In IRS Notice 2018-74 (the “Notice”), the Internal Revenue Service (the “IRS”) has issued new eligible rollover distribution notices.  The Notice contains revised safe harbor explanations, which may be used to meet the requirement found in Code section 402(f), that a plan administrator of a qualified retirement plan provide an explanation of the tax rules applying to an eligible rollover distribution made to the recipient.  The applicable safe harbor explanations in the Notice should be used immediately.  The Notice states that it has the following purposes.

This Notice modifies the two safe harbor explanations in Notice 2014-74 that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (“Code”) that certain information be provided to recipients of eligible rollover distributions.  The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”)) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47), and include other clarifying changes.

To assist with the implementation of the modified safe harbor explanations, this Notice contains two appendices. Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account. Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

In GCIU Employer Retirement Fund v. Quad/Graphics, Inc., No. 17-55667 (9th Cir. 2018) (Unpublished Memorandum), the issue for decision was whether Quad/Graphics, Inc. (“Quad”) partially withdrew from the GCIU-Employer Retirement Fund (“the Fund”) in 2010, after employees at Quad’s Versailles, Kentucky, facility voted to decertify a collective bargaining agreement (“CBA”).  An arbitrator found that Quad had not withdrawn, but on review, the district court disagreed.  Quad appeals.

In reviewing this case, the Ninth Circuit Court of Appeals (the “Court”) said that, like the district court, we must presume the arbitrator’s factual findings are correct but review his conclusions of law de novo.  As such, the Court affirmed the district court’s decision that Quad had partially withdraww from the Fund.

In explaining its decision, the Court noted that an employer partially withdraws from a multiemployer pension plan, such as the Fund, when it permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute.  The district court correctly held that Quad partially withdrew from the Fund in 2010.  The Versailles CBA-one of the CBAs that Quad had with the Union- became void prospectively as of the decertification of the union as the employee’s bargaining representative in December 2010, extinguishing Quad’s ongoing obligations to contribute to the Fund on behalf of Versailles employees under the Versailles CBA.

In Leirer v. P&G Disability Ben. Plan, No. 17-3426 (8th Cir. 2018), Gary Leirer worked for the Proctor & Gamble Company (which maintained the Proctor & Gamble Disability Benefit Plan, collectively, the “Company”) for many years.  He became disabled as a result of a medical condition and began receiving total disability benefits.  Following a medical examination, the Company later determined that Leirer was partially disabled, and it terminated his benefits when his partial disability coverage ended.  After the Company upheld its determination, Leirer filed suit under section 502(a)(1)(B) of ERISA (a suit for benefits).  The district court granted summary judgment in favor the Company, and Mr. Leirer appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) upheld the district court’s decision.  In doing so, the Court noted the following.  Mr. Leirer has not shown that a serious procedural irregularity existed, which caused a serious breach of the plan administrator’s fiduciary duty to him.  Further, the Company’s denial letter adequately stated the reasons supporting its decision.  The Company’s interpretation of the plan was reasonable and the Independent Medical Examination and Functional Capacity Evaluation constituted substantial evidence in support of its decision.  Also, there was no evidence that the Plan administrators’ conflict of interest—arising from their dual responsibilities of adjudicating Leirer’s claim and paying his benefits—affected the disposition of Leirer’s claim.

 

In Jander v. Retirement Plans Committee of IBM, Docket No. 17-3518 (2nd Cir. 2018), plaintiffs Larry Jander and Richard Waksman appeal from a judgment of the district court dismissing their suit against fiduciaries of IBM’s employee stock option plan (the “ESOP”).  The plaintiffs claim that the defendants violated their fiduciary duty under ERISA to manage the ESOP’s assets prudently, because they knew but failed to disclose that IBM’s microelectronics division (and thus IBM’s stock) was overvalued.  The district court determined that plaintiffs did not plausibly plead a violation of ERISA’s duty of prudence, because a prudent fiduciary could have concluded that earlier corrective disclosure would have done more harm than good.

On appeal, the plaintiffs assert that the foregoing standard for the duty of prudence is stricter than the one set out in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), and that the district court and others have applied this stricter standard in a manner that makes it functionally impossible to plead a duty-of-prudence violation.

In reviewing the case, the Second Circuit Court of Appeals (the “Court”) found it unnecessary to determine whether plaintiffs are correct, because they plausibly plead a duty-of-prudence claim even under the stricter standard used by the district court.  Here, the Court concluded that several allegations in the plaintiff’s complaint (considered in combination and drawing all reasonable inferences in plaintiffs’ favor) establish that a prudent fiduciary in the ESOP defendants’ position could not have concluded that corrective disclosure would do more harm than good.  Accordingly, the Court reversed the judgment of the district court and remanded the case back to the district court for further proceedings.

 

In Testa v. Becker, Nos. 17-1826-cv, 17-1985-cv (2nd Cir. 2018), in 1998, defendant Xerox Corporation Retirement Income Guarantee Plan (the “Xerox Plan”) issued a Summary Plan Description explaining that it would calculate plan participants’ benefits using the so-called “phantom account offset” method.  In 2006, the Second Circuit Court of Appeals (the “Court”) held in Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006), that defendant Lawrence Becker (“Becker”) could not use the phantom account offset when calculating benefits for a group of over one hundred plan participants who were hired before 1998.

