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The President’s Budget and the ACA-ization of Retirement Plans

Federal BudgetWhile we can’t profess to have read through all of the President’s recently released budget proposal (we are practicing lawyers, after all), much of the discussion on its retirement policies focuses on only a few select provisions. While many of them are unlikely to see the legislative light of day in a Republican-controlled Congress, it is interesting to note the parallels in some of these proposals to the Affordable Care Act and their perhaps unintended effects.

Below, we have set out a chart that lists a few of the items from the budget, compares them to similar provisions in the ACA, and gives a brief note on the likely effect

The Ball Dropped on 2015 – Now Here’s Our “Top Ten” List for Fiduciaries

Happy New Year! As part of our annual tradition in helping retirement plan fiduciaries get started down the right path in the new year, we’re pleased to present our Top Ten New Year’s Countdown. But, wait, what’s better than a Top Ten Countdown list to kickoff 2015? How about a Top Ten list set to Pop Culture themes that dominated 2014? Well, here goes nothing…. Because we’re happy (clap along if you feel like a fiduciary without a roof):


1. It’s all About The Fees, about the Fees, No trouble. Another year, another reminder (thank you, Meghan Trainor) that fees should be closely scrutinized by plan fiduciaries. Participant fee disclosures are not the new kid on the block anymore; however, fiduciaries should still ensure that all required fee disclosures are complete, accurate and made timely. Plan fiduciaries should also periodically monitor all fees charged against the plan’s assets to ensure reasonableness.

2. The DOL Ice Bucket Challenge – I challenge you, within 24 hours – to get your payroll remittances in…. The DOL has not receded from its firm position that employee deferrals segregated from corporate assets should be paid into the plan “as soon as reasonably practicable”. So, now is as good a time as any to visit with payroll and/or HR to make sure an air-tight process is in place for timely transmitting employee contributions and loan repayments to the plan. Sure,

EEOC Continues its Rampage Against Wellness

This week, the EEOC filed its third, and perhaps most significant, complaint in a wellness-related case.  The complaint alleges that the wellness program, which involved biometric screening and a surcharge for tobacco users, violates the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA). The ADA complaint is that the program requires a medical examination that is not job-related or consistent with business necessity.  The GINA complaint is that the employer is providing a prohibited inducement to receive genetic information. The maximum penalty under the program is $4,000 per year.

While the details of the program are not fully fleshed out in the complaint, this appears to be an escalation of the EEOC’s focus on wellness programs.  While $4,000 is a significant sum of money, this appears to us to be a typical wellness program.

The frustrating aspect of these wellness program lawsuits is that it appears to be a case of the EEOC foregoing the rulemaking process in favor of litigation.  The HIPAA wellness regulations have been in effect since 2006 and people have been asking for guidance from the EEOC since then.  Until these lawsuits, it has largely been crickets, other than a few informal letters that didn’t help much.

Additionally, the Affordable Care Act basically took those rules and made them part of the ACA statutory framework back in 2010.  This shows a clear Congressional intent to encourage these programs.  When all we had were the 2006 HIPAA rules,

Reporting and Disclosure Guidance

Reporting and Disclosure Guidance

October 28, 2014

Authored by: benefitsbclp

On October 17, 2014, the Internal Revenue Service published a guide entitled “Retirement Plan Reporting and Disclosure Requirements Guide.” The Service states that the Guide is intended to be a quick reference tool to assist plan sponsors and administrators and is to be used in conjunction with the Department of Labor’s “DOL Retirement Plan Reporting and Disclosure Guide” [sic]. The DOL Guide was last updated in August 2013 and is actually called “Reporting and Disclosure Guide for Employee Benefit Plans”.

The IRS Guide covers twenty-five basic notices and disclosures, and, of course, not all of them would pertain to a particular plan. The type of plan determines the number and frequency of participant notices/disclosures. The IRS Guide addresses eleven possible reports, and, as with disclosure, the requirement for reporting depends on the nature of the plan.

The DOL’s Guide identifies thirty-three possible disclosures including both Department of Labor and PBGC notices. It identifies nineteen possible DOL and PBGC reports. As with the IRS reports and disclosures, not all of these are required for every type of retirement plan.

