The IRS issued Notice 2012-40 yesterday (click here for the notice), providing a number of important clarifications regarding the $2,500 cap on health FSA contributions that applies beginning in 2013.  The most surprising development is the IRS's interpretation that the cap applies on a plan-year basis, rather than a calendar-year basis.  This is important for employers with fiscal-year plans.  They will be able to wait until the first plan year beginning after December 31, 2012, to implement the cap, rather than using the transition rule or early implementation of the cap to ensure contributions during the 2013 calendar year do not exceed the cap, as was previously thought necessary.

Other key guidance points include:

• Clarification that unspent amounts carried over during a grace period will not count against the cap for the plan year in which the grace period occurs.
• Confirmation that the cap only applies to employee salary-reduction contributions to a health FSA.  Employer contributions (e.g., flex credits) and salary-reduction contributions to dependent-care FSAs do not count, nor do amounts credited to HSAs or HRAs.

In addition to interpretive guidance, the Notice provides a limited correction rule that will allow fixing some good-faith mistakes.  If a mistaken election to contribute more than $2,500 to a health FSA in a year is properly corrected, the error will not jeopardize the plan's status as a qualifying cafeteria plan. 

Of academic interest, the Notice also requests comments on the use-it-or-lose-it rule.  The implication is that the $2,500 cap may be low enough that concerns about excessive use of      Continue Reading...

As if two ugly faces on this blog weren't bad enough, beginning in June you'll see three.

Jason Lacey is joining the Kansas Employment Law Blog to contribute content on employee benefits and related issues. Consistent with the theme of the blog, his posts will primarily focus on employer-related aspects of new developments and other considerations in employee benefits.

Jason is a partner with Foulston Siefkin LLP in Wichita. He is a hopeless fly fisherman and a worse golfer, so he wisely spends most of his time thinking about federal laws that most people love to hate - ERISA, HIPAA, COBRA, the Internal Revenue Code, and the like. He has two young daughters, who have convinced him that sleep and a full head of hair are overrated.

Employers in the Wichita area may want to check out the lunch time workshops for human resources professionals being presented by the law firm Foulston Siefkin LLP. Each session will address HR issues you may find important and relevant to your business. Topics to be covered include:

• The Nuts and Bolts of Kansas Unemployment Laws: How They Work and How Best to Position Your Company to Contest an Award — July 17, 2012, Speaker: Forrest Rhodes - As most HR professionals know, the only constant is change. Even as the economy appears to be rebounding, circumstances will always arise that bring the unemployment benefits process into play. This session will explain how the unemployment process works, from funding your employer’s account through the claims and appeals process. A number of practical tips to help you position yourself as much as possible to (hopefully) avoid benefit awards will also be discussed.

• Health Care Reform Update — August 7, 2012, Speaker: Jason Lacey - This session will provide an overview of current topics in health care reform, including analysis of the impact, or potential impact, of the Supreme Court’s decision, and guidance on implementation of mandates such as the summary of benefits and coverage (SBC), W-2 reporting, and the cap on health FSA accounts.

• 401(k) Plan Check-Up — August 22, 2012, Speaker: Jason Lacey - This session will look at a recent IRS project on 401(k) plan compliance, highlighting common problem areas and      Continue Reading...

The Department of Labor (DOL) recently posted a new set of FAQs (click to here to read the FAQ) to its website providing additional guidance on the requirement under health care reform to give health plan participants a four page uniform summary of benefits and coverage (SBC).  Some highlights include:

• A new electronic-distribution safe harbor that specifically allows for distribution of the SBC with online enrollment materials.
• A transition rule for arrangements that are partly insured and partly self-funded (e.g., an insured high deductible plan with integrated self-insured HRA) that allows using two or more partial SBCs for the first year of applicability.
• A non-enforcement rule for expatriate coverage during the first year of applicability, effectively suspending the requirement to provide an SBC for expatriate coverage during the first year.
• Assurance that penalties will not be imposed during the first year of applicability on employers "that are working diligently and in good faith to comply" with the rules.