Three years later, plaintiff Robert Testa (“Testa”), who was hired before 1998, learned that Becker had applied the phantom account offset to him.  Testa sued Becker under ERISA for denial of benefits and breach of fiduciary duty, alleging that Testa had defied the Court’s decision in Frommert.  The district court dismissed Testa’s denial-of-benefits claim as untimely but granted Testa summary judgment on his fiduciary-duty claim.  Becker appealed the latter; Testa cross-appealed the former.

Upon reviewing the case, the Court concluded that Testa’s denial-of-benefits claim is untimely (the the claim was brought 12 years after it accrued, so the 6 year statute of limitations had expired), and that Becker, not Testa, was entitled to summary judgment on the fiduciary-duty claim (Frommert did not apply to participants who did not bring timely denial of benefit claims).  Accordingly, the Court affirmed the judgment of the district court in part, reversed it in part, and remanded the case with directions to enter judgment for Becker and the Xerox Plan.

Further to yesterday’s blog, in a statement issued December 17, 2018, the Department of Health and Human said the following:

The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time. As always, the Trump Administration stands ready to work with Congress on policy solutions that will deliver more insurance choices, better healthcare, and lower costs while continuing to protect individuals with pre-existing conditions.

In Texas v. United States of America, Civil Action No. 4:18-cv-00167-O (N.D. Texas 2018), the district court judge ruled that the entire Affordable Care Act (the “ACA”) is unconstitutional, and therefore presumably unenforceable.

How did the judge arrive at this decision?  The Tax Cuts and Jobs Act of 2017 eliminated the penalty imposed on an individual for not having health insurance coverage, and thus not complying with the ACA’s Individual Mandate.  The judge who rendered the decision, Judge O’Connor, said that, without a penalty that could be imposed, the constitutionality of the Individual Mandate could no longer be supported by Congress’ taxing power, and, as no other power of Congress supports it, the Individual Mandate is unconstitutional.  Further, ruled Judge O’Connor, the Individual Mandate is not severable from the remainder of the ACA, so the entire ACA is not constitutional.

So what happens now?  Nothing immediately.  Judge O’Connor did not enjoin the ACA in his decision.  As such, the rules and requirements of the ACA remain the law.  The White House has announced that the ACA will stay in effect, through the upcoming appeal of Judge O’Connor’s decision to the Court of Appeals for the Fifth Circuit and (probably) to the United States Supreme Court.  So for right now, employers should continue to follow ACA rules.  Don’t be late with the Form 1094/1095 information returns (see my blog of December 12).

In Acosta v. Brain, Nos. 16-56529, 16-56532 (9th Cir. 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”) affirmed in part, reversed in part, and vacated in part the district court’s judgment in a civil enforcement action brought by the Secretary of the Department of Labor against Scott Brain, a former trustee of the Cement Masons Southern California Trust Funds (the “Trust Funds”), and Melissa Cook and Melissa W. Cook & Associates, PC (collectively, the Cook Defendants), former counsel to the Trust Funds, alleging violations of the ERISA.

The action alleged violations of two sections of ERISA — unlawful retaliation in violation of ERISA section 510, and breach of fiduciary duty in violation of ERISA section 404.

The Panel held that the district court did not err in concluding that Brain violated ERISA section 510 by retaliating against whistleblower Cheryle Robbins, the Director of the Trust Funds’ internal Audit and Collections Department.  The Panel held that Robbins’s participation in the Department of Labor (“DOL”) investigation of Brain was unmistakably protected activity under ERISA, and constituted an independently sufficient ground for the district court’s conclusion.  The Panel noted that there was a circuit split on the issue of whether “unsolicited internal complaints” constituted protected activity within the meaning of ERISA section 510, but concluded that the issue of Robbins’s letter-writing being protected activity was immaterial where Robbins’s cooperation with the DOL investigation provided an independent basis for the section 510 claim.

In Notice 2018-94, the Internal Revenue Service “IRS”) extends the due date for for furnishing to individuals the 2018 Form 1095-B, Health Coverage, and the 2018 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2019, to March 4, 2019.

A Form 1095-B provides information to an individual who is covered by minimum essential health coverage and therefore are not liable for the individual shared responsibility payment.  A Form 1095-C reports to the individual information about offers of health coverage from and enrollment in the employer’s health plan, and the individual may use this information to determine whether, for each month of the calendar year, the individual may claim the premium tax credit on his or her individual income tax return.

The Notice states that, in view of this automatic extension to March 4, 2019, the provisions under the Treasury regulations allowing the IRS to grant an extension of time of up to 30 days to furnish Forms 1095-B and 1095-C will not apply to the extended due date.  Notwithstanding the extension provided in this notice, employers and other coverage providers are encouraged to furnish 2018 statements as soon as they are able.

Recent tax legislation has changed some of the rules of the Internal Revenue Code (the “Code”) and the underlying regulations that apply to hardship withdrawals from 401(k) and 403(b) plans.  These changes are effective as of the plan year starting in 2019 (January 1, 2019 for calendar year plans), and are as follows, according to the preamble to the new proposed regulations (discussed below):

Changes Affecting 401(k) Plans.

Section 41113 of the Bipartisan Budget Act of 2018 (the “BBA”) directs the Secretary of the Treasury to modify Treas. Reg. §  1.401(k)-1(d)(3)(iv)(E) to: (1) delete the 6-month prohibition on pre-tax and after-tax employee contributions following a hardship distribution and (2) make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) (which allows distribution of pre-tax employee contributions for hardship).  The prohibition in (1) had been a part of the “safe harbor” hardship distribution rules.