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No Recordkeeping Violation for Failure to Report Hours Worked when Benefits are Based on Hours Paid

The U.S. Third Circuit Court of Appeals upheld the district court?ÇÖs determination that when a plan document provides that benefits are based on ?Ç£hours paid?Ç¥ rather than ?Ç£hours worked,?Ç¥ an employer does not have an obligation to report unpaid hours (in violation of wage/hour laws) to plan administrators under ERISA?ÇÖs record maintenance requirements. Thus, the claim that there was an ERISA recordkeeping violation failed. Henderson v. UPMC, No. 10-1377 (3rd Cir. April 5, 2011).

HHS to Stop Accepting ERRP Applications

The HHS announced that it will no longer accept applications for the Early Retiree Reinsurance Program (ERRP) after May 5, 2011. PPACA created ERRP as a temporary program to provide reimbursement for a portion of the costs of providing health coverage to early retirees and their eligible dependents. HHS announced that because the funding appropriated to ERRP is expected to be depleted, HHS will not process ERRP applications received after May 5, 2011. The guidance clarifies that the application must be received by the ERRP?ÇÖs intake program by the deadline; an application postmarked by the May 5 deadline is not sufficient. A copy of the guidance is available here.

EBSA Issues Additional FAQs for Affordable Care Act Implementation

The Employee Benefits Security Administration (?Ç£EBSA?Ç¥) on April 4th released a set of six frequently asked questions (?Ç£FAQs?Ç¥) regarding issues for grandfathered plans under the Patient Protection and Affordable Care Act (?Ç£PPACA?Ç¥). The FAQs were prepared jointly by the Department of Health and Human Services (?Ç£HHS?Ç¥), Department of Labor and Department of the Treasury, and are the sixth set of FAQs issued to help stakeholders implement provisions of PPACA. The new FAQs cover topics such as the anti-abuse rules under the Interim Final Grandfather Regulations and whether certain scenarios would cause a plan to relinquish grandfathered status. This set of FAQs can be found here. Previously issued FAQs are available?áhere.

Oral Agreement Cannot Modify Pension Plan

The Seventh Circuit held that an employer?ÇÖs obligation to contribute to a multiemployer pension fund cannot be alleviated by an oral agreement it reached with the union, even if that agreement is later put into writing and communicated to the fund. Because ERISA requires that every employee benefit plan be established and maintained pursuant to a written instrument, the court ruled that the oral agreements, even those that are later put into writing, cannot override written plan documents. Central States Pension Fund v. Auffenberg Ford Inc., No. 09-2964 (7th Cir. Mar. 11, 2011).

Employer Exempt from Withdrawal Liability

The Seventh Circuit Court of Appeals upheld an arbitrator?ÇÖs decision that Georgia-Pacific?ÇÖs withdrawal from the Central States, Southeast and Southwest Areas Pension Fund was ?Ç£solely?Ç¥ because of its arms-length sale of assets to a third party, where the purchaser assumed liability for the plan?ÇÖs contributions and posted a bond to ensure payment. In one of the first appellate court decisions to interpret the phrase ?Ç£solely because?Ç¥ in 29 U.S.C. ?º1384 (ERISA ?º4204), the Court stated that ?Ç£. . .the best understanding of this phrase is one that concentrates on the transaction at issue: If the sale had not occurred, everything else has remained the same, and no withdrawal liability would have accrued, then the sale to a buyer that continues the pension contributions does not entail withdrawal liability.?Ç¥ The Court cautioned that if an employer completes its withdrawal in stages, with a sale being the last step, then all transactions… Continue Reading

