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Employee Benefits Legal Blog

Employee Benefits Related to Labor & Employment Matters

Subsidies in the Federal Marketplace: A Definite Maybe

Posted in Court Cases, Plan Administration, Welfare Plans

Amidst all of the other issues surrounding implementation of the ACA, there is an underlying issue about whether or not subsidies (in the form of tax credits) are available for individuals who obtain coverage through the federal exchange marketplace as opposed to the state exchanges.  Many states have determined not to offer exchanges, which means exchange coverage in those states would be through the federal exchange.  The challenge (or argument as the case may be) is that the law specifically limits subsidies to participants participating in “state” exchange not the federal one.  So people in those states would not get subsidies.

Two federal appeals courts have now ruled on the issue and they promptly contradicted each other.  In Halbig v. Burwell, the D.C. Circuit Court of Appeals ruled that subsidies are not available to those in the federal exchange.  In King v. Burwell, the Fourth Circuit Court of Appeals ruled exactly the opposite, that subsidies are available because the law is ambiguous.  Because of the conflict between the Circuits, this would seem logically to be a case for the Supreme Court to take up, but that will take time so the conflict will likely remain for some time.

For employers, this split may have some significant impact on their ACA compliance planning.  I have heard on many occasions that employers are making decisions regarding offering coverage based on the assumption that it will be cheaper for employees to get subsidized coverage through the exchange.  But if the subsidy is not available because there is no state exchange, that assumption may not be correct.  Absent subsidies, exchange coverage may not be less expense than employer-sponsored coverage.  So before finalizing compliance based on this assumption, employers should check to see if there state offers an exchange.

According to the CMS, the following states are participating in the federal marketplace, either directly or through a partnership arrangement:

Alabama, Alaska, Arizona, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, West Virginia, Wisconsin and Wyoming.

Disclosures with Respect to Preventative Care: DOL Notice Requirement post-Hobby Lobby

Posted in Court Cases, Plan Administration, Welfare Plans

It seems like one of the hardest parts of ACA compliance is waiting for guidance on specific issues.  However, after the decision in Hobby Lobby, the DOL promptly issued FAQ Part XX that addresses the notice requirements for employers who cease providing contraceptive services.  The FAQ has a single question and is reprinted below in its entirety:

“Q: My closely held for-profit corporation’s health plan will cease providing coverage for some or all contraceptive services mid-plan year. Does this reduction in coverage trigger any notice requirements to plan participants and beneficiaries?

Yes. For plans subject to the Employee Retirement Income Security Act (ERISA), ERISA requires disclosure of information relevant to coverage of preventive services, including contraceptive coverage. Specifically, the Department of Labor’s longstanding regulations at 29 CFR 2520.102-3(j)(3) provide that, the summary plan description (SPD) shall include a description of the extent to which preventive services (which includes contraceptive services) are covered under the plan. Accordingly, if an ERISA plan excludes all or a subset of contraceptive services from coverage under its group health plan, the plan’s SPD must describe the extent of the limitation or exclusion of coverage. For plans that reduce or eliminate coverage of contraceptive services after having provided such coverage, expedited disclosure requirements for material reductions in covered services or benefits apply. See ERISA section 104(b)(1) and 29 CFR 2520.104b-3(d)(1), which generally require disclosure not later than 60 days after the date of adoption of a modification or change to the plan that is a material reduction in covered services or benefits. Other disclosure requirements may apply, for example, under State insurance law applicable to health insurance issuers.”

First, for reasons I laid out in a prior entry, I am not suggesting companies immediately take this step.  But a couple of things about this FAQ that are worth noting if a plan sponsor is considering eliminating contraceptive coverage.  One, the question references a “closely held for-profit company” which pretty clearly indicates that the DOL is applying a very narrow reading of the Court’s decision and non-closely held companies would be in for a fight later.  Second, if the company is eliminating contraceptive coverage, it has to follow the ACA and ERISA notice requirements for plan changes.  The change is not immediate and can only be completed after the appropriate notification time periods.  Simply eliminating the coverage will not do.

