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
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 DOL has issued the first of several FAQs addressing the DOL’s new fiduciary rule, which was finalized in April 2016 (the “Rule”). The Rule, which will generally become effective on April 10, 2017, prohibits parties that provide fiduciary investment advice to plan sponsors, plan participants, and IRA owners from receiving payments that create conflicts of interest, unless the parties comply with a prohibited transaction exemption (“PTE”). The FAQs generally address how the Rule will be implemented and clarify a number of issues related to the new “best interest contract” and “principal transactions” PTEs. View the FAQs. View the DOL’s announcement of the FAQs.
The DOL issued a press release announcing its recent settlement with fiduciaries of a group health plan (the “Plan”) sponsored by Sierra Pacific Industries, a major western lumber producer. The press release followed the conclusion of a DOL investigation that determined the Plan did not comply with the Affordable Care Act (“ACA”) and ERISA in certain respects. In particular, the DOL found problems with the Plan’s claims processing, with the clarity of the Plan’s documents, and with the application of the Plan’s procedures for deciding claims. In addition, the DOL found the Plan had been administered erroneously under ACA “grandfathered status” since January 1, 2013. As a result of this investigation, the Plan’s fiduciaries agreed to (i) revise the Plan’s documents and internal procedures; (ii) re-adjudicate past claims for preventive services, out-of-network emergency services, claims affected by an annual limit, and pay claims in compliance with the ACA and ERISA;… Continue Reading
PBGC Missing Participant Program to Include 401(k) Plans and Certain Other Plans That Terminate after 2017
The PBGC issued a proposed rule that would expand its existing missing participants program to cover terminated defined contribution plans, such as 401(k) and profit-sharing plans, as well as certain other plans not currently covered under the program, that voluntarily elect to participate. Under the program, for a low one-time fee, and following a diligent search, the terminating plan may transfer the account balances or accrued benefits of all missing participants to the PBGC. The PBGC will then maintain a centralized, online searchable directory of the missing participants and periodically search for the missing participants. In the proposed rule, the PBGC also modifies the criteria for a participant to be considered ”missing” and provides specific diligent search rules for plans to attempt to locate missing participants. Read the proposed rule.
Ninth Circuit Holds that “Church Plan” Must Be Established By a Church or Convention or Association of Churches
The U.S Court of Appeals for the Ninth Circuit affirmed a district court decision that a church plan must be established by a church or by a convention or association of churches in order to be exempt from ERISA as a “church plan.” Under the court’s interpretation of the church plan exemption, it is not enough that the plan is maintained by a church-controlled or church-affiliated organization whose principal purpose or function is to provide benefits to church employees. The case was remanded to the district court for further proceedings. The opinion in Rollins v. Dignity Health, No. 15-15351 (9th Cir. July 26, 2016) is available here.
On July 1, 2016, the DOL issued an interim final rule that adjusts the amounts of civil penalties assessed or enforced in its regulations, including for violations of ERISA. The penalties that were increased include the following, among many others: (1) the penalty for a failure to properly file a pension or welfare plan’s Form 5500 increased from up to $1,100 per day to up to $2,063 per day; (2) the penalty for a failure to notify participants of certain benefit restrictions under Code Section 436 or to furnish automatic contribution arrangement notices increased from up to $1,000 per day to up to $1,632 per day; (3) the penalty for a failure to provide notices of blackout periods, or notice of the right to divest employer securities, increased from up to $100 per day to up to $131 per day; and (4) the penalty for a failure to provide employees… Continue Reading
In Self-Insurance Institute of America v. Snyder, the U.S. Court of Appeals for the Sixth Circuit ruled that ERISA does not preempt a Michigan state statute requiring insurers and third-party administrators (“TPAs”) of self-funded group health plans to pay a one percent tax on all “paid claims” that such entities make to medical service providers. The statute also requires insurers and TPAs to (i) file quarterly returns with the Michigan Department of the Treasury, (ii) keep accurate and complete records, and (iii) develop and implement a methodology for collecting the tax. By way of background, earlier this year the U.S. Supreme Court vacated the Sixth Circuit’s 2014 decision in this case (which also held that the Michigan statute was not preempted by ERISA) and remanded the case for further consideration in light of the Supreme Court’s recent decision in Gobeille v. Liberty Mutual Insurance Co. In Gobeille, the Supreme Court… Continue Reading
Rev. Proc. 2016-37 provides new guidance on changes to the IRS’s determination letter program for individually designed, qualified retirement plans. As previously announced in Notice 2016-03, the five-year remedial amendment cycle for individually designed plans will be eliminated effective January 1, 2017. After that date, individually designed plans may only seek a determination letter for the plan’s initial qualification, upon the plan’s termination, and in “certain other circumstances.” Rev. Proc. 2016-37 states that such “other circumstances” may include significant law changes, new plan design approaches, and the inability of certain plans to convert to pre-approved plan documents. The IRS will consider its current case load and available resources when deciding if and when to permit determination letter requests in these other circumstances. To help plan sponsors remain in operational compliance with the Internal Revenue Code’s various qualification requirements, the IRS will begin issuing an annual Operational Compliance List that identifies… Continue Reading