Supreme Court Rules ERISA Equitable Relief Can’t Reach Nontraceable Settlement Proceeds

Employee benefits plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA or Act) often contain subrogation clauses requiring a plan participant to reimburse the plan for medical expenses if the participant later recovers money from a third party for his injuries.

On January 20, 2016, the US Supreme Court held, in MONTANILE v. BOARD OF TRUSTEES OF THE NATIONAL ELEVATOR INDUSTRY HEALTH BENEFIT PLAN that if an ERISA-plan participant wholly dissipates a third-party settlement on nontraceable items, the plan fiduciary may not rely on a subrogation provision in their health plan to bring suit under ERSA §502(a)(3) to attach the participant’s separate assets.  Plan fiduciaries are limited by §502(a)(3) to filing suits “to obtain . . . equitable relief.” The Court previously held that whether the relief requested “is legal or equitable depends on [1] the basis for [the plaintiff’s] claim and [2] the nature of the underlying remedies sought.” Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356, 363.  In Montanile, the Court held that the Plan was not seeking equitable relief because it sought to recover against the defendant’s general assets, not specifically traceable assets. The lesson for Plan fiduciaries wishing to assert subrogation claims is to (1) put participants on specific notice of the subrogation claim as soon as the Plan learns of a significant incident of a type that might give rise to a subrogation claim (such as an accident); and (2) pursue the claim diligently before the participant receives settlement proceeds.  We routinely include in our welfare wrap plan documents a vigorous subrogation reservation to protect Plans’ subrogation rights to the fullest extent practical.

More on the Montanile case…

Montanile was seriously injured by a drunk driver, and his ERISA plan paid more than $120,000 for his medical expenses. Montanile later sued the drunk driver, obtaining a 500,000 settlement. Pursuant to the plan’s subrogation clause, the plan administrator (the Board of Trustees of the National Elevator Industry Health Benefit Plan, or Board), sought reimbursement from the settlement. Montanile’s attorney refused that request and subsequently informed the Board that the fund would be transferred from a client trust account to Montanile unless the Board objected. The Board did not respond, and Montanile received the settlement.

Six months later, the Board sued Montanile in Federal District Court under §502(a)(3) of ERISA, which authorizes plan fiduciaries to file suit “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” 29 U. S. C. §1132(a)(3). The Board sought an equitable lien on any settlement funds or property in Montanile’s possession and an order enjoining Montanile from dissipating any such funds. Montanile argued that because he had already spent almost all of the settlement, no identifiable fund existed against which to enforce the lien. The District Court rejected Montanile’s argument, and the Eleventh Circuit affirmed, holding that even if Montanile had completely dissipated the fund, the plan was entitled to reimbursement from Montanile’s general assets. The Supreme Cour reversed for the reasons explained above.

icon Supreme Court Decision in Montanile

icon Supreme Court Decision in Sereboff

IRS Gives Individually Designed Plans an Additional Year to Convert to Pre-Approved Plan Documents

IRS has announced in Notice 2016-03 that it will extend the deadline for an employer to restate an individually designed plan onto a current pre-approved defined contribution plan document (which is based on the 2010 Cumulative List), and to apply for a determination letter, if otherwise permissible, from April 30, 2016, to April 30, 2017. The extended deadline will also apply with respect to any defined contribution pre-approved plan that is first adopted on or after January 1, 2016.  This extension will facilitate a plan sponsor’s ability to convert an existing individually designed plan into a current defined contribution pre-approved plan.

The extension does not apply for a plan that is adopted as a modification and restatement of a defined contribution pre-approved plan that was maintained by the employer prior to January 1, 2016.  An employer that adopted a defined contribution pre-approved plan prior to January 1, 2016, continues to have until April 30, 2016 to adopt a modification and restatement of the defined contribution pre-approved plan within the current 6-year remedial amendment cycle for defined contribution plans and to apply for a determination letter, if permissible.

icon Notice 2016-03

icon 2010 Cumulative List of Changes in Plan Qualification Requirements

IRS Extends 2015 Deadlines for Health Information Reporting Returns

IRS announced today that it is extending the due dates for the 2015 information reporting requirements under sections 6055 and 6056 of the Code. Specifically, Notice 2016-4 extends the due date:

(1) for furnishing to individuals the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer Provided Health Insurance Offer and Coverage, from February 1, 2016, to March 31, 2016, and

(2) for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically.

The extensions of due dates provided by Notice 2016-4 apply only to section 6055 and section 6056 information returns and statements for calendar year 2015 filed and furnished in 2016 and do not require the submission of any request or other documentation to the IRS.


