November 20, 2014

Employment-First Circuit Holds That Plaintiffs Are Highly Compensated Employees And Therefore Are Not Entitled To Overtime

In Litz v. The Saint Consulting Group, Inc., No. 13-2437 (1st Cir. 2014), the plaintiffs Crystal Litz and Amanda Payne ("plaintiffs") claim unpaid overtime wages for their work as project managers for The Saint Consulting Group, Inc. ("SaintConsulting"). The district court concluded that plaintiffs were "highly compensated employees" and thus exempt from the overtime pay protections of the Fair Labor Standards Act ("FLSA"). 29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.601. The plaintiffs appeal.

After analyzing the case, the First Circuit Court of Appeals (the "Court") concluded that the district court was correct and affirmed the decision. Why? The Court noted that the FLSA requires employers to pay nonexempt employees at a higher rate for hours worked beyond 40 hours in a week. 29 U.S.C. § 207(a)(1). The FLSA exempts from its overtime protection any employee employed in a bona fide executive, administrative, or professional capacity. Id. § 213(a)(1). The FLSA implementing regulations further provide that this exemption applies to "highly compensated employees" who (1) customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee; (2) receive at least $100,000 in total annual compensation; and (3) receive at least $455 per week paid on a salary or fee basis. 29 C.F.R. § 541.601(a), (b)(1). Saint Consulting argues, and the district court agreed, that the plaintiffs satisfied these three requirements. The plaintiffs concede that they satisfied the duties requirement and earned well over $100,000 annually during the relevant time period, but they argue that they were not paid any amount "on a salary ... basis" due to a $1,000 stipend paid each week that their hours were below a certain level.

The Court continued by saying that the stipend was paid on a "salary basis" if it was (1) a predetermined amount, (2) constituting all or part of the employee's compensation, and (3) not subject to reduction because of variation's in the quality or quantity of the work performed. Id. § 541.602(a). The facts establish that these conditions are met, and the Court concluded that the plaintiffs are highly compensated employees, not eligible for overtime.

November 19, 2014

Employee Benefits-Deadline For Health Plans to Submit Enrollment Counts To HHS is Extended to December 5 (From November 15)

Per an Alert Message (effective 11/14/2014) from CMS: Attention ACA Transitional Reinsurance Reporting Entities: CMS has received requests for an extension of the deadline for contributing entities to submit their 2014 enrollment counts for the transitional reinsurance program contributions under 45 CFR 153.405(b). The deadline has now been extended until 11:59 p.m. on December 5, 2014. The January 15, 2015 and November 15, 2015 payment deadlines remain the same. If you have any questions regarding the ACA Transitional Reinsurance Program Annual Enrollment Contributions Submission form, please contact the Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) directly at 877-292-6978, or e-mail

November 18, 2014

ERISA- Ninth Circuit Rules That Plaintiff's Claim Is NotTime-Barred

In Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., No. 12-17604 (9th Cir. 2014), one issue faced by the Ninth Circuit Court of Appeals (the "Court") was whether a claim for benefits is time-barred. The Court ruled that it was not. Why?

In this case, Spinedex was a physical therapy clinic whose patients included beneficiaries of various health plans (the "Plans"). Spinedex's patients signed several documents in connection with their treatment, including an assignment of benefits form (the "Assignment"). The Assignment assigned to Spinedex its patients' "rights and benefits" under their respective Plans. After treating patients covered by the Plans, pursuant to the Assignements, Spinedex submitted claims to United Healthcare ("United"). United paid some claims, but denied others in whole or in part. Spindex brought suit under ERISA against United and the Plans for the unpaid claims But is the suit time-barred?

The summary plan descriptions ("SPDs") for the Plans contain two-year limitations periods for claims of benefits. There is no question that Spinedex's action was filed after the expiration of the two-year period. However, the Court held that because the limitation periods were not properly disclosed in the SPDs, these provisions are unenforceable.