Second, this FAQ demonstrates how court decisions, particularly Supreme Court decisions, will continue to impact ACA compliance going forward.  That is why it is important for plan sponsors to continue to watch for change and guidance to increase the possibility of proper implementation of an ACA compliant plan.  Be informed, be flexible and be prepared.

Don’t Get Cute with ACA Compliance: Hobby Lobby, Safe Harbors and ERISA Concerns

Posted in Plan Administration, Welfare Plans

With the Supreme Court’s decision in the Hobby Lobby case, and the granting of the injunction for Wheaton College that came shortly thereafter, there has been considerable hand wringing over the long term implications these decisions might have.  Plan administrators and sponsors dealing with the ACA should not forget about the short term compliance requirements.  Nor should they get too caught up in thinking up ways to avoid compliance with the ACA.  If anything, Hobby Lobby might be best viewed as a cautionary tale rather than a defining moment.

Many people have written about the decision itself but for all intents and purposes, it should be considered as fairly limited in its application.  It was about a specific issue for a specific employer that had a specific structure.  For a large portion of the employer-providing-health-coverage population, it will have no impact.  In other words, most employers have to comply with the ACA as it is written.  Looking for loopholes can be risky, not just for ACA compliance but also for ERISA compliance generally.

ERISA is designed to provide uniform administration of employee benefit plans, which is why this federal law specifically preempts state law.  With the concept of uniform administration comes the expectation that plans will provide benefits (with limited exception) evenly and equally to all participants.  Eligibility rules are designed to make it so that employees can readily ascertain how and when they can obtain benefits.  Over time, the regulatory agencies have given guidance on safe harbors that plan sponsors can employ to increase the probability that they are correctly administering their plans.

The ACA, while primarily directed at employers, does certainly impact ERISA benefit plans.  The DOL and IRS have been providing various guidance for ACA compliance, and have even provided some safe harbor considerations for things like waiting periods and eligibility requirements that allow for some basic understanding of how to make it so that your ERISA plan complies with the ACA.  Sure, they might be confusing some time and require some changes to our plan administration and how our plans provide benefits, but generally they are designed to make it easier for overall compliance.

Think of the rules as lane markers on a highway.  Sure, you can change lanes to find one that you like better.  And you can even go off-road to follow a more direct route to get where you want to go.  But going off-road carries considerable risk.  The same can be said for trying to avoid ACA compliance with creative solutions.  I have seen lots of suggestions for ways an employer can avoid complying with the ACA.  I have yet to see anyone guarantee that they will work.  As 2015 approaches, it might be best to stay in the lanes.  Conservative compliance in the short run allows for safer plan administration.

“Hobby Lobby” Decision Cuts Unique Exemption into Affordable Care Act’s Contraceptive Coverage Requirement

Posted in Court Cases, Plan Administration, Welfare Plans

On June 30, 2014, in a 5-4 decision, the U.S. Supreme Court ruled in Burwell v. Hobby Lobby Stores, Inc. (“Hobby Lobby”) that closely held for-profit companies that formed their companies for a religious purpose can qualify for an exemption from the Patient Protection and Affordable Care Act (“ACA”) requirement to pay for certain contraceptive benefits (“the contraceptive mandate”).  The decision, written by Justice Samuel Alito, held that, as applied to these closely held corporations, the Health and Human Services (“HHS”) preventive services regulations imposing the contraceptive mandate violate the Religious Freedom Restoration Act of 1993 (“RFRA”).  The Court also ruled that for-profit corporations may bring RFRA claims, and owners of those corporations may sue based on restrictions imposed on those corporations.

