer, see www.cynthiastamer.com.

For Added Information and Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For Help Or More Information

If you need assistance in auditing or assessing, updating or defending your organization’s compliance, risk manage or other  internal controls practices or actions, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469)767-8872.

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 24 years of work helping employers and other management; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit  and management policies and practices. Her experience includes extensive work helping employers implement, audit, manage and defend union-management relations, wage and hour, discrimination and other labor and employment laws, privacy and data security, internal investigation and discipline and other workforce and internal controls policies, procedures and actions.  The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer works, publishes and speaks extensively on management, reengineering, investigations, human resources and workforce, employee benefits, compensation, internal controls and risk management, federal sentencing guideline and other enforcement resolution actions, and related matters.  She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters.Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see hereor contact Ms. Stamer directly.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources at www.solutionslawpress.com.

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile at here or e-mailing this information here.

©2014 Cynthia Marcotte Stamer.  Non-exclusive right to republish granted to Solutions Law Press.  All other rights reserved.


Id & Manage Hidden Employee Benefit Exposures In Business Insolvency Or Other Transactions

June 5, 2013

The June 4, 2013 announcement of the Employee Benefit Security Administration (EBSA) provides a timely reminder to businesses sponsoring employee benefit plans, their owners and management, plan fiduciaries, banks, administrative service providers and other plan vendors, employee benefit plan and bankruptcy trustees, corporate receivers, creditors, and others looking to expedite the windup of abandoned  401(k), profit-sharing and other individual account pension plans of the challenges that can result when employee benefit plan responsibilities are mishandled when companies fail or experience other significant events, as well as the availability of tools to help mitigate or prevent these challenges through responsible proactive action.

Hidden Employee Benefit Exposures For Unwary Abound For Parties In Business Insolvency Or Other Transactions

A complex maze of ERISA, tax and other rules make, administration and termination of employee benefit plans a complicated matter. When the company sponsoring a plan experiences a significant workforce or other restructuring, becomes distressed, goes bankrupt or liquidates, merges, sells assets or engages in other significant business transaction impacting the plans or its workforce, the rules, as well as the circumstances, can create a liability and operational quagmire for everyone from the sponsoring business, its management, buyers, vendors, plan fiduciaries, plan participants and beneficiaries, related entities, asset purchasers and others.  While tough economic times may tempt business leaders to cut corners, more than 3o years of litigation and enforcement precedent make clear that cutting corners on the assessment and handling of employee benefit and other workforce responsibilities amid business distress or in other business transactions or events presents risks for all parties involved.  See e.g., Tough Times Are No Excuse For ERISA Shortcuts;  Mishandling Employee Benefit Obligations Creates Big Liabilities For Distressed Businesses & Their Business LeadersWhile many business leaders and plan fiduciaries lack a strong understanding of these rules and their implications in times of business or benefit plan distress or other significant business transactions, even those experienced with these concerns need to use caution to understand and respond to the series of ongoing changes in these rules, regulations and precedent that impact on the handling of plan related responsibilities in these and other special situations. 

The Internal Revenue Code (Code) requires contains a maze of requirements that companies sponsoring pension, profit-sharing, health and other employee benefit plans, their plans, and plan administrators must follow when maintaining, administering, or terminating these plans including in many instances, special rules on the termination of the plans, distribution of assets, and the liabilities that attach to affiliated companies, successors, and assets resulting from transactions involving employee benefit plans or their sponsors.

In addition to the Code’s rules, companies and other individuals that in name or in function have or exercise discretionary responsibility or authority over the maintenance, administration or funding of employee benefit plans regulated by ERISA also generally must meet ERISA’s high standards  for carrying out these duties based on their functional ability to exercise discretion over these matters, whether or not they have been named as fiduciaries formally. Under many circumstances these rules, or the handling of transactions can broaden the scope of responsibility or create exposures for a surprising range of parties dealing with the plan sponsor, related corporations or their stock, assets, benefit plans or workforce in corporate bankruptcies, mergers, asset or stock acquisitions, liquidations or other transactions.

Beyond these basic tax and fiduciary obligations, ERISA and the Internal Revenue Code (Code) create additional responsibilities and liabilities for when dealing with defined benefit or other pension plans subject to ERISA’s minimum funding and plan termination rules that when violated trigger a plethora of funding and notification obligations, penalties, liens on assets, and other obligations that can create significant traps for unwary plan fiduciaries and administrators, the sponsoring corporation, its management, affiliates and successors, as well as creditors or purchasers of stock or assets and others dealing with them.

Despite these well-documented responsibilities and a well-established pattern of enforcement by the Department of Labor, Pension Benefit Guarantee Corporation, Internal Revenue Service and private plaintiffs, many businesses and business leaders fail to appropriately understand these and other basic responsibilities and liabilities associated with the establishment, administration, termination and windup of employee benefit plans and other details about how their or others mishandling of employee benefit plan related responsibilities can undermine business goals and create unanticipated liability exposures.

