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2017 Tax Cuts and Jobs Act Breathes New Life Into Old Trick For Dealing With Participant Loans in Corporate Transactions

One of the more difficult issues in corporate transactions that are structured as asset purchases is how to deal with outstanding participant loans.  In the typical asset purchase scenario – where the purchaser does not assume sponsorship of, or accept a transfer of assets from, the seller’s retirement plan – employees of the seller who become employed by the asset purchaser generally incur a termination of employment with the seller, and therefore a distributable event under the seller’s 401(k) plan.  If a participant has an outstanding loan at the time of the asset sale, then unless the distribution is paid in a direct rollover to another employer plan that is willing to accept a rollover of a participant loan, the participant must either (i) pay off the loan before taking the distribution, or (ii) incur a potentially taxable “plan-loan offset” (where the participant’s account balance is reduced, or offset, by the outstanding loan balance).

IRS (Finally) Answers Questions re: 2019 Hardship Distributions

On November 9, 2018, the IRS issued proposed amendments to the regulations under Code Section 401(k) that describe the circumstances under which participants may take an in-service distribution of elective deferrals (and contributions subject to similar withdrawal restrictions, such as QMACs, QNECs and safe-harbor contributions) on account of financial hardship. The proposed amendments to the regulations reflect several statutory changes to 401(k) plans since the Pension Protection Act of 2006, including the recent changes (that are scheduled to apply to hardship distributions in plan years beginning after December 31, 2018) under the Bipartisan Budget Act (“BBA”) of 2018. Most importantly, the amendments answer several questions that plan sponsors and plan administrators have had with respect to both the BBA and the Tax Cuts and Jobs Act (“TCJA”) of 2017, and provide some much-needed transition relief for hardship distributions made in 2019.

2019 Inflation Adjustments

Following announcements by both the Internal Revenue Service and the Social Security Administration, we know most of the dollar amounts that employers will need to administer their benefit plans for 2019. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of our 2019 limits card.

The reverse side of the card shows a number of dollar amounts that employers will need to know in order to administer health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and high-deductible health plans (“HDHPs”), as well as health plans that are not grandfathered under the Affordable Care Act.

A laminated version of the 2019 limits card is available upon request. To obtain one or more copies, please contact any member of our Employee Benefits Group. You also can contact the Spencer Fane Marketing Department at 816-474-8100 or marketing@spencerfane.com.

IRS Updates Required Tax Notice to Address Plan Loan Offsets and Other Law Changes

The IRS has updated the model notice (sometimes referred to as the “402(f) Notice” or “Special Tax Notice”) that is required to be provided to participants before they receive an “eligible rollover distribution” from a qualified 401(a) plan, a 403(b) tax-sheltered annuity, or a governmental 457(b) plan.  Notice 2018-74, which was published on September 18, 2018, modifies the prior safe-harbor explanations (model notices) that were published in 2014. Like the 2014 guidance, the 2018 Notice includes two separate “model” notices that are deemed to satisfy the requirements of Code Section 402(f):  one for distributions that are not from a designated Roth account, and one for distributions from a designated Roth account. The 2018 Notice also includes an appendix that can be used to modify (rather than replace) existing safe-harbor 402(f) notices. 

Cyber Liability Insurance for Employee Benefit Plans: Hackers and Malware and Phishing – Oh My!

Cyberattacks have managed to invade all walks of life, and employee benefit plans are no exception.  When a plan is attacked, the fallout can be overwhelmingly expensive and burdensome to correct.  Many plan sponsors are purchasing cyber liability insurance coverage to supplement their data security measures.  Understanding those policies – and their exclusions – is important for sponsors who are exploring such coverage.

Federal Appellate Court Decision Highlights Importance of “Firestone” Language

In a recent decision, the Sixth U.S. Circuit Court of Appeals resolved an important question in a way that should put administrators of ERISA plans in a far stronger position vis-à-vis claimants who disagree with the administrators’ plan interpretations.  Essentially, the court in Clemons v. Norton Healthcare Retirement Plan held that the contract-interpretation doctrine of “contra proferentum” has no application once a court has determined that a plan document grants the administrator the type of broad discretion approved by the U.S. Supreme Court in its 1989 Firestone decision.

Health Plans’ Anti-Assignment Clauses Upheld by Two More Federal Appellate Courts

Over the past two months, the United States Court of Appeals for both the Ninth Circuit and the Third Circuit have upheld “anti-assignment” clauses in ERISA-governed health plan documents.  These holdings – which adopt the same position previously taken by the First, Second, Fifth, Tenth, and Eleventh circuits – are a blow to healthcare providers that attempt to bring suits against employer-sponsored health plans (or the insurance companies funding benefits under those plans) as “assignees” of individual plan participants. 

The SEC’s Fiduciary Proposal – Form CRS

On April 18, the Securities and Exchange Commission issued a proposal package that includes two new rules and one interpretative release.  The package consists of three components – Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, and Form CRS – Relationship Summary.   According to the SEC, the proposal is intended to balance investor protections and regulatory requirements with investor access and choice.  Each component of the proposal is available for public comment for 90 days after publication in the Federal Register.

In a series of three articles, Spencer Fane LLP describes the SEC’s proposal and potential impacts on broker-dealers and investment advisers.  This third article describes the Form CRS – Relationship Summary portion of the SEC’s fiduciary proposal.

The SEC’s Fiduciary Proposal – Investment Adviser Standard of Conduct

The Securities and Exchange Commission voted on April 18 to issue a proposal package that includes two new rules and one interpretative release.  According to the SEC, each component of the proposal – Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, and Form CRS – Relationship Summary – is intended to enhance investor protections and regulatory clarity while maintaining investor access and choice.  Each part of the SEC’s proposal is available for public comment for 90 days after publication in the Federal Register.

In a series of three articles, Spencer Fane LLP describes the SEC’s proposal and potential impacts to broker-dealers and investment advisers.  This second article describes the Investment Adviser Standard of Conduct Interpretation.

The SEC’s Fiduciary Proposal – Regulation Best Interest

In an open meeting on April 18, the Securities and Exchange Commission voted four to one to issue two new rules and one interpretative release that are intended to provide investor protections and regulatory clarity, as well as investor access and choice.  Specifically, the SEC issued Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, and Form CRS – Relationship Summary.  Each component of the SEC’s proposal is available for public comment for 90 days after publication in the Federal Register.  In a series of three articles, Spencer Fane LLP describes the SEC’s proposal and potential impacts on broker-dealers and investment advisers.  This first article describes the Regulation Best Interest portion of the SEC’s fiduciary proposal.

Here We Go Again… Fifth Circuit Strikes Down DOL’s Fiduciary Rule

In a significant blow to the Department of Labor’s controversial regulation re-defining what constitutes an investment-advice fiduciary, a split three-judge panel of the Fifth Circuit Court of Appeals ruled on March 15 that the DOL exceeded its authority when creating the rule.  The 2-1 decision of the appellate court strikes down the regulation and its associated prohibited transaction exemptions in their entirety.  (Chamber of Commerce v. U.S. Dept. of Labor (5th Cir. March 15, 2018)).  In its wake, the court’s decision leaves even more of the confusion that has plagued the DOL’s 2016 rulemaking.

Investment Advisers and Conflicts Of Interest

The Department of Labor and the Securities and Exchange Commission have expressed concerns regarding potential conflicts of interest that investment advisers do not explicitly disclosed.  Thus, plan fiduciaries may not be aware of such conflicts when they engage and monitor their plan’s investment consultant.  These concerns were recently highlighted when the SEC launched an initiative in connection with investment advisers’ selection or recommendation of a higher-cost mutual fund share class for their clients when a lower-cost share class of the same fund is available.  The SEC’s initiative reminds plan fiduciaries of the importance of obtaining appropriate information to fulfill their fiduciary obligations when engaging and monitoring investment advisers.

SEC Launches Share Class Selection Disclosure Initiative

The Securities and Exchange Commission recently announced a temporary program for investment advisers who may have inadequately disclosed potential conflicts of interest related to their selection or recommendation of mutual fund share classes. Participation in the program, however, is not without its drawbacks.

Congress Eases Restrictions on Hardship Withdrawals

Buried in Sections 41113 and 41114 of the recent Bipartisan Budget Act of 2018 are provisions designed to facilitate hardship withdrawals from 401(k) and 403(b) plans.  Because these provisions take effect for plan years beginning after December 31, 2018, sponsors of these plans will want to consider whether to broaden their hardship withdrawal provisions – or even add such provisions.

Tax Cuts and Jobs Act – Modified Rules for UBTI

For many years tax exempt organizations and retirement plan trusts have been permitted to avoid tax on income generated by unrelated trades or businesses they hold by netting the gains, losses, and deductions among those trades or businesses.  The Tax Cuts and Jobs Act modifies those rules, increasing the likelihood that such entities must report, and pay tax on, UBTI.

New Disability Claims and Appeals Procedures Finally Take Effect

When the Department of Labor (“DOL”) delayed by 90 days the date by which ERISA plans were required to comply with a set of disability claims and appeals regulations issued in the waning days of the Obama Administration, we predicted that a further delay – or even a complete withdrawal – of the regulations could be in the works.  As it turns out, we were wrong.  Instead, the DOL announced in early January that the regulations will become fully applicable on April 1st – and without change.

Tax Cuts and Jobs Act – New Rules for Retirement Plans and IRAs

Although the main feature of the Tax Cuts and Jobs Act is a significant reduction in the corporate federal income tax rate, the Act also makes a number of significant changes to the rules governing employer-sponsored retirement plans and individual retirement accounts.  From plan loans to hardship withdrawals and Roth recharacterizations, employers should make sure that they understand how these new rules might affect them.

Tax Cuts and Jobs Act – Affordable Care Act Changes

Although the recent Tax Cuts and Jobs Act eliminates the ACA individual mandate, the employer mandate, ACA benefit mandates, and ACA reporting requirements remain in effect.  Thus, employers should continue to be mindful of and comply with their obligations under the ACA.

Tax Cuts and Jobs Act – New Executive Compensation Rules

This is the second in a series of articles by which the Spencer Fane LLP Employee Benefits Practice Team will explain key changes made in the employee benefits area by the Tax Cuts and Jobs Act (Public Law 115-97), which was signed into law on December 22, 2017.  In addition to establishing new rules for transportation fringe benefits (see our first article in this series), the Act makes a number of changes that may affect how employers structure their executive compensation programs.  This article describes the Act’s impact on for-profit employers, and outlines options that those employers should consider for their compensation arrangements.

Tax Cuts and Jobs Act – New Tax Rules For Transportation Fringe Benefits

Although the recent Tax Cuts and Jobs Act largely retains the favorable tax treatment afforded employees who receive employer-provided transportation assistance, it denies employers any tax deduction for providing these tax-favored benefits. Moreover, tax-exempt employers will now be subject to unrelated business income tax on such benefits. Because the new rules took effect as of January 1, 2018, employers currently sponsoring such programs should promptly evaluate their options.

It’s a Three-Peat: ACA-Reporting Deadline Extended Once Again

The Affordable Care Act (“ACA”) imposed reporting requirements on health coverage providers (including self-funded employer plans) and “applicable large employers” (those with 50 or more full-time employees). For health coverage provided during both 2015 and 2016, the IRS extended the deadline for issuing certain of the required reporting forms. In Notice 2018-06, the IRS has now granted a similar extension with respect to reporting health coverage provided during calendar-year 2017.

IRS Issuing Employer Play-or-Pay Notices

Although the GOP tax reform bill reduces to zero the penalty for failing to comply with the Affordable Care Act’s individual coverage mandate, it does nothing to alleviate the employer ACA mandate.  Coincidentally, the IRS has just started issuing notices of potential penalty assessments under that employer mandate (commonly known as the “play-or-pay” provision).

These notices take the form of a “Letter 226J” (this notation appears in the footer of each page), and the Letter makes crystal clear the amount of the potential penalty assessment (which can be substantial).  This dollar amount appears in bold on the second line of the Letter’s text.

Fiduciary Rule – Status Quo until July 1, 2019

On November 29, 2017, the Department of Labor granted an extension of the transition period for the Fiduciary Rule’s Best Interest Contact Exemption and Principal Transaction Exemption, and delayed the applicability date of the amendments to Prohibited Transaction Exemption 84-24. The new transition period will end on July 1, 2019, rather than January 1, 2018. The Department also extended the temporary enforcement policy in Field Assistance Bulletin 2017-02 to July 1, 2019. Thus, financial institutions and advisers impacted by the Fiduciary Rule and related exemptions remain subject to the same requirements as they have been since June 9, 2017, when the Fiduciary Rule and the Impartial Conduct Standards became applicable.

GOP Tax Bill Contains Benefits Surprises

Despite rumors to the contrary, the tax bill introduced into the House of Representatives by the Republican Party leadership would do nothing to restrict employees’ ability to make pre-tax deferrals to 401(k), 403(b), or 457(b) plans. Trial balloons had suggested that pre-tax deferrals might be limited to only half of the overall annual deferral limit (or even less), with any remaining deferrals made only on a “Roth” (after-tax) basis. But at least for now, “Rothification” appears to be dead.

What the House bill would do, however, is perhaps even more surprising. A slew of tax-favored fringe benefits would be eliminated. And nonqualified deferred compensation as we now know it would be entirely transformed. Incredibly enough, most of these changes would take effect as of January 1, 2018 – less than two months after the bill’s introduction.

2018 Inflation Adjustments

Following announcements by both the Internal Revenue Service and the Social Security Administration, we know most of the dollar amounts that employers will need to administer their benefit plans for 2018. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of our 2018 limits card.

The reverse side of the card shows a number of dollar amounts that employers will need to know in order to administer health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and high-deductible health plans (“HDHPs”), as well as health plans that are not grandfathered under the Affordable Care Act.

A laminated version of the 2018 limits card is available upon request. To obtain one or more copies, please contact any member of our Employee Benefits Group. You also can contact the Spencer Fane Marketing Department at 816.474.8100 or marketing@spencerfane.com.

Administration Proposes Delay of Disability Claims and Appeals Procedures

The Department of Labor has proposed a 90-day delay in the applicability of disability claims and appeals regulations that were finalized in the waning days of the Obama Administration. Rather than applying to claims filed on or after January 1, 2018, the regulations would now apply to claims filed on or after April 1, 2018. Moreover, it seems likely that a further delay – or even a complete withdrawal – of the regulations could be in the works.

Bifurcated Distribution Options Made Easier

Earlier this year, the IRS issued Notice 2017-44. This Notice provides model amendments that plan sponsors may use to amend qualified defined benefit plans to offer a bifurcated distribution option. Because the IRS has terminated its determination letter program (except in limited circumstances), plan sponsors may find the model language helpful as they consider design changes to their defined benefit plans for 2018.

Cyber-attacks – A Universal Issue

The Federal Bureau of Investigation has cautioned organizations, regardless of industry, that cyber-attacks continue to increase and evolve. Cyber-attacks often target digital files containing sensitive and proprietary data. Thus, the operational, financial and reputational impact caused by cyber-attacks to an organization, either directly or through its service providers, can be significant.

To illustrate the widespread acknowledgement across industries of the importance of cybersecurity, this article describes: 1) best practices identified by the Securities and Exchange Commission Office of Compliance Inspections and Examinations for designing cybersecurity programs, and 2) guidance issued by the Department of Health and Human Services Office for Civil Rights under the Health Insurance Portability and Accountability Act for responding to cyber-attacks.

The Ins and Outs of Opt-out Incentives

As annual open enrollment season approaches, many employers may be evaluating ways in which to control rising health plan costs. One strategy frequently considered is a financial incentive for employees to waive or opt out of the employer-sponsored group health coverage. Although such “cash-in-lieu” or “opt-out” arrangements have long been common, they raise potential problems under the Affordable Care Act (“ACA”), as well as a number of other federal laws.

The Fiduciary Rule is Alive

According to U.S. Labor Secretary Alexander Acosta, the Department of Labor’s Fiduciary Rule will become effective on June 9th. As discussed in our May 9th article, the Rule’s expanded definition of “fiduciary” will apply, and advisers and financial institutions providing investment advice as fiduciaries must comply with the Rule’s “impartial conduct” standards, beginning on June 9, 2017. At this time, the full scope of the Fiduciary Rule and its related prohibited transaction exemptions will be applicable on January 1, 2018.

Treatment of “Collateral” Employees Under Retirement Plans

It is common for employers to contract with one or more third parties (sometimes referred to as “leasing companies”) to provide individuals to perform services for the employer. Various issues may arise regarding the treatment of such individuals under a retirement plan maintained by the employer.

DOL’s Fiduciary Rule Countdown

For investment advisers and financial institutions, the countdown to compliance with the Department of Labor’s new “conflict of interest” rule ends on June 9, 2017. The Department of Labor (“DOL”) issued a final rule on April 7, 2017, that delays the original applicability date of its conflict of interest regulation (the “Fiduciary Rule”) and its related prohibited transaction exemptions for 60 days, creating a “Transition Period” that starts on June 9, 2017, and ends on December 31, 2017.

DOL Fiduciary Rule Enforcement – Confusion and Disruption Relief

The Department of Labor (“DOL”) has proposed to delay for 60 days the “applicability date” of the Fiduciary Rule (“Rule”), and the new and revised prohibited transaction exemptions related to the Rule. The proposed delay has created confusion within the financial services industry because it is not certain that a final rule implementing the delay can be published (and become effective) before the Rule’s April 10th applicability date. In response to the confusion, the DOL issued Field Assistance Bulletin 2017-01 (“Bulletin”) announcing a temporary enforcement policy that assures advisers and financial institutions that the DOL will not seek to enforce the Rule or the related prohibited transaction exemptions in the event the Rule becomes applicable before it is officially delayed.

IRS Clarifies Permissible Substantiation Procedures for Hardship Withdrawals

In recent years, sponsors and administrators of 401(k) and 403(b) plans have received conflicting advice on the steps they should take to substantiate an employee’s entitlement to an in-service withdrawal on account of financial hardship. For instance, an April 2015 IRS newsletter seemed to require that plan sponsors obtain and retain documentary proof of an employee’s entitlement to a hardship withdrawal. However, two recent internal IRS memos outline a permissible approach to this substantiation requirement that need not involve conditioning a hardship withdrawal on an employee’s provision of supporting documents. Plan sponsors should thus consider this new alternative.

SEC Issues Robo-Adviser Guidance

The increased popularity of automated digital investment advisory programs (often called “robo-advisers”) has drawn the attention of the Securities and Exchange Commission (“SEC”). On February 23, 2017, the SEC’s Division of Investment Management issued Guidance Update No. 2017-02 (the “Update”). That Update provides guidance to robo-advisers as they seek to satisfy their disclosure, suitability, and compliance obligations under the Investment Advisers Act of 1940 (“Advisers Act”). On the same day, the SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin to educate investors about robo-adviser programs.

DOL Proposes 60-Day Delay for Fiduciary Rule

After nearly a month of regulatory machinations and behind-the-scenes lobbying, the Department of Labor has released a proposed rule that would delay the “applicability date” of its recently enacted “conflict of interest” (or “fiduciary”) regulation (the “Fiduciary Rule”). The 60-day delay in the applicability of the Fiduciary Rule would have only an indirect effect on employers, but is of great interest to investment advisors and other service providers.

