As we reported here, record-keepers for large 401(k) plans have thus far been successful in defending ERISA fiduciary-breach litigation over investment advice powered by Financial Engines. These lawsuits generally claim that fees collected by record-keepers for investment advice were unreasonably high because the fees exceeded the amount actually paid to Financial Engines. Plaintiffs in Chendes v. Xerox HR Solutions, LLC were given a second chance to plead their claims, this time alleging that the defendant record-keeper was a fiduciary because it “used its influence” as the plan’s record-keeper to force the plan sponsor to engage Financial Engines—primarily by refusing to use any other investment adviser—and therefore exercised de facto control over the plan’s retention of Financial Engines. The court rejected the argument that constraining the plan’s service provider choices amounted to de facto control since the plan had other alternatives to choose from (such as not using an investment adviser or changing record-keepers) and dismissed the claim without leave to amend, ending the case at the district court. The case is Chendes v. Xerox HR Solutions, LLC., Case No. 2:16-cv-1398, ECF No. 63 (E.D. Mich., June 25, 2018).
[Podcast]: Fixing Retirement Plan Overpayments
In this episode of the Proskauer Benefits Brief, Paul Hamburger, co-chair of Proskauer’s Employee Benefits & Executive Compensation Group, and associate Katrina McCann discuss how to fix retirement plan overpayments, based on (1) the type of plan (i.e., defined contribution or defined benefit plan), (2) whether the overpayment was with respect to a lump sum or ongoing payments, (3) the type of overpayment (whether it was to the wrong person or paid at the wrong time), and (4) who caused the overpayment. They discuss the requirements, the decisions involved, and certain ERISA and taxation issues that can arise when addressing these overpayments.
As DOL Fiduciary Rule is Officially Vacated, Focus Shifts to SEC
After nearly a decade in the making, the Department of Labor’s fiduciary rule appears to be officially dead. On June 21st, the U.S. Court of Appeals for the Fifth Circuit issued its mandate that finalized its earlier decision vacating the rule—discussed here. Along with the regulation that expanded the definition of investment fiduciary, the mandate wipes out the Best Interest Contract and Principal Transaction exemptions. Recognizing that many fiduciaries have invested significant compliance resources in reliance on those exemptions, however, the Department of Labor has issued a “no enforcement” policy that continues prohibited transaction relief as if those exemptions were still available. The “no enforcement” policy applies for fiduciaries who “are working diligently and in good faith to comply with the [exemptions’] impartial conduct standards.” It is discussed here and will remain in effect until DOL issues new guidance. Meanwhile, the SEC published proposed conflict of interest rules for broker-dealers and investment advisers. The comment period for the SEC’s proposal runs to August 7, 2018—discussed here.
[Podcast]: Cybersecurity & Employee Benefit Plans
In this episode of the Proskauer Benefits Brief, partner Neal Schelberg and associate Miriam Dubin discuss cybersecurity issues impacting employee benefit plans. Data breaches are occurring with increased frequency in today’s digital environment. Benefit plans in particular are uniquely susceptible to cyber-risks because they store large amounts of sensitive employee information and share it with multiple third parties. In this episode, we discuss the developing legal framework in the area of cybersecurity and outline practical tips that plan sponsors and record-keepers may use to secure plan data. So be sure to tune in for this very important issue impacting employee benefit plans.
Proposed Mental Health Parity Guidance Focuses on Nonquantitative Treatment Limitations
On April 23, 2018, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury (together, the “Agencies”) released proposed frequently asked questions (“FAQs”) related to nonquantitative treatment limitations (“NQTLs”) under the Mental Health Parity and Addiction Equity Act (“MHPAEA”). The Agencies also provided guidance on new disclosure requirements (which were described in our May 15, 2018 blog entry) and released a self-compliance tool.
Perhaps one of the more difficult aspects of mental health parity compliance is applying the parity rules to NQTLs. There is a dearth of concrete guidance on what constitutes a NQTL and how the parity rules apply to NQTLs. The Agencies’ most recent proposed guidance, FAQs about Mental Health and Substance Abuse Disorder Parity Implementation and the 21st Century Cures Act, Part 39 (“FAQs Part 39”), expands on prior NQTL-related guidance by explaining how the parity rules would apply in various hypothetical situations involving NQTLs.
By way of background, the MHPAEA requires that group health plans provide mental health and substance abuse benefits in parity with medical and surgical benefits. Although the requirements are complex (a summary can be found here), the basic structure of the law is that both quantitative limitations (e.g., dollar and visit limits) and NQTLs (e.g., medical management techniques) applied to mental health and substance abuse benefits must be in parity with the predominant limitations applied to substantially all medical and surgical benefits. This “predominant/substantially all” requirement applies on a classification-by-classification basis, based on six classifications of benefits: (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency care; and (vi) prescription drugs.