Frequently, companies sponsoring their employee benefit plans and their executives mistakenly assume that they can rely upon vendors and advisors to ensure that their programs are appropriately established. The establishment and maintenance of these arrangements with limited review or oversight by the sponsoring company or its management team can be risky.

In other instances, businesses and their leaders do not realize that ERISA’s functional definition to determine fiduciary status means that individuals participating in discretionary decisions about the employee benefit plan, as well as the plan sponsor, may bear liability under many commonly occurring situations if appropriate care is not exercised to protect participants or beneficiaries in these plans.

In yet other instances, purchasers, related entities, bankruptcy trustees and creditors or others don’t appreciate the way their own or others mishandling of employee benefit plan obligations or exposures can impact their transactions and associated risks.

Proactive Action Can Mitigate Exposures & Costs

For this reason, companies providing employee benefits and their management, service providers, and related entities and the businesses dealing with them need a clear understanding of the rules and responsibilities Federal law imposes on the funding, administration and termination of these programs, how these rules can impact their responsibilities and goals, and the steps necessary to avoid or mitigate exposures likely to result if they or others mishandle employee benefit plan related responsibilities or assets and how to avoid or mitigate these concerns.

The challenges of winding up an abandoned plan discussed in the EBSA news release yesterday highlights just one of these complications, the problem of dealing with abandoned plans.

When companies and their management abandon plans, they leave their plans, participants and beneficiaries, service providers and others in limbo, without the authority or funds to wind up the plans.  When employers abandon their individual account pension plans, custodians such as banks, insurers and mutual fund companies are left holding the assets of these abandoned plans but without the authority to terminate such plans and make benefit distributions even in response to participant demands. Service providers often find themselves in the legally awkward situation of having continuing plan responsibilities without necessary direction or compensation for performance.  Meanwhile, participants and beneficiaries can’t manage, access or often even get information about their funds until the situation resolves.  Dealing with these issues usually requires cumbersome, time-consuming and costly processes often requiring complex, lengthy, highly formalistic and expensive judicial and administrative procedures to resolve while fiduciary, tax and other liabilities mount.  Meanwhile, participants and beneficiaries often lose access to their accounts or benefits or even see plan value decline as plan assets that could go to benefits are diverted to cover administrative costs of winding up the plan.

The EBSAs abandoned plan program is just one of many examples of tools that parties struggling with these issues can use to mitigate these challenges and exposures.  EBSA uses its abandoned plan program to facilitate a voluntary efficient process for winding up the affairs of abandoned individual account plans so that benefit distributions are made to participants and beneficiaries when this occurs.

The EBSA Abandoned Plan News Release  and the EBSA’s related response Response to ADP/JP Morgan published June 4, 2013 show an example of how EBSA used its abandoned plan program to give critical relief to JP Morgan Chase Bank NA and ADP Inc. to use to wind up certain abandoned plans without exhausting the 90-day waiting period that ordinarily applies before the termination of a retirement plan based on the best interest of participants pursuant to 29 CFR §2578.1.  By exercising its discretion to waive the 90-day notice period, the EBSA allowed JP Morgan Chase Bank NA and ADP Inc. to terminate immediately and wind up approximately 180 defined contribution pension plans abandoned due to corporate crises or neglect.

Requesting relief from the EBSA like that granted to JP Morgan Chase Bank NA and ADP Inc. in the announcement made yesterday is just one of various types of relief that legal counsel experienced with dealing with workforce and employee benefit plan challenges that can arise when companies or their plans become inadequately funded, bankrupt, or experience other significant transactions or events, can use to help debtors, and other plan sponsors, their management, affiliates, successors, buyers, plan fiduciaries, vendors, bankruptcy creditors and trustees.

Experienced counsel can help companies understand and negotiate the complex rules of the EBSA, the Pension Benefit Guarantee Corporation and the Internal Revenue Service governing dealings with these plans and where appropriate and available by taking advantage of relief or other options to mitigate these challenges.  Involving experienced counsel to explore and use these options early can help all parties get participants and beneficiaries their benefits while minimizing legal risks, time and expenses associated with the wind up of these troubled or abandoned plans.  Even where special dispensation is not available, the early involvement of experienced legal counsel as early as possible after the possibility that a business or its plans or assets will be impacted by underfunding, insolvency, a bankruptcy or liquidation, workforce reduction, sale, merger or other significant event can help plan and administer the steps necessary to handle cost effectively employee benefit related responsibilities and impacts.

For Help or More Information

If you need help with assessing or handing employee benefit or workforce challenges arising from business or employee benefit plan insolvency, stock or asset sales, mergers, bankruptcy or liquidation, reductions or other workforce changes or other significant business transactions or events, or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters including extensive experience handling workforce and employee benefit challenges arising from plan underfunding, company restructurings, workforce change,  insolvencies, bankruptcies, mergers, stock or asset acquisitions, or other significant business or plan transactions.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, and insurers, bankruptcy trustees and receivers, asset purchasers, creditors and others dealing with plans and their sponsors, and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials about regulatory, investigatory or enforcement concerns.  Her experience includes involvement in the planning, execution and resolution of workforce and employee benefit related details of a multitude of high and low profile restructurings, bankruptcies and other significant transactions throughout her more than 25 year career.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved


IRS Witholding Calculator Can Help Avoid Over & Underwithholding

April 21, 2013

If you have employees that had too much or too little tax taken out of their paychecks, refer them to this new YouTube video about using the IRS withholding calculator at inbox:body:0000000001510000020000000800000000000000:Read#Third.

