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Avoiding Beneficiary Befuddlement

Challenges AheadRetirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.

These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.  In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.

In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death.  In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz.  According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered

IRS Views on Self-Certification of Financial Hardship

IRS Views on Self-Certification of Financial Hardship

March 15, 2017

Authored by: Richard Arenburg and Denise Erwin

DesolationIn today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure.  While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.

The examination guidelines describe three required components for the self-certification process:

(1)        the plan sponsor or TPA must provide a notice to participants containing certain required information;

(2)        the participant must provide a certification statement containing certain general information and more specific information tailored to the nature of the particular financial hardship; and

(3)        the TPA must provide the plan sponsor with a summary report or other access to data regarding all hardship distributions made during each plan year.

The notice provided to participants by the plan sponsor or TPA must include the following:

(i)         a warning that the hardship distribution is taxable and additional taxes could apply;

(ii)        a statement that the amount of the distribution cannot

Just Push Pause: Revisiting Proposed Regulations

On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“).  The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office.  In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.

TimeoutThe Regulatory Freeze

The two-page Freeze Memo requires that:

  1. Agencies not send for publication in the Federal Regulation any regulations that had not yet been so sent as of January 20, 2017, pending review by a department or agency head appointed by the President.
  2. Regulations that have been sent for publication in the Federal Register but not yet published be withdrawn, pending review by a department or agency head appointed by the President.
  3. Regulations that have been published but have not reached their effective date are to be delayed for 60 days from the date of the Freeze Memo (until March 21, 2017), pending review by a department or agency head appointed by the President. Agencies are further encouraged to consider postponing the effective date beyond the minimum 60 days.

Putting a Pin in It: Impacted Regulations

We have previously discussed a number of proposed IRS regulations which have not yet been finalized.  These include the proposed regulations to

DOL Gives a Peek at Non-quantitative Treatment Limitations

Mental Health ScrabbleWhile on this day, most people focus on the heart, we’re going to spend a little time focusing on the head.  Under the Mental Health Parity and Addiction Equity Act (MHPAEA), health plans generally cannot impose more stringent “non-quantitative” treatment limitations on mental health and substance abuse benefits (we will use “mental health” for short) than they impose on medical/surgical benefits.  The point of the rule is to prevent plans from imposing standards (pre-approval/precertification or medical necessity, as two examples) that make it harder for participants to get coverage for mental health benefits than medical/surgical benefits. “Non-quantitative” has been synonymous with “undeterminable” and “unmeasurable”,  so to say that this is a “fuzzy” standard is an understatement.

However, we are not without some hints as to the Labor Department’s views on how this standard should be applied.  Most recently, the DOL released a fact sheet detailing some of its MHPAEA enforcement actions over its last fiscal year.  In addition to offering insight on the DOL’s enforcement methods, it also provides some examples of violations of the rule:

  • A categorical exclusion for “chronic” behavior disorders (a condition lasting more than six months) when there was no similar exclusion for medical/surgical “chronic” conditions.
  • No coverage resulting from failure to obtain prior authorization for mental health benefits (for medical/surgical benefits, a penalty was applied, but coverage was not denied).
  • A categorical exclusion for

Penalty Amounts Adjusted Again!

Penalty Amounts Adjusted Again!

January 27, 2017

Authored by: benefitsbclp

PenaltyLast week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015.  You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.

All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:

General Penalties

  • For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
  • If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
  • A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.

Pension and Retirement

  • A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up

Top 10 Employee Benefits New Year’s Resolutions for 2017

new-years-resolutionsIf statistics are any guide, by now a significant number of you have already broken your New Year’s resolutions.  However, there’s still plenty of time to make new ones that you can break, er, keep.  If you sponsor or work with an employee benefit plan (and odds are, if you’re reading this, that you do), then here are some ideas to keep in mind in the upcoming year:

    1. Fiduciary, Know Thyself. It important to know your fiduciaries (or know if you are one). Reviewing plan documents, charters, and delegations, among other possible documents, are key to determining who is an ERISA fiduciary. You should make sure that any individuals who have been designated are still willing and able to serve and, if not, they should be removed. While not as much of an issue for plan sponsors, advisors should also closely review the DOL’s conflict of interest/fiduciary rule to determine if it applies to them.
    2. Look Over Your Service Providers’ Shoulders. Even if you think you have outsourced one or more of your plan responsibilities, you’re still required, under ERISA, to monitor those providers to make sure they are doing their jobs properly. Additionally, if you have not done an RFP in a while for a particular service provider, it may be time to do one.
    3. Resolve to Improve Your Plan Governance. As we have detailed previously, the specter

ACA Facelift to Disability Claims Process Could Affect All Plans

claimIt might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans.  However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.