Key Facts

The Hobby Lobby decision involved three family-owned businesses (“the Companies”) owned by two families whose owners claimed a religious exemption from the ACA’s contraceptive mandate.  The contraceptive benefits at issue were among the mandated preventive services that employers are required to provide to women without participant cost sharing under HHS-promulgated regulations. Specifically, under these regulations, nonexempt employers are generally required to provide coverage for the twenty contraceptive methods approved by the Food and Drug Administration, including the four methods that may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus. These four methods were of particular concern to the owners of the Companies because of their sincere Christian beliefs that life begins at conception and that facilitating access to contraceptive drugs or devices that operate after that point would violate their religion.

In separate actions, the owners of the Companies, and the Companies, sued HHS and other federal officials and agencies under RFRA and the First Amendment’s Free Exercise Clause, seeking to enjoin application of the contraceptive mandate. The RFRA provides that the federal government shall not “substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling governmental interest.

In both cases, the District Courts denied injunctive relief to the owners.  However, the Tenth Circuit Court of Appeals reversed the District Courts’ denial of the injunction, holding that the Companies are “persons” under RFRA, and that the Companies had established a likelihood of success on their RFRA claim because the contraceptive mandate substantially burdened their exercise of religion and HHS had not demonstrated a compelling interest in enforcing the mandate against them.  In the alternative, the Tenth Circuit held that HHS had not proved that the contraceptive mandate was the least restrictive means of furthering a compelling governmental interest.

The Decision

In holding that the HHS regulations imposing the contraceptive mandate violate RFRA, the Supreme Court noted that Congress designed the RFRA statute to provide very broad protection for religious liberty and did not intend to put merchants to such a difficult choice. The Court noted that for the government to prevail, it needed to demonstrate a compelling state interest and to show that its application was the least restrictive means to achieving its objectives.  While the Court assumed a compelling governmental interest, it concluded that there were less restrictive alternatives available to the government for achieving its objectives.  The Court noted that the government could, for example, simply provide these benefits to all without charge.  Further, the Court recognized that protecting the free-exercise rights of closely held corporations protects the religious liberty of the individuals who own and control those corporations.

Implications for Business Owners and Employee Benefit Plans

Significantly, the Court’s decision applies to a very small category of businesses—closely held, faith-based, for-profit corporations (religious nonprofit employers, such as churches, are already exempt from the contraceptive mandate).  In addition to interpreting the scope of “persons” protected under the RFRA broadly, the Court supported its decision by emphasizing the fact that corporations can have a broad range of purposes:

Some lower court judges have suggested that RFRA does not protect for-profit corporations because the purpose of such corporations is simply to make money. This argument flies in the face of modern corporate law. ‘Each American jurisdiction today either expressly or by implication authorizes corporations to be formed under its general corporate act for any lawful purpose or business.

While it is possible that some owners of closely held for-profit companies might change their businesses to make them “faith-based” companies, and then begin to pick and choose which mandated benefits are objectionable to them as owners (probably the expensive ones), it is unlikely that many businesses will do this.  Even though corporations can indeed have a broad range of purposes, revenues and “the bottom line” constitute the motivating purpose for most corporations today.  Accordingly, in our view, this decision has only a very limited practical impact on most businesses and their benefit plans.

Moench On This – U.S. Supreme Court’s Decision in Fifth Third Bancorp v. Dudenhoeffer for ESOP Fiduciaries

Posted in Court Cases, Plan Administration, Retirement Plans

On June 25, 2014, in a unanimous decision, the U.S. Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, held that fiduciaries of employee stock ownership plans (ESOPs) are not protected by a presumption that they have acted prudently in making investment decisions—a presumption commonly referred to as the “presumption of prudence” or the “Moench presumption.”

The presumption of prudence, as originally approved in 1995 by the Third Circuit Court of Appeals in the case of Moench v. Robertson, provided that ESOP fiduciaries are presumed to be acting prudently in holding or offering employer stock as plan investments unless there is reason to believe the company’s survival is at risk or in doubt. The presumption had been adopted, in one form or another, by all of the circuit courts of appeal, and although some circuits had placed limits on it, no circuit court had specifically rejected it.