For Help With These Or Other Matters

If you need assistance in conducting a risk assessment of or responding to an IRS, Labor Department or other legal challenges to your organization’s labor and employment, employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer.

Ms. Stamer has more than 24 years experience advising and representing employer, employee benefit and other clients before the Internal Revenue Service, the Department of Labor, Immigrations & Customs, and other agencies, private plaintiffs and others on worker classification and related human resources, employee benefit, internal controls and risk management matters.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experience worker classification and other employment, employee benefits and workforce matters, Ms. Stamer works extensively with employers, employee benefit plan sponsors, insurers, administrators, and fiduciaries, payroll and staffing companies, technology and other service providers and others to develop and operate legally defensible programs, practices and policies that promote the client’s human resources, employee benefits or other management goals.

A featured presenter in the recent “Worker Classification & Alternative Workforce: Employee Plans & Employment Tax Challenges” teleconference sponsored by the American Bar Association Joint Committee on Employee Benefits, Ms. Stamer also is a widely published author and highly regarded speaker on these and other employee benefit and human resources matters who is active in many other employee benefits, human resources and other management focused organizations.

A Fellow in the American College of Employee Benefits Council, the immediate past Chair and current Welfare Benefit Committee Co-Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, the Vice Chair of the ABA TIPS Employee Benefits Committee, the Gulf States Area TEGE Council Exempt Organizations Coordinator, past-Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, and the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications.

You can learn more about Ms. Stamer and her experience, find out about upcoming training or other events, review some of her past training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer at www.CynthiaStamer.com.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources available at www.solutionslawpress.com.

For important information concerning this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS. ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2011 Cynthia Marcotte Stamer, P.C. Non-exclusive license to republish granted to Solutions Law Press. All other rights reserved.


Administration Proposes To Let PBGC Board Set Premiums In Effort To Shore Up Finances

April 10, 2013

The Obama Administration again is proposing that the Board of the Pension Benefit Guaranty Corporation (PBGC) get the power to set premium rates based on the financial soundness of company sponsors to shore up the agency’s finances in hopes of heading off the need for a government bailout of the agency’s liabilities. 

PBGC, which insures traditional pensions offered by non-governmental employers  continues to struggle for funding to meet the costs of funding its program of insuring failed private defined benefit pension plans.  Always challenging, maintaining financial solvency has become particularly problematic with company failures soaring and investment returns down in the ailing economy.  On November 16, 2012, the agency said its deficit increased to $34 billion, the largest in PBGC’s 38-year history.

The PBGC currently relies exclusively on premiums set by Congress and assets recovered from failed plans to operate and fund its private pension guarantee obligations.  It presently doesn’t receive taxpayer dollars. Premiums, set by Congress, have historically been too low to meet the agency’s needs.

 The Government Accountability Office issued a report saying Congress should consider “revising PBGC’s premium structure to better reflect the agency’s risk from individual plans and sponsors

The proposal to give the PBGC authority to determine premiums is intended to shore up the agency’s funding.  “Without premium increases PBGC will be faced with requesting a taxpayer bailout or shutting down,” said PBGC Director Josh Gotbaum.  “The current system punishes responsible companies by making them pay for the mistakes of others and punishes plans by raising rates just when companies can least afford it.  Tha’s why administrations of both parties, and recently GAO, have supported giving PBGC what the FDIC has long had — the ability to set its own rates and to set them in ways that are fair.”

The Administration originally introduced the idea of allowing the PBGC to set its own premiums in 2012.  It now has reintroduced the effort that ties premiums to company risk in its 2014 budget. Under the current proposal, the PBGC Board, which consists of secretaries of Labor, Commerce, and Treasury, with the secretary of Labor as chair, wouldn’t get the authority to set rates until 2015. The budget requires the board to perform a one-year study with a public comment period. Additionally, premium increases would be gradually phased in to give company sponsors time to prepare for the new rates.

For Help With These Or Other Matters

If you need help dealing with pension or other employee benefit funding, design or administration challenges, dealing with the PBGC,  IRS, Labor Department or other agency or legal challenge to your organization’s existing employee benefit or other practices, or other workforce re-engineering, labor and employment, employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer.

