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Be Careful in Reimbursing Travel Expenses from Plan Assets

While many qualified retirement plans allow for the reimbursement of certain administrative expenses from plan assets, plan fiduciaries must ensure that plan assets are being used only to reimburse reasonable administrative expenses, and not expenses that could be considered personal or business expenses. This issue may arise in a variety of contexts, including, in particular, a plan’s reimbursement of travel expenses. The DOL has taken the position that no personal or business related expenses are payable from plan assets, even if the travel is related to the administration of the plan. The concern with using plan assets to reimburse travel expenses is being able to prove that the travel expenses relate solely to the administration of the plan, and are not merely a personal or business expense.

IRS Reduces Fee for Favorable Determination Letter for Terminating Plans

In Rev. Proc. 2018-19, the IRS reduced the fee for filing for a favorable determination letter on Form 5310 in conjunction with a plan termination from $3,000 to $2,300. The reduced fee is effective retroactively for all Forms 5310 filed on or after January 2, 2018. Filers who paid the $3,000 user fee will receive a $700 refund. View Rev. Proc. 2018-19.

IRS Allows Interest Credits Equal to Plan Rate of Return for Pre-Approved Plans

In Rev. Proc. 2018-21, the IRS modified the favorable determination letter program to allow pre-approved defined benefit plans containing a cash balance formula to provide for the actual rate of return on plan assets as the rate used to determine interest credits, and modifies the guidance in prior Revenue Procedures accordingly. View Rev. Proc. 2018-21.

April 1 Effective Date for New Disability Benefit Claims Procedures

Employers sponsoring employee plans that provide “disability benefits” are reminded that the new disability benefit claims procedures, as issued by the DOL under ERISA (the “Disability Procedures“), are applicable to disability benefit claims filed after April 1, 2018. According to the DOL, a benefit is a “disability benefit” under ERISA’s claims regulations (including the Disability Procedures) if the plan conditions the availability of the benefit upon evidence of the participant’s disability. The Disability Procedures may thus apply not only to long-term and short-term disability plans that are subject to ERISA, but also to other types of ERISA benefit plans, such as group health plans and qualified and non-qualified retirement plans, if the plan provides benefits that are based upon a determination of disability that is made under the plan. (See our prior blog post for more details regarding impacted plans.) Plan sponsors should ensure that (i) the claims procedures of… Continue Reading

DOL Will Not Enforce Final Fiduciary Rule After Fifth Circuit Vacates the Rule

The U.S. Court of Appeals for the Fifth Circuit (whose jurisdiction includes Texas, Louisiana, and Mississippi) vacated the entire final Fiduciary Rule that was issued by the DOL in April 2016. The Fifth Circuit held that the definition of “fiduciary” in the final Fiduciary Rule conflicts with the plain text of ERISA and the common law definition of fiduciary. The Fifth Circuit further held that the DOL overstepped its authority in applying ERISA’s fiduciary standards to individual retirement accounts and that the DOL’s interpretations fail the reasonableness test under the standard set out in Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984). In response to the Fifth Circuit’s decision, the DOL announced that it will not be enforcing the rule at this time. Chamber of Commerce of the USA v. U.S. Dep’t of Labor, No. 17-10238 (5th Cir. Mar. 15, 2018).

IRS Transition Relief for State Contraception Laws Creating HSA Eligibility Issues

Recently, several states expanded their contraceptive coverage mandates under the applicable state’s insurance laws to require medical insurance policies to cover certain male contraceptive services (e.g., vasectomies) on a first dollar basis before an insured has met the policy’s annual deductible. This is problematic for an insured medical plan that is intended to qualify as a high deductible health plan (“HDHP”). An HDHP enables participants to make or receive contributions to a health savings account (“HSA”). Unless an exception applies (such as coverage for preventive services, disease management, or wellness services), a medical plan that provides benefits before an individual has met the annual deductible cannot qualify as an HDHP. The IRS recently released Notice 2018-12, which provides that male contraceptive coverage will not qualify for an exception from this rule as a preventive service or under another exception. The IRS has granted temporary transition relief for the HSA eligibility… Continue Reading

