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Review of Plans Affected by ERISA Final Regulations for Disability Benefits Claims Procedures

Last December, we reported on the DOL’s release of final regulations revising ERISA’s claims procedures for disability benefits. A more in-depth review of the types of benefit plans affected by these final regulations is available on our companion blog, HB Health and Welfare.

En Banc Ninth Circuit Applies Ongoing Duty to Monitor Investments Standard in Tibble

The U.S. Court of Appeals for the Ninth Circuit, sitting en banc, recently held that plaintiffs’ breach of fiduciary duty claims were not barred by ERISA’s six year limitations period, even when the retirement plan investments in question were selected by the plan’s fiduciary more than six years prior to plaintiffs’ suit. The Ninth Circuit applied the U.S. Supreme Court’s recent decision in this case, which confirmed that fiduciaries have an ongoing fiduciary duty to monitor investments in retirement plans and to remove imprudent ones. (For additional information on the Supreme Court’s decision, please see our prior post.) The Ninth Circuit distinguished between a fiduciary’s duty to prudently select investment alternatives from the fiduciary’s duty to prudently monitor them. Consequently, a fiduciary’s ongoing duty to monitor plan investments could result in a series of breaches as an investment alternative is retained over time. The Ninth Circuit remanded the case back… Continue Reading

IRS Proposed Regulations Clarify the Definition of Tax “Dependent”

The IRS recently issued proposed regulations regarding the definition of “dependent” under the Internal Revenue Code (“Code”). The proposed regulations generally update existing regulations to conform to amendments previously made to Code Section 152 and other Code sections by the Working Families Tax Relief Act of 2004 (“WFTRA”) and subsequent legislation. Under WFTRA, Code Section 152 was amended to provide that a federal income tax dependent is either a taxpayer’s “qualifying child” or “qualifying relative.” These definitions are relevant for employers that sponsor (i) group health plans if such plans provide coverage for an employee’s dependent who is not his or her spouse or child under age 27, but who is the employee’s federal income tax dependent, and (ii) dependent care assistance programs which reimburse covered employees for qualifying dependent care expenses of qualifying children and certain other federal income tax dependents. The proposed regulations also provide new guidance with… Continue Reading

New IRS Guidance Permits Use of Forfeitures to Fund Safe Harbor Contributions, QNECs, and QMACs

On January 18, 2017, the IRS published proposed amendments to regulations under Section 401(k) of the Internal Revenue Code, which would permit the use of forfeitures to fund safe harbor contributions, qualified non-elective contributions (“QNECs”), and qualified matching contributions (“QMACs”). Existing regulations provide that employer contributions may only qualify as safe harbor contributions, QNECs, or QMACs if they are non-forfeitable and not eligible for early distribution at the time they are contributed to the plan. The proposed regulations, which may be relied upon currently, would instead require that safe harbor contributions, QNECs, and QMACs be non-forfeitable and not eligible for early distribution at the time they are allocated to participants’ accounts. View the proposed regulations.

Fixed-Indemnity Health Plan Benefits Includible in Gross Income

Generally, a fixed-indemnity health plan pays benefits based on a time period, such as $100 per day, and not based on the amount of medical care expenses actually incurred. The IRS issued an Office of Chief Counsel Memorandum (the “Memorandum”) stating that benefit payments under an employer’s fixed indemnity health plan are included in the employee’s gross income and wages if the employer pays for the cost of the coverage or if the premiums are paid for on a pre-tax basis through a cafeteria plan. Such benefits are not included in gross income and wages if employees pay premiums on an after-tax basis. The advice in the Memorandum may not be used or cited as precedent but does provide insight regarding how the IRS would view a similar tax situation. View the Memorandum.

Employers Should Continue to Comply with the ACA

President Trump signed an executive order on January 20, 2017, generally directing the heads of government agencies to halt enforcement of Affordable Care Act (“ACA”) provisions that cause financial or regulatory burdens on a host of entities, to the extent permitted by law. While this executive order did not specifically use the word “employer” in the list of entities, the list can be construed to include employers providing health coverage to employees. The executive order itself does not relieve employers of any obligations to comply with the ACA, and this action should not occur until the various federal agencies issue guidance delaying or halting the enforcement of specific ACA provisions. The Departments of HHS, Labor, and the Treasury are unlikely to take any action until their new Secretaries are confirmed. In the meantime, employers should continue to comply with the ACA pending issuance of future guidance. View the executive order.

Federal District Court Orders Owner to Disgorge His Cars

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

PBGC Issues Guidance Listing Triggers Under its Early Warning Program

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.

Federal District Court Issues Preliminary Injunction Blocking Enforcement of ACA Section 1557

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

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