IRS Extends Deadline for Providing Small-Employer HRA Notices

As explained in our December 19, 2016, article, the 21st Century Cures Act allows small employers (those that are not subject to the Affordable Care Act’s “play-or-pay” requirements because they have fewer than 50 full-time employees, including full-time equivalents) to offer their employees a premium reimbursement arrangement that would otherwise violate the ACA. By establishing a “qualified small employer health reimbursement arrangement” (or “QSEHRA”), such an employer may subsidize its employees’ purchase of individual health insurance coverage. In its recent Notice 2017-20, the IRS has granted these employers additional time to comply with the QSEHRA notification requirement.

IRS: No More Closing Agreements Under FICA “Special Timing Rule”

A recent IRS Chief Counsel Memorandum (AM 2017-01) raises the stakes for employers that fail to apply the proper FICA taxation rules to nonqualified deferred compensation. An option previously available to those employers has been taken off the table. Under this option – which required a formal “Closing Agreement” with the IRS – both employer and employee FICA taxes could be minimized by voluntarily paying those taxes for years as to which IRS assessments were otherwise barred under the Tax Code’s three-year statute of limitations. Without this correction option, employers have an even greater incentive to apply the proper FICA taxation rules to their deferred compensation arrangements.

Trump Orders DOL to “Reconsider” Fiduciary Rule

On Friday, February, 3, 2017, President Trump issued a Memorandum directing the Secretary of Labor to “re-examine” the Department of Labor’s final regulation defining “fiduciary” investment advice (sometimes referred to as the “Fiduciary Rule” or the “Conflict of Interest Rule”), and to consider whether the Rule should be revised or rescinded. The Rule, which significantly expands the circumstances under which an individual becomes a “fiduciary” by reason of providing investment advice for a fee, was finalized in April of 2016, and technically became effective last July, but was drafted such that its provisions generally do not become “applicable” to financial advisers until April 10, 2017.

DOL Disability Regulations and the Impact on ERISA Plans

The Department of Labor has issued final regulations under Section 503 of ERISA that purport to enhance the disability benefit claims and appeals process for plan participants. These regulations amend the DOL’s disability claims procedure regulations issued in 2002. The new regulations generally affect the procedures for filing disability benefit claims, providing notice of adverse benefit determinations, and appealing adverse benefit determinations.

SEC Guidance Update and the DOL’s Fiduciary Rule

In December, the Division of Investment Management of the Securities and Exchange Commission issued Guidance Update No. 2016-06. The Update provides disclosure and procedural guidance to address potential issues for mutual funds responding to the Department of Labor’s adoption of the Conflict of Interest Rule. To address concerns by financial intermediaries that variations in mutual fund sales loads may violate the Rule, Funds are exploring various options, including changing fee structures and creating new share classes. Such changes may impact fiduciary decisions regarding a plan’s investments and compensation arrangements.

Cures Act Allows for Small-Employer HRAs

Before leaving DC for the winter holidays, Congress and President Obama agreed on a provision granting small employers a bit of relief from the Affordable Care Act. Tucked at the very end of the 21st Century Cures Act is a provision allowing certain small employers to offer their employees a health reimbursement arrangement (“HRA”) that need not be “integrated” with a group health plan. Employees may then use their employer’s pre-tax contributions to such an HRA to pay premiums under individual health insurance policies.

ACA-Reporting Deadline Extended by 30 Days

The Affordable Care Act (“ACA”) imposed additional reporting requirements on health coverage providers (including self-funded employer plans) and “applicable large employers” (those with 50 or more full-time employees). In Notice 2016-70, the IRS has granted coverage providers and employers 30 more days to issue the appropriate ACA-reporting forms to their insureds and full-time employees for coverage provided during 2016. Rather than January 31, 2017, these Forms 1095-B and 1095-C will now be due by March 2, 2017. In addition, the IRS has extended by one year the period of “good-faith compliance” with these reporting rules. As of now, however, the IRS has not extended the deadline for coverage providers and employers to transmit these ACA-reporting forms to the IRS.

2017 Inflation Adjustments

Following recent announcements by both the Internal Revenue Service and the Social Security Administration, we know most of the dollar amounts that employers will need to administer their benefit plans for 2017. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of our 2017 limits card.

IRS Issues Long-Awaited Guidance Regarding (Nonqualified) Deferred Compensation Arrangements of Governmental and Tax-Exempt Employers

Deferred compensation arrangements that are not “tax-favored” retirement plans under Code Sections 401(a), 403(b), or (in the case of a governmental employer) 457(b) are generally referred to as “nonqualified” plans. So long as a nonqualified plan is “unfunded” (meaning the amounts deferred remain the property of the employer, and subject to the employer’s general creditors, until paid), the amounts deferred are generally not taxable until they are “paid or otherwise made available” to the employee.

EEOC Releases Sample ADA Notice for Employee Wellness Programs

In our June 2, 2016, article summarizing final wellness program regulations issued by the EEOC under Title I of the Americans with Disabilities Act (“ADA”), we noted the EEOC’s promise to post on its website a sample notice by which employers could satisfy the ADA’s notification requirements. The EEOC has today posted such a sample notice, along with a series of FAQs shedding further light on the notification requirement. Although employers are not required to use this sample notice, they should make sure that their notice covers all the points addressed in the EEOC sample.

New EEOC Guidance on Employee Wellness Programs

Final regulations issued by the Equal Employment Opportunity Commission (“EEOC”) under both the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”) will require modifications to many employee wellness programs. These modifications may include the deletion of certain questions from health risk assessments, additional employee notification requirements, and a reduction in the incentives used to discourage tobacco usage. Although certain aspects of these regulations will not apply until the first day of the 2017 plan year, others are already in effect.

DOL Releases Final Regulation Defining Investment Fiduciaries

After years of effort, the Department of Labor released final rules on April 6, 2016, that will substantially alter the way investment advice is provided to ERISA plans, their participants, and even non-ERISA IRAs.

You Can Run But You Can’t Hide: HIPAA Audits are Coming

On March 21, 2016, the HHS Office for Civil Rights (OCR) announced that it has begun “Phase 2” of audits of covered entities and their business associates for compliance with the HIPAA Privacy, Security and Breach Notification Rules (“HIPAA Rules”). Phase 1 was limited to a pilot program designed to develop a standard set of audit protocols.

HIPAA Hodgepodge

After more than ten years, HIPAA is still a hot topic. Here is a rundown of recent developments.

You’ve (Still) Got to Be Kidding: Supreme Court Holds ERISA Plan Participants May Ignore Reimbursement Provisions If They Spend the Money Fast Enough

The Supreme Court has handed down its latest in a long line of decisions on enforcing the reimbursement provisions of self-funded ERISA welfare plans. As evidenced by the Court’s lopsided 8-1 decision, the result in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan will not surprise those familiar with the law in this area. But as indicated by Justice Ginsburg’s indignant dissent, plan sponsors may find the decision downright bizarre. After all, it tells participants who double-recover for medical benefits paid by their employer’s health plan that they’re off the hook – if they spend the money fast enough.

Another Court Rejects EEOC Position on ADA and Wellness Programs

Following the lead of Seff v. Broward County, another federal court has disagreed with the EEOC on the scope of an ADA exemption for employee benefit plans. In EEOC v. Flambeau, Inc., the court held that this benefit-plan “safe harbor” could be used to justify a wellness program that included both a health risk assessment and a biometric screening.

IRS Extends ACA-Reporting Deadlines

In a belated Christmas present, the IRS on December 28th extended the deadlines for large employers and health insurers to comply with certain reporting requirements imposed by the Affordable Care Act (“ACA”).  Notice 2016-4 grants an additional two months to provide statements to employees, and an additional three months to transmit those statements to the IRS.

IRS Issues Guidance for Integrated HRAs

In a recent Chief Counsel Advice (CCA 201547006), the IRS has provided guidance for employers wishing to offer health reimbursement arrangements (“HRAs”) that both (1) provide reimbursements on a tax-free basis, and (2) satisfy the “market reform” requirements of the Affordable Care Act (“ACA”). In particular, this CCA focuses on HRAs (and similar “employer payment plans”) that reimburse employees for medical premiums paid for coverage under a health plan maintained by a spouse’s employer.

Prohibited Transactions: Co-investments Involving Qualified Retirement Plans

Under both ERISA and the Internal Revenue Code, certain transactions involving qualified retirement plans and “disqualified persons” or “parties in interest” (such as a plan trustees) are prohibited. One example of a “prohibited transaction” involves a plan fiduciary (e.g., plan trustee) using plan assets to purchase property for his own benefit or as an indirect loan because he cannot afford the purchase without the plan assets (ERISA § 406).

2016 Inflation Adjustments

Following recent announcements by both the IRS and the Social Security Administration, we now know most of the dollar amounts that employers will need to administer their benefit plans for 2016. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of this card.

Certain Mid-Sized Employers May Have Even MORE Time to Comply with the ACA’s Play-or-Pay Rules

Thanks to a special transition rule, employers with 50 to 99 full-time employees (including full-time equivalents) are generally shielded from the Affordable Care Act’s “play-or-pay” penalties until January 1, 2016. Moreover, in a wrinkle that is easily overlooked, any such “mid-sized” employer that already sponsors a health plan operating on a non-calendar-year basis has even more time to comply with these rules.

Same-Sex Marriage Ruling Impacts Benefit Plans (Again)

On Friday, June 26, 2015, the Supreme Court published its ruling in Obergefell v. Hodges, holding (by a 5 to 4 margin) that the Fourteenth Amendment requires a state to license marriages between two people of the same sex, and to recognize any such marriage that is lawfully licensed and performed out-of-state. As a result, all (remaining) state laws or constitutional amendments banning same-sex marriage are now invalid.

Supreme Court Upholds Affordable Care Act Subsidies

The Supreme Court announced today that it has upheld Affordable Care Act (“ACA”) subsidies for insurance purchased on federally-facilitated exchanges. By a 6 to 3 vote, the Court concluded that the statute allows for subsidies on any exchange created under the ACA. The decision in King v. Burwell may come as a disappointment to some who hoped that the subsidies would be struck down and that the entire ACA would unravel in the aftermath.

It’s Unanimous: The Fiduciary Duty to Monitor Has Teeth

The United States Supreme Court gave considerable comfort to defined contribution plan participants – and their lawyers – who sue plan fiduciaries for failing to keep track of plan investment options. In a unanimous decision handed down on May 18, 2015, the Court held in Tibble v. Edison International that ERISA fiduciaries have a “continuing duty” to monitor investment options, and that plan participants have six years from the date of an alleged violation of that duty to file a lawsuit against the plan’s fiduciaries. This ruling significantly undercuts the utility of a statute of limitations defense that had been successfully deployed by plan fiduciaries in previous cases, and creates fertile ground for more litigation.

EEOC Proposes ADA Rules on Wellness Program Incentives

The EEOC has issued proposed regulations providing guidance on the extent to which the ADA permits employers to offer incentives to employees to promote participation in wellness programs that are employee health programs. The new guidance is similar, but not identical, to the rules governing incentives for health-contingent wellness programs under HIPAA. Employers should review their wellness programs to ensure compliance with both laws.

IRS Eases Correction Rules for Missed Elective Deferrals

The IRS has just given sponsors of 401(k) and 403(b) plans a number of additional options for correcting a failure to honor an employee’s election to defer a portion of his or her pay. These new options, as announced in Revenue Procedure 2015-28, will be particularly helpful to sponsors of plans that provide for automatic enrollment (including those with an automatic escalation feature).

IRS to Plan Sponsors: You Must Retain Documentation for Loans and Hardship Withdrawals

Most sponsors of defined contribution plans rely on a third-party administrator (a “TPA”) to handle participant loans and hardship withdrawals—typically through the TPA’s website. However, in guidance issued last week, the IRS cautions that the sponsor—not the TPA or the participant—is responsible for maintaining documents proving that those transactions comply with the law.

Another Court Enforces DOL’s Electronic SPD Rules

At some point, as electronic communication becomes the norm – and as paper virtually disappears from the workplace – we will surely see a softening of the conditions imposed by the Department of Labor (“DOL”) on the electronic distribution of summary plan descriptions (“SPDs”). But a recent decision by a New York federal court confirms that we are not yet at that point.

Davidson v. Henkel: A Rather Taxing Decision

A recent decision by a Michigan federal trial court serves as a warning to employers that their failure to shield participants in nonqualified deferred compensation plans from adverse tax consequences may subject the employers to unanticipated liability. Although this decision (in Davidson v. Henkel Corporation) involved FICA taxation, the court’s reasoning would seem to apply equally to the 20% penalty tax and interest assessments triggered by a violation of Code Section 409A.

Anthem Security Breach May Require Plan Sponsor Action

The well-publicized cyber-attack on Anthem, Inc.’s information technology system may require employers to take prompt action to protect the rights of their health plan participants. Although neither the scope nor the cause of the security breach has yet been determined, the attack has been described as both “massive” and “sophisticated.”

IRS Grants Limited Transition Relief to Small-Employer Premium Reimbursement Arrangements

In a series of notices and FAQs, the IRS has clearly enunciated its view that an employer’s reimbursement of an employee’s premiums for individual health insurance violates certain provisions of the Affordable Care Act (“ACA”). While reiterating this key point, Notice 2015-17 does grant a limited period of relief for smaller employers. Nonetheless, even those employers should be working toward a June 30 deadline to comply with these ACA constraints.

IRS Now Accepting “Cycle E” Determination-Letter Applications

The IRS is now accepting applications for updated determination letters on behalf of individually designed retirement plans falling within “Cycle E” of the determination-letter program. These include plans sponsored by employers having either a “5” or “0” as the last digit of their employer identification number, as well as governmental plans that elected not to file during Cycle C.

Don’t Forget About HIPAA When Addressing Data Security

Among the many data security and breach laws that exist, covered health care providers and health plans must also contend with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

No Good Deed…: Allowing Part-Time Employees to Make Health FSA Contributions May Trigger ACA Penalties

When it comes to health coverage, many employers draw a distinction between full-time and part-time employees. To be eligible to enroll in the employer’s health plan, an employee must work a minimum number of hours per pay period. But many of those same employers then allow even part-time employees to contribute to a health flexible spending account (“health FSA”). After all, doing so costs the employer nothing (and even saves a modest amount in employment taxes), and why not at least give those employees an opportunity to pay some of their medical expenses on a pre-tax basis? Unfortunately, this paternalistic approach may now subject an employer to substantial daily penalties under the Affordable Care Act (“ACA”).

Agencies Plug Several Holes in the ACA Dike

In the years since the 2010 enactment of the Affordable Care Act (“ACA”), the agencies charged with enforcing the ACA have worried that certain responses to the law’s requirements could negatively affect the overall health insurance system. For instance, because the ACA requires insurers to issue individual health insurance coverage without regard to health status, sponsors of self-funded employer plans may be tempted to shift their high-risk employees into the individual market. But by leaving only healthier employees in the self-funded plans, this approach could result in “adverse selection” – leading to an erosion of the individual insurance market.

Same-sex Marriage and its Effect on Health Plans Offering Spousal Coverage

The United States Supreme Court’s decision on October 6, 2014, to deny review of various appellate court rulings (including the Tenth Circuit, the federal appeals court covering Colorado), which had struck down bans on same-sex marriage as unconstitutional, effectively legalized same-sex marriage in the state of Colorado.

Employee Benefits Plans – 2015 Inflation Adjustments

Following recent announcements by both the IRS and the Social Security Administration, we now know most of the dollar amounts that employers will need to administer their benefit plans for 2015.

HIPAA Compliance Update – Business Associate Agreements and Unique Health Plan Identifiers

On January 25 2013, the Department of Health and Human Services (HHS) issued its final Omnibus Rule, mandating, among other things, that covered entities update their Business Associate Agreements (“BAAs”) with service providers who maintain, utilize, or come into contact with protected health information (“PHI”). Group health plans are considered covered entities and the Omnibus Rule’s expansion of the definition Business Associate meant that several plans entered into BAAs with a variety of service providers by or before last September.

When Does 9.5% Equal 9.56%?

Although 9.5% has been a key threshold in determining the “affordability” of employer health coverage, the IRS has just announced (in Revenue Procedure 2014-37) that this threshold will be adjusted to 9.56% for 2015. This adjustment reflects the fact that health insurance premiums have risen more rapidly than incomes. Similar adjustments have also been announced for related percentage thresholds.

National Health Plan Identifiers Required by November

The HIPAA Electronic Transactions and Code Sets rule requires most group health plans to obtain new health plan identifier numbers (HPIDs) by November 5, 2014.  While insurers will likely obtain the HPID on behalf of fully insured plans, the task of obtaining the HPID for a self-funded plan will fall upon the plan sponsor.  While the process is relatively simple, plan sponsors should begin identifying which group health plan arrangements are subject to the HPID requirement and communicating with plan vendors regarding the requirements.

Additional Action Required by Late Filers of Form 5500 (Even Those That Have Already Filed)

Plan administrators who fail to timely file Form 5500 annual reports for their retirement plans may be subject to penalties under both ERISA and the Tax Code. Under previous guidance from the IRS, correcting such a late filing under the Department of Labor’s Delinquent Filer Voluntary Compliance (“DFVC”) Program could relieve the filer from penalties assessed by both the Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”). However, under new guidance from the IRS, relief from its penalties now depends on a separate filing. Moreover, this new IRS requirement will apply retroactively to DFVC Program filings made since 2009.

Agencies Revise COBRA and CHIPRA Notices; Announce Special Marketplace Enrollment for COBRA Beneficiaries

The federal agencies charged with administering the Affordable Care Act (“ACA”) have issued revised versions of the model COBRA and CHIPRA notices.  Moreover, current COBRA beneficiaries have been given a special one-time window in which to enroll in Marketplace coverage.

IRS Announces 2015 Amounts for HSAs, HDHPs, and Out-of-Pocket Limits; Creates Another Trap for HDHP Sponsors

In Revenue Procedure 2014-30, the IRS has announced the 2015 inflation-adjusted amounts for health savings accounts (“HSAs”) and qualifying high deductible health plans (“HDHPs”), all as determined under Section 223 of the Internal Revenue Code. The maximum annual out-of-pocket expense amounts for all “essential health benefits” under non-grandfathered health insurance plans and policies will also increase for the 2015 plan and policy years. Unfortunately, there will now be a “disconnect” between the maximum HDHP out-of-pocket amount and the maximum amount allowed under other non-grandfathered plans.

IRS Issues Same-Sex Guidance: Many Qualified Plans Must Amend By Year-End

The IRS has issued additional guidance regarding how the Supreme Court’s 2013 decision in Windsor v. United States (regarding same-sex marriage) applies to qualified plans and Section 403(b) arrangements. Notice 2014-19 provides that plans must operationally comply with the Windsor decision as of June 26, 2013, although certain same-sex marriages are not required to be recognized until September 16, 2013. Plans with language that is inconsistent with the Windsor decision must generally be amended by December 31, 2014 (although certain plans may have additional time to amend). The related FAQs provide that Section 403(b) plans are also subject to the same operational effective dates, but are not required to be amended at this time.   Plan sponsors should consult with counsel to determine whether their qualified plans must be amended to comply with Windsor and to discuss correction of any operational failures that may have occurred since June 26, 2013.

Final Regulations Streamline ACA Reporting Rules

Final regulations under the Affordable Care Act’s information reporting provisions streamline and simplify the compliance burdens imposed on employers.  Some of these requirements apply to employers of any size, while other requirements apply only to large employers (i.e., those with 50 or more full-time employees, including full-time equivalents).  These information reporting provisions are effective for calendar year 2015, with the first returns and employee statements due in early 2016.

