Employee Benefits & Executive Compensation Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

New PBGC-Plan Sponsor Pilot Mediation Project for Early Warning Program and Termination Liability Cases

The Pension Benefit Guaranty Corporation (the “PBGC”) launched a new Pilot Mediation Project to facilitate negotiations with (i) plan sponsors involved in corporate transactions under the purview of the PBGC’s Early Warning Program and (ii) the former plan sponsors of terminated pension plans that are subject to termination liability for the plans’ unfunded benefit liabilities. Continue Reading

Department of Labor Proposes 90-Day Delay of New Disability Claims Procedures

On October 10, 2017, the Department of Labor (“DOL”) released proposed regulations that would delay for 90 days the effective date of the final disability claims procedures regulations finalized on December 19, 2016. As explained in our August 1, 2017 blog entry, the new disability claims procedures added various participant protections and rights to existing disability claims procedures. The new procedures largely track the procedures that were applied to group health plans under the Affordable Care Act.

This proposed regulatory delay comes pursuant to Executive Order 13777, which mandates agencies to evaluate existing regulations for potential repeal or modification. The DOL appears concerned with the financial effect of the final regulations, including the effect the final regulations may have on premium rates and the demand for disability coverage. The DOL also appears interested in comments on the litigation and administrative costs inherent in the final regulations’ deemed exhaustion and enhanced disclosure rules.

If the proposed regulatory delay is finalized, the new disability claims procedures provided under the final regulations would apply only for disability benefit claims filed on or after April 1, 2018. The DOL explained that it would use this time to invite the public to submit further comments and data regarding the final regulations while it further analyzes the financial effects of the new procedures and potential regulatory alternatives. The DOL noted that after its analysis it may allow the final regulations to take effect as written, propose a further extension, amend the regulations, or withdraw the regulations entirely. Comments on the proposed delay must be submitted to the DOL by October 27, 2017. If the proposed delay is finalized, any comments on the final regulations must be submitted to the DOL by December 11, 2017.

Although it appears likely that the 90-day delay will be finalized, employers and plan administrators that are currently working to implement the new claims procedures for claims submitted after January 1, 2018 should continue to do so.

Looking Ahead to the 2018 Proxy Season: Preparing for CEO Pay Ratio Rules Disclosure Requirements

Pay ratio disclosure rules requiring public companies to disclose the ratio between the annual total compensation of the median employee and the company’s principal executive officer are effective for fiscal years beginning on or after January 1, 2017.  Accordingly, most public companies will need to comply with the rules beginning with the 2018 proxy season.

Please visit the Proskauer Tax Talks Blog to read more about the pay ratio rules generally and additional interpretive guidance issued by the SEC last week.

Health Care Reform Roundup – Issue 9

After health care reform efforts failed in late-Spring/early-Summer, things have been quiet. However, Congress returned to DC this week. Although legislative focus now appears to be on general tax reform, we expect some health care reform legislation (whether stand-alone or as part of tax reform) during the new session. Recent developments are provided below.

  • Senator Hatch Introduces Bills to Repeal Individual/Employer Mandates. Senator Orrin Hatch has introduced two bills that would separately repeal the Affordable Care Act’s (ACA) individual and employer mandates. The American Liberty Restoration Act would eliminate the individual mandate effective after December 31, 2016. The American Jobs Protection Act would eliminate the employer mandate effective after December 31, 2016. These bills would also eliminate the ACA reporting requirements set forth in Internal Revenue Code §§ 6055 and 6056 (i.e., Forms 1094/5-B and C).
  • Draft 2017 ACA Reporting Forms and Instructions Released. Unless Senator Hatch’s legislation (or other health care reform legislation) is enacted, employers will be required to comply with the ACA reporting requirements for 2017. The IRS recently released draft ACA reporting forms and instructions for 2017. Although not much has changed, below are key changes.
    • References to transition relief have been removed now that all relief (except the multiemployer interim guidance) has ended.
    • Errors in the dollar amount in Line 15 (i.e., the cost of coverage) will not result in penalties or the need to correct if the difference between the correct amount and the entered amount is $100 or less.
    • The IRS clarified that there is no separate Line 16 code if an employee is offered coverage but declines. Instead, employers should enter the applicable affordability safe harbor code, or if none applies, leave Line 16 blank.
    • Importantly, the good faith compliance standard made available for 2015 and 2016 no longer applies. ACA reporting errors and late filings are now subject to the generally applicable reasonable cause standard.
  • ACA Preventive Care Recommendations. The United States Preventive Services Task Force (“USPSTF”) recently issued a new recommendation regarding preventive coverage services. Under the ACA, non-grandfathered group health plans must cover in-network preventive services without cost-sharing. Among the various definitions of preventive services are those that the USPSTF recommends with an “A” or “B” rating. On September 5, 2017, the USPSTF gave a “B” rating to vision screening for amblyopia (sometimes referred to as “lazy eye”) or its risk factors in children aged 3 to 5. This recommendation would require non-grandfathered plans to cover without cost-sharing this vision screening for plan years beginning on or after September 5, 2018.

