Employee Benefits & Executive Compensation Blog

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

USDOL Prevails in Kansas in Another Decision on Fiduciary Rule

On February 17, 2017, a federal district Court in Kansas upheld the U.S. Department of Labor’s conflict of interest rule and related exemptions in a suit brought by Market Synergy Group, Inc. This ruling on the merits follows the court’s prior ruling in November 2016 denying Market Synergy Group’s request for a temporary injunction.  The court determined that:  (1) the Department satisfied the Administrative Procedure Act’s requirement of providing fair notice of the proposed rule change; (2) the Department’s decision to treat fixed indexed annuities differently than all other fixed annuities in PTE 84-24 was not arbitrary and capricious; (3) the Department adequately considered the economic impact that the final rule would impose on independent insurance agent distribution channels; and (4) the Department’s issuance of PTE 84-24 does not exceed the agency’s statutory authority.  The case is Mkt. Synergy Grp., Inc. v. United States Dep’t of Labor, No. 16-CV-4083-DDC-KGS, 2016 WL 6948061 (D. Kan. Nov. 28, 2016).

Like the prior rulings, the court’s decision relates only to the Department’s authority to issue the rule.  It does not address the Trump administration’s proposal to delay or change the rule.  A delay proposal is currently being reviewed by the Office of Management and Budget, and is expected to be released in the next couple weeks.

Update on the USDOL Conflict of Interest Rule and Related Exemptions

There were two key developments last week concerning the ongoing challenges to the U.S. Department of Labor (USDOL) conflict of interest rule and related exemptions:  a Presidential Memorandum calling for a review of the rule, and a ruling by a federal court in Texas rejecting the U.S. Chamber of Commerce’s challenges to the rule.

Presidential Memorandum

On February 3, 2017, President Trump issued a Presidential Memorandum ordering the USDOL to conduct an economic and legal analysis of the conflict of interest rule and associated exemptions.  The Memorandum requires the USDOL to rescind the rule if it finds that it is inconsistent with the Trump Administration’s policies.  The Memorandum does not explicitly call for an extension of the rule’s April 10, 2017 applicability date.  However, the USDOL has filed a notice with the Office of Management and Budget indicating that it intends to delay implementation and open up a new comment period.  The details have not been made public.

District Court Decision

On February 8, 2017, a federal district court in Texas granted the USDOL’s motion for summary judgment and rejected the Chamber of Commerce’s many challenges to the conflict of interest rule and related exemptions.  This decision represents the third federal district court to uphold the rule and exemptions as a permitted exercise of the USDOL’s authority.  It followed federal district courts in Washington D.C. and Kansas.  The decision does not opine on the new administration’s authority to rescind the rule, delay enforcement, or issue a different rule, subject to the procedural requirements of the Administrative Procedure Act.

IRS Announces the Last Day of the Remedial Amendment Period for 403(b) Plans

The Internal Revenue Service recently issued Revenue Procedure 2017-18, which provides that the last day of the remedial amendment period for Code Section 403(b) retirement plans will be March 31, 2020. As discussed below, this means that a sponsor of a Code Section 403(b) plan who timely adopted a Code Section 403(b) retirement plan document that was intended to comply with the Code will have until March 31, 2020 to retroactively correct any defects to the form of the plan document, either by amending its plan document or adopting a pre-approved plan document.

Background

Under final Treasury regulations that were issued in 2007, effective January 1, 2009, a sponsor of Code Section 403(b) retirement plan is generally required to maintain its plan pursuant to a written plan document that complies with the requirements of these final Treasury regulations in both form and operation.

In March of 2013, the IRS issued Revenue Procedure 2013-22, which set out new procedures for the IRS to issue opinion and advisory letters for pre-approved plan documents for Code Section 403(b) retirement plans (i.e., prototype and volume submitter plan documents).  The IRS does not issue determination letters on individually designed Code Section 403(b) retirement plans.

