June 26, 2014

ERISA-First Circuit Upholds Employer's/Administrator's Decision To Terminate Disability Benefits

In Rolando Ortega-Candelaria v. Johnson & Johnson, No. 13-1564 (1st Cir. 2014), plaintiff Ortega was appealing the district court's dismissal of his claims under ERISA. Before the district court, Ortega sought judicial review of the decision to terminate payment of disability benefits to him under the Johnson & Johnson Long-Term Disability Plan (the "Plan"). Ortega requested a judgment restoring his terminated benefits and ordering payment of past benefits. The district court dismissed Ortega's claims with prejudice.

On appeal, Ortega argued that his employer, Johnson & Johnson, and the Plan's administrator, Medical Card System,Inc. ("MCS") (collectively, the "Appellees"), arbitrarily and capriciously terminated his disability benefits. Ortega contends that the Appellees erroneously credited an examination by a physical therapist over the opinion of his treating physician. In analyzing the case, the First Circuit Court of Appeals (the "Court") said that, although a plan administrator may not arbitrarily refuse to credit a claimant's reliable evidence, including the opinions of a treating physician, we do not require administrators to automatically grant "special weight" to the opinion of a claimant's chosen provider. Further, Ortega was uncooperative during a functional capacity examination, failing to use his best efforts to complete required tasks, thereby invoking a Plan provision under which his benefits could be terminated on account of such failure. The Court concluded that, given the substantial record evidence supporting the Appellees' determination, the decision to terminate Ortega's benefits did not constitute an abuse of discretion and was neither arbitrary nor capricious. As such, the Court affirmed the district court's decision.

June 24, 2014

Employment-DOL Will Revise Definition Of Spouse Under FMLA To Comply With Windsor

An email from the U.S. Department of Labor (the "DOL") tells me that the DOl's Wage and Hour Division has announced a Notice of Proposed Rulemaking (an "NPRM") to revise the definition of spouse under the Family and Medical Leave Act of 1993 (the "FMLA") in light of the United States Supreme Court's decision in United States v. Windsor, which found section 3 of the Defense of Marriage Act ("DOMA") to be unconstitutional.

According to the email, the NPRM proposes to amend the definition of spouse so that eligible employees in legal same-sex marriages will be able to take FMLA leave to care for their spouse or family member, regardless of where they live. More information is available at the Wage and Hour Division's FMLA NPRM Website.

June 23, 2014

ERISA-Seventh Circuit Agrees With A Majority Of The Circuits And Holds That Funds In A Pension Plan Lose Anti-Assignment/Anti-Alienation Protection After Being Paid Out By The Plan

In National Labor Relations Board v. HH3 Trucking, Inc., Nos. 05-1362, 05-4075 (7th Cir. 2014), the issue arose as to whether money received from a pension plan covered by ERISA-which the money at issue was- is forever free of all legal claims by third parties.

In analyzing this issue, the Seventh Circuit Court of Appeals (the "Court") note that Section 206(d)(1) of ERISA provides that each pension plan shall provide that benefits provided under the plan may not be assigned or alienated. The Court further noted that in Guidry v. Sheet Metal Workers National Pension Fund, the Supreme Court held that a constructive trust on benefits, under which the pension plan must pay someone other than the plan's participant, violates this rule, even when the trust would be a remedy for the participant's violation of some other part of ERISA.

However, the Court continued, Section 206(d)(1), and the Supreme Court's decision in Guidry, concern assets in a plan's hands. The Tenth Circuit (from which Guidry originated) later concluded that §206(d)(1) does not prohibit the attachment or garnishment of funds after the plan had distributed them to the retiree. Five other circuit courts of appeals (1st, 2nd, 3rd ,6th, and 9th circuits) have agreed with the Tenth Circuit. The Court concluded that it agrees with the majority of the circuits, so that money loses its anti-alienation/ anti-assignment or protection after it leaves the plan.

June 18, 2014

ERISA-Seventh Circuit Rules That Plaintiffs Did Not Have Actual Knowledge Of The ERISA Violation, So The Three-Year Statute Of Limitations In ERISA § 413(2) Did Not Apply

In Fish v. GreatBanc Trust Company, No. 12-3330 (7th Cir. 2014), the central issue in the appeal is the application of the statute of limitations for claims for breach of fiduciary duty under ERISA. The presumptive limitation period for violations is six years from the date of the last action constituting part of the breach or violation, but the statute provides a limited exception. The time is shortened to just three years from the time the plaintiff gained "actual knowledge of the breach or violation." 29 U.S.C. § 1113. (The six-year limit can also be extended in cases of fraud or concealment, but neither was at issue here.)