As a result of the Supreme Court ruling, except for the obligation to diversify investments, ESOP fiduciaries are subject to the same duty of prudence that applies to all ERISA fiduciaries. On the surface, this decision seems to be a major victory for plaintiffs filing lawsuits against ESOP fiduciaries; in reality, the decision may not have a significant impact on fiduciary investment decisions.

Key Facts

This case arose when former employees and participants in the Fifth Third Bancorp ESOP filed a lawsuit against Fifth Third and several of its officers (as fiduciaries of the ESOP) alleging that the fiduciaries breached their duty of prudence imposed by ERISA because: (1) they should have known, based both on publicly available and inside information, that Fifth Third stock was overpriced and excessively risky, and (2) a prudent fiduciary would have responded to this information by selling off the ESOP’s Fifth Third stock holdings, refraining from purchasing more of the stock, or disclosing the negative inside information so that the market could correct the stock’s price downward. According to the complaint, the fiduciaries failed to do these things, resulting in a decreased stock price and diminished retirement savings for the ESOP participants.

The district court dismissed the complaint, but the Sixth Circuit Court of Appeals reversed, concluding that ESOP fiduciaries are entitled to the presumption of prudence, though only at the evidentiary stage and not at the pleading stage. The Supreme Court held that ESOP fiduciaries are not entitled to any special presumption of prudence, but rather, are subject to the same duty of prudence that applies to ERISA fiduciaries in general. Further, the Supreme Court concluded that, on remand, the Sixth Circuit Court of Appeals should reconsider whether the complaint states a valid claim and provided standards for this reconsideration.

Implications for ESOP Fiduciaries

While rejecting the presumption of prudence that for so long had shielded them from liability, the ruling provided significant reassurance for ESOP fiduciaries. Justice Stephen Breyer, writing for the Court, made it clear that: (1) when employer stock in an ESOP is publicly traded, allegations that a fiduciary should have recognized, based on generally available information, that the market is overvaluing or undervaluing the stock are generally implausible under current standards, and (2) to state a claim for breach of the duty of prudence, a complaint must identify alternative action that the fiduciary could have taken that would have been legal and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. With respect to disclosure of insider information, Justice Breyer confirmed that a fiduciary never is required to break the law to satisfy the duty of prudence under ERISA.

Additionally, the Court acknowledged that Congress seeks to encourage the establishment of ESOPs, recognized that ESOPs should not be treated like conventional retirement plans and expressly preserved the exemption from the diversification requirement that allows ESOPs to invest primarily or exclusively in employer stock. Consequently, in our view, the decision will not significantly impair or diminish the ability of ESOP fiduciaries to make plan decisions and is unlikely to have any substantial impact on closely held ESOP companies.

Trials and Tribulations: Agencies Clarify Confusing “Trial Period” Exemption under the Affordable Care Act

Posted in Plan Administration, Welfare Plans

Last week (June 20), the agencies implementing the Affordable Care Act (“the ACA”) released a final rule clarifying the effect of orientation periods (also known as “trial periods”) on the “90-day waiting period rule” under the ACA.  The “90-day waiting period rule” prohibits group health plans and health insurance issuers from imposing a waiting period of more than 90 days before the beginning of coverage for full-time employees.

The New Rule:  Under the terms of the new final rule, the agencies clarify that employers subject to the ACA may require up to a month of “reasonable and bona fide” employment orientation before the 90-day count begins for purposes of the 90-day waiting period rule.  This clarification was important because the earlier final rule that was issued by the agencies in February on the topic of 90-day waiting periods (“the February Rule”) did not exactly reach a “final conclusion” on this issue, which left many health plans and parties to collective bargaining negotiations confused.

