Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

In the 80s and 90, many employers instituted cash balance plans as a means of providing richer benefits to employees with a shorter service time.  These types of plans had two prime benefits to employees: they allowed for faster accrual of benefits and they expressed the benefits in a lump sum value.  The problem was that they clearly appeared to provide younger workers higher benefits than older workers because the benefits earned by younger employee (shown as retirement annuities).  Naturally litigation ensured.

Last week, the 9th Circuit Court of Appeals affirmed that these plans do not discriminate against older workers.  This is the fifth Court of Appeals to reach this conclusion and with the pro-employee 9th Circuit signing on, this appears to be the tail end of any challenge.  To quote the Court, "although a younger worker's total accrued benefit at retirement age will be greater under the cash-balance formula than an older worker's if both started at the same time, the difference is due to the time value of money rather than age discrimination."  This follows the 7th Circuit's 2006 decision that confirmed nothing in federal law suggests opposition to younger workers having greater opportunity to save for retirement because they have more time left to work.

As part of the Pension Protection Act of 2006, Congress did protect cash balance plans from age discrimination suits which may lead to an increase in their use.  At a time when employees have seen their 401(k) account balances hammered in a down market, the security of this benefit structure would certainly be more attractive.

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Frequently, I am asked whether an employee wellness program or an employee assistance program should be treated as a "welfare" plan for ERISA purposes.  As most good lawyers, I say "maybe."  But there are some guidelines for understanding whether these plans should be treated as ERISA plans.

Generally, in order for these programs to be considered as health plans under ERISA, the benefits provided would have to be "benefits in the event of sickness" or "medical benefits."  Simple reference to medical services is not enough to make it a "health plan."  But it might still be a welfare plan.  In order to be considered as a welfare benefit plan, the program would have to satisfy the requirements of ERISA section 3(1).  It would have to be a plan or program, established or maintained by an employer for the purpose of providing certain specific benefits to employees.  Many wellness or assistance programs meet these criteria and would appear to be ERISA governed.  As such, they would be subject to HIPAA and other ERISA rules governing plans.

However, the American Bar Association recently asked the Department of Labor for some guidance which came in the form a an agency staff opinion.  While not specifically binding on the DOL, it did provide some clarification.  If the program is an employment policy separate from the group health plan, it would not be subject to ERISA health plan rules.  Prior DOL advisory opinions have confirmed that assistance programs would not be plans if they do not require direct administration by the employer.  For example, paying for the program but not directly monitoring enrollment or participation may be sufficient to keep it out of ERISA status.

So the answer is still maybe, but it is a little clearer.  If the program is provided apart from the health plan and is not directly administered by the employer, it is more likely the program will not be considered as an ERISA plan.  If you do have a wellness program or assistance plan, it would be worthwhile to review it with your benefits counsel to make sure your are properly treating your program and that it is doing what you really intended it to do.

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In an article published today on CNN.com, the National Federation of Independent Business' reports that the monthly index of Small Business Optimism fell one point to 88.2, which shows a continued decline.  One particular cost concern area was the increasing costs of health care.  This is consistent with other articles I have read about the concerns small businesses have with providing benefits to employees.  Of course I have also read a variety of article and surveys about employees and their concerns over dwindling benefits and wages, so there is uniform frustration on the topic.

Recently I have written about the importance of auditing 401(k) fees, but the same holds true for other benefits offered.  Too often I see employers overlook the importance of developing a welfare benefits package tailored to their employee base, and they overlook the wide variety of cost control options that can be used to provide benefits.  There is an assumption that the old standards, like premium purchased insurance, is the best way to go and the only thing employees are interested in.  Potential long term savings are forfeited in favor of avoiding the short term costs of a benefit plan review and audit.

Take high deductible health plans.  Depending on who you speak to, they are either a boon or a bust.  But an HDHP can certainly reduce health care costs.  There are more retirement plan options then an off-the-shelf 401(k) plan purchased from an institution.  Life insurance and disability insurance can be structured in increasing more cost-effective ways.  But employers AND employee have to buy into the options.  In this economy, I think it is even more important for employer to undertake a critical analysis of the benefits packages they offer and find ways to not only control costs, but also to tailor those packages to their employee base.

Attorneys can be good source of counseling on these issues because they work with a variety of service providers that offer a wider variety of options.  I personally work with benefit plans that use all types of structures and my job is to make sure what the employer and the benefit professional put together is legal.  Consider your lawyer as a benefits "counselor," a logical starting point for the discussion of managing benefits costs.  The long term results should prove to be worth it.

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Keeping up with the variety of 401(k) fee litigation cases that have been filed is somewhat difficult.  I know that there are fee litigation cases pending in the 2nd, 3rd, 6th and 7th Circuits and there are new cases filed every day.  From the perspective of a plan sponsor, the variety of the actions can be confusing because they cover the gamut of potential claims.  Plus they have loads of legal terms and ERISA procedural fights.  But I think I can pare them down to a couple of basic claims

First, there are cases against plan sponsors.  Typically these are class action type case where participants are suing plan sponsor for breaches of duty associated with failures to disclose fees to participants.  These cases can cover everything from claims that fiduciaries permitted excessive fees to claims that plan sponsors engaged in prohibited transactions with service providers by having service agreements benefiting the sponsor and not the participants.  My opinion is that these cases pose the greatest problem for employers as plan sponsors because they are most commonly based on "standard" service contracts or fee agreements that are not fully reviewed or understood by the employer.

A second set of cases are ones brought against service providers.  These are claims brought against entities that manage money, manage investment options or provide service to the plans participants.  Often the plan sponsor is brought into the case as a defendant as well.  However, there are cases where the plan sponsor, in its capacity as a fiduciary, is pursuing a service provider for excessive or unwarranted fees as exercise of its own fiduciary duty to the participants.  Again, the driving force here seems to be a claim for excessive fees, or at the least, a fee taken in excess of the contracted rate.

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