In a Memorandum For Employees Plans (EP) Examination Employees , dated April 20, 2017, the Internal Revenue Service (the “IRS”) provides guidance on computation of maximum loan amounts for qualified retirement plans under IRC § 72(p)(2)(A).  Here is what the Memorandum says.

This memorandum directs EP Examinations staff to determine, as set forth below, the amount available for a loan where the participant has received multiple loans during the past year from a qualified plan, under § 72(p)(2) of the Internal Revenue Code (the “IRC”).  This memorandum is not a pronouncement of law and is not subject to use, citation, or reliance as such.


ERISA-DOL Discusses The Selection Of A Default Investment For A Participant-Directed Account Plan

In an Information Letter, the DOL responded to a request regarding the application of ERISA to TIAA’s “Income for Life Custom Portfolios” (the “ILCPs”).  TIAA had represented that the ILCP product meets all the conditions of a “qualified default investment alternative” (a “QDIA”) under ERISA section 404(c)(5) and 29 CFR 2550.404c-5, except that the ILCP contains certain liquidity and transferability restrictions attributable to an annuity component that fail the frequency of transfer requirement described in paragraph (c)(5)(i) of the regulation.  TIAA asked the DOL whether: (1) the ILCPs nonetheless should still be appropriate for a plan fiduciary to select as a default investment alternative, because the annuity component allows the ILCP to provide in-plan access to an investment with a guaranteed rate of return and guaranteed lifetime income at retirement and (2) whether Title I of ERISA prohibits a plan fiduciary from selecting the ILCP as a default investment alternative for a participant-directed individual account plan.

The DOL responded to these questions, by stating that since the ILCPs failed to meet the frequency of transfer requirement in the regulations, the ILCPs could not qualify as QDIAs. Nevertheless, the QDIA regulation, at 29 CFR 2550.404c-5(a)(2) and 2550.404c-5(f)(4), states that the QDIA standards are not intended to be the exclusive means by which a fiduciary might satisfy his or her responsibilities with respect to selection of a default investment for assets in the individual account of a participant or beneficiary.  In the DOL’s view, a fiduciary may be able to conclude, without regard to the fiduciary relief available under ERISA section 404(c)(5) and the regulation, that an investment product or portfolio is a prudent default investment for a plan.

In Reese v. CNH Industrial, N.V., No. 15-2382 (6th Cir. 2017), the trial court had granted summary judgment for plaintiffs, finding they had a vested right to lifetime healthcare benefits.

In this appeal, defendant CNH was asking the Sixth Circuit Court of Appeals (the “Court”) to find that plaintiffs’ right to lifetime healthcare benefits failed to vest. Further, claimed CNH, even if the Court were to find that plaintiffs’ right had vested, CNH believes the district court erred in finding that CNH’s proposed changes were not “reasonably commensurate” with plaintiffs’ current plan.

In analyzing the case, the Court said that this matter is complicated by a change in the law since this long-running litigation began.  In light of M & G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015), which abrogated this circuit’s Yard-Man line of cases, the district court had to revisit the question of whether plaintiffs had a vested right to lifetime healthcare benefits. The court ultimately found that they did. The Court then said that, because we find that the applicable collective bargaining agreement is ambiguous, and because the extrinsic evidence indicates that parties intended for the healthcare benefits to vest for life, the Court affirms the district court’s vesting determination. The Court noted that reasonable changes to the healthcare benefits is permitted even with the vesting, so that remand to the district court is proper, however, because the district court had failed to properly weigh the costs and the benefits of CNH’s proposed plan.

In Saumer v. Cliffs Natural Resources Inc., No. 16-3449 (6th Cir. 2017), the Sixth Circuit Court of Appeals (the “Court”) began by noting that ERISA requires plan fiduciaries to, among other things, manage plan assets prudently and diversify investments so as to minimize the risk of large losses.  For the past forty years, however, ERISA has also encouraged employee ownership of employer stock.  To promote this goal, ERISA permits companies to offer an Employee Stock Ownership Plan (an “ESOP”)—a retirement option designed to invest primarily in employer stock.  Because ESOPs are, by definition, not prudently diversified, Congress fashioned an exemption to these core fiduciary duties: the diversification requirement and the prudence requirement (only to the extent that it requires diversification) of ERISA are not violated by acquisition or holding of employer stock.  In this case, the Court is being asked to reconcile ERISA’s requirement that a fiduciary act prudently with Congress’s blessing of undiversified ESOPs.

