The Supreme Court’s Greenhouse Gas Permitting Decision – What Does It Mean?

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The U.S. Supreme Court today partly upheld and partly rejected the U.S. Environmental Protection Agency’s federal Clean Air Act permitting regulations governing greenhouse gas (GHG) emissions from stationary sources.  The decision is mostly a victory for EPA, and its narrow scope means that it will almost certainly not disrupt, let alone invalidate, EPA’s ongoing Section 111(d) rulemaking to set GHG emission limits for existing power plants.  At the same time, the decision does not necessarily mean that EPA’s 111(d) proposal is free from legal challenge.  That is because the decision does not address 111(d).

Today’s decision concerns the Clean Air Act’s two stationary source permitting programs – the prevention of significant deterioration (PSD) program and the Title V program.  In 2010, EPA announced that it was including GHG emissions within the scope of both programs.  Various states and industry groups challenged that announcement, and today, the Supreme Court partly agreed and partly disagreed with the challengers.

First, five justices (Scalia, Roberts, Kennedy, Alito and Thomas) held that a source’s GHG emissions, standing alone, cannot trigger the obligation to undergo PSD and Title V permitting.  That part of the decision is a loss for EPA.  But the second part of the decision is a victory for the agency.  Seven justices (Scalia, Roberts, Kennedy, Ginsburg, Beyer, Sotomayor and Kagan) held that EPA canrequire sources that are subject to PSD “anyway,” because they emit other types of pollutants in significantly large quantities, to control their GHG emissions.  In sum, GHG emissions cannot trigger the obligation to undergo PSD permitting, but EPA can use the PSD permitting process to impose source-specific GHG emission limits on facilities that trigger the process for other reasons.

The decision does not address EPA’s authority to impose substantive limits on GHG emissions using other statutory provisions such as Clean Air Act Section 111(d).

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Bank Regulators Require Changes to Tax Allocation Agreements

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Acting in response to divergent results in recent court decisions, the Federal bankregulatory agencies have adopted an Addendum to their longstanding rules regardingincome tax allocation agreements between insured depository institutions (“IDI”) and their parent holding companies.[i] The Addendum requires holding companies and their IDI subsidiaries to review their existing income tax allocation agreements and to add a specified provision. The review and modifications must be effected as soon as reasonably possible, which the regulators expect to be prior to October 31, 2014.

Background

Most banks and thrift institutions holding deposits insured by the Federal Deposit Insurance Corporation (“FDIC”) are subsidiaries in a holding company structure. The Federal and State income tax returns of these IDI, as members of a consolidated group, are usually filed by the holding company parent. Refunds and other tax benefits of the consolidated group attributable to the IDI subsidiaries received by a parent holding company must be allocated to the IDI subsidiaries.

Since 1998, the Board of Governors of the Federal Reserve System (“Board”), the Office of the Comptroller of the Currency, and the FDIC (collectively, the “Agencies”) have applied uniform rules regarding such allocations. They are set forth in their Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure (the “Policy”).[ii]

The Policy generally mandates that inter-corporate settlements between an IDI and its parent holding company be conducted in a manner that is no less favorable to the IDI than if it were a separate taxpayer. It also establishes a supervisory expectation that a comprehensive written tax allocation agreement will be entered into between a parent holding company and its IDI subsidiaries.

Among other things, the Policy specifies that a parent holding company that receives a tax refund from a taxing authority holds such funds as agent for the members of the consolidated group. It also requires that neither the tax allocation agreement nor the corporate policies of the parent holding company should purport to characterize refunds attributable to an IDI subsidiary received from a taxing authority as being property of the parent.

Addendum to the Policy

In several holding company bankruptcies since 2008, the FDIC has been unsuccessful in recovering for IDI subsidiaries tax refunds received and held by the parent holding company. In those cases, the courts have interpreted the applicable tax allocation agreement as creating a debtor-creditor relationship between the parent holding company and its IDI subsidiaries. Those courts have reached that result notwithstanding the Policy and its mandate that a parent holding company act as an agent for its IDI subsidiaries.[iii]Although other decisions have interpreted tax allocation agreements consistently with the Policy, the Agencies determined to modify the Policy and require additional action by holding companies and IDI with a view to avoiding such situations in future.

