2016 Developments in Health and Welfare Plans

© benefitexpress 2016
•Highlight changes from December 2015 to now.
•Review includes final regulations from EEOC, IRS, DOL and
HHS.
•New law passed in December 2015.
Agenda

IRS Releases Guidance on ACA and Other Topics
Notice 2015-87

IRS Notice 2015-87
• On December 16, 2015, the IRS released Notice 2015-87.
• The IRS addressed various issues that have arisen under the Affordable Care Act (ACA)
with respect to:
 employer-sponsored coverage,
 focusing particularly on account-based employee benefits such as section 125 cafeteria plans and
health reimbursement arrangements,
 reporting and defining hour of service.
 In addition, IRS provided guidance regarding COBRA coverage and Heath FSA carryover

IRS Notice 2015-87
HRAs available to cover medical expenses of an employee's spouse or
children (family HRAs) may not be integrated with employee-only coverage
but must be integrated with coverage in which the dependents are enrolled to
comply with ACA requirements.
Recognizing that many employer plans do not conform to this requirement, the
IRS is allowing plans a grace period until end of the plan year beginning
before January 1, 2017 to come into compliance with this requirement.
Health Reimbursement Arrangements (HRA.)

IRS Notice 2015-87
 Employer contributions to flex plans will only be considered for
determining affordability or minimum value of employer health coverage if
such flex contribution can only be used for health spending.
 Employer flex contributions will be treated as being used for health
spending if:
• the employee may not opt to receive the amount as a taxable benefit,
• the employee may use the amount to pay for minimum essential coverage and
• the employee may use the amount exclusively to pay for medical care.
Employer Flex Contributions

IRS Notice 2015-87
 Solely for purposes of determining affordability for application of the employer mandate
for employers who do not offer affordable, minimum value coverage if their employees
receive premium tax credits and for employer reporting requirements, contributions to flex
accounts that can be used for non-health as well as health purposes will be considered to
reduce employee contributions until the end of plan year beginning before January 1,
2017 for arrangements adopted on or before December 16, 2015.
 However, they will not be considered for determining affordability of employer coverage
for an employee either for determining liability under the individual responsibility provision
or eligibility for premium tax credits.
 These contributions will be deemed for non-health purposes if they can be distributed to
the employee in cash or used for dependent care or group term life insurance premiums.
Employer Flex Contributions

IRS Notice 2015-87
If an employer offers an employee cash payments if he or she waives
health insurance coverage (an opt-out payment), the IRS will consider the
opt-out payment as an additional charge for the coverage for determining its
affordability for application of the employer mandate penalty.
The employee has the option of receiving additional salary for foregoing
coverage, and thus is being charged the amount of the additional salary if
he or she accepts coverage.
Treatment of Opt-Out Payments

IRS Notice 2015-87
The IRS intends to issue guidance on this issue and might treat opt-out
payments differently if they are subject to additional requirements, such as
proof of coverage under a spouse's plan.
The IRS will offer a transitional period until the end of the plan year
beginning before January 1, 2017, based on arrangements established on
or before December 16, 2015, for purposes of the employer mandate
penalty and employer reporting, but individual taxpayers may consider opt-
out payments as increasing the cost of coverage for application of the
individual mandate or premium tax credit eligibility requirements.
Treatment of Opt-Out Payments

IRS Notice 2015-87
Employer payments under McNamara-O'Hara Service Contract Act
(SCA), the Davis-Bacon Act or the Davis Bacon Related Acts (DBRA)
 Under SCA and DBRA, federal contractors are required to either pay prevailing wages
and fringe benefits or cash out fringe benefits for workers.
 Until the IRS issues guidance how to treat these cash payments, employers may, until the
end of the plan year beginning before January 1, 2017, consider cash payments in lieu of
fringe benefits as increasing the affordability of coverage for purposes of the employer
mandate and reporting.
 Employees are not required to consider these cash payments as making coverage more
affordable for purposes of the individual mandate affordability exemption or premium tax
credit eligibility.

