Taylor English Named One of Atlanta Business Chronicle’s 2011 Best Places To Work.

Atlanta- September 22, 2011- Atlanta law firm Taylor English Duma LLP was recognized as one of the Atlanta Business Chronicle’s Best Places to Work at the seventh-annual awards event at the Atlanta Marriott Marquis on September 16th.

The Atlanta Business Chronicle describes this year’s Best Places to Work Awards as being particularly timely given that, “there’s almost no topic of greater public interest in America these days than jobs.” 100 Atlanta employers were ranked in three categories: large employer, medium sized employer and small employer. Taylor English (which has over 140 attorneys and employees) was awarded this honor in the medium-sized employer category, which recognizes companies and organizations in the metro Atlanta area with 101 to 500 employees.

“Creating a more vibrant and rewarding workplace was one of our primary goals when we launched the firm nearly 7 years ago”, says Marc Taylor, one of the firm’s founders. “This is a something that we will share collectively with our attorneys, employees and clients”.

“This award is a tremendous honor”, says Taylor English managing partner Al Hill, “especially since it’s based solely on employee surveys. At Taylor English we’re committed to offering our employees an alternative to the traditional law firm model that encourages an entrepreneurial spirit, so it’s reassuring that, as we continue to steadily grow, our colleagues agree that the firm is purpose-built for them and the needs of their clients. We are thrilled with the award, and we already have out sights set on next year.”

Earlier this year, Taylor English was also was also recognized by the Atlanta Journal-Constitution as one of Atlanta’s Top Work Places for 2011.

The Atlanta Business Chronicle partnered with Quantum Workplace to survey metro Atlanta employers to determine the top 100 Atlanta’s Best Places To Work. This year readers nominated nearly 500 companies and organizations, and Quantum surveyed employees from participating companies and organizations.

Mandatory Labor Posters Now Available

The National Labor Relations Board has been busy lately issuing pro-union decisions and regulations.  The Board recently issued regulations requiring virtually all private-sector employers to post a notice informing employees of their rights under the National Labor Relations Act, including the right to form and organize unions.  The notice, combined with rules that would require quicker elections and allow smaller voting units, substantially tilts the organizing balance in favor of the unions. 
The NLRB poster is now available to be downloaded from the NLRB’s web site:
“Download Poster”. It can be printed in color or  black-and-white on 11”x17” paper, or on two 8×11 inch pages that are taped together; smaller versions of the poster are not acceptable.  The deadline for posting is November 14, 2011. 
Federal contractors that already post a similar Department of Labor-required notice are not required to post this new notice.  On the other hand, employers that customarily post personnel rules and policies on line or electronically, are required to post this notice in the same manner (in addition to the physical posting).  Moreover, the notice must be posted in English and other languages if at least 20% of the employees are not proficient in English and speak the other language.  The NLRB has committed to publishing posters in several different languages, although those are apparently not yet available.
Failure to post the notice may be treated as an independent unfair labor practice under the National Labor Relations Act, and might in some cases be considered evidence of unlawful motive in an unfair labor practice case.  In addition, the failure to post may support a claim that the usual six month statute of limitations for filing an unfair labor practice charge should be extended in cases involving other alleged violations of the Act.
Employers are justifiably concerned that the new notice and other recent NLRB actions encourage union organizing activity and make them more vulnerable to organizing drives.  While legal action might block implementation of some NLRB efforts, the best way for an employer to protect against organizing activity is to prevent it.  Employers are stepping up supervisor training programs design to help management quickly recognize and lawfully respond to organizing efforts.  Properly trained supervisors and managers are without a doubt the best defense to a union organizing drive.  Contact your Taylor English attorney if we can assist you with your training efforts, or if you would like additional information.

Joseph Bryan is a member of Taylor English’s Employment, Labor and Immigration practice group. He has represented employers in connection with a wide variety of labor law disputes, including collective bargaining negotiations, unfair labor practice proceedings, union organizing drives, decertification proceedings, arbitration hearings and litigation involving National Labor Relations Act issues. 

Podcast On Business Method Patents after the Supreme Court’s Decision in Bilski v. Kappos

Atlanta, August 12, 2011– Attorney Jeff Kuester of Atlant law firm Taylor English Duma LLP discusses legal ramifications of Supreme Court case Bilski v. Kappos in a podcast [http://bit.ly/qANJ1l] posted on LexisNexis.com.