Ms. Stamer has more than 26 years experience advising and representing employer, employee benefit and other clients on human resources, employee benefit, internal controls and risk management matters including extensive work on workforce re-engineering and other human resources and employee benefits challenges of distressed and other companies, and related matters.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experience worker classification and other employment, employee benefits and workforce matters,  Ms. Stamer works extensively with employers, employee benefit plan sponsors, insurers, administrators, and fiduciaries, payroll and staffing companies, technology and other service providers and others to develop and operate legally defensible programs, practices and policies that promote the client’s human resources, employee benefits or other management goals.   Ms. Stamer also is a widely published author and highly regarded speaker on these and other employee benefit and human resources matters who is active in many other employee benefits, human resources and other management focused organizations.

A Fellow in the American College of Employee Benefits Council, the immediate past Chair and current Welfare Benefit Committee Co-Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, the Vice Chair of the ABA TIPS Employee Benefits Committee, the Gulf States Area TEGE Council Exempt Organizations Coordinator, past-Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, and the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications.

You can learn more about Ms. Stamer and her experience, find out about upcoming training or other events, review some of her past training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer at www.CynthiaStamer.com.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources available at www.solutionslawpress.com

For important information concerning this communication click here THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2011 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press.  All other rights reserved.


Businesses Urged To Strengthen Their Worker Classification Defenses As IRS, Other Agencies Step Up Audits & Enforcement

March 10, 2013

Businesses using non-employee workers should heed the recently announced expansion of the Internal Revenue Service (IRS) Voluntary Classification VCS Program (VCS Program) as yet another warning to clean up their worker classification practices and defenses for all workers performing services for the business in any non-employee capacity. 

Relying upon misclassifications of workers as nonemployed service providers presents many financial, legal and operational risks for businesses.  When businesses treat workers as nonemployees who render services in such a way that makes the worker likely to qualify as a common law employee, the business runs the risk of overlooking or underestimating the costs and liabilities of employing those workers.  The enforcement records of the U.S. Department of Labor Wage & Hour Division contains a lengthy and ever-lengthening record of businesses subjected to expensive backpay and penalty awards because the business failed to pay minimum wage or overtime to workers determined to qualify as common law employees entitled to minimum wage and overtime under the Fair Labor Standards Act.  See, e.g.,  Employers Should Tighten Worker Classification Practices As Obama Administration Moves To Stamp Out Misclassification Abuses; $1 Million + FLSA Overtime Settlement Shows Employers Should Tighten On-Call, Other Wage & Hour Practices;  Employer Charged With Misclassifying  & Underpaying Workers To Pay $754,578 FLSA Back Pay Settlement

Originally announced on September 22, 2011 in Announcement 2011-64,  the VCS Program as modified by Announcement 2012-45 continues to offer businesses a carrot to reclassify as employees workers misclassified for payroll tax purposes as independent contractors, leased employees or other non-employee workers backed by the enforcement stick of the IRS’ promise to zealously impose penalties and interest against employers caught wrongfully misclassifying workers.  While the IRS’s VCS Program and stepped up audits of worker classification provide a strong incentive for business to address their worker classification risks, the IRS is only one of many agencies on the alert for worker misclassification exposures.  Worker misclassification also impacts wage and hour, safety, immigration, worker’s compensation, employee benefits, negligence and a host of other obligations. 

All of these exposures carry potentially costly compensation, interest, and civil and in some cases even criminal penalty exposures for the businesses and their leaders.  Consequently, businesses should act prudently and promptly to identify and address all of these risks and move forward holistically to manage their misclassification exposures.

Agencies charged with enforcement of these other laws as well as private plaintiffs also are on the alert for and pursing businesses for aggressive misclassification of workers in these other exposure areas.   Since most businesses uniformly classify workers as either employees or non-employees for most purposes,  business leaders must understand and manage the full scope of their businesses’ misclassification exposures when charting and implementing their strategy in response to the VCS Program or another voluntary compliance program, responding to an audit or other agency action, addressing a private plaintiff suit or conducting other risk management and compliance activities impacting or affected by worker classification concerns. 

VCS Program Offers  Limited Worker Misclassification Exposure Relief

Worker misclassification impacts a broad range of tax and non-tax legal obligations and risks well beyond income tax withholding, payroll and other employment tax liability and reporting and disclosure. A worker classification challenge or necessity determination in one area inherently prompts the need to address the worker reclassification and attendant risks in other areas.

Typically, in addition to treating a worker as a non-employee for tax purposes, a business also will treat the worker as a non-employee for immigration law eligibility to work, wage and hour, employment discrimination, employee benefits, fringe benefits, worker’s compensation, workplace safety, tort liability and insurance and other purposes.

Health Care Reform To Increase Worker Classification Risks

Businesses can look forward to these risks rising in 2014, when the “pay or play” employer shared responsibility, health plan non-discrimination, default enrollment and other new rules take effect under the Patient Protection & Affordable Care Act (ACA).  Given these new ACA requirements and the government’s need to get as many workers covered as employees to make them work, as well as existing laws, IRS and other agencies are expanding staffing and stepping up enforcement against businesses that misclassify workers.

Whether and how ACA’s “pay-or-play” employer shared responsibility payment, default enrollment, insured health plan non-discrimination and other federal health plan rules apply to a business’ health plan requires a correct understanding of what workers considered employed by the business and how these workers are counted and classified for purposes of ACA and other federal health plan mandates.  

