Electronic Notice Distribution Requirements — Challenging and in Need of Change

Employers and employees have embraced benefit portals to enroll in coverage and access benefit information. Despite the near ubiquity of electronic benefits media, rules that govern the electronic distribution of materials required to be disclosed by ERISA haven’t kept pace – having been written more than a decade ago.

Today’s rules have an over-arching requirement for distribution of plan documents – that the employer or plan administrator must use a means that is “reasonably calculated to ensure actual receipt” of required notices by plan participants. The method also has to achieve “full” distribution. These sweeping requirements have led many employers to provide documents by first-class mail as this continues to be the “gold standard” for sending notices.

For a variety of reasons, including the cost of printing and mailing documents, employers want to use electronic means to send notices. In a recent comment letter NAHU sent to the ERISA Advisory Council they recounted an employer’s expense of $35,000 to prepare and mail ERISA required documents.

The rules on electronic distribution consider two groups of employees:

  1. Those employees with regular work-related computer access
  2. Employees without regular work-related computer access.

Employers may distribute documents to employees with regular access to computers as a part of their workday without obtaining consent from employees to receive them electronically. The employees don’t have to have a means to print the documents but only to access them. Importantly, the employee must be able to access the documents where they are performing their duties. As such, a computer kiosk in the break room does not meet these requirements.

For all others, the employer must provide paper copies of documents unless an employee “affirmatively consents” to electronic distribution of documents. This consent must be obtained prospectively, i.e., before any documents are distributed. Furthermore, the consent must include an electronic address to receive the information.

An employer must provide the following information as a part of affirmative consent to receive documents electronically:

  • If documents will be sent electronically, then the employee must affirmatively consent from the email address that they agree to use to receive information
  • A statement regarding the types of documents that will be provided electronically
  • Notice that the employee can withdraw consent, how to do so and that paper copies can be requested and whether there is a charge to receive paper documents
  • How to notify the employer of changes to the address for electronic disclosure
  • Any requirements relative to hardware or software to obtain the information.

The method must also result in actual receipt of the information. This may require a confirmation of receipt of transmitted notices or a process to address undelivered electronic mail.

Confidentiality of electronic documents that contain personal information is also required.

There are also format requirements that must be met. In short, the electronic documents must be consistent with the style, format and content requirements applicable to the particular document.

And, it must be clear to the recipient that the information has significance. For example, if the document relates to changes in the benefits, that should be evident in the transmittal.

DOL rules on disclosure can be found here. Technical release 2011-03 on the topic can be found here.

Electronic Distribution of Forms 1095-B and 1095-C

The rules to distribute the Employer Shared Responsibility Forms to individuals are similar to those established by the DOL for ERISA purposes. Any electronic notice must contain all of the required information that also complies with the guidelines in IRS Publication 5223. Publication 5223 is titled “General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C and 1095-C.”

Affirmative consent to receive the statements electronically is required and must not have been withdrawn prior to the statement being issued. As with the ERISA document distribution rules, the consent must be made electronically in a way that shows that the individual can access the statement in the electronic format in which the form will be furnished.

The employer must also inform the recipient that the statement is ready to be accessed and printed, if desired. The employer may provide this information by mail or electronically. Notably, this notice must include the capitalized statement “IMPORTANT TAX RETURN DOCUMENT AVAILABLE.” This statement would be the subject line if the notice is being sent by email.

The IRS has not provided a safe harbor for distribution of the 1095-B and 1095-C by electronic means. As such, the rules should be strictly followed.

In the letter to the ERISA Advisory Council as well as other communications with the federal Departments of Labor and Treasury, NAHU has called for an update to the electronic distribution guidance for employers to make use of electronic means more flexible. NAHU has called for making use of a “reasonably accessible” standard where an employee could acknowledge through online enrollment that disclosure documents provided online are reasonably available.

NAHU has also recommended accommodation for apps to store and access notices and plan documents. And, reflecting on today’s electronic media norms, NAHU suggested that a valid address for electronic delivery notifications should include phone numbers for text messages as well as social media accounts.

NAHU’s recommendations also include a call for harmonizing requirements for electronic distribution across government agencies. Employers would gain administrative and compliance efficiencies if the DOL and Department of the Treasury had the same disclosure requirement rules.

In the meantime, employers sanguine about these distribution requirements do so at their peril. A 2015 court case, Thomas v. CIGNA Group Ins., found in favor of the employee’s beneficiary because there was no evidence that the participant received the SPD on the company intranet.