DOL and IRS Issue Guidance for Employee Benefit Plans Impacted by Hurricane Harvey

In the wake of massive floods caused by Hurricane Harvey, the Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation (PBGC) have issued initial employee benefit plan guidance. The temporary relief provided in the guidance relates to such things as hardship distributions, plan loans, filing deadlines, plan deposits, and notice requirements.  Plan sponsors and administrators with participants or beneficiaries who live or work in the disaster zone should consider whether to implement this temporary relief.  A summary of the guidance is provided below.

Qualified Plan Loan, Hardship, and Other Distribution Procedures

IRS Announcement 2017-11 allows for relaxed rules concerning hardship distributions, plan loans, and other plan distributions made on or after August 23, 2017 through January 31, 2018. Key components of this relief include the following:

  • Hurricane Harvey relief is available to participants who work or live in the designated disaster area.       Additionally, relief is available for participants with relatives (spouses, children, parents, grandparents and other dependents) who work or live in the designated disaster area.
  • Plans must be amended before the end of the first plan year beginning after December 31, 2017 (by December 31, 2018 for calendar year plans) to allow Hurricane Harvey hardship distributions or, if the plan document does not currently permit plan loans, to allow plan loans.
  • Hardship Distributions:
    • A qualified retirement plan (such as a 401(k) plan) may make a hardship distribution based on an affected participant’s representation that the distribution is needed due to Hurricane Harvey. Hurricane Harvey hardship distributions are not limited to the events listed in IRS regulations. This means that affected participants can access their plan accounts to pay for such things as temporary lodging, replacement clothing, and food.
    • If a participant takes a Hurricane Harvey hardship distribution, the plan will not be required to impose a six-month suspension of elective deferrals, as would otherwise be required under IRS regulations.
  • Plan Loans and Other Distributions
    • A retirement plan may disregard procedural requirements for plan loans and other distributions made to participants and beneficiaries affected by Hurricane Harvey, so long as the plan administrator takes reasonable steps to obtain required documentation as soon as practicable. This does not mean that such things as the spousal consent requirement are waived. It does mean, however, that a plan may temporarily disregard the need to follow plan loan or distribution procedural requirements or delay getting required documentation from an affected participant or beneficiary until it is practicable to obtain the required documentation.

Form 5500 Filing Relief

Hurricane Harvey disaster relief includes a delay in the filing deadline for Form 5500s that were or are required to be filed on or after August 23, 2017 and before January 31, 2018. Plan administrators who are unable to obtain on a timely basis the information they need to complete Form 5500s because of the disaster caused by Hurricane Harvey will have until January 31, 2018 to file their Form 5500s.

Deposit of Participant Contributions and Plan Loan Repayments

Under DOL regulations, participant contributions and plan loan repayments must be forwarded to the plan as soon as possible after they are received, but no later than the fifteenth business day of the following month. As part of its Hurricane Harvey disaster relief, DOL has said that it will not pursue claims under Title I of ERISA with respect to temporary delays in forwarding contributions and plan loan repayments that are caused by Hurricane Harvey.  Employers and service providers should forward these contributions and plan loan repayments as soon as possible, as the relief applies only to the extent that affected employers and service providers act reasonably, prudently, and in the interests of participants to comply “as soon as practical under the circumstances.”

Blackout Notices

DOL also provided relief with respect to plan blackout notices. Normally, a plan administrator must provide 30 days’ advance written notice when participants’ or beneficiaries’ rights to direct investments or obtain loans or other distributions from a plan will be temporarily suspended or restricted by a blackout period.  However, blackout notices are not required when a plan fiduciary determines in writing that advance notice cannot be made due to events beyond the plan administrator’s control.  Because hurricanes are beyond the control of a plan administrator, DOL will not allege a violation of the blackout notice requirement solely because a plan fiduciary did not make a written determination that notices cannot be provided.

PBGC Hurricane Harvey Relief

PBGC’s Hurricane Harvey relief waives certain penalties and deadlines applicable to single-employer and multiemployer defined benefit pension plan administrators and others who are responsible for meeting PBGC deadlines. The relief applies to these parties if they are located in the disaster zone or if they cannot get required information from service providers located in the disaster zone.