Guy Pulling Hair OutAccording to the IRS, the IRS Guide is not intended to be an exhaustive list of reporting and disclosure items but is meant to cover certain basic reporting and disclosure requirements for retirement plans required under the Internal

Bill Gross Announces his Departure from PIMCO – Here’s What it Means for your 401(k) Plan

If you keep an eye on the investment world at all, you’ve certainly heard the news – Bill Gross, co-founder and chief investment officer of Pacific Investment Management (PIMCO), is leaving the very company he started more than 40 years ago.  In technical terms, Gross is what you call a “big deal” in the investment world.  He has been at the helm of PIMCO for more than four decades leading the company to a whopping $2 trillion in assets under management.  Gross has received countless awards and accolades in the industry for his thought leadership and successes, and is also a well-known writer on investment matters.

Until Friday, Gross managed the PIMCO Total Return fund (PTTCX).  This bond fund ranks as one of the largest mutual funds with a reported $221.6 billion in total fund assets.  And, perhaps more importantly for our readership, this bond fund is a pillar in many 401(k) investment platforms.  Speculation and rumors swirl about the circumstances surrounding Gross’ departure from PIMCO (as well as his decision to join Denver-based Janus); however, one thing is certain – Gross’ departure from PIMCO means that many 401(k) plan fiduciaries are (or soon will be) discerning how to react.

Many investment fiduciaries may choose to put the fund on the plan’s “watch list” in the wake of this manager change.  Departure of such an important part of the PIMCO investment team certainly could be grounds for closer scrutiny of the Total Return fund.

We thought these events

Thanks, ERISA, and Happy 40th!

September 3, 2014


Thanks, ERISA, and Happy 40th!

September 3, 2014

Authored by: benefitsbclp

Forty years ago yesterday, September 2, 1974, Congress passed the Employees Retirement Income Security Act of 1974.  Most, maybe all, of the people reading this blog owe their careers to a single piece of legislation that has spawned growth industries and cottage industries.  The acronym “ERISA” has special meaning to all who work in the employee benefits industry.

ERISA exists in no small measure due to three factors:  (1) the ineptitude and greed of those running the automobile manufacturer, Studebaker–Packard Corporation back in the early 1960s; (2) the mismanagement and abuse (likely theft with no federal recourse to protect participants) of the world’s then largest pension fund by the executives of the Teamsters Union; and (3) the legislative tenacity of Senators Jacob Javits and Harrison Williams.  These factors forged together over a decade to get ERISA passed.  The legislative debate was one of the most significant management versus labor debates in Congressional history, and the result is a compromise, or series of compromises, that demonstrate the ability of members of Congress, lobbyists and those holding on to “sacred cows” to come to a resolution in the best interest of the country.

ERISA has created jobs for numerous government employees in the agencies that write and enforce its broad and complex rules and their exceptions.  Attorneys, accountants, and actuaries who daily address these complex rules on behalf of clients have developed specialty practices in employee benefits.  RIAs, broker-dealers, investment advisors, third-party administrators, insurance salesmen,  and many others who spend

Smoothing Pensions to Smooth Highways

Last Friday, the President signed the highway trust funding bill.  One part of the debate over the bill was how it would be funded.  Ultimately, the bill was paid for using  so-called “pension smoothing” that some decried as a “gimmick.” But what is it and might it be beneficial?

Pensioners Driving on the HighwayTo understand smoothing, we have to first understand how pension plans are funded.  Pensions are typically funded with company contributions.  Put simply, the amount of these contributions are determined by an actuary based on the expected future benefits to be paid (i.e., the future liability) relative to the amount of assets already in the plan.

Because actuaries don’t have crystal balls, they have to make certain assumptions in making these calculations. The assumptions center around the anticipated mortality of the participants (i.e., how long the plan will have to pay benefits) and the rate at which the plan’s assets are expected to grow (i.e., an interest assumption).  The law establishes what these mortality and interest assumptions are for funding purposes.

The problem that pension smoothing seeks to address is with the interest assumption.  Absent pension smoothing, the law mandates that the assumption be based on relatively current interest rates. As you can imagine, with interest rates at historic lows, the assumed rate of the plan’s return is relatively small.  This means that larger contributions are required now

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

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

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