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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

Ordinary Employee Benefits Issues That Can Cause Extraordinary Problems in M&A Deals

Employee benefits rarely drive corporate transactions, but if the benefits of a target company are not reviewed carefully, they can sometimes derail the transaction.  Even some of the most routine facets of benefit plan administration can result in significant potential financial exposure (e.g., additional employer contributions, taxes, penalties, and fees as well as fees associated with the preparation and filing of IRS and DOL correction program applications) that could negatively affect the overall value of the target company. By identifying issues early in the transaction, the seller can prevent costly purchase price reductions and identify issues that need correction, while the buyer can avoid overpaying for a target and ensure that representation and warranty insurance will be available to cover potential claims. Some of those routine compliance issues include, but are not limited to, the following: Failing to timely file an annual Form 5500.  The DOL can assess a penalty… Continue Reading

Additional Federal Guidance Regarding COVID-19 and Telehealth Coverage: Some Employer Take-Aways

The U.S. Departments of Labor, Treasury, and Health and Human Services (the ?Ç£Departments?Ç¥) recently issued FAQs regarding the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and COVID-19. A number of these FAQs address a group health plan?ÇÖs required coverage of COVID-19 tests, including which tests must be covered, related facility fees, reimbursement rates, and balance billing to patients. Employers should ensure that the third party administrators of their group health plans have incorporated this guidance for plan administration purposes. In addition, some of the other FAQs may be of interest to employers. For example, the FAQs provide that, if a group health plan reverses the increased coverage of COVID-19 or telehealth after the COVID-19 public health emergency period is over, the Departments will consider the plan to have satisfied the requirement to provide advance notice of changes to the Summary of Benefits… Continue Reading

PCORI Fee is Back and There?ÇÖs No Relief From Its Deadline: July 31, 2020

The plan year ending before October 1, 2019 was supposed to be the last year that the Patient-Centered Outcomes Research Institute (?Ç£PCORI?Ç¥) fee was required to be paid. However, legislation passed in December 2019 extended the PCORI fee for another ten years. Recognizing that plan sponsors believed the PCORI fee was ending and may not have anticipated the need to identify the number of covered lives to determine the PCORI fee, the IRS issued transition relief for the plan year ending before October 1, 2020. Under this transition relief, in addition to using one of the three methods specified in the regulations, plan sponsors may use any reasonable method for calculating the average number of covered lives. For the plan year ending on or after October 1, 2019 and before October 1, 2020, the PCORI fee is $2.54 times the average number of covered lives. Payment of the PCORI fee… Continue Reading

Third Party Administrator of Health Plans Settles with DOL for $16 Million over Fee Disclosure and Claims Processing Issues

The U.S. Department of Labor alleged that, in addition to charging a per-employee monthly fee, which was disclosed, a third party administrator (?Ç£MagnaCare?Ç¥) charged employer-provided health plans an undisclosed markup above the actual amounts paid by MagnaCare to ancillary medical service providers such as labs and radiology and imaging services. The plans paid MagnaCare the full amount, and MagnaCare remitted the lower actual charges to the providers and retained the undisclosed markup, which MagnaCare called a ?Ç£network management fee.?Ç¥ By operating under this fee arrangement and charging an undisclosed fee that was not approved by plan fiduciaries independent of MagnaCare, the DOL alleged MagnaCare breached its fiduciary duties and committed prohibited transactions under ERISA. In addition, the DOL alleged that MagnaCare did not fully comply with the Affordable Care Act?ÇÖs ?Ç£prudent layperson standard?Ç¥ because MagnaCare did not inform participants with diagnosis codes that were not on MagnaCare?ÇÖs ?Ç£ER list?Ç¥ that… Continue Reading

4th Circuit Holds that the Limitations Period for ERISA Claims of Imprudent Plan Investments Commences with Initial Fund Selection and Does Not Continue With Ongoing Monitoring of Funds, Absent Material Change in Circumstances

A group of participants in Bank of America?ÇÖs 401(k) plan sued alleging the bank engaged in prohibited transactions and breached its fiduciary duty by selecting bank-affiliated mutual funds despite the funds?ÇÖ poor performance and higher fees in comparison to other available investment alternatives. The participants conceded that the initial fund selection was outside of ERISA?ÇÖs general six-year limitations period. Nevertheless, the participants argued that the bank?ÇÖs failure to remove the bank-affiliated mutual funds at meetings of its benefits committee, which occurred within the limitations period, constituted new prohibited transactions and new breaches of its fiduciary duty to monitor plan investments. The 4th Circuit disagreed, reasoning that a decision to continue certain investments, or even the bank?ÇÖs failure to act, cannot constitute a ?Ç£transaction?Ç¥ for ERISA purposes; therefore, the only transaction upon which the participants could assert a prohibited transaction claim was the bank?ÇÖs initial selection of the bank-affiliated mutual funds.… Continue Reading

New Zealand?ÇÖs Financial Markets Authority Issues Guidance Note of KiwiSaver Scheme Performance Fees

New Zealand?ÇÖs Financial Markets Authority (?Ç£FMA?Ç¥) recently issued guidance setting forth the criteria against which FMA will assess the reasonableness of performance fees for purposes of KiwiSaver schemes and outlining the requirements for disclosure of these fees. Under the guidance, performance fees should only be charged in limited circumstances such as actively managed growth funds and must take account of the effective allowance already in the base fee for an element of active management. The FMA indicated it looks for the following elements related to performance fees: hurdle rate of return with an appropriate benchmark; high water mark (with no resets); crystallisation periods of not less than a year; and a performance fee cap. Managers and trustees for KiwiSaver schemes should review the performance fees charged to their schemes in light of this new guidance. The guidance can be found here.

September 2021
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