Client Alert: Department of Labor Seeks to Broaden Definition of Fiduciary Under ERISA

On March 1 and 2,2011 the Department of Labor held public comment hearings on its new proposed regulations defining a fiduciary for purposes of employee benefit plans. It is likely the new regulations will cause many who provide financial services to employee benefit plans to be a fiduciary with respect to the plan. The new regulations will result in fiduciary status for those who do any of the following:

1. Provide advice, appraisals or fairness opinions as to the value of investments, make recommendations as to buying, selling or holding assets, or recommendations as to the management of securities or other property.

2. Acknowledge fiduciary status for purposes of providing advice regardless of whether the person meets other requirements of the regulation.

3. Is an investment advisor under Section 202(a)(11) of the Investment Advisors Act of 1940.

4. Provide advice or make recommendations pursuant to an agreement, arrangement or understanding, written or otherwise, with the plan, a plan fiduciary or a plan participant or beneficiary, where the advice may be considered in making investment or management decisions with respect to plan assets, and the advice will be individualized to the needs of the plan, a plan fiduciary or a participant or beneficiary.

The proposed regulations may be found at the Federal Register.

Each case a business or individual may face is unique and may require legal advice. If you would like additional information regarding the content of this article, please contact a member of our Labor and Employment Department.

Client Alert: ADAAA Regulations Released

The Equal Employment Opportunity Commission (EEOC) issued its final revised Americans with Disabilities Act (ADA) regulations and accompanying interpretive guidance in order to implement the ADA Amendments Act of 2008 (ADAAA), which prohibits employment discrimination on the basis of disability.

In keeping with the ADAAA, the new regulations are to be construed broadly, and will dramatically change an employer's focus from whether someone is disabled, to what accommodations should be made.

These new regulations will be effective May 24, 2011, and are available in the Federal Register. Employers with 15 or more employees are encouraged to revise policies and train supervisors to comply with these new rules. [For assistance with either of these, please contact Jennings, Strouss & Salmon]

Each case a business or individual may face is unique and may require legal advice. If you would like additional information regarding the content of this article, please contact a member of our Labor and Employment Department.

Hefty Fines Issued for HIPAA Violations

Bradley V. Martorana, Richard C. Smith
4.11.11

Within a couple of days apart, the U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) issued civil money penalties (CMPs) to two covered entities for failure to comply with the Health Insurance Portability and Accountability Act's (HIPAA) privacy rule.

On February 22, 2011, OCR fined Cignet Health of George's County, Md. (Cignet) $4.3 million for failure to provide patients access to medical records within the allotted time frame required by HIPAA. This first-ever imposed penalty was a result of what the OCR claims was Cignet's "willful neglect" to provide 41 patients access to their medical records within 30 to 60 days of the submitted requests. These violations occurred between September 2008 and October 2009.

OCR Director Georgina Verdugo stated in a news release, "Covered entities and business associates must uphold their responsibility to provide patients with access to their medical records, and adhere closely to all of HIPAA's requirements." Verdugo also indicated that the HHS will continue to investigate and take action against organizations that knowingly disregard their obligations under the HIPAA privacy rules.

In addition to the direct violations of HIPAA privacy rules, the OCR claimed that Cignet failed to cooperate with its investigations into the violation claims and provide records in response to the OCR's subpoena. HIPAA covered entities are required to cooperate with HHS investigations; however, Cignet only produced the medical records after the OCR filed a petition to enforce its subpoena in U.S. District Court and obtained a default judgment.

Two days after the Cignet fines were issued, the OCR executed a $1 million resolution agreement with The General Hospital Corporation and Massachusetts General Physicians Organization Inc. (Mass General). After an investigation, the OCR determined that Mass General was liable for the privacy rule violation made by an employee who left documents containing protected health information (PHI) related to 192 patients on a subway train.

The HIPAA privacy rule requires that covered entities protect the privacy of patient information through administrative, physical and technical safeguards at all time. Director Verdugo indicated that the OCR investigation revealed that Mass General failed to establish reasonable and appropriate safeguards to protect the privacy of sensitive information when it was removed from the hospital's premises.

As part of the resolution agreement, Mass General entered into a Corrective Action Plan, which includes the development and implementation of a comprehensive set of policies and procedures that ensure patient information is protected when removed from the hospital; training of staff members on these policies and procedures; and designating the director of internal audit services of Partners Healthcare System Inc., the hospital's parent company, to serve as an internal monitor to assess the hospital's compliance with the corrective action plan and submit semi-annual reports to HHS for three years.

