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Proskauer's ERISA Practice Center Blog

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

Pension Consultant Found Not to be an ERISA Fiduciary

Posted in Fiduciary

The Tenth Circuit held that a pension plan consultant, who misstated the amount of monthly pension payments that a pension plan participant would receive in retirement, was not a fiduciary under ERISA.

Plaintiffs Trent and Wendy Lebahn, who were participants in the National Farmers Union Uniform Pension Plan, claimed that the Plan, its Pension Committee and consultant breached their fiduciary duties when the consultant told them that if Mr. Lebahn retired soon he would be entitled to $8,444.18 per month when in fact it turned out that this amount was overstated by nearly $5,000 per month.  Because the overstated amount was paid for several months, the plan demanded that Mr. Lebahn return over $43,000 in overpayments.

The Tenth Circuit affirmed the dismissal of the complaint because the Lebahns failed to adequately allege that the consultant had fiduciary status.  The Court, relying on the New Oxford American Dictionary, explained that “fiduciary status requires authority or responsibility that is discretionary, which entails ‘the freedom to decide what should be done in a particular situation’” and that conducting a routine computation, as required by one’s job, does not require discretion.  The Court also relied on the Department of Labor’s regulations, 29 C.F.R. §§ 2509.75-8 and 2509.75-5, which explain that “a person who performs administrative functions, such as calculating benefits, does not automatically have discretionary authority.”  Because the Court concluded that the consultant was not a plan fiduciary, it determined that it need not decide whether her fiduciary status could support liability of the other defendants.

The case is Lebahn v. Nat’l Farmers Union Unif. Pension Plan, et al., No. 15-3201, 2016 BL 221313 (10th Cir. July 11, 2016).

 

Update on Lawsuits Challenging the U.S. Department of Labor’s Fiduciary Rule

Posted in Fiduciary Rules

As we previously reported here, there have been five lawsuits challenging the U.S. Department of Labor’s new fiduciary rule.  (Our Client Alert on the new rule is available here.)

On July 8, 2016, the U.S. Department of Labor (DOL) filed its first formal response to these lawsuits in The National Association for Fixed Annuities v. Thomas E. Perez et al., Case No. 16-cv-1035 (D.D.C.).  The DOL’s response comes in the form of an opposition to plaintiffs’ motion for a preliminary injunction and summary judgment and a cross-motion for summary judgment.  The DOL argued that the fiduciary rule is entitled to Chevron deference – which requires federal courts to give deference to agency interpretations unless they are shown to be unreasonable – because the rule is necessary to protect millions of retirees in light of the shift from professionally managed defined benefit pension plans to participant-directed defined contribution plans.  The DOL also disputed the accusation that the administrative process of issuing the rule was improper.  Among other things, the DOL pointed out that it held an open rulemaking process spanning almost six years, which included the receipt of consideration of more than 3,000 comment letters, held public hearings, and conducted more than three dozen meetings with interested parties, and then it “provided a reasoned explanation for its decision.”  A hearing on the motions has been scheduled for August 25, 2016.

Three of the other lawsuits were filed in the U.S. District Court for the Northern District of Texas and have been consolidated under Chamber of Commerce of the U.S., et al., v. Perez, et al., Case No. 16-cv-1476-M.  The parties are currently briefing cross-motions for summary judgment with opening briefs due July 18.  A hearing on cross-motions for summary judgment will be heard on November 17, 2016.

The fifth case is pending in the District of Kansas and is captioned Market Synergy Group, Inc., v U.S. Dept. of Labor, et al., Case No. 16-cv-4083.  The DOL’s brief is currently due July 22, and a hearing on the motion for preliminary injunction is scheduled for September 21, 2016.

Marketplace Subsidy Notices – What Employers Should Know

Posted in ACA, Affordable Care Act

As promised by the Centers for Medicare & Medicaid Services (CMS) in late-2015, the Federally-Facilitated Marketplaces (FFMs) have started sending notices informing employers that employees have enrolled in a FFM and were determined eligible for premium subsidies. Because the employer shared responsibility penalties set forth in Section 4980H of the Internal Revenue Code (the “Code”) could be triggered when at least one full-time employee obtains a premium subsidy on the Marketplace, an employer receiving one of these notices should understandably be concerned about the possibility of penalties.  Nevertheless, these notices do not guarantee that a penalty will be assessed.  Here’s what employers should know: Continue Reading

Senator Warren Leads Coalition to Expand Scope of Limitations on Executive Compensation Tax Deductions

Posted in Executive Compensation

As we have previously reported (see here and here), bills to expand the scope of Section 162(m) and/or to narrow or eliminate the exceptions under Section 162(m) have been proposed in recent years, but have not become law.

Recently, a new coalition named “Take On Wall Street” that is comprised of lawmakers (including Senator Elizabeth Warren (D-MA)), union leaders, civil rights groups, and other community groups has announced plans to pursue five initiatives, one of which is to “end [the] tax exemption for huge CEO bonuses.”

Please see our full post on our Tax Talks blog discussing the legislation introduced by both the House and Senate that would amend Section 162(m) of the Internal Revenue Code.

Lawsuits Filed Challenging The USDOL’s Final Fiduciary Rules

Posted in Fiduciary Rules

On April 6, 2016, 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

Court Declines to Decide Whether ERISA Protects Employee From Reprisal For Informal Complaint

Posted in 510 Claims, ERISA Section 510

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).

New EEOC Regulations Provide Roadmap for Wellness Programs

Posted in EBECPC, Employment

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

Second Circuit Affirms Dismissal of Claim Arising from Incorrectly Addressed COBRA Notice

Posted in COBRA

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.

Health and Human Services, Labor and Treasury Departments Release New Summary of Benefits and Coverage Templates and Accompanying Documents

Posted in ACA, Affordable Care Act

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.

Background

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.

Effective Dates

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.

 

 

IRS Confirms California “Waiting Time Penalties” Are Not Wages For Federal Income Tax Purposes

Posted in Damages, Taxable Wages

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.