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Proposed Rule Re-defining ERISA “Fiduciary” Delayed (Still)

Regulations and RulesBroker-dealers and financial advisers may have gained some breathing room as a congressional battle to broaden ERISA’s definition of “fiduciary” loses steam.  In the following discussion, we will summarize the current state of that battle.

At issue is the innocuous-sounding “Conflict of Interest Rule” proposed by the Employee Benefit Security Administration (“EBSA”), that has nonetheless sparked searing critiques from the investment advice industry, which contends it could dramatically increase costs and reduce access to quality investment advice for millions of American workers.  The re-proposal of the controversial rule has been delayed again, this time until January 2015, well after the mid-term elections in November.  Assuming a six-month comment period and six months of hearings to develop final regulations, the final rule could be up for a vote in early 2016.  But pundits have expressed doubt that such a controversial rule could be passed in an election year, which means that the Conflict of Interest Rule may be stalled indefinitely.  Amidst this uncertainty and uproar, many in the benefits community are asking where a new rule would draw the line for determining who is a fiduciary, and how it would impact plan sponsors and participants.

The current definition of investment advice fiduciary still stands as it was established under ERISA in 1974.  The regulation sets forth a five-part test, and an individual must satisfy all five

Kind of Halbig Deal

Kind of Halbig Deal

July 22, 2014

Authored by: Chris Rylands

You may have heard about the potentially crippling blow to ACAMoney Puzzle (as some have described) dealt by a three-judge panel of the D.C. Circuit Court of Appeals today in Halbig v. Burwell.  Basically, a group of individuals and employers challenged the IRS rule that allowed tax credits to help pay for individual coverage through federally-run ACA marketplaces.  Their argument was that the literal reading of the statute only allowed these subsidies for individual policies purchased through state-run marketplaces.

At first blush, this might not sound all that important to employers, but it very well could be.  If this ruling holds, then it would undercut the ability of the IRS to impose the employer shared responsibility/“play or pay” penalties.

Recall that one triggering event for an employer to be hit with the play or pay penalty is that an employee receives a tax credit for coverage purchased through a marketplace.  As this website shows, only 14 states have established their own marketplaces, with one (Oregon) who had one reportedly moving to the federal marketplace next year.  (State partnership marketplaces are treated as federal marketplaces for purposes of the tax credits.)  If tax credits are not available through the federally-run marketplace, then that would significantly reduce the potential risk of employer penalties.

What about employers who have employees in

Keeping Up with The Trends in 401(k) Plans

Keeping Up with The Trends in 401(k) Plans

July 21, 2014

Authored by: benefitsbclp

Idea AheadIn the scheme of things, it was not that  long ago that defined benefit pension plans were the main retirement plan game in town.  But now – for better or for worse – 401(k) plans rule in the private arena.  In the age of constant evolution in technology and streamlining of processes, it can be hard to keep up with the latest and greatest in plan design.

Think about it – the final qualified default investment alternative (QDIA) rules were published not even seven years ago, but now if you don’t have lifecycle or target date funds (TDFs) in your plan and/or you haven’t considered adding them, you may be among the distinct minority of 401(k)s.  Statistics indicate that participants like these funds. Fidelity reports that nearly 1/3 of them have invested their entire account balance in a TDF.

Sure, you can rely upon a consultant or an investment advisor to help keep you up to speed on the trends in 401(k) plans, but there are legal issues to consider as well.

Brokerage Windows

Consider brokerage windows – they may be good for offering a wide range of options desirable to sophisticated investors, providing more flexibility in investment options and (possibly) the ability to further diversify a portfolio based on investment in single stocks, bonds or other securities.  Bear in mind, however,  the options offered in a brokerage window

Hobby Lobby Fallout – Act 1

Hobby Lobby Fallout – Act 1

July 18, 2014

Authored by: Chris Rylands

BC PillsLate yesterday, the DOL released an FAQ in response to the Hobby Lobby decision.

Basically, the FAQ said that an elimination of any contraceptives from coverage under a plan is a considered a “material reduction” in covered benefits triggering the shorter 60-day notice period for a summary of material modifications.  The usual deadline is 210 days after the end of the plan year in which the change is effective (although most tend to communicate sooner).

The bottom line is this: if a plan of a closely held business eliminates coverage for any contraceptive item or service, it has to distribute an SMM or revised SPD within 60 days after the change.

