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

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Attached here is a link to an Alert our firm issued on the COBRA subsidies in the American Recovery and Reinvestment Act signed into law today.  It is going to create some change to COBRA administration that require some attention very soon.  It provides for a 65% employer paid subsidy for COBRA premiums for 9 months.  Read the alert, then read this action plan set out below as a starting point for your company's response to the new law.

There is a 60-day implementation window for employers, during which time we will get a model notice from the Treasury Department explaining to participants the impact of the Act and how they may be eligible for the subsidy. We also anticipate additional guidance from the IRS and Department of Labor on implementation of the subsidy and its impact on taxes and other components of COBRA administration. While we are waiting further instruction, there are some things that we recommend employers do to prepare for the final implementation of these changes.

1.         Make Sure You Know Who Will Be Responsible for Preparing and Sending Notices

Within 30 days, we will be getting a model notice from the governmental agencies and that notice must be issued to plan participants and beneficiaries within 60 days of the enactment of the Act. Employers should make sure they have confirmation from their service providers as to who will take responsibility for preparing and issuing the notice. It might be the insurance company, the third-party administrator, a benefits broker or an outside COBRA administrator. It may also be that the employer or plan sponsor takes on the responsibility themselves. But be sure you have confirmation who will be preparing and sending the notices so when the 60-day window closes, the notices have been sent.

2.         Know Who Is Getting the Notices

The subsidy applies to those who suffered an involuntary loss of coverage between September 1, 2008, through December 31, 2009. But the Act does not specify what it will consider an involuntary loss, and it also provides that all qualified beneficiaries, regardless of the reason for their qualifying event, must get the notice. Employers and plan sponsors should go back to September 1, 2008, and review records to determine everyone (including dependents) who had a qualifying event and confirm that these individuals will get notice. This can be for voluntary or involuntary termination or reduction of hours, but it also applies to those made eligible as a result of divorce, death or aging out of coverage. They may not get the subsidy, but you must be prepared to send them the notice.

3.         Find Out How Much COBRA Coverage Costs

Find out what your plan was charging for continuation premiums from September 2008 through the present plan year. A surprising number of employers are not aware of the actual amount of COBRA premiums charged, either by their insurance company or their third-party administrator. It is impossible for a company to evaluate the actual financial impact of the 65% subsidy requirement without first knowing what underlying cost will be.

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I have previously written about several components of the Worker, Retiree and Employer Recovery Act and its impact of plan administration.  On January 29, 2009, the Congressional Research Service released its Overview prepared for Congress that summarizes the key provisions relating to the "Economic Crisis."  The entire report can be viewed here.

Some of the key provisions:

1.  Waiver of the minimum distributions, which suspends the minimum distribution requirements for 2009.
2. Extends the funding transition rule for Single-Employer plans under the Pension Protection Act to allow plans to use follow the transition rule even if the plan's shortfall amortization base was not zero in the preceding year.
3. For single employer defined benefit plans, it allows that, for the first plan years beginning between 10/1/08 through 9/30/09, plans may use the adjusted funding target attainment percentage of the preceding year (instead of the current year) if the preceding year is greater to avoid restrictions on benefit accruals.
4. For multiemployer defined benefit plans, it allows that, for the first plan years beginning between 10/1/08 through 9/30/09, plan sponsors may elect to use the same certified funding status for the plan of the prior year.
5. For multiemployer defined benefit plans, there is a three year extension provided to funding improvement or rehabilitation plans for endangered (10 extended to 13 years) or critical status (15 extended to 18) plans.

Certain other technical corrections are summarized but these 5 have the most impact on retirement plans.  I anticipate that the waiver of minimum distributions will get the most press, but clearly if you are dealing with an underfunded defined benefit plan, the other four provisions may significantly impact how you handle your 2009 funding obligations.

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On February 5, the US Department of Labor issued a Statement of Employee Benefits Security Administration "Duties of Fiduciaries in Light of Recent Events Regarding Bernard L. Madoff Investment Securities LLC."  The purpose of the statement is ostensibly to provide instruction to plan fiduciaries on how to address getting caught in the Madoff scandal.  The relevant text of the notice as is follows:

"Where plan fiduciaries determine that plan assets were invested with Madoff entities and material losses are likely, appropriate steps should be taken to assess and protect the interests of the plan and its participants and beneficiaries.  Such steps may include (1) requesting disclosures from investment managers, fund managers, and other investment intermediaries regarding the plan's potential exposure to Madoff-related losses; (2) seeking advice regarding the likelihood of losses due to investments that may be at risk; (3) making appropriate disclosures to other plan fiduciaries and plan participants and plan beneficiaries; and (4) considering whether the plan has claims that are reasonably likely to lead to recovery of Madoff-related losses that should be asserted against responsible fiduciaries or other intermediaries who placed assets with Madoff entities, as well as claims against the Madoff bankruptcy estate.  Fiduciaries must ensure that claims are filed in accordance with the applicable filing deadlines such as those applicable to bankruptcy claims and for coverage by the Securities Investor Protection Corporation."

Essentially, the DOL is saying that fiduciaries have to take action, without specifying what the appropriate action would be.  Plan fiduciaries should definitely investigate filing a claim by going to www.madofftrustee.com, and also consult with advisers and counsel over appropriate courses of action.  Also, plan participants should be notified of losses associated with the devaluation of the Madoff accounts.

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It is generally accepted that multiemployer ("union sponsored") benefit funds have plan counsel.  They should and it is always important for Trustees to seek competent legal advice.  However, depending on the nature of the fund and the issues presented, it is more common and more effective for plans to have co-counsel, one retained to consult for the union trustees, and one consult with the management trustees.

Clearly I am not suggesting that the Trustees are necessarily in conflict.  But in the time of Pension Protection Act compliance and differing opinions between employers and unions as to how Funds should be administered, conflicts inevitably will arise.  In those cases, whose side is the Fund lawyer on?  What happens in matters that require arbitration between the Trustees?  With whom can management Trustees consult without concern over having their views communicated to the other side?  In many instances, I have seen Fund counsel be the same attorney representing the union in collective bargaining negotiations.  There has to be real concern for management Trustees when Fund counsel is so closely aligned with the union.

I consistently recommend that employers serving as management Trustees on multiemployer funds press for the addition of co-counsel.  There can be a clear delegation of duties between the respective counsel that prevents excessive expenses to the Fund and also allows for a cleaner administration of Fund issues.  There is also a certain measure of confidence for a management Trustee to know that the advice or counsel being given to his or her "side of the table" is not colored by loyalties to the other side.  My experience is that a freer flow of information results when management trustees can caucus with their own counsel and discuss their concerns with someone who understands their concerns.

If you are in a fund without management co-counsel, or are serving as a management trustee on a fund that does not have management co-counsel, you should give serious consideration to getting co-counsel for the fund.  It increases the legal knowledge in the room and it gives management trustees security in their own voice.

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