Obama-era Fiduciary Rule Voided by U.S. Appeals Court

Last week, a federal appeals court voided the DOL’s Obama-era fiduciary rule. The rule was adopted in 2016 in an attempt to curb conflicts of interest among providers working with Americans that were planning for retirement. The Fifth U.S. Circuit Court of Appeals came to a 2-1 decision and represented another big win for financial service groups under the Trump administration. Many such financial groups claimed the rule overly burdensome and feared that it would drive up the cost of providing retirement financial advice.

This follows President Trump’s earlier memorandum, which had delayed implementation of the rule pending further examination of how the rule may affect investors and retirees. The Department of Labor (DOL) Employee Benefits Security Administration (EBSA) subsequently announced in the Federal Register on April 7, 2017 that compliance deadlines for many provisions of the rule had been pushed back to January 1, 2018, to allow more time for DOL’s re-examination of the rule’s impact. Full implementation of the final rule would not be complete until July 1, 2019—much later than the completion deadline of January 1, 2018 provided in the original final rule. This has now been put on complete hold and the issue is predicted to go before the Supreme Court

The fiduciary final rule sought to expand the definition of “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) to require virtually all individuals who provide retirement plan advice to ensure that advice and recommendations are made in the best interest of the participants. Retirement plan fiduciaries would be required to uphold standards of care and trust to make choices solely for the benefit of plan participants and beneficiaries, as opposed to the previously held standard of “suitability”.

This turn of events, naturally, puts discussions of  fiduciary duty at the forefront in the wake of the final rule announcements and now this overturn by the court of appeals, employers that sponsor a retirement plan may be left wondering whether their current retirement plan providers are considered to be fiduciaries to the plan. While the retirement plan sponsor (usually the employer) is considered a fiduciary to the plan, third-party service providers may or may not be fiduciaries to the plan. Additionally, one aspect of the plan sponsor’s fiduciary duty is the requirement to select a third-party service provider that is skilled, diligent, and, prudent.

This is a developing issue, so be sure to follow our blog for updates.

Boon Investment Group (CRD# 150102) is a Registered Investment Advisor (RIA) and can provide impartial information regarding investment lineup and ongoing due diligence in an investment fiduciary capacity. The ability to provide impartial recommendations and advice sets Boon Investment Group apart from other firms in the employer-sponsored retirement plan space. While other firms can only offer a non-fiduciary retirement plan platform, Boon Investment Group can provide education and advice to employers in the best interest of retirement plan participants.

Boon Investment Group is carefully monitoring news and announcements regarding the fiduciary final rule. Questions about an employer-sponsored retirement plan? Contact The Boon Group for more information about retirement plan services.

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New All Agency Memorandum Establishes Tiered SCA Fringe Rate

Federal contractors already know that the Service Contract Act (SCA) fringe rate is generally updated annually. In 2016, the Department of Labor (DOL) issued All Agency Memorandum 221, which made no change to the the fringe rate of $4.27 per hour established in 2015 by All Agency Memorandum 217.

The fringe rate update for 2017, All Agency Memorandum 225. introduces a new twist to fringe rates: multiple, distinct fringe rate tiers.

The fringe rate tiers are the result of new regulations in the SCA contracting space. In September 2016, the Department of Labor issued regulations implementing Executive Order (EO) 13706. EO 13706 requires many SCA contractors to provide employees with seven days (56 hours) of paid sick leave annually. As with any benefit required by regulation or by law, the paid sick leave required by EO 13706 cannot be funded by fringe dollars and represents an additional cost burden on federal contractors. EO 13706 is applicable to new federal contracts awarded on or after January 1, 2017.

All Agency Memorandum 225, issued July 25, 2017, responds to EO 13706 by splitting the SCA fringe rate into multiple tiers in an attempt to reduce the cost burden on federal contractors. The fringe rate applicable to an SCA employee is determined by whether the employee is entitled to paid sick leave under EO 13706.

For employees entitled to paid sick leave under EO 13706, the fringe rate will decrease from $4.27 to $4.13.

For employees not entitled to sick leave under EO 13706 EO 13706, the fringe rate will increase from $4.27 to $4.41.

Previous fringe rate updates established a separate, lower fringe rate for employees entitled to health care under the Hawaii Prepaid Health Care Act (HPHCA) All Agency Memorandum 225 also considers the intersection of the HPHCA and EO 13706.

