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As Plan Administrator, the Employer is Liable – Not the Service Provider (i.e., What Kind of Indemnification Are You Getting?)

The plan administrator of an employee benefit plan (employee welfare or retirement) has the general fiduciary responsibility under ERISA to ensure the operational and documentary compliance of the plan. Under ERISA, the sponsoring employer is the plan administrator unless another person or entity is named in the plan. This generally means the employer retains ultimate responsibility and liability for legal compliance even though the employer may rely heavily on the plan’s third-party service providers. One way to mitigate this liability is to obtain indemnification from a service provider for the service provider’s errors, for which the employer (as plan administrator) would still be legally liable. The default language in third-party service provider contracts often provides indemnification only for the service provider’s “gross negligence”, but not its “ordinary negligence”, thus leaving the employer responsible for correcting (and paying for) errors caused by the service provider that do not amount to “gross negligence” or “intentional… Continue Reading

Reminder: Upcoming Deadline to Provide COBRA Subsidy Expiration Notice

The American Rescue Plan Act of 2021 (the “ARPA”) provides a 100% COBRA premium subsidy (the “COBRA Subsidy”) to certain COBRA qualified beneficiaries, which we previously reported on here, here, and here. Under the ARPA, the COBRA Subsidy is set to expire on September 30, 2021. The APRA requires that certain notices be sent to affected qualified beneficiaries regarding the COBRA Subsidy, including a notice of the upcoming expiration of their premium assistance. This expiration notice must be sent no fewer than 15 days and no more than 45 days before an individual’s COBRA Subsidy expires. The DOL has released a model “Notice of Expiration of Period of Premium Assistance” that plans may use to satisfy the notice requirement. Because the COBRA Subsidy is set to expire on September 30, 2021, the deadline to send out the expiration notices is quickly approaching. Employers are reminded to contact their third-party COBRA administrators,… Continue Reading

Departments Solicit Comments regarding Consolidated Appropriations Act of 2021 Prescription Drug Reporting Requirements

Under the Consolidated Appropriations Act of 2021 (the ?Ç£CAA?Ç¥), employer-sponsored group health plans will be required to submit to the DOL and/or Treasury Department a new annual report containing information pertaining to plan participation and prescription drug coverage provided under the plan during the previous plan year (the ?Ç£Rx Report?Ç¥). Among other items, the Rx Report must include information regarding (i) claims paid under the plan for the 50 most frequently dispensed brand prescription drugs (?Ç£Claims Paid Items?Ç¥), (ii) annual spending for the 50 most costly prescription drugs (?Ç£Spending Items?Ç¥), and (iii) rebates, fees, and other remuneration paid by drug manufacturers to the plan, its administrators, or service providers (?Ç£Rebate Items?Ç¥).  The first Rx Report is due by December 27, 2021, and each subsequent Rx Report is due by each June 1. Recently, the DOL, Treasury Department, and HHS (the ?Ç£Agencies?Ç¥) jointly issued a ?Ç£request for information?Ç¥ (the ?Ç£RFI?Ç¥) seeking public… Continue Reading

Nothing in Life is Free ?Çô ERISA Expense Account Considerations

Many 401(k) plans contain spending accounts funded by revenue-sharing generated by a plan?ÇÖs mutual fund holdings. These accounts, often referred to as ERISA expense accounts, revenue-sharing accounts, or plan expense reimbursement accounts, can cause complications for plans if not administered properly. These revenue-sharing accounts can accumulate quickly, and in large plans, can result in hundreds of thousands of dollars each year. However, plan sponsors often do not know that the accounts are accumulating, and when they find them, may think they have just discovered ?Ç£free money.?Ç¥ But nothing in life is free, and missteps with the use of these funds could result in participant claims. Accordingly, before utilizing these funds, plan sponsors should use care and consider the following questions: Are the funds being held in the trust??áDOL Advisory Opinion 2013-03A (which is available here) noted that revenue sharing payments that were being received by the third party administrator prior… Continue Reading

IRS Issues Additional Guidance Regarding COBRA Premium Subsidy

As we previously reported here, the American Rescue Plan Act of 2021 (?Ç£ARPA?Ç¥) provides a 100% COBRA premium subsidy to any qualified beneficiary who is entitled to COBRA coverage due to an involuntary termination of employment or reduction in hours of employment. Employers will receive a tax credit for the cost of COBRA premiums for April 1 to September 30, 2021. The IRS recently issued FAQs addressing many issues related to the subsidy, including: (i) subsidy eligibility, (ii) what qualifies as a reduction in hours or an involuntary termination of employment, (iii) the type of coverage eligible for the subsidy, (iv) when the subsidy period begins and ends, (v) the extended election period, (vi) coordination with the extended deadlines due to the COVID national emergency (?Ç£Outbreak Period Extensions?Ç¥), (vii) payments to insurers, (viii) application to state continuation coverage, and (ix) calculation and claiming of the subsidy tax credit. One of… Continue Reading