Revenue Procedure 2013-22 also included information about a remedial amendment period that would allow a plan sponsor to retroactively correct defects in the form of its Code Section 403(b) plan document, provided that the correction is made prior to the end of the remedial amendment period. For this purpose, a “defect” is a provision, or absence of a required provision, that causes the plan to fail to satisfy the requirements of Code Section 403(b).  Generally, the remedial amendment period is available only if an employer adopted a written plan document intended to satisfy the requirements of Code Section 403(b) on or before January 1, 2010 or, if later, the first day of the plan’s effective date.  Revenue Procedure 2013-22 provided that any defect must be corrected on or before the last day of the remedial amendment period.  However, the guidance did not state when the last day of the remedial amendment period would occur.

The Last Day of the Remedial Amendment Period Announced

With the issuance of Revenue Procedure 2017-18, the IRS announced that the last day of the remedial amendment period for Code Section 403(b) retirement plans will be March 31, 2020. Therefore, if the form of a Code Section 403(b) retirement plan does not satisfy the requirements of Code Section 403(b) during the remedial amendment period but is properly retroactively amended by March 31, 2020, the plan will be considered to have satisfied the requirements for the entire remedial amendment period (which begins on January 1, 2010 or, if later, the effective date of the plan).  Generally, a Code Section 403(b) retirement plan will automatically satisfy the IRS requirements that the form of the document complies with the Code Section 403(b) if the plan sponsor adopts a pre-approved plan document on or before the last day of the remedial amendment period.

According to Revenue Procedure 2017-18, the Department of Treasury and IRS intend to issue future guidance with respect to the timing of Code Sec. 403(b) retirement plan amendments made after Mar. 31, 2020.

Fourth Circuit Concludes That State Law Claims For Life Insurance Benefits Are Preempted

The Fourth Circuit recently concluded that a Sears employee’s state law claims seeking money damages based on denial of insurance benefits (for failure to submit evidence of insurability questionnaire) was preempted by ERISA.  The Court explained that resolution of the state law claims required examining the plan to determine Sears’ obligations as plan administrator and making determinations on how Sears performed in its administration of the plan.  In so ruling, the Court rejected plaintiff’s argument that his claims were not preempted because he only challenged Sears’ actions prior to the denial of benefits, i.e., the deduction of premiums from his pay and informing him that he had coverage, as a “distinction without a difference.”  The case is Prince v. Sears Holdings Corp., No. 16-1075 (4th Cir. Jan. 27, 2017).

Class Certified in Claims for Autism Treatment Coverage

A federal district court in the Western District of Kentucky certified a class of participants and beneficiaries in plans sponsored by Anthem Health Plans of Kentucky, Inc. who had been denied coverage or reimbursement for Applied Behavior Analysis (ABA) for Autism Spectrum Disorder (ASD).  Plaintiff claimed that the time and dollar limitations violated ERISA and the Mental Health Parity and Addiction Equity Act.  In so ruling, the court found that plaintiff satisfied the requirements of Rule 23, and rejected Anthem’s argument that individualized issues related to each class member’s condition and treatment made a class action an improper method for resolving the dispute.  The case is Wilson v. Anthem Health Plans of Kentucky, Inc., No. 3:14-CV-743-TBR, 2017 WL 56064 (W.D. Ky. Jan. 4, 2017).

U.S. Supreme Court Seeks Solicitor General’s Input on Co-fiduciary Indemnification