In 2010, the Supreme Court in Bilski v. Kappos held that the “machine-or-transformation” test is not the sole test for determining patent eligibility of a process, but “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes.”

Taylor English attorney Jeff Kuester, who represented inventors Bernie Bilski and Rand Warsaw in their individual capacities during the Supreme Court case, discusses the lasting impact of the case in an interview with the intellectual property law community at LexisNexis.com.

“The decision has had a substantial influence in courtrooms and in Congress,” Kuester says. “For example, the RCT v. Microsoft decision by the Court of Appeals for the Federal Circuit outlines additional breathing-room outside the machine-or-transformation test set forth in the Bilski decision.“

Congress, Kuester points out, is at work to categorically exclude patents on tax reduction business methods and institute a new procedure at the Patent Office to challenge the validity of business method patents covering financial products and services. “Nevertheless,” he asserts, “patent eligibility for other types of business methods and software remains solid.

Kuester leads the patent practice for Taylor English’s Intellectual Property group and is a member of The State Bar of Georgia’s Board of Governors. Kuester is ranked as one of the 2011 Top 100 Lawyers in Georgia.

Listen to the podcast by clicking through this link. http://bit.ly/qANJ1l

Tax Court Permits Penalty Relief for Taxpayer’s Failure to Pay Due to Circumstances Beyond Control

The U.S. Tax Court recently expanded the list of potential reasons for which a taxpayer may be relieved from penalties for failing to timely pay employment taxes. Obtaining relief from potential penalties is often a key issue in resolving disputes with the IRS over unpaid taxes.

Treasury regulations authorize penalty abatement if the taxpayer is unable to pay taxes due to financial circumstances beyond his or her control; however, the regulation has seldom been applied to support abatement for late payment of employment taxes. The Internal Revenue Manual—the guide book for IRS employees—supports this, stating that penalty abatement is rarely allowed on employment tax deposits.

In Custom Stairs & Trim Ltd. V. Commissioner, T.C. Memo 2011-155, the taxpayer’s business suffered severe damage from Hurricane Ivan in 2004 and then in 2008 was affected by the general economic downturn. The taxpayer had previously been consistent in filing and paying employment taxes on time, but after Hurricane Ivan they became frequently late. Penalties mounted as the IRS applied recent payments to penalties and interest that accrued from earlier periods, causing the taxpayer to be delinquent on the current period.

Despite the IRS’s disapproval of Custom Stairs favoring other creditors over them, the Tax Court held that the company, “exercised ordinary business care and prudence in cutting benefits and payroll, selectively and prudently paying business expenses, and attempting to sell its real property to provide for the timely payment of its tax liabilities.”

Furthermore, the Tax Court disagreed with the IRS’s suggestion that businesses in financial circumstances such as Custom Stairs should fold, citing East Wind Indus., Inc. v. United States, 196 F. 3d 499, 507-508 (3d Cir. 1999) which states, “Both the economy and the federal fisc are negatively impacted by such an approach—the amount of money flowing into the economy and the fisc is reduced as a result of increased unemployment, idle buildings and plants, and decreased sales of goods and services.”

On the basis of the court’s ruling in Custom Stairs, Penalty relief for late payment of taxes may be granted if the taxpayer can establish that he or she exercised prudent business care in providing for tax compliance responsibilities but due to financial circumstances beyond their control were unable to pay taxes on time.

Stephen Wright and Ian Clarke to give “Lunch and Learn” on the Impact of Regulatory and Legal Changes

Taylor English attorneys, Stephen Wright, and Ian Clarke, will give a “Lunch and Learn” to members and guests of the Association of General Contractors on June 16, 2011., from 11:30 am to 1:00 pm at the offices of the Associated General Contractors located at 1940 The Exchange, Suite 100, Atlanta, GA 30339.

Taylor English will furnish lunch, and the program will focus on a spate of recent changes in the legal and regulatory landscape impacting companies in the construction industry in Georgia. It will also cover new changes in laws and regulations at both the federal and state levels, as well as new laws on federal disclosure, immigration law and eVerify, requirements for “vendor lobbyists” in Georgia. Rules affecting authority of federal contracting officers, will also be examined.

