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It?ÇÖs All Part of the Plan ?Çô Consistency is Key to Treating Multiple Documents as One Plan

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 (?Ç£Plaintiffs?Ç¥) of Teva Pharmaceuticals, Inc. (?Ç£Defendant?Ç¥) brought two state law causes of action against Defendant based on the denial of separation pay benefits under Defendant?ÇÖs severance plan, which was comprised of a Separation Benefits Plan (?Ç£SBP?Ç¥), a… Continue Reading

Extending Health Plan Coverage for Furloughed Employees

Due to the COVID-19 pandemic, many employers have placed a portion of their workforces into a furloughed status. Some employers want to keep furloughed employees covered under the employer?ÇÖs group health plan. For a self-funded plan, many stop-loss insurers have approved keeping furloughed employees covered under the plan in covered employment status (as opposed to offering COBRA coverage) for up to six months. In addition, many insurance companies have offered similar coverage extensions under fully-insured, group health plans. As the pandemic continues, some employers want to continue covering furloughed employees beyond the original six-month period. Before providing extended coverage for furloughed employees, it is critical that the employer first obtain written approval from the stop loss carrier for any self-funded benefits, as well as from the insurer for any fully-insured benefits, before granting such an extension, in addition to timely amending the affected plans and communicating such amendments to participants.

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 ?Ç£Class?Ç¥), a class action against UnitedHealth Group, Inc. and its wholly-owned subsidiaries (collectively, ?Ç£UHC?Ç¥), 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?ÇÖs fiduciary duties under ERISA as related to UHC?ÇÖs practice of ?Ç£cross-plan offsetting.?Ç¥ The Class consists of participants and beneficiaries in all group health plans that are administered by UHC and contain ?Ç£cross-plan offsetting?Ç¥ (collectively, the… Continue Reading

IRS Publishes Updated Operational Compliance Checklist

The IRS recently published an updated Operational Compliance Checklist (the ?Ç£Checklist?Ç¥), 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.?á 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?ÇÖs Recently Published Guidance webpage here. The Checklist is available here.

IRS Extends Deadline to Roll Over Waived RMD Distributions / Provides Model Amendment

The IRS issued Notice 2020-51 which provides additional guidance and relief relating to the required minimum distribution (?Ç£RMD?Ç¥) waiver provisions in Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). The CARES Act waived the requirement to make RMDs in 2020. Distributed amounts that?Çöbut for the CARES Act waiver?Çöwould have been RMDs are instead treated as eligible rollover distributions. Generally, the deadline to roll over an eligible rollover distribution into an IRA or another qualified plan is 60 days from the distribution date. However, for those eligible rollover distributions made in 2020 that otherwise would have been RMDs and for which the 60-day rollover period expires before August 31, 2020, the IRS extended the rollover deadline to August 31, 2020. Additionally, Notice 2020-51 includes a Q&A relating to the waiver of RMDs in 2020 and a model amendment that plan sponsors can adopt to provide… 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 ?Ç£LTD Policy?Ç¥) 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?ÇÖs denial of benefits under an ERISA plan is reviewed by a court de novo (i.e., without deference being paid to the plan administrator?ÇÖs… Continue Reading

Use Care When Implementing CARES Act Retirement Plan Distributions ?Çô State Law and Benefit Offset Concerns

As we have previously reported on our blog here and here, the CARES Act provided relief to participants in retirement plans by allowing employers to amend their retirement plans to include certain coronavirus-related distributions and to permit increased loan amounts for certain qualified individuals. Many employers have agreed to adopt these changes, and under federal law, the treatment of these distributions is clear. But there are other issues that employers and employees should consider, including: The coronavirus-related distributions could be subject to taxation under state law, even if the employee later repays the distribution to the plan; and If employees are receiving unemployment and/or disability benefits, the coronavirus-related distributions may reduce or offset these benefits. However, the enhanced loans would not be subject to taxation and may not offset unemployment and disability benefits, which may make the enhanced loan a better option for employees who anticipate paying back the distribution.… Continue Reading

Evaluating Performance Goals and Incentive Compensation in Light of COVID-19

Boards and compensation committees will be reevaluating their incentive compensation arrangements in light of the COVID-19 pandemic and the resulting market uncertainty. Both long-term and short-term incentive plans can lose motivational and retention value if the performance goals are unachievable or if they do not align with market reality. Companies that have not yet established performance goals for their 2020 equity and bonus awards should carefully consider market conditions and shareholder perception before establishing goals, focusing on motivating their executives with pay for performance that aligns with shareholders?ÇÖ interests, while giving the company flexibility to navigate through uncharted territory. To the extent possible, companies should also consider delaying the issuance of incentive compensation awards until there is more stability in the business and in the financial markets. Companies that have already established goals for their 2020 awards (or that are evaluating the continued effectiveness of performance goals for prior year… Continue Reading

Fifth Circuit Opinion Clarifies Legal Claims Distinction under ERISA

In Manuel v. Turner Industries Group, L.L.C., the U.S Circuit Court of Appeals for the Fifth Circuit (whose jurisdiction includes Texas) considered various claims under ERISA that were brought by Michael Manuel, a former employee of Turner Industries (?Ç£Turner?Ç¥). His claims were brought against Turner and Prudential, the insurer and claims fiduciary under Turner?ÇÖs long-term disability benefits plan, and related to a denial of benefits to Manuel under that plan. One of his claims was for breach of fiduciary duty asserted against Turner under Section 502(a)(3) of ERISA (the ?Ç£Equitable Relief Provision?Ç¥) based on Manuel?ÇÖs argument that the plan?ÇÖs SPD omitted the pre-existing condition exclusion contained in the plan document that was the basis for Prudential?ÇÖs denial of his benefits claim, and thus Manuel relied to his detriment on a deficient SPD. Citing Fifth Circuit and U.S. Supreme Court precedent under ERISA, the Fifth Circuit reiterated the standing rule that… Continue Reading

Fifth Circuit Confirms a Summary Plan Description May Also Act as the Plan Document under ERISA

The U.S. Court of Appeals for the Fifth Circuit reiterated its prior determination that a Summary Plan Description (?Ç£SPD?Ç¥) for an employer-sponsored, group medical plan subject to ERISA could also serve as the plan document, provided it contains all of ERISA?ÇÖs written plan document requirements. The court further held that in this case the SPD?ÇÖs reference to a non-existent plan document was not material or detrimental to the participant under the plan. Historically, ?Ç£plan booklets?Ç¥ for medical plans have contained the relevant SPD provisions regarding the benefits payable and the procedures for filing claims for benefits. However, many of those booklets did not contain all of ERISA?ÇÖs requirements for an SPD or for the written plan document, including claims appeals procedures and certain other provisions, such as funding sources, amendment and termination provisions, and other required details. As a result, we have consistently recommended that the plan booklet be carefully… Continue Reading

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