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Participant Communications

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.

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.

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.

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.

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.

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.

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. 

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”).

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.

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).

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