The DOL has now officially delayed until April 1, 2018 its regulations that amend the claims review and appeal procedures applicable to ERISA-covered employee benefit plans providing disability benefits. Such regulations were originally scheduled to apply to disability benefit claims filed on or after January 1, 2018. We previously commented on the DOL’s proposal to delay these regulations here. The delay gives the DOL time to consider additional comments and data, reassess the impact of the new claims procedures, and revise the regulations as deemed appropriate. Employers should thus expect to receive additional guidance from the DOL before the April 1 effective date. View the final regulations that provide for the delay.
In this case, the summary plan description (“SPD”) described a participant’s ability to submit a second level appeal for a denied benefits claim under an employer-sponsored group health plan subject to ERISA and stated that failure to submit such an appeal would constitute a waiver of the participant’s right to review the decision. In addition, the denial letter received by the participant stated that she had a right to request a second level appeal. However, the court found neither the plan document, SPD, or denial letter obligated the participant to file a second level appeal before filing a lawsuit, thus resulting in the court’s denial of the defendant’s motion for summary judgment for failure to exhaust the plan’s administrative remedies. This case highlights the importance of reviewing plan and related documents to ensure they expressly state that submitting a second level appeal is required before a lawsuit over a denied… Continue Reading
In a case of first impression for a federal appellate court, the U.S. Court of Appeals for the Eleventh Circuit held that a fiduciary may affirmatively waive any defenses based on the six-year statute of repose in Section 413 of ERISA. In this case, the U.S. Secretary of Labor brought an action against the company and its owner/CEO who was also the trustee of the company’s employee stock ownership plan (“ESOP”), claiming that the owner engaged in prohibited self-dealing by causing the plan to purchase company stock at inflated prices. While attempting to negotiate a settlement, the Secretary of Labor agreed to delay filing suit in exchange for the defendants executing a series of tolling agreements, in which they agreed they would “not assert in any manner the defense of statute of limitations, the doctrine of waiver, laches, or estoppel, or any other matter constituting an avoidance of the Secretary’s claims… Continue Reading
In a recent Chief Counsel Advise Memorandum, the IRS analyzed two factual scenarios in which a 401(k) plan participant missed certain loan payments. In the first scenario, the participant missed two consecutive installment payments, which were due in separate calendar quarters. Payments made subsequent to the missed payments were deemed to “cure” the prior missed payments, which resulted in a rolling cure period that would extend to the end of the calendar quarter following the quarter in which the last installment payment was made. Ultimately, the participant made a payment to the plan that included an amount for the two prior missed payments as well as the payment then due. Because all missed payments were cured within the applicable cure period, the IRS concluded that no deemed distribution of the loan proceeds had occurred. In the second scenario, the participant missed three consecutive payments, which were all due in the… Continue Reading
The DOL recently filed suit against Macy’s and two of its third party administrators (“TPAs”) alleging violations of ERISA’s fiduciary rules and related offenses with respect to the payment of out-of-network (“OON”) healthcare claims, as well as against Macy’s for alleged violations of HIPAA’s wellness rules and ERISA’s fiduciary rules. The applicable SPD indicated that the amount payable for services received from OON providers would be based on the lesser of the provider’s actual charge or the average charge for similar services by providers in the participant’s geographic area, while the TPAs actually determined the reimbursement amounts based on a percentage of the Medicare Allowable Rate. In addition to penalties, the DOL’s complaint requests that the court require the plan to reprocess all OON claims during the applicable time period in a manner consistent with the then written terms of the plan. Many employer-sponsored health plans have similar issues regarding… Continue Reading
Ninth Circuit Finds Summary of Material Modifications Violates ERISA for Failure to Reasonably Apprise Participant
A participant exceeded the lifetime maximum limit on benefits under a retiree health plan and then sued the employer and third party administrator for failure to adequately disclose the lifetime limit. The employer maintained an active employee health plan and a retiree health plan. However, the employer only used one summary plan description (“SPD”) for both plans. The SPD consisted of the 2006 SPD and a series of summaries of material modifications (“SMMs”) describing amendments to the plans since 2006. A 2010 SMM applied to the active employee plan and the retiree health plan. It stated that items marked with an asterisk did not apply to retirees. A heading labeled “Health Care Reform*” contained an asterisk, but the layout of the SMM did not make it clear which of the subsequently described changes, including the removal of the lifetime limit, fell under this Health Care Reform heading and thus did… Continue Reading
As currently drafted, following the transition period, the Exemptions will be unavailable to any fiduciary whose contract with a retirement investor includes a waiver or qualification of the investor’s right to bring or participate in a class action or other representative action in court. In FAB 2017-03, the DOL announced a policy limiting enforcement of this provision in the Exemptions. Specifically, the DOL announced that it will not pursue a claim against any fiduciary or treat any fiduciary as being in violation of the Exemptions solely because the contract between the fiduciary and the investor includes an arbitration agreement that prevents the investor from participating in class action litigation. FAB 2017-03 is available here.
The DOL recently published a notice (the “Notice“) proposing to extend the “transition period” currently in effect for the Best Interest Contract Exemption and the Principal Transactions Exemption (the “Exemptions“), which were issued in connection with the DOL’s new plan fiduciary definition. During the transition period, fiduciaries may rely on the Exemptions by adhering to the “Impartial Conduct Standards” (i.e., an advisor must give prudent advice that is in retirement investors’ best interest, charge no more than reasonable compensation, and avoid misleading statements). The other conditions applicable to the Exemptions will not become effective until the transition period ends. The Notice proposes to extend the transition period, which is currently scheduled to end on January 1, 2018, through July 1, 2019. The Notice also proposes a delay in the effective date of certain amendments to Prohibited Transaction Exemption 84-24 until July 1, 2019. The Notice is available here.
The DOL recently released a set of FAQs related to its new plan fiduciary definition and related exemptions (the “Final Rule”). Specifically, the FAQs clarify that service providers who are required to provide ERISA Section 408(b)(2) notices to retirement plan sponsors, which disclose the service provider’s fees and services, are not required to update those notices to state the service provider is now a fiduciary until the date when fiduciary status must first be disclosed under the Final Rule’s Best Interest Contract and Principal Transaction Exemptions, which is currently January 1, 2018. (Please note that on August 9, 2017, the DOL filed a motion with the court presiding over the ongoing litigation concerning the Final Rule’s validity, stating that the DOL intends to further delay the effective date of the Best Interest Contract and Principal Transaction Exemptions for an additional 18 months.) In addition, the FAQs clarify that communications regarding… Continue Reading
On August 10, 2017, the U.S. Court of Appeals for the Seventh Circuit held in In re: Mathias that an ERISA-covered plan’s venue selection clause limiting where civil lawsuits may be filed against the plan was enforceable, joining the Sixth Circuit which reached a similar conclusion in 2014 in the case of Smith v. Aegon Cos. Pension Plan. ERISA Section 502(e)(2) provides that a civil action may be brought: (i) in the district where the plan is administered, (ii) where the breach took place, or (iii) where a defendant resides or may be found. The Court held that the statute’s language (i.e. “may”) is permissive and that neither the statute nor the legislative history indicates that plans should be prevented from contractually limiting these options. The Seventh Circuit appeared to give weight to the fact that the plan’s venue selection provision required suit to be filed where the plan administrator… Continue Reading