ACA and other federal health plan rules decide what rules apply to which businesses or health plans based on the number of employees a business is considered to employ, their hours worked, their seasonal or other status, and other relevant classification as determined by the applicable rule.  The ACA and other rules vary in the relevant number of employees that trigger applicability of the rule and how businesses must count workers to decide when a particular rule applies.  Consequently, trying to predict the employer shared responsibility payment, if any under Internal Revenue Code (Code) Section 4980H or model the burden or cost of any other federal health benefit mandates requires each business know who counts and how to classify workers for each of these rules.  Most of these rules start with a “common law” definition of employee then apply rules to add or ignore various workers.  Because most federal health plan rules also take into account “commonly controlled” and “affiliated” businesses’ employees when determining rule coverage, businesses also may need to know that information for other related or commonly owned businesses.  

For instance, when a business along with all commonly controlled or affiliated employers, if any, employ a combined workforce of 50 or more “full-time” and “full-time equivalent employees” (Large Employer) does not offer “affordable,” “minimum essential coverage” to every full-time employee and his dependents under a legally compliant health plan that provides “minimum essential value” within the meaning of ACA after 2013, the business generally should expect to pay a shared responsibility payment under Code Section 4980H for each month after 2013 that any “full-time” employee  receives a tax subsidy or credit for enrolling in one of ACA’s health care exchanges.  The amount of this required shared responsibility payment will be calculated under Code Section 4980H based on the plan design and coverage the employer health plan offers and the required employee contribution for employee only coverage.

If the business intends to continue to offer health coverage, it similarly will need to accurately understand which workers count as its employees for purposes of determining who gets coverage and the consequences to the business for those workers that qualify as full-time, common law employees not offered coverage.

In either case, ACA uses the common law employee test as the basis for classification of workers both to determine what businesses have sufficient full-time employees to become covered under these rules, the payment, if any, required under Code Section 4980H’s new employer shared responsibility payment requirements, as well as the workers entitled to benefit from these rules under employer sponsored health plans.  Accordingly, These the already significant legal and financial consequences for employers that misclassify workers will rise significantly when ACA gets fully implemented beginning in 2014.

Consider VCP Program Relief In Context Of Other Worker Classification Risks

As part of a broader effort to get businesses properly to classify and fulfill tax and other responsibilities to workers, the IRS is offering certain qualifying businesses an opportunity to resolve payroll liabilities arising from past worker misclassifications under the VCS Program. The VCS Program settlement opportunity emerged in 2011 as worker misclassification amid rising scrutiny and enforcement by the IRS and other agencies against businesses for misclassification related violations of the Code, wage and hour, safety, discrimination, immigration and various other laws.

Touted by the IRS as providing “greater certainty for employers, workers and the government,” the VCS Program offers businesses that meet the eligibility criteria for the program the option to resolve past payroll tax liability for the misclassified workers by paying a settlement payment of just over one percent of the wages paid to the reclassified workers for the past year and by meeting other program criteria. When a business meets the VCS Program requirements, the IRS promises not to conduct a payroll tax audit or assess interest or penalties against the business for unpaid payroll taxes for the previously misclassified workers covered by the VCS Program.  For more detail, see New IRS Voluntary IRS Settlement Program Offers New Option For Resolving Payroll Tax Risks Of Misclassification But Employers Also Must Manage Other Legal Risks; Medical Resident Stipend Ruling Shows Health Care, Other Employers Should Review Payroll Practices; Employment Tax Takes Center Stage as IRS Begins National Research Project , Executive Compensation Audits.

The IRS hoped the threat of much larger liability if the IRS catches their misclassification in an audit would induce businesses to settle their exposure and come into compliance by participating in the VCS Program. 

Part of the low participation stemmed from restrictions incorporated into the VCS Program.  Not all businesses with misclassified workers qualified to use the program.  The original criteria to enter the VCS Program established in 2011 required that a business:

  • Be treating the workers as nonemployees;
  • Consistently have treated the workers in the past as nonemployees;
  • To have filed all required Forms 1099 for amounts paid to the workers;
  • Not currently be under IRS audit;
  • Not be under audit by the Department of Labor or a state agency on the classification of these workers or contesting the classification of the workers in court; and
  • To agree to extend the statute of limitations on their payroll tax liabilities from three to six years.

After only about 1000 employers used the VCS Program to voluntarily resolve their payroll tax liability for misclassified workers, the IRS modified the program in hopes of making participation more attractive to businesses in Announcement 2012-45.  As modified by Announcement 2012-45, employers under IRS audit, other than an employment tax audit, now qualify for the VCS Program. Announcement 2012-45 also eliminates the requirement that employers agree to extend their statute of limitations on payroll tax liability from three to six years.   

A business that meets these adjusted criteria for participation now follows the following steps to enter the VCS Program:

  • Files the Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before the business plans to begin treating the workers as employees;
  • Adjusts its worker classification practices prospectively with respect to the previously misclassified workers;
  • Pays the required settlement fee; and
  • Properly classifies workers going forward. 