IRS Notice 2015-87
For purposes of the employer mandate affordability requirement and related
regulatory requirements, including affordability safe harbors, affordability of
coverage is defined as costing no more than 9.5 percent of household
income (or for safe harbors, 9.5 percent of W-2 or hourly wages or the
poverty level).
The 9.5 percent standard is adjusted annually and is set at 9.56 percent for
2015 and 9.66 percent for 2016.
The notice makes clear that this adjustment applies to all provisions that
use the 9.5 percent standard.
Affordability Under The Employer Mandate

IRS Notice 2015-87
Inflation updates for the statutory penalties under the employer mandate
are also provided.
The $2,000 per full-time employee penalty that applies when an employer
fails to offer minimum essential coverage and an employee receives
premium tax credit will increase to $2,080 for 2015 and $2,160 for 2016;
while the $3,000 penalty that applies on a per-employee basis for
employees who receive premium tax credits when coverage does not meet
affordability or minimum value standards will increase to $3,120 for 2015
and $3,240 for 2016.
Adjusted Penalty Amounts under the Employer Mandate

IRS Notice 2015-87
• The term "hour of service" means each hour for which an employee is
paid, or entitled to payment, for the performance of duties for the
employer, and each hour for which the employee is paid, or entitled to
payment by the employer, for a period of time during which no duties
are performed due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence.
 The term does not include any hours after the individual terminates
employment with the employer.
 It also does not include time while an individual is on workmen's
compensation or unemployment or disability laws and an hour of
services for payment which solely reimburses an employee for
medical or medically related expenses incurred by the employee.
Hours of Service Determination

IRS Notice 2015-87
The term "hour of service" does include periods during which an individual is
not performing services but is receiving payments due to short-term disability
or long-term disability if the individual retains the status as an employee of the
employer, unless the payments are made from an arrangement to which the
employer did not contribute directly or indirectly.
Any arrangements under which the individual paid with after-tax contributions
would be treated as an arrangement to which the employer did not contribute
and payments from the arrangement would not give rise to hours of service.
Hours of Service Determination

IRS Notice 2015-87
Special rules apply for employees of educational institutions who have long
breaks in service between school years.
Under IRS regulations, employees of educational institutions cannot be
treated as having terminated employment and then been rehired unless
they have a break in service of at least 26 consecutive weeks.
Service Breaks

IRS Notice 2015-87
 Some educational institutions avoiding this rule by claiming that their
employees are actually employed by staffing agencies with which they
contract, by terminating at the end of the school year and rehired in the
fall.
 The IRS is considering a rule that would provide that the educational
institution exception would also apply to employees who provide services
primarily to educational institutions and are not offered a meaningful
opportunity to provide service during the entire year.
 An individual who worked in a school cafeteria nominally employed by a
staffing agency rather than the school, for example, would be protected by
the break in service exception unless the staffing agency offered
employment in another position throughout the summer.
Service Breaks

IRS Notice 2015-87
A separate employer identification number will be required for each
governmental entity employer that is subject to a reporting requirement if
employees are receiving self-insured health coverage.
Separate Forms 1094-C must be filed by each employer that is an ALE
member of an applicable large employer group.
Governmental Entity and Reporting

IRS Notice 2015-87
The maximum amount that a Health FSA is permitted to require to be paid
to COBRA coverage does not include unused amounts carried over from
prior years.
The applicable premium is based solely on the sum of the employee's
salary reduction election of the plan year and any nonelective employer
contribution.
COBRA Coverage and Health FSA Carryovers

IRS Notice 2015-87
A qualified beneficiary must be allowed to carryover on the same terms as
non-COBRA beneficiaries. Such individual will not be allowed to elect
additional salary reduction contributions.
The carryover period is limited to the applicable COBRA continuation period
(18 months 29 months or 36 months).

