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ISS Updates Proxy Voting Guidelines for 2017

ISS Updates Proxy Voting Guidelines for 2017

December 9, 2016

Authored by: Serena Yee and Denise Erwin

vote-do-not-useLast month, Institutional Shareholder Services (ISS) published updates to its proxy voting guidelines effective for meetings on or after February 1, 2017.  Key compensation-related changes include the following:

Non-Employee Director Compensation Programs

In the case of management proposals seeking shareholder ratification of non-employee director compensation, ISS will review such proposals on a case-by-case basis utilizing the following factors:

  • Amount of director compensation relative to similar companies
  • Existence of problematic pay practices relating to director compensation
  • Director stock ownership guidelines and holding requirements
  • Vesting schedules for equity awards
  • Mix of cash and equity-based compensation
  • Meaningful limits on director compensation
  • Availability of retirement benefits or perquisites
  • Quality of director compensation disclosure

To the extent the equity plan under which non-employee director grants are awarded is on the ballot, ISS will consider whether it warrants support.  When a plan is determined to be relatively costly, ISS vote recommendations will be case-by-case, looking holistically at all of the factors, rather than requiring that all enumerated factors meet certain minimum criteria.

Equity Plan Scorecard

Proposals to approve or amend stock option plans, restricted stock plans and omnibus stock incentive plans for employees and/or employees and directors are evaluated using an equity plan scorecard (EPSC) approach.  For 2017, ISS has made the following changes to the EPSC:

  • Addition of New Dividends Payment Factor. Full points will be earned only if the equity plan explicitly prohibits, with

We Received an Exchange Subsidy Notice…Now What?

ACA Blue HighlightThe Affordable Care Act exchanges/marketplaces are required to notify employers of any employees who have been determined eligible for advance payments of the premium tax credit or cost-sharing reductions (i.e., subsidy) and enrolled in a qualified health plan through the exchange.

A few weeks ago the U.S. Department of Health and Human Services (HHS) began issuing these notices to employers for 2016. If you received such a notice, this means that at the time of applying for health care coverage through the exchange, the employee indicated that:

  • you made no offer of health coverage;
  • you offered health coverage, but it either wasn’t affordable or didn’t offer minimum value; or
  • he or she was unable to enroll in the health coverage due to a waiting period.

Now, receipt of such a notice does not mean that you are liable for the play-or-pay employer mandate penalty. In fact, HHS is required to notify all employers, whether or not they are subject to the employer mandate, so small employers (i.e., less than a total of 50 full-time employee and full-time equivalents) have also received notices. The subsidy eligibility determination by an exchange and the IRS penalty assessment are entirely separate programs.

Employers do not have to appeal a determination of an employee’s eligibility for a subsidy and the grounds for an appeal are limited. As described

EEOC Takes Aim at Erroneous Application of ADA “Safe Harbor” to Wellness Programs

Challenges AheadIn its preamble to the final regulations under the Americans with Disabilities Act (“ADA”) published May 17, 2016, which will be the topic of an upcoming blog post, the Equal Employment Opportunity Commission (“EEOC”) once again reiterated its disagreement with the district courts’ application of the bona fide plan safe harbor to the wellness programs in Seff v. Broward County and EEOC v. Flambeau, Inc. (discussed in a prior post).

Seff and Flambeau

In both Seff and Flambeau, plaintiffs brought suit arguing that the wellness programs violated the ADA’s prohibition on mandatory medical examinations and inquiries. Both courts disagreed and held that the wellness programs fell under the safe harbor provision, which in pertinent part state that an insurer or any entity that administers benefit plans is not prohibited from “establishing, sponsoring, observing or administering the terms of a bona fide benefit plan based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with state law.”

In Seff, Broward County offered a wellness program that included a biometric screening and health risk assessment questionnaire. This information was used by Broward County’s health insurer to identify employees who had certain diseases to offer them the opportunity to participate in disease management or coaching programs. To encourage participation, Broward Country imposed a $20 per pay-period surcharge on health

Have You Checked Your SPAM Folder Recently?

SecurityNearly two years after the Office of Civil Rights (“OCR”) first announced its preparation for another round of HIPAA audits, Phase II of OCR’s HIPAA audit program is finally underway.