Under the Addendum to the Policy, each tax allocation agreement must be reviewed and revised to ensure that it explicitly acknowledges an agency relationship between the holding company and its subsidiary IDI with respect to tax refunds and does not contain any other language to suggest a contrary intent. A sample paragraph which the Agencies regard as sufficient is included in the Addendum.

The Addendum to the Policy also makes clear that tax allocation agreements are subject to the requirements of Sections 23A and 23B of the Federal Reserve Act. Among other things, this means that the parent holding company must promptly transmit tax refunds received from a taxing authority to its subsidiary IDI. An agreement that permits a parent holding company to hold and not promptly transmit tax refunds owed to an IDI may be regarded by the Agencies as inconsistent with Section 23B, and may subject the holding company and IDI to supervisory action. Similarly, an agreement that fails to clearly establish the agency relationship between the parent holding company and its IDI subsidiaries may be treated as subject to the loan collateralization and other requirements of Section 23A.

Conclusion

The Addendum the Agencies have made to the Policy does not represent a change in supervisory approach to these issues. It is a clarification in light of adverse bankruptcy experience and constitutes a reaffirmation of the Policy. Parent holding companies and IDI subsidiaries should arrange for a review of their existing tax allocation agreements and the inclusion in those agreements of the provision specified in the Addendum to the Policy. Action is required as soon as reasonably possible, but in any event before October 31, 2014.

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[i] Board Press Release (June 13, 2014). The Addendum will be published in the Federal Register.

[ii] 63 Fed. Reg. 64757 (Nov. 23, 1998).

[iii] See, e.g., FDIC v. Siegel (In re IndyMac Bancorp, Inc.), 2014 WL 1568759 (9th Cir., 2014).

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Immigration Reform Efforts Are Still Alive

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Despite the recent resignation announcement of the House Majority Leader, immigration reform is still very much alive.

As reported just this week, the call to reform the country’s immigration system is louder than ever on and off The Hill. Immigration reform continues to garner strong and vocal support by CEOs, industry leaders and more. Placing the success or failure of immigration reform on the shoulders of one elected official is not an accurate metric. Indeed, several elected officials who strongly support immigration reform, and have for many years, won their respective primary with few challenges stemming from their support of immigration reform. Now is the time to move forward and refocus efforts to reform our country’s immigration system.

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Proposed Health Information Technology Strategy Aims to Promote Innovation

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On April 7, 2014, the Food and Drug Administration (FDA), in consultation with theOffice of the National Coordinator for Health Information Technology (ONC) and the Federal Communications Commission (FCC) released a draft report addressing a proposed strategy and recommendations on an “appropriate, risk-based regulatory framework pertaining to health information technology.”

This report, entitled “FDASIA Health IT Report: Proposed Strategy and Recommendations for a Risk-Based Framework”, was mandated by Section 618 of the Food and Drug Administration and Innovation Act, and establishes a proposed blueprint for the regulation of health IT.  The FDA, ONC and FCC (the Agencies) noted that risk and controls on such risk should focus on health IT functionality, and proposed a flexible system for categorizing health IT and evaluating the risks and need for regulation for each category.

The Agencies set out four key priority areas: (1) promote the use of quality management principles, (2) identify, develop, and adopt standards and best practices, (3) leverage conformity assessment tools, and (4) create an environment of learning and continual improvement.

The Agencies are seeking public comment on the specific principles, standards, practices, and tools that would be appropriate as part of this regulatory framework.  In addition, the Agencies propose establishing a new Health IT Safety Center that would allow reporting of health IT-related safety events that could then be disseminated to the health IT community.