IRS Notice 2015-87
An employer may condition the ability to carryover unused amounts on
participation in the health FSA for the next year.
In addition, an employer can limit the length of the carryover period.

Consolidated Appropriations Act of 2016

Consolidated Appropriations Act, 2016
On December 18, 2015, President Obama signed into law the
Consolidated Appropriations Act of 2016 (the "Act").
The Act contains a few benefit provisions.

•Imposition of Cadillac Tax delayed until 2020
•The excise tax on high cost employer-sponsored health care will
become effective for tax years beginning after December 31,
2019, instead of being effective for tax years beginning after
December 31, 2017.
•Effective date. it is effective December 18, 2015.
•Cadillac Tax will now be deductible.

• Extension of parity for exclusion from income for employer-provided mass
transit and parking benefits.
• Parity in the exclusion for combined employer-provided transit pass and
vanpool benefits will be reinstated and for employer-provided parking
benefits and makes parity permanent.
• For 2015, the monthly limit on the exclusion for combined transit pass and
vanpool benefits is $250, the same as the monthly limit on the exclusion for
qualified parking benefits.
• For 2016 and later years, the same monthly limit will apply on the exclusion
for combined transit pass and vanpool benefits and the exclusion for
qualified parking benefits.

IRS Extends Due Date for Forms 1094 and 1095 for 2015
Notice 2016-4

Notice 2016-4
On December 28, The IRS has announced an automatic extension
of the deadlines for health care reform information reporting on
Forms 1094 and 1095 for 2015.
Forms 1094-C and 1095-C are filed by applicable large employers.
The forms provide information to the IRS and individuals for
administration of the individual mandate, employer shared
responsibility, and premium tax credits.

Notice 2016-4
The extended deadlines are as follows:
 Furnishing Statements to Individuals. The deadline for furnishing Forms
1095-B and 1095-C to individuals is extended by two months, from
February 1 to March 31, 2016.
 Filing Paper Returns With IRS. The deadline to file paper Forms 1094-B
and 1094-C (and accompanying Forms 1095) with the IRS is extended by
three months, from February 29 to May 31, 2016.
 Filing Electronic Returns With IRS. The deadline to file electronic Forms
1094-B and 1094-C (and accompanying Forms 1095) with the IRS is
extended by three months, from March 31 to June 30, 2016

Notice 2016-4
• These extensions are automatic, and they supersede any extension requests
already submitted for 2015—those requests will not be formally granted.
• The new deadlines are more generous than otherwise available extensions,
so they cannot be further extended. Those unable to meet the extended due
dates are still encouraged to furnish and file as soon as possible.
• The IRS says it will take such furnishing and filing into consideration when
determining whether to abate penalties for reasonable cause.
• Other considerations will include whether reasonable efforts (such as
gathering data and transmitting it to a filing agent, or testing the ability to
transmit information to the IRS) were made to prepare for reporting for 2015,
and whether steps have been taken to comply with the reporting
requirements for 2016.

Consolidated Appropriations Act of 2016
Notice 2016-6

Notice 2016-6
The IRS has now released Notice 2016-6, explaining how
employers can correct FICA tax overpayments resulting from the
higher 2015 limit and report the proper amounts of income and tax
on Forms 941 and W-2.
Many aspects of the guidance are similar to relief offered by the
IRS in 2015 following a retroactive increase in the 2014 limit for
transit benefits

Notice 2016-6
Employers must reduce employees’ 2015 taxable wages, as
reported on Forms 941 and W-2, by the amount of transit benefits
exceeding $130 (up to $250) for any month.
Employees cannot retroactively increase their 2015 compensation
reduction elections to use the higher transit benefit limit, nor can
they take additional compensation reductions in 2016 to pay for
2015 transit expenses.