The plaintiffs in this case were employees of The Antioch Company who participated in an employee stock ownership plan or ESOP. Their claims arise from a buy-out transaction at the end of 2003 in which Antioch borrowed money to buy all stock except the stock owned by the employee stock ownership plan. The buy-out ended badly, leaving Antioch bankrupt and the employee stock ownership plan worthless. The plaintiffs have sued under ERISA for breach of fiduciary duties in the buy-out. The district court granted summary judgment for the defendants under the three-year limit of ERISA § 413(2), finding that proxy documents given to plaintiffs at the time of the buy-out transaction and their knowledge of Antioch's financial affairs after the transaction gave them actual knowledge of the alleged ERISA violations more than three years before suit was filed.

The Seventh Circuit Court of Appeals (the "Court") reversed the district court's summary judgment. It said that the plaintiffs' claims for breach of fiduciary duty do not depend solely on the disclosed substantive terms of the 2003 buy-out transaction. Their claims also depend on the processes that defendant GreatBanc Trust used to evaluate, to negotiate, and ultimately to approve the ill-fated transaction. The plaintiffs' knowledge of the substantive terms of the buyout transaction itself therefore did not give them "actual knowledge of the breach or violation" alleged in this case. Without actual knowledge, the three-year limit does not apply.

June 16, 2014

ERISA-Ninth Circuit Discusses The Availability Of Surcharge As A Type Of Equitable Relief

In Gabriel v. Alaska Electric Pension Fund, No. 12-35458 (9th Cir. 2014) (discussed in my blog of June 12), the plaintiff sued the defendants for, among other things, breach of the fiduciary duties under ERISA section 502(a)(3). The district court had granted summary judgment to the defendants on this and the plaintiffs other claims. The Ninth Circuit Court of Appeals (the "Court") affirmed the district court's judgment.

The Court noted that three types of remedies are available to a plaintiff, as "appropriate equitable relief", on a claim brought under section 502(a)(3)-equitable estoppel, plan reformation and surcharge. The Court found that, in this case, the plaintiff was not entitled to any of the remedies. The remedy of surcharge has lately drawn a lot of interest, having been brought up by the Supreme Court in CIGNA Corp. v. Amara. Here is what the Court said on surcharge:

The remedy, "appropriate equitable relief" also includes "surcharge", defined as "the power to provide relief in the form of monetary 'compensation' for a loss resulting from a trustee's breach of duty, or to prevent the trustee's unjust enrichment." (quoting Amara). Under the traditional equitable principles specified in Amara, the surcharge remedy was available when a breach of trust committed by a fiduciary resulted in a loss to the trust estate or allowed the fiduciary to profit at the expense of the trust. Under these circumstances, a surcharge remedy can protect the beneficiaries of a trust by making the trust estate whole. If a breach of trust causes a loss, including any failure to realize income, capital gain, or appreciation that would have resulted from proper administration, the beneficiaries are entitled to restitution and may have the trustee surcharged for the amount necessary to compensate fully for the consequences of the breach. However, the trustee is not subject to surcharge for a breach of trust that results in no loss to the estate or profit to the trustee.

The remedy of surcharge is available under ERISA to the extent it has been available as a traditional equitable remedy. The remedy may be applied to redress losses of value or lost profits to the trust estate and to require a fiduciary to disgorge profits from unjust enrichment. Specifically, as the Court held earlier: (1) the remedy of surcharge is available against the fiduciary for benefits it gained through unjust enrichment or for harm caused as the result of its breach; and (2) the fiduciary could be liable for loss of value to the trust or for any profits that the trust would have accrued in the absence of the breach, in both cases in order to return the beneficiary to the position he or she would have attained but for the fiduciary's breach.

June 12, 2014

ERISA-Ninth Circuit Holds That The Plaintiff Is Not Entitled To Plan Benefits Based On Claim For Equitable Relief

In Gabriel v. Alaska Electric Pension Fund, No. 12-35458 (9th Cir. 2014), for over three years, a defendant, Alaska Electric Pension Fund (the "Fund"), paid plaintiff Gabriel monthly pension benefits he had not earned. This case arises from the events that occurred after the Fund discovered this error.