The detailed requirements for preparation and distribution of the SBC are described in final regulations issued by the IRS, DOL, and HHS earlier this year.  (Click here to see the final regulation.)  The requirement to distribute an SBC generally applies to the first open enrollment period beginning on or after September 23, 2012.

Memorial Day is rapidly approaching.  Many of you may have plans to take a few days off and enjoy the official start to the summer vacation season.  Popular escapes include a wide variety of outdoor activities like camping and lake trips.  For those of you with kids playing sports, Memorial Day is also a popular time for tournaments.  With all of these recreational activities on our minds, let's not lose sight of the purpose for the Memorial Day holiday.  Memorial Day was originally established as a day of remembrance for those who died in service to the nation (read more here). 

In this spirit, it is a good time for employers to consider their obligations under USERRA, the federal law that protects returning service members as they re-enter the workforce following their military service.  USERRA protects veterans from discriminatory treatment and provides a variety of re-employment related protections.  For a quick review check out this summary of USERRA's protections.  The DOL has published a lengthy handbook related to USERRA, which can be found here.

No matter what your tradition, have a great and safe holiday weekend.

The FMLA has been part of the workplace for nearly 20 years . . . and it hasn't gotten any easier for employers to administer.  For those looking to gain a deeper knowledge of the FMLA, Foulston Siefkin LLP lawyers will be presenting an FMLA Master Class on June 7 in Wichita.  This full-day event will address everything FMLA -- from basic to complex issues.  Sessions will include recent FMLA developments, what constitutes a serious health condition and how to collect appropriate medical information, military family leave, curbing FMLA abuse, and coordinating the FMLA with the ADA and Workers' Compensation laws.  For more information or to sign up, click here.  Be sure to enter the special "Friends of Foulston Siefkin" code to get a 20% discount on your registration (Offer Code: R500).

Have you ever heard someone say they’d give their left arm to get that big promotion? Well, what about a kidney?

The Kansas Professional Employer Organization (PEO) Act was presented to Governor Brownback for his signature on May 18, 2012. The Act requires a person on business entering into a co-employment relationship with an employer/client to be designated as a PEO and register with the insurance commissioner. PEOs already doing business in the state must register within 60 days after the Act becomes effective on July 1, 2012. The insurance department is required to keep a public list of registered PEOs and develop rules and regulations for enforcement of the Act. The Senate passed this bill 40-0 on May 8, and the House adopted the final version by a vote of 91-33 on May 10.

You may remember Schoolhouse Rock, the series of educational cartoon shorts that ran on ABC on Saturday mornings in the 1970s.  One of the most-popular episodes, titled "I'm Just a Bill," teaches kids about the legislative process through the adventures of Bill, a bill hoping to become a law.

At one point Bill and a young boy have the following exchange:

Bill:  "I hope they decide to report on me favorably; otherwise I may die."

Boy:  "Die?"

Bill:  "Yeah, die in committee."

Such was the fate of a bill to amend the Kansas Wage Payment Act.

Kansas lawmakers closed a marathon 99-day session yesterday afternoon.  When the gavel slammed for the final time, one of the bills left in the dust was House Bill 2627.  This bill would have allowed employers to withhold money from an employee's final paycheck, upon providing written notice and an explanation, for the following reasons:  (1) to recover a computer, phone, and other property provided to the employee; (2) to recoup a loan or advance made to the employee; (3) to recover a payroll overpayment; and (4) to compensate the employer for the cost or unpaid balance of the employer's uniforms, equipment, tools, or other property purchased by the employee. 

The House of Representatives passed the bill 93-31 on February 23.  On March 1 it was referred to the Senate Committee on Commerce.  The Committee made some changes, and on March 13 recommended that it be passed by the entire Senate.  But that was the end of the line for the bill, at least for the 2012 legislative      Continue Reading...