In an SPD, under ERISA, circumstances which may result in disqualification, ineligibility, or denial or loss of benefits must be clearly disclosed. A limitation of the time for bringing suit qualifies as such a circumstance. Under the regulations, at 29 C.F.R. § 2520.102-2(b), either: (1) the description or summary of the restrictive provision-such as a time limit on bringing suit- must be placed in close conjunction with the description or summary of benefits, or (2) the page on which the restrictive provision is described must be noted adjacent to the benefit description. The SPDs in question comply with neither requirement, as the restrictive provision is buried in a section that is not close to the discussion of benefits, and there is no reference, adjacent to the benefits description, to the page number on which the restrictive provision appears. Applying a reasonable plan participant test to 29 C.F.R. § 2520.102-2(b), a reasonable participant would not be expected to find the restrictive provision in this case. As a result, the restriction cannot be enforced, and Spinedex's suit is not time-barred.

November 13, 2014

Employee Benefits-IRS Provides Guidance On Application of One-Per-Year Limit on IRA Rollovers

In IRS Announcement 2014-32, the Internal Revenue Service ("IRS") follows up
Announcement 2014-15, by addressing the application to Individual Retirement Accounts and Individual Retirement Annuities (collectively, "IRAs") of the one-rollover-per-year limitation of § 408(d)(3)(B) of the Internal Revenue Code. Here is what the IRS said.

Background. Section 408(d)(3)(A)(i) provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee, to the extent the amount is paid into an IRA for the benefit of the distributee by no later than 60 days after he or she receives the distribution (often referred to as a "60-day rollover"). Section 408(d)(3)(B) provides that an individual is permitted to make only one nontaxable 60-day rollover between IRAs in any 1-year period. As discussed in Announcement 2014-15, Proposed Regulation § 1.408-4(b)(4)(i) and IRS Publication 590 provided that the one-rollover-per-year limitation was applied on an IRA-by-IRA basis.

However, the Tax Court in Bobrow v. Commisioner held that the limitation applies on an aggregate basis, meaning that an individual could not make more than one nontaxable 60-day rollover within each 1-year period, even if the rollovers involved different IRAs. In Announcement 2014-15, the IRS indicated that it anticipated following the interpretation of § 408(d)(3)(B) in Bobrow, and accordingly that it would (and subsequently did) withdraw the proposed regulation and revise Publication 590 to as needed to follow that interpretation, but that it would not apply the Bobrow interpretation of § 408(d)(3)(B) before 2015.

New Concerns. This Announcement is intended to address certain concerns that have arisen since the release of Announcement 2014-15. The IRS will apply the Bobrow interpretation of § 408(d)(3)(B) for distributions that occur on or after January 1, 2015. This means that an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA, if the individual has received a distribution from any IRA in the preceding 1- year period that was rolled over into an IRA. However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over under § 408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution.

Roth IRAs. A rollover from a traditional IRA to a Roth IRA (a "conversion") is not subject to the one-rollover-per-year limitation, and such a rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers. However, a rollover between an individual's Roth IRAs would preclude a separate rollover within the 1-year period between the individual's traditional IRAs, and vice versa.

Qualified Plans/Trustee-Trustee Transfers. The one-rollover-per-year limitation also does not apply to a rollover to or from a qualified plan (and such rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers), nor does it apply to trustee-to-trustee transfers. IRA trustees are encouraged to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.

November 12, 2014

ERISA-District Court Finds That The Company's Sole Owner Is Not Jointly and Severally Liable With The Company For Its Withdrawal Liability

In Board of Trustees of the Automobile Mechanics' Local No. 701 Union and Industry Welfare Fund v. Beland & Wiegers Enterprises, Inc., Case No. 13 CV 1611 (N.D. Illinois 2014), one of the claims was for withdrawal liability owed to a multiemployer pension plan (the "Plan") under ERISA.

In this case, an employer, Beland & Wiegers Enterprises, Inc. ("B&W"), ceased its operations and incurred withdrawal liability to the Plan in the amount of $261,052. Daniel Beland ("Beland") is the sole owner of B&W. At the time of B&W's withdrawal from the Plan, Beland owned the property located at 11625 South Ridgeland, Alsip, Illinois. Before cessation of covered operations, B&W operated out of that property. The Plan asked the court to hold B&W and Beland jointly and severally liable for the withdrawal liability, and its associated liquidated damages, interest, and attorney's fees.