EAPs Pose Compliance Complications

Employee Assistance Plans (EAPs) are popular employer-sponsored plans that help employees address personal and work related problems that impact their health or job performance. Benefits provided by EAPs are varied in both scope and breadth. Benefits may include:

  • Mental health referral services
  • Mental health counseling
  • Financial counseling
  • Drug or alcohol abuse counseling
  • Assistance with addressing major life events.

The wide variety of EAPs allow employers to find a plan that is both affordable and of value to employees. But, this variety also makes it difficult to determine the compliance requirements that surround an EAP. And, sometimes EAP services may even be included in life or disability packages.


To determine if an EAP is subject to ERISA, it depends on whether the plan provides medical care. If a plan provides medical care it is subject to ERISA. The federal Department of Labor (DOL) has issued advisory opinions that an EAP with trained counselors who provide counseling services is providing medical care. Of note, the trained counselors do not have to be doctors or psychologists to meet this threshold.

A plan that only provides referrals to counselors may not be deemed to “provide medical care” and may, therefore, not be an ERISA plan. However, if the service providers that make the referrals are trained in a field related to the EAP’s services, this could mean that the plan would be deemed to provide medical benefits.

ERISA also applies only when a plan is “established or maintained” by an employer. If the employer doesn’t contribute to the cost of the EAP or otherwise endorse the EAP, it may not be considered as “established or maintained” by the employer.

If a determination is made that the plan is subject to ERISA, then the plan is subject to ERISA’s plan document, Summary Plan Description (SPD) requirements and other ERISA provisions. Of note, information provided by the EAP vendor may not be sufficient to meet ERISA requirements.


If the plan provides counseling it would be considered a group health plan that is subject to COBRA. EAPs are generally offered to all employees, even those who may not participate in the employer-provided health plan. As such, an EAP subject to COBRA requires that the COBRA initial notice be provided to all EAP-eligible employees.

To determine the applicable COBRA premium, employers should determine the premium attributable to the health care related benefits only. For example, the premium attributable to job counseling or financial counseling services would not be included in the COBRA premium.

Open enrollment presents yet another challenge. If an employee continues EAP coverage under this scenario, but the employee was eligible for the group health plan, but not enrolled, then an opportunity to elect the health plan would be required.

Employers may limit eligibility for the EAP to those employees who enroll in the group health plan to avoid this COBRA complication. But, limiting coverage to those participating in the group health plan poses ACA problems as the next paragraphs illustrate. Alternatively, the EAP’s benefits may continue after what would be a qualifying event for 36 months. As a result, there would be no loss of EAP coverage and no COBRA trigger.

Affordable Care Act (ACA)

EAPs posed particular problems after enactment of the ACA. The DOL and Treasury departments issued rules that EAPs would be considered “excepted benefits” and, therefore, exempt from the ACA.

An EAP is considered an “excepted benefit” if four requirements are met:

  1. They must not provide significant benefits in the form of medical care. The amount, scope, and duration of covered services will be considered in evaluating compliance with this requirement.
  2. EAP benefits may not be coordinated with group health plan benefits
    1. EAP participants may not be required to use or exhaust EAP benefits before they are eligible for group health plan benefits
    2. Eligibility for EAP benefits may not be made dependent on participation in another group health plan
  3. No employee premiums or contributions can be required for participating in an EAP
  4. An EAP that is an excepted benefit may not impose cost-sharing requirements.

The final rule that includes these requirements is here.

Health Savings Accounts (HSAs)

Since EAP plans often include coverage for services irrespective of the employer’s high deductible health plan (HDHP), this raises the concern that an EAP could cause a person to lose eligibility to contribute to an HSA. The IRS has provided guidance that an EAP is not a health plan if it does not provide “significant benefits in the nature of medical care or treatment.”

IRS Notice 2004-33 Q&A number 10 addresses this concern.

Caution Required

As with many compliance issues in employee benefits, the facts and circumstances are critical to assessing compliance. And, the “right” answer may not be clear or apparent.

Counting Employees Not as Easy as 1…2…3

Most children can count to 10 in preschool. The average child can count to 200 at age six. But, employee benefit professionals know that counting – when counting employees — is anything but easy.

The reason that counting employees isn’t easy is that it depends why they’re being counted. Different laws at the federal and state level count employees in different ways. This is particularly true for laws that impact employee benefits.