Amendment to Fair Credit Reporting Act— New Federal Law Requires Credit Score Disclosure When Credit Grantor Makes Certain Risk-based Pricing Decisions

Beginning July 21, 2011, if a credit grantor makes a risk-based pricing decision adverse to a consumer of the type covered by the risk-based pricing notice provisions of the federal Fair Credit Reporting Act (“FCRA”), and the decision is based in whole or in part on a “credit score” obtained from a consumer reporting agency, then, subject to certain exceptions, that credit grantor must provide the consumer a risk-based pricing notice containing not only the disclosures currently required under the FCRA, but also the credit score itself and certain other information relating to the score, including up to four key adverse factors in the score (plus a fifth if the number of inquiries into the credit file of the consumer is a key adverse factor).  Currently (prior to July 21, 2011) the risk-based pricing notice already must include (i) that the terms offered are set based on information in a consumer report, (ii) the identity and contact information of the consumer reporting agency, and (iii) that the consumer can obtain a copy of their consumer report from the consumer reporting agency without charge.  Just as prior to the amendment, the credit grantor is required to give the risk-based pricing notice where, based in whole or in part on a credit score obtained from a consumer reporting agency, the credit grantor (i) approves of credit applied for by a credit applicant, but the terms approved are materially less favorable than the most favorable material terms available to a substantial portion of the credit grantor’s applicants for the same product,¹ or (ii) increases the interest rate on a consumer’s existing credit account.  The new requirement to disclose the credit score is mandated by Section 1100F of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), signed into law on July 21, 2010, which (among many other things) amends the FCRA.

On March 15, 2011, the Federal Trade Commission published for public comment proposed rules containing, among other things, proposed modifications to model risk-based pricing notice forms previously adopted by the FTC in order to incorporate the credit score disclosure requirements. The comment period expired on April 14, 2011. Assuming the rules will be adopted essentially as proposed, you will be able to refer to the modified model forms for guidance in preparing risk-based pricing notices. Also, certain exceptions to the risk-based pricing notice requirements continue to exist (those are described in the existing FTC regulations pertaining to risk-based pricing notices), including the alternative of the credit grantor providing to its credit applicants generally (not just those otherwise qualifying for receipt of a risk-based pricing notice) what is referred to as a “credit score disclosure exception notice.”

Such an alternative notice has some similarities to the risk-based pricing notice, but requires disclosure to the credit grantor’s credit applicants generally of general information regarding credit scoring along with, for each consumer receiving the exception notice, their current or most recently calculated credit score and information concerning the range and distribution of credit scores under the particular scoring model used.2

If your company uses, or is considering using, credit scores in connection with risk-based pricing decisions, you should be prepared to comply with the new credit score disclosure requirements on July 21, 2011. For further information, including with respect to compliance with risk-based pricing notice requirements generally, or with the “credit score disclosure exception notice” alternative, please contact Bruce Richards (678-336-7146), whose areas of practice include consumer reporting, equal credit, e-payments, and consumer data protection.

¹The rules for determining when an applicant qualifies for the notice under this test are somewhat complicated, with various methods prescribed in the rules for making the determination.

2The purpose behind the “credit score disclosure exception notice” is to provide an acceptable method of educating the credit grantor’s credit applicants and customers generally on the use of credit scores without having to apply the sometimes complicated rules for determining which applicants and customers are entitled to the risk-based pricing notice.

Bruce Richards is a business lawyer with an extensive corporate, transactional and regulatory background. Having served as general counsel and an executive officer of four publicly traded companies, including Atlanta-based Equifax, he excels at evaluating, managing and advising with respect to the broad spectrum of legal challenges facing his clients’ businesses, and advising boards of directors and board committees with respect to strategic transactions and corporate governance matters.

Estate and Gift Tax Provisions of the Tax Extension Act

On December 16, 2010 the Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”), which President Obama signed into law on December 17, 2010. The Act provides that those provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) that were due to expire on December 31, 2010 are now extended to December 31, 2012. In addition, the Act provides for extension of federal funding of unemployment insurance, a 2% payroll tax credit and other stimulus measures. The Act also retroactively reinstates an estate tax of 35% on estates greater than $5 million, re-unifies the estate and gift tax exclusion at $5 million and reinstates the generation skipping transfer (“GST”) tax for gifts made after December 31, 2010. This alert summarizes the estate and gift tax provisions of the Act.

