On April 6, 2015, the U.S. Department of Labor released its Final Rule addressing when a person providing services to an employee benefit plan or individual retirement account (IRA) is considered to be providing investment advice that is subject to ERISA’s fiduciary standard. As discussed in our Client Alert, available here, the rule expanded the types of communications that are subject to the fiduciary standard, extended fiduciary obligations to IRAs, and added new and revised prohibited transaction exemptions, one of which is the Best Interest Contract Exemption. Continue Reading
A federal court in Missouri was asked to determine whether a former employee proved a viable claim for retaliation under ERISA Section 510 by virtue of being terminated after she sent emails disparaging the company’s owner and protesting certain actions. As applicable here, Section 510 prohibits employers from terminating an employee “because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter.” The district court first recognized that the Eighth Circuit (in which the court sits) has not answered the question of whether Section 510 protects informal complaints by employees – i.e., the former employee’s emails — as an “inquiry or proceeding.” Rather than decide the issue, the court assumed that she had made a prima facie showing, and granted the employer’s motion for summary judgment on the ground that she had been terminated for legitimate nondiscriminatory reasons. The case is Graham v. Hubbs Mach. and Mfg., Inc., No. 4:14-CV-419 (CEJ), 2016 WL 2910209 (E.D. Mo. May 19, 2016).
For large employers, the quest to reduce the cost of medical benefits relies in part on helping employees get healthier. Enter the “wellness program,” where employers offer incentives to employees and their families to be more proactive about their health in various ways, such as more exercise, quitting smoking, diagnosing high cholesterol and high blood pressure, and evaluating the risk of future health problems. Continue Reading
In Vangas v. Montefiore Medical Center, 2016 WL 2909354 (2d Cir. May 19, 2016), the Second Circuit affirmed the district court’s holding that an employer is not liable for failing to provide a COBRA notice to a terminated employee under ERISA § 502(c) where the employer followed reasonable procedures to ensure that notices were properly mailed. The Court rejected the terminated employee’s argument that the notice was deficient because it was incorrectly addressed to “Cornwallonhuds, New York,” rather than to her actual address, “Cornwall-on-Hudson, New York.” In so ruling, it noted that the mailing contained the proper zip code and the terminated employee’s admission to “receiving eighteen other pieces of incorrectly addressed mail, including mail without the zip code” at that address.
The Departments of Health and Human Services (“HHS”), Labor (“DOL”), and Treasury (the “Departments”) have jointly released final changes to the Summary of Benefits and Coverage (“SBC”) template, the Uniform Glossary, and accompanying documents.
The ACA requires group health plans and health insurance issuers to compile and provide to consumers an SBC that describes the benefits and coverage under the applicable plan and coverage options. This requirement is intended to help consumers better understand and make more informed choices about their coverage options, and it applies to insured and self-funded ERISA group health plans (including grandfathered plans), and to non-ERISA group health plans and individual health insurance coverage.
The SBCs provided to consumers must follow a uniform format and contain certain information. This information includes uniform standard definitions of medical and health coverage terms, a description of the coverage, cost-sharing requirements, and information regarding any exceptions, reductions or limitations under the coverage. The Departments have provided a template for health plans and issuers to use that will allow them to comply with the requirements.
The template currently in use was released in April of 2013. After issuing a proposed rule amending the SBC regulations in December of 2014, a Final Rule in June of 2015 (which finalized most of the 2014 proposed revisions), and revised SBC templates and accompanying documents in February of 2016, the Departments released final SBC templates and accompanying documents on April 6, 2016. The changes to the requirements and templates and all relevant effective dates are described below.
Changes to Requirements
The requirement that health plans and health insurance issuers use 12-point font and replicate all symbols, formatting, bolding and shading where applicable on the SBC have not changed. However, to maintain the four double-sided page limit, the Departments have now allowed more flexibility in form language and formatting. For example, plans and issuers may use different fonts and adjust margins as necessary. The Departments also added required definitions to the Uniform Glossary, and have provided that plans and issuers may hyperlink the terms to a micro-site that HHS will maintain, at https://www.healthcare.gov/sbc-glossary/.
Changes to SBC Template
The Departments also added, deleted and changed certain language and terms in the new SBC template. Some key examples of their changes include:
- The addition at the beginning of the SBC of a simple explanation of what an SBC is and where consumers can find more information.