The Affordable Care Act (ACA) requires that employers count employees to determine whether an employer is an “applicable large employer” or ALE.  An ALE is subject to the employer shared responsibility requirements of the law. First an employer needs to consider if the firm is part of a controlled group. Then, an employer must determine the number of full-time and full-time equivalent employees. Employers must make this determination of ALE status each year. The IRS guidance on determining ALE status can be found here.

COBRA, the federal employee continuation law requires a different method of counting employees. COBRA requires that employers count full-time and part-time employees. A part-time employee is counted as a fraction equal to the number of hours worked divided by the hours an employee must work to be considered full-time. A more detailed explanation of counting employees for COBRA purposes can be found in An Employer’s Guide to Group Health Continuation Coverage Under COBRA.

State continuation laws may count employees differently than COBRA.

Medicare Secondary Payer (MSP) provisions require yet another counting method. The MSP provision applies to group health plans of employers with 20 or more employees. Generally speaking, MSP looks to employees on the payroll. But, the technical aspects of counting employees are more involved as Section 10.3 of the Medicare Secondary Payer (MSP) Manual Chapter 2 reveals.

Form 5500 filing requirements for welfare plans add yet another counting complication. A welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year may be exempt from the filing requirements. The instructions for Form 5500 provide the details.

Other laws or regulations that may require different counting methods include:

  • Family and Medical Leave Act (FMLA)
  • Pregnancy Discrimination Act (PDA)
  • Age Discrimination Employment Act (ADEA)
  • PCORI fee
  • Form W-2 cost of health benefits requirement
  • Numerous other federal and state laws.

How to Survive a Department of Labor Health Plan Audit

Ask anyone to choose a root canal or an IRS audit and the choice will be no surprise – root canal. Many employers would choose a root canal over a Department of Labor (DOL) health plan audit, too.

A DOL health plan audit can be triggered by a complaint or luck! In any event, notice of a DOL health plan audit calls for immediate attention from the employer.

The scope of documents that the DOL can review is broad, in large part due to the DOL’s responsibility to enforce a number of complex laws including:

  • PPACA.

In fact, the appendix to one DOL audit request listed 26 items for the employer to provide. Employers generally have 30 days to assemble the documentation requested for the audit.

If this information sounds like a really bad dream, the DOL has provided a lifeline. This lifeline is the self-compliance tool that is intended to help employers assess whether their plans are in compliance with the various laws. As importantly, assembling the documentation called for by the compliance tool would go a long way to making a health plan audit request more manageable.

Warning, this tool is comprehensive with 68 pages covering 93 questions!

Which brings back the idea of choices. Which is preferable, assembling the documents called for in the self audit over a period of weeks or months or scrambling when a DOL auditor is knocking on the door?

21st Century Cures Act Includes New HRA Provision for Small Employers

The 21st Century Cures Act passed the House and Senate on a bipartisan basis and  signed  by the President on December 13, 2016. This 1,000 page bill includes language that allows small employers to provide health reimbursement arrangement (HRA) funds for employees to purchase individual coverage.

Key provisions of Section 18001 titled “Exception from Group Health Plan Requirements for Qualified Small Employer Health Reimbursement Arrangements.

A “qualified small employer health reimbursement arrangement” is one that is funded solely by an eligible employer without salary reduction. It is provided on the same terms to all eligible employees.

Notwithstanding this requirement, the amount of the benefit may vary based on the price of a policy in the individual insurance market based on the age of the employee and/or family members and the number of family members eligible.

The arrangement provides payment or reimbursement of an eligible employee’s expenses for medical care under Section 213(d) incurred by the employee and eligible family members.

An eligible employer is one that is not an ALE under the definition in section 4980H of the ACA. Also, the employer must not offer a group health plan to any of its employees.

The maximum dollar limit per year is $4,950 for an individual employee and $10,000 for family members.

The maximum benefit may be prorated based on the months that an individual is covered by the arrangement. The annual maximum is to be adjusted for inflation using the Consumer Price Index (CPI) inflation rate.

The plan is subject to nondiscrimination requirements and may exclude employees defined in Section 105(h)(3)(B). The Act amends these requirements for the purposes of this provision by substituting 90 days for “3 years” in clause (i). As such, employees that may be excluded are:

  • Employees who have not completed 90 days of service
  • Employees who have not attained age 25
  • Part-time and seasonal employees
  • Employees who are members of a collective bargaining agreement
  • Employees who are nonresident aliens and who receive no earned income in the US.