In short, the Fund determined that Gabriel did not have enough service to vest in pension benefits payable by the plan underlying the Fund. The Fund terminated Gabriel's benefit payments, and threatened to seek reimbursement for $81,033 in benefits Gabriel had previously received. In response, Gabriel brought an ERISA action in district court against the Fund and others. In his complaint, Gabriel brought claims for recovery of benefits and clarification of rights to future benefits under ERISA section 502(a)(1)(B) and breach of the fiduciary duties under ERISA section 502(a)(3). The district court granted summary judgment to the defendants on all of Gabriel's claims, and Gabriel appeals.

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court") considered Gabriel's argument that the defendants violated their fiduciary duties under ERISA (or the terms of the Plan) for which he is entitled to "appropriate equitable relief" under section 502(a)(3). The Court identified , and rejected Gabriel's claim as to, the three available types of equitable relief:

(1) equitable estoppel, providing no relief because the Fund did not interpret ambiguous plan language, but rather made a mistake in paying benefits, and Gabriel was not ignorant of the true facts (i.e., that he was not vested);

(2) reformation of the plan, providing no relief because Gabriel could not establish that a mistake of fact or law affected the plan's or Fund's terms or that any fraud was involved; and

(3) surcharge, providing no relief because Gabriel did not claim that any of the fiduciaries were unjustly enriched, rather, they discontinued a benefit to which Gabriel was not entitled, and Gabriel is not seeking a monetary award to recoup losses.

As to Gabriel's claim under section 502(a)(1)(B), the Court said that Gabriel argues that the Fund waived the rationale that it was denying him benefits because he was not vested. The Court reject this argument, finding that the Fund met all procedural requirements in stopping the benefits, and otherwise did nothing to waive its determination that it needed to stop the benefits because Gabriel was not vested.

The Court concluded that Gabriel cannot demonstrate that he is entitled to any of the equitable remedies available under section 502(a)(3), or that the Fund waived its argument that he never vested. Therefore, the Court affirmed the district court's grant of summary judgment in favor of the defendants.

June 11, 2014

Employee Benefits - IRS Provides Guidance On Verifying Rollover Contributions

In Employee Plans News, Issue 2014-8, May 16, 2014, the Internal Revenue Service (the "IRS") provides guidance on verifying rollover contributions. Here is what the IRS said:

A retirement plan isn't required to accept rollover contributions from other plans or IRAs, but if it does, the incoming funds must:

• be permissible rollovers allowed by the plan document,
• come from a qualified plan or IRA,
• be the type of funds eligible to be rolled over, and
• be paid into the new plan no later than 60 days after the employee receives the funds from the old plan or IRA.

The plan administrator should take reasonable steps to evaluate whether these conditions are met. If the funds are coming directly from the old plan or IRA - for example, via a check made out to the new plan - then there is no 60-day requirement.

Safe harbor procedures. Revenue Ruling 2014-9 describes simplified due diligence procedures for a plan administrator to confirm the sending plan or IRA's tax-qualified status and conclude that a rollover contribution is valid. These procedures are generally sufficient:

• employee certification of the source of the funds
• verification of the payment source (on the incoming rollover check or wire transfer) as the participant's IRA or former plan
• if the funds are from a plan, looking up that plan's Form 5500 filing, if any, in the Department of Labor's EFAST2 database for assurance that the plan is intended to be a qualified plan.

It's not necessary to obtain a letter from the distributing plan when its qualified status can be checked using the online Department of Labor filing search.

Example (1): Alice makes a direct rollover contribution to Plan A with a check from Plan B payable to the trustee of Plan A, for the benefit of Alice. Plan A accepts all rollover contributions except after-tax or designated Roth contributions. Plan A's administrator may reasonably conclude that Alice's rollover contribution is valid based on these factors:

1. Alice, aged 50, certifies that her Plan B distribution doesn't include after-tax contributions or amounts attributable to designated Roth contributions.
2. Plan A's administrator verifies that the rollover check was issued by Plan B payable to the trustee of Plan A. The plan administrator may reasonably conclude that the trustee of the distributing plan treated the amount as an eligible rollover distribution.
3. Plan A's administrator checks the EFAST2 database for Plan B's most recent Form 5500 filing and sees that the entry on line 8a (identifying plan characteristics) indicates the plan is intended to be a qualified plan.