Notice 2016-6
For employers that treated transit benefits in excess of the pre-Act
limit as wages and have not yet filed their fourth quarter 2015 Form
941, the notice authorizes a special administrative procedure.
Under that procedure, if the employer either repays or reimburses
its employees for the overcollected FICA taxes for all four quarters
of 2015 before filing the fourth quarter Form 941, the employer
may reduce the fourth quarter amounts reported on lines 2, 5a, 5c,
and 5d of Form 941 by the amount of the additional transit benefits
that the Act made excludable.

Notice 2016-6
This procedure allows employers to forgo filing Form 941-X to
correct the error, and relieves employers of the obligation
(applicable under the usual correction procedures) to obtain written
statements from employees confirming that they did not and will
not make claims for the overcollected FICA tax.
To avoid a mismatch between the taxes and liability reported on
Form 941, instructions are provided for reducing the stated tax
liabilities by the tax reduction.

Notice 2016-6
•Employers that have already filed their fourth quarter Form 941
may not use the special procedure.
•And to the extent the overcollection has not been repaid (by direct
payment to the employee) or reimbursed (by applying the amount
of the overcollection against the employee FICA tax owed on
other wages) when the fourth quarter Form 941 is filed, the
procedure is also unavailable.
•When the procedure is unavailable, correction must be made
using Form 941-X and the usual procedures for overpayments.

Notice 2016-6
•If Form W-2 has not been furnished to employees, the forms must
be adjusted to reflect the increased exclusion and any
overcollected FICA taxes repaid or reimbursed.
•If repayments or reimbursements of overcollected FICA taxes are
made after the forms are furnished to employees but before they
are filed with the Social Security Administration (SSA), the forms
must be corrected and redistributed.
•If the forms have already been filed with the SSA, correction will
need to be made using Form W-2c.

Extension of Transitional Policy through Calendar Year 2017

Extension of Transitional Policy
• CMS has announced another extension of the transition policy allowing
states to permit insurers in the individual and small group markets to renew
health insurance policies they would otherwise have had to cancel due to
noncompliance with certain insurance market reforms.
• Where permitted by a state, insurers that have continually renewed eligible
non-grandfathered individual and small group policies since January 1, 2014
may now renew such coverage for a policy year beginning on or before
October 1, 2017 (previously October 1, 2016).
• Any policies renewed under this transition policy will not be considered to be
out of compliance with listed reforms; however, they must not extend past
December 31, 2017.

Extension of Transitional Policy
• The list of reforms covered by the transitional relief remains the same and
includes premium rating rules, guaranteed availability and renewability, and
the requirement to provide essential health benefits, provided that certain
conditions are satisfied.
• For individual policies only, the list also includes prohibitions on preexisting
condition exclusions for adults and discrimination based on a health factor;
small group policies covered by the transition policy must still comply with
these two reforms.
• Insurers that opt to renew coverage under this extended transition policy are
still required to provide an annual notice of the right to continue existing
coverage, using one of the two versions attached to the bulletin.

OCR Launches Long-Awaited Phase 2 of HIPAA Privacy,
Security, and Breach Notification Audits

HIPAA Privacy Audits
• HHS’s Office for Civil Rights (OCR) has launched the second phase of its audit program to
review compliance with HIPAA’s privacy, security, and breach notification rules. OCR has
already started sending emails to covered entities and business associates requesting
contact information
• Next, OCR will send pre-audit questionnaires to help identify pools of covered entities and
business associates representing a broad spectrum of audit candidates.
• Selection criteria for audits will include size and type of entity, relationship to individuals,
affiliation with other health care organizations, whether the entity is private or public, and
geographic factors.
• OCR will not audit entities with an open complaint investigation or compliance review.
Initially, OCR will focus on desk audits—first of covered entities, then of business associates.
• Later, on-site audits will examine a broader scope of HIPAA requirements; and some entities
subject to desk audits may be the subject of a subsequent on-site audit.