WHAT TO DOESTATE TAX REINSTATEMENT
Under EGTRRA, the estate tax was repealed with respect to all estates of decedents who died on and after January 1, 2010. The repeal was scheduled to “sunset” effective January 1, 2011 with the estate tax being re-imposed at the rate of 55% on estates valued at over $1 million. The Act reinstates the estate tax retroactively to January 1, 2010 but at a 35% rate on estates valued over $5 million (the “Exclusion Amount”). The Exclusion Amount is indexed for inflation after 2011. For estates of decedents who died during 2010, the Act permits the executor of the estate to “opt out” of the Act’s estate tax. Before opting-out, executors of estates valued in excess of $5 million should carefully evaluate whether the benefits of increased basis of estate assets are outweighed by the estate tax that would otherwise be imposed. Starting in 2011, the Act also indexes the Exclusion Amount for inflation and makes it portable between spouses under certain circumstances. Since the Act amends the provisions of EGTRRA, the higher Exclusion Amount and lower estate tax rate expire December 31, 2012. If Congress takes no further action, the $1 million exemption amount and 55% estate tax rate will be reinstated on January 1, 2013.

GIFT TAX REUNIFICATION
Although EGTRRA provided for increases in the estate tax exclusion amount from $1 million to $3.5 million, the gift tax exclusion remained at $1 million. Under the Act, the estate and gift tax exclusions are reunified at $5 million, which means individuals can make up to $5 million in lifetime gifts before any gift tax is imposed. Those who have used their full $1 million gift tax exemption now have an additional $4 million in gift tax exemption availability, at least through 2012. It should be kept in mind, however, that any gift tax exemption used is deducted from the Exclusion Amount for estate tax purposes. Those considering making gifts in excess of the annual exclusion amount (currently $13,000.00 per donee) that have used up their $1million exemption should consider waiting until after January 1, 2011, when they can then take advantage of the higher, unified gift tax exclusion and avoid paying gift tax, unless they are considering making direct gifts to grandchildren. (See GST EXEMPTION INCREASED).
Ensure that bartenders are trained in responsible alcohol sales and service and instruct them to stop serving individuals who appear to be intoxicated and not to sell to anyone who could be underage unless a valid ID establishing legal age is provided.

GST EXEMPTION INCREASED
In keeping with the unified estate and gift regime, the GST tax exemption is raised to $5 million through 2012, and is similarly indexed for inflation for future years. The GST tax is a tax in addition to gift or estate tax that imposed on transfers made to so-called “skip” persons, general speaking those in a generation other than the one directly below the donor. For 2010 only, no GST tax is imposed on direct gifts to grandchildren. Those who wish to make gifts to GST trusts should proceed with caution and carefully consider the opt-out provisions applicable to such trusts in the Act to ensure that distributions from generation-skipping trusts in 2011 and beyond are not subject to GST tax.

Melissa McMorries Melissa (Missi) McMorries is a member of the Business Transactions, Corporate & Taxation group of Taylor English and has extensive experience in a variety of corporate matters, both large and small. Her practice includes Estate Planning, with experience assisting owners of closely-held businesses transition their holdings to the next generation.

Holiday Parties: Preventing Holiday Bliss from Becoming Your New Year’s Nightmare

‘Tis the season to build morale and celebrate hope with an end of year holiday office party. However, failing to recognize the potential liabilities associated with these events can yield devastating results. The most significant concern is associated with the consumption of alcohol. In many states, employers can be held legally responsible for injuries and damages caused by an intoxicated employee or guest who gets into an accident after leaving an office party. Another area of potential liability relates to the “Exclusive Remedy” provision of the Workers’ Disability Compensation Act. While this Act usually protects an employer with respect to work-related injuries, such protection does not apply to injuries “incurred in the pursuit of an activity, the major purpose of which is social or recreational” (i.e. the company holiday party). Here are some tips to help protect employers from having their holiday party turn into a New Year’s nightmare:

WHAT TO DO
Consider an alcohol free party or requiring employees to purchase alcohol beyond the first one or two drinks. People are less likely to over-consume if they are paying for the alcohol. Generally, the average 150 lb male can consume approximately 2 drinks per hour without becoming legally intoxicated. Because this can vary depending upon a number of factors, behavioral signs of intoxication also need to be observed.

Consider providing drink tickets to limit the number of drinks per person and limit the period during the party at which alcohol is served.

If requiring guests to purchase alcohol, check with an alcohol licensing attorney to determine whether a special permit is required for your event.