While these changes may make participation in the VCS Program more attractive to some employers, many employers may view use of the VCS Program as too risky because of uncertainties about the proper classification of certain workers in light of the highly fact specific nature of the determination, as well as concerns about the effect that use of the VCS Program might have on the businesses non-tax misclassification exposures for workers that would be reclassified under the VCS Program.

Uncertainties Complication Worker Classification Risk Management

One of the biggest challenges to getting businesses to change their worker classifications is getting the businesses to accept the notion that long-standing worker classification practices in fact might not be defensible. 

Although existing precedent and regulatory guidance makes clear that certain long-standing worker classification practices of many businesses would not hold up if scrutinized, business leaders understandably often discount the risk because these classifications historically have continued with little or no challenge in the past.

Even when business leaders recognize that changing enforcement patterns merit reconsideration of historical worker classification practices, they may be reluctant to reclassify the workers. 

The common law employment test applied to decide if a worker is an employee for payroll, income tax, employee benefit plan and other purposes under the Code often relies on a subjective, highly fact-specific analysis of the particular circumstances of the worker.  Employment status typically is presumed under the common law test for purposes of the Code and most other laws.  This means that the business, rather than the IRS or other agency, generally bears the burden of proving the correctness of its classification of a worker as a non-employee for purposes of these determinations. 

Given the business typically bears the burden of proving a worker is not an employee, a business receiving services from workers performing services in a capacity other than as a employee should ensure that the position in structural form and operation will withstand scrutiny under the common law and other applicable tests and retain the necessary evidence to support this characterization in anticipation of a potential future audit or other challenge.

Since the business can expect to bear the burden of proving the appropriateness of a nonemployee characterization, businesses also should exercise special care to avoid relying upon overly optimistic assessment of the facts and circumstances when assessing the defensibility of their characterization of the position. 

When the factual evidence creates significant questions about the defensibility of a worker’s classification as a non-employee, an employing business generally should consider reclassifying or restructuring the position to be more defensible pursuant to a process designed to mitigate or resolve risks of the prior classification.  Often, it also may be desirable for the business to incorporate certain contractual, compensation and other safeguards into the worker relationship, both to support the nonemployee characterization and to minimize future reclassification challenges and exposures.

Consider Importance of Attorney-Client Privilege As Risk Management Tool

Because of the broad reaching and potentially significant liability exposures arising from misclassification, business leaders generally should work to ensure that their risk analysis and decision-making discussion is conducted in a way that positions these discussions for protection under attorney-client privilege and attorney work product privilege.

The availability of the attorney-client and other evidentiary privilege to help shield the investigation and associated decision-making is particularly important because of the potentially significant civil and even criminal liability exposures that often arise from worker misclassification under various relevant laws. 

The interwoven nature of the tax and non-tax risks merits particular awareness by business leaders of the need to use care in deciding the outside advisors and consultants that will help in the evaluation of the risks and structuring of solutions.  With the VCS Program and other tax exposures in the limelight, businesses can expect that their accounting and other consultant advisors will recommend and even offer to lead the review.  While appropriately structured involvement by these non-legal consultants can be a valuable tool, the blended nature of the misclassification exposures means that the evidentiary privileges that accountants often assert to help shield their tax related discussions from discovery in certain federal tax prosecutions are likely to provide inadequate protection against discovery given the broad non-tax related exposures inherent in the misclassification problem.  For this reason, business leaders are urged to require that any audits and other activities by these non-legal consultants to evaluate or mitigate these exposures be engaged and conducted whenever possible within attorney-client privilege to protect and promote the ability to assert evidentiary protections against disclosure and discovery of sensitive discussions. Accordingly, while businesses definitely should incorporate appropriate tax advisors into the evaluation process, most businesses before commencing meaningful discussions with or engaging assessments by their accounting firm or other non-attorney tax advisor will want to engage counsel and coordinate  their accounting and other non-attorney tax advisors” involvement and activities through qualified legal counsel to protect and maximize the ability to conduct the analysis of their risks and options within the protection of attorney-client privilege.

For Help With These Or Other Matters

If you need assistance in conducting a risk assessment of or responding to an IRS, Labor, HHS, DOJ, ICE, private claim or other legal challenges to your organization’s existing workforce classification or other labor and employment, employee benefit, compensation practices, compliance, or other internal controls and management concerns, please contact the author of this update, attorney Cynthia Marcotte Stamer.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experience worker classification and other employment, employee benefits and workforce matters,  Ms. Stamer has more than 25 years experience advising and representing employer, employee benefit and other clients before the Internal Revenue Service, the Department of Labor, Immigration & Customs, Justice, and Health & Human Services, the Securities and Exchange Commission, Federal Trade Commission, state labor, insurance, tax and attorneys’ general, and other agencies, private plaintiffs and others on worker classification and related human resources, employee benefit, tax, internal controls, risk management and other legal and operational management concerns. 