The February Rule:  While the language of the February Rule permits reasonable and bona fide orientation periods to tack on to the 90-day waiting period (we discussed this in an earlier post here) the rule also states that the agencies are simultaneously issuing a proposed rule (issued in the same issue of the Federal Register) that provides that the proposed maximum duration for such orientation periods is “one month.” The February Rule further provides that, while the agencies are soliciting comments on the proposed rule, the agencies will consider compliance with the proposed rule’s one month maximum time period “to constitute a reasonable and bona fide orientation period under [the ACA] at least through the end of 2014.” That language was not very helpful to parties in the middle of negotiating their CBA expiring in early 2015 or later.

The new final rule resolves this issue by adopting the proposed rule without substantive changes and applying the rule to plan years beginning on or after January 1, 2015.   The “one month” period is measured by adding one calendar month and subtracting one calendar day from an employee’s start date in a position that is otherwise eligible for coverage.  The 90-day waiting period must begin on the next day following the orientation period.

 

 

U.S. Supreme Court Rules Inherited IRAs Are Not Retirement Funds

Posted in Court Cases, Retirement Plans

Susan Jordan, a benefits and wealth planning partner with the firm, wrote this article about a recent Supreme Court decision.  It is significant to consider when coordinating retirement planning and potentially impacts retirement plan administration.  For more information, please contact her directly.

On June 12, 2014, the United States Supreme Court ruled that funds held in an “inherited IRA” are not retirement funds within the meaning of Section 522(b)(3)(C) of the Bankruptcy Code. As such, these funds are not exempt from the IRA holder’s bankruptcy estate and are subject to the claims of creditors in bankruptcy.

The facts of the case (Clark et ux v. Rameker, Trustee, et al) are relatively simple. Ruth Heffron established a traditional IRA and named her daughter, Heidi Heffron-Clark, as the sole beneficiary. Upon Ruth’s death, the IRA became an inherited IRA. Some years later, Heidi and her husband filed a Chapter 7 bankruptcy petition and claimed that the inherited IRA was excluded from the bankruptcy estate as a retirement fund. The Bankruptcy Court sided with the bankruptcy trustee holding that an inherited IRA is not a retirement fund and, as such, is not exempt from the bankruptcy estate. In reversing that decision, the District Court ruled that the exemption covers any account containing funds originally accumulated for retirement. On appeal, however, the Seventh Circuit agreed with the Bankruptcy Court and reversed the District Court’s ruling, thereby creating a split among the circuits, which now has been resolved by the Supreme Court.

In a unanimous decision written by Justice Sonia Sotomayor, the Supreme Court, noting that the Bankruptcy Code does not define “retirement funds,” looked to the ordinary meaning of the term and, after consulting the American Heritage Dictionary, concluded that retirement funds are “sums of money set aside for the day an individual stops working.” The Court then identified three characteristics of inherited IRAs, which compel the finding that funds held in such accounts are not set aside for retirement:

  1. The holder of an inherited IRA may never invest additional money in the account.
  2. Holders of inherited IRAs are required to withdraw money from such accounts, regardless of their ages and regardless of how many years they are from retirement.
  3. The holder of an inherited IRA may withdraw the entire balance of the account at any time, and for any purpose, without penalty, while a withdrawal from a traditional or Roth IRA prior to age 59-1/2 triggers a 10 percent penalty, unless an exception applies.

Overall, the Court found that funds held in an inherited IRA constitute “a pot of money that can be freely used for current consumption” rather than funds “objectively set aside for one’s retirement.” Accordingly, the Court concluded, a balancing of the interests of creditors and debtors must favor the creditors insofar as inherited IRAs are concerned.

By way of background, prior to the Pension Protection Act of 2006, the Internal Revenue Code permitted no one other than the participant and the participant’s surviving spouse to roll money from one retirement plan to another. The Pension Protection Act added Section 402(c)(11) to the Internal Revenue Code to permit rollover to an individual retirement account by a nonspouse beneficiary.