Section 6055 requires health insurance issuers, self-insuring employers, government agencies, and other providers of minimum essential coverage to file and furnish annual information returns and statements regarding coverage provided. Section 6056 requires applicable large employers (generally those with 50 or more full-time employees, including full-time equivalents, in the previous year) to file and furnish annual information returns and statements relating to the health insurance that the employer offers (or does not offer) to its full-time employees.

Section 6721 of the Code imposes a penalty for failing to timely file an information return or filing an incorrect or incomplete information return. Section 6722 of the Code imposes a penalty for failing to timely furnish an information statement or furnishing an incorrect or incomplete information statement. Section 6721 and 6722 penalties are imposed with regard to information returns and statements listed in section 6724(d) of the Code, and section 6724(d) lists the information returns and statements required by sections 6055 and 6056.

Final regulations, published on March 10, 2014, relating to the reporting requirements under sections 6055 and 6056, specify the deadlines for information reporting required by those sections. See our prior posts here and here.

The regulations under section 6055 provide that every person that provides minimum essential coverage to an individual during a calendar year must file with the Service an information return and a transmittal on or before the following February 28 (March 31 if filed electronically) and must furnish to the responsible individual identified on the return a written statement on or before January 31 following that calendar year. The Service has designated Form 1094-B and Form 1095-B to meet the requirements of the section 6055 regulations.

The regulations under section 6056 require every applicable large employer or a member of an aggregated group that is determined to be an applicable large employer (ALE member) to file with the Service an information return and a transmittal on or before February 28 (March 31 if filed electronically) of the year following the calendar year to which it relates and to furnish to full-time employees a written statement on or before January 31 following that calendar year. The Service has designated Form 1094-C and Form 1095-C to meet the requirements of the section 6056 regulations.

The preambles to the section 6055 and section 6056 regulations provide that, for 2015 coverage, the Service will not impose penalties under section 6721 and section 6722 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements, and that this relief applies only to furnishing and filing incorrect or incomplete information, including TINs or dates of birth, reported on a return or statement and not to a failure to timely furnish or file a statement or return. Notice 2015-87 reiterates that relief, and Notice 2015-68, provides additional information about that relief with regard to reporting under section 6055. The preambles also note, however, the general rule that, under section 6724 and the related regulations, the section 6721 and section 6722 penalties may be waived if a failure to timely furnish or file a statement or return is due to reasonable cause, that is, the reporting entity demonstrates that it acted in a responsible manner and the failure is due to significant mitigating factors or events beyond the reporting entity’s control.


Employers or other coverage providers that do not comply with the extended due dates provided by Notice 2016-4 are subject to penalties under section 6722 or 6721 for failure to timely furnish and file. However, the Service is encouraging employers and other coverage providers that do not meet the extended due dates to furnish and file, and the Service will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause. The Service will also take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information to the Service and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the Service, or testing its ability to transmit information to the Service. In addition, the Service will take into account the extent to which the employer or other coverage provider is taking steps to ensure that it is able to comply with the reporting requirements for 2016.

Notice 2016-4

Cadillac Tax Delayed Until 2020

The 2016 omnibus spending bill unveiled by Congressional leaders on December 15 and signed by the President on December 18 includes a two year delay in the Cadillac Tax.  In addition to delaying the Cadillac Tax until 2020, the bill makes the tax deductible for employers.

We will keep an eye on further developments in this field and will continue to update our readers as necessary. In the meantime, we recommend employers continue to monitor their glide-path toward implementation of the tax, so they can take appropriate steps to avoid incurring the tax, or minimize its impact. This includes obtaining an assessment of the likelihood of incurring the tax based on current plan design and participant behavior.

Consolidated Appropriations Act, 2016

Prior Post: IRS Proposes Various Approaches to Cadillac Tax Implementation

DOL and IRS Releases Updated Form 5500 Series for 2015

DOL and IRS recently posted the new 2015 Form 5500, Form 5500-SF, and a draft of the 2015 Form 5500-EZ. Of significance is the “IRS Compliance Questions” added to the various forms and schedules:

  • Schedules H and I add two new compliance questions about unrelated business taxable income and in-service distributions.
  • Schedule R adds ten new compliance questions in five areas: (1) ADP and ACP testing; (2) coverage testing and plan aggregation; (3) recently adopted plan amendments; (4) the type of plan (whether individually designed or preapproved); and (5) plans maintained in U.S. territories.
  • Form 5500-SF adds the above compliance questions and one additional question about whether required minimum distributions were properly made to 5% owners who are still employed and are were 70-1/2  or older.
  • Form 5500-EZ adds most of the above questions, except the testing and coverage questions, which do not apply to single person plans.

