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Principal Wins ERISA Appeal in General Account Fiduciary Case

According to a recent Eighth Circuit Court of Appeals case, insurance companies that offer guaranteed interest rate products in their retirement platforms do not violate ERISA’s fiduciary standards so long as such products are provided for reasonable compensation.  Insurance companies that offer investment platforms to retirement plans in connection with their recordkeeping services generally include guaranteed interest accounts backed by their general account. In an appeal of a district court’s decision in Rozo v. Principal Life Insurance Company, certain plan participants (collectively, the “Plaintiffs”) argued that the insurance company that was providing the plan recordkeeping services, Principal Life Insurance Company (“Principal”), engaged in prohibited fiduciary self-dealing by including a fixed income option because Principal failed to establish that the revenue generated for itself from the plan related to the fixed income option was reasonable.  The Court, in rejecting the Plaintiffs’ arguments and ruling in favor of Principal, held that the… Continue Reading

HIPAA Covered Entity Incurs $300,640 Settlement Penalty Over Improper PHI Disposal

A recent settlement announced by the HHS’s Office for Civil Rights (“OCR”) is a great reminder for all covered entities, including group health plans, to remain vigilant in protecting PHI. OCR recently announced a settlement with a HIPAA covered entity over the covered entity’s improper disposal of PHI under the HIPAA privacy and security rules (“HIPAA Rules”). In this case, the covered entity was a health care provider that routinely disposed of empty specimen containers labeled with PHI by placing them in an outdoor unprotected garbage bin. A breach of PHI occurred when one of the labeled containers was found by a third-party security guard. Upon its investigation into the breach, OCR determined that (i) the covered entity did not maintain appropriate safeguards to protect the privacy of PHI, as required by the HIPAA Rules, and (ii) the covered entity impermissibly disclosed PHI to unauthorized individuals in violation of the… Continue Reading

Is it Time to Give Your Pension Plan a Lift-Out?

While pension plans can provide much needed retirement benefits to an employer’s workforce, the associated liabilities of defined benefit and cash balance plans also can have a number of negative impacts on the employer, including on its financial statements. One method to reduce these negative impacts is to remove some of the liabilities from the plan by using a pension “lift-out.” Essentially, a “lift-out” transfers risk and certain liabilities (usually for retirees or beneficiaries in pay status) to an annuity provider outside of the plan. For the past few years, the value of doing a lift-out has been reduced because of the high cost of the annuities. However, the recent increase in interest rates has made annuities much more affordable, which makes a lift-out a more attractive option in the current market. Plan sponsors considering a lift-out should design a plan to implement the lift-out, which should include, without limitation,… Continue Reading

Litigators View Your 401(k) Plan as a Tempting Target. What Can You Do as the Plan Sponsor?

As noted in our prior blog post here, plaintiffs’ firms—large and small—have been aggressively targeting 401(k) plan fiduciaries. Fiduciary breach claims are on the rise, and it is increasingly the fiduciaries of midsize and small plans who find themselves in the crosshairs. The majority of these lawsuits fall into the “excessive fee” category. The claims may include allegations that fiduciaries breached their duties to the plan by selecting higher fee actively-managed funds instead of index funds, selecting more expensive retail class funds instead of institutional class funds, selecting bundled funds with additional layers of fees (such as certain target date funds), failing to monitor revenue sharing from the selected funds, paying excessive recordkeeping fees, retaining poorly performing investment options for too long, failing to benchmark service provider fees or solicit bids from competing service providers, failing to leverage the plan’s asset size to negotiate lower fees…and the list goes on.… Continue Reading

New FAQs Address Transparency in Coverage Disclosures on Health Plan Websites

The Transparency in Coverage Final Rules require an employer-sponsored group health plan to post three machine-readable files on a public website. Two of these files, the network rate and non-network allowed amount files, were required to be posted by July 1, 2022. Recently issued FAQs provide that a plan may satisfy this requirement by entering into a written agreement under which a service provider (such as a TPA) posts the machine-readable files on its public website on behalf of the plan. However, in the case of the non-network aggregated allowed amount files (i.e., the third machine-readable file that must be published), the plan must post a link to the file hosted by the service provider on the plan’s own website, if the plan maintains a public website. It is not clear from this FAQ whether the TPA must post this information on its public website where information is normally made… Continue Reading