Example (2): Brian, aged 60, gives Plan A's administrator a check from the trustee of his traditional IRA, payable to Plan A for the benefit of Brian. The check stub identifies the source of the funds as "IRA of Brian." Brian also certifies that the distribution includes no after-tax amounts. Based on the information on the checkstub and Brian's certification, the plan administrator may conclude that Brian's rollover contribution is valid.

Will an invalid rollover contribution jeopardize my plan's qualification? In general, a plan can accept a direct rollover contribution without jeopardizing its qualified status if the plan administrator:

1. reasonably concludes that the rollover contribution is valid, and
2. distributes any ineligible rollover contribution, with earnings, within a reasonable time of discovering the error (Treasury Regulation Section 1.401(a)(31)-1, Q&A 14).
Form 5500 filings database.

A plan administrator can access the EFAST2 database maintained by the Department of Labor, and:
• Search for the most recently filed Form 5500 or 5500-SF for the plan making the rollover distribution.
• On the latest Form 5500 or 5500-SF for the plan, check the entry on the line for plan characteristics (line 8a on Form 5500 and line 9a for Form 5500-SF).
• Code 3C entered on this line indicates that the plan is not intended to be a qualified plan. If any other code is entered on this line, the plan administrator may reasonably conclude that the plan is qualified.

Not all plans are required to file a Form 5500 or Form 5500-SF, so sometimes this information will not be available.

It's not necessary for the distributing plan to have a determination letter from the IRS on its qualified status for a plan administrator to conclude that a rollover contribution is valid.

Eligible rollover distributions. IRAs: You can roll over all or part of any distribution from your IRA except:

• A required minimum distribution or
• A distribution of excess contributions and related earnings.

Retirement plans: You can roll over all or part of any distribution of your retirement plan account except:

• Required minimum distributions,
• Loans treated as a distribution,
• Hardship distributions,
• Distributions of excess contributions and related earnings,
• A distribution that is one of a series of substantially equal payments,
• Withdrawals electing out of automatic contribution arrangements,
• Distributions to pay for accident, health or life insurance,
• Dividends on employer securities, or
• S corporation allocations treated as deemed distributions.

Distributions that can be rolled over are called "eligible rollover distributions." Of course, to get a distribution from a retirement plan, you have to meet the plan's conditions for a distribution, such as termination of employment.

June 9, 2014

ERISA-Sixth Circuit Rules That Suit Is Not Time Barred, And Upholds Award of Damages and Prejudgment Interest For Violation Of ERISA Fiduciary Duty

In Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, Nos. 13-1773/1859 (6th Cir. 2014), the Hi-Lex corporation ("Hi-Lex") filed suit in 2011 alleging that Blue Cross Blue Shield of Michigan ("BCBSM") breached its fiduciary duty under ERISA, by inflating hospital claims with hidden surcharges in order to retain additional administrative compensation. The district court granted summary judgment to Hi-Lex on the issue of whether BCBSM functioned as an ERISA fiduciary and whether BCBSM's actions amounted to self-dealing. A bench trial followed in which the district court found that Hi-Lex's claims were not time-barred and that BCBSM had violated ERISA's general fiduciary obligations under 29 U.S.C. § 1104(a). The district court awarded Hi-Lex $5,111,431 in damages and prejudgment interest in the amount of $914,241. BCBS appeals.

Hi-Lex is an automotive supply company with approximately 1,300 employees. BCBSM contracts to serve as a third-party administrator ("TPA") for companies and organizations that self-fund their health benefit plans. Since 1991, BCBSM has been the contracted TPA for Hi-Lexs Health and Welfare Benefit Plan (the "Health Plan"). In 1993, BCBSM implemented a new system whereby it would retain additional revenue by adding certain mark-ups (i.e., surcharges) to hospital claims paid by its clients. These fees were charged in addition to the normal administrative fee that BCBSM collected. Hi-Lex eventually brought this suit over these surcharges.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") ruled, first, the BCBS was an ERISA fiduciary with respect to the Health Plan, and when it imposed the surcharges, since it exercised authority or control over the plan assets. As such, imposing the surcharges is an act of self-dealing (BCBS discretionarily set fees for its own account) and violated its general fiduciary duties (loyalty, prudence and acting for participant's exclusive benefit).