Fifth Circuit Resolves Split with Other Circuits on Standard of Review

Generally, when discretionary authority is delegated to the plan administrator of an ERISA plan, a court reviewing the denial of a benefits claim is limited to determining whether the plan administrator abused its discretion in denying the claim. In a prior seminal case, Firestone Tire & Rubber Co. v. Bruch, the U.S. Supreme Court held that, when there is no delegation of discretionary authority, a denial of benefits is to be reviewed de novo (i.e., without deference to the plan administrator’s previous decision). The U.S. Court of Appeals for the Fifth Circuit (whose jurisdiction includes Texas, Louisiana, and Mississippi) interpreted Firestone to only require de novo review of a denial of benefits based on an interpretation of plan language, but not denials based on factual determinations. The Fifth Circuit recently overturned its longstanding precedent in order to bring its interpretation of Firestone in line with eight other federal circuit courts… Continue Reading

IRS Reduces HSA Family Coverage Contribution Limit for 2018, Effective Immediately

On March 5, 2018, the IRS issued Revenue Procedure 2018-18 (“Rev. Proc. 2018-18”), which, among other things, reduced by $50 the maximum annual contribution that an employee who has elected family coverage under the employer’s high deductible health plan (“HDHP”) could make to his or her health savings account (“HSA”) for 2018. Under the Internal Revenue Code, the applicable limits for HSAs are adjusted annually for any cost-of-living adjustments (“COLA”). Prior to the recent enactment of the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”), COLAs were based on the Consumer Price Index (“CPI”). The Tax Act changed the basis of COLAs to instead use the Chained Consumer Price Index for All Urban Consumers (“C-CPI-U”). The HSA family coverage contribution limit that was previously announced by the IRS for 2018 was $6,900, which reflected a CPI-based COLA. The revised limit, pursuant to Rev. Proc. 2018-18 and reflecting the… Continue Reading

New Federal Budget Impacts Qualified Retirement Plans

The recently enacted Bipartisan Budget Act of 2018 (the “Act”) modifies certain Internal Revenue Code provisions relating to hardship distributions from qualified retirement plans that (i) eliminate the requirement that a participant’s deferrals be suspended for six months following a hardship distribution, (ii) eliminate the requirement that participants take out all available plan loans before receiving a hardship distribution, and (iii) expand the sources available to fund hardship distributions to include QNECs and QMACs. These changes to the hardship distribution rules are effective for plan years beginning on or after January 1, 2019. In addition to the changes for hardship distributions, the Act provides additional relief for victims of the recent California wildfires that permits eligible plan participants to receive a distribution of up to $100,000, which will not be subject to the mandatory 20 percent income tax withholding or the 10 percent early withdrawal penalty. The participant may elect… Continue Reading

Settlement of HIPAA Privacy and Security Rule Violations Costs Covered Entities $3.5 Million

HHS recently entered into a $3.5 million settlement agreement with a health care provider (the “Provider”) on behalf of five entities under its common ownership and control for violations of the HIPAA privacy and security rules. Each of the five entities constituted a “covered entity” under HIPAA. In 2013, the Provider filed five breach reports with HHS, each of which pertained to a separate incident that implicated the “electronic protected health information” (“EPHI“) of one of those covered entities. HHS’s subsequent investigation of the breaches revealed a number of violations of the HIPAA privacy and security rules, including that certain of the covered entities: Failed to conduct an accurate and thorough risk analysis of potential risks and vulnerabilities to the confidentiality, integrity, and availability of EPHI; Provided unauthorized access to EPHI for a purpose not permitted by the HIPAA privacy rules; Failed to implement policies and procedures to address security… Continue Reading

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