DOL Wins ERISA Appeal Authorizing its DOL Cybersecurity Subpoena

A recent Seventh Circuit Court of Appeals case reminds plan sponsors and service providers that ERISA grants the DOL broad authority to seek plan-related information reasonably relevant to an investigation from both fiduciaries and non-fiduciaries. Plan cybersecurity practices have been a recent focus of the DOL and resulted in its 2021 issuance of cybersecurity best practices for plan sponsors, fiduciaries, recordkeepers, and plan participants, which are available here.  In this case, the court ruled in favor of the DOL in connection with the DOL’s 2019 investigation into the processing of unauthorized distributions of plan benefits due to cybersecurity breaches in the ERISA plan accounts serviced by Alight Solutions LLC (“Alight”). The DOL indicated that Alight failed to report, disclose, and restore the distributions. Alight denied any knowledge of the breaches. Alight argued that the subpoena fell outside of the DOL’s authority because the DOL does not have the authority under… Continue Reading

New FAQs Address Issues Related to Contraceptive Coverage under Group Health Plans

The federal Treasury, DOL, and HHS (collectively, the “Agencies”) jointly issued a new set of FAQs to address various issues regarding the requirement for most employer-provided and other applicable group health plans to cover contraceptives without cost-sharing under the preventive care mandate of the Affordable Care Act (the “Contraceptive Coverage Mandate”). In particular, the FAQs are intended to (i) respond to reports that individuals continue to experience difficulty accessing contraceptive coverage without cost sharing; (ii) clarify application of the Contraceptive Coverage Mandate to fertility awareness-based methods and emergency contraceptives; and (iii) address the preemption of state law by the Contraceptive Coverage Mandate.  Specific issues addressed in the FAQs include the following:  The requirement for plans to cover items and services that are integral to the furnishing of a recommended preventive service, such as anesthesia necessary for a tubal ligation procedure; The requirement for a plan to cover, without cost-sharing, FDA-approved… Continue Reading

Reminder to Review Health Plan Subrogation and Reimbursement Language Before It’s Too Late

A recent case from the U.S. Court of Appeals for the Ninth Circuit serves as a reminder to employers to review the subrogation and reimbursement language in their group health plan documents. In this case, a motion picture industry health plan provided that a participant must reimburse the plan from any amount recovered from a third party who was responsible for the injury. If a participant fails to reimburse the plan from a third-party recovery, under the terms of the plan, the amount of unreimbursed benefit payments is deducted from future benefit payments made on behalf of such participant by the plan. In accordance with the plan’s provisions, when one of the plan’s participants failed to reimburse the plan from a third-party recovery, the plan began deducting the unreimbursed amount from future benefit payments. The participant and other covered family members sued. A federal district court granted summary judgment in… Continue Reading

DOL Deadline for Distribution of Summary of Material Modifications for Calendar Year Plans is Approaching

As a reminder, plan administrators of a calendar year ERISA retirement or welfare benefit plan must distribute a Summary of Material Modifications (“SMM”) to participants and beneficiaries by July 29 if the plan had a material modification or a change in the required information in the plan’s SPD during the prior plan year. Plan administrators may also meet the SMM requirement by distributing an updated SPD to participants and beneficiaries by the July 29 deadline. In considering whether to distribute the SMM versus an updated SPD, plan administrators should consider the number of modifications that need to be described and whether the use of the SMM alone would sufficiently apprise covered persons of their benefits, rights, and obligations under the plan. An SMM must be distributed not later than 210 days after the end of the plan year in which the change is adopted and also must be distributed to any… Continue Reading

Department of Labor Releases Spring 2022 Regulatory Agenda

The DOL recently released its Spring Regulatory Agenda, and it contains several important retirement and welfare plan initiatives for this year. Below is a summary of some of the material items that plan sponsors should be aware of, along with the DOL’s proposed schedule of rulemaking:  Final Pension Benefit Statement Lifetime Illustrations Rule (Final Rule scheduled for August 2022). Note: Under the DOL’s previously issued Interim Final Rule, the inclusion of lifetime illustrations once per year on pension benefit statements became effective in June 2022. Revised procedures for granting prohibited transaction exemptions (the DOL is currently reviewing comments from its Proposed Rule from March 2022). Amendment and restatement of the DOL’s Voluntary Fiduciary Correction Program to expand the scope of eligible transactions and to streamline correction procedures (Interim Final Rule scheduled for July 2022). Amendment of the regulatory definition of the term “fiduciary” under ERISA for those persons who render investment… Continue Reading

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November 2022