The Agencies also divided health IT into three broad functionality-based groups: (1) administrative, (2) health management, and (3) medical device. The Agencies noted that health IT with administrative functionality, such as admissions, billing and claims processing, scheduling, and population health management pose limited or no risk to the patient, and as a result no additional oversight is proposed.

Health IT with health management functionality, such as health information and data exchange, data capture and encounter documentation, provider order entry, clinical decision support, and medication management, would be subject the regulatory framework proposed in the report.  In addition, the FDA stated that a product with health management functionality that meets the statutory definition of a medical device would not be subject to additional oversight by the FDA.

The report had a spotlight on clinical decision support (CDS), which provides health care providers and patients with knowledge and person-specific information, intelligently filtered or presented at appropriate times, to enhance health and health care.  The report concluded that, for the most part, CDS does not replace clinicians’ judgment, but rather assists clinicians in making timely, informed, higher quality decisions.  These functionalities are categorized as health management IT, and the report believes most CDS falls into this category.

However, certain CDS software – those that are medical devices and present higher risks – warrant the FDA’s continued focus and oversight.  Medical device CDS includes computer aided detection/diagnostic software, remote display or notification of real-time alarms from bedside monitors, radiation treatment planning, robotic surgical planning and control, and electrocardiography analytical software.

The FDA intends to focus its oversight on health IT with medical device functionality, such as described above with respect to medical device CDS.  The Agencies believe that this type of functionality poses the greatest risk to patient safety, and therefore would be the subject of FDA oversight.  The report recommends that the FDA provide greater clarity related to medical device regulation involving health IT, including: (1) the distinction between wellness and disease-related claims, (2) medical device accessories, (3) medical device CDS software, (4) medical device software modules, and (5) mobile medical apps.

The comment period remains open through July 7, 2014, and therefore the report’s recommendations may change based on comments received by the Agencies. In the meantime, companies in the clinical software and mobile medical apps industry should follow the final guidance recently published by the FDA with respect to regulation of their products.

In the meantime, health information technology companies should follow the final guidance recently published by the FDA with respect to regulation of their products.

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Department of State Releases July 2014 Visa Bulletin

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Bulletin shows nearly four years of advancement in the EB-2 category for applicants chargeable to India and minor advancement for applicants chargeable to China as well as significant advancement in the EB-3 category for applicants chargeable to the Philippines, minor advancement for applicants chargeable to India, and no change for applicants chargeable to China, Mexico, or the Rest of the World.

The U.S. Department of State (DOS) has released its July 2014 Visa Bulletin. The Visa Bulletin sets out per-country priority date cutoffs that regulate the flow of adjustment of status (AOS) and consular immigrant visa applications. Foreign nationals may file applications to adjust their statuses to that of permanent residents or to obtain approval of immigrant visas at a U.S. embassy or consulate abroad, provided that their priority dates are prior to the respective cutoff dates specified by the DOS.

What Does the July 2014 Visa Bulletin Say?

In July, the cutoff date for applicants in the EB-2 India category will advance by nearly four years, while the cutoff date for applicants in the EB-2 China category will advance by only 40 days. Meanwhile, the cutoff date in the EB-3 India category will advance by 17 days, while the cutoff date in the EB-3 China category will remain unchanged. The cutoff date in the F2A category for applicants from all countries will also remain unchanged.

EB-1: All EB-1 categories will remain current.

EB-2: The cutoff date for applicants in the EB-2 category chargeable to India will advance by nearly four years to September 1, 2008. The cutoff date for applicants in the EB-2 category chargeable to China will advance by 40 days to July 1, 2009. The EB-2 category for all other countries will remain current.

EB-3: The cutoff date for applicants in the EB-3 category chargeable to India will advance by 17 days to November 1, 2003. The cutoff date for applicants in the EB-3 category chargeable to China will remain unchanged at October 1, 2006. The cutoff date for applicants in the EB-3 category chargeable to the Philippines will advance by one year to January 1, 2009. The cutoff date for applicants chargeable to Mexico and all other countries will remain unchanged at April 1, 2011.