Earlier this month, the U.S. Supreme Court invited the Solicitor General to file a brief expressing the government’s views on a petition for certiorari asking the Court to decide whether ERISA permits a cause of action for indemnity or contribution by an individual found liable for breach of fiduciary duty.  The underlying dispute resulted from the merger of two companies’ employee stock ownership plans (ESOPs), and the subsequent spin-off of part of the surviving ESOP into the ESOP of a company that ultimately collapsed, rendering the value of the employees’ plan accounts worthless.  The Western District of Wisconsin concluded, among other things, that two of the plan fiduciaries, including the petitioner, were the most culpable parties and ordered them to indemnify their co-fiduciaries.  The Seventh Circuit, citing the Supreme Court’s decision in CIGNA Corp. v. Amara, 563 U.S. 421 (2011), affirmed the district court’s decision and held that the remedy of indemnification is within the court’s equitable powers consistent with ERISA and trust law.  A petition for a writ of certiorari was filed on the principal ground that the Supreme Court should resolve a circuit split on the issue of whether an ERISA fiduciary can seek indemnity or contribution from a co-fiduciary.  According to the petition, the Second and Seventh Circuits have recognized such a cause of action, but the Eighth and Ninth Circuits have rejected such claims.  Stay tuned for further developments . . . .  The case is Fenkell v. Alliance Holdings, Inc., U.S., No. 16-473, invitation to solicitor general filed Jan. 9, 2017.

Honeywell Defeats Retirees’ Class Action Suit for Lifetime Health Benefits

A federal district court in Ohio dismissed retirees’ claims for lifetime healthcare benefits from Honeywell.  Honeywell provided healthcare benefits to plaintiffs through a series of collective bargaining agreements and, although it continued to do so for several years after the final CBA expired, Honeywell eventually notified plaintiffs that it would terminate contributions toward their healthcare benefits.  Applying the principles set forth in M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015) and the Sixth Circuit’s subsequent decision in Gallo v. Moen, Inc., 813 F.3d 265 (6th Cir. 2016), the district court held that plaintiffs’ healthcare benefits did not vest because the CBAs were for three-year terms and did not expressly state that the healthcare benefits vested, whereas the CBAs did expressly vest pension benefits for life.  Although, unlike in Gallo, there was no reservation-of-rights clause, the court held that such a clause was not required to find that the CBAs unambiguously did not provide lifetime health benefits to plaintiffs.  The case is Watkins v. Honeywell Int’l, Inc., No. 16-1925, 2016 WL 7325161 (N.D. Ohio Dec. 16, 2016).

UPDATE: District Court Denies Preliminary Injunction in AARP Suit to Block Final Rules on Employee Wellness Programs

The U.S. District Court for the District of Columbia (Judge Bates) has denied AARP’s request to block the implementation of the EEOC’s final wellness regulations pending a decision on the merits. As we have discussed previously, the regulations address 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 final rules have taken effect as of January 1, 2017.

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District Court Rejects Retirees’ Claim for Lifetime Healthcare Benefits

A federal district court in Michigan dismissed retirees’ claims for lifetime, unalterable healthcare benefits from BorgWarner.  BorgWarner provided healthcare benefits to Plaintiffs through a series of collective bargaining agreements  and health insurance agreements.  After BorgWarner unilaterally modified the available retiree healthcare benefits, Plaintiffs filed suit.  Applying the principles set forth in M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015) and the Sixth Circuit’s subsequent decision in Gallo v. Moen, Inc., 813 F.3d 265 (6th Cir. 2016), the district court granted BorgWarner’s motion for summary judgment and held that Plaintiffs’ healthcare benefits did not vest under ordinary principles of contract interpretation.  In so holding, the court first observed that the agreements were for three-year terms and did not expressly state that the healthcare benefits vested, whereas the pension plan documents stated that Plaintiffs’ pension benefits were lifetime benefits.  Next, the court observed that several of the agreements restated and sometimes redefined the healthcare benefits available going forward, which would be unnecessary if the benefits had vested.  Lastly, the court observed that the agreements contained: (i) a reservation of rights provision granting BorgWarner the right to modify, amend, suspend, or terminate the plan, and (ii) a termination of coverage provision that limited the healthcare benefits to the term of the governing agreement.  The case is Sloan v. BorgWarner, Inc., No. 09-cv-10918, 2016 WL 7107228 (E.D. Mich. Dec. 5, 2016).

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