Ms. Stamer works extensively with employers, employee benefit plan sponsors, insurers, administrators, and fiduciaries, payroll and staffing companies, technology and other service providers and others to develop and run legally defensible programs, practices and policies that promote the client’s human resources, employee benefits or other management goals.  

A Fellow in the American College of Employee Benefits Council, the immediate past Chair and current Welfare Benefit Committee Co-Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, the Vice Chair of the ABA TIPS Employee Benefits Committee, the Gulf States Area TEGE Council Exempt Organizations Coordinator, past-Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, and the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, Ms. Stamer also is a widely published author and highly regarded speaker on these and other employee benefit and human resources matters who is active in many other employee benefits, human resources and other management focused organizations who is published and speaks extensively on worker classification and related matters.   She is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications.

You can learn more about Ms. Stamer and her experience, find out about upcoming training or other events, review some of her past training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer at www.CynthiaStamer.com.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources available at www.solutionslawpress.com including:

For important information about this communication click here THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press.  All other rights reserved.


Boost Employee Recognition of Value Of Employer & Other Retirement Savings Tools & Plans

October 22, 2012

Studies suggest that employees need to save an estimated 40% of current earnings to have sufficient savings to fund the anticipated cost to keep up their lifestyle post retirement for their expected post retirement life expectancy.  Although times are tough, American workers need to understand the importance of taking advantage of employer sponsored and other retirement saving and funding tools. Here is a free Department of Labor resource that employers might want to include in their retirement education toolkit.

For More Information Or Assistance

If you need help reviewing or responding to the defined benefit plan funding or other employee benefit, compensation or employment regulations or other related matters please contact Cynthia Marcotte Stamer here or (469)767-8872.

About Ms. Stamer

Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, an American College of Employee Benefits Counsel Fellow, past Chair and current Welfare Benefit Committee Co_Chair of the American Bar Association (ABA) RPTE Employee Benefit & Other Compensation Group, a Council Member of the ABA Joint Committee on Employee Benefits, current TIPS Employee Benefits Committee, Vice Chair, and Past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, management attorney and consultant Cynthia Marcotte Stamer has more than 25 years experience advising and representing employers, health and other employee benefit plans, their sponsors, fiduciaries and plan administrators, consultants, vendors, outsourcers, insurers, governments and others about employment, employee benefit, compensation, and a wide range of other performance, legal and operational risk management practices and concerns.  As a part of this work, Ms. Stamer has worked extensively with clients to manage risks and defend practices under a wide range of laws and circumstances.  Her experience includes extensive work advising and representing employers, plans, plan fiduciaries, trustees, investors, and others about managing and resolving risks relating to distressed pension and other employee benefit plans, downsizing and other workforce re-engineering and other similar matters.  A prolific author and popular speaker, Ms. Stamer also publishes, conducts client and other training, testifies, speaks and consults extensively on other employment and employee benefit risk management practices and concerns for the ABA, World At Work, SHRM, American Health Lawyers Association, Institute of Internal Auditors, Society for Professional Benefits Administrators, HCCA, Southwest Benefits Association and many other organizations.  An Editorial Advisory Board member and contributing author of HR.com, Insurance Thought Leaders, Employee Benefit News and many other publications, her insights on these and related topics have appeared in Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, Managed Healthcare, Health Leaders, various ABA publications and a many other national and local publications. To learn more about Ms. Stamer, her experience, involvements, programs and publications, see here or contact Ms. Stamer.

Other Resources & Developments

If you found this information of interest, you also may be interested in reviewing other recent Solutions Law Press updates including:

If you or someone else you know would like to receive future updates and notices about upcoming programs and events, please be sure that we have your current contact information – including your preferred e-mail- by creating or updating your profile at here.   For important information concerning this communication click here.

©2012 Cynthia Marcotte Stamer. All rights reserved.


Congress Gives Defined Benefit Plan Sponsors Welcome Funding Relief, Raises PBGC Premiums & Makes Other Reforms

July 31, 2012

The Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Internal Revenue Code generally require employers that sponsor defined benefit pension plans make sufficient contributions to their defined benefit pension plans to ensure that their plans meet minimum funding requirements.  

Failure to meet minimum funding requirements triggers a series of complicated reporting and disclosure, funding and excise tax liabilities, liens and other obligations that are serious and require prompt redress through prompt payment of required contributions and penalties, request for funding waivers or termination under a series of complicated rules or both.  Special controlled group, lien and successor liability rules incorporated into these funding requirements often spread the risk of funding deficiencies under these rules by extending liabilities to commonly controlled or affiliated employers, lenders, potential purchasers and others dealing with these plans or the businesses that sponsor them.  

Because employer funding obligations under these rules depend heavily upon interest and other investment performance used to calculate funding levels, employer funding obligations tend to spike during economic depressions or slowdowns, resulting in sharp increases in funding obligations for employers at a time when the tight economy already makes finances tight.   Congress has faced growing pressure to provide some sort of defined benefit pension plan funding relief as low investment returns and strained corporate budgets during the ongoing economic crisis have fueled an underfunding epidemic among employers sponsoring defined benefit pension plans and threatened the financial viability of many sponsoring employers and the federal insurance program responsible for providing backup insurance for private employer defined benefit commitments administered by the PBGC.