Guidance on Benefit Plan Cybersecurity Best Practices

Plan participants now enroll, change elections, review benefits, apply for plan loans and hardship distributions, and access account information through websites and cellphone apps. As electronic access to plan information has increased, so has the interest of hackers in obtaining the wealth of information stored electronically. Recently, the DOL?ÇÖs Employee Benefits Security Administration (the ?Ç£EBSA?Ç¥) issued the following cybersecurity guidance documents to help plan sponsors comply with their duties to protect plan information: Tips for Hiring a Service Provider with Strong Cybersecurity Practices: These tips are intended to help plan sponsors and plan fiduciaries meet their duties under ERISA to prudently select and monitor service providers. They include a list of questions to ask and considerations to make when evaluating potential service providers. Cybersecurity Program Best Practices: This guidance provides a list of 12 best practices intended to help plan fiduciaries mitigate cybersecurity risks and make prudent decisions when selecting… Continue Reading

Voluntary Correction Program Applications ?Çô Best Practices

The IRS recently issued a list of the top errors it finds in Voluntary Correction Program (?Ç£VCP?Ç¥) submissions, which is available here. The errors listed generally relate to issues associated with the submission of files in the correct PDF format, failing to pay the correct user fee, or the incorrect submission of the Form 8950. Filing a VCP application can be a useful method for plan sponsors to correct operational issues that have spanned numerous years or?á other issues for which self-correction is unavailable. Errors in the submission can delay resolution of the application or, in some cases, cause a rejection of the application. In addition to the common errors outlined by the IRS, plan sponsors should also use care to avoid the following additional common issues: Failure to Submit a Comprehensive Filing ?Çô If one operational error is found, plan sponsors should conduct a self-audit prior to filing a… Continue Reading

Fifth Circuit Decision is a Reminder to Employers on Structuring Severance Plans

Last week?ÇÖs decision by the U.S. Court of Appeals for the Fifth Circuit in Atkins v. CB&I, LLC is a reminder that employers may prefer to structure bonus and severance programs so as to be covered by ERISA and thus avoid being subject to unfavorable state laws. In Atkins, five employees brought suit in Louisiana state court claiming their employer?ÇÖs project incentive bonus plan?Çöwhich pays a single bonus payment to employees who are laid off or complete their roles in a specific project?Çöconstituted an illegal wage forfeiture agreement under the Louisiana Wage Payment Act. Each of the employees had quit and consequently forfeited their bonuses under the plan?ÇÖs terms. The employer removed the suit to federal district court claiming the bonus plan was a severance plan subject to ERISA and thus ERISA, as controlling federal law, preempted the employees?ÇÖ state law claims. The district court agreed. The Fifth Circuit reversed… Continue Reading

Severe Winter Storm Hardship Withdrawal Relief

The safe harbor rules for hardship withdrawals from a retirement plan permit such withdrawals for expenses and losses incurred by a participant due to a natural disaster declared by the Federal Emergency Management Agency (?Ç£FEMA?Ç¥) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, provided the participant?ÇÖs principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance related to that disaster. FEMA issued a series of disaster declarations as a result of the February 2021 winter storms that impacted portions of Texas, Louisiana, and Oklahoma. A list of counties that have been designated by FEMA for individual assistance in those states can be found on FEMA?ÇÖs website here. Those disaster declarations mean that affected participants may be eligible for hardship distributions from their 401(k) plan accounts. Plan sponsors with participants who live or work… Continue Reading

BREAKING: One-Year Limit on Suspended COBRA and Other Deadlines Applies On An Individual Basis

The DOL issued guidance today stating that the one-year limit on the suspension of COBRA, special enrollment, and claims deadlines during the COVID-19 outbreak period applies on an individual basis.?á This means those deadlines do not resume running as of March 1, 2021.?á Instead, each individual has up to a one-year suspension as long as the COVID-19 national emergency continues.?á As discussed in our prior blog post here, it was unclear whether those deadlines were to resume running as of March 1, 2021.?á Employers should contact their service providers to ensure they are aware of this new guidance and to issue new participant communications as needed. Notice 2021-01 is available here.

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