“Play-or-Pay” Road Map Updated to Reflect 2015 Transition Rules

As reported in our February 19, 2014, article, final regulations under the Affordable Care Act’s employer “play-or-pay” mandate include a number of special provisions that will apply only for 2015. We have now updated our Play-or-Pay Road Map to reflect many of those transition rules. For help in deciphering this Road Map, please contact any member of Spencer Fane’s Employee Benefits Group.

Wait a Minute (or 90 Days): Final and Proposed ACA Waiting Period Rules Issued

The three agencies charged with implementing the ACA’s 90-day cap on eligibility waiting periods have simultaneously issued final and new proposed regulations on that topic. All plans – both grandfathered and non-grandfathered – are already subject to the 90-day cap on waiting periods as of the 2014 plan year.However, the recently finalized regulations confirm earlier guidance regarding waiting periods, and also answer a number of questions that had remained unresolved until now.

IRS Guidance Answers Key Questions About In-Plan Roth Conversions

The IRS has resolved key questions about in-plan Roth conversions.  Notice 2013-74 addresses both old concerns (raised when Congress first authorized in-plan Roth conversions in 2010) and new ones (raised when Congress expanded the scope of Roth conversions in 2013).  With the added certainty this guidance offers to employers, administrators, and recordkeepers, plan sponsors who decided against adding an in-plan conversion feature may wish to reconsider.  Sponsors who already offer in-plan conversions may now wish to take advantage of the new options.

Final Play-Or-Pay Regulations Include Significant Transition Rules

The recent finalized regulations under the Affordable Care Act’s employer “play-or-pay” provision give larger employers (those with 50 or more full-time employees) a reason to turn their attention back to compliance with these rules. These regulations answer a number of questions that had been left unresolved by the regulations proposed in December of 2012.

Employers with 50 to 99 full-time employees may be pleasantly surprised to learn of a transition rule that may allow them yet another year (until 2016) to come into compliance. But even employers with 100 or more employees may take advantage of transition rules making compliance easier – or penalties for noncompliance smaller – during 2015.

IRS Now Accepting “Cycle D” Determination Letter Applications

The IRS is now accepting applications for updated determination letters on behalf of individually designed retirement plans falling within “Cycle D” of the determination letter program.  These include plans sponsored by employers having either a “4” or “9” as the last digit of their employer identification number, as well as all multiemployer plans.

Davidson v. Henkel: A Painful Reminder of the Special Rules for FICA Taxation of Nonqualified Deferred Compensation

Although the compensation that an employer pays to an employee is generally subject to FICA taxation at the time the compensation is paid, there are special rules for the FICA tax treatment of amounts payable under nonqualified deferred compensation plans (such as long-term incentive plans or supplemental retirement programs). These rules affect both the timing, and the amount, of the FICA tax that is payable with respect to such compensation (which tax is typically shared 50/50 by the employer and employee).   In the recent case of Davidson v. Henkel, an employer that failed to heed those special rules found itself facing the prospect of bearing substantial additional tax liability – for both the employer’s and the employee’s share of the FICA tax. This case serves as a reminder that employers should pay special attention to when amounts deferred under a nonqualified plan are properly taken into account as “wages” for purposes of FICA taxes.

IRS Grants Temporary Nondiscrimination Relief to Closed DB Plans

In Notice 2014-5, the IRS has granted temporary relief to sponsors of “closed” defined benefit plans.  This will allow such a plan (which has been “soft frozen” to new entrants) to be aggregated with a defined contribution plan sponsored by the same employer when testing the plans for compliance with the Tax Code’s minimum coverage and nondiscrimination requirements.  This relief only modestly expands the circumstances under which such aggregation is already allowed, and it applies only for plan years beginning before January 1, 2016.

2014 Inflation Adjustments

Following recent announcements by both the IRS and the Social Security Administration, we now know most of the dollar amounts that employers will need to administer their benefit plans for 2014.

IRS Loosens Health FSA Carryover Rules

Thanks to recent IRS guidance, sponsors of health FSAs may now allow employees to carry over up to $500 of their account balance from one plan year to the next.  Notice 2013-71 creates a new exception to the “use-it-or-lose-it rule” that has long discouraged employees from contributing to a health flexible spending account (“health FSA”).  This new carryover option is immediately available, but FSA sponsors who wish to implement this option in either 2013 or 2014 will need to act quickly.

Agencies Slam the Door on Pre-Tax Payments for Individual Health Insurance

Many employers are concerned that the “market reforms” included in the Affordable Care Act (“ACA”) will lead to an unacceptable increase in the cost of providing health coverage to their employees. In response, some employers have considered moving to an “account balance” approach. They would simply deposit pre-tax dollars into an account (such as a health reimbursement arrangement, or “HRA”) that each employee could then use to purchase individual health insurance. However, in coordinated guidance issued on September 13, 2013, the three agencies charged with implementing the ACA have slammed the door on this approach.

Employee Assistance Programs under the Affordable Care Act

Employers offering employee assistance programs (“EAPs”) will want to take note of recent agency guidance concerning the impact of the Affordable Care Act (“ACA”) on those EAPs. This impact could be felt by their employees, as well. An employer’s immediate task will be to determine whether its EAP constitutes an “excepted benefit” under the ACA rules. If it does not, the EAP should be revised or terminated before January 1, 2014.

Same-Sex Marriages Recognized for Federal Tax Purposes Regardless of Where Taxpayers Live

The Internal Revenue Service has issued guidance (in the form of a revenue ruling and two sets of Frequently Asked Questions) clarifying that same-sex couples that are legally married will be treated as married for purposes of federal income, gift and estate taxes, regardless of whether the couple lives in a state that recognizes same-sex marriage or a state that does not.  However, couples in domestic partnerships or civil unions will not be treated as “married” for federal tax purposes.  The ruling, which is effective as of September 16, 2013, generally applies prospectively, although individual taxpayers will have the opportunity to file amended tax returns (and claim refunds for taxes paid) for “open” tax years.   The IRS intends to issue additional guidance regarding the extent, if any, that the ruling applies to retirement plans and other tax-favored arrangements for periods prior to the effective date of the ruling.

IRS Issues Transition Relief on Delay of ACA Employer Reporting and Penalties

As we reported last week, the government has postponed the implementation of the employer reporting and employer shared responsibility components of the Affordable Care Act (“ACA”) until 2015.  As we noted, however, last week’s announcement left many unanswered questions.  Some, but not all, of those questions have now been answered in IRS Notice 2013-45.

ACA’s Employer Mandate Penalties Postponed

The Obama Administration announced on Tuesday that it will postpone the implementation of two key components of the Affordable Care Act until 2015.  Notably, however, this one-year reprieve on the employer mandate penalties and reporting obligations does not apply to the other provisions of the ACA that are scheduled to take effect in 2014.

Supreme Court’s DOMA Decision Leaves Many Unanswered Questions

The Supreme Court’s decision in U.S. v. Windsor, invalidating Section 3 of the Defense of Marriage Act (“DOMA”), leaves benefit plan sponsors and administrators with a number of unanswered questions.  Pending expected guidance from the IRS and/or Department of Labor, steps should be taken to identify any practices or plan provisions that might need to be modified to comply with this ruling.

PCORI Fee Due by July 31

Most health insurers and sponsors of self-insured employer health plans are facing a July 31 deadline for reporting and paying the first of seven annual fees to support a Patient-Centered Outcomes Research Institute (“PCORI”).  The IRS has finally issued a revised version of the Form 720 to be used for that purpose, along with a General Counsel Memorandum confirming the deductibility of this fee for federal income tax purposes.

Model Exchange Notices and Revised COBRA Election Notice Issued

The Department of Labor has issued model notices for employers’ use in satisfying the Affordable Care Act requirement to provide employees with notice of coverage options available through a Health Insurance Marketplace.  Employers must distribute these notices to current employees no later than October 1, 2013, and beginning October 1, 2013, must distribute the notices to new employees within 14 days of hire.

Latest ACA Guidance Addresses HSAs, HRAs, and Wellness Programs

Recently proposed IRS regulations provide guidance to employers wanting to know whether they may consider their HSA contributions, HRA credits, or wellness program incentives when testing their health plans for compliance with the “affordability” and “minimum value” requirements of the Affordable Care Act’s play-or-pay provisions.  The chart accompanying this article summarizes this guidance.

IRS Announces 2014 Amounts for HSAs, HDHPs, and Out-Of-Pocket Limits

In Revenue Procedure 2013-25, the IRS has announced the 2014 inflation-adjusted amounts for health savings accounts (“HSAs”) and qualifying high deductible health plans (“HDHPs”), all as determined under Section 223 of the Internal Revenue Code.  The total annual out-of-pocket expense amounts will also apply to all “essential health benefits” offered under non-grandfathered health insurance plans and policies beginning in 2014.

How Is a Health Plan Reimbursement Provision Like Living in a Submarine?

The Supreme Court has handed down another important case in its line of decisions on enforcing the reimbursement provisions of self-funded ERISA welfare plans.  The lesson in US Airways, Inc. v. McCutchen is, once again, the importance of an airtight reimbursement provision.

Target Date Funds: Don’t Just “Set It and Forget It”

The Department of Labor (“DOL”) has released an informal set of tips for ERISA plan fiduciaries to consider when selecting and monitoring target date funds (“TDFs”) for their 401(k) plans.  Fiduciaries that offer TDFs as an investment option under their 401(k) plans should review these tips and incorporate them into their investment review process.

More Agency Guidance on ACA Requirements for 2014

The agencies charged with implementing the Affordable Care Act (“ACA”) have issued additional guidance on requirements taking effect in 2014.  Although much of the focus has been on the ACA’s “play or pay” requirement, this most recent guidance explains the 90-day limit on eligibility waiting periods and describes the types of plans that must comply with limits on deductibles and out-of-pocket expenses.

Treatment of Seasonal Employees Under Health Care Reform

Many employers rely on seasonal workers – over the holidays, during the summer, or for a harvest season. How does the Affordable Care Act (“ACA”) apply to these seasonal employees?

EPCRS Now Covers Common 403(b) Compliance Issues

Recent updates to the IRS’s Employee Plans Compliance Resolution System (“EPCRS”) will allow tax-exempt organizations and public schools that sponsor Section 403(b) retirement plans to correct additional compliance problems under those plans.  These changes, as reflected in Revenue Procedure 2013-12, are generally effective for corrections or submissions made on or after April 1, 2013, although they may also be applied immediately.

IRS Now Accepting “Cycle C” Determination Letter Applications

The IRS is now accepting applications for updated determination letters on behalf of individually designed retirement plans falling within “Cycle C” of the determination letter program.  These include plans sponsored by employers having either a “3” or an “8” as the last digit of their employer identification number, as well as any governmental plan that does not elect to defer their application to Cycle E.


For the first time since 2008, the IRS has updated the Employee Plans Compliance Resolution System (“EPCRS”). This article summarizes the most significant changes in Revenue Procedure 2013-12 that apply to qualified retirement plans.

Treatment of Noncitizen Employees Under the ACA’S “Play or Pay” Rules

Noncitizen employees who are lawfully present in the United States are generally treated as U.S. citizens under the Affordable Care Act. They should therefore be considered in an employer’s efforts to comply with the ACA’s “shared responsibility” (or “play or pay”) requirement.  However, employers should also be aware of certain exceptions, safe harbors, and transition rules that may apply to noncitizen employees – particularly those working on a seasonal basis.

HIPAA Changes on the Horizon

The Department of Health and Human Services has issued final regulations on the HIPAA privacy and security rules (the “HIPAA Rules”) for health plan sponsors and their business associates. The regulations make several changes to the HIPAA Rules, including a significant change in the standards requiring a “breach notification,” additional content for the notice of privacy practices, and incorporation of the “direct liability” rules for business associates.  The general effective date of the final regulations is March 26, 2013 and compliance with most of the changes will be required by September 23, 2013.  Plan sponsors (and business associates) will need to review, and potentially revise, their policies and procedures, privacy notices, and business associate agreements in light of the final regulations. 

Health Care Reform FAQs Address Exchange Notices, HRAs, and Indemnity Plans

In Part XI of their FAQs on the Affordable Care Act, the agencies charged with implementing Obamacare’s health care reforms have postponed the deadline for employers to notify their employees concerning the Affordable Health Exchanges, clarified which HRAs must comply with the ACA’s prohibition on annual or lifetime limitations on essential health benefits, and cautioned insurers as to the types of policies that will qualify for the “fixed indemnity” exception to many ACA requirements.

IRS Issues More “Play or Pay” Guidance

With less than a year to go before the Affordable Care Act’s “Play or Pay” mandate takes effect, the IRS has finally proposed a set of comprehensive regulations on the subject.  Although these regulations largely codify proposals made through four separate Notices issued during 2011 and 2012, they also contain a number of surprises.  Some of these will be welcomed by plan sponsors, while others may not.

Fiscal Cliff Legislation Includes Expansion of In-Plan Roth Conversions

The American Taxpayer Relief Act of 2012 (i.e., the fiscal cliff legislation) includes an amendment to the Tax Code that expands the availability of “in-plan Roth conversions.” Since 2010, 401(k) plans, 403(b) plans, and governmental 457(b) plans have had the option of allowing participants to convert certain pre-tax amounts held in the plan to after-tax Roth amounts (in a taxable “in-plan” rollover transaction). However, such “in-plan Roth conversions” were limited to amounts that were otherwise distributable under the tax laws. The new legislation removes the requirement that amounts must be “distributable” before they can be converted. As a result, plans that include a Roth contribution feature may (but are not required to) allow participants to convert any pre-tax amounts held under the plan (whether attributable to employee deferrals, employer contributions or rollover contributions) to after-tax Roth amounts in a taxable “in-plan” Roth conversion, regardless of whether the participant has attained age 59½.

Another Day, Another (Health Care Reform) Dollar: The ACA’s Transitional Reinsurance Program

The Department of Health and Human Services (“HHS”) has proposed regulations regarding the transitional reinsurance program under the Affordable Care Act (“ACA”).  This program will require group health plans to pay additional fees related to health care reform.  For 2014, these annual fees are estimated at $63 per enrollee.

IRS Issues Guidance on Additional 0.9% Medicare Tax

The IRS has now issued proposed regulations and revised answers to Frequently Asked Questions (“FAQs”) on the provision of the Affordable Care Act (“ACA”) imposing an additional 0.9% Medicare tax on wages in excess of specified thresholds.  Employers will want to familiarize themselves with this guidance, which will require that they withhold this additional Medicare tax from any employee’s “Medicare wages” in excess of $200,000 during a calendar year.

Further Guidance on Permissible Wellness Programs

One of the many aspects of the Affordable Care Act (“ACA”) is an emphasis on wellness. The goal is to encourage employers to implement wellness programs for their employees (and in some cases, their dependents), thereby slowing the growth in health care costs. Late last month, the agencies charged with implementing the ACA proposed a new round of regulations governing such programs. Although these latest regulations generally reaffirm the approach taken in regulations proposed in 2006, they also modify the 20% cap on wellness program rewards, offer further guidance on the “reasonableness” of any alternative standard for obtaining a reward, and clarify both the annual-eligibility and disclosure obligations.

HHS Proposes New Standards Related to Essential Health Benefits

The Department of Health and Human Services (“HHS”) has issued proposed regulations on the standards applicable to “essential health benefits”  or “EHBs” under the Affordable Care Act.  Although the proposed regulations largely defer to the states on the definition of EHBs, HHS has clarified a few points that may be of interest to both small and large employers. 

IRS Further Extends Deadline for Defined Benefit Plan Amendments

In what has become something of a ritual, the IRS is once again extending the deadline by which single-employer defined benefit plans must be amended to implement the regime of funding-based benefit restrictions imposed by the Pension Protection Act of 2006 (“PPA”). Notice 2012-70, issued last week, pushes the general deadline back one more year, to the end of the 2013 plan year. As explained below, this most recent postponement seems to originate in confusion generated by the IRS itself.

COMMON PLAN MISTAKES: Failure to Timely Allocate Forefeitures

The failure to timely allocate forfeitures is a common mistake in the administration of Section 401(k) plans.  This mistake occurs when a plan sponsor fails to use or allocate forfeitures in a timely manner, often generating a multi-year suspense account.  Recent IRS audits have revealed an increased emphasis on forfeitures – underscoring the need for a proper forfeiture management process.

Losing by Winning: Case Offers Harsh Reminder Concerning Preventable Expenses

The recent decision in Herring v. Campbell offers an object lesson in unnecessary exposure to administrative burdens and legal fees.  Because the plan document failed to say whether stepchildren would be considered “children” (for purposes of a retirement plan’s default beneficiary provision), the plan administrator and plan sponsor were caught between two feuding groups of potential beneficiaries.

Same-Sex Couples (Still) Not “Married” for Federal Tax Purposes

In February of 2011, Attorney General Eric Holder announced that the Obama Administration would no longer defend in court the provision of the Defense of Marriage Act (“DOMA”) that denies recognition of same-sex marriages for purposes of administering federal laws.  Moreover, at least two federal appellate courts have held this provision to be unconstitutional.  Notwithstanding these developments, the Internal Revenue Service recently announced that it will continue to deny same-sex couples the same tax benefits that are available to opposite-sex couples.  This IRS position could have implications in a number of benefit-plan contexts, particularly as a growing number of states recognize same-sex marriage.

THE FIDUCIARY CORNER: Correcting Operational Mistakes Can Eliminate Fiduciary Liability

Operational errors in administering a retirement plan not only threaten the plan’s “qualified” status under the Tax Code, but can also result in fiduciary liability under ERISA for those who are responsible for the errors.  As a Massachusetts employer recently learned, however, correcting those administrative mistakes can eliminate the risk of fiduciary liability under ERISA.  (Altshuler v. Animal Hospitals Ltd., (D. Mass. Oct. 31, 2012)).

To Be or Not To Be: Court Holds TPA “To Be” an ERISA Fiduciary

In Borroughs Corp. v. Blue Cross Blue Shield of Michigan, a federal trial court held that a third-party administrator of self-funded employer health plans was an ERISA fiduciary.  Moreover, because the TPA had not disclosed certain of its fees that it deducted from plan assets, it was held to have breached its fiduciary duty under ERISA.  Although this decision is somewhat surprising in finding the TPA to be a fiduciary, it may spur plan sponsors and TPAs to reexamine their funding arrangements and service agreements.

Election’s Over: So What’s Next Under Obamacare?

By reelecting President Obama and leaving the Democrats in control of the U.S. Senate, the voters essentially guaranteed the survival of the Affordable Care Act (now known by both opponents and proponents as “Obamacare”). As a result, employers who might have been hoping for a different result on Election Day will have a great deal of work to do in a relatively short period of time if they are to avoid the stiff monetary penalties embedded in the law.

2013 Inflation Adjustments

Following recent announcements by both the IRS and the Social Security Administration, we now know most of the dollar amounts that employers will need to administer their benefit plans for 2013.

Critical Amendment Deadline Approaching for Defined Benefit Plans

Sponsors of single-employer defined benefit pension plans will need to amend those plans by the end of the 2012 plan year to comply with a new regime of distribution restrictions imposed by the Pension Protection Act of 2006 (the “PPA”). As explained more fully in this article, meeting this deadline is crucial because the IRS has conditioned anti-cutback relief on a timely amendment. If the cutbacks required under the PPA are implemented without a timely amendment, the plan risks disqualification, and the plan sponsor may be liable to participants and beneficiaries.