Hawaii employees entitled to health care benefits under the HPHCA, but not entitled to sick leave under EO 13706, will receive a fringe rate of $1.91. Employees entitled both to health care benefits under the HPHCA and to sick leave under EO 13706 will receive a fringe rate of $1.63. Hawaii employees not covered by the HPHCA are subject to the same fringe rates as mainland employees: $4.41 if not covered by EO 13706 and $4.13 if covered by EO 13706.

The new fringe rates are effective for government contracts awarded on or after August 1, 2017.

Confused by the new fringe rates or concerned about rising benefit costs? Contact The Boon Group for help with SCA compliance, fringe accounting and more.

For additional information read the Federal Sick Leave Health and Welfare Benefit Changes Bring Enhanced Compliance Challenges for Federal Service Contractors whitepaper provided by Wiley Rein LLP.



Posted in compliance, DOL, employee benefits, Executive Orders, Fair Labor Standards Act, federal contractors, fringe benefits, government contractors, health care, labor laws, paid sick leave, Service Contract Act, Uncategorized, worker classification | Leave a comment

Good News for Employers in the New FLSA Final Rule

On May 18, the Department of Labor (DOL) released the new Fair Labor Standards Act (FLSA) final rule on employee classification and overtime pay.

Employers had braced for the final rule ever since the proposed rule was published on July 6, 2015. Many employers were jolted by the date of the final rule’s release, because the DOL had hinted that the rule wouldn’t be released until July. However, while its early release may have been an unpleasant surprise, the final rule does contain some good news for employers.

First, the final rule includes a more generous deadline for compliance than anticipated. While the DOL had signaled that employers might be given only 60 days to comply with the rule after its release, the actual final rule allows for 120 days. Employers will have until December 1, 2016 to achieve compliance.

Additionally, while the proposed rule floated a new exemption threshold of $970 per week (or $50,440 annually) the final rule slightly reduced the threshold to $921 per week (or $47,892 annually). The reduction is due to a change in the DOL’s calculation methodology in response to public comment. Instead of basing the threshold on the fortieth percentile of earnings of full-time exempt workers across the United States, the DOL pegged the threshold to the fortieth percentile of earnings of full-time exempt workers in the lowest-wage Census Region—currently the South. The final rule explains: “salaries do not change at the same rate nationwide, and this modification will ensure that any future increase in earnings will only impact the standard salary level to the extent that those gains are also realized by employees in the lowest-wage Census Region.”

Also, the salary level will be updated every three years, with the first update taking place on January 1, 2020. Prior to the final rule, the salary level had not been updated since 2004. The proposed rule recommended annual updates to the salary level, but spacing out updates to once every three years will ease the administrative burden on employers of re-evaluating each employee’s salary, while ensuring that employers won’t be blindsided by sudden drastic jumps in the salary level that might occur over a longer period of time. The final rule predicts, based on historical wage growth in the South Census Region, that the salary level will increase to about $984 per week (or $51,168 annually) in 2020.

More good news for employers: for the first time, there is a small amount of wiggle room in the salary level test. Nondiscretionary bonuses, incentive payments and commissions, paid on at least a quarterly basis, can now comprise up to 10 percent of the required salary threshold. However, discretionary bonuses and the value of other benefits (like room and board, health insurance premium payments or retirement plan contributions) cannot be used to make up the threshold.

Read more about the final rule on the DOL website.

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HHS Publishes Final Rule on ACA Nondiscrimination Provisions

On May 13, the U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) published the final rule implementing Section 1557 of the Affordable Care Act (ACA). Section 1557 contains the nondiscrimination provisions of the ACA, which prohibits discrimination based on race, color, national origin, sex, age and disability. The final rule applies to any health program or activity that receives federal funding or that is administered by any government agency governed by the ACA.

The rule finalizes many of the provisions contained in the proposed rule that HHS published on September 8, 2015 following a 2013 Request for Information (RFI) regarding nondiscrimination issues. The proposed rule received 24,875 comments from activist groups, health care providers, consumer groups, insurers and individuals. While commenters asked for various changes, the final rule is essentially unchanged from the proposed rule.

The final rule includes broad prohibitions against discrimination, but HHS declined to include specific details and scenarios that might label specific actions as discriminatory or not discriminatory. Commenters requested clarification on a variety of specific situations, including whether limiting gender transition services to only individuals over the age of 18 is discriminatory, whether requiring individuals with psychiatric disabilities to receive ongoing mental health treatment in order to receive treatment for unrelated conditions is discriminatory and clarification regarding in what ways research trials can avoid being discriminatory. In response, OCR stated: “The determination of whether a certain practice is discriminatory typically requires a nuanced analysis that is fact-dependent.” While some examples are included in the final rule, not every scenario brought up in the public comments is addressed.