• Entities selected for a desk audit will be sent email notification of their selection.
• Then, they will receive an information request asking them to submit documents
online through a new secure audit portal on OCR’s website within ten days after the
request.
• After reviewing the information, the auditor will provide draft findings, allowing ten
business days for written comments to be submitted. A final audit report will be
completed within 30 days and then sent to the audited entity.
• On-site audits will include an entrance conference, followed by three to five days of
on-site work. As with desk audits, entities subject to an on-site audit will be given an
opportunity to comment on the draft audit report, and a final report will be shared
with them. If an audit report indicates a serious compliance issue…

•OCR may investigate further.
•Although OCR will not identify audited entities publicly or publicize
audit findings in a way that identifies the entities, it notes that
Freedom of Information Act requests may require it to release
information about entities in response to a public request.
•OCR will use aggregate audit results to develop technical
assistance, corrective actions, and industry self-evaluation tools
to help prevent breaches.

•HHS’s Office for Civil Rights (OCR) has released an updated
audit protocol addressing requirements under the privacy,
security, and breach notification rules that will be assessed
through OCR’s upcoming audits of covered entities and business
associates.
•The protocol identifies sections of the applicable rules,
established performance criteria under each rule, and the
inquiries auditors will make to evaluate compliance.
•Auditors will rely on documents and other items furnished by
covered entities

• Auditors will rely on documents and other items furnished by covered entities
and business associates in response to document requests; materials
generally must be the versions in use as of the date of the audit notification
and document request.
• However, in some cases, prior versions may be requested—for example, to
verify that documents were properly updated to reflect legal changes made
by the HITECH Act.
• The protocol includes numerous references to “information systems,” which
are defined to include hardware, software, information, data, applications,
communications, and people—indicating the anticipated breadth of the
audits’ scope

DOL Releases Final Regulations on Fiduciary Definition

DOL Final Regulations
The Department of Labor (DOL) final rule on the definition of
“fiduciary” expands the definition not only for retirement accounts
such as 401(k)s, 403(b)s and IRAs, but also as applied to non-
retirement accounts such as Health Savings Accounts (HSAs) and
other accounts.

• An investment fiduciary is one who renders investment advice.
• The final rule provides that individuals “render investment advice if they provide for a fee or
other compensation, direct or indirect,” the following categories or types of advice:
 A recommendation as to the advisability of acquiring, holding, disposing of, or exchanging,
securities or other investment property; or
 A recommendation as to how securities or other investment property should be invested after the
securities or other investment property are rolled over, transferred, or distributed from the plan or
IRA; or
 A recommendation as to the management of securities or other investment property, including,
among other things, recommendations on investment policies or strategies, portfolio composition,
selection of other persons to provide investment advice or investment management services,
selection of investment account arrangements (e.g., brokerage versus advisory); or
 A recommendation with respect to rollovers, distributions, or transfers from a plan or IRA, including
whether, in what amount, in what form, and to what destination such a rollover, transfer or
distribution should be made.

•The final rule also describes when a communication, based on its
context, content, and presentation, would be viewed as a
‘‘recommendation.”
•This is a fundamental element in establishing that an individual or
entity is giving “fiduciary investment advice.”
•Paragraph (b)(1) provides that ‘‘recommendation’’ means a
communication that, based on its content, context, and
presentation, would reasonably be viewed as a suggestion that
the advice recipient engage in or refrain from taking a particular
course of action.

• This is an objective determination rather than a subjective inquiry.
• A communication is more likely to be deemed a “recommendation” the more it is individually
tailored to a specific recipient, and relates to a particular security, investment property, or
investment strategy.
• Providing a selective list of securities as appropriate for a particular recipient would be
deemed a “recommendation” as to the advisability of acquiring those securities even if no
recommendation is made with respect to any one security.
• A series of actions that might not individually constitute a recommendation may amount to a
recommendation when considered in the aggregate. This applies whether the individual
actions were made directly by one individual or entity or indirectly with any affiliate.
• The Preamble also states that it makes no difference whether the communication was
initiated by a person or a computer software program.