The “HIPAA Police” Are Here

After years of somewhat lenient enforcement of the HIPAA Privacy and Security Rules, the Department of Health and Human Services (“HHS”) appears to be ramping up its enforcement efforts.  A recently announced settlement between a medical provider and HHS is the latest in a string of recent civil penalties and settlements involving alleged HIPAA Privacy Rule and/or Security Rule violations.  Although the penalties referenced in this Alert have thus far been assessed against health care providers, they might just as easily be assessed against health care plans that commit the same types of HIPAA violations.  For that reason, health plan sponsors should take note and review their existing policies and procedures.

More Guidance on “Full-Time” Employees and 90-Day Waiting Period

As the clock counts down to 2014 and the implementation of the Affordable Care Act’s “main event,” we continue to receive guidance from the implementing agencies. The latest guidance provides a safe-harbor approach for determining when “variable hour” or seasonal employees have met the ACA’s “full-time” definition of 30 or more hours per week. It also explains how various types of eligibility conditions will be analyzed in the context of the 90-day limitation on eligibility waiting periods. The agencies note that plan sponsors may rely on this guidance through at least the end of 2014.

COMMON PLAN MISTAKES: Failure to Timely Offer COBRA Coverage

The failure to timely offer COBRA continuation coverage to an employee on a non-FMLA leave is a common mistake in the administration of a self-funded health plan.  This mistake generally occurs because the plan sponsor wishes to assist an employee in his or her time of need.  Unfortunately, this can leave the sponsor with no stop-loss coverage for such an employee’s catastrophic health claims.

ERISA Section 408(b)(2) Disclosures: Now What?

Now that most retirement plan fiduciaries have received ERISA Section 408(b)(2) fee disclosure notices from their plans’ service providers, they must actually do something with those notices.  This should start with a careful review.  If a notice is incomplete or confusing, questions need to be asked.  Eventually, however, fiduciaries should document the basis for any decision that a vendor’s fees are reasonable in relation to the services provided.  This formal process should help to shield the fiduciaries from any claim that they allowed the plan to engage in a prohibited transaction with one or more service providers.

Grandfathered Status for 2013

As health plan sponsors look ahead to 2013, they would be well-advised to consider the ongoing nature of the grandfathering rules that apply under the Affordable Care Act.  The sponsor of any such plan that is currently grandfathered will want to take particular care when setting contribution rates and making plan-design decisions for the upcoming plan year.

MAP-21: Pension Funding Relief … and Much More

Pension plan sponsors will be affected in various ways by the Moving Ahead for Progress in the 21st Century Act (“MAP-21”).  In addition to immediate funding relief, MAP-21 provides for higher PBGC premiums.  It also extends and broadens an existing option by which excess pension assets may be transferred to a separate account for the provision of retiree welfare benefits.

Murder Victim’s Mother May Rely on Post-Amara Equitable Remedies

In McCravy v. Metropolitan Life Insurance Company, an ERISA plan continued to accept life-insurance premiums for a participant’s dependent daughter after the daughter was too old to be covered as a dependent.   But when the daughter died, the insurer denied the plaintiff’s claim.  Citing the Supreme Court’s 2011 decision in CIGNA Corp. v. Amara, the Fourth U.S. Circuit Court of Appeals held that the “other equitable relief” available to the plaintiff under Section 502(a)(3) of ERISA should include a monetary recovery equal to the amount that would have been due under the terms of a plan, had the daughter satisfied the plan’s definition of dependent child at the time of her death.  In so doing, the Fourth Circuit became the first federal appellate court to reverse its own pre-Amara rejection of such a remedy under Section 502(a)(3).

THE FIDUCIARY CORNER: Unintended Consequences of Individual Benefit Discussions

Although a retiree’s promissory estoppel claim against the sponsor and fiduciaries of an employer pension plan was ultimately rejected by a federal court, the case of Stark v. Mars, Inc., illustrates the importance of coupling any pension calculation with an appropriate caveat.  It also demonstrates why plan fiduciaries should avoid answering participant questions that are more properly delegated to individuals who can respond in a purely ministerial capacity.

Year-End Amendment Deadline Under Code Section 409A

Recent IRS guidance makes clear that deferred compensation arrangements under which payments are conditioned on the execution of a release of claims could pose a problem under Section 409A of the Internal Revenue Code.  Fortunately, the IRS has also announced a voluntary correction program under which this Section 409A violation may be corrected.  Employers wishing to take advantage of this correction program must act quickly, however, because this aspect of the program expires at the end of 2012.

Supreme Court Upholds Affordable Care Act

In an 11th hour twist, the Supreme Court announced today that it has upheld the Affordable Care Act, including the controversial individual mandate.

Overview of Medical Loss Ratio Rebates

The Affordable Care Act requires health insurers to spend a minimum percentage of their premium dollars on medical claims and quality improvement.  Insurers that fail to achieve these percentages must issue rebates to their policyholders.  The first of these MLR rebates are due in August of 2012, so plan sponsors should begin planning how to handle any rebates they might receive.  Among other things, this article discusses both ERISA and tax implications that any plan sponsor receiving a rebate should consider.

IRS Issues Guidance on Implementation of $2,500 Health FSA Limit

In Notice 2012-40, the IRS has provided welcome guidance on the application of the $2,500 annual limit on salary deferral contributions to a health flexible spending account (“health FSA”).  This limit was imposed by the 2010 Affordable Care Act (“ACA”), though only for “taxable years beginning after 2012.”  Among other points made in the Notice, the IRS interprets “taxable year” to refer to an FSA’s plan year.  Thus, the earliest this limit will apply to any FSA is January 1, 2013.  The Notice also provides an extended period of time for FSA sponsors to adopt the required amendments.

As Fee Disclosure Deadlines Approach, DOL Issues Additional Guidance

After more than four years of regulatory starts and stops, plus the threat of a legislative solution, two separate sets of fee disclosure regulations issued by the Department of Labor (“DOL”) will finally become effective this summer.  Covered service providers must provide certain compensation and fee information to plan fiduciaries by July 1, and fiduciaries of participant-directed plans must provide participants with certain plan expense and investment fee information by August 30.  As those deadlines approach, the DOL has just issued additional guidance (in the form of Field Assistance Bulletin 2012-02) on the participant fee disclosure rules, and has indicated that it plans to issue similar guidance regarding the service provider fee disclosure requirements in the very near future.

COMMON PLAN MISTAKES: Miscalculating Matching Contributions

Miscalculating an employer matching contribution is one of the most common mistakes in the administration of a Section 401(k) plan.  This mistake often occurs because the plan sponsor calculates the matching contribution using an incorrect timing assumption—for example, a pay-period basis, rather than an annual basis.

Federal Appeals Court Rejects Equitable Remedies When SPD Promises More Generous Benefits Than Pension Plan Document

A federal appeals court has handed down the first significant decision to interpret the Supreme Court’s recent ruling on ERISA remedies.  In CIGNA Corp. v. Amara, the Supreme Court suggested three methods by which participants might enforce the terms of an SPD that promises greater benefits than the underlying plan document:  estoppel, reformation, and surcharge.  In Skinner v. Northrop Grumman Retirement Plan B, participants tested two of these methods.  The Ninth Circuit rejected both.

New Fees Payable by Health Plan Sponsors and Insurers

Under the Affordable Care Act (“ACA”), both health insurers and sponsors of self-funded employer health plans will be assessed a fee to fund a new Patient-Centered Outcomes Research Institute.  This fee will start at $1.00 per covered life for the first year (which is the first plan year ending on or after October 1, 2012), but will then double to $2.00 per covered life during the following year.  The first deadline for paying this fee is July 31, 2013.

THE FIDUCIARY CORNER: Costly Fiduciary Breaches in 401(k) Fee Case Provide Many Lessons

The recent decision in Tussey v. ABB, Inc. provides many lessons for 401(k) plan fiduciaries.  One such lesson is to avoid having an overly rigid investment policy statement.  Failing to follow the protocol outlined in a plan’s IPS for replacing an underperforming investment option led the Tussey court to tag the plan’s fiduciaries with substantial liability for the participants’ lost earnings.

IRS Proposes Methods for Valuing Employer Health Coverage

In order to implement several provisions of health care reform, the Affordable Care Act (“ACA”) will require “large employers” (those with 50 or more full-time employees) to determine whether their employer health plans provide “minimum value.”  In Notice 2012-31, the IRS has proposed three different methods by which an employer might make this determination.

IRS Announces 2013 Amounts for HSAs and HDHPs

In Revenue Procedure 2012-26, the IRS has announced the 2013 inflation-adjusted amounts for health savings accounts (“HSAs”) and qualifying high deductible health plans (“HDHPs”), all as determined under Section 223 of the Internal Revenue Code.

Ready Reference Chart: W-2 Reporting of Employer Health Coverage

Employers that issued 250 or more w-2s for 2011 must report the value of any employer-provided health coverage on their employees’ 2012 W-2s.  The chart found at this link shows the types of coverage that should be included in that reporting, the types that should not be included, and those for which reporting is optional.

COMMON PLAN MISTAKES: Failure to Defer from “Compensation”

The failure to properly withhold salary deferral contributions from a participant’s compensation is one of the most common mistakes that arise in the administration of a Section 401(k) defined contribution retirement plan.  This common mistake generally occurs because the plan sponsor fails to apply the proper definition of compensation under the plan.

Federal Appeals Court Upholds $243,000 Damage and Fee Award for Employer’s Failure to Provide SPD and Election Forms

A recent ruling from the federal Court of Appeals highlights two critical ERISA basics:  fiduciary duties and disclosure requirements.  In Kujanek v. Houston Poly Bag, the Fifth Circuit upheld an award of damages and fees of more than $243,000 for an employer’s failure to provide a participant with a copy of a retirement plan’s summary plan description (“SPD”) and a rollover election form.  As explained more fully in the rest of this article, that amount could increase significantly when the lower court reconsiders the question of statutory penalties.

IRS Cautions Against “Sham” Retirements

In a recent ruling, the IRS reiterated its long-standing position that a “pension plan” may not allow active employees to obtain a distribution from the plan – at least, not before their attainment of the plan’s normal retirement age (or, if earlier, age 62).  Sponsors of pension plans (both defined benefit and “money purchase”) should therefore take steps to prevent “sham” retirements by employees who want to begin receiving a pension but then immediately return to work for the plan sponsor.

IRS Guidance Facilitates Lifetime Income Options

The IRS has issued a package of proposed regulations and revenue rulings dealing with “lifetime income options.”  These regulations and rulings apply to both defined contribution and defined benefit plans, and to a variety of life situations.  What they share in common is an intent to encourage employers to help their employees more prudently manage their retirement assets during the “drawdown” phase of their retirement.

IRS Revises Procedures for Determination Letters

The IRS has recently made changes to its determination letter program that are designed to (i) eliminate features that are of limited utility to plan sponsors, and (ii) improve efficiency by reducing the time it takes to process applications.  However, under the modified procedures, some employers adopting pre-approved plans will no longer be able to apply for (or receive) determination letters with respect to their plans.  This article reviews the changes to the determination letter program and the impact on qualified plan sponsors who seek assurance that the form of their plan satisfies the requirements of the Tax Code.

Medical Loss Ratio Rebates: ERISA Plan Assets?

The Department of Labor (DOL) has issued new guidance on the medical loss ratio rules.  The guidance reminds plan sponsors of fully insured group health plans that there are potential plan asset considerations involved in the receipt of any MLR rebate.  As a result, plan sponsors who receive such rebates must think carefully about how to allocate them.

THE FIDUCIARY CORNER: You ARE Your Brother’s Keeper – Co-Fiduciary Liability Under ERISA

Plan fiduciaries must not only make sure that their own conduct complies with ERISA’s exacting standards, they also have a duty to monitor the conduct of the plan’s other fiduciaries.  The failure to do so can result in personal liability under ERISA’s co-fiduciary duty rules, as demonstrated by Smith v. Stockwell Construction Co. (W.D.N.Y. Dec. 10, 2011).

Agencies Issue Guidance on Automatic Enrollment, Employer Mandate, and Waiting Periods

The agencies charged with implementing health care reform are continuing to churn out guidance for health plan sponsors.  The latest FAQs defer the effective date of the “automatic enrollment” requirement.  They also offer a number of insights into how the agencies intend to address both the employer “shared responsibility” requirement and the 90-day limitation on eligibility waiting periods.

Agencies Finalize Guidance on Summary of Benefits and Coverage

The agencies charged with implementing health care reform have just issued final regulations (and related guidance) on the requirement for a uniform “summary of benefits and coverage.”  This guidance gives plan administrators and insurers another six months to draft and distribute these SBCs.  Certain of the more burdensome aspects of the August 2011 proposed regulations have also been eased.  Nonetheless, prompt action will be needed to draft compliant SBCs in time for the upcoming open enrollment season.

Department of Labor Finalizes, Delays 401(k) Fee Disclosure Rules

On February 2, 2012, the Department of Labor (“DOL”) released final regulations under Section 408(b)(2) of ERISA, requiring retirement plan service providers to disclose information about their services and fees to plan sponsors.  In doing so, the DOL delayed the effective date of those rules and made minor modifications to them. 

More IRS Guidance on W-2 Reporting of Health Coverage

Large employers (those issuing more than 250 W-2s for 2011) must report the value of their employees’ health coverage on the W-2s they issue for 2012 (in January of 2013).  Given the complexities of this process, the time to start preparing is now.  As explained in this article, the IRS has just issued another round of guidance on this reporting requirement.  This is likely to be the last guidance available before the requirement takes effect.

Deadlines Approaching for Retirement Plan Amendments

Once again, amendment season is upon us. Sponsors of tax-favored retirement plans should keep in mind the many required amendments for which a year-end deadline is fast approaching. This article highlights some of the more important changes that sponsors must address before the curtain closes on 2011.

Extension of Trade Adjustment Assistance Affects Certain COBRA Coverage

The Trade Act of 2002 created a health care tax credit (“HCTC”) for certain individuals who become eligible for trade adjustment assistance (“TAA eligible individuals”), as well as for certain retired employees who are receiving pension payments from the Pension Benefit Guaranty Corporation (“PBGC recipients”). Under the original HCTC provisions, eligible individuals could either claim a tax credit or receive advance payment of 65% of the premiums they pay for qualified health insurance, including COBRA continuation coverage. Special COBRA rights, including a second opportunity to elect COBRA coverage, also apply to TAA-eligible individuals and PBGC recipients.

Failing to Notify Participants of Plan Changes Can Be Costly

Among ERISA’s many notice and disclosure obligations, the requirement to timely inform participants of important plan changes is one that is too often overlooked.  Although there is no monetary penalty for failing to distribute a summary of material modifications (“SMM”) or an updated summary plan description (“SPD”) within the time periods set by the regulations, such a failure can still have severe consequences.  AT&T recently learned that lesson – to the tune of a six-figure judgment awarded to a deferred vested participant in its defined benefit pension plan.  (Helton v. AT&T, Inc., Sept. 16, 2011).

Health Care Reform: What’s Gone Away? and What’s Coming in 2012?

The tide of regulations interpreting the 2010 Patient Protection and Affordable Care Act (“PPACA”) began to ebb in 2011, and portions of the law have even been repealed or put on hold. Nonetheless, health plan sponsors will still face new compliance burdens in 2012. This article briefly addresses these aspects of the PPACA.

Health Plan Assessed Double Damages for MSP Violation

In this recent decision, a federal appeals court has raised the stakes for employer health plans that fail to comply with the Medicare Secondary Payer rules.

Investment Providers and Advisors May Now Provide “Conflicted” Advice to Plan Participants

Both the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “Code”) generally prohibit fiduciary investment advisers from receiving compensation from the investment vehicles that they recommend to plan participants and IRA holders. However, the Pension Protection Act of 2006 amended ERISA to create a new statutory exemption from the prohibited transaction rules that is designed to expand the availability of fiduciary investment advice to participants in individual account plans and IRAs, subject to specific safeguards and conditions.

THE FIDUCIARY CORNER: Loss of Privilege: Another Reason Not to Give the Company a Fiduciary Role

In our efforts to help plan sponsors minimize their fiduciary risk, we consistently advise against giving the sponsoring employer a fiduciary role. Designating the “company” or “employer” as an ERISA fiduciary can unintentionally subject the employer’s executive officers and board of directors to ERISA’s fiduciary standards, and potentially to personal liability. The United States Supreme Court recently reminded us of another reason to avoid this plan governance mistake: the potential loss of the attorney-client privilege.

2012 Inflation Adjustments

After holding steady for the past two years, many of the dollar amounts of interest to administrators of employer retirement plans and health savings accounts will be going up for 2012.

Guidance Issued on ACA’s Summary of Benefits and Coverage

The Affordable Care Act (“ACA”) requires each employer group health plan to provide a 4-page summary of its benefits to all individuals who are eligible for coverage. This requirement takes effect on March 23, 2012 (two years after the enactment of the ACA). The three agencies charged with implementing many of the ACA’s requirements have just issued proposed regulations, along with templates of proposed formats, under which a plan may furnish this new “summary of benefits and coverage” (“SBC”).

Agencies Adopt Additional Guidelines for Women’s Preventive Services

The Affordable Care Act (“ACA”) requires group health plans (other than plans that are “grandfathered”) to cover a list of preventive health services. Earlier this month, the three agencies charged with administering the ACA issued additional rules describing women’s preventive services that must also be covered. Like the services listed in earlier agency guidance, these women’s preventive services must be covered on a first-dollar basis, with no cost-sharing requirement, by “non-grandfathered” group health plans. This article briefly summarizes the new rules.

Employer Stock Funds Continue to Vex 401(k) Fiduciaries

Offering employees the opportunity to invest in the stock of their employer through a tax-favored vehicle like a Code Section 401(k) plan or employee stock ownership plan (“ESOP”) must have seemed like an innocuous idea at one time. Indeed, Congress expressed its approval of such arrangements by creating special tax benefits for both the sponsors of such plans (in the form additional deductions) and participants in them (in the form of favorable tax treatment on unrealized appreciation in the value of employer stock). Yet these “employer stock funds” are now the quickest path to the courthouse for employers that sponsor them and fiduciaries that administer them.

Form 8955-SSA Filing Due Date Extended

Despite this latest filing extension, retirement plan administrators may still have to file their 2009 and 2010 Forms 8955-SSA by January 17, 2012.

HHS Proposes Guidance on ACA “Exchanges”

These proposals outline some of the rules that will likely apply to the state-wide exchanges to be created as a result of health care reform. Small employers may want to familiarize themselves with these rules, so that they will be in a position to decide whether to participate in the exchanges.

Revisiting Grandfathered Status for 2012

2011 has been a big year for grandfathered and non-grandfathered group health plans alike. A number of significant changes mandated by the Affordable Care Act (“ACA”) took effect for both types of plans. Now, 2014 looms as the next big milestone in health care reform. But losing track of the grandfathering rules is a trap for the unwary. While there are no major health care reform changes taking effect in 2012, sponsors of grandfathered plans should revisit the rules governing grandfathered status to ensure that they do not inadvertently lose that status in 2012.