There has always been some ambiguity around what constituted “material” in this context.  The regulations speak in terms of what “the average plan participant [would consider] to be an important reduction in covered services or benefits” making it a judgment call.  By contrast, this FAQ sets a standard (at least for contraceptives) that the elimination of even one item or service is material.

Even sponsors who do not qualify, or are not considering, eliminating contraceptive products or services should take note.  The DOL could potentially use this FAQ to argue that other reductions are material as well.

The Moench Presumption is Dead – Long Live the Dudenhoeffer Presumption

On June 25, 2014, a unanimous United States Supreme Court weighed in on the legal standards applicable in stock drop cases in Fifth Third Bancorp v. Dudenhoeffer.

Facts. Beginning in 2007, Fifth Third Bank began experiencing a large number of mishaps, most of them associated with borrowers not repaying their loans when due. As a result, Fifth Third’s stock price suffered the same phenomenon as that of virtually every other publicly traded financial institution in the world during the great recession: it dropped precipitously, falling 74% from July 2007 to September 2009. With the benefit of hindsight, plaintiffs brought a class action lawsuit against the fiduciaries of the Fifth Third 401(k) Plan, alleging that all of this should have been patently obvious based on public and nonpublic information allegedly possessed by the fiduciaries. The plaintiffs asserted that the fiduciaries should have taken one or more of the following actions with respect to the company stock fund in the 401(k) Plan: (1) sell the stock before it declined; (2) refrain from purchasing any more Fifth Third stock; (3) cancel the Plan’s company stock option; and (4) disclose the inside information allegedly in their possession so that the market would appropriately adjust its valuation of Fifth Third stock downward and the Plan would as a result no longer be overpaying for it.

The Supreme Court’s Ruling. Much of the decision focuses on whether the so-called “Moench” presumption of prudence attaches to a fiduciary’s decision to allow or continue

Replacing Pensions with 401(k)s

Replacing Pensions with 401(k)s

July 16, 2014

Authored by: Chris Rylands

Frequent internet users are likely familiar with the demotivational posters at, such as this one on retirement.  If a recent study by a partner at the Mercer consulting firm is to be believed, then they should perhaps add another one to the list: switching from pensions to 401(k)s.

Retirement PlanAs reported here, the researcher compared two companies: one that replaced its pension with a 401(k) in the late 90’s and one that did not.  In the company that replaced the pension, the researcher found dissatisfaction by younger employees as older employees remained employed and thus prevented the younger employees from advancing.  As the article notes:

[The replacement of a pension with a 401(k)] affected job mobility “velocity,” Nalbantian found, and the percentage of people moving into new positions, whether vertically or horizontally, stalled at 11 percent. This, in turn, accelerated the exit of more talented people who saw advancement potential evaporating, the research found.

On the other hand, at the firm with a pension, velocity remained at about 18 percent.

This is an interesting data point, but the study has some limitations.  There could be a great many other factors, such as organizational culture, changes in leadership, the availability or lack of availability of other benefits (such as retiree health).  The bottom line: by comparing only two companies, there are a great many variables that are not controlled.


Speaker Boehner’s Lawsuit and the ACA

The CapitolUnless you’ve been hiking Mount Kilimanjaro for the last month, you’ve no doubt heard about Speaker Boehner’s proposed lawsuit against the President.  The Speaker, and apparently many House Republicans, are upset that the President has not, in their view, upheld his oath of office by faithfully executing the laws passed by Congress.

A draft resolution released last week shows that the focus of the lawsuit will be none other than the already much-litigated Affordable Care Act.  Regardless of how one feels about the lawsuit or ACA, it’s impossible to ignore the great irony in House Republicans suing the President for not faithfully executing over a law they’ve tried to repeal some 40 times.

It’s easy to see the political reason, though: the Republicans think it’s a bad law and that the President and Congressional Democrats should have to campaign with its perceived flaws being fully realized.  The President’s delays do not allow that to happen, and effectively insulates him and his party from having to face voters angry over the ACA, in the Republicans’ view.