The relevant priority date cutoffs for foreign nationals in the EB-3 category are as follows:

China: October 1, 2006 (no movement)
India: November 1, 2003 (forward movement of 17 days)
Mexico: April 1, 2011 (no movement)
Philippines: January 1, 2009 (forward movement of 366 days)
Rest of the World: April 1, 2011 (no movement)

Developments Affecting the EB-2 Employment-Based Category

Mexico, the Philippines, and the Rest of the World

The EB-2 category for applicants chargeable to all countries other than China and India has been current since November 2012. The July Visa Bulletin indicates no change, meaning that applicants in the EB-2 category chargeable to all countries other than China and India may continue to file AOS applications or have applications approved through July 2014.

China

The June Visa Bulletin indicated a cutoff date of May 22, 2009 for EB-2 applicants chargeable to China. The July Visa Bulletin indicates a cutoff date of July 1, 2009, reflecting forward movement of 40 days. This means that applicants in the EB-2 category chargeable to China with a priority date prior to July 1, 2009 may file AOS applications or have applications approved in July 2014.

India

In December 2013, the cutoff date for EB-2 applicants chargeable to India retrogressed significantly to November 15, 2004 because of unprecedented demand in this category. This cutoff date remained constant through June. The July Visa Bulletin indicates a cutoff date of September 1, 2008, reflecting forward movement of nearly four years (1,386 days). This means that applicants in the EB-2 category chargeable to India with a priority date prior to September 1, 2008 may file AOS applications or have applications approved in July 2014.

Developments Affecting the EB-3 Employment-Based Category

China

In late 2013 and early 2014, the cutoff date for EB-3 applicants chargeable to China advanced significantly to generate demand in this category. In June, to regulate demand, this cutoff date retrogressed by six years to October 1, 2006. The July Visa Bulletin indicates no change to this cutoff date. This means that only applicants in the EB-3 category chargeable to China with a priority date prior to October 1, 2006 may continue to file AOS applications or have applications approved in July 2014.

India

The June Visa Bulletin indicated a cutoff date of October 15, 2003 for EB-3 applicants chargeable to India. The July Visa Bulletin indicates a cutoff date of November 1, 2003, reflecting forward movement of 17 days. This means that only EB-3 applicants chargeable to India with a priority date prior to November 1, 2003 may file AOS applications or have applications approved in July 2014.

Rest of the World

From September 2013 through April 2014, the cutoff date for EB-3 applicants in the worldwide category advanced by 3.75 years. In June, to regulate the high demand, the cutoff date in this category retrogressed by 549 days to April 1, 2011. The July Visa Bulletin indicates no change to this cutoff date. This means that only applicants in the EB-3 category chargeable to the Rest of the World with a priority date prior to April 1, 2011 may file AOS applications or have applications approved in July 2014.

Developments Affecting the F2A Family-Sponsored Category

In March, as a result of heavy demand in the F2A category from applicants chargeable to Mexico, the cutoff date in this category retrogressed significantly to April 15, 2012. In June, this cutoff date retrogressed again to March 15, 2011. The July Visa Bulletin indicates no change to this cutoff date. This means that only those applicants from Mexico with a priority date prior to March 15, 2011 will be able to file AOS applications or have applications approved in July 2014.

During fiscal year 2013, in an effort to generate demand in the F2A category from applicants from all countries other than Mexico, the cutoff date in this category advanced significantly. This advance resulted in a dramatic increase in demand, followed in June by a further retrogression of the cutoff date to May 1, 2012. The July Visa Bulletin indicates no change to this cutoff date. This means that only those F2A applicants from countries other than Mexico with a priority date prior to May 1, 2012will be able to file AOS applications or have applications approved in July 2014. Further retrogression of the worldwide F2A category should not be ruled out.