THE FIDUCIARY CORNER: Supreme Court Decision Requires New Focus on Participant Communications

A long-awaited ruling issued by the United States Supreme Court this spring gives employers both reason to celebrate and cause for concern. The Court’s decision in CIGNA Corp. v. Amara (May 16, 2011) reaffirms that courts will not enforce benefit rights that are described in a summary plan description (“SPD”) as if those rights were actually set forth in the plan document. At the same time that it foreclosed this avenue of relief for plan participants, however, the Court apparently opened up another by concluding that participants who are actually harmed by inconsistent or misleading plan summaries may have an equitable right to be compensated for that harm. As a result, participant communications are likely to be a new source of ERISA litigation in the coming years.

Revised Again: More Changes to ACA-Required Internal and External Review Procedures

As explained in our August 2010 article, “interim final regulations” issued under the Affordable Care Act (“ACA”) require that group health plans (other than those that are “grandfathered”) comply with a number of internal claims and appeals procedures that go beyond those previously required under ERISA. The ACA also requires group health plans to offer a new state or federal external review process to review denied claims.

June 30 Deadline for FSA Amendments

Sponsors of health flexible spending accounts face a deadline of June 30, 2011, to amend their plans to comply with the health care reform requirement that over-the-counter medications be reimbursed only if prescribed by a physician. Although this requirement became effective as of January 1, 2011, the IRS has granted a six-month extension of the usual deadline for adopting the necessary amendment.

CMS Updates Medicare Part D Creditable Coverage Notices

On April 1, 2011, the Centers for Medicare and Medicaid Services (“CMS”) issued revised Medicare Part D creditable and non-creditable coverage notices to reflect an amendment made to the Social Security Act by the Affordable Care Act (“ACA”). The amendment accelerated the Medicare Part D annual enrollment period — from November 15 through December 31, to October 15 through December 7. This change is effective for 2012 Part D enrollments, occurring in the fall of 2011.

Fee Disclosure: A Three-Ring Circus for Plan Fiduciaries and Service Providers!

Employers sponsoring ERISA-covered, participant-directed, individual account plans (such as 401(k) or 403(b) plans) are constantly reminded of their fiduciary duties. In recent years, almost any discussion of these duties has included the issue of fees that are charged to participants’ accounts (or that otherwise affect a participant’s account balance).

Form 8955-SSA Replaces Schedule SSA

The Internal Revenue Service has announced that a new Form 8955-SSA (“Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits”) has replaced Schedule SSA to the Form 5500.

Further Delay of Certain ACA-Required Internal Review Procedures

As explained in ourAugust 2010 article, “interim final regulations” issued under the Affordable Care Act (“ACA”) will require that group health plans (other than those that are “grandfathered”) comply with a number of internal claims and appeals procedures that go beyond those previously required under ERISA. Although these new requirements are generally effective for plan years beginning on or after September 23, 2010, the Department of Labor (“DOL”) granted a limited extension of this compliance deadline in late 2010. Then in March of this year, the compliance deadline was further extended for certain of these requirements.

Health Care Reform Update

Actions in the courts, in Congress, and by the Obama Administration have shed further light on the contours of health care reform.

IRS Guidance on Scope of “Unforeseeable Emergency”

Governmental employers sponsoring Section 457 plans will be interested in this latest IRS guidance as to what does – and does not – constitute an employee’s “unforeseeable emergency,” thereby supporting an in-service withdrawal from such a plan.

THE FIDUCIARY CORNER: Misplaced Enrollment Form Creates ERISA Liability for Sponsor

A small, Oklahoma-based employer recently learned that inattention to 401(k) plan governance can create costly corporate liability. It also learned that retaining the responsibility for collecting plan participants’ investment election forms, and then forwarding them to the plan’s recordkeeper, may not be advisable.

Wellness Program Clears ADA Hurdle

In a somewhat surprising decision, a Florida federal court has suggested that even monetary penalties for non-participation in employer-sponsored wellness programs may be permissible under the Americans with Disabilities Act.

Expanded 1099 Reporting Requirements Retroactively Repealed

The political parties have finally reached agreement on the revenue offsets needed to pay for a repeal of the expanded Form 1099 reporting requirements enacted as a part of health care reform.

Budget Compromise Eliminates “Free Choice Vouchers”

One of the first elements of health care reform to be repealed by Congress would have required virtually all employers, regardless of size, to issue “free choice vouchers” to lower-paid employees choosing not to enroll in the employer’s health plan. Those vouchers could then have been used to purchase health coverage through a state-wide “exchange.”

IRS Guidance Explains Form W-2 Reporting of Health Coverage; Further Delays Reporting for Small Employers

The Affordable Care Act requires that employees’ W-2s provide useful and comparable consumer information on the cost of their employer-sponsored health coverage. On March 29, 2011, the IRS issued Notice 2011-28, providing interim guidance on this new reporting requirement.

Health Care Reform: So Where Are We Now?

It’s been nearly a year since the passage of the two bills known as “health care reform.”  Although significant elements of this reform are already in effect, both the 2010 general elections and vigorous legal challenges have caused some to wonder whether the “meat” of the reform — slated for 2014 — will ever be implemented.  Unfortunately, this question may not be answered for many months, or even years.

A New VEBA Boomlet?

One of the unanticipated effects of health care reform appears to be a renewed need for welfare benefit trust funds, though only in the rather narrow context of a self-insured, stand-alone retiree health plan.

Applying Nondiscrimination Requirements to Fully Insured Health Plans: When, and How?

One of the most common questions we receive from employers sponsoring group health plans is, “Can we offer different health benefits to different employees?” Related questions include, “Can we make our hourly employees pay a greater percentage of the cost of the plan than our higher-paid salaried employees?” or “Can we limit health benefits solely to managers and executive level employees?” And for the last 20 years, the answer has been, “Yes, so long as your plan is fully-insured.”

Breast Pumps and Lactation Supplies Qualify as Medical Care Expenses

In an apparent change of position, the IRS has now indicated (in Announcement 2011-14) that breast pumps and supplies that assist lactation qualify as medical care expenses under Code Section 213(d) because they are for the purpose of affecting a structure or function of the lactating woman’s body.

Bull’s-Eye on Target-Date Funds

Target-date funds have become increasingly popular with 401(k) plan investors in recent years. A target-date fund (“TDF”) is typically a mutual fund that contains a mix of underlying investments and automatically adjusts the asset allocation (stocks, bonds, cash equivalents) within the fund’s portfolio according to a selected “target date” such as retirement.

IRS Provides Guidance on In-Plan Roth Conversions

Congress and the IRS are encouraging individuals to convert their retirement savings into Roth accounts (as a means to increase revenue). Pursuant to changes to the Tax Code made by the Small Business Jobs Act of 2010 (“SBJA 2010”), sponsors of Section 401(k) plans, Section 403(b) plans, and governmental Section 457(b) plans may now allow participants to convert their pre-tax accounts into Roth accounts.

Taxation of Dependent Coverage After Health Care Reform

By now, most people involved in the administration of group health plans are familiar with the requirement for plans that offer dependent coverage to make that coverage available to adult children until they attain age 26. This new requirement applies to both insured and self-insured plans (regardless of the plan’s status as a “grandfathered” plan), and is effective for plans years beginning on or after September 23, 2010 (January 1, 2011, for calendar year plans).

THE FIDUCIARY CORNER: Selecting the 401(k) Fund Lineup Creates Risk and Opportunity

In late January the United States Court of Appeals for the Seventh Circuit (whose jurisdiction includes Illinois, Indiana, and Wisconsin) weighed in yet again on the extent to which ERISA’s fiduciary duty rules apply to the selection of 401(k) plan investments. As you may recall, the Seventh Circuit issued one of the most important rulings on this topic in recent years in Hecker v. Deere & Co. (2009), a case challenging as imprudent the fees attached to such investment options.

IRS Delays Application of Nondiscrimination Rules for Insured Health

On December 22, 2010, the Internal Revenue Service announced (in Notice 2011-1) that insured group health plans will not be required to comply with the nondiscrimination requirements under health care reform until some time after the IRS issues regulatory guidance on those requirements.
The Affordable Care Act provides that insured group health plans (other than certain “grandfathered” plans) must satisfy the requirements of Code Section 105(h)(2), which prohibits discrimination in favor of “highly compensated” participants in terms of either (i) eligibility to participate, or (ii) the benefits provided under the plan.

Cafeteria Plan Changes for 2011

Amid the year-end rush to comply with the reform provisions of the Affordable Care Act (“ACA”) for group health plans, it is easy to overlook the ACA’s effects on other health plan arrangements. As discussed in our May 2010 article, cafeteria plans, health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and health care reimbursement arrangements (“HRAs”) are subject to several of the same requirements that apply to group health plans.

Group Health Plan Review

The passage of comprehensive health care reform legislation under the Affordable Care Act (“ACA”) made 2010 a monumental year for group health plans. As a result, plan sponsors are faced with a dizzying array of action items for 2011.

In-Plan Roth Conversions Now Permitted, but Many Questions Remain

On September 27, 2010, President Obama signed the Small Business Jobs and Credit Act of 2010 (the “Act”), which includes two provisions designed to promote retirement preparation (while raising revenue for the federal government). The first would permit Roth contributions to Section 457(b) plans maintained by state or local governments (a feature that is currently limited to 401(k) and 403(b) plans). The second would permit certain amounts in 401(k), 403(b) and governmental 457(b) plans to be converted to Roth accounts within the plan (i.e., an “in-plan” conversion option).

THE FIDUCIARY CORNER: DOL Expands Definition of “Fiduciary”

In an effort to improve its enforcement efforts and better protect participants from service provider conflicts of interest and self dealing, the Department of Labor issued proposed regulations on October 21, 2010, that would significantly expand ERISA’s definition of a “fiduciary.” These regulations will, when finalized, replace guidance issued in 1975 which governs when investment advisors become subject to ERISA’s fiduciary duties. The new standards will apply to all employee benefit plans subject to ERISA – including health plans – although their primary application will be to defined contribution retirement plans. They have the potential to substantially change the nature of the relationships between employers and service providers.

Year-End Deadline for Section 409A Corrections

Employers and their executives should note a year-end deadline for correcting certain failures to comply with the “documentation” requirements of Section 409A of the Internal Revenue Code. As explained in our March 2010 article, IRS Notice 2010-6 created a program for correcting such failures, but with many of its generous transitional rules expiring on December 31, 2010.

Year-End Qualified Plan Checklist

As we reported in our August 2010 article, sponsors of tax-favored retirement plans should keep in mind the many required amendments for which a 2010 year-end deadline is fast approaching. Most tax-favored retirement plans must be amended by the end of the 2010 plan year to reflect the mandatory provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART Act”).

2011 Annual Benefit Plan Amounts

The IRS recently announced inflation-adjusted dollar limitations and cost-of-living adjustments applicable to qualified retirement plans in 2011. All of these limits remain unchanged from 2010. The Social Security Administration has made a similar announcement regarding Social Security premiums and benefits. Spencer Fane’s Employee Benefits Group has prepared a summary of the limits.

IRS Makes W-2 Reporting of Cost of Health Coverage Optional for 2011

On October 12, 2010, the IRS released Notice 2010-69, which provides interim relief from the Affordable Care Act (“ACA”) requirement that the cost of coverage under employer-sponsored group health plans be reported on Forms W-2 provided to employees. According to the Notice, such W-2 reporting will now be optional for 2011, but will be required for 2012. This interim relief is designed to give employers additional time to adjust their payroll systems and update procedures to comply with the new reporting requirement.

Limited Relief on New Claims and Appeals Procedures

In a series of FAQs, the agencies charged with implementing health care reform have slightly eased the pressure on employers and employers to comply with the new claims and appeals requirements.

Small Business Jobs Act Creates In-Plan Roth Conversion Option, Allows Roth Contributions in Governmental 457(b) Plans

On September 27, 2010, President Obama signed the Small Business Jobs and Credit Act of 2010 (the “Small Business Jobs Act” or the “Act”). The Act provides $12 billion in tax cuts for small businesses and a $30 billion lending fund to improve the availability of credit for small firms. The bill also includes two provisions designed to promote retirement preparation (while raising revenue for the federal government).

Agencies Issue Interim Guidance on External Review Procedures

Following up on their earlier guidance concerning the new requirements for dealing with health plan claims and appeals, the agencies charged with implementing health care reform have now issued interim guidance on the new rules for “external reviews.” This latest guidance includes model notices that plan administrators may want to use for this purpose.

Regulations Require Specific Disclosure of Fees Received by Service Providers

On July 15, 2010, the Department of Labor (“DOL”) issued “interim” final regulations regarding the fee information that service providers must disclose to fiduciaries of ERISA-covered retirement plans. This information is intended to assist fiduciaries in assessing the reasonableness of contracts or arrangements for the provision of services to the plan, including the reasonableness of the service provider’s compensation and the potential for conflicts of interest.

Deadline Approaching for 2010 Plan Amendments

It may be summer now, but sponsors of tax-favored retirement plans should keep in mind the many required amendments for which a year-end deadline is fast approaching. This article highlights some of the more important changes that sponsors must address before the sun sets on 2010.

Guidance Issued on New Claims and Appeals Procedures

Unless an employer health plan is “grandfathered,” it will soon be required to comply with a far more rigorous set of rules for processing benefit claims and appeals. The agencies charged with enforcing this requirement have just issued their initial set of guidance.

Planning for 2011 Open Enrollment

With annual enrollment season fast approaching, now is the time to consider new 2011 disclosure obligations. In particular, with the enactment of the Affordable Care Act (the “Act”), several new notices must be provided to plan participants. Many plan sponsors may want to consider including these new notices in the 2011 open enrollment materials that they send to employees.

Plans Required to Cover Preventive Health Services

Among the many changes made by the Affordable Care Act (“ACA”) is a requirement that group health plans (other than plans that are “grandfathered” under the rules described in our June 2010 article) provide benefits for a comprehensive list of preventive health services.  Moreover, these benefits must be provided on a first-dollar basis (i.e., subject to no deductible or co-payment) and with no other cost-sharing requirement (such as coinsurance).  This requirement applies as of the first plan year beginning on or after September 23, 2010.

The Fiduciary Corner: The Duty to Ask for a Better Deal

When is it appropriate to accept the sticker price listed on a product without asking the salesman for a better deal? Maybe never, at least if you’re a fiduciary of a $2 billion 401(k) plan spending the participants’ money, according to a federal court in California. (Tibble v. Edison International, 7/8/2010). That’s true even if an independent consultant advises you to buy the higher priced product.

Agencies Clarify “Grandfathering” Under Health Care Reform

One of the first things a sponsor of an employer health plan will want to do in response to health care reform is determine whether its plan qualifies for “grandfather” protection under the new law and, if so, whether preserving that grandfathered status makes sense. This agency guidance should help to make those important decisions.

Deadline Approaches for HEART Act Amendments

As we reported in our September 2008 article, most tax-favored retirement plans must be amended by the end of the 2010 plan year to reflect the mandatory provisions of the Heroes Earnings Assistance and Relief Tax Act (the “HEART Act”). A plan amendment is required for each of the following mandatory changes:

401(k) Compliance Questionnaire May Trap Unwary Plan Sponsors

Even employers that are not among the 1,200 sponsors of 401(k) plans that have been asked to complete this online questionnaire may want to do so on their own. The 69 questions provide an excellent outline of the compliance issues the IRS will be reviewing in the event the plan is ever audited.

Cafeteria Plan Changes

While the focus of the Affordable Care Act is clearly on the nation’s health insurance system the Act does include several rifle-shot changes to the Tax Code’s cafeteria plan rules.

Dependent Coverage Requirements (and Options)

Under the Affordable Care Act, group health plans providing coverage to dependent children will soon be required to make coverage available to a covered employee’s adult child until the child’s 26th birthday, even if the child is no longer a full-time student and even if the child can no longer be claimed as the employee’s “dependent” on the employee’s federal income tax return. This requirement to extend group health plan coverage until an adult child’s 26th birthday applies to both insured and self-insured plans (regardless of the plan’s status as a “grandfathered” plan), and is effective for plan years beginning after September 23, 2010 (i.e., January 1, 2011, for calendar-year plans).

Grandfathered Plans

In the weeks and months leading up to the enactment of the Affordable Care Act, one of the oftrepeated “campaign promises” made by promoters of the legislation was, “If you like your current health care coverage, you can keep it.” In keeping with the spirit of that promise, the Act includes provisions that exempt so-called “grandfathered” plans from some, but not all, of the benefit mandates in the Act. Unfortunately, the Act leaves many questions unanswered with respect to the application of these grandfather rules.

Health Care Reform: The Near Term

This newsletter is devoted entirely to articles concerning the recently enacted Patient Protection and Affordable Care Act. Check back often for updates on the status of health care reform.

Insured Health Plans Now Subject to Nondiscrimination Rules

Prior to enactment of the Affordable Care Act, employee health benefits provided through an insurance contract (i.e., fully insured benefits) were not subject to any income-based nondiscrimination requirements under the Tax Code. Thus, an employer could provide more generous health insurance benefits to executives or other highly compensated individuals through the purchase of individual or group insurance policies.

New Reporting and Disclosure Requirements

In addition to transforming the rules governing the benefits that health plans must offer, the Affordable Care Act substantially alters the way that plan sponsors and health insurers must describe and report those benefits. From new claim appeal procedures to standardized benefit summaries to additional governmental reporting, the Act will almost certainly increase administrative costs and complexities for employers. And like many other aspects of the Act, determining precisely how – and even when – to comply with some of the new reporting and disclosure obligations will be difficult. Although regulations will likely answer some of these questions, plan sponsors should start revising many of their procedures immediately. The following discussion summarizes seven of the Act’s most significant reporting and disclosure changes. Unless otherwise noted, these changes will apply to all plans, whether grandfathered or not. The new requirements are summarized in the order in which they become effective.

Short-Term Incentives for Expansion of Health Coverage

Although the key provisions of health care reform do not apply until 2014, the new law included a number of short-term measures designed to expand the number of individuals with health coverage. This article addresses three such program of particular interest to employers.

COBRA Premium Subsidy Extended Again

As had been widely anticipated, Congress has extended the 65% COBRA premium subsidy yet again. Under the “Continuing Extension Act of 2010,” the subsidy will now apply to involuntary terminations occurring on or before May 31, 2010 (rather than March 31, 2010).

Latest Extension of COBRA Premium Subsidy Comes with a Twist

As widely reported in the news media, the recent extension of unemployment insurance benefits included a one-month extension of the 65% COBRA premium subsidy. Under the “Temporary Extensions Act of 2010,” the subsidy will now apply to involuntary terminations occurring on or before March 31, 2010 (rather than February 28, 2010).

DOL Adopts Safe-Harbor Rule For Depositing Participant Contributions In Small Plans

For years, the Department of Labor (“DOL”) has focused much of its enforcement resources on delinquent deposits of participant contributions. Under the general rule set forth in existing regulations,
participant contributions to ERISA plans become plan assets “as soon as they can reasonably be segregated” from the employer’s general assets. The current regulations set outer limits on when participant contributions become plan assets (90 days for welfare plans; for retirement plans, 15 business days after the end of the month in which the employer either receives the amount or would have paid it in cash to the participant). However, we have always cautioned employers that the outer limits are not safe harbors. Employers cannot rely on them if it is shown that the employer could reasonably have segregated the contributions sooner.