MAP-21 provides immediate defined benefit plan funding relief by changing how the interest rates that employers must use to calculate their current defined benefit plan funding obligations are calculated.  MAP-21 defined benefit plan funding reforms effectively decrease current defined benefit plan funding costs by establishing a minimum and maximum for the interest segment rates defined benefit plans use to calculate currently required funding based on a historic 25-year average of those segment rates. It is important that employers and plan fiduciaries keep in mind that the MAP-21 interest rate change applies to the calculation of current funding obligations that employer.  It does not apply for purposes of calculating lump sum distributions, limits on deductible contributions to single-employer plans, PBGC variable-rate premiums, fi

With many employers continuing to meet defined benefit plan funding requirements driven up by the continued excessively low investment performance of their benefit plan investment in the slow economic environment, defined benefit pension plan funding relief included in the “Moving Ahead for Progress in the 21st Century Act”(MAP–21”) signed into law by President Obama on July 6, 2012 provides welcome and  much-needed pension funding relief. For many financially strapped businesses that sponsor defined benefit plans, the MAP-21 relief may allow the employer to avoid terminating its defined benefit plan, escape costly underfunding consequences that many defined benefit plan sponsors fear will financially cripple or bankrupt their companies, or both.

MAP-21 provides immediate funding relief for financially strapped defined benefit plan sponsors and makes various other reforms impacting defined benefit pension plans and the Pension Benefit Guarantee Corporation (PBGC) insurance program that helps to insure certain benefit commitments made under these defined benefit plans.  The MAP-21 funding relief is intended to help employers struggling to meet heightened pension funding obligations brought about by the decline in investment performance resulting from the economic downturn.

nancial reporting under Section 4010 of ERISA, and qualified transfers of excess pension assets to retiree medical accounts.

In addition to changing the rules for calculating interest rates for purposes of determining defined benefit plan minimum funding obligations, MAP-21 also extends rules allowing transfers of excess pension assets to retiree health accounts to December 31, 2021 and expands those transfer rules also to allow transfers to fund retiree group term life insurance accounts.

Finally, in addition to these changes to defined benefit pension plan funding rules, MAP-21 also reorganizes the PBGC organizational structure and increases PBGC insurance premiums.

While the MAP-21 reforms will provide welcome relief, sponsoring businesses, their commonly controlled and affiliated employers, lenders, investors and successors still must exercise care to carefully monitor the funding status of defined benefit plans and the potential liabilities and responsibilities associated with these plans.  Appropriate steps should be taken to maintain required funding levels or, at the first sign of trouble, to seek experienced legal and actuarial advice and help to identify and take prompt steps to pursue options to head off a potential crisis by freezing or terminating the plan, providing required notifications and disclosures to participants and beneficiaries, the PBGC, lenders, investors, and other concerned parties, and other actions to mitigate exposures. 

For More Information Or Assistance

If you need help reviewing or responding to the defined benefit plan funding or other employee benefit, compensation or employment regulations or other related matters please contact Cynthia Marcotte Stamer here or (469)767-8872. 

A Fellow in the the American College of Employee Benefits Council, Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, Immediate Past Chair and current Welfare Plan Committee Co-Chair of the American Bar Association (ABA) RPTE Employee Benefit & Other Compensation Group, a Council Member of the ABA Joint Committee on Employee Benefits, Vice-Chair of the ABA TIPS Employee Benefits Commitee, Past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, management attorney and consultant Cynthia Marcotte Stamer nearly 25 years experience advising and representing employers,  employee benefit plans, their sponsors, bankruptcy creditors, debtors and trustees, plan  fiduciaries and plan administrators, consultants, vendors, outsourcers, insurers, governments and others about employment, employee benefit, compensation, and a wide range of other performance, legal and operational risk management practices and concerns.  As a part of this work, Ms. Stamer has worked extensively with clients to manage risks and defend practices under a wide range of laws and circumstances.  Her experience includes extensive work advising and representing employers, plans, plan fiduciaries, trustees, investors, and others about managing and resolving risks relating to distressed pension and other employee benefit plans, downsizing and other workforce reengineering and other similar matters.  A prolific author and popular speaker, Ms. Stamer also publishes, conducts client and other training, speaks and consults extensively on GINA and other employment and employee benefit risk management practices and concerns for the ABA, World At Work, SHRM, American Health Lawyers Association, Institute of Internal Auditors, Society for Professional Benefits Administrators, HCCA, Southwest Benefits Association and many other organizations.  Her insights on these and related topics have appeared in Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, Managed Healthcare, Health Leaders, various ABA publications and a many other national and local publications. To learn more about Ms. Stamer, her experience, involvements, programs and publications, see here or contact Ms. Stamer.

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