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Cover Your ERISA Obligations with a Wrap

Cover Your ERISA Obligations with a Wrap

March 29, 2013

Authored by: benefitsbclp

ERISA requires that all plans have a written plan document and summary plan description.  In addition to describing the benefits, the written plan document must also establish:  a funding policy, a procedure for allocating administrative and management responsibilities, a procedure for amending the plan, and the scheme for payment of contributions and benefits.

For welfare plans, plan sponsors have customarily relied on the benefit booklets prepared by the insurer (for insured plans) or the third party administrator (for many self-insured plans) as both the plan document and the summary plan description.  The benefit booklets and the schedules of benefits usually provide a full and detailed description of the benefits that are covered and excluded as well as requirements for preauthorization of treatment, filing claims and appeals, and the costs (deductibles, co-pays, out of pocket maximums) that participants pay.  But, the booklets, which are not prepared by the plan sponsor, generally do not include certain required ERISA provisions such as identification of fiduciaries, allocation of responsibilities, funding, claim procedures, or provisions that protect the employer such as those provisions that reserve the plan sponsor’s right to amend or terminate the plan, provide for subrogation and recovery of overpayments, address lost participants, and stipulate the absence of any guarantee of employment.  Similarly, the benefits booklets do not typically include all of the information that the DOL regulations require to be included in a summary plan description (e.g., name, address and employer identification number of the plan sponsor, name

EEOC Continues to Play Coy on Wellness Programs

Whenever an employer wants to implement a wellness program, we are always compelled to advise them that the Equal Employment Opportunity Commission (EEOC) has yet to give us official guidance on the application of the Americans with Disabilities Act to wellness programs.  The issue under the ADA is that, generally speaking, wellness programs usually involve disability-related inquiries, as that term is defined under the ADA.  As such, to satisfy the ADA’s requirements, in the EEOC’s view the programs have to be voluntary.  A program is voluntary for this purposes as long as the employer neither requires participation, nor penalizes employees who do not participate.

There was a 2009 informal discussion letter that was released and then subsequently revised wherein the EEOC, in the first version, said that compliance with the HIPAA nondiscrimination rules would make a program compliant with the ADA.  The letter was subsequently revised to say that the EEOC has not ruled on whether compliance with HIPAA would meet compliance with the ADA.

The EEOC recently released a letter from January of this year involving a wellness program for employees with diabetes.  The program waived the annual deductible for employees who met certain requirements, such as enrollment in a disease management program or adherence to a doctor’s exercise and medication recommendations.  The EEOC said that reasonable accommodations would have to be made for those who could not meet the wellness program’s standard due a disability (as broadly defined in the ADA).  This is, of course, similar to the reasonable

DOL, HHS and Treasury Agree; 90 Days Does Not Equal 3 Months

For plan years beginning on or after January 1, 2014, a health plan cannot impose a waiting period of more than 90 days.  Earlier this month, the Departments of Labor and Health and Human Services and Treasury (the “Departments”) followed up their prior guidance on the 90-day waiting period maximum with a joint set of proposed regulations.

90-Day Maximum Waiting Period

Consistent with prior guidance, the proposed regulations define a waiting period as the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the health plan can become effective.  For counting purposes, all calendar days are counted beginning on the enrollment date (including weekends and holidays).  If an employee has satisfied the eligibility requirements under the plan, coverage must begin once 90 calendar days has elapsed (subject to the employee’s completion and submission of the appropriate enrollment forms).

The Departments confirm that no de minimis exception exists that would permit employers to equate three months with 90 days.  Therefore, plans with a three-month waiting period will need to be amended for the 2014 plan year.  In addition, plans with a 90-day waiting period in which coverage begins on the first day of the month immediately following satisfaction of the waiting period will have to be amended.  Employers that continue to prefer a first day of the month start date for coverage rather than random dates throughout the month

Litigation Update: ACA Contraceptive Mandate

Litigation Update: ACA Contraceptive Mandate

March 25, 2013

Authored by: benefitsbclp

Courts have recently seen a flurry of activity from for-profit corporations challenging the Affordable Care Act’s contraceptive mandate, which became effective January 1. These employers claim providing female employees with certain types of FDA-approved contraceptives violates the owners’ right to free exercise of religion.

Do for-profit corporations have a right to free exercise of religion, at least with respect to providing controversial contraceptives to employees? While we’re waiting for that issue to make its way to the Supreme Court, which it most certainly will, federal circuit courts are divided with respect to issuing temporary injunctions until the substantive issues are decided. The Supreme Court weighed in on the Hobby-Lobby case in December 2012, denying its request for an injunction while the company’s general challenge was pending, but it did not address the underlying, controversial issues, such as whether a corporation can even exercise religion in the first place. Circuits courts are left facing a number of injunction requests and the results vary by circuit. The Third, Sixth, and Tenth Circuits have generally denied injunction requests, while the Seventh and Eighth Circuits seem open to issuing temporary injunctions. See Conestoga Wood Specialities Corp. v. Sebelius (3d Cir., February 7, 2013); Autocam Corp. v. Sebelius (6th Cir., December 28, 2012); Grote v. Sebelius (7th Cir., January 1, 2013); Annex Med. v. Sebelius (8th Cir., February 1, 2013); Hobby Lobby Stores, Inc. v. Sebelius (10th Cir., December 20, 2012; aff’d December 26, 2012).