How This Affects You

Priority date cutoffs are assessed on a monthly basis by the DOS, based on anticipated demand. Cutoff dates can move forward or backward or remain static. Employers and employees should take the immigrant visa backlogs into account in their long-term planning and take measures to mitigate their effects. To see the July 2014 VisaBulletin in its entirety, please visit the DOS website here.

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Supreme Court Decides CTS Corp. v. Waldburger Evaluating Whether CERCLA Precludes State-Law Statutes of Repose

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On June 9, 2014, the Supreme Court decided CTS Corp. v. Waldburger, holding that a North Carolina statute of repose was not preempted by Section 9658 of theComprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

From 1959 until 1985, CTS Corporation manufactured electronics on a piece of property in North Carolina.  CTS sold the property in 1987.  Owners of both the former CTS property and adjacent property filed state-law nuisance claims in 2011, alleging that they had learned from the United States Environmental Protection Agency (USEPA) in 2009 that their groundwater was contaminated.  A district court relied on N. C. Gen. Stat. §1-52(16), a North Carolina statute which bars property damage claims made “more than 10 years from the last act or omission of the defendant giving rise to the cause of action,” to dismiss the claims, finding that CTS’s last act occurred in 1987, when the property was sold.  Relying on CERCLA Section 9658, the Fourth Circuit re-instated the nuisance claims because it concluded that CERCLA pre-empted the North Carolina statute.

The Supreme Court reversed the Fourth Circuit, holding that the North Carolina statute was not pre-empted and that CERCLA Section 9658 was limited to “statutes of limitations.”  While noting that there is common ground between “statutes of limitations,” which create “time limit[s] for suing in a civil case, based on the date when the claim accrued,” and “statutes of repose,” which “put[] an outer limit on the right to bring a civil action,” “each has a distinct purpose and each is targeted at a different actor.”  The Court found that, when Congress passed Section 9658, the language it chose limited the provision to statutes of limitations.  Additionally, the Court found that CERCLA expressed neither any intent to provide “a general cause of action for all harm caused by toxic contamination” nor a clear intent to supersede traditional police powers of the states.

Two points are worth mention:

First, the CTS decision is not the “usual” CERCLA decision.  The decision does not alter the mechanism under which federal or state agencies investigate, characterize, and remediate properties.  Indeed, based on the case history, the groundwater contamination alleged in the CTS litigation was discovered by EPA in 2009, two years before CTS suit was filed.  In 2012, the involved property was added to EPA’s National Priorities List, a designation reserved for sites EPA has identified as being among its priorities.  Similarly, it does not alter the federal causes of action parties may use to recover costs related to their remediation activities.

Second, the CTS decision appears to be based on a straightforward reading of CERCLA.  The Court held that CERCLA does not preclude a state’s choice to have legislative statutes of repose which apply to certain categories of tort cases.  While a few states have these, the majority of states do not.[1]  Each of the federal environmental statutes – to a degree – seeks to shape state action.  There is no indication in CERCLA that it intended to “trump” state ability to form independent tort-related law for any situation related to contamination.  Had it been Congress’s intent to supersede all state statutes of repose related to actions related to contamination, Congress could have done so.  In the Court’s view anyway, the language Congress chose did not do so here.

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[1] States with statutes of repose which were identified in the course of the CTS litigation include Connecticut, see Conn. Gen. Stat. § 52-584; Kansas, see Kan. Stat. § 60-513(b); North Carolinia, see N.C. Gen. Stat. § 1-52(16); and Oregon, see Or. Rev. Stat. § 12.115(1).  Alabama has a 20-year common-law statute of repose.  See, e.g.Abrams v. Ciba Specialty Chems. Corp., 659 F. Supp. 2d 1225) (S.D. Ala. 2009).

Proposal to Resuscitate Federal Highway Funding

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House Republican leaders, Boehner, Cantor, and McCarthy have a proposal to address the Highway Trust Fund’s desperate funding problems and the reauthorization of MAP-21, which is set to expire on September 30, 2014.

