The IRS recently issued FAQs regarding the temporary, 100% COBRA subsidy created by the American Rescue Plan Act of 2021 (“Rescue Plan Act”).  This subsidy is available to “Assistance Eligible Individuals” for COBRA continuation coverage during the period April 1, 2021 through September 30, 2021.  We previously covered developments relating to the COBRA subsidy in our prior posts on April 13th and March 29th.

Under the Rescue Plan Act, employers must advance and then claim reimbursement for the COBRA subsidy through a premium credit against their Medicare taxes.  This new IRS guidance, Notice 2021-31, offers guidance on a variety of topics, including who is eligible for the subsidy and the meaning of “involuntary termination” of employment.  We’ve pulled a few notable takeaways from these FAQs, which you can find here.

As the economy and public health situation gradually move to a more hopeful phase in Connecticut, employers and HR administrators will benefit from staying on top of current legal developments and trends in employee benefits.  Let’s discuss two timely topics in employee benefits: (1) incentives for getting COVID-19 vaccines; and (2) extended time for employees to use balances in their health FSA and dependent care assistance program accounts.

Incentives for COVID-19 Vaccines: How Much Is Too Much?

As the state and national rollout of COVID-19 vaccines continues, some large employers have already stated their intentions to provide employees a few hours of PTO, or modest cash bonuses, to allow and encourage employees to get vaccinated. While certainly well intended, employers and HR departments should be mindful of certain legal traps surrounding these types of incentives.

In particular, the Americans with Disabilities Act (ADA) places strict limits on employers conducting medical examinations, or making disability-related inquiries to employees in connection with a “wellness program”. Wellness programs with incentives that include medical exams or involve questions that are likely to elicit information about disability generally must be voluntary. However, under current law, there is a lack of clarity about how generous an incentive may be in a wellness program before the program is no longer considered “voluntary”. As a result, last month a number of prominent trade groups including the U.S. Chamber of Commerce requested guidance from the U.S. Equal Employment Opportunity Commission (EEOC) on this very subject in connection with COVID-19 vaccines.

Good News for People Who Like Good News: Extended Time to Use FSA Balances

In 2020, significant balances in employees’ health FSA and dependent care assistance program accounts went unused due to the pandemic. Normally, these tax-favored benefits are subject to the cafeteria plan “use or lose” rules, under which unused balances are generally forfeited by employees at the end of a plan year, with limited exceptions. At the end of last year, Congress passed relief giving employees an additional 12 months to use any unused amounts in their health FSA and dependent care accounts from both the 2020 and 2021 plan years. However, because these extensions are optional to employers, cafeteria plans must be amended to allow them. As additional relief, the legislation gives employers additional time to adopt the required amendment(s). Employers have until the last day of the calendar year that follows the end of the plan year to which an amendment applies, so for calendar year plans, essentially an additional year to adopt the amendment.

The FSA relief also includes: increased flexibility to make mid-year enrollment changes; post-termination reimbursements from health FSAs for the 2020 and 2021 plan years; and special relief relating to when a dependent “ages out” of a dependent care assistance program during the COVID-19 public health emergency.

Gov. Ned Lamont has signed into law House Bill 6515, entitled “An Act Creating a Respectful and Open World for Natural Hair”, commonly known as the “CROWN Act”, which makes it illegal to discriminate based on a person’s hair texture or protective hairstyle in employment, public accommodations, housing, credit practices, union membership, and state agency practices.  The legislation is aimed at protecting people of color from discrimination based upon their hair.

The legislation does so by changing the legal definition of the word “race” to specifically include “ethnic traits historically associated with race, including, but not limited to, hair texture and protective hairstyles.”  Under the bill, protective hairstyles include “wigs, headwraps and hairstyles such as individual braids, cornrows, locs, twists, Bantu knots, afros and afro puffs.”

The CROWN Act is effective immediately.  In passing this legislation, Connecticut joins several other states, including New York and New Jersey, in banning discrimination based on an individual’s hair.

If you have questions about the CROWN Act or how it may impact your workplace’s dress or appearance code, please contact a member of Carmody’s Labor & Employment Team.

Connecticut’s Sexual Harassment Training Deadline Extended to April 19, 2021

The CHRO has announced a third extension of the deadline to provide sexual harassment training for all employees, including supervisors and non-supervisors.  In November 2020, the CHRO had announced that the deadline would be extended for a second time until February 9, 2021.  Now, the training deadline has been similarly extended to April 19, 2021 pursuant to the same extension of the declaration of public emergency and recently issued Executive Order 10A.