Notice Required

 Employers are required to provide a notice 90 days before the beginning of the year or when an employee is first eligible for the plan. The notice must contain:

  • Statement of the amount of the eligible employee’s permitted benefit
  • Statement that information regarding the benefit must be provided by the employee to any health insurance exchange if applying for APTC
  • Statement that if the employee is not covered under MEC (minimum essential coverage) for any month that the employee may be subject to the individual mandate tax for the month and any reimbursements under the arrangement may be included in gross income.

Failure to provide the notice can result in a penalty of $50 per employee per incident not to exceed $2,500.

 Notices must be provided to years beginning after 12/31/16 or 90 days after the date of enactment of the Act.

HRA and Affordability

The HRA reimbursement is treated as affordable coverage for a month if the amount that would be paid by the employee as premium for self-only coverage under the second lowest cost silver plan offered in their respective individual health insurance market does not exceed the household affordability threshold. The applicable amount for a month is calculated based on 1/12 of the employee’s permitted benefit.

Effective Dates and Other Notes

The provisions of the section are effective for years beginning after 12/31/16. Coordination with the health insurance premium credit applies to taxable years beginning after 12/31/16.

Form W-2 reporting applies to calendar years beginning after 12/31/16.

 The HRA benefit is not subject to COBRA continuation requirements.

This small employer HRA is not considered a “group health plan” for some ERISA purposes.

There are some provisions for transitional relief which may benefit small employers that have had HRAs that were not in compliance with previous IRS guidance.



Telemedicine — A Growing Benefit Offer

Employers and insurers are increasingly turning to telemedicine programs to save employees money and increase productivity. With a doctor visit only a phone call away, employees don’t have to take time off the job to sit in a doctor’s office when a remote visit will do the trick.

Employers who wish to learn more about telemedicine from a medical practice perspective may find that the FAQs on the American Telemedicine Association website are helpful. The FAQ page is here.

Health insurers have been slow to adopt telemedicine programs. That appears to be changing. But, as a result, employers have adopted stand-alone telemedicine programs. As a stand alone program that is not integrated into the overall health plan, compliance issues may need to be considered. This is especially true if the employer offer a high deductible health plan (HDHP) that is health savings account (HSA) compatible.

There is an ongoing debate in the benefits arena regarding whether a telemedicine program meets the definition of a “group health plan” for ERISA, HIPAA and IRS purposes.  Since most telemedicine programs provide medical care, a conservative interpretation would define these plans as meeting the “group health plan” definition.

If one accepts that the telemedicine plan is a “group health plan” then the plan is subject to COBRA and provisions of the ACA. This exposes the plan to the market reforms such as covering dependents to age 26, and preventive services in-network without cost to the patient. Therefore, a plan should be structured to provide these benefits.

Some telemedicine providers or benefits consultants have argued that these plans  should be characterized as excepted benefits, an employee assistance plan (EAP) or a non-insurance based program. As such, these plans would not be subject to ACA, ERISA or other compliance requirements. Unless an employer has specific legal guidance in this regard, employers should adopt a more conservative approach by treating these programs as “group health plans.”

 One of the bigger concerns regarding telemedicine plans is whether and how to integrate these plans with high deductible health plans (HDHPs) coupled with HSAs. It’s a bigger concern because many employers have offered telemedicine programs to help address the employee exposure to larger and larger deductibles. The idea is that employees have a benefit for the more common medical expenses without having to meet the deductible.

That’s also where the problem with HSAs arises. IRS publication 969 establishes the rules for HSAs. To be eligible and qualify for an HSA you must meet the following requirements:

  • You must be covered under a high deductible health plan (HDHP), on the first day of the month.
  • You have no other health coverage except what is permitted under “Other health coverage”
  • You are not enrolled in Medicare
  • You cannot be claimed as a dependent on someone else’s 2015 tax return.

Publication 969 can be found here.

A telemedicine plan’s benefits are often structured to provide health care without regard to whether or not someone has met their HDHP deductible. If this is the case, there is a strong argument that a person with a telemedicine plan does not qualify for an HSA.

 A plan could be structured so that the beneficiary pays the “fair market value” as a fee whenever a service is rendered. In this type of arrangement an employer could offer the coverage and likely pay for it without disqualifying someone from an HSA. But, paying a fee for each service and coordinating this with a beneficiary’s deductible so there is a benefit of value is difficult, if not impossible.