As discussed in an earlier post, one of the biggest challenges facing Congress in the MAP-21 reauthorization process is what to do about the fiscal condition of the Highway Trust Fund (HTF) which supports funding of the federal highway and transit programs.  Simply stated, the HTF is on the verge of insolvency.  It has both a short term and long term problem.  In the short term, the HTF will not have sufficient revenue to pay the bills through September 30 and it will go into the red sometime in August.  In the long term, the HTF simply cannot support current highway and transit funding levels much less the higher levels that are needed to modernize the Nation’s national transportation network so that American businesses can compete in today’s highly-competitive global marketplace.

The House Republican Leaders’ proposal has three parts to it.  First, the proposal would transfer about $12 billion in general revenues into the Highway Trust Fund.  This would keep the HTF solvent until May 2015 at current funding levels.  Under current House Rules and under recent practice, a transfer of general funds into the Highway Trust Fund must be offset.  The Leaders’ memorandum suggests two potential offsets:  ending the delivery of some Saturday mail; and transferring the current balance remaining in the Leaking Underground Storage Tank Trust Fund.

Adoption of both suggestions would offset the $12 billion general fund transfer into the HTF and would allow MAP-21 to be extended until May 2015 at current funding levels.  It would solve the HTF’s short-term funding problem but it would not address the long-term issues.

Second, with MAP-21 expiring this September 30th, the memorandum contemplates a short-term extension, probably until May 2015, of MAP-21 programs rather than a multi-year reauthorization of the programs.  This short-term extension would be combined with the HTF short-term fix discussed above into one bill that Congress would consider over the next couple of months.  The goal would be to enact it before the August recess.

Third, consideration of the HTF’s long-term funding problems and MAP-21 reauthorization would be put off until 2015.  The rationale for this approach is that the serious work needed to achieve this structural reform has not been done yet.

This overall approach will undoubtedly disappoint many in the House and Senate who wanted to enact a long-term reauthorization bill this year.  There will also be considerable controversy over the postal reform offset.  But the bottom line is that something has to be done by the end of July or there will be a disruption of ongoing construction projects in August—right in the middle of the construction season and just months before congressional elections.

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The Affordable Care Act—Countdown to Compliance for Employers, Week 29: Wellness Programs, Smoking Cessation and e-Cigarettes

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The Health Insurance Portability and Accountability Act of 1996 (HIPAA) generally prohibits discrimination in eligibility, benefits, or premiums based on a health factor, except in the case of certain wellness programs. Final regulations issued in 2006 established rules implementing these nondiscrimination and wellness provisions. TheAffordable Care Act largely incorporates the provisions of the 2006 final regulations (with a few clarifications), and it changes the maximum reward that can be provided under a “health-contingent” wellness program from 20 percent to 30 percent. But in the case of smoking cessation programs, the maximum reward is increased to 50 percent. Comprehensive final regulations issued in June 2013 fleshed out the particulars of the new wellness program regime.

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. The final rules divide health-contingent wellness programs into the following two categories: activity-only programs, and outcome-based programs. As applied to smoking cessation, an “activity-only program” might require an individual to attend a class to obtain the reward. In contrast, an outcome-based program would require an individual to quit smoking, or least take steps to do so under complex rules governing alternative standards.

Nowhere do the final regulations address the role of electronic cigarettes (or “e-cigarettes”). Simply put, the issue is whether an e-cigarette user is a smoker or a nonsmoker? (According to Wikipedia, an electronic cigarette (e-cig or e-cigarette), “is a battery-powered vaporizer which simulates tobacco smoking by producing a vapor that resembles smoke. It generally uses a heating element known as an atomizer that vaporizes a liquid solution.”) But questions relating to e-cigarettes are starting to surface in the context of wellness program administration. Specifically:

  1. Is an individual who uses e-cigarettes a “smoker” for purposes of qualifying, or not qualifying, for a wellness program reward, and
  2. May a wellness program offer e-cigarettes as an alternative standard, i.e., one that if satisfied would qualify an individual as a non-smoker?

