I have a question regarding FMLA’s successor employer rules. If we are a successor employer under FMLA and need to provide the same benefits that the employee had with the previous employer, how do we handle the waiting period for benefits under our plan? Can we have a 30-60 period with no benefits if the employee is on FMLA but changes employers from a covered employer to a successor employer?
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As you are aware, FMLA’s successor employer rules (29 CFR 825.107) require entitlements, including group health benefits, to be maintained by the successor employer just as they would have been under continuous employment. The rules specify that health benefits must be maintained “during the leave;” once the employee returns from leave, the successor employer’s benefit practices may come into play.
Your question then concerns whether the successor employer can apply a waiting period to this employee once he or she returns from FMLA and the previous benefits need not be maintained further.
26 CFR 54.9815-2708 covers the ACA’s prohibition on waiting periods that exceed 90 days. These regulations define a waiting period as the period that must pass before coverage for an individual who is otherwise eligible to enroll can become effective.
The regulations go on to provide that “being otherwise eligible to enroll … means having met the plan’s substantive eligibility conditions (such as, for example, being in an eligible job classification, achieving job-related licensure requirements specified in the plan’s terms, or satisfying a reasonable and bona fide employment-based orientation period).” Other conditions for eligibility are generally permissible unless the condition is designed to avoid compliance with the waiting period limitation.
Otherwise, eligibility conditions that are based solely on the passage of time are permissible for no more than 90 days.
So, put simply, a waiting period may be applied to this employee; however, the waiting period cannot exceed 90 days from the time he or she becomes otherwise eligible to participate in the plan.
The specifics of eligibility will be determined by the employer’s particular Summary Plan Description, but the primary question is whether anything about the employee’s FMLA leave would keep him or her from being eligible for those benefits as of the initial date of hire/employment by the successor employer.
If so, then the employee’s waiting period (up to the 90-day maximum) may begin on the first date of his or her eligibility as defined by the terms of the SPD. If not—in other words, nothing about the employee’s coverage under the old plan and/or leave status would prevent him or her from being eligible under the SPD of the successor employer’s group plan—then eligibility would be based solely on the passage of time, so a waiting period could be applied, but must not exceed 90 days.
(Note that the Limited Non-Assessment Period (LNAP), during which applicable large employers (ALEs) will not be subject to an assessable payment under Section 4980(H) for failure to offer coverage, is calculated separately. This period may vary based on the calculation method chosen by the ALE (monthly measurement, look-back), but will generally match or exceed the waiting period. If the employer is an ALE, more details on the LNAP can be found at this link under item (26)).
Finally, note that the 90-day waiting period is a maximum. Shorter waiting periods may be applied, or waived entirely, but it is critical that plan policies, including waiting periods, be applied consistently. In other words, we do not recommend simply waiving or changing the waiting period for this employee unless the change could be structured in a manner that would not appear to single out this employee in a discriminatory manner.
For example, if other employees who are transitioning from the previous employer as “new hires” to the successor employer are allowed to waive or undergo a shorter waiting period, then this change should be consistently extended to all similarly situated employees (e.g., those in the same role, all full-time workers, etc.) For additional information, you may also find this previous ATE on waiting period waivers instructive.
Amendment of existing waiting periods in a fair and consistent manner can be complex and may require modification of the SPD, therefore it will require input and cooperation of the insurer.