- The addition to the description of deductibles of how family members must meet their own individual deductibles before the overall family deductible is met and what services are covered before the deductibles are met.
- The changing of the term “person” to “individual.”
- The addition of a statement that copayments for certain services may not be included in out-of-pocket limits.
- The removal of definitions of copayments and coinsurance from page 2 of the template.
- The changing of the “Limitations & Exceptions” column to a “Limitations, Exceptions, & Other Important Information” column, which must now include:
- When the plan or issuer does not cover a particular service category, or a substantial portion of a service category;
- When cost sharing for covered in-network services does not factor into the out-of-pocket limit;
- Visit or dollar limits; and
- When services require prior authorization.
Cross-referencing is allowed if including all limitations and exceptions would cause a violation of the page limit requirement.
- The addition of the following under Common Medical Events:
- “You may have to pay for services that aren’t preventive. Ask your provider if the services needed are preventive. Then check what your plan will pay for.”
- A direct link or URL to the formulary drug list where the consumer can find more information about prescription drug coverage, and drug tier information.
- Mental/behavior health and substance abuse are combined into one row, and there is one row each for inpatient services and outpatient services.
- New rows for the “If you are pregnant” category: (1) Office visits; (2) Childbirth/delivery professional services; and (3) Childbirth/delivery facility services.
- The addition of disclosure language about minimum essential coverage, minimum value, and language access services.
- The addition of a third coverage example.
- Changed formatting and other language on the Coverage Examples page.
- Includes an updated note about wellness programs.
- Includes a new note that the plan has other deductibles for specific services included in the applicable coverage example.
- Includes a footnote stating, “The plan would be responsible for the other costs of these EXAMPLE covered services.”
- Qualified Health Plan issuers (“QHPs”) must reflect in the SBC whether it covers abortion services.
Plans and issuers operating on a calendar year plan year must use the new SBC templates in time for the first open enrollment period beginning on or after April 1, 2017. This means most individual market issuers and any group health plans operating on a calendar year will need to use the new SBC documents by November 1, 2017 for the plan year beginning January 1, 2018.
Non-calendar year plans must use the new SBC documents beginning with the first plan year beginning on or after April 1, 2017. For example, if a group health plan has a plan year beginning October 1, the plan would need to provide the new SBC documents to its participants no later than October 1, 2017.
What Employers Should Do
Carefully review the modifications to the SBC template, the instructions, the Uniform Glossary and the accompanying documents to determine how the employers and the documents are affected. Begin using the updated templates by the effective dates provided above. The revised template, instructions, and other documents can be found at: https://www.dol.gov/ebsa/healthreform/regulations/summaryofbenefits.html. The sample completed SBC can be found at: https://www.dol.gov/ebsa/pdf/Sample-Completed-SBC2-final.pdf.
A recent IRS information letter confirms that “waiting time penalties” paid under California law are not wages for federal income tax withholding purposes. Section 203 of the California State Labor Code imposes penalties on employers that fail to pay final wages to terminated employees within a specified period of time. These penalties are paid to the terminated employees in amounts based on their wages. In Chief Counsel Advice Memorandum 201522004, and recently in IRS Information Letter 2016-0026, the IRS has clarified these penalties are not considered “wages” for federal income tax purposes, because they are intended to punish employers for failing to timely pay final wages; not to compensate employees for work performed. The IRS has now further clarified that these penalties should not be reported on Form W-2. Instead, they should be reported on Form 1099-MISC in the same manner as other non-compensatory liquidated damages. This is significant for California-based employers for two reasons. First, the guidance affects tax reporting. Second, and on a related matter, the guidance clarifies that these penalty payments are not includable as wages for benefit plan purposes under a plan (like a 401(k) or pension plan) that calculates benefits based on “W-2 income.” For additional information, see Chief Counsel Advice Memorandum 201522004 and IRS Information Letter 2016-0026.