As to whether the suit is time barred, the Court said that, for actions-as here-brought under 29 U.S.C. §§ 1104(a) and 1106(b), ERISA requires that a claim be brought within three years of the date the plaintiff first obtained actual knowledge of the breach or violation forming the basis for the claim. Three years is extended to six years in the case of fraud or concealment. . Actual knowledge means knowledge of the underlying conduct giving rise to the alleged violation, rather than knowledge that the underlying conduct violates ERISA. In this case, Hi-Lex obtained knowledge of the surcharges August 2007 ( when a "Value of Blue" pie chart that depicted the charges was presented to the company as part of an annual settlement meeting with BCBSM). Since Hi-Lex filed suit in June 2011, it must avail itself of ERISA's fraud or concealment exception or its action is time-barred. Here, BCBSM breached its fiduciary duty by committing fraud and then acting to conceal that fraud (by knowingly misrepresenting and omitting information about the surcharges) in contract documents. As such, the 6 year statute of limitations applies and Hi-Tech's suit is not time barred. The Court affirmed the district court's judgment, including the damages and prejudgment interest the district court had awarded

June 4, 2014

ERISA-Second Circuit Finds That The Employer And Its Directors Did Not Violate ERISA By Contributing Employer Stock (Instead Of Cash) To Two Retirement Plans, Despite A Price Decrease Of The Stock

In Coulter v. Morgan Stanley & Co. Inc. (2nd Cir. 2014), the plaintiffs had alleged violations of ERISA's fiduciary requirements, in connection with the drop of the price of employer stock held by two retirement plans (a 401(k) plan and an ESOP, together the "Plans") in which they participate. The defendants were the employer, Morgan Stanley, and certain of its directors. The district court, in finding that the Moench presumption of prudence applies to the defendants' conduct, and that the plaintiffs failed to rebut this presumption, granted defendants' motions to dismiss. The plaintiffs appealed. The Second Circuit Court of Appeals (the "Court") did not rule on this finding, but concluded that the defendants' conduct did not trigger fiduciary liability under ERISA and therefore affirmed the district court's dismissal of the case on that ground.

In this case, in 2007 and 2008, the employer, Morgan Stanley, had made certain contributions to the Plans in the form of employer stock instead of cash. After the price of the employer stock fell during a broad economic downturn, the plaintiffs brought this suit, alleging breach of fiduciary duty under ERISA. In reviewing the case, the Court found that the conduct complained of-contributing employer stock rather than cash-did not occur in the performance of a fiduciary function. Such a function requires the management or administration of the plan as opposed to a "settlor function", i.e., a business decision. Therefore, the conduct in question cannot trigger fiduciary liability under ERISA.

June 3, 2014

Employee Benefits-IRS Provides Guidance On Retirement Plan Payments for Accident, Health and Disability

In Employee Plans News, Issue 2014-8, May 16, 2014, the Internal Revenue Service (the "IRS") provides guidance on retirement plan payments for accident, health and disability. Here is what the IRS said:

Final regulations. Final regulations (T.D. 9665) state that payments from a qualified defined contribution plan to pay a participant's:

• accident and health insurance premiums are taxable distributions to the participant unless a statutory exception applies (Internal Revenue Code Sections 72 and 402(a)), and

• disability insurance premiums aren't taxable distributions if they meet certain conditions.

The regulations finalize the 2007 proposed regulations and add the exception for disability insurance coverage; they are effective January 1, 2015, but may be applied earlier.

Accident and health insurance. The 2007 proposed regulations stated the general rule that payments from a qualified plan to pay a participant's accident or health insurance premiums are taxable distributions unless they're paid:

• from a qualified retiree health account (IRC Section 401(h)), or

• for qualified public safety officers (IRC Section 402(l)).

Disability insurance. The final regulations include an exception for disability insurance premiums being taxed to participants if the following conditions are met:

1. Premiums for the disability insurance contract are paid directly from the plan.

2. The plan receives the benefit payments as required by the disability insurance contract.

3. Benefit payments under the contract are paid because of an employee's inability to continue employment with the employer because of disability.

4. The benefit payments to a participant's account aren't more than a reasonable expectation of what the participant would've received as an annual contribution during the disability period, reduced by any other contributions.

