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IRS Issues Guidance on Changes to Opinion Letter Program for Pre-Approved Plans

In Revenue Procedure 2017-41, the IRS modified requirements for pre-approved plans to receive continuing favorable opinion letters on periodic submission cycles. Importantly, the programs for “master and prototype” plans and “volume submitter” plans are combined and replaced with a single program involving standardized and nonstandardized plans. This new program expands the type of plans that can receive an opinion letter. Some of the major changes include allowing employee stock ownership plans (ESOPs) to have 401(k) features and allowing cash balance plans with an interest rate based on the actual return on plan assets (but not on the actual return on a subset of plan assets). In addition, the beginning and ending submission dates for the third cycle for defined contribution plans are modified to begin on October 2, 2017, and end on October 1, 2018. View Revenue Procedure 2017-41.

Fifth Circuit Holds Disability Benefit Offset Inappropriate Because of Ambiguous Language in Summary Plan Description

Verizon maintained a long-term disability plan (the “LTD Plan”) insured through MetLife, who had the discretionary authority to interpret the LTD Plan and to adjudicate claims. In 2007, an employee became eligible to receive benefits under both the LTD Plan and a Verizon pension plan due to disability, and the employee elected to take his full pension benefit as a lump sum and then roll it over into an IRA in a direct trustee-to-trustee transfer. The LTD Plan’s summary plan description (the “SPD”) contained language stating that a participant’s long-term disability benefits “may be reduced by other sources of disability income,” including “pension benefits from a Verizon pension plan, if the beneficiary elects to receive them.” MetLife offset the participant’s monthly disability benefit by the amount of the pension benefit he had rolled over into his IRA. The participant appealed countering that because he would not actually receive any of… Continue Reading

The DOL’s Expanded Fiduciary Rule Applies to Health Savings Accounts

The DOL’s final fiduciary rule (the “Final Rule”) went into effect on June 9, 2017 after several delays. The Final Rule clarifies when a person who provides investment advice becomes a fiduciary to a plan for purposes of ERISA and the Internal Revenue Code. Under the Final Rule, the term “plan” explicitly includes health savings accounts (“HSAs”). While employers typically have little direct HSA involvement beyond engaging an HSA service provider (e.g., a trustee or custodian) and forwarding payroll contributions, the Final Rule does raise issues for employers to consider: Employers should review the products and services offered by their HSA service provider to HSA participants and determine if the service provider is a fiduciary as defined in the Final Rule. If applicable, the employer should consider including an affirmative acknowledgement in its HSA provider services agreement to the effect that such provider is a fiduciary under the Final Rule… Continue Reading

Second Circuit Upholds Equitable Reformation in Connection with Intentionally Concealing Wear-Away Period from Plan Participants

Foot Locker converted its traditional pension plan to a cash balance plan. In doing the conversion, Foot Locker provided smaller initial benefits which resulted in a wear-away period until the new plan’s benefits actually equaled the value of the traditional pension plan’s accrued benefits. Foot Locker went to great lengths to conceal the wear-away from participants, including in the subsequent SPD that excluded any description of the wear-away or any indication that the conversion would cause a benefits freeze. Consequently, participants were not aware that their benefits had been frozen. The district court found violations of ERISA §§ 102 and 404(a) and equitably reformed the plan under ERISA § 502(a)(3). On appeal, Foot Locker did not challenge the ERISA violations but argued the district court erred in (i) holding the participants’ claims were not barred by the applicable statute of limitations; (ii) holding that individualized proof of detrimental reliance was… Continue Reading

Plan’s Limitations Period for Judicial Review of Benefit Denial Not Enforceable

A federal district court in the Tenth Circuit recently held in William G. v. United Healthcare that the six-month limitations period for filing a lawsuit challenging a benefits denial under a self-funded, employer-sponsored group health plan subject to ERISA, which was imposed by the terms of the plan, was unenforceable against the plaintiff who was a plan participant. The court determined that the benefit denial notices related to the participant’s claim for benefits did not disclose the plan’s limitations period as required by ERISA’s claims regulations. Despite the fact that the plan’s limitations period was specifically set out on three pages in the plan’s summary plan description, the court followed precedent in other courts and interpreted ERISA’s claims regulations to require disclosure of the plan’s limitations period as part of the description of the plan’s review procedures that must be included in benefit claim denial notices (including notices regarding claims… Continue Reading

Texas Supreme Court Provides Guidance On The Recoverability Of Judgments Entered Against An Insured By Third-Party Plaintiffs

In a much anticipated decision, the Texas Supreme Court has given direction to policyholders and third-party plaintiffs on the circumstances under which a judgment entered against the policyholder will be recoverable from the judgment debtor’s insurer.  The case is important to insureds defending against third-party claims because it offers instruction on how to transfer liability appropriately to an insurer for an adverse judgment.  The decision is equally important to plaintiffs seeking to maximize recovery of judgments against parties, whose greatest asset may be a liability policy. In Great American Insurance Company v. Hamel, 2017 WL 2623067 (Tex. June 16, 2017), homeowners obtained a judgment against a builder for defective workmanship in a bench trial held after the homeowners agreed with the builder not to pursue the builder’s owner or the owner’s personal assets in satisfaction of a judgment entered against the builder.  After trial, the builder assigned all claims against… Continue Reading

Reminder to Evaluate Health Plan Restrictions on Mental Health Benefits

Many employers that sponsor group health plans for their employees are starting now to consider plan design changes for 2018. As part of this process, it is advisable to evaluate the non-quantitative limitations and restrictions on mental health and substance use disorder benefits in their health plans. Under federal mental health parity rules, the processes and factors used to apply these restrictions and limitations to mental health benefits must be comparable to, and applied no more stringently than, the processes and factors used for the plan’s restrictions on medical and surgical benefits. Considering the rare bipartisan support in Washington, D.C. for enforcement of these rules, as well as recently issued guidance on the documentation plans must be able to produce regarding such restrictions (see our prior blog post on that guidance), ensuring compliance with these rules is critical to avoid penalties and litigation. The DOL has issued a document listing… Continue Reading

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