DOL Finalizes Amendment to INHAM Prohibited Transaction Exemption

The Department of Labor (DOL) recently finalized an amendment to Prohibited Transaction Exemption 96-23. PTE 96-23 permits certain transactions by an employee benefit plan that would otherwise be prohibited by ERISA, where the plan?ÇÖs assets are managed by an in-house asset manager (INHAM) and other conditions are satisfied. The amendment makes several changes to the existing exemption, including: expanding the definition of INHAM to include a subsidiary that is 80 percent or more owned by the employer or a parent; permitting transactions with a ?Ç£co-joint venturer?Ç¥ under certain circumstances; and extending the exemption to cover certain existing commercial real estate leases. The amendment also increases the exemption?ÇÖs ?Ç£related person?Ç¥ test threshold from 5 percent ownership to 10 percent, and increases from $50 million to $85 million the amount of assets that must be managed to qualify as an INHAM. The amendment can be found here.

IRS Issues Interim Guidance to Employers on W-2 Reporting of Health Coverage Costs

On March 29th the Internal Revenue Service (?Ç£IRS?Ç¥) issued Notice 2011-28 to provide interim guidance to employers with respect to reporting the cost of group health insurance provided to employees. By way of background, the new health care reform law added Section 6015(a)(14) to the Internal Revenue Code, which generally provides that the aggregate cost of employer-sponsored health insurance coverage must be reported on each covered employee’s Form W-2. However, this reporting requirement is only for informational purposes and does not cause employer-provided health care coverage to become taxable income to employees. Previously, in Notice 2010-69, the IRS made this new reporting requirement optional for all employers for the 2011 Forms W-2 (which would generally be distributed to employees in January 2012). Notice 2011-28 only applies beginning with the 2012 Forms W-2 (which employers will furnish to employees in January 2013). Additionally, Notice 2011-28 provides that this Form W-2 reporting… Continue Reading

SEC Proposes Rules Requiring Listing Standards for Compensation Committees and Compensation Consultants

On March 30th the Securities and Exchange Commission (?Ç£SEC?Ç¥) voted unanimously to propose rules directing the national securities exchanges to adopt certain listing standards related to the compensation committee of a company?ÇÖs board of directors as well as its compensation advisers, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rules would require U.S. stock exchanges to impose new standards to ensure that board compensation committee members and their outside advisors are independent. The proposed rules also provide relevant factors to help boards evaluate the independence of a compensation advisor before hiring and requires companies to disclose conflicts of interest that may arise with advisors. The SEC requests public comments on the rule proposal by April 29, 2011. The proposed rules can be found here here.

ERISA Does Not Preempt Employee Lawsuit For Fraudulent Inducement

An employee retired one year short of a thirty-year pension but was surprised when she did not receive a full pension after a one-year bridge benefit.?á She sued in state court on fraudulent inducement, claiming her employer misrepresented to her that she would be eligible for the full retirement benefit if she retired early. The defendant removed to federal court, asserting that her claim is preempted by ERISA, and she filed a motion to remand. The Federal district court?á remanded to state court, holding that ERISA does not preempt the employee’s claims because she did not claim that she was denied benefits under the plan or that the plan was improperly administered.?á Rather, her complaint goes to the negligent misrepresentations her employer made to her, not the terms of the plan or its administration.?á Thus it neither addresses an area of exclusive federal concern nor affects the parties’ relationship under… Continue Reading

Court Upholds Revocation of Frozen Profit Sharing Plan’s Tax Exempt Status for Failure to Amend

On March 15, 2011, the U.S. Tax Court upheld a frozen profit-sharing plan’s loss of tax exempt status as a qualified plan because the plan sponsor failed to amend the plan as required for several tax law changes. Despite arguments that the plan had been terminated and therefore did not need to be amended for such changes, the court held that (i) the discontinuance of contributions and barring of new participants was not sufficient to demonstrate that the plan had been terminated; and (ii) without a formal termination of the plan, the plan’s trust was not a “wasting trust” (a trust remaining for the purpose of distributing plan assets) and must comply with statutory requirements for continued favorable tax treatment. The case is a reminder that until there is a formal termination of the qualified plan and liquidation of the trust funding the plan, required amendments still must be made.… Continue Reading

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