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The New DOL Fiduciary Rule – A Return to the Old with a New Proposed Prohibited Transaction Exemption

On June 29, 2020, the DOL issued its much anticipated new “fiduciary rule” under ERISA. The new rule is meant to replace the DOL’s previous fiduciary rule (and related exemptions) which went into effect in 2016 but was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The new fiduciary rule is composed of two parts: (i) a final regulation which reaffirms and reinstates the five-part test for determining whether a person renders “investment advice” for purposes of ERISA (the “Reinstated Rule”), and (ii) a new prohibited transaction class exemption for investment advice fiduciaries based on the “impartial conduct standards” previously adopted by the DOL (the “Proposed Exemption”). Reinstated Rule The new rule amends the Code of Federal Regulations to reinstate the prior 1975 regulation which contained the five-part test for determining whether a financial institution or investment professional is a fiduciary for rendering “investment advice.”… Continue Reading

The DOL Says Certain Private Equity Investments May Be Permissible Designated Investment Alternatives Under Individual Accounts Plans

On June 3, 2020, the DOL issued an information letter addressing the possibility of including a private equity type investment as a “designated investment alternative” under a participant directed individual account plan. The DOL concluded that, as a general matter, “a plan fiduciary would not . . . violate [ERISA’s fiduciary duties] solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan in the manner described in [the] letter.” The DOL observed that private equity investments “involve more complex organizational structures and investment strategies, longer time horizons, and more complex, and typically, higher fees” and they generally have “different regulatory disclosure requirements, oversight, and controls” and “often have no easily observed market value.” In addition to these considerations, the DOL listed several factors that plan fiduciaries should evaluate when considering whether a… Continue Reading

Reminder: A Severance Policy Could be an ERISA Plan

As the coronavirus pandemic continues, many employers have been forced to reduce their workforce, oftentimes paying some form of severance to their employees. One area that continues to cause confusion among employers is whether their severance policy is an employee benefit plan subject to ERISA. Generally, informal arrangements that feature one-time payments in response to ad hoc situations and that do not have an ongoing administrative scheme will not be subject to ERISA. However, it is not always clear when such arrangements become “employee benefit plans” that are subject to ERISA. It is generally not to the employer’s advantage to have its severance strategy characterized as an informal arrangement not subject to ERISA. For example, the beneficiary of such an arrangement would be able to sue in state court for benefits, which could expose the employer to larger damage awards than are available under ERISA. Employers should ask their counsel… Continue Reading

Cases Highlight Importance of Governing Law Clauses in ERISA Plan Documents

The U.S. Court of Appeals for the Tenth Circuit recently held that the choice of law provision contained in a long-term disability insurance policy (the “LTD Policy”) controlled when determining which state law applied to the case. The LTD Policy, which was subject to regulation under ERISA as an employee benefit plan, stated that it was governed by the law of Pennsylvania, where Comcast (the employer) was incorporated and had its principal place of business. The employee argued that Colorado law controlled, because Colorado is where the employee worked for Comcast and filed the lawsuit. This was important because Colorado insurance law prohibited granting discretion to the plan administrator to interpret the LTD Policy, whereas Pennsylvania law did not prohibit this deferential standard. Generally, a plan administrator’s denial of benefits under an ERISA plan is reviewed by a court de novo (i.e., without deference being paid to the plan administrator’s… Continue Reading

The Supreme Court Holds Participants in Fully-Funded Defined Benefit Plans Cannot Sue for Fiduciary Breach

The U.S. Supreme Court held Monday that participants in a fully-funded defined benefit plan have no standing to bring a lawsuit against plan fiduciaries for a breach of ERISA’s fiduciary requirements. In Thole, plan participants alleged that the plan fiduciaries had mismanaged funds and invested in imprudent investments causing the plan to lose approximately $748 million more than it otherwise should have during the 2008 recession. Subsequent to that date, the plan sponsor contributed an additional $311 million to the plan resulting in the plan becoming fully funded. The Court held that because the participants would receive the same benefits whether they won or lost the lawsuit, there was no controversy and, therefore, the participants had no standing under Article III of the U.S. Constitution to bring a civil action under Sections 502(a)(2) or 502(a)(3) of ERISA. Thole v. U.S. Bank N.A., No. 17–1712 (U.S. June 1, 2020) can be… Continue Reading

Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA’s diversification because it was no longer a “qualifying employer security”, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

The DOL Announces Final Rule for Electronic Delivery of ERISA-Required Retirement Plan Disclosures

The DOL recently announced a final rule which provides an additional “Notice-and Access” safe harbor for plan administrators to electronically deliver ERISA-required notices and disclosures. The final rule is substantially similar to the proposed rule (which we discussed in a previous blog post here). Under the final rule, plan administrators may electronically deliver certain “covered documents” to “covered individuals” with electronic addresses by (i) posting the covered documents on a website and sending a notice of Internet availability (“NOIA”) to the covered individual’s electronic address or (ii) sending covered documents directly to a covered individual’s electronic address. The NOIA may be sent on an annual basis, describing multiple covered documents, and must include (x) a description of the covered documents being posted, (y) the address of or hyperlink to the website where the covered documents are posted, and (iii) information about the covered individual’s right to request covered documents in… Continue Reading

Employers Take Note of Suspended COBRA Deadlines due to COVID-19

The U.S. Departments of Labor and the Treasury recently issued a joint notice promulgating final rules that take effect immediately upon publication in the Federal Register (the “Notice”). The Notice suspends a number of deadlines for employer-sponsored, group health plans, including deadlines under COBRA. The extension period is from March 1, 2020 until 60 days after the federal government announces the end of the COVID-19 national emergency or other date announced by the DOL (the “Outbreak Period”). The Outbreak Period is disregarded in determining whether the following COBRA deadlines have been met: (i) the date by which an individual must notify the plan of a COBRA qualifying event or disability determination, (ii) the 60-day period to elect COBRA coverage, and (iii) the deadline to make COBRA premium payments. Group health plans were also offered relief via the suspension of the deadline for providing COBRA election notices to COBRA qualified beneficiaries.… Continue Reading

Extension of Certain Timeframes for Employee Benefit Plans

On April 29, 2020, the U.S. Departments of Labor and the Treasury (together, the “Departments”) issued a notice (the “Notice”) requiring that all group health plans, disability and other types of employee welfare benefit plans, and employee pension benefit plans, subject to ERISA and the Internal Revenue Code, must disregard the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency or such other date as announced by the Departments in a future notice (the “Outbreak Period”) for the following periods and dates: The 30-day period (or 60-day period, if applicable) to request HIPAA special enrollment; The 60-day election period for COBRA continuation coverage; The date for making COBRA premium payments; The date for individuals to notify the plan of a COBRA qualifying event or determination of disability; The date within which individuals may file a benefit claim under the plan’s claims procedures;… Continue Reading

The DOL and the IRS Jointly Provide Relief from Certain Timeframes Applicable to Health and Welfare and Pension Plans

On April 28, 2020, the IRS and DOL issued a Final Rule extending certain timeframes under ERISA and the Internal Revenue Code for group health, disability and other welfare plans, pension plans, and the participants and beneficiaries under those plans. The timeframe extensions include, among other things, the time to elect COBRA and pay premiums, special enrollment timeframes under HIPPA and CHIPs, claims procedure timeframes, and certain external review process timeframes.  Applicable plans must disregard the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located in determining the enumerated time periods and dates and for providing COBRA election notices.  In addition, Disaster Relief Notice 2020-01 was issued addressing the timeframe relief and addressing certain other COVID-19 relief. The Final Rule is available here: https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/covid-19-final-rule.pdf. Disaster Relief Notice 2020-01 is available here: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief/ebsa-disaster-relief-notice-2020-01.

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