Benefits Monthly Minute

DOL Is Not Just Blowing Smoke: Tobacco Surcharge Suit Moves Forward | Cost of Living Adjustments to IRS and HHS Limits

DOL Is Not Just Blowing Smoke: Tobacco Surcharge Suit Moves Forward

In a lawsuit dating back to 2017, the DOL claimed Macy’s violated ERISA’s wellness rules in connection with its tobacco surcharge wellness program. Specifically, the complaint alleged that in 2011 and 2012, the Macy’s wellness program assessed a tobacco surcharge on plan participants based on tobacco use without providing a reasonable alternative standard or a corresponding notice of a reasonable alternative standard. The complaint further alleged that in 2013, Macy’s violated ERISA by not retroactively reimbursing previously imposed surcharges on those participants who successfully completed a tobacco cessation program (which was later offered as a reasonable alternative standard, consistent with applicable regulations). This month, an Ohio District Court allowed the DOL’s 2011, 2012 and 2013 wellness violation claims to survive Macy’s motion to dismiss.  

KMK Comment: This case is the first of its kind brought by the DOL and should be closely watched. It is an important reminder that all aspects of wellness program administration and documentation should be carefully reviewed to ensure compliance with federal wellness regulations. We will keep you updated on material developments in the case.

Cost of Living Adjustments to IRS and HHS Limits

The IRS released annual inflation adjustments in Notice 2021-61 and Revenue Procedure 2021-45 which include the following retirement and health plan adjustments for 2022:

  • The elective deferral contribution limit for employees who participate in 401(k), 403(b), and most 457 plans is increased to $20,500. (Catch-up contributions remain unchanged from 2021 at $6,500).
  • The defined contribution plan limit under 415(c)(1)(A) is increased to $61,000.
  • The annual benefit limit under a defined benefit plan under 415(b)(1)(A) is increased to $245,000.
  • The HCE threshold is increased to $135,000 and key employee threshold is increased to $200,000.
  • For health FSAs, the salary reduction contribution limit increases to $2,850, and the maximum carryover amount will be $570. (The maximum amount of DCAP benefits that can be excluded from income has not been adjusted and returns to $5,000/$2,500 unless the temporary ARPA increase is extended by Congress.)
  • For participants with self-only coverage in a High Deductible Health Plan/Medical Savings Account, the plan must have an annual deductible that is not less than $2,450 but not more than $3,700, and the maximum out-of-pocket is $4,950.
  • For family coverage in a High Deductible Health Plan/Medical Savings Account, the annual deductible must be not less than $4,950 and cannot be more than $7,400, and the out-of-pocket limit is $9,050.

HHS also announced certain adjustments which bear noting. Under HIPAA’s four-tiered civil monetary penalty structure for privacy, security, and breach-related violations, penalties increase as culpability increases. Under HHS’ latest Final Rule, these amounts will go up for penalties assessed on or after November 15, 2021 (if the violation occurred on or after November 2, 2015) as follows:

  • Tier 1 (lack of knowledge) penalty: $120 to $60,226 with an annual cap of $1,806,757
  • Tier 2 (reasonable cause/not willful neglect): $1,205 to $60,226 with an annual cap of $1,806,757
  • Tier 3 (willful neglect/corrected in 30 days): $12,045 to $60,226 with an annual cap of $1,806,757
  • Tier 4 (willful neglect/corrected after 30 days): $60,226 to $1,806,757 with an annual cap of $1,806,757

KMK Comment: Plan sponsors will need to timely communicate 2022 plan contribution limits to participants, work with administrators to update plan documents, and continue to be wary of HIPAA’s civil penalties as they creep forward.

The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.

Lisa Wintersheimer Michel

John F. Meisenhelder

Antoinette L. Schindel

Kelly E. MacDonald

Rachel M. Pappenfus

KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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