"To avoid enforcement penalties, covered entities must ensure they are always in compliance with the HIPAA Privacy and Security Rules," said Verdugo. "A robust compliance program includes employee training, vigilant implementation of policies and procedures, regular internal audits, and a prompt action plan to respond to incidents."

Each case a business or individual may face is unique and may require legal advice. If you would like additional information regarding the content of this article or the variety of services Jennings Strouss provides to our health care clients please contact Fred Cummings.

Richard C. Smith is a member of the Tax, Estate Planning & Probate Departments and represents clients in all aspects of tax, corporate and business planning. His practice has a particular emphasis in the employee benefits area including the design, implementation and other aspects of pension, profit sharing and other qualified plans. He also advises clients in estate planning matters, including estate plans, wills, trust and family partnership agreements. He represents many physicians' practices and handles health care matters for them. Contact Mr. Smith at rsmith@jsslaw.com or 602.262.5972.

Bradley V. Martorana is an Associate attorney focusing his practice on corporate, healthcare,tax and securities law. His practice includes counseling corporations, limited liability companies and partnerships as to the tax and non-tax consequences of formation, operation, compensation and other commercial transactions. He also advises buyers and sellers in mergers, acquisitions, reorganizations and other restructurings and represents issuers and investors in private placements of equity and debt securities. Mr. Martorana also advises on a variety of other business and real estate matters. Contact Mr. Martorana at bmartorana@jsslaw.com or 602-262-5958.

FASB May Expand Disclosure Requirements

The Financial Accounting Standards Board (FASB) is currently discussing an expanded disclosure requirement for those participating in a multiemployer pension or other post-retirement benefit plans. The proposed change, expected to be released later this year, will require employers to disclose any unfunded pension liability on its financial statements, and could dramatically affect a company's ability to obtain financing, particularly if the plan's funding status deteriorated during the financial crisis of 2008, when plan asset values dropped significantly. For more information, visit the FASB website.

Each case a business or individual may face is unique and may require legal advice. If you are an employer participating in a multiemployer pension or other post-retirement benefit plan and would like additional information regarding the content of this article, please contact a member of our Labor and Employment Department.

Accountable Care Organization Proposed Rules and Related Guidance

Healthcare Reform: Proposed Rules and Guidance Released for Accountable Care Organizations

On March 31, 2011, several Federal agencies released proposed rules and other guidance regarding participation in the Medicare shared savings program (MSSP) through Accountable Care Organizations (ACOs).

Background

Under the Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010, the Secretary of the Department of Health and Human Services (HHS) is required to establish a Medicare shared savings program that promotes accountability for care of Medicare beneficiaries, improves the coordination of Medicare fee-for-service items and services, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.

Groups of service providers and suppliers that may form an ACO include (i) physicians and other health care practitioners (ACO professionals) in a group practice, (ii) a network of individual practices, (iii) a partnership or joint venture arrangement between hospitals and ACO professionals, and (iv) a hospital employing ACO professionals. ACOs eligible to participate in the MSSP will manage and coordinate care for their assigned Medicare fee-for-service beneficiaries.

Healthcare service providers and suppliers participating in an ACO will continue to receive Medicare fee-for-service payments in the same manner as such payments would otherwise be made. In addition, an ACO that meets quality performance standards established by HHS and demonstrates that it has achieved savings against an appropriate benchmark of expected average per capita Medicare fee-for-service expenditures will be eligible to receive payments for Medicare shared savings (MSSP payments).

Following is a brief summary of the guidance and proposed rules that have been released by each of the Federal agencies.

The Centers for Medicare & Medicaid Services (CMS)

CMS has proposed the definitive rules relating to the operation of the MSSP and participation by ACOs. The notice of proposed rulemaking is available at: http://www.cms.gov/sharedsavingsprogram/

CMS and the Office of Inspector General of the U.S. Department of Health and Human Servces (OIG)

Participation in the MSSP through an ACO will create financial relationships among suppliers and providers which might not otherwise exist, and which might, absent exception, violate Federal fraud and abuse laws. CMS and the OIG jointly issued proposed guidance for the waiver of the application of the Federal Physician Self-Referral (Stark) Law and the Federal anti-kickback statute to certain relationships occurring by reason of participation in the MSSP through an ACO. The guidance is available at: http://www.ofr.gov/inspection.aspx?AspxAutoDetectCookieSupport=1

The Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ)

The FTC and DOJ jointly issued a "Proposed Statement of Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program." The Proposed Statement is intended to address concerns that providers’ and suppliers’ participation in ACOs may contravene Federal antitrust laws. The Proposed Statement is available at http://www.ftc.gov/opp/aco/.