The general standard

401(k) Fee Update – Ninth Circuit Affirms Edison Decision

401(k) Fee Update – Ninth Circuit Affirms Edison Decision

March 22, 2013

Authored by: benefitsbclp

Yesterday, the Ninth Circuit issued an opinion in Tibble v. Edison International (Case: 10-56406, 03/21/2013), affirming the Central District of California district court’s ruling in a 401(k) fee case brought under ERISA.  The district court had rejected most claims but had entered judgment totaling just over $300,000 for the plaintiff beneficiaries on claims regarding the selection of certain mutual fund investment options, where lower-priced share classes were available in the same funds.  Highlights from the decision include:

Statute of Limitations

  • The Ninth Circuit rejected a “continuing violation theory” in favor of a bright-line rule that the act of designating an investment for inclusion starts the running of ERISA’s six-year SOL.
  • Beneficiaries did not have “actual knowledge” of the alleged deficiencies in the process for selecting retail class mutual funds for the plan’s investment line-up, and, therefore, ERISA’s three year SOL does not apply.
  • The panel also held that Section 404(c) (a “so-called” safe harbor that can relieve a plan fiduciary from liability arising from the investment choices made as a direct and necessary consequence of a participant’s exercise of control) did not preclude a merits consideration of plaintiffs’ claims.

Class Certification

  • The panel declined to consider defendants’ arguments that class certification was improper since this issue was raised for the first time on appeal.

Revenue Sharing and Standard of Review of Fiduciary Breach Claims

  • The Ninth Circuit panel affirmed the district court’s grant of summary judgment to defendants on the claim

Fiduciary Tips for Monitoring Your Target Date Retirement Funds

Fiduciary Tips for Monitoring Your Target Date Retirement Funds

March 20, 2013

Authored by: benefitsbclp

Target date retirement funds generally refer to a related group of investment funds that automatically rebalance and become more conservative as a participant moves towards a designated retirement year. Many 401(k) and profit sharing plans use target date retirement funds as the qualified default investment alternative (QDIA). In that case, when a participant fails to make an affirmative election regarding how his or her qualified defined contribution plan accounts should be invested, contributions are allocated to a target date fund based on the date the participant will attain retirement age, usually designated as age 65. Use of a QDIA relieves a plan fiduciary of liability related to the return generated on the investment fund. Also, participants who do not want to actively manage their accounts are increasingly using target date retirement funds.

In February 2013, the Department of Labor (DOL) issued tips for ERISA plan fiduciaries regarding the selection and monitoring of target date retirement funds in an ERISA plan. The fact sheet can be found on the DOL’s website. The list of tips includes the following:

  • Establish a process for comparing and selecting the target date retirement funds
  • Establish a process for the periodic review of selected funds
  • Understand the fund’s investments – the allocation in different asset classes, individual investments, and how these will change over time
  • Review the fund’s fees and investment expenses
  • Inquire about whether a custom or non-proprietary target date fund would be a better

He Fought the Law, and 409A Won

He Fought the Law, and 409A Won

March 14, 2013

Authored by: Chris Rylands

In this recently reported case, one Dr. Sutardja, a recipient of an allegedly discounted option, sued to recover 409A taxes imposed by the IRS.  The case does not decide whether the option was discounted, but Dr. Sutardja argued that his option, even if discounted, shouldn’t be subject to 409A.

Essentially, he tried to argue that (1) the grant of the discounted option is not a taxable event, (2) stock options aren’t “deferred compensation,” (3) he didn’t have a legally binding right until he exercised the option, or (4) 409A couldn’t apply to the discounted option.  Those familiar with 409A will sigh upon reading the list since clearly none of these arguments holds any water.  Discounted options are subject to 409A and must have fixed dates for exercise and payment.

The interesting part of the case, though, was the government arguing that Dr. Sutardja did not have a legally binding right to the supposedly discounted option until it vested.  This is an interesting argument for the government to make because the 409A regulations themselves say:

A service provider does not have a legally binding right to compensation to the extent that compensation may be reduced unilaterally or eliminated by the service recipient or other person after the services creating the right to the compensation have been performed. … For this purpose, compensation is not considered subject to unilateral reduction or elimination merely because it may be reduced or eliminated by operation of the objective terms of the

It’s About Time to Start Counting Up the Hours

Unless you’ve been under a proverbial (or actual) rock for the last several months, you are probably aware that the health reform law has a really big tax that could hit employers for not offering (or not offering good enough) health coverage to their full-time employees and dependents, referred to as play or pay (or “shared responsibility”) rules.  We’ve discussed the proposed regulations previously here.  But starting with this post, we are going to cover these rules in digestible portions.   This will help you see some of the finer points of the rules, without having to swallow the entire regulations in a single sitting.  In this first post, we’ll cover how you determine full-time employees (so you know who has to be offered coverage effective January 1, 2014)in a Q&A format.  It’s worth noting the rules discussed here technically apply to all ongoing employees (we’ll touch on new hires later).

Q: So what’s full time?

For this purpose, “full time” means working an average of 30 hours per week or 130 hours per month.

Q: How do I determine if someone works an average of 30 hours per week?

To determine if someone is full-time, you measure his or her hours over a period (called the “standard measurement period”).  Then you take some time to do the math to figure out who is full-time and make the offer of coverage (this is the “administrative period”).  Finally, you treat them as full-time (or not) for a specified length

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