Plan sponsors will be relieved to know that their employees whose
job duties include management or administration of retirement and
other accounts usually will not be considered investment advice
fiduciaries.

Final SBC Templates Released
The agencies have released the final revised template and related
materials for the summary of benefits and coverage (SBC).
The final versions, which will replace materials in use since 2012,
largely reflect the most recent proposals.

SBC Template and Instructions.
 The template itself is substantially similar to the most recent proposal. In the “Why This
Matters” column relating to the “Important Questions” chart, the prescribed language for
describing certain coverage components—including services covered before the
deductible is met, embedded deductibles for family coverage, and out-of-pocket limits—
has been made clearer and more straightforward.
 For the coverage examples, the instructions explain that the generic “[cost sharing]”
notations in the template should be replaced with the appropriate cost-sharing category
(e.g., copayment, coinsurance) to accurately reflect the plan.
 Overall, the instructions provide more details than the currently applicable instructions—
for example, specifying where in the SBC the plan should add premium information, if it
voluntarily chooses to do so.

• Also included are updated coverage example calculators and information for
simulating coverage examples. Use of the new SBC template and related
materials is required starting with the first day of the first open enrollment
period that begins on or after April 1, 2017 with respect to coverage for plan
years beginning on or after that date.
• So, for calendar-year plans, the new materials will be used for the 2017 open
enrollment period relating to coverage beginning on or after January 1, 2018.
• For plans that do not use an annual open enrollment period, these materials
must be used beginning on the first day of the first plan year that begins on
or after April 1, 2017.

A few glossary definitions have been somewhat revised, but no new terms
have been added to those in the proposed versions.
For plans using an electronic SBC, the agencies have provided the
capability (via a list of “anchors”) to hyperlink defined terms directly to the
definition on the dedicated Uniform Glossary website.
Uniform Glossary

2017 HSA Amounts
• The IRS has released the 2017 cost-of-living adjusted limits for health
savings accounts (HSAs) and high-deductible health plans (HDHPs). Here
are the details:
 HSA Contribution Limits. The 2017 annual HSA contribution limit for individuals with self-only
HDHP coverage is $3,400, and the limit for individuals with family HDHP coverage is $6,750.
 HDHP Minimum Deductibles. The 2017 minimum annual deductible for self-only HDHP coverage
is $1,300 and the minimum annual deductible for family HDHP coverage is $2,600.
 HDHP Out-of-Pocket Maximums. The 2017 maximum limit on out-of-pocket expenses (including
items such as deductibles, copayments, and coinsurance, but not premiums) for self-only HDHP
coverage is $6,550, and the limit for family HDHP coverage is $13,100.
• The $50 increase in the annual HSA contribution limit for individuals with self-
only HDHP coverage is the only change from 2016. All of the other amounts
are unchanged.

HHS Final Regulations Extend Broad Nondiscrimination Rules to
Some Health Plans and TPAs Outside the Exchanges

HHS Final Regulations
• HHS has finalized regulations implementing health care reform’s Section 1557 which
prohibits discrimination in certain “health programs and activities” on the basis of race, color,
national origin, sex, age, or disability.
• Section 1557 applies broadly to a wide variety of federally assisted entities, but these final
regulations apply only to health programs and activities funded or administered by HHS.
• Notably, this draws in federal and state Exchanges (including Small Business Health Option
Programs (SHOPs)) and the insurers that participate in them.
• The final regulations confirm that the rules generally apply to Exchange insurers even with
respect to the plans and services they offer outside the Exchanges or, in some instances, as
third-party administrators (TPAs) for employer group health plans.
• The rules also apply to employee health benefits of certain employers that receive federal
financial assistance and are principally engaged in health care (e.g., hospitals and nursing
homes).