The Internal Revenue Service (IRS)

Recognizing that tax-exempt organizations (including many hospitals) will be participating in ACOs alongside for-profit providers and suppliers, the IRS is considering whether additional guidance is necessary regarding the participation by tax-exempt organizations in the MSSP through ACOs. Treasury Notice 2011-20 is available at: http://www.irs.gov/newsroom/article/0,,id=222814,00.html.

Client Alert: The Arizona Medical Marijuana Act Presents Issues for Employers

Janet B. Hutchison
3.4.11

On November 2, 2010, Arizona voters approved, by a very narrow margin, Proposition 203, the Arizona Medical Marijuana Act, legalizing marijuana for medicinal purposes. Arizona is the 15th state to pass medical marijuana legislation.

The Arizona Medical Marijuana Act (the "Act") permits a "qualifying patient" with a "debilitating medical condition" to obtain marijuana from a registered non-profit medical marijuana dispensary and to use the marijuana to treat or alleviate the medical condition. A "qualifying patient" is a person who has been diagnosed by, and received written certification from, a physician as having a debilitating medical condition and would likely benefit from the medical use of marijuana to treat or alleviate the medical condition. This client alert highlights some of the major implications for employers.

The Act prohibits employers from discriminating against a prospective or current employee who is a registered "cardholder" because of (1) the person's status as a cardholder or (2) as a result of the registered qualifying patient's testing positive for marijuana through a drug screening. While only a qualifying patient may use medical marijuana, other individuals may also be "cardholders" subject to some of the protection from discrimination. Under the Act, a registered "cardholder" may be (1) a qualifying patient, (2) a designated caregiver, or (3) a nonprofit medical marijuana dispensary agent who has been issued and possesses a valid registry identification card by the Arizona Department of Health Services or its successor agency.

The Act does create two limited exceptions to this anti-discrimination provision. First, there is an exception for employers who would "lose a monetary or licensing related benefit under federal law or regulations." Second, an employer is not required to hire or continue to employ a registered qualifying patient who tests positive for marijuana components or metabolites, if the patient used, possessed or was impaired by marijuana on the premises of the place of employment or during the hours of employment.

The Act does not allow employees to use marijuana at the workplace. The Act specifically provides that it does not authorize any person to undertake any task under the influence of marijuana that would constitute negligence or professional malpractice. Further, the Act does not authorize any person to operate, navigate or be in actual physical control of any motor vehicle, aircraft or motorboat while under the influence of marijuana, although, under the Act, a registered qualifying patient shall not be considered to be under the influence solely because of the presence of metabolites or components of marijuana that appear in insufficient concentration to cause impairment. Thus, employers may still take action against employees who use marijuana in the workplace or who work while impaired by marijuana.

By April 2011, the Arizona Department of Health Services is required to begin accepting applications for marijuana registry identification cards. Thus, Arizona employers should review the Act and then review and revise their policies to address the provisions of the Act. Employers should also consider conducting updated training of managers, supervisors, and safety and HR personnel.

If you have any questions about the Act's impact on employers, or would like assistance with evaluating and revising policies, our labor and employment attorneys are available to assist you.

Each case an employer may face is unique and may require legal advice. If you need further information regarding the Arizona Medical Marijuana Act, please contact the author, Jan Hutchison, or one of the other attorneys in our Labor and Employment Department.

Janet Hutchison is a commercial transactional attorney and litigator whose practice focuses on the areas of labor and employment, real estate and general business matters. Ms. Hutchison has extensive experience in employment matters, including discrimination, wrongful discharge and wage and hour matters. She frequently advises clients on employment policies and procedures and represents employers in federal and state court litigation, as well as before the various administrative agencies. Read more... Contact Ms. Hutchison at jhutchison@jsslaw.com or 602.262.5945.

Article: The ABCs of RECs

New article on the ABCs of RECs, authored by Alan I. Robbins, and published in District Energy Magazine is available on our website.