The Internal Revenue Code does not define “inherited IRA.” Rather, Section 408(d)(3), which deals with rollover contributions, says that an IRA “shall be treated as inherited if — (I) the individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another individual and (II) such individual was not the surviving spouse of such other individual.”

The availability of nonspouse beneficiary rollover means the distributions from that inherited IRA can be extended over the beneficiary’s life expectancy, if the original IRA owner dies before he or she was required to begin distributions, or over the balance of the IRA owner’s distribution period, if distributions already commenced. However, it means that those assets will be vulnerable to bankruptcy creditors.

It is important to note that the laws of each state also provide individual protections from creditors that apply in bankruptcy situations when the debtor elects to utilize the state law exemptions, in lieu of the exclusions available under federal bankruptcy law. State law also controls in situations of nonbankruptcy judgment creditors. Some states provide special exemption for retirement funds and accounts, and it remains to be seen whether any of these state exemptions will be redefined in light of the Supreme Court decision.

While rollover IRAs can be used effectively to reduce income tax liability by spreading distribution over several years, other strategies may be preferable, particularly when the beneficiary is vulnerable to creditors. Certain trusts can qualify as designated beneficiaries for retirement plans and IRAs, and these trusts can incorporate spendthrift provisions, which provide full asset protection. Moreover, the trust vehicle can ensure ongoing management and control over ultimate disposition, while allowing flexibility in distributing assets among individual beneficiaries.

The Supreme Court decision is an emphatic reminder that care must be taken to maintain appropriate beneficiary designations for all retirement plan accounts, that special attention must be paid to retirement funds when planning one’s estate and that estate plans must be reassessed periodically as financial and familial circumstances change.

FAQs About the ACA: Out-of-Pockets and Preventative Care

Posted in Plan Administration, Welfare Plans

The Department of Labor FAQ XIX provided model notices for COBRA and, unfortunately, not everyone looked beyond that part to see that some other issues were addressed.  Specifically, Department addressed the new rules applicable to out-of-pocket limits and the preventive services requirement.  So let’s look back at that notice and see what else was provided besides links to the model COBRA notices.

First, with respect to out-of-pocket limits, the limits for 2014 are $6,350 for individuals and $12,700 for family.  Those limits go up in 2015 to $6,600 and $13,200 respectively.  The FAQs clarify that plan sponsors may have separate out-of-pocket limits on different categories of benefits, like medical and prescription drugs, as long as the combined amount of all such limits does not exceed the allowed amount.  Also, the out-of-pocket limit applies to in-network expenses only and although it is not required to do so, a plan may place a limit on out-of-network expenses.

With respect to non-covered items, this FAQ clarifies that the costs of non-covered items are not part of the computation.  So if an item or service is not covered by the plan, the plan does not have to include the cost of that service or item when doing the annual limits calculation.  Finally, it is important to note that for prescription drugs, the plan does not have to count the amount paid by the participant for a brand name drug toward the annual limit when a generic drug is available (provided it is a medically appropriate substitute).

With respect to preventative services, for plan years beginning on or after September 24, 2014, group health plans must cover breast cancer risk-reducing medications, such as tamoxifen or raloxifene without cost sharing (which means no cost to the participant in most cases).  Also, since the ACA requires a group health plan or health insurance issuer to cover tobacco use counseling and interventions , the FAQs provide a “safe harbor” if the plan provides (a) screening for tobacco use; and, (b) for those who use tobacco products, at least two tobacco cessation attempts per year.  These have to be provided without cost as preventative care.

So for plan sponsors that paid attention to the change in the COBRA notices, go back and review this FAQ again to make sure the other issues addressed are incorporated into an ACA compliance package.  If you need help sorting them out, contact your attorney at Fox Rothschild for assistance.