DOL Releases Model CHIP Notice

As we reported in our February 2009 article, the Children’s Health Insurance Program Reauthorization Act of 2009 (“CHIPRA”) directed the Department of Labor (“DOL”) to draft model notices by which sponsors of employer group health plans could notify their employees of the premium assistance made available under both CHIP and Medicaid. The DOL has now issued a model notice that may be used for this purpose.

HEART Act Guidance Includes Some Surprises

In June of 2008, the Heroes Earnings Assistance and Relief Tax (“HEART”) Act became law. The Act made a number of significant changes to the treatment of military reservists under employee benefit plans. In an August 2008 article, we summarized those changes as they applied to qualified defined benefit and defined contribution plans, Section 403(b) plans, and Section 457(b) plans. In January of 2010, the IRS issued Notice 2010-15 (the “Notice”), which contains guidance on a number of the Act’s provisions. This article summarizes the most significant and surprising elements of that guidance, which apply to differential wage payments, “in-service” distributions on a reservist’s deemed severance from employment, and the Act’s mandatory death benefit provisions.

IRS Issues Guidance On Correcting Defects In Nonqualified Plan Documents

The American Jobs Creation Act of 2004 changed the landscape of compensation arrangements by adding Section 409A of the Internal Revenue Code, which imposes strict operational and documentation requirements on nonqualified deferred compensation arrangements. Section 409A applies to any plan, agreement, or arrangement that creates (in a given tax year) a legally binding right to compensation that is payable in a later year. Consequently, Section 409A applies to a wide variety of arrangements, including supplemental retirement programs, bonus plans, incentive compensation arrangements, employment agreements, severance agreements, and equity compensation

IRS Mandates Self-Reporting Of Welfare Plan Excise Tax

Years — and in some cases decades — after the enactment of excise taxes on violations of Tax Code provisions relating to employer health plans, the IRS has finally issued guidance on how those taxes are to be reported and paid. Significantly, the burden is now on employers and plan administrators to self-report these taxes. Failure to do so on a timely basis could lead to substantial filing penalties.

IRS Opens Determination Letter Program To Remaining Plans

Rounding out the final year of its first five-year cycle, the IRS has now opened its determination letter program for individually designed retirement plans to those plans falling within “Cycle E.” These are plans sponsored by employers whose employer identification number ends with either “5” or “0.”

Late COBRA Notice Voids Stop-Loss Coverage

A recent decision by an Illinois federal court (Majestic Star Casino, LLC v. Trustmark Insurance Co.) carries two important lessons for sponsors and administrators of self-funded health plans. Unfortunately for the plan sponsor involved in this case, those lessons came at a steep price — in the form of denied stop-loss claims.

Agencies Issue Regulations Under Mental Health Parity And Equity Addiction Act

Over a year after the Mental Health Parity And Equity Addiction Act (“MHPAEA”) was enacted (and after the statutory provisions took effect for most group health plans), the Departments of Labor, Health and Human Services, and Treasury have finally issued interim final regulations implementing the provisions of the MHPAEA. The regulations are welcome guidance for many plan sponsors who have thus far been forced to interpret the statutory requirements on their own.

DOL Updates Model COBRA Notices

As we reported in our December 2009 article, Congress and the President have extended the 65% COBRA premium subsidy enacted as part of the American Recovery and Reinvestment Act (“ARRA”). The maximum subsidy period is now 15 months (rather than 9), and the subsidy will now apply to COBRA coverage attributable to involuntary terminations occurring on or before February 28, 2010 (rather than December 31, 2009).

COBRA Premium Subsidy Extended to 15 Months

The Senate has now joined the House of Representatives in passing legislation to extend the federal government’s 65% COBRA premium subsidy. President Obama signed the bill into law on December 21, 2009. This date will therefore constitute the bill’s “enactment date,” to which many of the deadlines specified in the bill are tied.

Final Warning: Adopt Those PPA Amendments by Year-End

As reported in our August 2009 article, tax-qualified retirement plans must be amended by the end of the 2009 plan year to reflect the mandatory changes enacted as part of the 2006 Pension Protection Act (“PPA”). For calendar-year plans, this PPA amendment deadline is December 31, 2009. (Governmental plans have an additional two years, and certain collectively bargained plans may enjoy an extension, as well.)

Converting Unused Leave to Retirement Plan Contributions

In September of this year, the IRS issued official guidance on how employers may convert unused leave under a bona fide sick leave, vacation leave, or paid-time-off (“PTO”) program into contributions to a qualified, defined contribution plan (such as a profit sharing or 401(k) plan). Revenue Rulings 2009-31 and 2009-32 provide a virtual “roadmap” for how the value of unused leave (that might otherwise be forfeited each year or paid out in cash on termination of employment) may be used as a basis for making additional employer contributions, or in some cases, employee elective deferrals, to such a plan.

HHS Posts Online Breach Notification Form

As explained in our March 2009 and September 2009 articles, employer health plans and other “covered entities” are required to notify affected individuals and the Department of Health and Human Services (“HHS”) when they breach certain of the privacy requirements imposed by the Health Insurance Portability and Accountability Act (“HIPAA”). HHS has now posted on its website an online form by which such breaches may be reported to HHS.

Retirees Prevail in Cliam for Vested Health Benefits

Unlike pension benefits, ERISA does not ordinarily require any vesting of welfare benefits. Over the years, however, many court decisions have held that an employer can create a vested right to welfare benefits by taking affirmative steps that indicate an intent to provide vested benefits. A recent decision by the Third U. S. Circuit Court of Appeals (In re Unisys Corp. Retiree Medical Benefits ERISA Litigation) will make it easier for welfare plan participants to prevail on a claim that welfare benefits have vested.

Retirement Plan Limits Unchanged for 2010

Traditionally, the IRS has announced inflation-adjusted retirement plan limits in October, based on the inflation rate during the prior twelve-month period. This time, however, the IRS announcement was that these limits would not be decreased, despite an actual rate of deflation during the prior twelve months.

THE FIDUCIARY CORNER: No Judicial Deference if Claim Denial Is Untimely

We are occasionally reminded that the claims and appeals procedures carefully spelled out in ERISA plans have real meaning. Although the regulatory deadlines within which plan fiduciaries must render decisions on benefit claims and appeals may appear arbitrary – and although many plan administrators treat them as mere “guidelines” – the failure to abide by those deadlines can have disastrous consequences in court.

Update Your Rollover Notices for 2010

The IRS has finally updated the model “rollover notice” it issued in 2002. In fact, we now have two new models. Plan administrators will want to start using these new notices on or before January 1, 2010.

November 30 Deadline For Determining How To Handle 2009 Required Minimum Distributions

Under recent IRS guidance, sponsors of many defined contribution plans must decide, by November 30, 2009, how to handle required minimum distributions (“RMDs”) for the 2009 calendar year. Participants who have already received 2009 distributions that consisted of (or included) a 2009 RMD have until this same date to roll that RMD into an IRA or eligible retirement plan in a tax-free rollover.


On October 1st, three federal agencies issued a lengthy package of regulations under the Genetic Information Nondiscrimination Act of 2008 (“GINA”). Though it will take some time to digest this entire package, one point is abundantly clear: Health plan sponsors and their insurers should think twice –– if not three or four times –– before including questions concerning an individual’s family medical history in any health risk assessment (“HRA”).

HHS Issues Interim Final Rule On HIPAA Breach Notification

As we reported in our March 2009 article, the Health Information Technology for Economic and Clinical Health (“HITECH”) Act created a new notification requirement in the event of a breach involving protected health information (“PHI”). The Department of Health and Human Services (“HHS”) recently published interim final regulations clarifying when and how such breach notices must be provided.

Employer’s Aggressive Anti-Smoking Policy Survives Court Challenge – For Now

In a closely watched case pending in a Massachusetts federal court, Scotts LawnService has successfully defended its policy of refusing to hire anyone who smokes, even if they do so on their own time. The employer’s anti-smoking policy was just one component of a comprehensive wellness initiative. Employers across the country who are seeking judicial guidelines on the extent to which they can stretch wellness programs may find some comfort in this ruling, but they would be well advised not to place too much emphasis on it.

Amendment Deadline Looming for PPA Changes

The Pension Protection Act of 2006 (“PPA”) became law on August 17, 2006. It was one of the most sweeping retirement reform bills in recent history, mandating a host of changes for tax-qualified retirement plans. Most of these changes are already in effect – in some cases, for years. Accordingly, most sponsors have long since wrestled with the necessary changes to plan administration and are operating their plans in compliance with PPA’s requirements.

DOL Provides Reporting Relief for 403(b) Plans Subect to ERISA

The 2009 calendar year is a time of great change for employers sponsoring Section 403(b) tax-sheltered annuity plans. The first new IRS regulations in over 40 years, which became effective on January 1, 2009, have redefined a sponsoring employer’s roles and responsibilities with respect to these programs. Under those regulations, 403(b) plans must be maintained pursuant to a “written plan” (although, in separate guidance, the IRS has given plan sponsors until the last day of 2009 to have this “written plan” in place).

Participant Loan Extension Can Carry Unexpected Consequences

Many 401(k) and other employer retirement plans allow participants to borrow from their accounts. These loans can carry a number of advantages, including ready availability and a reasonable rate of interest. Moreover, if properly structured, a participant loan can be obtained (and repaid) on a tax-free basis.

REMINDER: 2010 Welfare Plan Changes Coming Soon

With annual enrollment season fast approaching, now is the time to consider 2010 welfare plan changes. We have discussed each of these changes in detail in past issues of Benefits in Brief. Thus, the following is just a brief reminder of the new requirements, with the relevant effective date for each . . .

THE FIDUCIARY CORNER: A Fiduciary Duty to Set Reasonable Executive Compensation?

When corporate executives also serve as ERISA fiduciaries for employee stock ownership plans (“ESOPs”), their business decisions may become subject to heightened legal scrutiny. That was the holding of the Ninth U.S. Court of Appeals in a recent case in which ESOP participants raised ERISA challenges to a CEO’s compensation package. The decision also upheld a California federal trial court’s ruling that barred the executives from using corporate assets to pay their defense costs. (Johnson v. Couturier, 7/27/09). Although this decision is at odds with holdings from the Eighth U.S. Circuit Court of Appeals (whose jurisdiction includes Missouri), it may nonetheless give ESOP fiduciaries pause when making certain business decisions.

Update – June 30 Filing Deadline for Those with Foreign Accounts, Hedge Funds and Mutual Funds

On June 30 we posted an item regarding the need for companies and individuals that have a financial interest in or signature authority over one or more foreign “financial accounts”, i.e., accounts that exceed $10,000 in the aggregate, to file an IRS Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) by June 30, 2009.

Department Of Labor Updates Guidance On ERISA Bonding Requirements

Part 4 of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) sets forth the rules that apply to fiduciaries of ERISA-covered employee benefit plans. These “fiduciary responsibility” rules include the requirement to hold plan assets in trust, a fiduciary’s duties of loyalty, prudence, diligence and diversification, and the prohibition on certain transactions between the plan and parties-in-interest.

IRS Announces 2010 HSA And HDHP Dollar Amounts

Assuming a health savings account (“HSA”) is paired with a high deductible health plan (“HDHP”), an individual’s contributions to the HSA are tax-deductible. Section 223 of the Tax Code specifies a maximum annual HSA contribution, as well as both a minimum annual deductible and a maximum annual out-of-pocket amount for an HDHP. These calendar-year amounts are subject to annual inflation adjustments, based on the increase in the consumer price index (“CPI”) during the 12-month period ending on the prior March 31st. This adjustment schedule allows each year’s dollar amounts to be known in advance of the annual enrollment period for that year. Based on the 2.8% increase in the CPI for the twelve months that ended March 31, 2009, the IRS has recently announced the HSA and HDHP dollar amounts for 2010.

IRS Permits Mid-Year Suspension of Safe-Harbor Nonelective Contributions

Since 1999, employers sponsoring Section 401(k) plans have been able to avoid ADP/ACP nondiscrimination testing (and the possibility of refunds to highly compensated employees in the event of a testing failure) by providing an annual notice to employees and making fully vested “safe-harbor” employer contributions. These “safe-harbor” contributions — which must be made on behalf of all eligible non-highly compensated employees — may be structured as either (i) matching contributions (which generally must total at least 4% of pay for those who defer at least 5% of pay) or (ii) non- matching contributions (referred to by the IRS as “nonelective” contributions) of at least 3% of pay.

IRS Provides Guidance On Automatic Enrollment

Earlier this year, the IRS finalized regulations it had proposed in November of 2007 on the subject of automatic enrollment in salary deferral plans. These final regulations respond to a number of comments on the proposed regulations. In addition, they reflect statutory changes made by both the 2006 Pension Protection Act (“PPA”) and the 2008 Worker, Retiree, and Employer Recovery Act (“WRERA”). They apply to “automatic contribution arrangements” under 401(k) plans, as well as similar arrangements under 403(b) and governmental 457(b) plans.

THE FIDUCIARY CORNER: Severance Plan Subject To ERISA Can Protect Employer

The economic recession has caused many employers to reevaluate their severance policies. We find that employers often strive to ensure that those policies do not amount to enforceable promises to provide similar benefits to similarly situated employees, but rather are non-ERISA, ad hoc arrangements. That strategy, however, may be short-sighted. A recent decision from a federal court in California serves as a reminder that ERISA-covered severance plans often give employers more protection than informal, “one-off” arrangements. (Pierce v. Wells Fargo Bank)

DOL Releases Application For Review Of COBRA Subsidy Denial

The February 2009 economic stimulus package included a temporary 65% federal premium subsidy for individuals becoming entitled to COBRA coverage due to an employee’s involuntary termination of employment. Congress recognized, however, that the purpose of this subsidy could be undermined if disputes between employers and their former employees as to the subsidy’s availability took months or even years to resolve. Accordingly, Congress provided that any such dispute would be resolved by a federal agency — the Department of Labor (“DOL”) for private employer plans subject to the federal COBRA provisions; the Department of Health and Human Services (“HHS”) for governmental plans and small insured plans covered by state “mini-COBRA” statutes. Moreover, these agencies are to resolve such disputes within 15 days.

DOL Issues Model COBRA Premium Subsidy Notices

The American Recovery and Reinvestment Act (“ARRA”) gave the Department of Labor (“DOL”) 30 days to draft and issue model notices for use by employers and insurers in complying with the COBRA-related provisions of that economic stimulus package. This 30-day period ended on March 19, 2009, with the DOL just barely meeting that deadline – by posting on its website four different model notices, along with an additional set of FAQs.

Dust Off Your HIPAA Hats: Major Changes to HIPAA Privacy and Security Rules Are on the Way

After a few years of relative calm after the “HIPAA storm,” it appears that clouds are on the horizon for employers, plan administrators, and business associates. In addition to the new COBRA subsidy requirements, another of the items included in the recent economic stimulus package (formally known as the American Recovery and Reinvestment Act, or “ARRA”) was a significant expansion of the HIPAA privacy and security rules. While Congress has given covered entities and business associates a bit more time than it gave employers to comply with the new COBRA rules, they should still act quickly to review and digest the new HIPAA requirements.

March 15 Deadline for Section 415 Amendments to Calendar Year Qualified Plans

If your company sponsors a retirement plan that is qualified under Section 401(a) or 403(a) of the Internal Revenue Code (such as a 401(k) plan, a profit sharing plan, or a defined benefit pension plan), your plan must periodically be amended for changes in the tax laws and/or the regulations governing such plans. Those changes include the final regulations under Code Section 415 (regarding the limit on annual additions to defined contribution plans and the limit on annual benefits payable under defined benefit plans).

CHIP Expansion Affects Employer Health Plans

Congress has recently expanded the Children’s Health Insurance Program (“CHIP”) in several significant respects. Many of these changes will directly affect employer-sponsored health plans by April 1, 2009.

Stimulus Act Alert – Immediate Action Necessary to Implement COBRA Subsidy Provisions

The American Recovery and Reinvestment Act of 2009, signed by President Obama on February 17, 2009, provides COBRA subsidies for eligible terminated employees and their beneficiaries. Employers who sponsor group health plans should immediately review the new COBRA subsidy

“CYCLE D” Determination Letter Program Now Open

Under the IRS’s determination letter program, all individually designed plans (i.e., those that are not maintained on either a prototype or volume submitter document) are on a 5-year cycle for renewing their determination letters. Plans in “Cycle D” may now file their determination letter applications. The deadline for filing these applications is January 31, 2010.

Stimulus Package Includes 65% COBRA Premium Subsidy

Among the items included in the recent economic stimulus package (formally known as the American Recovery and Reinvestment Act) is a temporary subsidy of COBRA premiums for involuntarily terminated employees. Although the Act omits language from the House bill that would have mandated an extension of COBRA coverage through age 65, it does require employers and other plan sponsors to facilitate this federal subsidy of COBRA premiums. The subsidy will cover 65% of the monthly premium, for a period of up to nine months.

New York AG Investigates Data Used to Determine Out-of-Network Reimbursement Rates

Many group health plans provide that reimbursement of “out-of-network” claims will be based on a percentage of the “reasonable and customary” (R&C) charges. In most cases, the determination of an R&C charge is based on data obtained from third-party sources. A new investigation by the office of the New York Attorney General (NYAG) should prompt plan administrators to take a second look at the source of such data

Required Minimum Distribution Relief: A Nightmare for Employers

In an effort to cushion the blow to retirement savings inflicted by the stock market crash, former President Bush signed the Worker, Retiree and Employer Recovery Act of 2008 (“WRERA” or the “Act”) on December 23, 2008. Although the Act provides some much-needed funding relief for sponsors of defined benefit plans, its attempt to help retirees under defined contribution plans will leave the sponsors of those plans reaching for a bottle of aspirin.

Supreme Court (Again) Says Plan Administrator May Rely on Beneficiary Designation

The U.S. Supreme Court has ruled that plan administrators may rely on the documents governing the plan, and have no duty to look beyond those documents, to determine the beneficiary of a deceased plan participant.

THE FIDUCIARY CORNER: Misleading Participants About Contributions Is a Bad Idea

Tough financial times may tempt struggling employers to fudge a little when it comes to making contributions to their retirement plans. A construction company owner in Michigan recently learned the hard way, however, that leading participants to believe that contributions have been made, when in fact they haven’t, is a bad idea. (Safran v. Donagrandi, E.D. Mich. 1/30/09).

Lilly Ledbetter Fair Pay Act Becomes Law

President Obama signed today The Lilly Ledbetter Fair Pay Act of 2009. Congress passed the Act in response to the U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). Lilly Ledbetter was an employee of Goodyear from 1979 until 1998 in Gadsden, Alabama. Because of discriminatory evaluations by supervisors in her early years of employment, Ledbetter had consistently received lower raises. By the end of her employment, this resulted in her receiving between seventy and eighty-five percent of the salary her male colleagues earned.

December 31 Deadline for Section 409A Amendments

As noted repeatedly in the pages of this publication, the IRS has established a deadline of December 31, 2008, for coming into full documentary compliance with the requirements of Section 409A of the Internal Revenue Code. By this date, all plans and arrangements providing “deferred compensation” in return for the provision of services must be amended to comply with the various constraints imposed by Section 409A.

Definition of Dependent Continues to Evolve

Employer-provided family health coverage is generally tax-free to employees so long as the employee’s covered family members can be claimed as dependents on the employee’s federal income tax return. A taxpayer may claim another individual as a “dependent” for federal income tax purposes only if that person is the taxpayer’s “qualifying child” or “qualifying relative” under Section 152 of the Internal Revenue Code.