Client Alert: The New Estate and Gift Tax Law

Washington has, at last, acted to interject some certainty, albeit temporary, to the area of estate and gift tax planning. Under the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” the federal estate tax, which disappeared for 2010, springs back to life in 2011 and is imposed at the top rate of 35% of the estate’s value after the first $5 million. Following is a brief overview of the new law.

The New Law

The new law brings back the estate tax, and for 2011 and 2012, the top rate will be 35%. For 2011, the exemption amount (the Unified Estate Tax Credit equivalent) will be $5 million per individual (indexed for inflation after 2011). At those levels, the vast majority of estates (all but an estimated 3,500 nationwide in 2011) will not be subject to any federal estate tax.

The new law also gives estates of decedents who died in 2010 certain choices as to which tax rules to apply. Certain elections and filings must be timely made to claim the benefits of such provisions. If you experienced a death in your family in 2010, you should consult with us as to your course of action.

Under the new law, the estate and gift tax exemptions will be reunified starting in 2011, which means that the $5 million estate tax exemption will also be available for lifetime gifts at the same level. The law in effect prior to 2010 provided a $3.5 million lifetime exemption for estates, but the lifetime exemption for gifts was only $1 million for years prior to 2011. The gift tax rate, starting in 2011, is 35%. The exemption from the generation-skipping tax (GST) – the additional tax on gifts and bequests to grandchildren or lower generations when their parents are still alive – will also rise to $5 million from the $1 million it would have been without the new law. The GST rate for transfers made in 2011 and 2012 will be 35%.

From a planning standpoint, a convenient feature of the new law effectuates the transfer of the unused portion of the $5 million exemption to a surviving spouse, so married couples can shield $10 million of their assets from estate taxes. In the language of tax professionals, the estate tax exemption will be “portable.”

We are revisiting a number of the estate planning techniques with our wealthier clients, including, to name but a few, transfers to grantor retained interest trusts, installment sales of assets to irrevocable grantor trusts, gifting or other transfers to multi-generational trusts, the creation and funding of family limited partnerships and family limited liability companies, and outright gifts of substantial values of assets to younger generations. Washington will likely act again in the next 24 months, which is the duration of these temporary estate and gift tax laws under the new Act. There can be no assurance that the efficacy of these planning techniques will survive any further changes in these laws.

If Washington fails to act before 2013, then the unified credit amount for gift and estate taxes will revert back to $1 million per individual, the GST exemption will return to $1.3 million per individual, and the maximum marginal rate of 55% will apply to such transfers.

Estate Plan Tune-Up

Many clients have been delaying the periodic review and tune-up of their estate planning documents pending the new legislation. Regardless of whether you are impacted by provisions of the new Act, now may be the appropriate time to contact us to initiate a comprehensive review of your related documents, such as wills, trusts, medical powers of attorney, living wills, and general or limited powers of attorney.

If you would like more details about the estate or gift tax or any other aspect of the new law, please do not hesitate to call any of Jennings, Strouss & Salmon’s estate and gift tax professionals identified below.

John R. Christian 602.262.5805
William A. Clarke 602.262.5886
Stephen E. Lee 602.262.5824
Nancy C. Pohl 602.262.5927
Jack N. Rudel 602.262.5951 (Author)
Richard C. Smith 602.262.5972
Wayne A. Smith 602.262.5953

Labor & Employment Client Alert: Arizona's Minimum Wage Increases

On January 1, 2011, Arizona's minimum wage increased to $7.35 per hour. This increase made Arizona's minimum wage higher than the federal minimum wage, which is currently $7.25 per hour.

Arizona voters enacted a voter initiative, known originally as the "Raise the Minimum Wage for Working Arizonans Act," in 2006 (the "Arizona Minimum Wage Act"). The Arizona Minimum Wage Act, which became effective January 1, 2007, established an Arizona minimum wage and also provided that the minimum wage was subject to annual increase based on the increase in the cost of living. The cost of living is measured by the federal Consumer Price Index for All Urban Consumers, U.S. City Average, for all items during the 12 months ending each August 31. Pursuant to the authority granted by this law, the Industrial Commission reviewed the cost of living information and determined that Arizona's minimum wage would be increased for calendar year 2011.

