Employee Benefits & Executive Compensation Blog

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

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.


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

proskauer benefits brief podcast

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.

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New DOL FAB Further Delays Enforcement of Fiduciary Rule, But Does Not Undo The Rule In Its Entirety

On May 7, 2018, the DOL issued a Field Assistance Bulletin (“FAB”) addressing the Department’s enforcement policy on the fiduciary rule that was recently vacated by the Fifth Circuit.  Although the DOL has elected not to continue defending the rule before the Fifth Circuit, the FAB leaves the rule’s status in a holding pattern.

Rather than scrapping the rule in toto, the FAB continues a temporary “no enforcement” policy until the DOL issues new regulations or guidance. This posture has two key consequences:

  1. DOL will not enforce the fiduciary rule’s test for determining whether a service provider is a fiduciary by reason of providing investment advice for a fee. This means that fiduciary status by reason of providing investment advice for a fee will be determined based on the five-part test from DOL’s 1975 regulation.
  2. The Best Interest Contract and Principal Transaction exemptions are not dead. Investment advice fiduciaries may continue to rely on those exemptions if they work diligently and in good faith to comply with the impartial conduct standards set forth in those exemptions.

The Budget Act Relaxes Hardship Withdrawal Rules, But Some Changes May Not Apply to 403(b) Plans

On Feb. 9, 2018, Congress passed, and the president signed, the Bipartisan Budget Act of 2018 (the “Budget Act”). As we previously discussed here, the Budget Act contains a number of provisions that affect qualified retirement plans.  These changes include expanding the type of funds that can be distributed under Code Section 401(k) in the event of a hardship withdrawal, beginning with plan years commencing after December 31, 2018, to include not only a participant’s elective deferral contributions, but also qualified nonelective contributions, qualified matching contributions, and earnings on each of those three contribution sources.  While this change applies to 401(k) plans, there is uncertainty whether it will apply to 403(b) plans.

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Clawbacks: Recent Litigation Targeting Insurers and Pharmacy Benefit Managers

While the term “co-pay” might suggest a sharing of costs between patients and their health plans, a recent study by the University of Southern California Schaeffer Center found that almost a quarter of patients are paying more than the full price for their prescription drugs under their insurance plans due to “clawbacks.”  A prescription drug clawback occurs when patients purchasing drugs from pharmacies make co-payments required under their insurance plans that exceed the price of the prescriptions and then the insurers and/or pharmacy benefit managers (“PBMs”) clawback from the pharmacies the excess amounts paid.

There have been frequent media reports on the practice of prescription drug clawbacks and federal lawsuits have been filed against insurance companies and PBMs, such as UnitedHealth, Cigna, Humana, and Optum Rx.  The theories of liability being asserted include breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”), violations of the Racketeer Influenced and Corrupt Organizations Act, as well as under various state laws.  These actions are all in their early stages, with none having been decided on the merits.

With respect to the ERISA claims, plan participants and beneficiaries have argued that the insurers and PBMs are liable as ERISA plan fiduciaries.  In two recent cases, the courts have concluded that the fiduciary duty analysis turns on whether the defendants exercised any discretionary authority or control in creating and implementing the alleged clawbacks and acted in accordance with the terms of the plans.  See Negron v. Cigna Health & Life Ins., No. 16-cv-1904, 2018 WL 1258837 (D. Conn. Mar. 12, 2018); In re UnitedHealth Grp. PBM Litig., No. 16-cv-3352, 2017 WL 6512222 (D. Minn. Dec. 19, 2017).

In In re UnitedHealth, the court dismissed plaintiffs’ ERISA fiduciary argument because the plaintiffs failed to allege facts sufficient to demonstrate that the defendants exercised any discretion and thus UnitedHealth and its PBM, Optum Rx, were not acting as ERISA plan fiduciaries.  In so ruling, the court determined that the defendants’ performance of “instantaneous calculations” in accordance with the terms of the plan was insufficient to show that their conduct was “anything more than ministerial claims processing.”  More recently, in Negron, plaintiffs’ claim survived a motion to dismiss.  The court found plaintiffs alleged facts sufficient to assert a plausible claim of fiduciary status based on the argument that Cigna’s conduct was in violation of plan terms and thus necessarily required the exercise of discretion.