In analyzing the case, the court said that it must determine whether withdrawal liability may properly be imputed to Beland under 29 U.S.C. § 1301(b)(1). Under that section "all employees of trades or business which are under common control shall be treated as employed by a single employer and all such trades and business as a single employer" for purposes of withdrawal liability. Thus, for the court to hold Beland liable for B&W's withdrawal liability, the Plan must establish that: (1) Beland and B&W are each a "trade or business," and (2) Beland and B&W are under common control.

As to prong (1), the court must consider whether the organization engaged in an activity: (a) with continuity and regularity and (b) for the primary purpose of income or profit. B& W is clearly a trade or business. But what about Beland? Beland owned the property out of which B&W operated when B&W withdrew from the pension. But ownership of a property does not necessarily rise to the level of a "trade or business." Here, the Plan has not alleged facts showing that Beland leased his property to B&W with any continuity and regularity. The undisputed facts do not indicate how long Beland leased out his property, whether the lease was continuous or whether the lease was for the purpose of income and profit. Further, the alleged facts do not show that Beland generated revenue from B&W's operations out of the property or that Beland and B&W had a lease agreement. Thus, court concluded that the alleged facts are insufficient to show that Beland's ownership of the property constitutes a "trade or business", and as such the court could not hold him jointly and severally liable for B&W's withdrawal liability.

November 11, 2014

Employee Benefits-DOL Provides Guidance On Premium Reimbursement Arrangements

In FAQs about Affordance Care Act Implementation (Part XXII), the U.S. Department of Labor (the "DOL") provides guidance on premium reimbursement arrangements.
This FAQ posits the following three questions:

Q1: My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the Affordable Care Act ("ACA") market reforms?

Q2: My employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with the ACA market reforms?

Q3: A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allow eligible employees to access the premium tax credits for ACA Insurance Marketplace coverage. Is this permissible?

The DOL answers "NO" to each question. See the FAQ for details.

November 10, 2014

Employee Benefits-IRS Discusses Issues Arising When A Group Health Plan Fails To Cover In-Patient Hospitalization Services

In IRS Notice 2014-69, the Internal Revenue Service (the "IRS") raises the issues an employer faces when its group health plan fails to cover in-patient hospitalization services. Here is a summary of what the IRS says.

Offering Minimum Value. The IRS, as well as the Department of Health and Human Services (the "HHS") (together the "Departments"), have become aware that certain group health plan benefit designs, which do not provide coverage for in-patient hospitalization services, are being promoted to employers. These promotors contend that such plans provide "minimum value" or "MV" for purposes of the Affordable Care Act (the "ACA"), when tested using the on-line MV Calculator referred to in final HHS regulations and proposed Treasury regulations.

Consequences Of Offering MV. An employee or family member who is offered coverage under an eligible employer-sponsored plan that provides affordable MV coverage for the employee may not receive premium tax credit assistance under Code section 36B for coverage in a qualified health plan offered under an ACA Insurance Exchange. An applicable large employer (as defined in Code section 4980H(c)(2)) may be liable for a section 4980H assessable payment if one or more of its full-time employees receives a premium tax credit.

Intention To Publish Proposed Regulations. The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) ("Non-Hospital/Non-Physician Services Plans") do not provide the minimum value intended by the ACA, and will shortly propose regulations to this effect which can be finalized in 2015. Under the final regulations, an employer will not be entitled to rely solely on the MV Calculator to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV for any portion of a taxable year ending on or after January 1, 2015. In short, an employer should not adopt a Non-Hospital/Non-Physician Services Plan for any plan year starting in or after 2015. As a transition rule, solely in the case of an employer that has entered into a binding written commitment to adopt, or has begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to November 4, 2014, based on the employer's reliance on the results of use of the MV Calculator, the final regulations will not upset this reliance before the end of the plan year that begins by no later than March 1, 2015.