Hold your event at an establishment licensed to serve and sell alcohol, such as a restaurant or event facility, and use their servers to serve the alcohol. If this is not an option, hire a licensed caterer (with liquor liability insurance) for the alcohol portion of your function.

Ensure that bartenders are trained in responsible alcohol sales and service and instruct them to stop serving individuals who appear to be intoxicated and not to sell to anyone who could be underage unless a valid ID establishing legal age is provided.

Circulate a memo or reminder to employees to drink responsibly and advising them of alternative transportation that will be available.

Include spouses, domestic partners or another adult guest of your employees. If appropriate, consider making your party a “family function” with games for kids as most adults are less likely to over-consume if their children are around.

Have a variety and surplus of non-alcoholic beverages available.

Have plenty of food. Avoid spicy or salty foods that increase thirst, but focus on foods high in starch and protein as these foods stay in the stomach longer and help slow down the absorption of alcohol.

Plan for entertainment or some activity for attendees besides drinking.

End alcohol service at least 30 minutes before the end time of the party. Have an assortment of desserts or an end of party event/giveaway to encourage attendees to stay after the bar is closed.

Designate employees or security staff who will not be drinking to circulate and identify individuals who appear to be intoxicated so that responsible measures can be taken to insure that any such individual will not be driving.

Provide paid taxis or some other form of alternate transportation for anyone who requests such or who appears to be intoxicated. Offer the service both to and from the event.

Recognize that many general liability insurance policies exclude coverage for events where alcohol is served. Consider a “special event” or “dram shop” policy to cover your event. Request a policy that covers both liquor liability as well as other liability exposure.

WHAT NOT TO DO
Schedule the event during normal working hours.

Pay employees while they are at the event or consuming alcohol.

Require employees to attend as a condition of their employment.

Conduct any type of business meetings or work related matters at the event (before, during or after).

Let employees pour their own drinks, or have employees responsible for serving or mixing drinks. Always hire a third party for alcohol service.

Make the bar the focus of your event – have the bar in a corner or separate room.

Have drinking games or other entertainment that encourages the consumption of alcohol.

Knowingly allow an intoxicated employee or guest to consume alcohol.

Provide alcohol to minors or allow parents to provide alcohol to their children at your event.

*Licensed to practice law in Georgia and South Carolina, Michele Stumpe has been representing and assisting businesses and alcohol retailers for over 17 years. Her experience includes successfully handling multi-million dollar civil dram shop and premises liability lawsuits. In addition, Ms. Stumpe has served as a consultant to various governmental entities, trade organizations, and major corporations and has also served as an expert witness on alcohol compliance issues. Stumpe is a partner at the law firm of Taylor English Duma LLP.

Protecting Consumer Privacy in an Era of Rapid Change

On December 1, 2010, the U.S. Federal Trade Commission (“FTC”) released its staff report on consumer privacy. This report outlines the FTC’s preliminary recommendations to protect consumers in the privacy arena. The report is entitled “Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers” and can be found in its complete form at: http://www.ftc.gov/os/2010/12/101201privacyreport.pdf

The proposed staff framework represents a significant change in the way the FTC views data privacy. Previous FTC policy was based on the idea of “notice and opt-out”. The rationale was that it was legally sufficient if a business gave notice of its privacy practices and gave consumers the opportunity to “opt-out” of having their data collected.

The proposed framework increases the burden on businesses to attempt to balance consumers’ privacy interests with the ever-changing technological innovation that requires consumer information to function. The report addresses the need to reduce the burden on consumers by simplifying choice, making privacy policies more consistent across the board, and embracing the concept of “privacy by design.” That concept, which some have criticized as vague and ambiguous, embraces the idea that businesses should develop their systems and operations from inception with the goal of protecting consumer privacy and that other commercial concerns should be secondary.

In many cases, the report claims, consumers do not even realize that they are providing or sharing the information. For instance, the report specifically mentions the example of social media or online shopping sites that track a consumer’s interests and share those personal interests with other affiliates or third parties.

Many companies use privacy policies to explain their information practices, but these legalistic disclosures are often lengthy, hard to find, and not understood by consumers. To deal with this problem, the FTC supports implementation of a “Do Not Track” mechanism so that consumers can easily choose whether to allow the collection of data regarding their online searching and browsing activities. However, the FTC falls short of proposing who will be responsible for developing and/or maintaining such mechanisms, and the report concedes that the FTC may lack the legal authority to mandate such a system.