In light of the Negron decision, and armed with a new academic study establishing the overpayment of a large portion of prescription drug claims, we may see an increase in actions involving health insurers and PBMs targeting clawbacks.  As the existing cases continue to be litigated and decisions on the merits are rendered, the impact of this trend will become more apparent.  In the interim, plan fiduciaries should consider:  (i) reaching out to their health insurer and/or PBM to determine whether or not participants are being advised when the co-pay under the plan exceeds the cost of the prescription; and (ii) advising plan participants who fill prescription drugs to ask the pharmacy whether the cash price for that prescription is less than the co-pay required under the plan.

Highlights from Proskauer’s Annual ERISAFEST Conference

Proskauer held its annual ERISAFEST conference on Thursday, April 26, bringing together over 200 legal counsel, plan fiduciaries and professionals involved in the administration of employee benefit plans to discuss recent developments and legal issues in the area of employee benefits.

We were pleased to host a special lunch panel featuring Aliya Wong from the U.S. Chamber of Commerce, Jim Klein from the American Benefits Council, and Will Hansen from the ERISA Industry Committee for a discussion on hot topics and trends in employee benefits.

Key highlights from each session:

Fiduciary Litigation Update

Stacey Cerrone and Seth Safra provided a litigation update on 401(k) plans and 403(b) plans. They also discussed the latest trend of recordkeepers for large 401(k) plans defending litigation over investment advice provided by the Financial Engines investment advice algorithm – commonly referred to as “robo-advice.”

The Impact of Tax Reform on Executive Compensation and Employee Benefits

Andrea Rattner and Steven Einhorn addressed the noteworthy tax reform changes affecting compensation and benefits, including the deduction limit on compensation above $1 million and executive compensation paid by tax-exempt organizations. They also discussed the impact on qualified equity grants for non-public companies, qualified retirement plans and fringe benefits.

Health and Welfare Benefit Update

Damian Myers and Katrina McCann explained the recent health care legislation, employer mandate assessments, regulatory developments and recent healthcare litigation. They also discussed the change to HSA contribution limits, regulations related to wellness programs and the new disability claims rules.

Current Issues in Plan Investments

Ira Bogner and Adam Scoll gave an overview of the Fiduciary Rule. They also reviewed outsourcing fiduciary responsibilities to an OCIO and the retention process.

Legislative Update for Multiemployer Pension Plans

Anthony Cacace and Justin Alex discussed pending problems faced by multiemployer pension plans and gave a legislative status update. They walked attendees through the main proposals and their potential impact on multiemployer plans.

Surviving a DOL Audit

Russell Hirschhorn, Neal Schelberg and Joe Clark provided practical tips when preparing for and undergoing a DOL investigation of an employee benefit plan.

Pictured from left: Russell Hirschhorn, Joe Clark and Neal Schelberg

Severance Plan Pitfalls

Robert Projansky, Myron Rumeld and Elizabeth Down walked the attendees through several hypothetical scenarios, including addressing when a program is considered an ERISA plan and how to handle severance claims and appeals.

Ethics in ERISA

Paul Hamburger and Deidre Grossman led a discussion on legal ethics focusing on the fiduciary exception to the attorney-client privilege.

For more information on the topics covered, please contact any of the Proskauer event speakers.

Ninth Circuit Deepens Circuit Split Over Whether Delinquent Contributions Are Plan Assets

The Ninth Circuit held that employer contributions due to a Taft Hartley fund are not plan assets until they are actually paid to the fund, irrespective of whether the plan document defines plan assets to include unpaid employer contributions.  As a result, a fund could not hold a contributing employer’s owner and treasurer personally liable for breach of fiduciary duty for failure to pay the contributions. (The employer was found liable for delinquent contributions under ERISA § 515.)  The Ninth Circuit’s decision deepens a split between, on the one hand, the Sixth and Tenth Circuits, which have similarly rejected such claims, and, on the other hand, the Second and Eleventh Circuits, which have recognized that unpaid contributions may be plan assets where the plan document defines plan assets as including unpaid employer contributions.  The case is Glazing Health and Welfare Fund v. Lamek, No. 16-16155, 2018 WL 1403579 (9th Cir. Mar. 21, 2018).