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Third Circuit Update: 401(k) Plan Includes Reasonable Investment Options, Directed Trustee Not A Fiduciary

The Third Circuit recently issued a decision in Renfro v. Unisys Corporation, affirming dismissal of the claims brought against Unisys defendants in a 401(k) plan “excessive fee case.” The court specifically affirmed dismissal of the breach of fiduciary claims brought by of a putative class of participants in a 401(k) defined contribution plan on account of the fact that the Unisys 401(k) plan’s mix and range of investment options was reasonable. Since the court affirmed dismissal of the complaint, it declined to rule on whether the Unisys defendants were entitled to summary judgment on the ERISA Section 404(c) defense. One clear implication of the decision is that there is nothing wrong with offering “higher priced” retail mutual funds in a 401(k) plan. The Third Circuit also affirmed dismissal of the Fidelity defendants since Fidelity was not a fiduciary with respect to the selection and retention of investment options in Unisys’s

IRS Establishes a Voluntary Classification Settlement Program

The Internal Revenue Service (“IRS”) recently announced a new settlement program for employers with misclassified workers. Under the Voluntary Classification Settlement Program (“VCSP”), employers can get a significant reduction in their federal employment tax liability associated with past nonemployment treatment by agreeing to properly classify their workers for future tax periods. This announcement comes on the heels of recent announcements that the IRS, Department of Labor (“DOL”) and various state agencies are collaborating on examining worker misclassification issues.

The VCSP is generally available to employers who want to voluntarily change the prospective classification of their misclassified workers from independent contractors (or other nonemployee status) to employees. To be eligible, the employer must have consistently treated the workers as nonemployees and for the three previous three years filed all required Forms 1099 for such workers. Further, the employer cannot be under audit by the IRS or by the DOL or a

Is Prime + 1% a Reasonable Interest Rate for Qualified Plan Loans?

Is Prime + 1% a Reasonable Interest Rate for Qualified Plan Loans?

September 26, 2011

Authored by: benefitsbclp

In a phone forum held on September 12, 2011, Internal Revenue Service (“IRS”) officials were reported by BNA Pension and Benefits Daily in a September 13, 2011 article by Florence Olsen as indicating that the Prime rate + 1% may not be a reasonable interest rate under the Internal Revenue Code prohibited transaction rules which apply to loans from qualified plans. For corrections and audit purposes, the IRS may be looking to the Prime rate + 2%. In recent years, plan administrators typically set the interest rate for plan loans as the Prime rate + 1% in effect on the first of the month during which the loan is originated (or a similar set date). If a participant can not secure a loan in the open market with an interest rate of Prime + 1%, the IRS official indicated that the Prime rate + 2% may be a

Getting Ready for Open Enrollment

Getting Ready for Open Enrollment

September 16, 2011

Authored by: Serena Yee

The fall is the time many employers with calendar year group health plans begin to prepare for open enrollment.  Below is a list of required notices that employers should consider including in their enrollment materials.   

  • COBRA Notice.  Plan administrators must provide a written initial COBRA notice to each employee and his or her spouse when group health plan coverage first commences of his or her rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”).  This notice must contain specific information, and the Department of Labor has issued a model notice.
  • HIPAA Privacy Notice.  If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan.  Notice of availability to receive another copy must be given every three years.
  • Special Enrollment Rights.  A

2012 PPACA Checklist

2012 PPACA Checklist

September 12, 2011

Authored by: Serena Yee

While most of the design changes required for group health plans under the Patient Protection and Affordable Care Act, as amended (“PPACA”), became effective in 2010 or 2011, some additional requirements must be implemented for 2012.

All group health plans subject to PPACA must comply with the following requirements, regardless of its status as a “grandfathered health plan”:

  • Provision of a Summary of Benefits.  The summary must include the information specified in the regulations but cannot exceed four double-sided pages. A summary must be provided to participants and beneficiaries as part of any written enrollment materials and a summary must be included for each benefit package offered for which the participant or beneficiary is eligible. However, upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished, unless the participant or beneficiary requests a summary for another benefit package. Unless an

New York Marriage Equality and Benefits – Part 2

New York Marriage Equality and Benefits – Part 2

September 8, 2011

Authored by: benefitsbclp

Last week we looked at the implications of New York’s Marriage Equality Act (“Act”) upon the tax treatment of employer-provided health care benefits for same-sex married couples in New York. Today we’ll consider how the Act affects the administration of family and medical leave, HIPAA special enrollment rights and health care continuation coverage under COBRA and New York’s “mini-COBRA” law.

Does an ERISA Plan Exist?

Does an ERISA Plan Exist?

September 5, 2011

Authored by: Travis Kearbey

This mixed question of fact and law has perplexed courts perhaps as much as it has confused benefits managers in corporations across the nation.  However, for employers operating within the jurisdiction of the Eighth Circuit Court of Appeals (AR, IA, MO, MN, NE, ND, and SD) this question has recently become easier to answer with respect to single-employee agreements.  In August, the Eighth Circuit parted with federal courts in the Fourth, Seventh, and Eleventh Circuits by holding in Dakota, Minnesota & Eastern Railroad Corp. v. Schieffer that a contract governing severance benefits for a single employee does not constitute an ERISA plan.  

New York Marriage Equality and Benefits

New York Marriage Equality and Benefits

September 1, 2011

Authored by: benefitsbclp

Now that same-sex marriage is recognized in New York, what steps do employers need to take with respect to employee benefits? The to-do list must consider the federal Income Tax Code, ERISA, insurance law and of course New York’s Marriage Equality Act (“Act”), which took effect July 24, 2011. This is the first in a series of posts that will discuss this topic.

The Act recognizes all legally performed marriages between same- and opposite-sex couples, whether the marriage took place in New York or elsewhere. This means that same-sex marriages, even those entered into under the laws of another state, must be treated equally under the laws of New York.

COBRA and STD/FMLA

COBRA and STD/FMLA

September 1, 2011

Authored by: benefitsbclp

In Clarcor, Inc. v. Madison Nat’l Life Ins Co. (M.D. Tenn. 2011), the District court for the Middle District of Tennessee upheld a denial of stop-loss coverage by Madison National Life for expenses incurred by an employee who was put on short term disability following FMLA leave.  The employee went on FMLA leave and when that leave expired, she did not return to employment.  Instead, the employer put her on short-term disability. Following the expiration of short-term disability, her employment was terminated and she was offered COBRA.

However, under the eligibility provisions of the self-funded health plan, she was required to be either actively working, on FMLA or on COBRA.  Because she was not in any of those classes, she was ineligible. The employer had a policy providing for continued coverage while employees were on short-term disability, but the policy was not part of the formal plan document.  Therefore, the

Individual PTEs Dodd-Frank Act

Individual PTEs Dodd-Frank Act

August 31, 2011

Authored by: benefitsbclp

Earlier this summer, the DOL issued a “FAQ on Credit Ratings and Individual Prohibited Transaction Exemptions”  concerning how Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will impact prohibited transaction exemptions (“PTEs”) granted to individual fiduciaries or transactions under Section 408(a) of ERISA.  Section 939A of the Dodd-Frank Act generally requires federal agencies to review and modify existing regulations that refer to, or require reliance on, credit ratings within one year following the enactment of Dodd-Frank (i.e., by July 21, 2011).   Certain individual PTEs refer to or rely upon credit ratings.

In its FAQ, the DOL confirmed its position that individual PTEs do not qualify as “federal regulations”; accordingly, Section 939A of the Dodd-Frank Act does not require review and modification of previously granted exemptions. This means that individual PTEs will remain in force with no modifications despite the Section 939A July deadline.

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