Effect On Employees. Pending issuance of final regulations, an employee will not be required to treat a Non-Hospital/Non-Physician Services Plan as providing MV for purposes of his or her eligibility for a premium tax credit under Code section 36B. An employer that offers a Non-Hospital/Non-Physician Services Plan (including one subject to the transition rule) to an employee: (1) must not state or imply any disclosure that the offer of coverage under the Non-Hospital/Not-Physician Services Plan precludes an employee from obtaining a premium tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.

November 6, 2014

ERISA-Eleventh Circuit Rules That Plaintiff Is Not Entitled To Life Insurance Benefits As Beneficiary, Since Coverage Ended Before The Employee Died

In Snow v. Boston Mutual Life Insurance Company, No. 13-15067 (11th Cir. 2014), Dorothy Snow ("Snow"), the widow and designated beneficiary under a life insurance policy issued to James Francis Snow ("Mr. Snow") by Boston Mutual Life Insurance Company ("Boston Mutual"), appeals from the district court's final order in favor of Boston Mutual and Snow's former employer, Meadowcraft, Inc. ("Meadowcraft"), in Snow's case raising claims under ERISA. Snow had alleged that Boston Mutual wrongfully denied payment of approximately $115,000 in life insurance benefits to Snow, and sought equitable relief claiming that Boston Mutual, as plan administrator and claims adjudicator, breached certain fiduciary duties it owed to Snow.

In this case, Boston Mutual issued a group life insurance policy to Meadowcraft to insure the life and death component of Meadowcraft's long term disability plan (the "Plan"). Meadowcraft paid 100% of the premium for group life insurance coverage as a benefit to its employees, and the Plan included a waiver of premium provision allowing the coverage to continue if an employee became disabled. Mr. Snow worked at Meadowcraft from October 1993 until he because disabled in an industrial accident in May 2002, and he died on August 27, 2009 at the age of 66 years and 9 months. Once the premium is so waived, coverage will generally continue until "Normal Retirement Date". The Plan defines "Normal Retirement Date" as the "normal retirement date provided for by the Meadowcraft published or accepted personnel practices."

The issue in this case for the Eleventh Circuit Court of Appeals (the "Court") was whether Mr. Snow's Normal Retirement Date preceded his death, so that the Plan's life insurance coverage had ended before Mr. Snow died. The district court determined that Normal Retirement Date was age 65, so that the coverage had ended. The Court determined that the district court's determination was not in error. The Court said that, since the Plan defines "Normal Retirement Date" in reference to Meadowcraft's "published or accepted personnel practices," it was necessary for the district court to examine extrinsic evidence of Meadowcraft's personnel practices to determine the Normal Retirement Date. Moreover, not only was the term not ambiguous, but the district court did not clearly err in construing the Normal Retirement Date to be 65 year old. This age was found in a summary of Meadowcraft's 401(k) plan, which provided that "your normal retirement age is the date you reach age sixty-five," and in testimony from Meadowcraft human resources employees Larry York and Mary Beth Wilbanks. As such, the Court concluded that the district court did not err in ruling tht Snow was not entitled to any benefits under the Plan, and the Court upheld the district court's final order.

November 5, 2014

Employee Benefits-IRS Announces 2015 Pension Plan Limitations

The Internal Revenue Service (the "IRS") has announced the 2015 pension plan limitations, as adjusted for cost-of-living increases. The announcement is here. The highlight: taxpayers may contribute up to $18,000 to their 401(k) plans in 2015. One important number not included in this announcement is that the Social Security tax wage base for 2015 will be $118,500.

November 4, 2014

Employee Benefits-HHS Postpones November 5 Deadline For Obtaining Health Plan Identifier

Referring to my blog of October 30, the Health and Human Services Department (HHS) has now postponed the November 5 deadline for large health plans to obtain a health plan identifier (HPID) "until further notice". If the process for obtaining the HPID has already started, it is recommended that the process be completed notwithstanding the delay, since the plan will probably need the HPID eventually.