If these conditions are satisfied, the disability insurance is considered a plan investment, and the plan's premium payments and the insurance's benefit payments to the plan aren't taxable to the participant.

If the disability insurance premiums aren't paid by the plan, the insurance benefits paid to the plan aren't a return on a plan investment. Instead, these payments are contributions to the plan governed by qualified plan contribution rules (generally, IRC Section 415(c), which limits employer contributions to a defined contribution plan).

If an employer self-insures this disability coverage (or doesn't finance it through third party insurance), the amount paid to the plan because of the employee's disability is also considered a contribution to the plan governed by the general qualified plan contribution rules.

June 2, 2014

ERISA-Eighth Circuit Holds That The Administrator Did Not Abuse Its Discretion In Determining the Beneficiary Of The Plan's Life Insurance Proceeds

In Hall v. Metropolitan Life Insurance Company, No. 13-1332 (8th Cir. 2014), the plaintiff, Jane Hall ("Hall"), had sued Metropolitan Life Insurance Company ("MetLife"), alleging that MetLife abused its discretion in denying her claim to receive the proceeds of her late husband's life insurance policy under an employee benefit plan governed by ERISA. The district court granted summary judgment for MetLife, and Hall appeals.

In this case, Dennis Hall began work at Newmont USA Limited in August 1988. Through his employment at Newmont, Dennis obtained a life insurance policy issued by MetLife. In 1991, Dennis designated his son, Dennis Hall II, as the beneficiary of the life insurance policy. The designation was appropriately filed. Under the terms of the governing employee benefit plan ("the Plan"), MetLife is expressly granted "discretionary authority to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits in accordance with the terms of the Plan." The Plan also informs Newmont employees how they may designate or change the beneficiary or beneficiaries of their policy.

Jane Hall married Dennis in May 2001. Around March 2010, Jane and Dennis began traveling regularly to the Mayo Clinic in Rochester, Minnesota, for medical examinations and treatment relating to Dennis's cancer diagnosis. Dennis made a new beneficiary designation of the life insurance proceeds, naming Hall, but never filed the new designation with the Plan. Just before he died from the cancer, Dennis made a will under which all of his life insurance and other benefits will be paid to Hall. Even though Dennis Hall II was the designated beneficiary of the life insurance proceeds on file with the Plan, Hall claimed payment, based on Dennis' will and the unfiled new beneficiary designation. MetLife decided to deny Hall's claim, and ultimately distributed the life insurance proceeds to Dennis Hall II. This suit ensued.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that where, as here, a plan governed by ERISA gives the administrator discretionary power to interpret the terms of the plan or to make eligibility determinations, a federal court reviews the administrator's decisions for abuse of discretion. Hall argued that MetLife abused its discretion by refusing to recognize either Dennis's will or the new beneficiary designation. However, the Court disagreed with these arguments, stating that MetLife reasonably viewed the will as applying only to Dennis' estate and not the Plan, and that MetLife reasonably rejected the new beneficiary designation because it was never filed with the Plan. The Court also rejected an argument by Hall that that the district court erred by refusing to apply the federal common law doctrine of substantial compliance to conclude that Dennis effected a change of beneficiary. Accordingly, the Court upheld the district court's judgment that Dennis Hall II is the appropriate recipient of the life insurance proceeds.

May 29, 2014

Employee Benefits-IRS Updates Its FAQs On Individual Shared Responsibility Requirements

According to the IRS, under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals share the responsibility for health insurance coverage beginning in 2014. The IRS has just updated its FAQs on the health insurance requirements imposed on individuals. The revised FAQs are here.

May 28, 2014

Employee Benefits-IRS Provides Guidance On Mid-Year Plan Amendments Related to Same-Sex Marriages

In Employee Plans News, Issue 2014-8, May 16, 2014, the Internal Revenue Service (the "IRS") provides guidance on mid-year plan amendments related to same-sex marriages. Here is what the IRS said:

Couples. Safe harbor 401(k) or 401(m) plans may be amended mid-year to comply with the Supreme Court's decision in United States v. Windsor and related IRS guidance in Revenue Ruling 2013-17 and Notice 2014-19 (Notice 2014-37). The Windsor decision invalidated Section 3 of the 1996 Defense of Marriage Act (DOMA), which barred married same-sex couples from being treated as married under federal law.