It is clear that some of the services that can be provided through a telemedicine program can be considered preventive services. However, limiting a plan to only preventive services would make the telemedicine program far less appealing.

Employers could also consider offering telemedicine as a voluntary benefit. Voluntary benefits are not governed by ACA’s myriad rules. To avoid complications and ERISA compliance concerns, employers would have to follow the safe harbor for voluntary plans.

A plan is voluntary and usually not an ERISA plan if:

  • The employer doesn’t contribute to the cost of the plan
  • Participation is voluntary
  • The employer’s involvement in limited and the employer does not “endorse” the plan
  • The employer isn’t compensated for collecting and remitting premiums.

With more and more employers offering telemedicine plans, the questions regarding HSA eligibility, ERISA, HIPAA and other compliance concerns related to employee benefits will not go away. An employer is wise to avoid making assertions regarding taxes or other issues unless the employer has obtained legal or tax advice. And, the employer should ask that the telemedicine provider provide sufficient information to ensure that an employer’s in compliance with ERISA, HIPAA, COBRA and any other relevant laws.


Employers Get Your ERISA House in Order

ERISA, the Employer Retirement Income Security Act, was enacted into law in 1974. While the focus of ERISA was retirement plans, the law also imposed requirements on health and welfare plans, including employer-sponsored group health plans.

An overview of ERISA’s provisions and requirements is available through the US Department of Labor’s Employment Law Guide. This information can be found here.

ERISA establishes reporting and disclosure obligations for most employer health plans. Plans are required to describe the rights, benefits and responsibilities of participants and beneficiaries in ERISA covered plans. The more common disclosure documents for health plans are Plan Documents and Summary Plan Descriptions (SPDs).

Many employers, especially smaller employers have been remiss in meeting all of these reporting and disclosure requirements. These lapses may become more apparent with the implementation of the ACA and the attention the ACA has brought to regulatory agencies and employees, among others.

Employers with insured plans, especially smaller employers, may have been lax in meeting the requirements to have a plan document and a summary plan description (SPD) for their plans. These employers have mistakenly assumed that their plan booklets or insurance contracts met the requirements for plan documents or SPDs.

For many employers, these lapses may have been rationalized as harmless ones. The rationale being that an employee is receiving sufficient information about a plan or that the employer was too small to be the target of a Department of Labor (DOL) audit. But, the reality is that failure to provide an SPD or plan document within 30 days of receiving a request from a plan participant carries a penalty of up to $110 per day per participant.

So, then, what is the likelihood that an employer will receive such a request?  As labor law attorneys will say, getting a specific request for any of these documents may mean a lawsuit is brewing. Now, the stakes may be even higher due to a new ploy.

Beware this new ploy!

The ploy involves canny medical providers who resort to what some have described as almost an ERISA-blackmail scheme. After providing services such as sleep studies or vein treatments, these providers bill an excessive fee. After the plan pays the allowable charge, a law firm representing the medical provider contacts the employer demanding the plan documents as a prelude to appealing the carrier’s reimbursement.

Generally speaking, the plan documents are available to plan participants. The patient in this scenario has signed a document that allows the medical clinic to act on the patient’s behalf in requesting the plan documents. Often, the patient has no idea that they’ve signed a release for this information.

The danger for the employer in this scheme is that the requirement to provide the plan documents in 30 days starts when the demand is sent to the employer. Thirty days are not a long time for an employer to:

  1. Recognize the demand
  2. Get the demand to the right person who can act on it
  3. Draft the plan documents and respond to the demand.

In some cases, after the initial demand, the clinic’s legal representatives cease further communication. As such, the employer may consider the issue resolved and not respond.

The surprise comes months or a year later when the clinic’s legal representatives re-initiate contact advising that the 30 days to provide the requested documents has elapsed and that the DOL penalty of $110 per day would now total some great amount. The clinic asserts that they will not contact the DOL regarding the employer’s failure to provide the requested documents, thereby triggering the penalty if the employer pays the full fee originally billed to the plan.

Understanding and complying with the rules of ERISA is not as complicated as one might think. And, for many employers, once the documents have been executed for the first time, keeping them up to date requires minimal effort. Properly executed documents can also prove beneficial for the employer by establishing the ground rules for the plan, in addition to the informational benefit to the plan participants.