• The regulations prohibit Exchange insurers from denying, canceling, limiting, or refusing to
issue or renew policies; using discriminatory benefit designs; denying or limiting coverage of
a claim; or imposing additional cost-sharing or other coverage limitations on any of the
prohibited bases.
• Among other things, the final rules explain that sex discrimination includes discrimination on
the basis of gender identity and clarify that Exchange insurers may not deny or limit
coverage for health services that are ordinarily or exclusively available to individuals of one
gender because an individual’s sex assigned at birth, gender identity, or recorded gender is
different than the one to which the services are ordinarily or exclusively available.
• The final regulations also require Exchange insurers to provide individuals with notice of
their rights, in “significant publications” and “significant communications” (among other
places), with taglines alerting individuals with limited English proficiency to the availability of
language-assistance services. Sample notices are available on the HHS website.

• The final regulations make clear that an employer does not become covered
by the rules just because its self-insured health plan’s TPA is covered.
• However, recognizing that TPAs generally do not control the design of the
self-insured health plans they administer, HHS explains that it will only
process a complaint against a TPA where the alleged discrimination is
related to the TPA’s own administration of the plan.
• If the alleged discrimination relates to the benefit design of the plan, HHS will
instead proceed against the employer/decisionmaker if it has jurisdiction over
the employer (e.g., a hospital that is covered under the rules).
• Where HHS lacks jurisdiction, it may refer the matter to the EEOC.

EEOC Releases Final Regulations on Wellness Programs

EEOC Final Regulations
• On May 16, the U.S. Equal Employment Opportunity Commission (“EEOC”)
issued final regulations that describe how Title I of the Americans with
Disabilities Act (ADA) and Title II of the Genetic Information
Nondiscrimination Act (GINA) apply to wellness programs offered by
employers that request health information from employees and their
spouses.
• The two regulations provide guidance to both employers and employees
about how workplace wellness programs can comply with the ADA and GINA
consistent with provisions governing wellness programs in the Health
Insurance Portability and Accountability Act, as amended by the Affordable
Care Act (“ACA”).

• The ADA and GINA generally prohibit employers from obtaining and using
information about employees' own health conditions or about the health
conditions of their family members, including spouses.
• Both laws, however, allow employers to ask health-related questions and
conduct medical examinations, such as biometric screenings to determine
risk factors, if the employer is providing health or genetic services as part of
a voluntary wellness program.
• Last year, EEOC issued proposed regulations that addressed whether
offering an incentive for employees or their family members to provide health
information as part of a wellness program would render the program
involuntary.

• The final regulations define what it means for a wellness program to be
"voluntary."
• The final regulations provide the following factors necessary to demonstrate
that the wellness program involving the use of HRAs or biometric screening
is voluntary.
• The employer cannot:
 Require employees to participate.
 Deny coverage under any of its group health plans (or particular benefit packages within
those plans) or limit the extent of coverage (except for permitted incentives) to employees
who do not participate.
 Take any adverse employment action against an employee who does not participate.

• The final ADA regulations provide that wellness programs that are part of a
group health plan and that ask questions about employees' health or include
medical examinations may offer incentives of up to 30 percent of the total
cost of self-only coverage.
• The final GINA regulations provides that the value of the maximum incentive
attributable to a spouse's participation may not exceed 30 percent of the total
cost of self-only coverage, the same incentive allowed for the employee.
• No incentives are allowed in exchange for the current or past health status
information of employees' children or in exchange for specified genetic
information (such as family medical history or the results of genetic tests) of
an employee, an employee's spouse, and an employee's children.

If participating in the employer’s group health plan is not a
condition of participating in the wellness program, the inducement
cannot exceed 30% of:
 The total cost of self-only coverage under the employer’s group health
plan (where offered), if the employer only offers one plan.
 The total cost of the lowest cost self-only coverage offered by the
employer, if the employer offers multiple plans (e.g., two tiers of
coverage).
 The cost of self-only coverage available to a 40-year old, non-smoker
under the second lowest cost Silver Plan available on the exchange for the
location the employer identifies as its principal place of business, if the
employer offers multiple plans (e.g., two tiers of coverage).

