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Do You Have a Gap in Your Benefit Eligibility Procedures? Issues Raised by Non-FMLA Reduced Schedules and Leaves of Absence

Most employers have procedures in place to ensure that an employee who takes leave under the Family and Medical Leave Act (FMLA), whether as a reduced schedule or an extended leave of absence, retains his or her eligibility under the employer-sponsored health plan. But many employers have gaps in their procedures when an employee’s reduced schedule or leave of absence occurs when the employee is not yet eligible for FMLA leave or after FMLA leave has been exhausted. Typically, the gap in procedures exists when the non-FMLA reduced schedule or extended leave arises from a work injury or as an accommodation under the Americans with Disabilities Act (ADA).

Benefit Plan Eligibility

To ensure procedures account for these non-FMLA employer-approved leaves, employers must review and understand the eligibility requirements in their benefit plans. Regardless of the type of benefit plan—whether a health plan, a short-term or long-term disability plan, or some other benefit plan—the plan will set forth specific eligibility requirements that an employee must meet in order to remain an eligible participant in the plan. Generally, employer-sponsored plans will define an “eligible employee” as one who is “actively at work.” Additional terms in the plan document will detail the number of hours the employee must be regularly scheduled to work to meet the “actively at work” requirement. Some plans may also contain exceptions to the eligibility requirements (such as the FMLA exception) that will allow the employee to continue coverage under the plan, at least for a period of time. If an employee no longer meets the eligibility requirements, and if no exception applies allowing the employee to continue his or her coverage, then the employee ceases to be an eligible plan participant and is no longer eligible for benefits under that plan.

Loss of Eligibility

What are some consequences that can exist for an employer if its procedures fail to identify an employee’s loss of eligibility in a benefit plan? If the employee seeks benefits under the plan and the benefits are denied because the employee is no longer eligible for them, the employee may try to seek those denied benefits directly from the employer by alleging that the employer improperly failed to provide notice that eligibility would cease despite the employer’s approval of the employee’s reduced schedule or leave of absence. On the other hand, if the employer approves a claim for benefits despite the employee’s no longer meeting the eligibility requirements under the plan, an insurer that funds any portion of the benefits may deny the claim based on the employee’s lack of eligibility—with the employer held responsible for the full benefit amount.

Key Takeaways

To address these potential risks, employers may want to periodically review their procedures to ensure there are no gaps in determining when an employee may no longer meet benefit plan eligibility requirements, especially when the employee is on an approved reduced schedule or a leave of absence that falls outside of the FMLA.

© 2017, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

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About this Author

Tina Bengs, Ogletree Deakins Law Firm, Labor and Employment Attorney
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Ms. Bengs counsels business clients on various employment and labor issues relating to the ADA, ADEA, FMLA, worker’s compensation, Title VII, unemployment, termination and discipline, labor issues and collective bargaining agreements, FLSA, NLRA, employment policies and handbooks, and other Indiana and Federal employment laws.  She strives to assist her clients in determining best practices that conform with the law and with the business’ directives.  She also represents clients in employment litigation matters at the local, State, and Federal agency level and in State...

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