DOL Finalizes Safe Harbor for Annuity Selection

Section 401(k) plans are not required to offer annuity distribution options – and most do not. Instead, participants are typically offered a lump-sum payment and, perhaps, a range of installment options. Of those few 401(k) plans that do offer annuity options, only a tiny fraction of retirees select them. Nonetheless, there is now a trend toward encouraging sponsors to offer annuity options. In this regard, both Congress and the Department of Labor have taken steps to insulate sponsors from fiduciary liability in the event the issuer of such an annuity becomes insolvent.

Mental Health Parity Laws Expanded

Most plan sponsors have become familiar with the provisions of the Mental Health Parity Act of 1996 (“MHPA”). The MHPA required group health plan sponsors to eliminate certain annual caps and lifetime limits on mental health benefits. Notwithstanding the MHPA, however, many plan sponsors continued to impose reduced coinsurance limits and frequency limitations on mental health benefits. Now, as part of the emergency economic stabilization legislation that was signed by President Bush on October 3, 2008, the mental health parity rules have been expanded significantly.

THE FIDUCIARY CORNER: The Perils of 401(k) Brokerage Windows

The analysis of a federal district judge last year in a decision dismissing a class action complaint that challenged Deere & Co.’s 401(k) fee practices generated a great deal of excitement about 401(k) brokerage windows. The court seemed to imply that the existence of such an investment portal – through which participants may invest their plan accounts in almost any mutual fund or security – insulated the plan sponsor from claims that the plan’s core funds were too expensive or otherwise imprudent. That analysis is currently being tested as the parties appeal the judge’s decision. It has also drawn a cool reception from the Department of Labor.

2009 Dollar Amounts Announced

The annual limit on compensation a qualified retirement plan may consider for each participant will increase from $230,000 to $245,000. The maximum amount a defined benefit plan may annually pay to a participant will increase to from $185,000 to $195,000. Defined contribution plans, of course, have no limits on annual payouts, but the maximum annual additions to a participant’s accounts rises to $49,000 in 2009.

Electronic Distribution of SPDs

More and more employers are choosing to post employee handbooks and related documents on the employer’s intranet site. In many respects, this is an elegant solution to the problem of ensuring that the latest version of each such document is readily and conveniently available to all employees. Updates can be made electronically — and incorporated directly into the text of the document — so that employees can always access a single document containing all of the latest provisions. Unfortunately, employers who rely solely on their intranet sites for distributing a Summary Plan Description (“SPD”), as required for each ERISA plan, may find that this approach carries a costly downside.

HEART Act Changes Retirement Plan Rules for Military Reservists

In June, the Heroes Earnings Assistance and Relief Tax (“HEART”) Act became law. The Act makes a number of significant changes to the treatment of military reservists under employee benefit plans. This article summarizes those changes as they apply to qualified defined benefit and defined contribution plans, Section 403(b) plans, and Section 457(b) plans.

Medicare Part D Notices Revised (Again)

The Medicare Part D regulations issued by the Centers for Medicare and Medicaid Services (“CMS”) require group health plans providing prescription drug coverage to Part D-eligible individuals to disclose to participants whether the coverage is “creditable” — that is, at least as good as Medicare Part D coverage. Plans must send these notices to participants each fall, prior to the beginning of the initial enrollment period for Medicare Part D coverage.

New Rules Proposed for Fee Disclosures to Participants in Individual Account Plans

On July 23, 2008, the Department of Labor issued proposed regulations setting forth the information that plan fiduciaries will soon be required to provide (and the manner in which such information must be provided) to participants who are allowed to direct the investment of their accounts in defined contribution plans. This is the third and final piece of guidance in a three-part initiative by the DOL (starting with regulations finalized in November 2007 regarding Form 5500 reporting, and followed by regulations proposed in December 2007 on the information service providers must disclose to plan sponsors) designed to improve the transparency of fees and expenses in participant-directed defined contribution retirement plans (such as 401(k) plans and 403(b) arrangements) that are subject to ERISA.

Genetic Discrimination Law Passed

On May 21, 2008, the President signed the Genetic Information Nondiscrimination Act of 2008 (“GINA”). The new law prohibits discrimination on the basis of genetic information in health insurance and employment. The provisions applicable to group health plans and health insurance issuers are effective for plan years beginning on or after May 21, 2009.

Plan Amendments to Comply with Final Regulations Under Code Section 415: The Sooner The Better

On April 5, 2007, the IRS and the Department of Treasury issued final regulations regarding the limitations, under Section 415 of the Internal Revenue Code (the “Code”), on contributions and benefits under qualified retirement plans. Although plan sponsors generally have until the due date (including extensions) of their 2008 tax return to amend their plans to comply with these regulations, there are very good reasons to amend plans before that deadline. In many cases, the sooner the better!

The Clock is Ticking! 409A Compliance Deadline Approaches

Employers are reminded that all plans, arrangements or agreements (other than tax-qualified retirement plans) that defer compensation must fully comply with the final regulations under Internal Revenue Code Section 409A by December 31, 2008!

THE FIDUCIARY CORNER: Rollovers to Plan Service Providers Present Fiduciary Concerns

Plan sponsors and retirement plan service providers each have reason to be concerned about a recent decision in an ERISA lawsuit pending before a federal court in Iowa. That decision allowed former participants in two separate 401(k) plans to proceed with their claims that the Principal Financial Group, the third-party service provider for each plan, breached its fiduciary duties by encouraging retired participants to roll their plan accounts into high-cost IRA products affiliated with Principal. (Young v. Principal Financial Group, Inc.) Although the court rejected one of the participants’ theories of relief on the grounds that they did not have standing to pursue it, a second theory survived.

IRS Guidance on Distribution Changes Effective in 2008

The IRS recently issued Notice 2008-30 (the “Notice”), which provides guidance on three distribution-related provisions of the Pension Protection Act of 2006 (“PPA”) that are first effective in 2008, as well as a distribution requirement introduced by final regulations under Section 402(g) of the Internal Revenue Code (the “Code”) that first applies to corrective distributions made during 2008.

Court Upholds Fired Smoker’s Right to Pursue ERISA Claim for Interference

Employer wellness programs are often touted as part of the answer to rising health insurance costs. However, a recent federal district court decision suggests that employers must tread carefully when seeking to control health insurance costs by policing employees’ conduct outside of work.

Labor Department and Congress Focus on Disclosure of 401(k) Fees

There has never been greater attention in Washington, D.C. to the issue of fees charged to individual participants in 401(k) plans, how those fees are shared among a plan’s service providers, and the disclosure of those fees/revenue sharing arrangements to plan sponsors and plan participants.

THE FIDUCIARY CORNER: Fiduciary Liability After LaRue

As we reported in our last issue of Benefits in Brief (Volume 2008, No. One, p. 1), the Supreme Court’s latest foray into ERISA left open many questions about the liability of ERISA fiduciaries and the remedies available to plan participants. In LaRue v. DeWolff, Boberg & Assocs., the Court opened the door for individual participants in defined contribution retirement plans (e.g., 401(k) plans) to sue for losses suffered in their own accounts. Although the Court’s ruling allowed Mr. LaRue to proceed with his claim against his employer, it did not decide whether his employer was, in fact, an ERISA fiduciary which could be liable for Mr. LaRue’s alleged losses.

Missouri Extends Dependent Eligibility Age for Health Insurance

Effective January 1, 2008, the Missouri Insurance Code was amended to require all group health, dental, and vision insurance policies to offer continued coverage to dependents up to age 25, regardless of student status. Though the law is likely preempted by ERISA for any self-funded health plan, employers whose plans are fully insured must comply. For the most part, insurance carriers have already taken the steps necessary to amend their insurance policies issued to Missouri employers.

“CYCLE C” Determination Letter Program Now Open

Under the IRS’s determination letter program, all individually designed plans (i.e., those that are not maintained on either a prototype or volume submitter document) are on a five-year cycle for renewing their determination letters. Plans in “Cycle C” may now file their determination letter applications. The deadline for filing these applications is January 31, 2009.

Be Careful What You Promise

A major insurer learned, to its chagrin, that it doesn’t pay to include soothing words in a summary plan description (“SPD”) unless those words are actually acted upon. The result in Rosenberg v. CNA Financial Corp. was potential liability for nearly $5 million in severance benefits that were clearly not payable under the terms of the plan.

THE FIDUCIARY CORNER: The Duty to Collect Delinquent Contributions

In a Field Assistance Bulletin issued February 1, 2008 (FAB 2008-01), the Department of Labor highlighted a problem that apparently is pervasive in retirement plan and trust documents: confusion over the responsibility to collect delinquent contributions. Recent DOL investigations uncovered plan and trust documents that neglected to assign responsibility for monitoring and collecting contributions, and some that even purported to relieve all of the plan’s fiduciaries from this responsibility. This guidance cautions that plan fiduciaries who ignore delinquent contributions do so at their own peril. Employers should review their documents carefully in light of this Bulletin, to make sure that these responsibilities are properly assigned.

Supreme Court Ducks Tough Questions in Latest ERISA Ruling

Like almost 70 million other Americans, James LaRue elected to save money for retirement through his employer’s 401(k) plan. When administrative errors reduced his account balance by nearly $150,000, Mr. LaRue sued his employer in federal court under ERISA to recover that amount. Initially, he lost. In a decision handed down on February 20, 2008, however, the United States Supreme Court resurrected his claim, in an apparent victory for Mr. LaRue and similarly situated 401(k) plan participants. (LaRue v. DeWolff, Boberg & Associates, Inc.) Unfortunately, the Supreme Court’s decision raises more questions than it resolves.

Careful QDRO Crafting Is Critical

A recent case from Kentucky illustrates the importance of careful drafting of the terms of a qualified domestic relations order (“QDRO”). In Braehler v. Ford Motor Co., U.A.W. Retirement Plan, the court dismissed a claim brought by the second wife of a former Ford employee for a portion of the survivor benefits provided by his retirement plan.

DOL Issues Final Rules For Qualified Default Investment Alternatives

The Pension Protection Act of 2006 (“PPA”) amended ERISA to provide fiduciary relief for certain default investments when plan participants do not provide investment direction. The DOL has now issued final regulations, which will take effect on December 24, 2007, under which plan sponsors may enjoy a “safe harbor” from certain fiduciary liability. The final regulations provide that participants and beneficiaries in individual account plans will be treated as exercising control over the assets in their accounts if, in the absence of their investment directions, the plan invests in a “qualified default investment alternative” (“QDIA”). Provided that the plan invests in a QDIA, the plan fiduciary will not be liable for any investment losses that are the direct and necessary result of investing all or part of a participant’s or beneficiary’s account in any QDIA.

IRS Issues Further Section 409A Relief

Coming close on the heels of Notice 2007-78 – which extended the deadline for amending nonqualified deferred compensation arrangements to reflect the requirements of Internal Revenue Code Section 409A – the IRS has now issued three additional Notices granting further relief in this area.

IRS Releases Model 403(b) Plan Document

As promised in the final Section 403(b) regulations, the Internal Revenue Service has now released a “model” 403(b) plan document suitable for adoption by any public school. This model language, along with guidance concerning the proper adoption procedures, is contained in Revenue Procedure 2007-71.

RIF’d in Peace: IRS Rules on Partial Termination of Retirement Plans

Major corporate events (such as mergers, acquisitions, reductions-in-force, and plant closings) have long presented a special problem for retirement plan sponsors. Under the Tax Code, if employee turnover results in a “partial termination” of a qualified plan, the sponsor must fully vest all affected participants in the benefits they have accrued under the plan. Unfortunately, vague and anecdotal IRS guidance on precisely when such a partial termination occurs has left sponsors unsure of when they must take the costly step of fully vesting terminated participants.

Why ERISA Was Enacted

It’s sometimes tempting to conclude that ERISA imposes unnecessary duties on plan fiduciaries – but then we see a case that confirms Congress’ wisdom in creating those duties. Such a case was recently decided by an Alabama federal court. The decision in this case, Cromer-Tyler v. Edward R. Teitel, M.D., P.C., serves as a roadmap for what plan fiduciaries should not do in administering a retirement plan.

Most Missouri Employers Must Offer Cafeteria Plans

Missouri has followed the lead of Massachusetts and a handful of other states in mandating that most employers establish a cafeteria plan through which their employees may pay their health insurance premiums on a “pre-tax” basis. This cafeteria plan mandate is just one aspect of the “Missouri Health Insurance Portability and Accountability Act” (or “Missouri HIPAA”), as enacted by the Legislature during its 2007 session.

THE FIDUCIARY CORNER: Eighth Circuit Says No Finger Pointing Among Fiduciaries

It’s a practice first developed in the early stages of life, witnessed countless times by the parents of young children, and frequently associated with a distraught youngster wailing something like “It wasn’t my idea, Dad; it was his fault.” Such blame-shifting is so ubiquitous it has even found a place in the American judicial system.

IRS Finalizes 403(b) Regulations

It would be hard to accuse the IRS of moving too hastily when it comes to issuing regulatory guidance under Section 403(b) of the Tax Code. The IRS issued comprehensive regulations governing “tax-sheltered annuities” (or “TSAs”) in 1964.

DOL Guidance on Pension Benefit Statements Delayed

The Pension Protection Act (“PPA”) imposed many new disclosure requirements, including expanded benefit statements for defined contribution and defined benefit plans. Many plan sponsors have been expecting model benefit statements by August 18, 2007, the deadline set by the PPA. Unfortunately, however, the Department of Labor has informally announced that it will not meet that deadline.

IRS Reproposes Cafeteria Plan Regulations

The Internal Revenue Service has withdrawn several sets of proposed and temporary regulations under Section 125 of the Tax Code (some dating back to 1984) and then reproposed those regulations in a substantially reorganized format.

A Survey of State Health Care Reform

In last month’s issue of Benefits in Brief, we examined the ERISA preemption issues raised by state health care reform. This month, we continue our survey of state health care reform by examining the universal coverage programs of three New England states – Massachusetts, Vermont, and Maine. Each state’s legislation takes a distinct approach, with quite different implications for employers.

Court Upholds EEOC’s Right to Exempt Medicare Coordination from ADEA Claims

After protracted litigation, the Third U.S. Circuit Court of Appeals has finally upheld regulations issued by the Equal Employment Opportunity Commission (“EEOC”) allowing employers to reduce, change, or even eliminate retiree health coverage when retirees become eligible for Medicare.

THE FIDUCIARY CORNER: Supreme Court to Decide Scope of Fiduciary Relief

Imagine that you are a 401(k) plan participant who, over the course of many years and at a significant sacrifice to your take-home pay, has accumulated a hefty account balance. As your retirement date approaches, you decide to move your plan balance from the moderately aggressive equity funds in which it had been invested to a conservative money market fund. You fill out the on-line account transfer request, sit back, and contemplate the hammock and mystery novel awaiting you on the beach after retirement

Collision Course: ERISA Preemption and State Health Care Reform

Health care reform is shaping up to be a hot topic in the 2008 Presidential election. Several states, however, have decided to move ahead with their own reform programs rather than wait for a federal solution.

IRS Finalizes Guidance on Roth 401(k) Distributions

When the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”)created the concept of a “Roth 401(k) contribution,” things got off to a slow start. For one thing, it was not at all clear how the Roth IRA concept, which has been around for some time, would be transplanted to an employer-sponsored plan.

Supreme Court Rejects Merger as Means of Plan Termination

The United States Supreme Court unanimously rejected the notion that a defined benefit plan sponsor must consider merging its plan with another retirement plan as a method of plan termination. Siding instead with the position taken by the plan sponsor, as well as the Department of Labor and PBGC, the Court ruled on June 11, 2007, that ERISA does not permit merger as a method of plan termination, because merger is an alternative to, rather than an example of, termination. Beck v. PACE International Union.

“Good Reason” to Read Final 409A Regulations

The final Section 409A regulations address a concern raised by many employers and their advisors after reading the proposed regulations: the uncertainty concerning the effect of provisions in employment agreements, severance plans, and the like entitling an executive to receive deferred compensation on a voluntary resignation for “good reason.”

New Rules on Deferrals From Post-Severance Compensation

In April, the IRS issued final regulations under Section 415 of the Internal Revenue Code (the “Code”). These regulations finalize rules proposed in May of 2005 and represent the first comprehensive overhaul of the Section 415 rules since 1981. For sponsors of defined contribution plans, one of the most newsworthy of the many changes is a revamping of the rules governing deferrals from compensation an employee receives after terminating employment.

THE FIDUCIARY CORNER: Identifying Fiduciaries – The Ministerial Function Exception

Not everyone who has a role in the administration of an ERISA plan is a “fiduciary” under the Act’s special definition of that term. Even those who process claims and calculate benefits may be excluded from this category, so long as they do so within a framework of policies and procedures made by others. And not being a fiduciary is significant, because those on the outside of the fiduciary circle are not subject to the special obligations and personal liability that attaches to those on the inside.

THE FIDUCIARY CORNER: Fiduciary Liability for Delinquent Contributions

Failing to make required contributions to a multiemployer benefit plan can become a matter of fiduciary liability in some circumstances. And according to a federal court in Connecticut, that liability attaches personally to company executives who control the corporate checkbook. (Trustees of Connecticut Pipe Trades Local 777 Health Fund v. Nettleton Mechanical Contractors, Inc. (March 15, 2007)). 

Save Envelopes to Save a Bundle on COBRA

A recent case in Pennsylvania illustrates the importance of understanding and documenting when COBRA premium payments are made.

IRS Finalizes Section 409A Regulations

As we go to press, the IRS has just issued final regulations under Section 409A of the Tax Code.

Top-Hat Primer

Since Congress enacted sweeping new legislation governing nonqualified deferred compensation arrangements two years ago (in the form of Tax Code Section 409A), the focus of the benefits community has been on how those arrangements are treated for tax purposes.

Wal-Mart Hit with Class-Action Over 401(k) Plan

Plaintiffs’ attorneys have filed a purported class-action lawsuit class action lawsuit against Wal-Mart and the fiduciaries of its 401(k) retirement plan.

401(k) Plans In The Cross-Hairs

A recent spate of litigation involving 401(k) plan fees has drawn the attention of employers, the media, and Congress. At issue in these cases is hundreds of millions of dollars in potential liability, and also the very backbone of the retirement plan industry. Employers can expect more scrutiny of their plans from employees and, in some unfortunate circumstances, from plaintiffs’ attorneys.

Court Faults Employer for LTD Enrollment Glitch

A recent decision by a Utah federal court serves as a reminder that fully insured welfare plans actually achieve their goal of transferring an employer’s risk to an insurer only if the employer meets its fiduciary obligations during the enrollment process.

Deadline Approaching for Small Plans to Remind Participants of Availability of HIPAA Privacy Notice

To many group health plan sponsors, the distribution of the ‘Notice of Privacy Practices’ required by HIPAA’s privacy regulations (the ‘Privacy Rule’) may be no more than a distant memory. Well, dust off those HIPAA privacy notices because, according to the Privacy Rule, ‘No less frequently than once every three years, the health plan must notify individuals then covered by the plan of the availability of the notice and how to obtain the notice.’