October 31, 2014

Employee Benefits-IRS Reminds Us That, For Certain Plans, An Application For An Updated Determination Letter Must Be Filed By January 31, 2015

In Employee Plans News, Issue 2014-17, October 27, 2014, the Internal Revenue Service (the "IRS") provides guidance on when a qualified retirement plan must next be submitted for an updated IRS determination letter. The guidance indicates that the following qualified retirement plan must be submitted by January 31, 2015:

--a plan for which the last digit of the plan sponsor's EIN is 4 or 9; and

--a multiemployer plan.

October 30, 2014

Employee Benefits-Certain Health Plans Face November 5 and 15 Deadlines

A reminder: any health plan, which is self-insured and constitutes a "large health plan", must obtain a health plan identifier number (a "HPID") by November 5, 2014. The HPID is obtained by registering online with the Centers for Medicare & Medicaid Services' Health Insurance Oversight System. A "large health plan" is one which paid at least $5 million in claims during its most recently ended fiscal year. It may take a few days to complete the registration, so an affected health plan should start immediately. A self-insured health plan which is not a large health plan has until November 5, 2015 to obtain the HPID.

Another reminder: any health plan, which is self-insured and provides major medical coverage, must furnish the Department of Health and Human Services with a participant count by November 15, 2014. This count is provided in connection with the plan's Transitional Reinsurance Fee, and is submitted online at The transitional reinsurance fee is $63/covered life. The fee for 2014 (or the first installment thereof, if the fund chooses to pay in two installments) is due by January 15, 2015. The fee will not be due for 2015 or 2016, provided that the plan is "self-administered".

October 29, 2014

ERISA - DOL Says That A Series Of Target Date Funds Could Serve As QDIAs

Basically at the same time that the IRS said that a qualified defined contribution plan could offer for investment a series of Target Date Funds ("TDFs") (see yesterday's blog), the U.S. Department of Labor (the "DOL") offers some thoughts on the TDFs.

The DOL says, in an October 23, 2014 letter from Phyliss Borzi (Assistant Secretary) to J. Mark Iwry (the "Letter"), that the TDFs in the series could serve as "qualified default investment alternatives" or "QDIAs", within the meaning 29 CFR §2550.404c-5 (the QDIA regulation), in light of the TDFs' investments in unallocated deferred annuity contracts, described in IRS Notice 2014-66 (the" Notice"). If an investment fund qualifies as a QDIA, the plan does not lose the "no liability for bad investment" protection for its fiduciaries under ERISA section 404(c), merely because plan contributions are automatically invested in that fund without participant choice.

The Example. The Letter focuses on the following example in the Notice: The subject is a profit-sharing plan (the "Plan") qualified under Code section 401(a). Participants in the Plan can commence distribution at age 65, the normal retirement age under the Plan, or upon severance from employment. The Plan provides for the allocation of investment responsibilities to participants and beneficiaries. The Plan offers an array of designated investment alternatives, including the TDFs. The TDFs are designed to provide varying degrees of long term appreciation and capital preservation through a mix of equity and fixed income exposures based on generally accepted investment theories. The TDFs' asset mix is designed to change over time, becoming more conservative through a gradual reduction in the allocation to equity investments and a gradual increase in the allocation to fixed income investments as the participants in each TDF become older.

The intent of the plan sponsor is to satisfy the conditions of the QDIA regulation. Thus, for example, participants may transfer their holdings, in whole or in part, from the TDFs to other investment alternatives available under the Plan on at least a quarterly basis. The TDFs do not impose any fees or restrictions on the ability of a participant to transfer his or her holdings, in whole or in part, to other investments available under the Plan, or to make withdrawals pursuant to Code section 414(w)(2)(B), during the 90-day period beginning with the initial investment of a participant's assets in a TDF. Following the end of this 90-day period, the TDFs do not have any transfer or withdrawal restrictions or fees that differ depending on whether the particular participants affirmatively selected the TDFs, rather than having been defaulted into the TDFs.