A federal district court in Mississippi ruled for the first time that the “more harm than good” pleading standard established by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), applied to employer “stock drop” claims brought against the fiduciaries of plans sponsored by closely-held corporations. Hill Brothers Construction Company, Inc. (“Hill Brothers”), a closely-held corporation, ceased operations and subsequently sent notice to all 401(k) plan (the “Plan”) participants that their retirement accounts were worthless. Plaintiffs, former employees of Hill Brothers, commenced a putative class action on behalf of all current and former participants and beneficiaries of the Plan alleging that the Plan fiduciaries breached their fiduciary duties to manage the Plan’s assets prudently and loyally and to monitor other fiduciaries adequately. In Dudenhoeffer, the Supreme Court held, in a case involving a publicly traded employer stock fund, that in order to state a claim for breach of fiduciary duty on the basis of inside information, a plaintiff must plausibly allege (among other things) an alternative action that could have been taken by the plan fiduciaries that would have been consistent with its obligations under securities laws and that a prudent fiduciary would not have viewed as more likely to harm the fund than to help it. The district court agreed that this standard applied to the allegations against the closely held corporation and dismissed the complaint upon finding that plaintiffs had failed to plead such an alternative course of action. The case is Hill v. Hill Brothers Construction Company, No. 14-213, 2016 WL 1252983 (N.D. Miss. Mar. 28, 2016).
A district court in the Middle District of Pennsylvania held that, notwithstanding the Supreme Court’s decision in M & G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015), the Third Circuit’s rule that clear and express language was required for health benefits to vest was still good law. On that basis, it ruled that Johnson Controls, an employer, was not required by the applicable collective bargaining agreements (“CBAs”) to provide lifetime health benefits to its unionized retirees. Every few years, the UAW negotiated a new CBA with Johnson Controls or its predecessors providing health insurance benefits for employees and former employees. In 2009, Johnson Controls implemented a $50,000 lifetime cap on benefits for participants sixty-five and older, which resulted in some members being ineligible for future benefits. Plaintiffs, retirees who exceeded the lifetime cap, filed suit on behalf of themselves and similarly-situated groups of retirees. In plaintiffs’ view, the Tackett decision, including Justice Ginsburg’s concurrence in which she stated that clear and express language was not required to create vested rights to retirement benefits, prohibited presumptions for or against vesting. The district court ruled that Tackett had no effect on the Third Circuit’s “clear and express” standard, and that the rule is consistent with Tackett’s instruction to apply ordinary principles of contract law. Applying the Third Circuit rule, the court then divided the CBAs into three groups. For the first group, the court held that the inclusion of the phrase “shall have the following benefits . . . continued” did not unambiguously indicate that the benefits would vest past the expiration date of the applicable CBA. For the second group, the court held that the statement that health coverage would be continued “until your death,” was not a promise to vest unalterable health benefits in light of the explicit durational clauses and other language in the CBAs indicating that the parties intended that the health benefits would terminate. Instead, “until your death” indicated that the retirees were entitled to benefits during the term of the CBA but the benefits terminated if a retiree died before the CBA’ s expiration. And, for the final group, there was a clear and unambiguous reservation of rights. The court thus granted defendants’ motion for summary judgment, finding that none of the applicable agreements created vested rights to retirement benefits. The case is Grove v. Johnson Controls, Inc., No. 12-2622, 2016 WL 1271328 (M.D. Pa. Mar. 31. 2016).
A federal district court in New York enforced an ERISA retirement plan’s forum selection clause and transferred the case to the District of New Jersey. The plaintiff argued that the forum selection clause was invalid because it conflicted with ERISA’s venue provision, which provides that an ERISA action “may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found.” ERISA Section 502(e). The court held that ERISA’s venue rule provides a set of options, but does not prohibit private parties from narrowing the options to one of the three enumerated venues through a forum selection clause (and deferred for another day whether a venue selection clause could specify a venue unrelated to ERISA Section 502(e)). The court noted that its holding was in line with the vast majority of courts to consider the issue. The case is Malagoli v. AXA Equitable Life Ins. Co., No. 14-CV-7180 (AJN), 2016 BL 92517 (S.D.N.Y. Mar. 24, 2016).
Today, the U.S. Department of Labor will release its highly-anticipated Final Rule and Exemptions addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a “fiduciary” under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. According to a Fact Sheet released in advance of the new rule’s publication, the “DOL has streamlined and simplified the rule to minimize the compliance burden and ensure ongoing access to advice, while maintaining an enforceable best interest standard that protects savers.” According to the Fact Sheet:
- The rule requires more retirement investment advisers to put their client’s best interest first, by expanding the types of retirement advice covered by fiduciary protections
- The rule clarifies what does and does not constitute fiduciary advice
- The exemptions will allow firms to accept common types of compensation – like commissions and revenue sharing payments – if they commit to putting their client’s best interest first
- The rule and exemptions ensure that advisers are held accountable to their clients if they provide advice that is not in their clients’ best interest