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Cross-Plan Offsetting Practice is Challenged in Class Action Lawsuit

This class action lawsuit, styled Scott, et al. v. UnitedHealth Group, Inc., et al., was filed in the U.S. District Court for the District of Minnesota on July 14, 2020. This lawsuit follows the decision of the U.S. Court of Appeals for the Eighth Circuit in Peterson v. UnitedHealth Group Inc. that was issued last year. In Scott, the plaintiffs, who were participants in the plans at issue in Peterson, filed, on behalf of a class of plaintiffs (the “Class”), a class action against UnitedHealth Group, Inc. and its wholly-owned subsidiaries (collectively, “UHC”), in their capacities as an insurer and/or third-party claims administrator of employer-sponsored group health plans. The lawsuit alleges the breach of UHC’s fiduciary duties under ERISA as related to UHC’s practice of “cross-plan offsetting.” The Class consists of participants and beneficiaries in all group health plans that are administered by UHC and contain “cross-plan offsetting” (collectively, the… Continue Reading

IRS Publishes Updated Operational Compliance Checklist

The IRS recently published an updated Operational Compliance Checklist (the “Checklist”), which lists changes in qualification requirements that became effective during the 2016 through 2020 calendar years. Examples of items added to the Checklist for 2020 include, among other things: Final regulations relating to hardship distributions; Temporary nondiscrimination relief for closed defined benefit pension plans; Penalty-free withdrawals from retirement plans for individuals in cases of birth or adoption; and Increase in age for required beginning date for mandatory distributions. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance.  The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables, which can instead be found on the IRS’s Recently Published Guidance webpage here. The Checklist is available here.

DOL Issues Proposed Rule to Amend the Investment Duties Regulation

The DOL recently issued a proposed rule to amend the “investment duties” regulation at found at 29 CFR 2550.404a-1 (the “Regulation”). The proposed rule would provide investment guidance to ERISA plan fiduciaries in light of recent trends in environmental, social, and governance (“ESG”) investing. ERISA requires plan fiduciaries to act “solely” in the interest of plan participants and beneficiaries and for the “exclusive purpose” of providing benefits and paying reasonable administrative expenses and prudently selecting investments for the plan. In the past, the DOL has periodically issued guidance addressing fiduciary duties under ERISA with respect to ESG-based investment decisions, including Interpretive Bulletin 94-1, which described a “tie-breaker standard,” whereby ESG considerations could be the deciding factor when competing investments served the plan’s economic interests equally. Later Interpretive Bulletins emphasized that it would be a violation of ERISA to accept reduced returns in favor of ESG goals, but that in certain cases,… Continue Reading

The New DOL Fiduciary Rule – A Return to the Old with a New Proposed Prohibited Transaction Exemption

On June 29, 2020, the DOL issued its much anticipated new “fiduciary rule” under ERISA. The new rule is meant to replace the DOL’s previous fiduciary rule (and related exemptions) which went into effect in 2016 but was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The new fiduciary rule is composed of two parts: (i) a final regulation which reaffirms and reinstates the five-part test for determining whether a person renders “investment advice” for purposes of ERISA (the “Reinstated Rule”), and (ii) a new prohibited transaction class exemption for investment advice fiduciaries based on the “impartial conduct standards” previously adopted by the DOL (the “Proposed Exemption”). Reinstated Rule The new rule amends the Code of Federal Regulations to reinstate the prior 1975 regulation which contained the five-part test for determining whether a financial institution or investment professional is a fiduciary for rendering “investment advice.”… Continue Reading

The DOL Says Certain Private Equity Investments May Be Permissible Designated Investment Alternatives Under Individual Accounts Plans