President Biden Nominates Jennifer Abruzzo As The NLRB’s Next General Counsel

President Biden nominated Jennifer Abruzzo to serve as General Counsel of the National Labor Relations Board (“NLRB”).  By way of background, the NLRB’s General Counsel is the agency’s chief attorney and decides which cases it will bring and issues guidance memorandums on important labor issues.  Attorney Abruzzo previously spent 23 years at the NLRB and was briefly acting General Counsel before previous NLRB General Counsel Peter Robb, who President Biden terminated on January 22.  Most recently, Attorney Abruzzo served as special counsel to the Communications Workers of America.  We expect that Attorney Abruzzo will help establish President Biden’s pro-employee agenda at the NLRB.

We are continuing to monitor developments at the CHRO and the NLRB and will keep you updated.

Partial Plan Termination Relief

Many employers may be facing what the IRS guidance refers to as a partial plan termination. Generally, this occurs when the number of employees participating in a qualified retirement plan, such as a 401(k) plan, decreases by 20% or more during the Plan Year. This is calculated by dividing all employer initiated severances by the number of active participants, including employees who became participants during the year.

If there is a partial plan termination, any participant who left during the Plan Year, both voluntarily and involuntarily, whose account was not fully vested must be vested.

The stimulus bill provides relief from a partial termination for any Plan Year that includes the period beginning on  March 13, 2020 and ending on March 31, 2021 if the number of active Participants covered by the Plan on March 31, 2021 is 80% of the number of active Participants on March 13, 2020. An employer may be able to avoid a partial plan termination by rehiring employees by March 31, 2021.

Qualified Disaster Relief Available for Retirement Plans

For disasters other than COVID-19 disasters, which are declared to be a disaster by the President between January 1, 2020 and February 25, 2021, enhanced distribution and loan provisions are available. For distributions made prior to June 25, 2021, amounts up to $100,000 may be withdrawn and are not subject to the 10% early distribution tax. The distribution can be taxed over three years and there is a right to repay the distribution over three years.

There are expanded loan limits available as well as a 1 year delay for repayments for qualified individuals.

This is an optional provision and if adopted, plan amendments must be made by the end of the 2022 Plan Year.

Deductibility of Retirement Plan Contributions for PPP Loan Recipients

Expenses paid with forgiven PPP loans are now deductible due to a provision in the stimulus bill. The IRS had taken the position that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan. Under this IRS position, payroll costs incurred during the covered period, which include retirement plan contributions, were not deductible. The Stimulus bill reverses this position for tax years ending after March 27, 2020.

Earlier this month, a Massachusetts federal court dismissed discrimination and retaliation claims against Whole Foods Market and its parent company Amazon alleging that Whole Foods workers faced discipline and retaliation, including docked pay, cut hours, and even termination, for wearing face masks and other paraphernalia bearing the slogan “Black Lives Matter” at work.  Whole Foods responded that the “Black Lives Matter” masks violated the Whole Foods employee dress code, but workers claimed that those violating the dress code to show support for the National Rifle Association or social causes like LGBTQ+ rights did not face similar discipline.

While recognizing that it would have been “more honorable” for Whole Foods and Amazon to “enforce their policies consistently and without regard for the messaging, particularly where the messaging selected for discipline conveys a basic truth,” the court nonetheless held that the workers’ claims should be dismissed because Title VII of the Civil Rights Act of 1964 “does not protect one’s right to associate with a given social cause, even a race-related one, in the workplace.”

Instead, the Court explained that the workplace civil rights law prohibits discrimination based upon an employee’s protected characteristic. The Whole Foods workers’ claims fell short because “no plaintiff alleges that he or she was discriminated against on account of his or her race or that he or she was discriminated against for advocating on behalf of a co-worker who had been subject to discrimination.”

The Massachusetts court ultimately described the workers’ claims as a First Amendment free speech case framed as civil rights case because Massachusetts does not extend First Amendment protections to the private workplace. This may not be the case in Connecticut.  Connecticut General Statute 31-51q prohibits any employer, public or private, from discharging or disciplining an employee on account of the exercise by the employee of rights guaranteed by the First Amendment and by similar provisions of the state constitution.  Accordingly, while employees may not have a federal right to associate with a particular social cause at work, employers in Connecticut must carefully consider whether any anticipated discipline based on the expression of political or social activism in the workplace may run afoul of Connecticut’s enhanced workplace speech protections.