On March 21, OCR began emailing various types of entities to verify their e-mail addresses and contact information.   OCR acknowledged that its email communication may be treated by email filters as spam, but has advised that it expects entities to check their junk or spam email folder for emails from OCR. Recipients have 14 days to verify their email address or provide OCR with updated primary and secondary contact information.

A pre-screening questionnaire will follow seeking details regarding the entity’s size, geographic location, services and scope of operations. Covered entities will also be asked to identify their business associates. Presumably, OCR will use this information to identify and begin emailing business associates to verify their contact information and follow-up with a pre-screening questionnaire.

OCR is looking at a broad spectrum of audit candidates and will be considering size of the entity, affiliation with other healthcare organizations, the type of entity and its relationship to individuals, whether an entity is public or private and geographic factors. The only entities safe from selection are those with an open complaint investigation or currently undergoing a compliance review. Failure to respond to any contact or information request will not prevent an entity from being selected

EEOC Faces Another Defeat in its War Against Wellness Programs

The U.S. Equal Employment Opportunity Commission (“EEOC”) has steadfastly maintained that any wellness program that is not voluntary violates the Americans With Disabilities Act (“ADA”). In 2014, the Chicago District Office of the EEOC filed lawsuits against Orion Energy Systems, Honeywell International, Inc. and Flambeau, Inc. alleging that their respective wellness programs were not voluntary since employees who refused to complete a health risk assessment and/or biometric screening were financially penalized. In a case of first impression in the Seventh Circuit, the U.S. District Court for the Western District of Wisconsin granted summary judgment on December 31, 2015, in favor of the defendant in EEOC v. Flambeau.

Factual Background

Flambeau implemented a wellness program for 2011 in which employees who completed both a health risk assessment and biometric testing received a $600 credit. The health risk assessment included questions about the employee’s medical history, diet, mental and social health and job satisfaction. The biometric testing was similar to a routine physical exam involving (among other things) height and weight measurements, a blood pressure test and a blood draw. For 2012 and 2013, Flambeau eliminated the $600 credit and instead made completion of the health risk assessment and biometric testing a condition to enrolling in its health plan.

ADA Safe Harbor

Section 12112(d)(4)(A) of the ADA prohibits employers from requiring medical examinations and inquiries that are not job-related or consistent with business necessity. However, Section 12201(c)(2) of the ADA also

Scratch & Sniff the New Health Plan FAQs

ACA Blue HighlightLast month the U.S. Departments of Labor, Health and Human Services and Treasury published FAQs offering a veritable potpourri of guidance addressing preventive services, wellness programs and mental health parity.  Some potpourris offer a pleasing aroma – other not so much.  Decide for yourself whether this potpourri of guidance is pleasing based on the following summary.

PREVENTIVE SERVICES – New guidance expands coverage obligations.

Non-grandfathered health plan must cover certain preventive services without the imposition of any cost sharing.

Lactation Counseling/Equipment. Among the preventive services that a non-grandfathered health plan must cover in-network without cost-sharing is comprehensive prenatal and postnatal lactation support, counseling, and equipment rental. The Departments provided the following clarifications with respect to such preventive service:

  • If participants do not have access to lactation counseling in-network, the plan must cover such services received from out-of-network provider at no-cost as preventive services.
  • The list of network providers as required to be disclosed or made available to participants under ERISA must include in-network lactation counseling providers.
  • A plan must cover lactation counseling services performed by any provider acting within the scope of his or her state license or certification (g., registered nurse), subject to reasonable medical management techniques.
  • A plan cannot limit coverage for lactation counseling to inpatient services.
  • Coverage for lactation support services must extent for the duration of the breastfeeding (assuming the individual remains covered under

The Long Arm of the ACA Nondiscrimination Rules

Last month, the U.S. Department of Health and Human Services (“HHS”) issued a proposed rule implementing section 1557 of the Affordable Care Act (“ACA”), which essentially prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs and activities. While the rule does not apply directly to most employer-sponsored plans, it may potentially apply indirectly.

Covered Entities

Under the proposed rule the nondiscrimination requirements would apply to:

  • all health programs or activities of a covered entity if any part receives Federal financial assistance administered by HHS (including subsidies provided by the Federal government to individuals through the Marketplace for remittance to the covered entity);
  • all health programs or activities administered by HHS, including the Federally-facilitated Marketplace; and
  • all health programs or activities administered by any entity established until Title I of the ACA, including a state-based Marketplace.