As explained in FAQs Part 39, a plan cannot impose a NQTL with respect to mental health or substance abuse benefits “unless, under the terms of the plan…as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the NQTL to [mental health and substance abuse] in the classification are comparable to, and are applied no more stringently than the processes, strategies, evidentiary standards, or other factors used in applying the limitation to medical/surgical benefits in the same classification.” A summary of the key aspects of the Agencies’ guidance on NQTLs is provided below.
- Blanket Coverage Exclusions. The MHPAEA does not require that a group health plan provide coverage for any particular mental health or substance abuse condition. However, once a plan covers a mental health or substance abuse condition, any quantitative limitations or NQTLs applied to the condition must be in parity with medical/surgical benefits. For example, a group health plan could exclude all services and treatments related to bipolar disorder without violating the MHPAEA. However, if some services or treatments for bipolar disorder are covered, then any limitation applied to that coverage must meet the MHPAEA requirement that coverage for bipolar disorders be in parity with medical/surgical benefits within the relevant classification.
Even though the MHPAEA is not a coverage mandate, plan sponsors of fully-insured plans should be aware that state law coverage mandates might require coverage of particular mental health and substance abuse disorders.
- Experimental/Investigational Exclusions. An exclusion based on the experimental or investigational nature of a service or treatment is a NQTL. Therefore, the method by which a service or treatment is determined to be experimental or investigational cannot be applied more stringently to mental health and substance abuse benefits than it is to medical/surgical benefits. For example, suppose a plan provides that any treatment (whether mental health/substance abuse or medical/surgical) will be denied as experimental when no professionally recognized treatment guidelines define clinically appropriate standards of care and fewer than two randomized controlled trials support the treatment’s use for a particular condition. Despite the plan language, the plan is administered such that it covers treatment for a medical/surgical condition with only one supporting randomized trial, but it still requires two supporting randomized trials before covering treatment for a mental health/substance abuse condition in the same MHPAEA classification. Because the plan’s experimental/investigational exclusion is applied more stringently to mental health/substance abuse benefits, a MHPAEA violation would have occurred.
That experimental/investigational exclusions are NQTLs is not particularly surprising, as these types of exclusions are one way in which plans can manage medical costs. Nevertheless, the description of this NQTL in the FAQs is noteworthy because the example used involves “applied behavioral analysis” (“ABA”) for treatment of autism spectrum disorder. Many insurers and plans have excluded ABA on the basis that the treatment is experimental or investigational and this has spawned numerous lawsuits alleging violations of state and federal mental health parity laws. Plans that do cover ABA but apply age or other treatment limitations on ABA might also face litigation if the limits are not in parity with limits applied to medical/surgical benefits.
Plans that cover treatment for autism spectrum disorder but deny coverage for ABA therapy under an experimental/investigational exclusion should be mindful of ABA’s growing acceptance as a standard treatment. Continued application of this type of exclusion to ABA may become more difficult to justify over time.
- Other NQTLs. The Agencies also identified and provided examples for the following NQTLs: prescription drug dosage limitations, step therapy programs, healthcare facility restrictions, and provider network administration (such as network access standard and network adequacy measurements). The message is clear – if any of these limitations are applied to mental health and substance abuse benefits, the method by which a plan determines whether to apply the NQTL and the method to determine the scope of the NQTL cannot be applied more stringently to mental health and substance abuse benefits than it is applied to medical and surgical benefits.
Monitoring compliance with the MHPAEA’s requirements for NQTLs is extremely complicated. In our next blog on mental health parity, we will provide practical steps that plan sponsors and administrators can take to review and monitor compliance. This includes using the new self-compliance tool provided by the Agencies.
IRS Announces HSA and HDHP Limitations for 2019
On May 10, 2018, the IRS released Revenue Procedure 2018-30 setting dollar limitations for health savings accounts (HSAs) and high-deductible health plans (HDHPs) for 2019. HSAs are subject to annual aggregate contribution limits (i.e., employee and dependent contributions plus employer contributions). HSA participants age 55 or older can contribute additional catch-up contributions. Additionally, in order for an individual to contribute to an HSA, he or she must be enrolled in an HDHP meeting minimum deductible and maximum out-of-pocket thresholds. The contribution, deductible and out-of-pocket limitations for 2019 are shown in the table below (2018 limits are included for reference).