If you have any questions about employee speech or social activism in the workplace, please contact a member of Carmody’s Labor & Employment Team.

HR administrators, employers, employees, and even independent consultants are all well-advised to remember the approaching March 15th deadline for the distribution of annual bonuses and many other forms of compensation that were earned in 2020.

Ever-lurking tax traps wreaked on businesses and individuals by Section 409A of the Tax Code makes each year’s due date to meet 409A’s “short-term deferral” exemption a critical one.  For calendar year employers and employees, this deadline is March 15. (Carmody note: employers with a different tax year may have additional time, but not less.)

To be clear, there is not a blanket requirement that all compensation earned in a prior year must be paid by March 15th (or a later end date of an employer’s short-term deferral window, in the case of a non-calendar year employer).  But in order to exempt deferred compensation from Section 409A using the short-term deferral exemption, the prior year’s earned compensation must be paid by this date.  Other exceptions may separately exempt certain deferred compensation from Section 409A, such as severance pay resulting from an involuntary termination, or qualifying equity compensation.

In addition, losing exemption from Section 409A does not mean that the law will automatically come after taxpayers in the manner famously referenced by Shakespeare.  However, 409A imposes strict limits on the time and form of payment of deferred compensation, including general prohibitions on the acceleration and subsequent deferrals of compensation.  In other words, if a deferred compensation arrangement does not qualify for an exemption from 409A, it has little room to maneuver.

Violations of Section 409A are harsh, particularly on employees.  If a covered arrangement fails to comply, an employee or other service provider is treated as having received income the first tax year that the deferred compensation was no longer subject to a “substantial risk of forfeiture” (generally, when the compensation vests), regardless of whether payment has been made.  In addition, a 20% excise tax is imposed on the employee, plus stepped-up interest for late tax payments, which may go back for several years.  Employer withholding and reporting requirements are also triggered.  In other words, not the ideal outcome for a deferred compensation program.

If you are an employer or individual with compensation that was earned in 2020 and due to be paid or received in 2021, remember to beware the Ides of March 15th, and plan ahead with legal counsel when necessary.

We have been getting questions about the extent to which employers may encourage their employees to obtain COVID-19 vaccines when they become eligible.  There are a couple of thorny legal issues that may arise when employers offer incentives in connection with a voluntary employer-sponsored COVID-19 vaccination program.  We are aware that several large employers are currently offering incentives for employees to get vaccinated.

The Americans with Disabilities Act (ADA) strictly limits medical examinations and disability-related inquiries made to employees in connection with wellness programs, which may (and under recently proposed EEOC rules, would) include a vaccination program.  Wellness programs with incentives that include medical exams or involve questions that are likely to elicit information about disability generally must be voluntary.

But since a 2017 court decision, there has been uncertainty surrounding when a wellness program offering employee incentives will shift from “voluntary” to. . .  well . . . not voluntary, based on the value of the incentive involved.

Under the previous administration, the EEOC proposed to limit incentives for certain wellness programs to “de minimis” incentives, such as a water bottle or a modest gift card. The Biden administration has frozen regulations which have not yet taken effect, so the status of those regulations is uncertain.

So where does that leave employers who may wish to offer a voluntary vaccination program or an incentive for employees to get vaccinated? Is an incentive to get vaccinated covered by the wellness regulations? If it is covered, how much of an incentive may an employer offer to encourage vaccination without the program becoming mandatory and therefore subject to the ADA limits?  For example, is granting a PTO day more than a de minimis incentive?

To avoid this uncertainty, an employer may decide not to sponsor a COVID-19 vaccine program and instead simply offer an incentive to employees who submit proof of vaccination from an unrelated party (i.e., obtain a vaccine on their own accord).  In this case, the employer would not be considered to have sponsored a wellness program subject to the ADA.   Nonetheless, other federal and state nondiscrimination laws may be implicated by excessively large incentives.

A number of employer groups, including the U.S. Chamber of Commerce, have signed onto a letter to the EEOC asking for immediate guidance on the level of incentive an employer may offer to encourage employee vaccinations, and other related guidance.

We are closely monitoring developments and will update you as soon as further guidance is offered. In the meantime, if you are considering incentives for employee vaccination, we can assist with navigating these issues.