But the real question is this: what if Speaker Boehner wins?  Set aside the merits, for a minute, and consider that possibility. Take, for example, the “play or pay” employer mandate.  The Speaker wins and now what?  Is the delay no longer effective?  Does that mean that penalties could

New Case Tests the Retroactive Reach of Windsor

New Case Tests the Retroactive Reach of Windsor

July 9, 2014

Authored by: benefitsbclp

Following a spate of district court cases in response to United States v. Windsor, 133 S. Ct. 2675 (2013), some same-sex surviving spouses are asking retirement plan sponsors to review previously denied death benefit claims.  Among them has emerged Passaro v. Bayer Corp. Pension Plan in the United States District Court in Connecticut, which attempts to reach into the past to claim Qualified Preretirement Survivor Annuity (“QPSA”) benefits post-marriage, but pre-Windsor.  The key issue in this case will be the retroactive application of Windsor to qualified retirement plans.

In the complaint, the plaintiff alleges that the pension plan denied him benefits of a QPSA in violation of the terms of the plan and of governing federal law.  The state of Connecticut recognized same-sex marriages beginning November 12, 2008, and the plaintiff was married in the state later that month.  The spouse vested under the plan died in January 2009.  When the plaintiff requested benefits under the plan, the plan sponsor denied the request citing section 3 of the Defense of Marriage Act (“DOMA”).  On June 26, 2013 the Supreme Court declared section 3 of DOMA unconstitutional in Windsor, and the plaintiff unsuccessfully appealed the denial of plan benefits in early 2014.  The plaintiff then filed his complaint in May 2014.

The question here is whether the Court’s decision in Windsor can have a retroactive effect to require payment of a QPSA to a surviving spouse when the pensioner died before the opinion was issued.  The

Hobby Lobby & the Religious Freedom Restoration Act of 1993

Hobby Lobby & the Religious Freedom Restoration Act of 1993

July 7, 2014

Authored by: benefitsbclp

SCOTUSYou’ve seen all the headlines…  Supreme Court issued its decision in the Hobby Lobby case on the last day of its 2013-2014 term.  Sure, maybe it wasn’t as closely watched and groundbreaking as the Court’s -2012 decision upholding key provisions of the Patient Protection and Affordable Care Act (“ACA”), but it is a very big deal for certain employers.  Which ones?

Well, as discussed in our post following the Hobby Lobby oral arguments, the owners of certain closely-held for-profit organizations (namely Conestoga, Hobby Lobby, and Mardel) challenged the ACA’s preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services.

While these companies do not object to most contraceptives now required to be provided by ACA’s market reforms, they oppose certain forms of emergency contraception (which they believe are abortifacients) and certain contraceptive devices (IUDs) on religious grounds.  The crux of the lawsuit is that these organizations believe the ACA’s contraceptive mandate  violates the rights afforded them both statutorily – under the Religious Freedom Restoration Act (“RFRA”) –  and constitutionally – under the Free Exercise Clause of the First Amendment.  Legally, the primary issue before the Court was whether RFRA’s protections for any “person” whose religious exercise is substantially burdened by government extends to corporations.

In a 5-4 ruling, the high Court held that the HHS contraceptive mandate violates RFRA as applied to closely-held corporations.  Writing for

HIPAA Audits Are Coming (Again) – Are You Ready?

Audit Compliance GraphicThe Office of Civil Rights (“OCR”) of the U.S. Department of Health and Human Services (“HHS”) is required to conduct periodic audits of compliance with the Privacy, Security and Breach Notification Rules under the Health Insurance Portability and Accountability Act (“HIPAA”).

In Phase I, which closed on December 31, 2012, OCR conducted 115 performance audits.  Now, OCR is preparing for Phase II.

To have a broad range of covered entities audited in Phase II, OCR is sending electronic pre-audit surveys to 550-800 eligible entities this summer. The pre-audit surveys are designed to ascertain the size, location, services and best contact information of the covered entities.

OCR is expected to select 350 covered entities for audit (232 health care providers, 109 health plans and 9 health care clearinghouses).  Audit notifications and request letters will be mailed to selected covered entities in the fall of 2015.

The Phase II audits will differ from Phase I audits in many respects:

Desk Audits

The actual audits of covered entities will be conducted from October 2014 through June 2015 and for the most part will be internally staffed and involve desk audits.  Requested documents must be submitted electronically via email or other electronic media.  The data requests from OCR will specify content and file organization, file names and any other document submission requirements.  Covered entities will have two weeks to respond.   Only requested data submitted on

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