Massachusetts Employer Alert

Family and Medical Leave Update: Employee Notice and Exemption Application Deadlines Extended; State Releases Financial Bond Guidance for Self-Funded Private Plan Exemption; State Opines That Employee Contributions Should Be Post Tax

Introduction

In response to feedback from the 12 public listening sessions held throughout Massachusetts, as well as engagement efforts with stakeholders such as Marsh & McLennan Agency New England (MMA), The Department of Family and Medical Leave (DFML) released significant new guidance on May 1st regarding the following:

• Private plan exemption (for self-funded plans)
• Extended the guidelines for distributing the employee notice and submitting a private plan exemption application, and
• Provided tax guidance
• Here is a link to the DFML guidance.

Employee Notice Deadline Extended From May 31 to June 30, 2019

The deadline for the employee notice to be given to employees has been extended from May 31 to June 30, 2019. This changes guidance provided by the DFML on April 17th. The notice, which may be provided electronically, must include the opportunity for an employee or self-employed individual to acknowledge receipt or decline to acknowledge receipt of the information. Refer to the ALERT released on April 23rd by MMA for detail about the employee notice requirement and its content here: MA Releases New Guidance and Employee Notice Template For MA Paid Family and Medical Leave (PFML)

Private Plan Exemption Application Extended From to June 30 to September 20, 2019.

The DFML’s current guidance requires that exemptions for private plans must be approved in the quarter prior to the quarter in which they will go into effect. The deadline to file for a private plan exemption concerning first quarter contributions paid to the state (which starts on July 1, 2019) for paid family and medical leave has been moved from June 30 to September 20, 2019. This will allow employers additional time to contemplate private plan options. Going forward, the DFML will continue to accept exemption applications on a rolling basis but applications must be approved in the quarter prior to the quarter in which they go into effect. An approved exemption application from contributions to the state program and trust fund are effective for one year and must be renewed annually.

Significance: This new guidance provides clarity to earlier guidance provided by the DFML. In short, Employers with an exemption/approved private plan do not have to start taking employee contributions for a self-funded private plan option on July 1, 2019. Alternatively, those participating in a state program are required to begin taking contributions on July 1, 2019. The statute and current draft regulations defines the word “contributions” as contributions directed to the state program and state trust fund. This was also confirmed by the Massachusetts Undersecretary of Labor & General Counsel, Michael Doheny, who participated in an HR panel discussion on April 24th in response to a question from the author of this alert. 

Finally, this recent guidance underscores the importance for employers to take their time considering whether they wish to participate in the state program in 2019 or seek a private plan/self- funded exemption. It would not be surprising if additional guidance is provided by the DFML prior to the new September 20, 2019 deadline exemption application deadline.

Employers Still Need Guidance from the DFML and the insurance industry on:

1. What is the financial consequence to an exempt private self-funded plan or later fully insured plan premium consequence, if any, if an employer with an approved self-funded private plan does not start collecting employee/employer contributions until a date after July 1, 2019 but before January 1, 2021?   
2. What happens to collected employee/employer contributions if they are collected in 2019/2020 by an employer with an approved self-funded private plan who later wishes to change to a fully insured plan when they become available?  Does the employer with the self-funded private plan transfer the collected contribution dollars to the insurer as a premium payment or can they use the collected contributions to reduce employee contributions in the future?   

State Releases Financial Parameters For Bond Requirement

Bond guidance is now available on the DPFML website. Self-insured plans must include the following bond amounts to be eligible for exemptions.

For every 25 employees covered by a business, the DFML requires a bond value of:

• $19,000 for qualifying Family leave plans
• $51,000 for qualifying Medical leave plans
• $70,000 for qualifying plans for both Family and Medical

 Example 1: You have 12 employees and are applying for an exemption. Your required bond value is:

• Family Leave: $19,000
• Medical Leave: $51,000
• Family and Medical Leave: $70,000

Example 2: You have 85 employees and are applying for an exemption. Your required bond value is:

• Family Leave: $57,000
• Medical Leave: $153,000
• Family and Medical Leave: $210,000

Employers Contributing to State Program Still Must Start the Contribution Process on July 1, 2019.

If an employer has committed to participating in the state paid leave program and will not seek an approved private plan exemption for 2019, employee/employer contributions will still start on July 1, 2019. The employer will need to go to DOR taxconnect to finalize this process.

Don’t forget to coordinate with your payroll provider!    

Taxes

The DFML advised employers that the tax treatment of PFML contributions for both state and federal purposes is governed by federal tax law. Massachusetts has requested guidance from the Internal Revenue Service on this question and others related to the tax implications of PFML contributions and benefits. Until IRS guidance is issued, individuals and businesses are urged by the DFML to consult with their own tax advisors on these questions. Based on its own review of federal rules and following consultation with the Massachusetts Department of Revenue, the DFML anticipates that the IRS will conclude that employee contributions should be withheld from after-tax wages. A definitive rule for proper tax treatment of contributions will be made available by the DFML once IRS guidance is issued.

Fully Insured Private Plans Are Still Not Available.  

Insurers will not create fully insured products for employers until the regulations are final.

PFML Guidance Is Still Fluid: The DFML To Have More Listening Sessions and Solicit More Feedback

The DFML also announced on May 1st that it  is continuing to accept comment on draft regulations regarding paid family and medical leave and is planning to host two additional listening sessions in May which will be announced shortly.  The Director of the DFML, Phil Alpine, and Massachusetts Undersecretary of Labor & General Counsel, Michael Doheny, stated at an April 24th HR panel discussion that the DFML will be looking at recommending possible changes to the law prior to January 1, 2021...when paid leave under the law can start.

Join us May 8th for a webinar on the Private Plan Exemption. Register here.