Contained within the recent Stimulus Bill is the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Section 214 of that Act provides flexibility for Health Flexible Spending Accounts (Health FSA) and Dependent Care Accounts (DCA).

Background

HFSAs and DCAs have certain limitations and restrictions known as the ‘use or lose’ rule, which generally provide that amounts not used by the end of the year are forfeited. Prior to the temporary changes described below, these accounts were permitted to have a 2 ½ month grace period during which the participant could be reimbursed for expenses incurred during the grace period with unused amounts from the prior year.

Health Flexible Spending Accounts, in lieu of a grace period, have been allowed to have a ‘carryover’ of a limited amount to be used for expenses incurred at any time after the end of the plan year. For 2021 this limit is $550.

Temporary Changes

Under the new legislation, the grace period is significantly extended to 12 months for both the 2020 and 2021 Plan Years. The “carryover” provisions are extended to Dependent Care Accounts and now allow for both Dependent Care Accounts and Health Flexible Spending Accounts to allow all unused funds in the 2020 and 2021 plan years to be carried over into the next plan year.

In addition, for plan years ending in 2021, participants may prospectively change their elections regardless of whether they have had a ‘change in status’ event.

Health Flexible Spending Accounts may now allow terminated participants to use their accounts for permitted expenses, even after a termination of employment, as is currently permitted for Dependent Care Accounts.

Finally, under certain circumstances, Dependent Care Accounts are allowed to cover dependents up to age 14 (an increase from age 13) for a plan year which had an open enrollment period that ended on or before January 31, 2020. Also,  if there were unused amounts in that plan year, coverage is permitted during the following plan year until the dependent’s 14th birthday.

Amendments

Although all the changes above are optional, they may be adopted immediately. If any of them are adopted, plan amendments are required by the end of the calendar following the year when they are effective. Thus, a change put into effect for a 2020 Plan year will need to be in an amendment adopted by December 31, 2021.

We are happy to assist with any of the above.

For questions, please reach out to Timothy S. Klimpl or Mark F. Williams.

Timothy S. Klimpl
(203) 252-2683; tklimpl@carmodylaw.com

Mark F. Williams
(203) 575-2618; mwilliams@carmodylaw.com

You may also reach out to any member of Carmody’s Labor & Employment team.

Giovanna Tiberii Weller
(203) 575-2651; gweller@carmodylaw.com

Domenico Zaino, Jr.
(203) 578-4270; dzaino@carmodylaw.com

Alan H. Bowie
(203) 784-3117; abowie@carmodylaw.com

Maureen Danehy Cox
(203) 575-2642; mcox@carmodylaw.com

Stephanie E. Cummings
(203) 575-2649; scummings@carmodylaw.com

Pamela Elkow
(203) 252-2672; pelkow@carmodylaw.com

Vincent Farisello
(203) 578-4284; vfarisello@carmodylaw.com

Sarah S. Healey
(203) 578-4225; shealey@carmodylaw.com

Lauren M. Hopwood
(203) 784-3104; lhopwood@carmodylaw.com

Howard K. Levine
(203) 784-3102; hlevine@carmodylaw.com

Sherwin M. Yoder
(203) 784-3107; syoder@carmodylaw.com

Ann H. Zucker
(203) 252-2652; azucker@carmodylaw.com

On the first day of his Presidency, President Joseph R. Biden made two major changes at the National Labor Relations Board (“NLRB” or the “Board”.)

First, President Biden terminated the current NLRB General Counsel Peter Robb.  By way of background, the NLRB General Counsel is the agency’s chief attorney and, among other things, determines the cases the Board will pursue and issues guidance on important labor law issues.  Upon taking office, President Biden requested former General Counsel Robb’s resignation, however, he refused to resign.  As a result, President Biden terminated General Counsel Robb, who had approximately 10 months left in his term.

Second, President Biden named Lauren McFerran the Chairperson of the Board.  By way of background, the Board is comprised of a five-member panel and a majority of members are appointed by the President.  Chairperson McFerran replaced former Chairperson Jonathan F. Ring, who was appointed by President Trump.  Although Chairperson McFerran will now lead the Board, she is still outnumbered by prior Trump appointees 3-1 as she is the sole Democrat on the Board and there is one vacancy.  We expect that President Biden will appoint an individual to the vacant seat on the Board; however, the Trump-appointed Board will maintain a majority until August 27, 2021, when Board Member William J. Emanuel’s term expires.

We are continuing to monitor developments at the NLRB and will keep you updated.