Is an individual who uses e-cigarettes a “smoker” for purposes of qualifying, or not qualifying, for a wellness program reward?

While the final rules don’t mention or otherwise refer to e-cigarettes, they do provide ample clues to support the proposition that smoking cessation involves tobacco use. Here is the opening paragraph of the preamble:

SUMMARY: This document contains final regulations, consistent with the Affordable Care Act, regarding nondiscriminatory wellness programs in group health coverage. Specifically, these final regulations increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan (and any related health insurance coverage) from 20 percent to 30 percent of the cost of coverage. The final regulations further increase the maximum permissible reward to 50 percent for wellness programs designed to prevent or reduce tobacco use. (Emphasis added.)

There is also a discussion in the preamble about alternative standards (79 Fed Reg. p. 33,164 (middle column)), which reads in relevant part:

The Departments continue to maintain that, with respect to tobacco cessation, ‘‘overcoming an addiction sometimes requires a cycle of failure and renewed effort,’’ as stated in the preamble to the proposed regulations. For plans with an initial outcome-based standard that an individual not use tobacco, a reasonable alternative standard in Year 1 may be to try an educational seminar. (Footnotes omitted.)

In addition, the final regulations’ Economic Impact and Paperwork Burden section is replete with references to tobacco use, as are the examples (see Treas. Reg. § 54.9802-1(f)(4)(vi), examples 6 and 7).

On the other hand, the definition of what constitutes a participatory wellness program refers simply to “smoking cessation” (Treas. Reg. § 54.9802-1(f)(1)(ii)(D)), and the definition of an outcome-based wellness program (Treas. Reg. § 54.9802-1(f)(1)(v)) simply refers to “not smoking.” In neither case is there any reference to tobacco.

The Affordable Care Act’s rules governing wellness programs are included in the Act’s insurance market reforms, which take the form of amendments to the Public Health Service Act that are also incorporated by reference in the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). By virtue of being included in ERISA, participants have a private right of action to enforce these rules. So an employer that wanted to treat the use of e-cigarettes as smoking in order to deny access to a wellness reward would likely confront arguments similar to those set out above in the event of a challenge.

May a wellness program offer e-cigarettes as an alternative standard, i.e., one that if satisfied would qualify an individual as a non-smoker?

This is perhaps a more difficult question. May an employer designate e-cigarette use as an alternative standard? Anecdotal evidence suggests that employers are not doing so, at least not yet. But could they do so? And would it make a difference whether the e-cigarette in question used a nicotine-based solution as opposed to some other chemical? (According to Wikipedia, “solutions usually contain a mixture of propylene glycol, vegetable glycerin, nicotine, and flavorings, while others release a flavored vapor without nicotine.”) The answer in each case is, it’s too soon to tell.

The benefits and risks of electronic cigarette use are uncertain, with evidence going both ways. Better evidence would certainly give the regulators the basis for further rulemaking in the area. In the meantime, the final regulations’ multiple references to tobacco, and by implication, nicotine, seem to furnish as good a starting point as any. This approach would require a wellness plan sponsor to distinguish between nicotine-based and non-nicotine-based solutions, which may prove administratively burdensome.

The larger question, which may take some time to settle, is whether e-cigarettes advance or retard the cause of wellness. Absent reliable clinical evidence, regulators and wellness plan sponsors have little to guide their efforts or inform their decisions as to how to integrate e-cigarettes into responsible wellness plan designs. Complicating matters, the market for e-cigarettes is potentially large, which means that reliable (read: unbiased) clinical evidence may be hard to come by. For now, all plan sponsors can do is to answer the questions set out above in good faith and in accordance with their best understanding of the final regulations.

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Curbing Greenhouse Gas (GHG) Emissions – Good for the Environment, Bad for Investors?