The New Rules

The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process.  In short:

  • Disability claims procedures must be designed to ensure independence and impartiality of reviewers.
  • Claim denials for disability benefits have to include additional information, including a discussion of any disagreements with the views of medical and vocational experts and well as additional internal information relied upon in denying the claim. In particular, the DOL made it clear in the preamble that a plan cannot decline to provide internal rules, guidelines, protocols, etc. by claiming they are proprietary.
  • Notices have to be provided in a “culturally and linguistically appropriate manner.” The upshot of this is that, if the claimant lives in a county where the U.S. Census Bureau

Caution: Non-Compliant COBRA Election Notices may be Costly

Earlier this year, an employer was sued in a class action in Federal District Court for the Southern District of Florida for violating the notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) with respect to its COBRA election notice. Specifically, the employees alleged that the COBRA election notices provided by the employer did not include the information required by COBRA regulations. After failing to convince the court that the case should be dismissed, the employer agreed to establish a settlement fund for the affected employees and to correct the alleged deficiencies in its COBRA election notice. Since then, two similar lawsuits have been filed in Florida courts by employees who claim that the election notices provided by their respective employers were deficient and non-compliant with COBRA.

COBRA provides that any employer with 20 or more employees that maintains a group health plan must provide a covered employee who experiences a qualifying event (and his or her covered spouse and dependents) with continuing health insurance coverage for at least 18 months. A qualifying event encompasses a number of situations which result in a loss of health insurance coverage.  The most common of these events are: (i) a covered employee’s voluntary or involuntary termination of employment (for reasons other than gross misconduct), (ii) a reduction in a covered employee’s work hours, (iii) a covered employee’s divorce or legal separation, (iv) a

SEC Guidance on Registration of 401(k) Plan Interests when Brokerage Windows are Offered

secThe Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption.  Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.

On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window.  Open brokerage windows typically allow plan participants to invest their 401(k) accounts in publicly traded securities, including, in the case of a public company employer, company stock.  The SEC determined that registration in this situation would not be required as long as the employer does no more than (i) communicate the existence of the open brokerage window, (ii) make payroll deductions, and (iii) pay administrative expenses associated with the brokerage window in a manner that is not tied to particular investments selected by participants.  This means that the employer may not draw participants’ attention to the possibility

Tobacco, Heroin, and Mental Health (Treatment, That Is)

CC000596In the latest round of ACA and Mental Health Parity FAQs (part 34, if you’re counting at home), the triumvirate agencies addressed tobacco cessation, medication assisted treatment for heroin (like methadone maintenance), and other mental health parity issues.

Big Tobacco.  The US Preventive Services Task Force (USPSTF) updated its recommendation regarding tobacco cessation on September 22, 2015. Under the Affordable Care Act preventive care rules, group health plans have to cover items and services under the recommendation without cost sharing for plan years that begin September 22, 2016.  For calendar year plans, that’s the plan year starting January 1, 2017.

The new recommendation requires detailed behavioral interventions.  It also describes the seven FDA-approved medications now available for treating tobacco use.  The question that the agencies are grappling with is how to apply the updated recommendation.

Much like a college sophomore pulling an all-nighter on a term paper before the deadline, the agencies are just now asking for comments on this issue.   Plan sponsors who currently cover tobacco cessation should review Q&A 1 closely and consider providing comments to the email address marketform@cms.hhs.gov.  Comments are due by January 3, 2017.  The guidance does not say this, but the implication is that until a revised set of rules is issued, the existing guidance on tobacco cessation seems to control.

Nonquantitative Treatment Limitations. Under applicable mental health parity rules, group health plans

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