Under federal law, a state may require a minimum wage that exceeds the federal wage. If there is a difference between the laws, the employer must follow the requirement that is the most beneficial to the employee. Thus, an Arizona employer that is subject to both the federal and state laws must pay the Arizona minimum wage rate. Further, Arizona employers must make sure they are in compliance with both the federal and the state laws. Our labor and employment attorneys can answer questions regarding the laws and regulations, and advise you on compliance issues. As you review your individual compliance, some further information regarding the Act and regulations may be helpful.

Exceptions

The Arizona Minimum Wage Act provides only a few exceptions from its coverage. One exception is for small businesses that generate less than $500,000 in gross annual revenue, if that small business is not covered by the federal Fair Labor Standards Act (FLSA). From a practical standpoint, most employers are subject to the FLSA. Another exception applies to the state of Arizona and the U.S. government. Additionally, the Arizona Minimum Wage Act does not apply to any person who is employed by a parent or a sibling, or who is employed performing babysitting services in the employer's home on a casual basis.

Tipped Employees

"Tipped Employees" have special rules under the Arizona Minimum Wage Act and the regulations relating to the Act. With regard to an employee who customarily and regularly receives tips or gratuities from patrons or others, an employer may pay a wage up to $3.00 per hour less than the minimum wage if the employer can establish by its records that for each week, when adding tips received to wages paid, the employee received not less than the minimum wage for all hours worked. If an employee's tips combined with the employer's direct wages do not equal the Arizona minimum hourly wage, then the employer must make up the difference.

For purposes of the Arizona Minimum Wage Act, it is the employer's responsibility to maintain a record of the tips considered for purposes of asserting a tip credit. Further, if an employer elects to use the tip credit provisions, then the amount per hour that the employer takes as a tip credit must be reported to the employee in writing each workweek. Employees who customarily and regularly receive tips may pool, share or split tips between them, and the amount each employee actually retains is considered the tip of the employee who retains it. Employees may also pool, share or split tips with employees who do not customarily and regularly receive tips in the occupation in which the employee is engaged, including management or food preparers, however, such tips may not be credited toward that employee's minimum wage. Further, a tip credit is available only for the hours spent in the tipped occupation. If a tipped employee is routinely assigned to duties associated with a non-tipped occupation, no tip credit may be taken for the time spent in such duties.

Employers should carefully review the laws and regulations for determining who is a "tipped" employee, the application of tip credit rules and regulations and record-keeping requirements, and consult counsel with any questions.

Each case an employer may face is unique and may require legal advice. If you need further information regarding the Arizona Minimum Wage Act, please contact the author, Jan Hutchison, or one of the other attorneys in our Labor & Employment Department.

About the Author:
Janet Hutchison is a commercial transactional attorney and litigator whose practice focuses on the areas of labor and employment, real estate and general business matters. Ms. Hutchison has extensive experience in employment matters, including discrimination, wrongful discharge and wage and hour matters. She frequently advises clients on employment policies and procedures and represents employers in federal and state court litigation, as well as before the various administrative agencies. Read more... Contact Ms. Hutchison at jhutchison@jsslaw.com or 602.262.5945.

Hiring Incentives for Employers

Businesses that hire formerly unemployed workers between February 3, 2010 and December 31, 2010 could be eligible for a tax break under the Hiring Incentives to Restore Employment (HIRE) Act passed earlier this year.

If the new hire was unemployed for at least 60 days prior to being hired, including recent college graduate and rehires, a business can be exempt from its share of the Old Age, Survivors and Disability Insurance tax (OASDI), currently 6.2% of wages up to $106,800. The employee cannot have been hired to replace another employee, unless that other employee left voluntarily or for cause.

An additional tax credit is also available for retaining these employees for one year.

Each case an employer may face is unique and may require legal advice. If you need further information ensuring that your business maximizes its benefits under the HIRE Act, or any other legislation, please contact the author, Valerie Walker, our L&E Department Chair, John Egbert, or one of the other attorneys in our Labor & Employment, Tax or Estate Planning and Probate Departments.

About the Author:
Valerie J. Walker is an Associate attorney focusing her practice on litigation, and labor and employment law. Ms. Walker represents clients before state courts and state and federal agencies in discrimination, wrongful discharge and wage litigation cases as well as breach of contract cases. She has previously worked as a law clerk for the National Labor Relations Board in New York City. Read more... Contact Ms. Walker at vwalker@jsslaw.com or 602.262.5844.