When plan amendments are required. A plan with terms that are inconsistent with Windsor or Revenue Ruling 2013-17 must be amended to comply (Notice 2014-19). For example, a plan must be amended if it defines "spouse" by reference to section 3 of DOMA, or only as a person of the opposite sex. Similarly, a plan must also be amended if a plan sponsor chooses to reflect the outcome of Windsor for periods prior to the date Windsor was decided. Required amendments must generally be adopted by the later of December 31, 2014, or the applicable date under the IRS' general amendment guidance for qualified retirement plans, Revenue Procedure 2007-44 (Q&A-8 of Notice 2014-19).

Safe harbor plan rules. A safe harbor 401(k) or 401(m) plan must generally be adopted at the beginning of a plan year and maintained throughout the full 12-month year. Plan amendments to reflect Windsor and related IRS guidance are exceptions to this general rule.


May 22, 2014

ERISA-DOL Discusses Templates To Be Used For Summary of Benefits And Coverage

The U.S. Department of Labor (the "DOL") has issued FAQs about Affordable Care Act Implementation (Part XIX), which provide guidance on the templates that should be used for a plan's Summary of Benefits and Coverage under the Affordable Care Act (the "ACA"). Here is what the FAQs say:

In general. PHS Act section 2715, as added by the ACA and incorporated by reference into ERISA and the Code, directs the governing Departments (DOL, Treasury and Health and Human Services) to develop standards for use by a group health plan in compiling and providing a summary of benefits and coverage (an "SBC") that accurately describes the benefits and coverage under the applicable plan. On February 14, 2012, the Departments published final regulations regarding the SBC. At the same time, the Departments published a notice announcing the availability of templates, instructions, and related materials authorized for implementing the disclosure provisions under PHS Act section 2715 for the first year of applicability (that is, for SBCs and the uniform glossary provided with respect to coverage beginning before January 1, 2014).

The Departments stated that updated materials would be issued for later years. The Departments issued FAQs in April 2013 providing guidance for SBCs provided with respect to coverage beginning on or after January 1, 2014, and before January 1, 2015 ("the second year of applicability").

The Templates. An updated SBC template (and sample completed SBC) were made available at http://cciio.cms.gov and http://www.dol.gov/ebsa/healthreform in April 2013 for the second year of applicability. Until further guidance is issued, these documents continue to be authorized. There are no changes to the uniform glossary or the "Why This Matters" language for the SBC. There are also no changes to the Instructions for Completing the SBC, including the special rule providing that, "[t]o the extent a plan's terms that are required to be described in the SBC template cannot reasonably be described in a manner consistent with the template and instructions, the plan or issuer must accurately describe the relevant plan terms while using its best efforts to do so in a manner that is still as consistent with the instructions and template format as reasonably possible."

May 20, 2014

ERISA-DOL Provides Guidance On The Health FSA Carryover And Excepted Benefits Under The Affordable Care Act

The U.S. Department of Labor (the "DOL") has issued FAQs about Affordable Care Act Implementation (Part XIX), which provide guidance on the health FSA carryover and excepted benefits under the Affordable Care Act (the "ACA").
Here is what the FAQs say:

Excepted benefits provided under a group health plan generally are exempt from the Health Insurance Portability and Accountability Act ("HIPAA") and ACA market reform requirements of ERISA, the PHS Act, and the Code. Under earlier regulations, health FSAs generally constitute excepted benefits if:

1. The employer also makes available group health plan coverage that is not limited to excepted benefits for the year to the class of participants by reason of their employment; and

2. The arrangement is structured so that the maximum benefit payable to any employee participant in the class cannot exceed:

a. two times the employee's salary reduction election for the arrangement for the year; or,

b. if greater, $500 plus the amount of the participant's salary reduction election).

On October 31, 2013, the Department of the Treasury and Internal Revenue Service issued guidance modifying the "use-or-lose" rule for health FSAs, to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate a grace period. The guidance provided that the carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make under section 125(i) of the Code ($2,500 adjusted for inflation after 2012).

Unused carry over amounts remaining at the end of a plan year in a health FSA that satisfy the modified "use-or-lose" rule should not be taken into account when determining if the health FSA satisfies the maximum benefit payable limit prong under the excepted benefits regulations.