PBGC’s relief extends to January 31, 2018 the deadline for the following if their deadlines were on or after August 23, 2017 and before January 31, 2018:

  • Filing reportable event post-event notices with the PBGC;
  • Requesting reconsideration or appeal of a PBGC determination;
  • Paying PBGC premiums (late payment penalties are waived, but not applicable interest charges);
  • Filing a standard termination notice (Form 500) or distressed termination notice (Form 601);
  • Completing the distribution of plan assets in a standard termination and filing the post-distribution certification (Form 501);
  • Filing a distress termination notice (Form 601); and
  • Making multiemployer plan PBGC filings and notices to persons other than PBGC.

In addition, the PBGC will grant other relief to pension plans on a case-by-case basis.

The full text of the DOL’s and the IRS’s Hurricane Harvey guidance is available on EBSA’s disaster relief website, and PBGC’s guidance is available on its website. The DOL has also prepared a set of “FAQs for Participants and Beneficiaries Following Hurricane Harvey.”

We anticipate the release of additional guidance concerning benefit plan relief in the coming weeks and months.

Department of Labor Officially Proposes Delaying Fiduciary Rule’s Exemptions for 18 Months

On August 30, 2017, the Department of Labor (“DOL”) officially proposed delaying the applicability date of exemptions to its fiduciary rule until July 1, 2019. The proposal was expected after DOL stated in a court filing earlier this month that a delay proposal was under review by the Office of Management and Budget.

This proposal would further delay applicability of the most onerous conditions for the Best Interest Contract Exemption as well as the Principal Transaction Exemption and Prohibited Transaction Exemption 84-24 (which provides an exemption for certain advice related to insurance and annuity contracts). For example, the proposal would delay applicability of the following conditions for the Best Interest Contract Exemption:

  • The requirement to enter into written contracts that create a private right of action (and restrict arbitration provisions) for breach of fiduciary duty with respect to an IRA or other non-ERISA arrangement;
  • The requirement to adopt policies and procedures for mitigating conflicts (although policies and procedures might still be appropriate for implementing the impartial conduct standard that is currently in effect); and
  • Disclosure requirements.

In proposing the extension, DOL stated that it has not completed its review of the fiduciary rule that was ordered by the President on February 3, 2017. DOL indicated that it intends to coordinate with the SEC and to make changes before the requirements become applicable. In particular, DOL stated that it expects to propose a “new and more streamlined class exemption built in large part on recent innovations in the financial services industry.”

In the meantime, as discussed in this post, the fiduciary rule’s “impartial conduct standards” remain in effect. Until January 1, 2018, a good faith standard applies for enforcement actions—meaning that DOL and IRS “will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the [prohibited transaction exemptions].” DOL has requested comments on whether to extend this temporary enforcement policy past January 1, 2018.

Relatedly, DOL also released Field Assistance Bulletin No. 2017-03, in which it announced that it will not pursue claims against fiduciaries for failure to comply with the “Arbitration Limitation” in the Best Interest Contract Exemption and the Principal Transaction Exemption. This is consistent with the position taken by the Acting Solicitor General in pending litigations. The “Arbitration Limitation” would make the Best Interest Contraction Exemption and the Principal Transaction Exemption unavailable if a fiduciary’s contract with a retirement investor includes a waiver of the investor’s right to bring or participate in a class action.

We are continuing to monitor developments.

Court Throws Monkey Wrench Into Wellness Programs

The U.S. District Court for the District of Columbia has ordered the EEOC to reconsider its final regulations on the extent to which an employer may offer incentives to participate in a wellness program without violating the Americans with Disabilities Act (ADA) or the Genetic Information Nondiscrimination Act (GINA).  The court, however, declined to vacate the regulations; the status quo therefore remains in effect pending the EEOC’s review.

The decision is an unexpected twist to a regulatory tale that started before passage of the Affordable Care Act and seemed to have finally been resolved in May 2016. At issue is whether offering incentives to provide employee medical information or family medical history (such as a health risk assessment) makes participation in a wellness program involuntary—and therefore in violation of the ADA and GINA.  After years of uncertainty, the EEOC published final regulations that provide a clear standard for how valuable an incentive can be before crossing the voluntariness line.  Under the regulations, an incentive is permissible if the value does not exceed 30% of the cost of self-only health insurance.  This standard is similar, but not identical, to what is permitted under HIPAA non-discrimination rules that were adjusted by the Affordable Care Act.

A few months after the EEOC finalized its rules, AARP sued to block implementation.  AARP argued that, although the EEOC borrowed from HIPAA regulations and the Affordable Care Act, it impermissibly “depart[ed] starkly from the EEOC’s longstanding position” that “employee wellness programs implicating confidential medical information are voluntary only if employers neither require participation nor penalize employees who choose to keep their medical and genetic information private.”  In other words, AARP seemed to take the position that no meaningful incentive is permissible, because an employee’s forgoing of an incentive amounts to a penalty that effectively makes participation involuntary.