Facebook's pre-IPO regulatory filings (click here) with the Securities and Exchange Commission (SEC) highlight a common issue with equity compensation programs -- the tax bill can be very large and trigger a burdensome withholding obligation.  Facebook reports that its employees and contractors hold about 378.5 million restricted stock units (RSUs).  Each RSU represents a right to receive one share of Facebook stock when the RSU vests.  The RSUs will vest approximately six months after the IPO.  Facebook is estimating a median IPO price of $36 per share.  If that valuation holds up, the RSU holders will vest in equity compensation worth approximately $13.6 billion.  Assuming a combined state and federal tax rate of 40%, that will produce a tax bill of about $5.5 billion.

A big tax bill can be a nice problem to have; however, employers are required to withhold taxes with respect to equity compensation as it vests, and the IRS wants to be paid in cash, not shares.  So where does the money come from?  In Facebook's case, it looks like they are planning to use a good chunk of the money they will receive from selling shares to the public in the IPO for business purposes; however, Facebook will likely hold back a percentage of the shares each employee would receive upon vesting of the RSUs and then use some of the cash from the IPO to make the required tax payments.  This is sometimes referred to as "netting down" the shares the employees receive.  It is convenient for employees, but requires the      Continue Reading...

On May 14 Governor Brownback signed into law the Health Care Rights of Conscience Act.  So why report about a new health care law in an employment law blog?  Because the law gives new employment protection to persons who work at medical care facilities.

Particularly, the law says that no person (regardless of whether he or she works at a medical care facility) can be required to "perform, refer for, or participate in medical procedures or in the prescription or administration of any device or drug which result [sic] in the termination of a pregnancy or an effect which the person reasonably believes may result in the termination of a pregnancy."  The law then provides that it is unlawful for any "medical care facility" to "terminate the employment of, prevent or impair the practice or occupation of or impose any other sanction on any person because of such person's exercise of rights protected by this section."  The law becomes effective July 1, 2012.

The NLRB's new quick election rule (also dubbed the ambush election rule), which took effect at the end of April, has quickly been shelved.  Yesterday, a federal district court ruled the election rule was improperly put into effect because the NLRB lacked a quorum to take action.  For the NLRB to take action, three members are required.  In this particular instance, only two members took action on the finalization of the rule, according to the court.  This lack of a quorum invalidates the rule.  Shortly after the ruling was issued, the NLRB announced it would suspend application of the rule until further notice.

While the ruling is a victory for employer groups, it may be a short-lived victory.  The court failed to address any of the substantive arguments brought by the employer groups and simply invalidated the rule based upon the lack of a quorum.  This procedural defect can be easily remedied by the NLRB since there is now a full NLRB complement following the recess appointments.  For now, all of the election petitions filed going forward and any of the election petitions filed under the new rule will utilize the old process in effect prior to the rule change.  Stay tuned for the NLRB's next announcement on this issue.

The NLRB's announcement of the rule suspension can be found here.

You know that firing an employee by email is not best practices.  You also know you should carefully proofread your emails, including the distribution list--particularly the distribution list--before hitting send.  Here's a cautionary tale of what can happen when such errors are compounded.

Employees of the U.K. insurance company Aviva--all 1,300 of them--recently received an email from HR notifying them of their termination.  But, you guessed it, the email was really intended for only one person.  Somebody in HR hit "send to all" by mistake.

That's embarrassing.  But, even more embarrassing, the email said that the reason the employees were being terminated was because they failed to properly secure the company's confidential information.  In other words, the poor chap being fired for not keeping things confidential was fired via an email about a confidential personnel matter sent to every employee in the company.

So let's review.  Firing someone by email rather than in person.  Strike one.  Not  carefully reviewing the distribution list of a sensitive email.  Strike two.  Violating confidentiality rules while firing someone for failing to protect confidential information.  Strike three.

It took only 20 minutes for HR to recognize the error and send an apology.  The errant email was the result of a "clerical error," the company said.  No word on what happened to the employee who made the mistake.  But you can bet that person is nervous everytime he or she gets an email from HR.

