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Plan Sponsors Beware When Classifying Independent Contractors for Benefit Plan Purposes

Employers generally understand that “employee benefit plans” should only be provided to “employees” and that “independent contractors” should be excluded from benefit plan participation. While this concept is simple in principle, it is not as simple in application, since the determination of whether an individual is an independent contractor or an employee is not based on a bright-line test; rather, it is based on a facts and circumstances analysis. With the increase in the “gig” economy, the continued use of temporary or leased employees, and the periodic need to have an employee provide transition services on a limited basis following a termination of employment, minds can easily differ on an individual’s proper classification. To further complicate the matter, there are two different sets of rules that govern the determination of whether an individual is an independent contractor or an employee.  As we noted in our Labor and Employment Group’s alert… 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

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

DOL Fiduciary Rule and Prohibited Transaction Exemption Compliance Date is Approaching

Beginning July 1, 2022, retirement investment providers that provide fiduciary rollover advice must document and disclose to the customer the specific reasons that the rollover to a plan or an individual retirement account (“IRA”) is in the “best interest” of the customer. Investment providers that make such rollover recommendations must comply with Prohibited Transaction Exemption 2020-02 (the “Exemption”) in order to retain investment related fees generated from that advice without running afoul of ERISA’s prohibited transaction rules. In general, advice is in a customer’s “best interest” if it is both prudent and loyal, and does not place the financial or other interests of the investment provider or financial institution ahead of the interests of the customer. As part of the rollover documentation and disclosure to customers, the following factors should be considered: (i) the customer’s alternatives to a rollover, including leaving the money in the plan, if permitted, and selecting… Continue Reading

IRS Introduces Pre-Examination Compliance Pilot Program

Starting this month, when the IRS selects a tax-qualified retirement plan for examination, it will notify the plan sponsor by letter and provide the sponsor a 90-day window to review the plan document and operations for compliance with all plan qualification requirements.   If the sponsor’s review reveals any operational or documentary failures that would otherwise qualify for self-correction under the IRS’s Employee Plan Compliance Resolution System (“EPCRS”), the sponsor will have the opportunity to self-correct those mistakes. If the plan sponsor’s review reveals any operational or documentary failures that, absent the examination, would require correction under the voluntary correction program (“VCP”) component of EPCRS, the sponsor can request a closing agreement, and the IRS will use the VCP fee structure to determine the sanction amount the sponsor will pay under the closing agreement.  The sponsor must notify the IRS of the errors discovered and the correction within the 90-day window. The… Continue Reading

It’s Time For Your Fiduciary Check-Up!

Due to the recent surge in ERISA litigation against employers and executives alleging, among other things, that they breached their fiduciary duties to plans and participants by allowing service providers to charge excessive fees, some fiduciary liability insurers have reportedly revamped their processes for evaluating applications for fiduciary liability coverage. These changes may impact an employer’s ability to obtain adequate fiduciary liability coverage, thereby increasing the exposure to plan sponsors and their executives.   Periodic fiduciary check-ups are always a good idea, but in light of these developments, it is perhaps more important than ever that plan sponsors conduct periodic internal reviews to ensure they continue to meet their fiduciary duties to their plans and participants. Among other things, responsible plan fiduciaries should:  Determine whether the committee (or committees) responsible for administering the plan and overseeing plan investments meets regularly and properly documents its meetings, including information on not just what… Continue Reading

IRS Provides Additional Extension of Temporary Relief from Physical Presence Requirement for Certain Retirement Plan Consents

In June 2020, we reported here regarding the temporary relief from the physical presence requirements for certain participant and beneficiary elections under qualified retirement plans provided in IRS Notice 2020-42 (the “Prior Notice”). As we also discussed in our prior blog posts here and here, the IRS provided two extensions of the temporary relief provided in the Prior Notice during the COVID-19 pandemic. In light of the continuing COVID-19 pandemic, the IRS recently issued Notice 2022-27 (the “2022 Notice”) to provide an additional extension of this temporary relief for six months, through December 31, 2022. The 2022 Notice extends temporary relief, under terms identical to those provided in the Prior Notice, from the “physical presence” requirement for any participant election required to be witnessed either by (i) a notary public of a state that permits remote electronic notarization, or (ii) a plan representative. Importantly, the 2022 Notice states that the extension… Continue Reading

DOL Issues Guidance Cautioning 401(k) Fiduciaries Against Offering Crypto as an Investment Option

The DOL issued guidance reminding responsible 401(k) plan fiduciaries of their ongoing duty to monitor investments and cautioning that the DOL “has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.” The DOL listed five reasons why cryptocurrency investments and their derivatives (collectively, “Crypto”) may not be a prudent selection at this time and threatened that 401(k) plan fiduciaries who allow Crypto as an investment option (even if through a brokerage window) “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty.” Accordingly, 401(k) plan fiduciaries who are contemplating including or retaining Crypto as a plan investment option should factor this DOL guidance into their decision-making process.   Compliance Assistance Release No. 2022-01 is available here.

Eleventh Circuit Affirms Summary Judgment Because ERISA Plan Included Unambiguous Reservation of Rights Language

In Klaas v. Allstate Ins. Co., Allstate sponsored an employee welfare benefit plan subject to ERISA that paid life insurance premiums for certain retirees. Allstate made various representations that this benefit would continue for the remaining lives of the retirees. In 2013, Allstate informed the retirees that it would stop paying their life insurance premiums. The retirees sued alleging Allstate violated ERISA by no longer paying those premiums after making representations that the benefit would continue for a lifetime. The Eleventh Circuit affirmed the district court’s ruling, holding that no ERISA violation occurred because Allstate’s plan documents contained a no-vesting clause and an unambiguous reservation of rights provision that gave Allstate the right to modify or terminate retiree life insurance at any time.  This case is a good reminder to pay careful attention to what insurers and third-party administers put into your plan documents. Unlike retirement plans subject to ERISA,… Continue Reading

New FAQs Address Interaction of No Surprises Act’s Federal IDR Process with DOL Claims Regulations

A set of FAQs recently issued by HHS’s Centers for Medicare and Medicaid Services provide additional guidance regarding the federal independent dispute resolution process (“Federal IDR Process”) that was established under the “No Surprises Act” (the “Act”), enacted as part of the Consolidated Appropriations Act of 2021. The purpose of the Federal IDR Process is to resolve certain types of payment disputes between group health plans or health insurance issuers (each, a “Plan”) and out-of-network health care providers, facilities, and providers of air ambulance services (collectively, “OON Providers”). These disputes concern the out-of-network rates that Plans will pay for emergency, air ambulance, and certain other services subject to the Act that are furnished to plan participants by OON Providers. The Federal IDR Process generally applies to Plans effective for plan (or policy) years beginning on or after January 1, 2022, and to OON Providers beginning on January 1, 2022.  Among… Continue Reading

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