In this case, Cliffs Natural Resources (“Cliffs”) is a publicly traded iron-ore and coal-mining company.  Its business depends on the price of iron ore, which in turn depends on Chinese economic growth.  In 2011, Chinese construction projects drove iron-ore prices to all-time highs.  Betting on continued high prices,Cliffs financed the purchase of a mine located in Northern Quebec (“Bloom Lake Mine”). Projecting that the mine would increase cash-flow, Cliffs upped its stock dividend to double the S&P 500 average.  Unfortunately, in 2012, a global demand slump halved the price of iron ore, cutting deeply into Cliffs’s revenue.  The Bloom Lake Mine quickly turned from the company’s lifeblood to, in the words of Cliffs’s CEO, “the cancer that we have to take out.” The mine’s costs exceeded predictions, often by significant margins.  And the company’s decreased revenue and high costs exacerbated its financial weakness.  The market responded: in 2013, Cliffs stock performed worse than any other company in the S&P 500.  All told, Cliffs lost 95% of its value between 2011 and 2015 (compared to a roughly 50% gain for the broader market during the same period).

Plaintiffs are Cliffs employees who participated in the company’s defined-contribution plan, commonly known as a 401(k).  The plan allowed participants to invest in twenty-eight mutual funds, including an array of target-date, stock, and bond funds.  The plan also offered an ESOP that invested solely in Cliff’s stock. Employees enjoyed discretion about whether to invest their income and matching contributions in the ESOP.  If the employee failed to choose an investment option, the fiduciary directed contributions into a money-market fund.  After Cliffs stock cratered, plaintiffs filed a class action claiming that the plan’s fiduciaries—investment-committee members and corporate officers—imprudently retained Cliffs stock as an investment option.  In particular, plaintiffs allege that it was imprudent to continue investing in Cliffs because: (1) the company’s risk profile and business prospects dramatically changed from when the investment was introduced due to the collapse of iron ore and coal prices and Cliffs’s deteriorating financial condition, and (2) the fiduciaries possessed inside information showing that the stock was overvalued.

In an April 4 News Release, the U.S. Department of Labor (the “DOL”) announces a 60-day extension of the applicability dates of the fiduciary rule and related exemptions, including the Best Interest Contract Exemption.  The announcement follows a Feb. 3, 2017, presidential memorandum which directed the DOL to examine the fiduciary rule to ensure that it does not adversely affect the ability of Americans to gain access to retirement information and financial advice.  Here is what the News Release says.

Under the terms of the extension, advisers to retirement investors will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” beginning on June 9 rather than on April 10, 2017, as originally scheduled.  These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements.

The DOL has requested comments on the issues raised by the presidential memorandum, and related questions.  The DOL urges commenters to submit data, information and analyses responsive to the requests, so that it can complete its work pursuant to the memorandum as carefully, thoughtfully and expeditiously as possible.

In Roche v. Aetna, Inc., No. 16-1712 (3rd Cir. 2017) (Non Precedential Decision), Aetna Life Insurance Company (“Aetna”), a health care plan administrator, took the position that Michelle Roche, a plan member, had to reimburse it for medical expenses it paid on behalf of Roche under the relevant benefits plan (since Roche settled with the tortfeasor who injured her, giving rise to those medical expenses).  Roche reimbursed Aetna but then filed this action, contending that she should not have had to reimburse Aetna.  The district court concluded that, before filing this action, Roche needed to exhaust her administrative remedies, and denied her claim.  On appeal, Roche argues that she was not required to exhaust those remedies.

Upon review, the Third Circuit Court of Appeals (the “Court”) held that, because the plan unambiguously requires Roche to exhaust her remedies-which she apparently did not do- the Court will affirm the judgment of the district court.

IRS Announcement 2017-4 provides relief from certain excise taxes under § 4975 of the Internal Revenue Code (the “Code”), and any related reporting requirements, to conform to the temporary enforcement policy described by the Department of Labor (“DOL”) in Field Assistance Bulletin (FAB) 2017-01 with respect to the DOL’s final fiduciary duty rule and the related prohibited transaction exemptions, including the BIC Exemption and the Principal Transactions Exemption  (all such exemptions collectively the “PTEs”) (see blog entry of March 23).  Here is what the Announcement says.