A health program or activity includes:

  • the provision or administration of health-related services or health-related insurance coverage;
  • the provision of assistance in obtaining health-related services or health-related insurance coverage; and
  • all of the operations of an entity principally engaged in providing or administering health services or health insurance coverage.

Impact on Employer-Sponsored Group Health Plans

Since the proposed rule would extend to all the operations of a covered entity, it appears that a health insurance issuer participating in the Marketplace would be required to comply with the nondiscrimination provisions with respect to (1) its own employer-sponsored group health

Supreme Court’s Same-Sex Marriage Ruling in Obergefell: Effect on Benefit Plans

Grooms Wedding RingTwo years after recognizing same-sex marriages for purposes of federal law, the U.S. Supreme Court has gone a step further, requiring that all states recognize same-sex marriages as valid if they were valid in the jurisdiction where they were performed.  Further, states are required to license same-sex marriages no differently than opposite sex marriages.  In short, the Supreme Court struck down existing state bans on same-sex marriage.

Effect on 401(k) Plans and Other Qualified Plans: 401(k) and other qualified retirement plans are not impacted by Obergefell, since the previous Windsor decision, along with guidance issued by the IRS following Windsor, already required qualified retirement plans to recognize same-sex spouses.  Following Windsor, same-sex marriages were to be treated no differently than opposite-sex marriages for all purposes, including automatic survivor benefits (spousal annuities), determining hardship withdrawals, and qualified domestic relations orders (QDROs)).

Effect on Medical Plans:  Sponsors of insured medical plans are bound by the terms of the insurance contract – and therefore have little discretion on the matter of same-sex coverage.  The providers must write their policies to comply with applicable state law and the plan sponsor buys the policy subject to those terms.

On the other hand, self-funded medical plans may define their own terms.  They are governed by ERISA, and as such, state law is largely preempted.  Accordingly, any state requirement that the plan cover same-sex spouses may be preempted. 

Proposed Rule Would Make No-Fault Clawbacks Mandatory for Public Companies

Guy GrabbingLast week the Securities and Exchange Commission (SEC) proposed a new Rule 10D-1 that would direct national securities exchanges and associations to establish listing standards requiring companies to adopt, enforce and disclose policies to clawback excess incentive-based compensation from executive officers.

  • Covered Securities Issuers. With limited exceptions for issuers of certain securities and unit investment trusts (UITs), the Proposed Rule 10D-1 would apply to all listed companies, including emerging growth companies, smaller reporting companies, foreign private issuers and controlled companies. Registered management investment companies would be subject to the requirements of the Proposed Rule only to the extent they had awarded incentive-based compensation to executive officers in any of the last three fiscal years.
  • Covered Officers.   The Proposed Rule would apply to current and former Section 16 officers, which includes a company’s president, principal financial officer, principal accounting officer (or if none, the controller), any vice-president in charge of a principal business unit, division or function, and any other officer or person who performs policy-making functions for the company. Executive officers of a company’s parent or subsidiary would be covered officers to the extent they perform policy making functions for the company.
  • Triggering Event. Under the Proposed Rule, the clawback policies would be triggered each time the company is required to prepare a restatement to correct one or more errors that are material to previously issued financial

Fiduciary Cannot Use ERISA 502(a)(3) To Seek Equitable Relief for Participant

In Duda v. Standard Insurance Company, a recent case decided by the Federal District Court in the Eastern District of Pennsylvania, we are reminded of the limits on the type of relief an employer may obtain for participants in its insured ERISA plans.  In this case, the employer filed suit against the insurer of its long-term disability plan under Section 502(a)(3) of ERISA, which provides the following:

“A civil action may be brought…(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.”

A suit brought by a fiduciary under 502(a)(3) is preferable since the de novo standard of review, which is less deferential to the party making the initial benefit determination, would apply.  The court determined that the employer was not a plan fiduciary for purposes of making claims determinations, and therefore could not rely on this provision to sue the fiduciary that held such authority (i.e., the insurer). The court noted that even if the employer was considered to be a fiduciary, ERISA does not afford a fiduciary the right to sue if the relief sought can be obtained directly by the participant under 502(a)(1)(B), which provides the following:

“A civil action may be brought …(1) by a participant

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