To reduce further the burden on consumers and increase consumer privacy protections, the report recommends that “companies should adopt a ‘privacy by design’ approach by building privacy protections into their everyday business practices.” This would include reasonable procedures to promote data accuracy, reasonable security for consumer data, as well as limited collection and retention of such data. In addition, companies should implement and enforce reliable privacy practices throughout their organizations, including training employees on privacy policies and conducting privacy reviews for new products and services.

The report also recommends other measures to improve the transparency of information practices, including consideration of standardized notices that allow the public to compare information practices of competing companies. The report recommends allowing consumers “reasonable access” to the data that companies maintain about them, particularly for data brokers.

The FTC staff report should be of interest to every business that collects consumer data in any form, including banks, hospitals, health care providers, social networks, online directories, Internet advertising businesses and online merchants. While the FTC staff report does not carry the weight of law, it does represent the opinions of the FTC and can form the basis for regulatory enforcement and possible future legislation. If all of the staff report’s provisions became law, most businesses with online data collection mechanisms would need to implement significant changes in the way they do business.

Deadlines for comment on the proposals are January 31, 2011, and the report includes a number of specific questions on which the FTC is seeking feedback.

Companies with an interest in online data collection should review the FTC staff report carefully and consider providing comments to the FTC.

Taylor English attorneys regularly advise clients on online data privacy standards and risks and are available to discuss the FTC staff report. For more information please contact Corey Cutter, at 770-434-6881 or Jonathan Wilson, at 678-336-7185.

NEW HEALTH CARE LAW – A First Primer

The recently enacted Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, referred to collectively as “Health Care Reform”, mark the dawn of a new age of mandated health coverage that will affect virtually all employers nationwide.  Health Care Reform imposes sweeping change with multiple rolling deadlines, but it provides little in terms of practical, concrete guidance.  While we cannot be certain today of the eventual health care landscape of tomorrow, we can be certain of preliminary steps that employers should take as they brace for the impact of Health Care Reform.

Key Health Care Reform Dates

March 23, 2010

• Certain large employers must auto-enroll employees in group health plans
• Certain small employers eligible for tax credit for offering group health coverage
• Adoption assistance credit and reimbursement amounts increased for 2010

June 23, 2010

• HHS opens Early Retiree Reinsurance Program

September 23, 2010

• Certain group health plans with plan years beginning on or after this date must comply with certain coverage mandates

January 1, 2011

• Health FSAs may no longer reimburse non-prescription OTC drugs, except insulin
• Employers must calculate value of group health insurance and report on Form W-2
• Penalties increase for early withdrawals/distributions from HSAs & MSAs
• Simple cafeteria plans become available

March 23, 2012

• Certain plan sponsors must provide benefit summaries to participants and applicants

January 1, 2013

• FSA annual reimbursement limit capped at $2,500
• Tax deduction for retiree prescription drug coverage eliminated

March 1, 2013

• Employers must provide state health exchange notices to employees

January 1, 2014

• Large employers must offer group health coverage or pay penalty
• Certain group health plans with plan years beginning on or after this date must comply with certain coverage mandates
• Certain employers must offer free choice vouchers to certain employees
• Most employers must notify employees and IRS as to whether or not they offer minimum essential coverage

January 31, 2015

• Employers who provide minimum essential coverage must begin filing annual information returns

January 1, 2018

• Excise tax levied on high-cost health plans

 Health Care Reform Action Items

Plan for Auto-enrollment.  Effective immediately, any employer with 200 or more employees that sponsors a group health plan offering enrollment to its employees must begin automatically enrolling new employees (and maintaining/re-enrolling current participants), subject to plan waiting periods.  Employers also must provide employees written notice of the plan’s auto-enrollment provision, as well as their right to opt out of coverage. 

Though Health Care Reform makes auto-enrollment effective “immediately”, it provides no guidance on how to comply with the edict.  Forthcoming regulations and guidance should clarify auto-enrollment timing, as well as detail the form and content of any required notices.  Employers should talk to their benefits counsel to determine what steps to take now for auto-enrollment compliance.