| HSA/HDHP Limitations | ||
| 2018 | 2019 | |
| Maximum HSA Contribution
(Employee + Employer) |
Self-Only: $3,450
Family: $6,900 |
Self-Only: $3,500
Family: $7,000 |
| Catch-Up Contribution Limit | $1,000 | $1,000 |
| Minimum HDHP Deductible | Self-Only: $1,350
Family: $2,700 |
Self-Only: $1,350
Family: $2,700 |
| HDHP Out-of-Pocket Max | Self-Only: $6,650
Family: $13,300 |
Self-Only: $6,750
Family: $13,500 |
Note that the Affordable Care Act (ACA) also applies an out-of-pocket maximum on expenditures for essential health benefits. However, employers should keep in mind that the HDHP and ACA out-of-pocket maximums differ in a couple of respects. First, ACA out-of-pocket maximums are higher than the maximums for HDHPs. As explained in our May 9, 2014 blog entry, the ACA’s out-of-pocket maximum was identical to the HDHP maximum initially, but the Department of Health and Human Services (which sets the ACA limits) is required to use a different methodology than the IRS (which sets the HSA/HDHP limits) to determine annual inflation increases. That methodology has resulted in a higher out-of-pocket maximum under the ACA. The ACA out-of-pocket limitations for 2019 were announced in the 2019 Notice of Benefit and Payment Parameters and are shown in the table below (2018 limits are included for reference).
| ACA Out-of-Pocket Limitations | ||
| 2018 | 2019 | |
| Self-Only | $7,350 | $7,900 |
| Family | $14,700 | $15,800 |
Second, the ACA requires that the family out-of-pocket maximum include “embedded” self-only maximums on essential health benefits. For example, if an employee is enrolled in family coverage and one member of the family reaches the self-only out-of-pocket maximum on essential health benefits ($7,900 in 2019), that family member cannot incur additional cost-sharing expenses on essential health benefits, even if the family has not collectively reached the family maximum ($15,800 in 2019).
The HDHP rules do not have a similar rule, and therefore, one family member could incur expenses above the HDHP self-only out-of-pocket maximum ($6,750 in 2019). As an example, suppose that one family member incurs expenses of $10,000, $7,900 of which relate to essential health benefits, and no other family member has incurred expenses. That family member has not reached the HDHP maximum ($15,800 in 2019), which applies to all benefits, but has met the self-only embedded ACA maximum ($7,900 in 2019), which applies only to essential health benefits. Therefore, the family member cannot incur additional out-of-pocket expenses related to essential health benefits, but can incur out-of-pocket expenses on non-essential health benefits up to the HDHP family maximum (factoring in expenses incurred by other family members).
Employers should consider these limitations when planning for the 2019 benefit plan year and should review plan communications to ensure that the appropriate limits are reflected.
Proposed Mental Health Parity Guidance Would Impose Burdensome Disclosure Requirements
On April 23, 2018, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury (together, the “Agencies”) released proposed frequently asked questions (“FAQs”) related to required disclosures and nonquantitative treatment limitations (“NQTLs”) under the Mental Health Parity and Addiction Equity Act (“MHPAEA”). The Agencies also released a self-compliance tool to help plans, plan administrators and plan sponsors assess their compliance with the MHPAEA.
The new guidance contains too much information to cover in a single blog, so this is the first of three blogs covering the guidance. In this entry, we highlight the Agencies’ proposed rule that would require plan administrators to distribute hard copy health care provider lists when the ERISA electronic disclosure standards cannot be met. This proposed requirement deviates from the standard practice of directing plan participants to network administrator websites for provider lists and would be sure to significantly increase administration costs.
Background
The MHPAEA requires that group health plans provide mental health and substance abuse benefits in parity with medical and surgical benefits. Although the requirements are complex (a summary can be found here), the basic structure of the law is that both quantitative limitations (e.g., dollar and visit limits) and nonquantitative limitations (e.g., medical management techniques) applied to mental health and substance abuse benefits must be the same or better than the predominant limitations applied to substantially all medical and surgical benefits. This “predominant/substantially all” requirement applies on a classification-by-classification basis, based on six classifications of benefits: (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency care; and (vi) prescription drugs.
The 21st Century Cures Act enacted in 2016 mandated that the Agencies issue guidance with respect to disclosures related to NQTLs and application of the NQTL parity requirements. The first set of Agency guidance under this direction was released in June 2017 as FAQs about Mental Health and Substance Abuse Disorder Parity Implementation and the 21st Century Cures Act, Part 38. Those FAQs addressed parity requirements related to eating disorders and included a draft model form request for disclosure of treatment limitations. The Agencies’ most recent proposed guidance, Proposed FAQs about FAQs about Mental Health and Substance Abuse Disorder Parity Implementation and the 21st Century Cures Act, Part 39 (“FAQs Part 39”), builds upon prior mental health parity guidance.
