A recent federal district court case demonstrates the risk to an ERISA fiduciary’s personal assets when he commits a fiduciary breach. The court previously held that the former owner of a privately-held company engaged in a prohibited transaction and breached his fiduciary duties when he sold shares of company stock to his company’s leveraged ESOP at prices in excess of its fair market value. The district court required the owner to provide assets, including several cars, as security in conjunction with his motion to stay enforcement of the judgment pending appeal, stipulating that if the judgment were upheld, the security would be transferred to the plaintiffs. When the U.S. Court of Appeals for the Fifth Circuit upheld the judgment, the owner refused to turn over the assets. The district court is now ordering the owner to turn over the assets despite any hardship that it may cause the owner. Perez… Continue Reading
Safeguards to Defend Against Conflict of Interest Allegations in the Administration of ERISA Welfare Benefit Claims
In cross-motions for summary judgment in Geiger v. Aetna Life Insurance Company, the U.S. Court of Appeals for the Seventh Circuit considered whether Aetna, the designated claims fiduciary and insurer of disability benefits provided under an employer-sponsored ERISA welfare benefit plan, abused its discretion when it terminated the plaintiff’s disability benefits. The plaintiff was a former employee of the employer-plan sponsor. The terms of the plan specifically granted discretionary authority to Aetna with respect to determining benefits and construing the terms of the plan. However, the plaintiff alleged that Aetna had operated under a conflict of interest, as the party that both determined eligibility for and paid plan benefits, and thus abused its discretion in denying her claim. In deciding that Aetna did not abuse its discretion, the Court considered the following four safeguards that Aetna had undertaken to minimize any conflict of interest: (i) Aetna obtained numerous independent physician… Continue Reading
ERISA section 4042(a)(4) provides that the PBGC “may institute proceedings . . . to terminate a plan whenever it determines that the possible long-run loss of the corporation with respect to the plan may reasonably be expected to increase unreasonably if the plan is not terminated.” The PBGC investigates potential candidates for involuntary termination under its early warning program. The PBGC recently issued guidance listing examples of situations that would trigger such an investigation. Some examples relate to corporate transactions (e.g., transferring the plan to a weaker sponsor or controlled group following a controlled group breakup) whereas others relate to the financial deterioration of the plan sponsor (e.g., downgrading of a plan sponsor’s credit ratings or a downward trend in cash flow). View a full list of the early warning triggers.
The U.S. District Court for the Northern District of Texas issued a preliminary nationwide injunction December 31, 2016, blocking HHS from enforcing Section 1557 of the Affordable Care Act in Franciscan Alliance, Inc. et. al. v. Burwell. We previously reported on Section 1557 (which prohibits discrimination in certain healthcare programs and activities for Title IX reasons, e.g., race, color, national origin, sex, age, or disability), the final Section 1557 regulations issued by HHS, and the potential effects on healthcare providers, insurers, and employer-provided health care coverage here. The Franciscan Alliance plaintiffs are three religiously affiliated healthcare providers (later joined by five states) that claimed (i) HHS impermissibly extended Title IX to include gender identity and termination of pregnancy as forms of sex discrimination contrary to Title IX’s history and legislative intent, (ii) Section 1557 requires covered entities to perform and/or provide insurance coverage for abortion and transition-related procedures, and (iii)… Continue Reading
On December 28, 2016, the DOL released Interpretive Bulletin 2016-01 (the “Bulletin“), which provides updated guidance for ERISA plan fiduciaries with respect to the voting of proxies on individual securities held in employee benefit plan portfolios and the appropriateness of active engagement with corporate management by plan fiduciaries. In publishing the Bulletin, the DOL withdrew Interpretive Bulletin 2008-2 and generally reinstated the language of Interpretive Bulletin 94-2, with certain clarifications. The DOL was concerned that Interpretive Bulletin 2008-2 had been misunderstood in a manner that dissuaded plan fiduciaries from voting proxies and otherwise prudently exercising shareholders’ rights, particularly with respect to areas concerning environmental, social, and governance issues and active engagement with corporate management. View the Bulletin here. View a news release related to the Bulletin here.
The Puerto Rico Department of the Treasury recently issued Tax Policy Circular Letter No. 16-07 (the “Circular“), which announced applicable qualified retirement plan limits for 2017, as required by the Puerto Rico Internal Revenue Code of 2011 (the “PR Code“). For plans qualified in Puerto Rico and for those plans dual qualified in the United States and Puerto Rico, only the limits on annual benefits, annual contributions, and plan compensation have changed for 2017. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $215,000 (increased from $210,000 for 2016). Annual Contribution Limit (All Defined Contribution Plans): $54,000 (increased from $53,000 for 2016). Annual Compensation Limit (All Plans): $270,000 (increased from $265,000 for 2016). Compensation Limit for a Highly Compensated Employee: $120,000 (unchanged). Elective Deferrals Limit (Dual Qualified Plans or Federal Government Thrift Plans): $18,000 (unchanged). Elective Deferrals Limit (Puerto Rico-Only Plans): $15,000 (unchanged). Catch-up Contribution… Continue Reading
In Notice 2016-80, the IRS published the first Required Amendments List, which lists statutory and administrative changes in plan qualification requirements that (i) are first effective in the plan year in which the list is published and (ii) may require a plan amendment. This year’s list included just one item, which related to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to an employer’s bankruptcy. The deadline for adopting any required amendments described in this year’s Required Amendments List is December 31, 2018. View Notice 2016- 80.
Federal Agencies Release Additional Frequently Asked Questions on Special Enrollment Opportunities, Preventive Services, and Qualified Small Employer HRAs
On December 20, 2016, the federal Departments of Health and Human Services, Labor, and the Treasury issued a set of three frequently asked questions (“FAQs”) addressing issues under the Affordable Care Act (the “ACA”). These FAQs confirm that: (i) an individual who loses eligibility for individual coverage purchased through the public health insurance marketplace is entitled to a HIPAA special enrollment opportunity in employer group health plan coverage, if eligible, even if other coverage in the marketplace or in the individual market remains available; (ii) for non-grandfathered group health plans subject to the ACA, the effective date for the revised Women’s Preventive Services Guidelines released on December 20, 2016, is the first plan year beginning on or after December 20, 2017 (e.g., January 1, 2018 for calendar year plans); and (iii) the Qualified Small Employer Health Reimbursement Arrangement introduced in the 21st Century Cures Act and available to small employers… Continue Reading
The U.S. Department of Labor issued final regulations revising the ERISA claims procedures that apply to employee benefit plans offering disability benefits. Generally, these final regulations extend certain procedural rules applicable to claims submitted under group health plans to disability benefit claims submitted under ERISA plans that provide disability benefits. The final regulations apply to claims for disability benefits filed on or after January 1, 2018. View the final regulations here.
The 21st Century Cures Act, which recently passed in Congress and President Obama has stated he will sign, creates a new “qualified small employer health reimbursement arrangement” (“QSEHRA”) effective January 1, 2017. The QSEHRA is a new form of health reimbursement arrangement (“HRA”) that can reimburse substantiated medical care expenses, including premiums, of up to $4,950 per year (as adjusted for inflation) or up to $10,000 per year (as adjusted for inflation) if the QSEHRA reimburses family member expenses. The QSEHRA is available to an employer that (i) is not an “applicable large employer” under the Affordable Care Act (“ACA”) (which generally means having at least 50 full-time or full-time equivalent employees, determined on a controlled group basis) and (ii) does not offer a group health plan to any of its employees in the controlled group. Unlike “regular” HRAs, the QSEHRA generally is not considered a group health plan for… Continue Reading