Gauge the Impact of New Tax Credits.  Certain small employers that offer group health coverage will be eligible for tax credits to help offset the costs of providing such benefits.  Health Care Reform defines “small employer” as an employer with 25 or fewer full-time (including full-time equivalents) employees with average annual wages of $50,000 or less.  For 2010 through 2013 plan years, these small employers may qualify for a federal tax credit of up to 35% of their costs of providing group health benefits.  Beginning with the 2014 plan year, small employers may elect a tax credit in two years of up to 50% of their group health care costs for coverage purchased on a state health exchange.

Consider Utilizing Early Retiree Reinsurance Program.  The Department of Health and Human Services (“HHS”) on June 23, 2010, will open a temporary Early Retiree Reinsurance Program (“ERRP”) to reimburse employers for up to 80% of between $18,000 and $90,000 of their costs of providing medical, surgical, hospital and prescription drug coverage to retirees age 55 or older (and their spouses, surviving spouses and dependent children) who are ineligible for Medicare.  Employers that offer qualifying retiree health coverage must decide whether or not to avail themselves of ERRP and, if they do, complete an HHS-required application.

Examine Current Health Plan Offerings.  Many popular media reports have trumpeted that every Health Care Reform provision applies to every employer and every health plan.  The truth is that, though Health Care Reform will affect virtually all employers and plans to some degree, not all Health Care Reform provisions apply to all employers or plans.  For example, Health Care Reform recognizes group health plans in existence as of March 23, 2010, as part of a class of “grandfathered” plans.  Such plans will avoid some of the mandated provisions outlined below. 

Effective for plan years beginning on or after September 23, 2010, all plans must:

• Offer coverage to adult children up to age 26, unless they have coverage under their own employer-sponsored plan;
• Eliminate pre-existing condition exclusions for children under age 19;
• Eliminate lifetime dollar limits;
• Restrict annual dollar limits; and
• Eliminate coverage rescission provisions except for cases of fraud or intentional misrepresentation.

Effective for plan years beginning on or after September 23, 2010, non-grandfathered plans must:

• Cover certain preventative care at 100%;
• Cover emergency services on an in-network basis and with no pre-authorization requirement;
• Cover certain clinical trials;
• Allow participants to select OB/GYN or pediatrician as primary care provider; and
• Adopt appeals procedures, including internal claims and external review, for coverage determinations and claims.

Effective for plan years beginning on or after January 1, 2014, all plans must:

• Eliminate pre-existing condition exclusions for all enrollees;
• Eliminate annual dollar limits on all essential coverage;
• Limit deductibles and copayments to prescribed amounts; and
• Cap waiting periods at 90 days.

Additionally, fully insured, non-grandfathered plans will become subject to the same nondiscrimination requirements now imposed on self-insured plans effective for plan years beginning after September 23, 2010.  Thus, new fully insured group health plans will be unable to offer broader or richer benefits to certain key employees unless they can pass strict nondiscrimination tests.

Address Adoption Assistance Benefits.  Health Care Reform extends the sunset provision on favorable tax treatment of qualifying adoption assistance expenses through 2011, and increases the amount that can be reimbursed, starting in 2010, to $13,170.  Employers who offer adoption assistance benefits to their employees will need to update relevant communication materials.

Modify Health Flexible Spending Account (“FSA”) Plans.  Health Care Reform prohibits employees from using health FSA monies to pay for most over-the-counter (“OTC”) drug expenses (other than insulin and prescription OTC drugs) effective January 1, 2011.  Additionally, Health Care Reform caps at $2,500 the amount that may be reimbursed through a health FSA, beginning effective January 1, 2013.  Employers who sponsor health FSAs must modify those plans accordingly.

Communicate Increased Healthcare Savings Account (HSA) and Archer Medical Savings Account (MSA) Distribution Penalties.  Effective January 1, 2011, individuals who take a distribution from either an HSA or MSA prior to age 65 for a purpose other than covering qualified health care expenses will pay a 20% tax.  Employers should review any employee communications regarding HSAs and MSAs to make sure employees are fully informed of the potential impact of unqualified distributions.

Weigh the Benefits of Offering a New Simple Cafeteria Plan.  Health Care Reform creates a simple cafeteria plan for employers with 100 or fewer employees.  Starting January 1, 2011, these employers can adopt a plan if it offers uniform benefit choices to all employees who work at least 1,000 hours per year, and the plan provides for uniform contributions of at least certain minimum prescribed amounts.  Employers will need to analyze the impact of offering such a plan.