Disclosure Obligations
Prior agency guidance has made clear that plans must disclose information related to NQTLs when that information is requested by participants, and FAQs Part 39 updates the model request form for participants. Perhaps the most surprising aspect of FAQs Part 39 was the proposed guidance regarding disclosure of the healthcare provider network in a plan’s summary plan description (“SPD”). The question related to availability of a psychiatrist within a network, but the implications of the Agencies’ proposed response goes beyond mental health services.
As a general matter, the DOL regulations setting forth the content requirements for SPDs state that the SPD must contain a description of the “composition of the provider network.” Changes to the provider network would also require a summary of material modifications describing the changes within 210 days following the year in which the changes occurred.
The DOL regulations also state that the list of in-network providers can be provided in a separate document as long as the SPD contains a general description of the provider network and a statement that the list of the network providers is automatically provided in a separate document. Although separate hard copy network provider books once existed, for years, insurance carriers and network administrators have given participants access to the provider lists through the carrier’s or administrator’s website. SPDs now often give a general description of the network and provide a URL address for the provider list website.
FAQs Part 39 contains guidance that is generally consistent with that described above with one major exception. Proposed Q&A 12 states that SPDs are permitted to direct participants to the network administrator’s website only if the DOL’s electronic disclosure safe harbor requirements are met. In general, the DOL’s electronic disclosure rule provides that ERISA-required notices can be sent electronically only if the recipients have access to the internet as part of their day-to-day job functions. This means that employees in many industries, such as retail, hospitality, manufacturing, and transportation, would have to receive hard copy network provider books unless they affirmatively consent to receive electronic disclosures. Terminated employees and retirees who have group health coverage would also have to be provided hard copy provider lists unless they consent to receive electronic disclosures.
The inability of plans and plan sponsors to rely on network administrator websites to communicate network provider lists presents a number of problems. For instance, plans and plan sponsors generally have no control over the network structure, and network administrators are not in the practice of regularly communicating provider changes to participating plans. Providers join and leave various networks on a frequent basis, so hard copy provider lists (which could be dozens of pages long) would need to be updated and distributed, at a minimum, on an annual basis. Thus, plans and sponsors would likely face significant costs if hard copy provider lists were required.
Note that the guidance in FAQs Part 39 is proposed, and the Agencies have solicited comments (deadline is June 22nd).
No Ongoing Administration, No ERISA Plan
Participants in a voluntary separation program filed suit for breach of fiduciary duty under ERISA seeking additional benefits after learning that greater benefits were provided to individuals who did not participate in the program but were later part of an involuntary reduction-in-force. The Third Circuit concluded that the program was not an ERISA plan because there was no ongoing administration. More specifically, the Court determined that the program was only available for approximately two months and only required the employer to make an initial, discretionary determination of applicants’ eligibility for the program, calculate certain one-time payments, and, in some cases, determine whether the applicant was eligible to work part-time for a defined period or subsequently be re-hired. As such, the Court affirmed the lower court’s ruling dismissing the case. The case is Girardot v. The Chemours Company, No. 17-1894, 2018 WL 2017914 (3rd Cir. Apr. 30, 2018).
ERISA’s Duty To Inform – Distinguishing Between Existing and Possible Benefits
A recent ERISA opinion gives us occasion to point out the important distinction under ERISA concerning fiduciary duties as they pertain to existing benefits and possible benefits. In this case, the plaintiff alleged that defendants misrepresented to her that her retirement benefit plan would not change or would only change to her advantage after the residency program that she participated in was terminated, and that she relied on that misrepresentation in suspending her search for a new job. On reconsideration of its prior ruling, the district court realized that it had misapplied Third Circuit precedent as it pertains to the duty to inform. It thus reversed course and ruled that while plan fiduciaries have an affirmative duty to ensure that participants inquiring about existing benefits receive relevant information, they do not have a duty to inform participants inquiring about future benefits of possible changes to the plan unless they are under serious consideration at the time of the inquiry. Because there was no evidence that plaintiff was misinformed about existing benefits at any time, or that changes to future benefits were under serious consideration at the time the inquiries were made, they were not material misrepresentations, and the court granted summary judgment dismissing the case. The case is Kovarikova v. Wellspan Good Samaritan Hospital, No. 1:15-CV-2218, 2018 WL 2095700 (M.D. Pa. May 7, 2018).
[Podcast]: ACA Employer Assessment Letters
In this episode of the Proskauer Benefits Brief, senior counsel Damian Myers and associate Liz Down examine the IRS’s enforcement of the Affordable Care Act’s (ACA) employer shared responsibility mandate. We discuss how the IRS is assessing penalties and offer tips on what employers can do when they receive assessment notices. Be sure to tune in for the latest insight on this very important issue.