One notable aspect of the final rule is the requirement that translation services be provided to individuals who do not speak English, including individuals who speak only American Sign Language. The provision of professional translators can sometimes be a life-and-death matter, as relying on bystanders, friends or family members to translate can result in fatal medical mistakes.

Another noteworthy aspect is the final rule’s declaration that blanket exclusions of gender transition care are a form of sex discrimination. However, the final rule does not specify which gender transition services must be covered; it simply states that excluding all gender transition services is noncompliant with the ACA. Additionally, the final rule reinforces a stance taken on previous FAQs issued by the DOL Employee Benefits Security Administration (EBSA), stating that insurers cannot deny coverage of sex-specific preventive care services based on transgender status (for example, denying coverage of a Pap smear for a transgender man or a prostate exam for a transgender woman). The final rule also specifies that providers cannot discriminate against patients based on transgender status. However, few providers are equipped to provide competent care to lesbian, gay, bisexual or transgender (LGBT) patients, though more hospitals are investing in training and infrastructure changes to help provide effective and respectful care to the LGBT community.

The final rule does not include a religious exemption to the nondiscrimination provisions. The nondiscrimination provisions do not contradict any provider conscience laws, the Religious Freedom Restoration Act (RFRA) or any religious exemptions provided elsewhere in the Affordable Care Act.

The effective date of the rule is July 18, 2016. Any changes that must be made to health insurance plans—including changes in cost-sharing, covered services and coverage exclusions—must be made by the first day of the plan year beginning on or after January 1, 2017. The plan applies to excepted benefits in addition to plans that offer minimum essential coverage or minimum value under the Affordable Care Act.

Read the final rule at the Federal Register here. HHS also released a detailed FAQ and several fact sheets regarding the final rule.

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Americans Aren’t Prepared to Retire—But Retirement Plan Sponsors Can Nudge Participants in the Right Direction

More Americans in today’s workplace are planning to defer retirement until later in life or to forego retiring at all. In fact, one in five Americans aged 65 and over are currently working due to financial need, the need for health insurance benefits, or a desire to stay mentally, physically or socially active.

What factors are contributing to this trend? One consideration: health insurance. Retiree health benefits can affect the timing of employees’ retirement decisions; employers that offer retiree health benefits may see employees retiring earlier in life and even saving for retirement less rigorously. However, a Kaiser Family Foundation study found that fewer than 25 percent of plan sponsors offered retiree health benefits last year—a rapid and steady decline from 66 percent in 1988. Most employees approaching retirement express urgent concern about whether they will be financially able to pay for health care in retirement; therefore, employees may defer retirement to avoid ending up dependent on Medicare or Medigap and Medicare Advantage plans.

Lack of financial preparation for retirement is another factor. While over half of employees aged 51 to 64 are worried about covering out-of-pocket medical costs in retirement, the same number are worried about potentially outliving retirement savings. While most full-time employees have access to employer-sponsored retirement plans, and voluntary defined contribution plans (like 401(k)s) are the most popular retirement savings option, employees simply aren’t saving enough. While plan participants are worried about retirement readiness, employees who lack financial literacy end up saving at rates that won’t be sufficient to support them in retirement. Generally, Americans don’t realize that saving for retirement as early as possible and as consistently as possible is key to a stable future; studies show that individuals underestimate the importance of compound interest, too.

How can retirement plan sponsors encourage plan participants to save robustly?
Participant education is key, especially on often-misunderstood subjects like compound interest, matching contributions and taxation. Some retirement plan sponsors are taking an even broader view of overall participant financial fitness, with a focus on helping employees reduce financial stress and increase financial literacy. Plan sponsors can also ensure that the plan is being run responsibly and offering maximum value to participants—for example, by examining plan fees. The TIAA Institute (the research arm of the organization formerly known as TIAA-CREF) has noted that many retirement plan sponsors use multiple service providers and third-party administrators instead of one single service provider, which can sometimes lead to unreasonable or unfair fee structures for plan sponsors and participants.

Plan sponsors aiming to nudge plan participants towards a comfortable retirement should keep changing regulatory requirements in mind, too. In April, the U.S. Department of Labor published a final rule laying out new regulations regarding fiduciary responsibility and retirement plan investment advice. The purpose of the rule is to define the difference between specific investment advice and general investment education and to require that retirement professionals give advice that is in the best interest of the plan and plan participants.