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On June 2, 2014, EPA issued a proposed rule to control greenhouse gas emissions (GHGs) from the electric power generation sector of the United States. EPA’s goal is to obtain a reduction of GHG emissions in 2030 from this sector of 30% from the baseline year 2005. The 2005 baseline allows EPA to take credit for GHG emission reductions that have occurred since that time without any regulatory obligation. The proposal establishes GHG emission targets for each State (expect the District of Columbia and Vermont who do not have goals under the rule). Interim emission targets must be obtained in the 2020-2029 timeframe with final targets obtained by 2030.

The proposal does not suggest any particular emission limit on particular plants, but imposes the obligation on the States to derive a plan to achieve the reductions. The only penalty for noncompliance in the proposal is that EPA would impose an EPA-developed plan within the State if it fails to submit an approvable plan. While EPA has not dictated any particular approach a State may employ, the proposal favors a cap and trade or carbon tax system as the primary manner to obtain GHG emissions reductions.

So here are the two burning questions from the perspective of investors. First, will this rule actually survive in anywhere near this form?  Second, when will affected power projects need to start ramping up investment in order to comply with the rule, i.e., when should investors start to worry about financial capacity?

In terms of a “review for reality,” many industry experts suggest that it is nearly impossible to obtain the proposed 6% efficiency improvement at existing coal-fired power plants without major capital improvements, which could require complex Clean Air Act permitting under other provisions of the law. Other goals can only be achieved through substantial purchases of carbon credits (i.e., offsets) or the implementation of technologies that haven’t yet been proven to be commercially viable. (You’ve likely heard the aspirations to develop carbon capture and sequestration.) EPA also assumes that natural gas-fired power plants will be running at 70% capacity year-round, which may be difficult to achieve in practice. Finally, EPA assumes that energy efficiency improvements at the consumer level will be obtained at a rate of 1.5% every year until 2030 – an ambitious goal.

In terms of a “review for timing,” this is only the beginning of a very long process. After the usual rounds of public comment, EPA has targeted issuance of the final rule by June 1, 2015. Then the lawsuits will start. Then a new President with his/her own views will take office. Plus, even under the EPA’s own best case scenario, the proposed rule allows states until June 2016 to submit plans, with the potential for extension to June 2017. Once a state submits a plan, EPA must approve or disapprove it through notice and comment rulemaking. The proposal allows for EPA to complete the review of the plans within 12 months of the state plan submittal. If a state doesn’t submit a plan or EPA disapproves the plan, EPA must make a plan for the state. State plans must begin to meet an interim goal in 2020 and must achieve their final goal by 2030. Plus, State plans and EPA approval/disapproval present a separate source of litigation and associated delay.

So no need for panic dumping of carbon-intensive investments just yet, but keeping an eye on the process would be wise, including consideration of whether, if your industry investments are large enough, you should participate in, or form/join a group to participate in, the comment-making phase plus working with members of Congress. The earlier the involvement, the greater the opportunity to help shape the results.

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Tax Tip: Free Federal Filing Program

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Did you know that an individual may use free online tax preparation software and e-filing if he or she qualifies? This may be useful knowledge for your young adult children, even if you are not eligible.

The Free File Alliance is a nonprofit coalition of industry-leading tax software companies that have partnered with the IRS to help millions of Americans prepare and e-file their federal tax returns for free.

There are more than a dozen software options (brand-name software) available to assist a taxpayer with a 2013 adjusted gross income (“AGI”) of $58,000 or less at no cost. Choose your software carefully because some companies offer free state tax preparation and e-filing, whereas others do not.

Even though an individual’s gross income may be higher than $58,000, the individual may still qualify for this service because his or her gross income (e.g., salary, dividends, interest, alimony, and rental income) is reduced by various deductions, the most common being contributions to an IRA or qualified plan, to calculate the individual’s AGI.

70% of American taxpayers are eligible for this service and 98% of users would recommend this program to others.

If your AGI is higher than $58,000, free File Fillable Forms are available for federal returns only, including free e-filing. This service was recently extended to be available for use until October 2015. Go to www.irs.gov/freefile to begin.

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