Prepare for New Reporting Requirements.  Health Care reform imposes several new reporting requirements on employers:

• All employer plan sponsors must calculate and report to employees their share of the aggregate cost of employer-sponsored health care, beginning January 1, 2011 (effectively W-2s that will issue in 2012).  A new box on Form W-2 will allow employers to report this amount.  Employers will need to work with their payroll departments and third-party processors to ensure that this information is properly reported using the forthcoming revised Form W-2.        
• Beginning on March 23, 2012, self-insured plan sponsors must provide a benefits summary to each participant and plan applicant stating whether the plan meets certain coverage and cost-sharing provisions of Health Care Reform.  Plans must provide 60-day advance notice of any changes to the benefits summary.  HHS will prescribe the structure and content of this form in forthcoming guidance.
• Beginning March 1, 2013, employers must notify employees of the existence of a state health exchange and provide a summary of available exchange services, as well as exchange contact information.  Also, this notice must inform employees of tax credits, cost-sharing subsidies and free choice vouchers, as well as the effect of an employer not offering a free choice voucher.  HHS will prescribe the structure and content of this form in forthcoming guidance.
• Beginning January 1, 2014, most employers must notify employees and the IRS as to whether or not the employers offer minimum essential coverage as defined under Health Care Reform.  These notices, which the IRS will develop, must identify individuals receiving group coverage, as well as information on the length of coverage, whether they obtained coverage on a state health exchange and any amount they received in federal assistance to pay for such coverage.
• Beginning January 31, 2015, employers who provide minimum essential coverage to an individual during a calendar year must file an annual information return.

Assess the Effect of Losing Retiree Prescription Drug Double Benefit.  Health Care Reform closes what had become a rather lucrative loophole for employers who claimed a tax deduction for providing retiree prescription drug benefits and also accepted a federal subsidy for such benefits.  Starting January 1, 2013, employers who provide retiree prescription drug benefits must offset their related tax deduction by the amount of any federal subsidy they received.  Finance committees will need to assess the bottom line impact; several large employers already are claiming massive expected earnings charges.

Determine Whether to Play or Pay.  Health Care Reform dictates that effective January 1, 2014, large employers must offer qualifying minimum essential group health coverage to their employees or pay a penalty euphemistically dubbed a “shared responsibility payment”.  A large employer is one that has employed an average of 50 full-time employees during the preceding calendar year.

A large employer must determine whether it wishes to offer group health benefits or pay the penalty imposed by Health Care Reform.  If the employer fails to offer coverage (or offers coverage that is unaffordable, or for which its share of costs is less than 60%), and at least one employee certifies receiving coverage through a state health exchange (to be implemented by January 1, 2014) and receiving a governmental tax credit or cost-sharing subsidy, the employer must pay $167 per month per employee.  The employer may disregard 30 employees in calculating its overall penalty.

Additionally, if a large employer offers qualifying group health coverage but an employee opts out in favor of coverage from a state health exchange, the employer must pay a penalty of $250 for each such employee.  Health Care Reform caps this penalty at the maximum amount that would have been due had the employer failed to offer coverage.

Benefit plan committees and human resources personnel will need to begin assessing whether their companies employ 50 employees, whether their plans conform to Health Care Reform’s minimum essential coverage standards, and whether it will be cheaper and more efficient to modify nonconforming plans or to terminate or not modify such plans and pay any resulting penalties.

Plan to Provide Free Choice Vouchers.  Health Care Reform requires certain employers to offer free choice vouchers to qualified employees so they can purchase group health coverage on the state health exchange effective January 1, 2014.  The vouchers aim to help certain low-income individuals comply with Health Care Reform’s individual coverage mandate in certain situations when they cannot afford employer-sponsored coverage.  Employers will be permitted to deduct the amount of free choice vouchers as compensation expenses.  HHS and IRS presumably will provide more detail about this program.  

Brace for High-Cost Health Plan Excise Tax.  Effective January 1, 2018, Health Care Reform imposes a 40% excise tax on the excess benefit, as defined in the legislation, with respect to coverage provided by an employer.  IRS apparently will require employers to calculate the amount of the tax.  Self-insured plan sponsors will pay the tax directly, while IRS will assess insurers of insured high-cost plans directly.  Employers should monitor regulatory developments and IRS pronouncements as the effective date nears.