District Court Declines to Dismiss Kraft 401(k) Fee Case

In an opinion dated March 16, a judge for the Southern District of Illinois ruled against defendants’ motion to dismiss claims that they breached their fiduciary duties by permitting the Kraft Foods 401(k) plan to charge excessive and undisclosed fees. The court also refused to strike or order clarification of portions of the complaint that defendants claimed were lengthy and ambiguous, but did grant defendants’ motion to transfer the case to the Northern District of Illinois.

The Clock Is Ticking: Prepare Now for New Multiemployer Plan Funding Rules

The Pension Protection Act of 2006 (‘PPA’) contains dozens of changes to multiemployer pension plan funding standards, most of which are effective for plan years beginning in 2008. Many of these provisions are applicable to all multiemployer plans, but Congress also included important relief for the construction industry. Employers, unions, and trustees of multiemployer plans should begin preparing now to meet the new standards.


Don’t have enough reading material on your night stand? Try adding your ERISA bond to the pile of murder mysteries; it’s a quick read, and you’ll be glad you did. Just ask the trustees of the Colorado Operating Engineers Health and Welfare Fund.

DOL Issues Interim Guidance on PPA-Mandated Benefit Statements

Before this year, retirement plans typically had to provide benefit statements only when participants or beneficiaries (“participants”) requested them. Through the Pension Protection Act of 2006 (the “PPA”), however, Congress has established an affirmative obligation on the part of retirement plans to provide participants with periodic benefit statements, whether participants request them or not.

IRS Releases PPA Distribution Guidance

As we reported in our November issue of Benefits in Brief, many provisions of last year’s Pension Protection Act (“PPA”) became effective on January 1, 2007. The IRS has now issued a “grab bag”of guidance on certain of those provisions, primarily dealing with distribution issues.

New Law Enhances HSA Flexibility

Before the 109th Congress rode into the sunset, it gave the benefits world a parting gift: the Tax Relief and Health Care Act of 2006. This law adds substantial new flexibility to health savings accounts (“HSAs”) that many employers may find attractive.

Final HIPAA Nondiscrimination and Wellness Regulations Issued

Over five years after regulations were first proposed, the Departments of the Treasury, Labor, and Health and Human Services have finally issued final HIPAA nondiscrimination and wellness program regulations. While the final regulations clarify certain aspects of the 2001 interim and proposed regulations, other questions remain unanswered.

New Litigation Rules Will Affect Claims Processing

Changes to the federal rules governing civil litigation will affect the way that benefit claims and appeals are processed. While third-party claims administrators will be most directly affected, plan sponsors and their human resources staff should also be aware of the new rules. Failure to abide by them could make it more difficult to succeed if claim decisions are challenged in court.

THE FIDUCIARY CORNER: Plan Language Governs Whether Beneficiary Designation Forms Must

It’s a scenario that occurs all too frequently for 401(k) plan administrators: a participant completes a beneficiary designation form naming his current wife as beneficiary, then is divorced, subsequently fills out another beneficiary designation form naming someone else as his beneficiary, but omits information required by the form. Must the administrator honor the new beneficiary designation, or is the former spouse entitled to the plan’s death benefit? The answer lies in the language of the plan.

IRS and CMS Release 2007 Dollar Amounts

As expected, many benefits-related limits will increase in 2007 from their 2006 levels due to inflation indexing. The same is true for dollar amounts relevant to Social Security and Medicare benefits. Another important development is that in 2007 Medicare Part B premiums will be income- tested for the first time.

Assignment of Income Doctrine Constrains Employer Leave-Sharing Programs

Citing Supreme Court decisions from the first half of the twentieth century, the IRS has developed and applied the “assignment of income” doctrine. Under this doctrine, an employee’s assignment to another person of his or her right to receive compensation does not relieve the employee of tax liability for the assigned income.

Coming Soon to a Retirement Plan Near You: Selected Provisions of the Pension Protection Act

As you probably already know, President Bush signed the Pension Protection Act of 2006 (the “PPA”) into law on August 17, 2006. Some PPA provisions became effective as of the date of enactment; others preserve existing laws that were set to expire in 2010; and still others are not effective until mid-2007 or 2008. This article summarizes some of the important provisions of the PPA that are effective as of plan years beginning on or after January 1, 2007 – or which apply to distributions, notices, or other events that will occur on or after that date.

DOL Issues Proposed Regulations on Default Investments

The Pension Protection Act of 2006 (PPA) made several changes intended to facilitate automatic enrollment plans, including new ERISA Section 404(c)(5), which provides fiduciary relief for certain default investments under participant-directed individual account plans.

THE FIDUCIARY CORNER: Mistakes Aren’t Necessarily Fiduciary Breaches

In a ruling that comes as good news to pension plan administrators, the United States Court of Appeals for the Eighth Circuit (whose jurisdiction includes Missouri) recently confirmed that erroneous benefit estimates generally do not amount to breaches of fiduciary duty under ERISA.

401(k) Fee Practices Challenged

As we first reported in a Benefits Alert! e-mail blast several weeks ago, a series of ten class action lawsuits filed in recent weeks challenges the fee structure employed by most 401(k) plans. These cases attack investment-related fees paid by plans to service providers, including revenue sharing arrangements between plans, mutual funds, and recordkeepers.

HIPAA Again? The National Provider Identifier Rule

After years of compliance efforts relating to the electronic transaction rules, privacy rules, and security rules under the Health Insurance Portability and Accountability Act (HIPAA), yet another requirement looms on the horizon.

IRS Grants Further Relief Under Section 409A

With the December 31, 2006, amendment deadline fast approaching – and with no final regulations in sight – the IRS has again extended the deadline for documentary compliance with the requirements of Section 409A of the Internal Revenue Code. Notice 2006-79 extends this deadline by another full year, to December 31, 2007.

THE FIDUCIARY CORNER: Employee Handbooks May Increase ERISA Risk

In addition to summary plan descriptions that describe benefits offered to employees, employers often describe such benefits – along with dress codes, vacation policies, and other employment rules – in employee handbooks. Doing so, however, can create additional fiduciary risk.

Cash Balance Plans: A Return to Polite Society

The short history of cash balance plans has been a tale of extremes. Once the darling of consultants, cash balance plans became something of a pariah after a wave of lawsuits cast doubt on their legality.

No Top-Hat Plan When Sales Clerk Permitted to Participate

A nonqualified deferred compensation plan can be an important part of an employer’s overall compensation program. Unlike qualified retirement plans, which limit benefit amounts and require broad coverage, nonqualified plans provide a virtually unlimited opportunity to defer income and may be targeted to key individuals. Additionally, nonqualified plans are generally exempt from ERISA’s fiduciary, funding, and vesting requirements.

PPA Preempts State Wage Laws to Encourage Automatic Employee Deferrals

Under an automatic enrollment feature, employees accumulate retirement savings through payroll deduction by default – unless they make an affirmative election to opt out of the program. For the past several years, in keeping with the federal government’s efforts to shore up the nation’s retirement savings, government agencies have actively encouraged such arrangements under employer-sponsored defined contribution plans.

THE FIDUCIARY CORNER: Firestone Language Belongs in Plan, Not SPD

For nearly 17 years, plan fiduciaries have known that their decisions on benefit claims will be treated with deference by courts that review those decisions – so long as the governing plan documents clearly grant the fiduciaries the discretionary authority to interpret the plan. This rule of judicial deference, under which a court will overturn a fiduciary’s interpretation only if it was “arbitrary and capricious,” has its roots in the U.S. Supreme Court’s ruling in Firestone v. Bruch. If a plan does not clearly grant this discretion to its fiduciaries, a court is free to take a “fresh look” at a benefit decision, without giving any deference to the fiduciary’s interpretation of the plan (a “de novo” review).

Employer Deemed Plan Administrator and Fined After Failing to Provide Plan Information

ERISA guarantees plan participants and beneficiaries the right to request and receive certain information about their plans. If the plan administrator receives such a request and fails to respond within 30 days, ERISA authorizes the federal courts to impose statutory penalties on the administrator. According to a recent district court decision, those penalties may be assessed against the plan sponsor – even if the plan identifies someone else as the plan administrator – when the identity of the plan administrator is unclear and the sponsor either “acts like” the plan administrator or makes it difficult for participants to locate the plan administrator.

New Executive Compensation Disclosure Rules Require Significant Changes

Final rules adopted by the Securities and Exchange Commission on July 26, 2006, will require companies with publicly-traded securities to significantly alter the way that they disclose their executive compensation practices in proxy and registration statements. These rules are generally designed to require the disclosure of all of the compensation that executives receive. They expand the list of executives for whom disclosures must be made, substantially modify the format and content of the required disclosures, and place heightened scrutiny on options-granting practices.

New Guidance on Automatic Substantiation of Debit Card Payments Under Flexible Spending Accounts

The IRS has issued additional guidance regarding the use of debit cards, credit cards, and stored value cards for flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs). The new rules may spark a renewed interest among employers in offering an electronic payment card feature with their FSAs and HRAs.

THE FIDUCIARY CORNER: Failure to Distribute SPD Makes Sponsor Liable For Benefit

Long-standing ERISA regulations require plan administrators to distribute summary plan descriptions (SPDs) to individuals within 90 days after they become plan participants.

DOL Issues Guidance on Mutual Fund Settlement Distributions

The Department of Labor (“DOL”) recently issued guidance regarding the distribution and allocation of mutual fund settlement payments made to employee benefit plans and their participants. This guidance is directly related to SEC enforcement actions alleging late trading and market timing activities. As a result of these actions, numerous mutual funds have established settlement funds.

DOL Facilitates Distributions To Missing DC Plan Participants

In the context of final regulations concerning abandoned defined contribution plans (so-called “orphan plans”), the Department of Labor (“DOL”) has also clarified its 2004 guidance on the permissible means of distributing accounts of participants and beneficiaries who cannot be located at the time of a plan’s termination.

THE FIDUCIARY CORNER: Fiduciaries Must Read Insurance Policies

Fiduciaries who rely on insurance brokers for an explanation of policy language should think twice before merely paraphrasing that explanation for participants and beneficiaries. Not only do fiduciaries have a duty to understand a policy’s coverage, they also must accurately describe that coverage. If the broker’s summary proves to be inaccurate or incomplete, the fiduciaries may be liable.

Third Party Administrator’s Review Of Appeal Violates ERISA Appeals Procedures

Under ERISA’s claims and appeals regulations, participants and beneficiaries are entitled to a “full and fair” review process. In St. Joseph’s Hospital of Marshfield Inc. v. Carl Klemm Inc., a federal district court in Connecticut ruled that a plan beneficiary was not given a full and fair review when the plan’s third-party administrator (“TPA”) made both the initial decision to deny benefits and the appeal determination.

DOL and IRS Update Voluntary Correction Programs

The Department of Labor and the Internal Revenue Service recently modified their voluntary correction programs to make it easier for plan sponsors and fiduciaries to remedy certain violations. The modifications affect the DOL’s Voluntary Fiduciary Correction Program (“VFCP”) and the IRS’s Employee Plans Compliance Resolution System (“EPCRS”).

IRS Issues Sample ROTH 401(K) Amendment

The IRS has issued sample language by which a 401(k) plan sponsor may adopt a “Roth” feature for the plan. A Roth 401(k) feature allows employees to make after-tax contributions to the plan, but then receive a distribution of those contributions and earnings on a tax-free basis. This option may be of particular interest to younger employees, or to highly compensated employees who expect to remain in a relatively high tax bracket following their retirement.

Supreme Court Charts Path To Recovery Under Welfare Plan Reimbursement Provisions

The Supreme Court has just made it easier for ERISA welfare plans to recover from participants who refuse to honor their plans’ reimbursement provisions. Resolving a question that has divided the federal circuit courts of appeals, the Court held in Sereboff v. Mid-Atlantic Medical Services that — under the right plan language and the right facts — a welfare plan’s action to recover such funds constitutes “equitable” relief and is therefore permissible under ERISA. And while the subtleties of the Court’s reasoning might not make spellbinding reading, they nonetheless contain an important message for employers who sponsor such plans.

THE FIDUCIARY CORNER: Microsoft Language Defeats Independent Contractor’s Claim

Plan sponsors who are worried about increasingly common claims for benefits filed by independent contractors recently received support from a federal court in New York. In the late 1990s Microsoft was held liable for failing to provide health and retirement benefits to a group of independent contractors who claimed that they should have been classified as common-law employees. Reacting to that holding, many employers added special “Microsoft” clauses to their plan documents in an effort to avoid a similar result. Typically such clauses are found in the definition of “eligible employee,” excluding from that term individuals who are treated in good faith by the sponsor as independent contractors, regardless of whether they are later reclassified as employees.

Are You Ready For SEC Redemption Fee Rules?

Market timing and other short-term trading patterns impose costs on mutual funds by disrupting management, forcing funds to maintain excessive liquidity, and driving up tax expenditures.

Case Highlights Importance of Adequate Cobra Notice Procedures

The method of delivering required COBRA notices is always a popular topic among plan administrators. COBRA contains no specific requirements as to the manner in which notice must be given. Generally, however, the plan administrator’s good faith effort to notify the participant, by mailing a notice to the participant’s last known address, is sufficient.

DOL Modifies Exemption for Loans Made to Plans

Many sponsors of employee benefit plans have found it necessary to lend money to a plan, as a way of easing a liquidity problem or otherwise facilitating the plan’s operation. Such loans have occurred in the context of failed insurance companies, other illiquid assets, or delays in the disbursement of distributions by plan trustees or custodians. Because a plan sponsor is a “party-in-interest,” however, such a loan constitutes a “prohibited transaction” under both ERISA and the parallel Tax Code provisions.

IRS Issues Final Relative Value Regulations

The Internal Revenue Service has issued final regulations governing the disclosure of the financial effect and relative value of optional payment forms offered under defined benefit and money-purchase pension plans. Such plans must describe these optional forms (and their relative values) in the qualified joint and survivor annuity (“QJSA”) explanation they are required to provide to participants just before their benefit commencement date.

Medicare Part D Notices Revised

As we reported in our July 2005 issue of Benefits in Brief, the Medicare Part D regulations issued by the Centers for Medicare and Medicaid Services (CMS) require group health plans providing prescription drug coverage to Part D-eligible individuals to disclose to participants whether that coverage is creditable – that is, at least as good as Medicare Part D coverage.

THE FIDUCIARY CORNER: Abdicating Duties Does Not Prevent Liability

When companies fail to remit 401(k) plan contributions, the Department of Labor almost always looks for – and usually finds – fiduciaries to hold responsible. Cases such as these often can be traced to financially troubled plan sponsors trying desperately to juggle the claims of competing creditors. Employee salary deferral contributions somehow become mixed with company cash, and thus delayed on their way to the trust account.

THE FIDUCIARY CORNER: Information Requests Should Be Honored–Promptly

Ignoring a participant’s request for copies of plan documents and SPDs is never a good idea. It is even less so when the participant has already filed a lawsuit against the plan sponsor or its fiduciaries, and when the letter comes from the participant’s attorney. A federal judge in Tennessee imparted this lesson to Nissan North America, Inc. in a decision earlier this year.

Plans Cannot Treat Domestic Partners As Spouses

Two recent private letter rulings by the Internal Revenue Service confirm that domestic partners – even when granted the same rights as married couples under state law – cannot be treated as spouses by retirement plans.

Minimal Employer Involvement May Create ERISA Plan

Yet another recent federal court opinion reminds us that ERISA plans – and thus ERISA obligations – may be created even when they are not intended. While an Ohio court was construing the “payroll practices” exemption from ERISA in the Langley case (see “What is in a Name? Not an ERISA Plan”), a court in Texas construed a similar exemption for “voluntary insurance arrangements,” and found it unavailable.

Federal Court Agrees With Spencer Fane: Former Employees of Enron Subsidiary Lack Standing to Sue

Spencer Fane’s ERISA Litigation Group secured a major victory last month in a case arising from the Enron bankruptcy. The dispute followed the sale of an Enron subsidiary, Northern Natural Gas (“NNG”). As a consequence of the sale, NNG withdrew from Enron’s voluntary employees’ beneficiary association (“VEBA”) and established its own welfare benefit plan, which was funded by a VEBA established by NNG’s ultimate purchaser, MidAmerican Energy Holdings Co. (“MEC”).

THE FIDUCIARY CORNER: The Truth, The Whole Truth, And Nothing But The Truth

When ERISA fiduciaries speak, they must recognize that what they say, and how they say it, will be held to a higher standard than ordinary speech. This is because ERISA imposes special rules governing the manner in which information about benefits is communicated. Although courts disagree about the scope of this duty of disclosure, it is well established that communications must give participants information that is both accurate and sufficiently detailed to allow them to make informed decisions.

What Is In A Name? Not An ERISA Plan

A recent decision by an Ohio federal court illustrates an important distinction between two regulatory exemptions from ERISA’s definition of an “employee welfare benefit plan.”

Deadline Approaching for Reminding Participants of Availability of HIPAA Privacy Notice

To many plan sponsors, the distribution of the “Notice of Privacy Practices” required by HIPAA’s privacy regulations (the “Privacy Rule”) may be no more than a distant memory. Well, dust off those HIPAA privacy notices because, according to the Privacy Rule, “No less frequently than once every three years, the health plan must notify individuals then covered by the plan of the availability of the notice and how to obtain the notice.”

New Funding Notice Required For Multiemployer Pension Plans

In January, the Department of Labor (“DOL”) finalized regulations intended to increase understanding on the part of multiemployer plan participants and beneficiaries of the funding status of their defined benefit pension plans. Issued under the Pension Funding Equity Act of 2004, the new rules require multiemployer plans to provide an annual “funding notice” with respect to all plan years beginning after December 31, 2004.

Plan Sponsors Must Disclose Creditable Coverage Status to CMS

As we reported in our July 2005 issue of Benefits in Brief, regulations issued by the Centers for Medicare and Medicaid Services (“CMS”) require group health plans providing prescription drug coverage to Medicare Part D-eligible individuals to disclose to participants whether that coverage is “creditable.”

THE FIDUCIARY CORNER: Individual Financial Planners May Be ERISA Fiduciaries

An Advisory Opinion recently issued by the Department of Labor may come as quite a shock to many personal financial planners and investment advisors. According to the DOL, ERISA’s prudence, exclusive benefit, and prohibited transaction rules apply to many of the bread-and-butter recommendations that these professionals give, if their advice relates to assets held in qualified individual account plans.

Congress Finally Adopts Technical Correction For Dependent Care Assistance Plans

As we reported in the November 2004 issue of Benefits in Brief, the Working Families Tax Relief Act (WFTRA) took effect January 1, 2005.

IRS Defers Section 409A Reporting Obligations

Sponsors of nonqualified deferred compensation plans are now beginning to understand the substantive constraints imposed on such plans by Tax Code Section 409A, which was enacted as part of the American Jobs Creation Act of 2004 (AJCA).

Reminder: Deadline For Small Plans To Comply With HIPAA Security Rule Approaching

Although many health plans completed their HIPAA Security Rule compliance efforts last spring, small health plans were given an additional year in which to comply.

Supreme Court and Congress Weigh in on Plan Reimbursement Rights after Knudson

The travails of ERISA welfare plans seeking to enforce their subrogation and reimbursement provisions are in the news – again.

THE FIDUCIARY CORNER: Fiduciary Liability Insurance Policies Warrant Careful Review

Sponsors of ERISA-governed plans should pay heed to the experiences of Raytheon Company, which recently learned to its dismay that the fiduciary liability insurance policy for which it had paid thousands of dollars was worthless as a defense to ERISA claims against it

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