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DOL Publishes New FMLA Guide for Employers

The Department of Labor (DOL) has published a new guide to help employers understand their obligations under the Family and Medical Leave Act (FMLA). The Employer’s Guide to the Family and Medical Leave Act was announced by DOL FMLA Branch Chief Helen Applewhaite at the 2016 FMLA/ADA Employer Compliance Conference on April 25.

According to the DOL, the Guide’s purpose is “to provide essential information about the FMLA, including information about employers’ obligations under the law and the options available to employers in administering leave under the FMLA.” The Guide is organized along a loosely chronological timeline of a typical FMLA leave request; the Guide begins at the employee’s request for FMLA leave, continues through the duration of the leave, and concludes with the employee’s successful return to work.

The Guide is designed to complement the corresponding employee guide to FMLA that was released last June. The Employer’s Guide answers basic FMLA questions and illustrates common FMLA-related scenarios. The text is illustrated with explanatory graphics, including cartoons showing model employer-employee interactions and flow charts like “The Employer’s Road Map to the FMLA.”

However, employers should note that the FMLA guide doesn’t address the sometimes messy questions that can arise from FMLA-related court opinions. For example, in Bonkowski v. Oberg Industries, Inc., the Third U.S. Circuit Court of Appeals ruled that an employee who was admitted to a hospital just after midnight and discharged less than 24 hours later did not qualify for FMLA leave because his “overnight stay” did not consist of an inpatient stay that spanned from one calendar day into another calendar day. On the other hand, in Caggiano v. Illinois Department of Corrections, the U.S. District Court of the Northern District of Illinois ruled that an employee who appeared to have worked fewer than 1,250 hours in 12 months did qualify for FMLA leave—because the employer failed to include the employee’s thirty-minute paid lunch breaks in its calculation of hours. For questions that are murkier than the clear-cut questions presented in the Guide, employers should consider consulting counsel.

Still have general questions? The DOL Wage and Hour Division (WHD) has promised to hold free, public webinars on the Guide in the near future. Additional answers to frequently asked questions can be found on the DOL WHD website.

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Business Associate Agreements Are Essential to HIPAA Compliance

If you’re familiar with the Health Insurance Portability and Accountability Act (HIPAA), you may know that covered entities cannot disclose protected health information (PHI) to unauthorized persons. However, covered entities often work with third parties and need to disclose PHI to these non-covered entities for business reasons. HIPAA allows for covered entities to make these business-related disclosures—but the covered entity and the business associate need to formalize a relationship via a written business associate agreement first.

A business associate agreement is a contract that codifies the relationship of the covered entity to the business associate. A business associate is a person or entity that provides services to, performs work on behalf of, or otherwise touches PHI when working with a HIPAA covered entity. The written agreement specifies permissible uses and disclosures of PHI by the business associate, states that the business associate will comply with HIPAA requirements, includes information about procedures that will be followed in case of a HIPAA breach, and specifies how PHI will be handled upon termination of the covered entity’s relationship with the business associate. The Department of Health and Human Services (HHS) provides sample provisions for a business associate agreement, though many covered entities use individually tailored agreements.

Handing over PHI to an unauthorized person or entity is a violation of HIPAA. Last week, HHS fined a North Carolina provider, Raleigh Orthopaedic Clinic, $750,000 for violating this rule. The clinic released X-ray films and related PHI for 17,300 patients to a third-party company in order for the third-party company to digitize those records. This transaction was arranged via an oral agreement. However, because the clinic and the third-party company didn’t have a written business associate agreement in place, the clinic caused a HIPAA breach by releasing PHI to an unauthorized entity.

In addition to the $750,000 fine, Raleigh Orthopaedic must undergo a two-year corrective action plan and take actions including revising HIPAA policies and procedures, reviewing current business associate agreements and retraining employees.

To add insult to injury, the clinic never received the digitized PHI from the vendor. Instead of digitizing the PHI, the third-party company simply sold the X-ray films to a recycling company, which extracted and sold the silver from the X-ray films before apparently destroying the PHI.

Last month, HHS fined a Minnesota healthcare system $1,550,000 for failing to conduct a risk assessment and failing to execute a written associate agreement with a third-party billing company. The third-party billing company was not authorized to receive PHI but was given access to PHI of almost 300,000 patients for over six months before a business associate agreement was finally signed.

Jocelyn Samuels, Director of HHS Office for Civil Rights, stated: “HIPAA’s obligation on covered entities to obtain business associate agreements is more than a mere check-the-box paperwork exercise. It is critical for entities to know to whom they are handing PHI and to obtain assurances that the information will be protected.” As these two recent actions show, failing to execute a business associate agreement can be an expensive mistake.

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