It is unlawful to fire an employee in retaliation for making internal oral complaints involving rights protected by the Kansas Wage Payment Act, the Kansas Court of Appeals ruled on May 4.  Less than a year ago the Kansas Supreme Court held that is is unlawful to discharge an employee for exercising rights under the Wage Payment Act, such as by filing a claim for wages with the Kansas Department of Labor.  The new decision clarifies that this anti-retaliation rule is not limited to situations where the employee has filed a formal claim, but also covers oral complaints to company management. 

However, to be protected, the complaint, whether written or oral, must be "clear enough that the employer would understand that the employee is asserting rights protected by the statute."  The Wage Payment Act requires, among other things, that employers must pay employees all wages when due.  But in this case, the court said, the employee's complaints were "too equivocal" to put the employer on notice that he was making some claim under the Wage Payment Act.  So the court upheld the district court's ruling to dismiss the claim.

As part of the insurance-market reforms enacted by the Patient Protection and Affordable Care Act (PPACA), insurance carriers are required to spend a minimum percentage of premiums (generally 85%) on medical care and quality improvement.  If this percentage -- the "medical loss ratio" -- is not satisfied, premiums must be returned to the policyholder to the extent necessary to reach the required percentage.

A recent report by the Kaiser Family Foundation (read here) estimates that under this rule, carriers nationwide will be rebating as much as $1.3 billion in total premiums collected during 2011.  Of that, employer-sponsored plans are expected to receive approximately $900 million, and at least some rebates are expected in every state except Hawaii.

When a rebate is received with respect to an ERISA-covered plan, care must be taken to determine whether some portion of the rebate is a "plan asset".  If so, it must be treated in a manner that complies with the ERISA fiduciary obligations that apply to handling plan assets.  The Department of Labor (DOL) has provided some specific guidance on this issue (read here).  The guidance instructs that the rebate generally must be allocated between the employer and the plan participants.  The portion allocable to the participants is a plan asset and must either be returned to the participants or used exclusively for their benefit.

The facts of each arrangement must be considered, but a rebate generally will be allocated between the employer and the plan participants based on their relative contributions to the premiums      Continue Reading...

Recent IRS regulations provide guidance to employers and insurers on the calculation and payment of a new fee on health plans.  The fee is part of health care reform and will be used to fund the Patient Centered Outcomes Research Institute.  The first fee payments will be due by July 31, 2013, and relate to plan years ending on or after October 1, 2012. 

Employers are responsible for calculating and paying this fee with respect to any self-insured health plans they sponsor.  Insured plans are subject to the fee also, although the insurance carrier is responsible for calculating and paying the fee.  The fee is $1 (increasing to $2 in the second year), multiplied by the average number of lives covered under the plan during the year. 

A key issue in calculating the fee is determining the average number of lives covered by a plan during a year.  (Covered lives include not only covered employees, but also spouses, dependent children, COBRA beneficiaries, retirees, and any other persons with coverage under the plan.)  The regulations give employers four options for calculating this number.  Two of the options involve counting the actual number of covered lives under the plan as of certain dates during the plan year.  A third option uses a formula based on "snapshots" of the number of employees in the plan at various points during the plan year, and the fourth option uses a formula based on the number of participants shown on the Form 5500 for the plan.

The fee applies to all self-insured      Continue Reading...

The Kansas Department of Labor wants employers to let the agency know which sections of the Workers Compensation Annual Statistical Report they find most helpful.  The Report contains basic information about the Workers Compensation Division, workplace injury data, and claims statistics.  An interesting trend is that while the number of workplace injuries has been steadily decreasing (down 40% since 1998), the average cost per claim has been rising rapidly (over 70% increase from 2004 to 2010).  Click here to see the KDOL 2011 Workers Compensation Annual Statistical Report (1.7 MB).

The survey takes only a few minutes to complete.  Responses are due by May 11, 2012.  Click here to take the survey.