Each TDF within the series is available only to participants who will attain normal retirement age within a limited number of years around the TDF's target date. Each TDF available to participants age 55 or older holds unallocated deferred annuity contracts, which constitute a portion of the TDF's fixed income investments. TDFs with such annuities normally do not permit participants whose ages fall outside the designated age band for the TDF to hold an interest in that TDF, because it is not actuarially reasonable for an insurer to offer a deferred annuity at a price that does not vary based on the age of the purchaser. As the age of the group of participants in such TDF increases, a larger portion of the assets in the TDF will be used to purchase unallocated deferred annuity contracts each year. TDFs that are available to participants younger than age 55 do not include unallocated deferred annuity contracts. However, the series is designed so that as the asset allocation changes over time, each TDF will include unallocated deferred annuity contracts beginning when the participants in that TDF attain age 55.

An "unallocated deferred annuity contract" is a contract with a licensed insurance company that promises to pay income to covered plan participants at some date in the future (possibly far into the future) on a regular basis for a period of time or for life. The annuity is written on behalf of a group of participants and not issued to and owned by a specific individual. As such, unallocated deferred annuity contracts do not ordinarily require the insurance company to have or maintain any personal information on individuals in the group. Rather, units of the unallocated annuity generally are largely interchangeable among members of the covered group, which facilitates transferability and allocation within the group, for example at the dissolution date of each TDF.

At its target date, each TDF dissolves, and participants with an interest in the TDF will receive an annuity certificate providing for immediate or deferred commencement of annuity payments. The certificate represents the participant's interest in the unallocated deferred annuity contracts held by the TDF. For instance, if a TDF 's asset mix contains a fifty percent investment in unallocated deferred annuity contracts, then half of each participant's individual account balance will be reflected in the certificate. The remaining portion of each such participant's interest in the TDF will be reinvested by the participant or plan fiduciary in other Plan investment alternatives in accordance with title I of ERISA.

The assets of the Funds include plan assets for purposes of part 4 of title I of ERISA and such Funds are managed by an investment manager as described in section 3(38) of ERISA. The investment manager has complete discretion to manage, acquire, or dispose of any assets of the Funds, including the unallocated deferred annuity contracts held by the Funds, and complete discretion to choose and retain the insurance company or companies issuing the contracts. The investment manager is independent from the insurance company or companies issuing such contracts. The investment manager acknowledges in writing that he is a fiduciary with respect to the Plan.

The QDIA Regulation. After reviewing the Notice's example, the Letter explains that the the QDIA regulation implements ERISA section 404(c)(5). Under this section, a participant or beneficiary in an individual account plan who fails to provide investment directions for his or her account will be treated as exercising control over assets in the account, if the plan fiduciary complies with certain notice requirements and invests the assets in accordance with regulations prescribed by the DOL. The QDIA regulation requires, among other things, that participants on whose behalf the investment is made had the opportunity to direct the investment of the assets in their account but did not, and that they are furnished a notice describing the circumstances under which their assets may be invested in the QDIA, their right to direct the investment of their assets into any other plan investment alternatives, and the investment objectives, risk and return characteristics, and fees and expenses attendant to the QDIA.

The QDIA regulation also describes the attributes necessary for an investment fund, product, model portfolio, or managed account to be QDIA. A TDF that meets the specific requirements of the regulation is a type of fund that could be a QDIA. 29 CFR §2550.404c-5(e)(4)(i). Among other things, such a fund must be designed to produce varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures based on the participant's age or target retirement date. In the DOL's view, the use of unallocated deferred annuity contracts as fixed income investments, as described in the Notice, would not cause the TDFs to fail to meet the requirements of paragraph (e)(4)(i) of the QDIA regulation. It is also the DOL's view that the distribution of annuity certificates as each TDF dissolves on its target date is consistent with paragraph (e)(4)(vi) of the QDIA regulation. This section provides that an investment product will not fail to be a QDIA "solely because the product or portfolio is offered through variable annuity or similar contracts or through common or collective trust funds or pooled investment funds and without regard to whether such contracts or funds provide annuity purchase rights, investment guarantees, death benefit guarantees or other features ancillary to the investment [product.]"

