The U.S. Secretary of Labor (the “Secretary”) recently filed an amicus (friend of the court) brief with the U.S. Court of Appeals for the First Circuit arguing that, where a beneficiary alleged that he was denied covered mental health benefits because his employer’s group health plan applied an exclusion in violation of ERISA’s mental health parity requirements, he is authorized to bring a claim for those benefits under ERISA. ERISA Section 502(a)(1)(B) allows a beneficiary to bring a civil action to “recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” The amicus brief was filed in the case of N.R. v. Raytheon Co., in which a beneficiary of the company’s self-funded health plan was denied coverage for speech therapy treatment under the terms of… Continue Reading
U.S. Supreme Court Denies Cert in Sun Capital Appeal; Leaves Door Open for Private Equity Fund Liability for Portfolio Company Pension Liabilities
In the latest development in the Sun Capital line of cases, on October 5, 2020, the U.S. Supreme Court denied certiorari review of New England Teamsters & Trucking Industry Pension Fund v. Sun Capital Partners. The Sun Capital cases center around the issue of whether affiliated private equity funds, Sun Capital Partners III and Sun Capital Partners IV (collectively, the “Funds”), can be held liable for the pension fund withdrawal liability of a portfolio company, Scott Brass Inc. (“SBI”), which went into bankruptcy while owned by the Funds. In 2013, the First Circuit held that multiple private equity funds could be jointly and severally liable under ERISA for the withdrawal liability of a portfolio company if such funds were (i) a trade or business and (ii) in the company’s controlled group (see our prior blog post on that court decision here). On remand by the First Circuit in 2016, the… Continue Reading
California recently enacted Senate Bill 855 (“SB 855”), which expands certain requirements related to mental health and substance use disorders. SB 855 applies to any California “health care service plan contract” or disability insurance policy issued, amended, or renewed on or after January 1, 2021. Significantly, SB 855 renders “void and unenforceable” any provision in a health care service plan contract that reserves discretionary authority to the plan to determine eligibility for benefits or coverage, interpret the terms of the contract, or provide for standards of interpretation or review that are inconsistent with California law. If this provision is not preempted by ERISA as applied to an employer-sponsored group health plan, such mandate could eliminate the deferential standard of review that would otherwise be available under ERISA to the plan administrator. SB 855 is available here.
The DOL recently issued an interim final rule (“IFR”) pursuant to the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) regarding the information that must be provided on pension benefit statements. ERISA requires plan administrators of defined contribution plans to provide periodic pension benefit statements to participants and certain beneficiaries. The SECURE Act requires plan administrators to provide annual statements illustrating participants’ accrued benefits as two lifetime income stream illustrations: (i) a single life annuity, and (ii) a qualified joint and survivor annuity. The IFR describes certain required assumptions plan administrators must use when converting a participant’s accrued benefit into lifetime income streams. The lifetime income stream illustrations must be accompanied by clear and understandable explanations of the assumptions underlying the illustrations. To assist plan administrators, the IFR provides model language that may be used to satisfy this explanation requirement. The IFR is effective September… Continue Reading
Plan sponsors of severance plans that set forth the terms of one severance plan in multiple plan documents should consider combining those documents into one document or carefully reviewing each plan document to ensure there are no inconsistencies (including relating to eligibility, effective dates, and benefits) and that each document not only references the other documents but is incorporated into the other documents by reference. Otherwise, the plan sponsor may risk one of the documents being deemed a pay practice exempt from ERISA, subjecting the plan sponsor to state law claims in any state where employees are covered. This risk was recently highlighted in Caggiano v. Teva Pharm. USA, Inc., where former employees (“Plaintiffs”) of Teva Pharmaceuticals, Inc. (“Defendant”) brought two state law causes of action against Defendant based on the denial of separation pay benefits under Defendant’s severance plan, which was comprised of a Separation Benefits Plan (“SBP”), a… Continue Reading
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
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.
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