On June 3, 2020, the DOL issued an information letter addressing the possibility of including a private equity type investment as a “designated investment alternative” under a participant directed individual account plan. The DOL concluded that, as a general matter, “a plan fiduciary would not . . . violate [ERISA’s fiduciary duties] solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan in the manner described in [the] letter.” The DOL observed that private equity investments “involve more complex organizational structures and investment strategies, longer time horizons, and more complex, and typically, higher fees” and they generally have “different regulatory disclosure requirements, oversight, and controls” and “often have no easily observed market value.” In addition to these considerations, the DOL listed several factors that plan fiduciaries should evaluate when considering whether a… Continue Reading

Reminder: A Severance Policy Could be an ERISA Plan

As the coronavirus pandemic continues, many employers have been forced to reduce their workforce, oftentimes paying some form of severance to their employees. One area that continues to cause confusion among employers is whether their severance policy is an employee benefit plan subject to ERISA. Generally, informal arrangements that feature one-time payments in response to ad hoc situations and that do not have an ongoing administrative scheme will not be subject to ERISA. However, it is not always clear when such arrangements become “employee benefit plans” that are subject to ERISA. It is generally not to the employer’s advantage to have its severance strategy characterized as an informal arrangement not subject to ERISA. For example, the beneficiary of such an arrangement would be able to sue in state court for benefits, which could expose the employer to larger damage awards than are available under ERISA. Employers should ask their counsel… Continue Reading

Cases Highlight Importance of Governing Law Clauses in ERISA Plan Documents

The U.S. Court of Appeals for the Tenth Circuit recently held that the choice of law provision contained in a long-term disability insurance policy (the “LTD Policy”) controlled when determining which state law applied to the case. The LTD Policy, which was subject to regulation under ERISA as an employee benefit plan, stated that it was governed by the law of Pennsylvania, where Comcast (the employer) was incorporated and had its principal place of business. The employee argued that Colorado law controlled, because Colorado is where the employee worked for Comcast and filed the lawsuit. This was important because Colorado insurance law prohibited granting discretion to the plan administrator to interpret the LTD Policy, whereas Pennsylvania law did not prohibit this deferential standard. Generally, a plan administrator’s denial of benefits under an ERISA plan is reviewed by a court de novo (i.e., without deference being paid to the plan administrator’s… Continue Reading

The Supreme Court Holds Participants in Fully-Funded Defined Benefit Plans Cannot Sue for Fiduciary Breach

The U.S. Supreme Court held Monday that participants in a fully-funded defined benefit plan have no standing to bring a lawsuit against plan fiduciaries for a breach of ERISA’s fiduciary requirements. In Thole, plan participants alleged that the plan fiduciaries had mismanaged funds and invested in imprudent investments causing the plan to lose approximately $748 million more than it otherwise should have during the 2008 recession. Subsequent to that date, the plan sponsor contributed an additional $311 million to the plan resulting in the plan becoming fully funded. The Court held that because the participants would receive the same benefits whether they won or lost the lawsuit, there was no controversy and, therefore, the participants had no standing under Article III of the U.S. Constitution to bring a civil action under Sections 502(a)(2) or 502(a)(3) of ERISA. Thole v. U.S. Bank N.A., No. 17–1712 (U.S. June 1, 2020) can be… Continue Reading

Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA’s diversification because it was no longer a “qualifying employer security”, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

The DOL Announces Final Rule for Electronic Delivery of ERISA-Required Retirement Plan Disclosures

The DOL recently announced a final rule which provides an additional “Notice-and Access” safe harbor for plan administrators to electronically deliver ERISA-required notices and disclosures. The final rule is substantially similar to the proposed rule (which we discussed in a previous blog post here). Under the final rule, plan administrators may electronically deliver certain “covered documents” to “covered individuals” with electronic addresses by (i) posting the covered documents on a website and sending a notice of Internet availability (“NOIA”) to the covered individual’s electronic address or (ii) sending covered documents directly to a covered individual’s electronic address. The NOIA may be sent on an annual basis, describing multiple covered documents, and must include (x) a description of the covered documents being posted, (y) the address of or hyperlink to the website where the covered documents are posted, and (iii) information about the covered individual’s right to request covered documents in… Continue Reading

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