On April 8, 2016, the DOL published a final regulation defining who is a “fiduciary” of an employee benefit plan under § 3(21)(A)(ii) of ERISA as a result of giving investment advice to a plan or its participants or beneficiaries. The final rule also applies to the definition of a “fiduciary” of a plan under § 4975(e)(3)(B) of the Code.  The final rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan as fiduciaries in a wider array of advice relationships than was true of the prior regulatory definition.

In Stephanie v. Blue Cross Blue Shield of Massachusetts HMO Blue, Inc., No. 16-1997 (1st Cir. 2017), the plaintiff, Stephanie C. (“Stephanie”), was continuing to seek reimbursement under an ERISA covered plan (the “Plan”) for certain medical expenses connected with the treatment of her teenage son, M.G.  The plan administrator, defendant Blue Cross Blue Shield of Massachusetts HMO Blue, Inc. (“BCBS”), denied the portions of her claim that are now in dispute.  The district court, reviewing the denial de novo, upheld BCBS’s action.  Stephanie appeals.

Upon reviewing the case, the First Circuit Court of Appeals (the “Court”) said that an ERISA plan-such as the Plan here- is a form of contract.  Thus, contract-law principles inform the construction of an ERISA plan, and the plain language of the Plan provisions should normally be given effect.  Seen in this light, the dispositive issue here is not whether M.G.’s course of treatment at Gateway was beneficial to him but, rather, whether that course of treatment was covered under the Plan. Applying the plain language of the Plan, the Court held that the clear weight of the evidence dictates a finding that the disputed medical charges were not medically necessary (as defined by the Plan) and, thus, were not covered.  Accordingly, the Court affirmed the district court’s decision.

Further, to yesterdays’ blog, the DOL had issued earlier FAQs (in December 2012) pertaining to the ERISA claims procedure regulations.  The earlier FAQs are here.  They make one interesting suggestion, that would appear to apply to the prior and new provisions in those regulations relating to disability claims. The earlier FAQs indicate that, when the plan determines whether a participant is disabled, and thus entitled to disability benefits, based on a determination of disability made by a third party (not the plan), then the following obtains: a claim for disability benefits, filed by a participant, is treated as any other claim for pension benefits, and the prior and rules in the claims procedure regulations pertaining to disability claims do not apply.

More specifically, the earlier FAQs say the following, in Q-A9:

“However, if a plan provides a benefit the availability of which is conditioned on a finding of disability, and that finding is made by a party other than the plan for purposes other than making a benefit determination under the plan, then the special rules for disability claims need not be applied to a claim for such benefits.  For example, if a pension plan provides that pension benefits shall be paid to a person who has been determined to be disabled by the Social Security Administration or under the employer’s long-term disability plan, a claim for pension benefits based on the prior determination that the claimant is disabled would be subject to the regulation’s procedural rules for pension claims, not disability claims.”

The U.S. Department of Labor (the “DOL”) has revised the ERISA claims procedures which apply to claims for disability benefits, in a Final Rule which changes the ERISA claims procedures regulations and which was published on December 16, 2016.  The revisions generally become effective after 2017.  Plans which provide disability benefits (both pension and welfare plans) will have to revise their summary plan descriptions, and change internal procedures for handling disability claims, prior to the end of 2017 to comply with the Final Rule.  The DOL has issued a Fact Sheet which describes the Final Rule.  Here is what the Fact Sheet says.

Background.  Section 503 of ERISA generally requires employee benefit plans to provide written notice to any participant or beneficiary whose claim for benefits has been denied, and to provide the claimant a full and fair process for review of the claims denial.  The Fact Sheet notes that proposed regulations-now finalized under the Final Rule- was published on November 18, 2015.

Overview of Final Regulation.  The Final Rule amends the DOL’s current claims procedure regulation at 29 C.F.R. §2560.503-1 for disability benefits to require that plans, plan fiduciaries, and insurance providers comply with additional procedural protections when dealing with disability benefit claimants.  Specifically, the Final Rule includes the following improvements in the requirements for the processing of claims and appeals for disability benefits: