May 2009 Archives

May 22, 2009

ERISA-Yet Another Delay Of The Effective Date Of The DOL Regulations Permitting Professional Investment Advice

For those of you waiting for the Department of Labor to assign a final effective date to its regulations permitting investment advice to plan participants and IRA beneficiaries, you have to wait at least another 6 months.

More specifically, the regulations at issue are promulgated under the prohibited transaction rules of ERISA and the Internal Revenue Code, and relate to the provision of investment advice by a professional advisor to participants and beneficiaries in individual account plans, such as 401(k) plans, and to beneficiaries of individual retirement accounts (and certain similar plans). Originally, these regulations were issued on January 21, 2009, and were to become effective and applicable on March 23, 2009. However, by rule published on March 20, 2009, the effective and applicability date was delayed until May 22, 2009. Now, the Department of Labor ("DOL") has announced that the effective and applicability date is being delayed to November 18, 2009, to allow the DOL time to review questions of law and policy which have been raised by commenters. According to the announcement, the DOL believes that the complexity and significance of the issues involved justify this delay.

The DOL announcement of the delayed effective date is here.

May 22, 2009

Employee Benefits-DOL Application For Review Of Failure To Provide COBRA Subsidy Is Now Ready For Use

The Department of Labor ("DOL") has now made available, on its website, the form to be used as an application to the DOL to request a review of a denial of an individual's entitlement to the new COBRA subsidy (or any COBRA coverage).

By way of background, the American Economic Recovery and Reinvestment Act of 2009 (the "Act") provided relief for certain COBRA recipients. Under the Act, individuals who become eligible for COBRA coverage (including state law "mini-COBRA" coverage) due to an involuntary termination of employment (other than for gross misconduct) occurring from September 1, 2008 through December 31, 2009 are eligible to pay a reduced premium for COBRA coverage for up to 9 months, starting March 1, 2009. Such individuals include the terminated employee and his or her spouse and dependents, and are referred to as "Assistance Eligible Individuals" or "AEIs". This premium reduction, which equals 65% of the amount otherwise required to be paid, is referred to as the "Subsidy".

The Act requires the DOL to establish a procedure by which the DOL may review a denial by an employer of an AEI's eligibility for the Subsidy (or for any COBRA coverage) on an expedited basis. The DOL has now finalized this procedure, and has made available a form which an AEI may use to request DOL review of any such denial. According to the DOL's website, any AEI, whether the former employee or a member of the employee's family who is eligible for COBRA coverage, may file the application, and otherwise elect to receive COBRA coverage and request the Subsidy. An applicant is asked to answer all of the questions on the application to the best of his or her knowledge and ability, and to include copies of any documents that the applicant thinks would help the DOL in its review. The DOL notes that it may need to share information on the application with the AEI's employer or plan administrator.

The application, and an explanation as to how and when the application may be used, is here. Note that the DOL's application is to be used by AEIs who are eligible for COBRA coverage under a private employer's group health plan which is subject to federal COBRA requirements. Other AEIs-namely those who are covered under the group health plan of a federal, state or local government, or under an insured arrangement which is subject to state law "mini-COBRA" -need to use an application to be made available by and filed with the Centers for Medicare & Medicade Services ("CMS")

May 19, 2009

Employee Benefits-Pennsylvania Insurers Will Be Required To Continue Health Care Coverage For Dependents

It is expected that Pennsylvania's Governor Edward Rendell will sign a bill which requires health insurance policies to continue coverage of an employee's dependent, at the employer's election and at the employee's expense, if the dependent:

--is under age 30;

--is not married;

--has no dependents of his or her own;

--is a Pennsylvania resident or enrolled as a full-time student; and

--has no other health insurance and is not eligible for benefits under any government program.

Insurers are permitted to charge higher premiums for a dependent over age 19. The continued coverage will become effective 90 days after the bill is signed. The bill and related information are here. Employers in Pennsylvania should consider the effect of the bill on their health care programs.

May 19, 2009

Employee Benefits-IRS Allows Employers To Stop Making Safe Harbor Nonelective Contributions

In these hard times, many employers would like to stop or reduce the contributions they are making to their retirement plans. However, the tax rules often limit an employer's ability to do so. The rules pertaining to safe harbor 401(k) plans are a prominent example. Employers utilize these safe harbor plans to avoid discrimination testing on elective deferrals and matching contributions. Under a safe harbor 401(k) plan, an employer may either:

--provide a matching contribution for each nonhighly compensated employee of 100% of the employee's elective deferrals up to 3% of pay, plus 50% of the employee's elective deferrals over 3% but less than 5% of pay (alternatively, an enhanced matching formula may be used) ; or

--provide a nonelective contribution for each participating nonhighly compensated employee of 3% of the employee's pay.

Also, 401(k) plans which provide for automatic enrollment under sections 401(k)(13) and 401(m)(12) of the Internal Revenue Code are a type of safe harbor 401(k) plan. In these plans, the employer can provide either matching contributions, in a lower amount than the matching contributions described above, or nonelective contributions in the above amount.

One problem has been that the tax regulations generally require that a safe harbor 401(k) plan be adopted prior to the start of a year, and then must remain in effect for the entire year.This means that an employer generally may not choose to take any action to stop or reduce the matching or nonelective contributions to the plan at any time after the year has started. The regulations do provide an exception under which, subject to certain conditions, an employer who has chosen to meet the the rules pertaining to safe harbor 401(k) plans by making matching contributions could take action to stop or reduce those contributions during the year. Also, the regulations let the employer terminate the plan during the year. But what about an employer who has chosen to meet these rules by making nonelective contributions, and who does not want to terminate the plan?

The IRS has now proposed to revise the tax regulations, so that, subject to generally the same conditions which apply in the case of matching contributions, an employer who had chosen to make nonelective contributions to its safe harbor 401(k) plan could take action to stop or reduce those contributions during the year (without terminating the plan). The proposal allows an employer to rely on the proposed rules immediately, and to take action to stop or reduce the nonelective contributions at any time after May 18, 2009. Note that, as one of the conditions for reducing or stopping the nonelective contributions under the proposed rules, the employer must be facing a substantial business hardship, of the type described in section 412(c) of the Internal Revenue Code.

The proposed rules are here. Also, the IRS comments on the proposed rules in its Spring 2009 edition of Retirement News for Employers. See it here.

May 14, 2009

IRS Issues New Tables To Make Up For Under Withholding on Pension Payments

The IRS has issued Notice 1036-P, which provides tables for calculating additional amounts to be withheld from pension payments. The use of these tables is optional. The tables are intended to produce amounts which offset the reduction in income tax withholding under the tables issued in February 2009 in Publication 15-T (which incorporated the Making Work Pay Credit).

Notice 1036-P notes that, if a pension payee submitted a Form W-4P, after the issuance of the revised income tax withholding tables in Publication 15-T, to request additional withholding on line 3, the pension payor using an optional table under Notice 1036-P may wish to contact that payee to determine if that additional withholding is still desired, or if the payee wants to submit a new Form W-4P.

May 12, 2009

Employment-DOL Clarifies Employee Notification Procdures Under The FMLA

In FMLA 2009-1-A (January 6, 2009) (the "New Opinion Letter"), the Department of Labor (the "DOL") clarified its requirements for procedures by which employees may provide notice of their need for leave under the Family and Medical Leave Act (the "FMLA"). These requirements were previously discussed in Wage and Hour Opinion Letter FMLA-101 (January 15, 1999).

The New Opinion Letter indicates that, generally, an employee may take FMLA leave due to the birth or placement of a child, or for his or her own serious health condition or to care for a covered family member with a serious health condition. The employee must provide the employer with notice of the need for the leave at least 30 days before the leave is to begin, where possible. The DOL's FMLA regulations, issued in 1995, required that when leave is foreseeable less than 30 days in advance, the employee's notice must be provided "as soon as practicable," which the regulations clarified as meaning that at least verbal notification must be given to the employer within one or two business days of when the need for leave becomes known to the employee. Opinion letter FMLA-101 interpreted this language to bar an employer's attendance policy, which required employees taking intermittent FMLA leave to report within one hour after the start of their shift unless they were unable to report due to circumstances beyond their control, as being more stringent than the regulations allow. Concerns have been raised that FMLA-101 prevents an employer from applying internal call-in policies, disciplining employees under no call/no show policies, or disciplining employees who call in late, as long as the employee provides notice of his or her need for the leave within two business days of the leave's start, without regard to whether earlier notice was practicable.

However, the DOL revised its FMLA regulations, effective as of January 16, 2009. The revised regulations retain the rule that, when leave is foreseeable less than 30 days in advance, the employee's notice to the employer of the need for the leave must be provided "as soon as practicable." However, the "two business day" clarification was deleted, and was replaced by (1) a statement that it should be practicable for the employee to provide notice of the need for leave either on the day on which he or she first becomes aware of such need, or on the next business day and (2) an overriding rule by which practicability is ultimately determined by taking into account the employee's particular facts and circumstances. When providing the notice, under the revised FMLA regulations, the employee must comply with the employers' usual and customary notice and procedural requirements for requesting leave, absent unusual circumstances. Similar rules for employee notification apply under the revised FMLA regulation when the need for the leave is not foreseeable before the leave starts.

As to the use of the employer's notice and procedural requirements for requesting leave, the Preamble to the revised FMLA regulations had noted that the DOL recognizes that call-in procedures are routinely enforced in the workplace and are critical to an employer's ability to ensure appropriate staffing levels. Such procedures frequently specify both when and to whom an employee is required to report an absence. The DOL believes that employers should be able to enforce non-discriminatory call-in procedures, except where such procedures are more stringent than the timing for FMLA notice . Additionally, where unusual circumstances prevent an employee seeking FMLA leave from complying with the procedures, the employee will be entitled to FMLA leave so long as the employee complies with the procedures as soon as he or she can practicably do so.

The New Opinion Letter concludes that, if an employer's usual and customary notice and procedural requirements for requesting leave are consistent with what is practicable given the particular circumstances of the employee's need for leave, the employer's notice requirements can be enforced (as to that employee). The DOL rescinds Wage and Hour Opinion Letter FMLA-101, to the extent that the letter has been interpreted to create a flat two business day rule. Thus, for example, assume that the employer policy requires an employee to call in one hour prior to his or her shift to report absences. If an employee is absent on Tuesday and Wednesday, but does not call in on either day and instead provides notice of his or her need for FMLA leave when returning to work on Thursday, the employer may deny FMLA leave for this absence (absent unusual circumstances).

May 9, 2009

Employment-EEOC Issues Guidance On ADA-Compliant Action By Employers For Handling Swine Flu

As concern about the swine flu continues to grow, employers are encouraged to develop a procedure for handling any outbreak which affects their employees or business (see my blog entry of April 29, 2009). Any plan for dealing with the swine flu at work could raise issues under the Americans with Disabilities Act (the "ADA"), because the plan may involve:

-- medical examinations of, and acquisition of disability-related information from, employees; and

-- use of special gear, clothing or equipment, or mandatory/suggested absence from work, by employees who have a disability and need a reasonable accommodation to perform their jobs.

Cognizant of these issues, the U.S. Equal Employment Opportunity Commission (the "EEOC") has issued some guidance on ADA-compliant employer preparation for dealing with the swine flu. The guidance is here.

May 9, 2009

Employee Benefits-DOL Proposes Application Form On Which Claims For Denied COBRA Subsidy May Be Filed

The American Economic Recovery and Reinvestment Act of 2009 (the "Act") contains relief for certain COBRA recipients. Under the Act, individuals who become eligible for COBRA coverage due to an involuntary termination of employment (other than for gross misconduct) occurring from September 1, 2008 through December 31, 2009 are eligible to pay a reduced premium for COBRA coverage for up to 9 months, starting March 1, 2009. Such individuals include the terminated employee and his or her spouse and dependents, and are referred to as "Assistance Eligible Individuals" or "AEIs". This premium reduction, which equals 65% of the amount otherwise required to be paid, is referred to as the "Subsidy".

The Act contemplates that an employer or insurer may deny the Subsidy, or any COBRA continuation coverage, to an AEI, and provides that the Department of Labor will establish a procedure by which it may review these denials on an expedited basis. The Department is required to act on this matter in consultation with the IRS and must make a determination as to an AEI's eligibility for the Subsidy and COBRA continuation coverage within 15 business days after receipt of an AEI's application for review under its procedure. The Department has now issued a proposed application for a review of a Subsidy/COBRA coverage denial and a supporting statement. The proposed application is here and the supporting statement is here.

Note that the Department of Labor's application would be used by AEIs who are denied the Subsidy or COBRA coverage with respect to a private employer's group health care plan that is subject to the federal COBRA rules. The Act provides a subsidy for certain individuals covered under the group health plan of a federal, state or local government, or under an insured arrangement which is subject to state-law health care continuation requirements that resemble federal COBRA. For these individuals, the Centers for Medicare & Medicaid Services (CMS) has proposed an application form, and has issued a supporting statement, which is similar to the Department of Labor's application form and statement. The CMS form and statement are here.

May 8, 2009

Employment-EEOC Says (Informally) That A Health Risk Assessment Violates The ADA

A letter from the EEOC Office of Legal Counsel (regarded as an informal discussion rather than an official opinion) says that requiring employees to participate in a health risk assessment, as a condition for participating in the employer's health care plan, would violate the Americans with Disabilities Act ("ADA").

In the particular case covered by the letter, as a condition of obtaining coverage under a self-funded health care plan of the employer, an employee had to agree to participate in the health risk assessment, which included answering a short health-related questionnaire, taking a blood pressure test, and providing blood for use in a blood panel screen. This health risk assessment would involve disability-related inquiry and a medical examination. The ADA requires that, once employment has begun, any disability-related questions or medical examinations of employees must be job-related and consistent with business necessity. According to the letter, under EEOC guidance, such questions or examinations meet this criteria when the employer has a reasonable belief, based on objective evidence, that (1) an employee's ability to perform essential job functions will be impaired by a medical condition or (2) an employee will pose a direct threat due to a medical condition. Also, as the letter notes, an employer may seek disability-related information or require a medical examination (a) that follows up a request for reasonable accommodation when the disability or need for accommodation is not known or obvious or (b) as part of a voluntary wellness program. However, the letter concludes that the health risk assessment at issue did not meet any of the above, and would thus violate the ADA as an impermissible disability-related inquiry or medical examination.

The EEOC letter is here.

May 7, 2009

ERISA-PBGC Offers Calming Words About The New Funding Notice

By April 30, 2009, many defined benefit plans had to send to participants, among others, the first new funding notice required by the Pension Protection Act of 2006 (see my blog entry of April 16, 2009). This notice is intended to provide information about the plan's funding status, and several other matters, and must be provided even if the plan is not experiencing any funding difficulties. Nevertheless, it has occurred to some, including the Pension Benefit Guaranty Corporation (the "PBGC"), that a participant will automatically assume the worst about the plan upon receiving the notice. Therefore, on its website, the PBGC has offered a few words intended to calm down participants. The PBGC's statements are here.

May 5, 2009

Employee Benefits-Connecticut Joins Efforts To Clean Up Public Retirement Funds

In a press release dated May 4, 2009, Connecticut Treasurer Denise L. Nappier announced several steps that the state is taking to ensure the continuing integrity of the Connecticut Retirement Plans and Trust Funds (the "CRPTF"), in light of the ongoing criminal and civil investigations surrounding the New York Common Retirement Fund (the "CRF") (see my blog entry of April 23, 2009).

First, the state is terminating its relationship with Aldus Capital, LLC, which had been a manager of a fund, in CRPTF's private equity class, consisting of small and emerging sub-funds managed by others. This termination is due to Aldus' affiliation with Aldus Equity Partners, LP, the subject of investigations growing out of its business relationship with the CRF.

Second, all of CRPTF's fund of funds managers (those who, like Aldus Capital, LLC, are managing funds consisting of sub-funds managed by others) will be required to provide the state with additional disclosures, in the form of an affidavit from each sub-fund manager, disclosing any third party payments made by the sub-fund manager in connection with its work for CRPTF.

This disclosure rule stems from the concern that, as alleged in New York State, sub-managers are paying off placement agents to obtain the right to manage CRPTF assets. In addition, a fund of fund manager, who reports a third party payment made in connection with a sub-fund manager's obtaining or retaining an investment contract with the state, must disclose whether the placement agent, in turn, paid any sub-agent in connection with that contract. This requirement is aimed at preventing the situation, again as alleged in New York State, in which placement agents paid sub-agents in their effort to provide fund managers with the right to manage a portion of the CRPTF.

May 5, 2009

ERISA-Eighth Circuit Applies Supreme Court's Standard Of Fiduciary Review To Find Unum Liable For Disability Benefits: Is This Part Of A Trend?

In Chronister v. Unum Life Insurance Company of America, No. 07-3552 (8th Cir. 2009), the court ended over a dozen years of benefit claims and litigation in holding that Unum must pay an employee's disability benefits. The employee had been a nurse at Baptist Health in Arkansas. In 1995, she was injured in a car accident, and thereafter began receiving disability benefit payments under Baptist Health's long-term disability plan. This plan was insured and administered by Unum. After 24 months, Unum stopped benefit payments, due to the "self-reported symptoms" limitation of the plan. The employee exhausted her administrative remedies in contesting the payment stoppage, and then brought suit against Unum. The case wound up in the Eighth Circuit Court of Appeals. There, the court discussed the impact of the Supreme Court's decision in Metropolitan Life Ins.Co. v. Glenn, 128 S. Ct. at 2343 (2008) on how the decision by Unum-a fiduciary for ERISA purposes-to stop the disability benefit payments should be reviewed by the courts.

The Eighth Circuit court said that, in Glenn, the Supreme Court found that the abuse-of-discretion standard is the appropriate test for determining whether a court should overturn a fiduciary's decision to deny (or stop) a benefit under an employee benefit plan. The decision is overturned if abuse is found. In applying this standard, the court must take into account, and appropriately weigh together, several different, case-specific factors. If the fiduciary both determines whether an employee is eligible for the benefit and pays the benefit out of its own pocket, a conflict of interest exists. However, the conflict of interest is just one of those factors to be taken into account in applying the abuse-of-discretion standard, and the conflict is given increased weight in the analysis to the extent that the circumstances suggest a higher likelihood that the conflict affected the fiduciary's decision to deny (or stop) the benefit.

The Eighth Circuit court noted that the above was contrary to the manner in which, prior to Glenn, it had applied the abuse-of-discretion standard. The court said that, in the instant case, there are several factors that point to an abuse of discretion by Unum-primarily Unum's financial conflict of interest (being both the administrator of the plan in question and the benefit payor), Unum's overall history of biased claims administration (which the Supreme Court itself commented on in Glenn) and erroneous and arbitrary claims denials, and Unum's failure to follow its own claims-handling procedures when it did not take into account a determination by the Social Security Administration that the employee was disabled. Weighing these factors, the Court concluded that Unum's decision to deny the employee's claim for continued disability benefit payments was an abuse of discretion and must be overturned. Moreover, given that the employee's benefit claim had been pending for more than a decade, the court entered judgement in the employee's favor, rather than remand the case for further proceedings.

The question is whether Chronister could be a part of a trend under which a fiduciary's decision to deny a benefit claim will be subject to increased scrutiny. The abuse-of-discretion standard, as the test for determining whether a fiduciary's decision to deny a benefit claim should be overturned by a court, has been around for a long time. Clearly, Glenn weakens-if not ends-the argument advanced in certain cases that (e.g., due to a conflict of interest) a less deferential standard should apply. Nevertheless, Glenn and Chronister, and their requirement that all facts and circumstances be taken into account when applying the abuse-of-discretion standard, may encourage a court to dig for facts, e.g., the fiduciary's history on approving/denying benefit claims, that point to an abuse, allowing the court to overturn the fiduciary's.

The Chronister case is here. The Glenn case is here.

May 4, 2009

Employee Benefits-More On Public Retirement Fund Scandals

According to an article in a Wall Street Journal blog (the article is here), the Los Angeles City Employees' Retirement System ("LACERS"), which has about $9 billion in assets, has joined a number of other public pension funds in taking steps to improve the disclosures made in connection with how it does business, in the wake of the pay-to-play scandal at New York State Common Retirement Fund ("CRF").

Unlike the CRF, LACERS did not ban intermediaries, that is, persons from whom the right to manage a portion of LACERS assets may be obtained (see my blog entry of April 23, 2009). However, LACERS has approved a policy, which requires that firms that wish to manage LACERS assets, or to otherwise do business with LACERS, disclose the identity of third-party marketers or individuals that they use to market their funds.

May 1, 2009

ERISA-Current Status of Chrysler Pension Plans Explained

One of the issues surrounding the possible bankruptcy of any of the U.S. auto makers has been that the Pension Benefit Guarantee Corporation (the "PBGC") would have to take over that company's pension plans, perhaps overtaxing the PBGC's resources and jeopardizing the pension benefits under those plans (and others). On April 30, 2009, Chrysler filed for bankruptcy protection.

To deal with such issues, the PBGC has added to its website a page entitled "Chrysler Pension Plans: Information for Workers and Retirees". As to the current status of those plans, the page states that Chrysler's bankruptcy filing does not change the status of the defined benefit pension plans sponsored by Chrysler for its workers and retirees. The plans remain ongoing and are insured by the Pension Benefit Guaranty Corporation.  As the bankruptcy process unfolds, the PBGC will work with Chrysler, its unions, and all other stakeholders to ensure continuation of the pension plans.

The page from the PBGC website which talks about the Chrysler Pension Plans is here.