• In addition, the HIPAA/ACA Regulations provide that a wellness program can
offer an incentive of up to 50 percent of the cost of employee-only coverage
(i.e., 50 percent of the individual COBRA rate) for participating in a tobacco-
related wellness program.
• The final regulations provide that a participatory wellness program that
merely asks employees whether or not they use tobacco (or whether or not
they ceased using tobacco upon completion of a smoking cessation
program) can offer a 50 percent incentive as under the HIPAA/ACA
Regulations.
• However, if tobacco-related incentives are tied to the results of a biometric
screening or other medical examination that tests for the presence of nicotine
or tobacco, that wellness program is subject to the EEOC’s 30 percent
aggregate incentive limitation discussed

The portions of these final ADA regulations relating to a notice
requirement and the 30 percent limit on incentives for participation
in a wellness plan are effective for plan years beginning on and
after January 1, 2017.
However, the EEOC's position is that the remainder of these final
regulations merely clarify and reinforce existing statutory
obligations under the ADA, and apply both before and after the
date the final regulations were issued.

DOL Releases New Overtime Regulations

New Overtime Regulations
The final regulations update the salary and compensation levels needed for
Executive, Administrative and Professional workers to be exempt, specifically,
the final regulations:
 Sets the standard salary level at the 40th percentile of earnings of full-time salaried
workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476
annually for a full-year worker.) (This is increased from $455 per week; $23,660 annually);
 Sets the total annual compensation requirement for highly compensated employees
(HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of
full-time salaried workers nationally ($134,004). (This is increased from $100,000);
 Establishes a mechanism for automatically updating the salary and compensation levels
every three years to maintain the levels at the above percentiles and to ensure that they
continue to provide useful and effective tests for exemption.

Additionally, the final regulations amends the salary basis test to
allow employers to use nondiscretionary bonuses and incentive
payments (including commissions) to satisfy up to 10 percent of
the new standard salary level.
There will be no change in the duties test used to determine
whether employees earning more than the salary threshold must
be classified as nonexempt form overtime, including the
exemptions for executive, administrative and professional position,
among others.

•The effective date of the final rule is December 1, 2016.
•The initial increases to the standard salary level (from $455 to
$913 per week) and HCE total annual compensation requirement
(from $100,000 to $134,004 per year) will be effective on that
date.
•Future automatic updates to those thresholds will occur every
three years, beginning on January 1, 2020.

The above substantial increase in the salary threshold for exempt
employees will result in many employees who had been
considered exempt (and not entitled to overtime pay) being re-
designated as non-exempt.
This will result in the need to pay overtime for any hours worked in
excess of 40 hours per week. It will also result in increased
recordkeeping obligations for employers, who must now track and
record the hours of the formerly exempt, but now non-exempt,
employees.

Employers have a wide range of options for responding to the changes to the
salary level. Employers can choose the one that works best for them. Options
include:
 Raise salary and keep the employee exempt from overtime
 Pay overtime in addition to the employee’s current salary when necessary
 Evaluate and realign hours and staff workload
 Determine how reclassification of some employees as nonexempt employees will affect
their eligibility for employee benefits offered by the employer.

•It is important under these new regulations for employers keep
certain records to ensure that workers get paid the wages they
earn and are owed.
•It’s up to the employer to choose the method that works best for
them and the needs of their workforce.
•There’s no requirement that employees “punch in” and “punch
out.”
•Employers have flexibility in designing systems to make sure
appropriate records are kept to track the number of hours worked
each day.

Contact Information
Larry Grudzien
Phone: 708-717-9638
Email: larry@larrygrudzien.com
Website: www.larrygrudzien.com

2016 Developments in Health and Welfare Plans

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