A Surcharge is Not a Contribution (or at least not for Withdrawal Liability)

Posted in Court Cases, Retirement Plans

When calculating withdrawal liability payments, a multiemployer pension fund uses the “highest contribution rate” that the employer was obligated to contribute to the pension fund prior to the withdrawal.  Thanks to the Pension Protection Act, funds that are in critical status can impose a surcharge (up to 10%) and, in recent years, most funds included that surcharge when calculating the highest contribution rate as if it were part of the contribution.  In most, withdrawal liability arbitrators have agreed with this position and it is very common to have withdrawal liability calculations openly note that they are including the surcharge in the calculation.

Well the U.S. District Court for the District of New Jersey has weighed in on the issue and the results were not what everyone expected.  In Board of Trustees of the IBT Local 863 Pension Fund v. C&S Wholesale Grocers/Woodbridge Logistics LLC, the court determined that the surcharge was not part of the computation.  The judge reasoned that while the term “contribution rate” is undefined in ERISA, there is a definition of “obligation to contribute” that is directly tied to a collective bargaining agreement.  The court found that since the surcharge was not part of collective bargaining, and although required under ERISA (through the PPA), it would not be an actual “contribution.”

Based on this decision, it looks like an employer would have the ability to ask the plan to revise its calculation under a Section 4219 request for review.  Section 4219 says that issue has to be raised and then the employer would have to go to arbitration if the fund does not make a change.  So an employer would still end up arguing before an arbitrator and this single decision is not necessarily definitive.  But remember that requests for review can go both ways, so a fund might also find reason to increase the total allocation of withdrawal liability even while considering the assessment payment schedule.  Also, employers should remember that withdrawal liability is a pay-first, dispute-later statue, so don’t withhold payment of the assessment while the rate is debated.  Not making payments leads to default which eliminates the ability to request the review.

This case certainly has the possibility of impacting withdrawal liability payments going forward.  Some might even try to argue that it would impact employers already in payment status (although procedurally that is probably not likely since C&S had to litigate it, which other employers could have done).  But for funds to pay attention to it, it probably has to come from a higher court, which could happen if this fund appeals.

DOL Delays Its Proposal to Expand Definition of “Fiduciary”

Posted in Plan Administration

The U.S. Department of Labor (“DOL”) recently announced that it will, once again, delay its proposal to redefine (and ultimately expand on) the term, “fiduciary,” as it relates to employee benefit plans.  Specifically, the DOL’s re-proposal of this rule, what it is calling “Conflict of Interest Rule-Investment Advice,” will be issued in January of 2015.  The DOL made this most recent announcement on May 27 in its Semiannual Regulatory Agenda of Spring 2014 (“the Agenda”).

The Abstract for the rule proposal, contained in the Agenda, provides that this rulemaking would

reduce harmful conflicts of interest by amending the regulatory definition of the term ‘fiduciary’ . . . to more broadly define as fiduciaries, employee benefits plans, and individual retirement accounts (IRAs) those persons who render investment advice to plans and IRAs for a fee within the meaning of section 3(21) of [ERISA] and section 4975(e)(3) of the Internal Revenue Code. The amendment would take into account current practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as changes that have occurred in the investment marketplace, and in the ways advisers are compensated that frequently subject advisers to harmful conflicts of interest.

The Agenda, at 14.

The DOL’s first proposed expansion of the definition of “fiduciary” in October of 2010 was in the form of a proposed regulation.  Specifically, the proposed regulation sought to expand the definition of “fiduciary,” set forth in ERISA § 3(21)(A), to include any individual who provides advice regarding the value, management or purchasing or selling of securities or other property to an ERISA plan, even if that advice was not delivered on a regular basis or was not the primary reason for the plan’s investment decision, as the rules currently require.

In 2011, after the rule faced criticism from representatives of the financial services industry, the DOL decided to re-propose the rule.  Critics of these re-definitions have argued that such proposals are overly broad and likely to greatly interfere with the business practices of financial institutions that deal with employee benefit plans by, among other things, increasing their insurance costs and the potential for litigation.