In December 2016, the district court denied AARP’s request for a preliminary injunction blocking the implementation of the final rules.  At that time, the court found that AARP had failed to demonstrate that its members would suffer irreparable harm if the rules went into effect, and that the evidence in the record did not support a finding that AARP was likely to succeed on the merits of its arguments.

Following review of the full administrative record, however, the court found that the EEOC failed to explain the reasoning behind its decision that an incentive of up to 30% of the cost of self-only coverage would not make participation involuntary. Although the court recognized that it must defer to the agency’s decision “if the agency has offered a reasoned explanation,” the court concluded that it “could find nothing in the administrative record that explains the agency’s conclusion that the 30% incentive level is the appropriate measure for voluntariness.”

The court rejected the EEOC’s argument that it was appropriate to harmonize the incentive level with the 30% rule under HIPAA and the Affordable Care Act. The court found that the HIPAA/ACA 30% incentive figure was selected to prevent insurance discrimination and was “not intended to serve as a proxy for or interpretation of the term ‘voluntary’” under the ADA and GINA.  The court also noted that the EEOC’s standard does not match perfectly with the HIPAA/ACA standard.  The court cited differences in both: (i) the basis for calculating the 30% incentive cap (the EEOC regulations base the 30% on the cost of self-only coverage while the HIPAA regulations use the cost of either family or self-only coverage, depending on the circumstances), and (ii) the types of wellness programs to which the cap is applied (HIPAA’s 30% incentive cap applies only to health-contingent wellness programs that require participants to satisfy particular health standards, while the EEOC’s regulations extend the cap also to participatory wellness programs—that is, programs that do not condition receipt of an incentive on satisfaction of a health factor).

Additionally, the court found that the EEOC failed to address adequately comments submitted during the rulemaking process regarding the potentially significant financial burden imposed on employees. The court faulted the EEOC for defining voluntariness in financial terms (i.e., saying that a penalty of up to 30% of the health premium would not make participation involuntary), without “appear[ing] to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule.”

As noted above, the court has allowed the EEOC’s final rules to remain in effect pending the EEOC’s review. We will continue to monitor this case and report on further developments.

Department of Labor Requests Additional 18-Month Delay of Certain Fiduciary Rule Requirements

On August 9, 2017, the Department of Labor (“DOL”) stated in a court filing that the Office of Management and Budget (“OMB”) is reviewing a proposal to extend the applicability date for certain requirements under DOL’s fiduciary rule until July 1, 2019. As discussed here and here the fiduciary rule’s “impartial conduct standards” have been in effect since June 9, 2017; but other requirements, including the written contract required under the Best Interest Contract exemption and certain disclosure requirements, have been delayed pending DOL’s review of the rule.  DOL’s request suggests that DOL will need significantly more time to complete its review of the rule.

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Exhaustion of Plan Administrative Remedies: Important Considerations Following Hitchcock v. Cumberland

Recently, the Sixth Circuit ruled in Hitchcock v. Cumberland University 403(b) Plan that pension plan participants are not required to exhaust their plan’s administrative remedies before pursuing claims alleging statutory violations of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).[i] In so deciding, the Sixth Circuit joined the majority of circuit courts in holding that claims alleging statutory violations of ERISA do not impose the same administrative exhaustion requirements that are applicable to claims seeking to enforce contractual rights under the terms of a plan. By deepening the current split on this issue among the circuit courts, the ruling could have a significant impact on future ERISA litigations.

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Third Circuit Rules That Johnson Controls Did Not Promise Lifetime Health Benefits

The Third Circuit rejected a claim for lifetime health insurance benefits filed by retired employees of Johnson Controls, finding that the clear and unambiguous language of the CBAs and group insurance booklets did not guarantee lifetime health insurance benefits. The suit was filed after the group insurance booklets, which were incorporated into and subject to the CBAs, were modified to add lifetime caps. The Court held that, prior to the change, health insurance benefits for the two groups of retirees at issue were promised only for the duration of the relevant CBAs. For the first group of retirees, the insurance booklets provided that benefits would continue in retirement, but the booklets were incorporated into CBAs that contained durational clauses. The Court also stated that such contractual obligations would ordinarily end in any event upon termination of the bargaining agreement. The insurance booklets for the second group of retirees provided that their benefits would continue until death, but the Court held that, when considered in conjunction with the booklets’ reservation of rights provisions and the durational language in the CBAs, this language provided coverage for eligible retirees only for the term of the CBA, and thus were not a guarantee of lifetime benefits. The case is Grove v. Johnson Controls, Inc., No. 16-2178, 2017 WL 2590762 (3d Cir. June 15, 2017).

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