Annuity Selection Safe Harbor. The Letter also provides guidance on whether, and to what extent, the DOL's "annuity selection safe harbor," 29 CFR §2550.404a-4, is available in connection with the selection of the unallocated deferred annuity contracts as investments of the TDFs.

Conclusion. The Letter concludes by stating that the use of unallocated deferred annuity contracts as fixed income investments, as described in the Notice, would not cause the TDFs to fail to meet the requirements of paragraph (e)(4)(i) of the QDIA regulation.

October 28, 2014

Employee Benefits-IRS Allows Qualified Defined Contribution Plans To Offer Lifetime Income Through Target Date Funds

In Notice 2014-66, the Internal Revenue Service (the "IRS") provides guidance which enables a qualified defined contribution plan (such as a 401(k) plan) to provide lifetime income by offering, as investment options, a series of target date funds ("TDFs") that include deferred annuities, even if some of the TDFs in the series are available only to older participants. This guidance provides that, if certain conditions are satisfied, a series of TDFs in a defined contribution plan is treated as a single right or feature for purposes of the nondiscrimination requirements of § 401(a)(4) of the Internal Revenue Code. This permits the TDFs to satisfy those nondiscrimination requirements as they apply to rights
or features, even if one or more of the TDFs considered on its own would not satisfy those requirements.

Under the Notice, the condition for such treatment are:

1. The series of TDFs is designed to serve as a single integrated investment program under which the same investment manager manages each TDF and applies the same generally accepted investment theories across the series of TDFs. Thus, the only difference among the TDFs is the mix of assets selected by the investment manager, which difference results solely from the intent to achieve the level of risk appropriate for the age-band of individuals participating in each TDF. In accordance with the consistent investment strategy used to manage the series of TDFs, the design for the series is for the mix of assets in a TDF currently available for older participants to become available to each younger participant as the asset mix of each TDF for younger participants changes to reflect he increasing age of those participants.

2. Some of the TDFs available to participants in older age-bands include deferred
annuities, and none of the deferred annuities provide a guaranteed lifetime
withdrawal benefit (GLWB) or guaranteed minimum withdrawal benefit (GMWB)

3. The TDFs do not hold employer securities, as described in section 407(d)(1) of
ERISA, that are not readily tradable on an established securities market.

4. Each TDF in the series is treated in the same manner with respect o rights or
features other than the mix of assets. For example, the fees and administrative
expenses for each TDF are determined in a consistent manner, and the extent to which those fees and expenses are paid from plan assets (rather than by the
employer) is the same.

The Notice includes and analyzes an example of a plan offering a series of TDFs-to be discussed in tomorrow's blog.

October 27, 2014

ERISA-Fourth Circuit Rules That, Since Defendants Were Not Acting As Fiduciaries When Allegedly Engaging In Wrongful Conduct, The Claim Against Them Under ERISA For Breach Of Fiduciary Duty Fails

In Moon v. BWX Technologies, No. 13-1888 (4th Cir. 2014), Judy L. Moon ("Moon"), individually and as executor of the estate of Leslie W. Moon ("Mr. Moon"), appeals the district court's order dismissing her case against the defendants under ERISA, arising out of defendants' failure to pay life insurance benefits.

In analyzing the case, the Fourth Circuit Court of Appeals (the "court") concluded that, since Moon failed to sufficiently allege that the defendants were acting as fiduciaries under ERISA at the time of their allegedly wrongful conduct, Moon has failed to state a claim for breach of fiduciary duty and equitable estoppel. As such, the Court affirmed the district court's decision.

In this case, the alleged breach of fiduciary duty was the defendants' acceptance of a premium payment from Mr. Moon for life insurance, without notifying Mr. Moon that he was no longer eligible for life insurance benefits under the plan at issue. For this alleged violation of ERISA, Moon was seeking equitable estoppel under 29 U.S.C. § 1132(a)(3) in the form of an order estopping the defendants from denying the existence of a life insurance contract between Mr. Moon and the defendants in the coverage amount of $200,000.00. However, the Court concluded that the defendants were not acting as fiduciaries at the time the premium payment was accepted, so Moon's claim fails.