2015 Form 5500 series and Instructions

Draft 5500-EZ and Instructions

EEOC Issues Proposed Regulations Regarding Wellness Program Incentives

The Equal Employment Opportunity Commission (EEOC) has issued proposed regulations under Title II of the Genetic Information Nondiscrimination Act (GINA) regarding employer wellness programs that are part of group health plans. The proposed rule provides that employers may provide limited financial and other incentives in exchange for an employee’s spouse providing information about his or her current or past health status information.


Title II of GINA prohibits employers covered by the law from using genetic information in making decisions about employment. It restricts employers and other entities covered by GINA from requesting, requiring, or purchasing genetic information, unless one or more of six narrow exceptions applies. In addition, it strictly limits entities covered by GINA from disclosing genetic information. EEOC’s current regulations implementing GINA prohibit employers from offering incentives in return for genetic information. This requirement has come in conflict with the Affordable Care Act (ACA) provisions that encourage employers to use wellness programs, including significant incentives. The proposed regulations should make it easier to comply with GINA while taking advantage of the wellness incentives permitted under the ACA.

  • One of the narrow exceptions to GINA’s prohibition on requesting, requiring, or purchasing genetic information applies when an employee voluntarily accepts health or genetic services offered by an employer, including such services offered as part of a wellness program.
  • The statute and EEOC’s GINA regulations say that “genetic information” includes, among other things, information about the “manifestation of a disease or disorder in family members of an individual.” The term “family members” includes spouses.
  • Because information about the current or past health status of spouses and other family members is genetic information about an employee, EEOC’s current GINA regulations could be read as prohibiting employers from offering incentives in return for a spouse providing his or her current or past health information. The proposed rule explains how employers may lawfully offer incentives for such information under GINA.

The Proposed Rules

The proposed rule would permit employers to offer limited incentives for the employee’s spouse to provide current or past health status information as part of a wellness program, as follows:

    • An employer may offer, as part of its health plan, a limited incentive (in the form of a reward or penalty) to an employee whose spouse (1) is covered under the employee’s health plan; (2) receives health or genetic services offered by the employer, including as part of a wellness program; and (3) provides information about his or her current or past health status. Information about current or past health status usually is provided as part of a health risk assessment (HRA), which may include a questionnaire or medical examination, such as a blood pressure test or blood test to detect high cholesterol or high glucose levels.
    • The total incentive may not exceed 30 percent of the total cost of the plan in which the employee and any dependents are enrolled. The incentive may be financial or in-kind (e.g., time-off awards, prizes, and other items of value).
    • For example, if an employee and his or her spouse are enrolled in self and family coverage that costs $14,000, the maximum incentive the employer may offer the employee and spouse to provide information on current or past health status as part of a wellness program is $4,200 (30 percent of $14,000).
    • The maximum portion of an incentive that may be offered to an employee alone may not exceed 30 percent of the total cost of self only coverage. So, if the employer in the example above offers self-only coverage at a total cost of $6,000, the maximum portion of the $4,200 incentive that may be offered for the employee’s participation is $1,800 (30 percent of $6,000). The rest of the incentive ($2,400 in the example above) may be offered for the spouse’s participation or for the employee, spouse, and/or employee’s other dependents who are covered by the health plan participating in activities designed to promote health or prevent disease. These could include programs that reward participants for walking a certain amount each week or for attending nutrition or weight loss classes.

The proposed rule also provides that any health or genetic services an employer offers must be reasonably designed to promote health or prevent disease. This means that the service must have a reasonable chance of improving the health of, or preventing disease in, participating individuals. It also means that an employer-sponsored wellness program must not be overly burdensome, a subterfuge for violating Title II of GINA or other laws prohibiting employment discrimination, or highly suspect in the method chosen to promote health or prevent disease.

The proposed rule adds a new provision stating that employers may not require employees (or employees’ spouses or dependents covered by the employee’s health plan) to agree to the sale, or waive the confidentiality, of their genetic information as a condition for receiving an incentive or participating in a wellness program.

Proposed Rules


ACA Automatic Enrollment Repealed

There is good news for employers with more than 200 employees in the recently announced budget deal: The deal repeals the automatic enrollment requirement that was originally enacted as part of the Affordable Care Act.

Section 1511 of the ACA required employers with health coverage that have more than 200 employees to automatically enroll new employees in their plan. The act also required employers to give new employees notice and the opportunity to opt out of the automatic enrollment.  The DOL had previously delayed implementation of the provisions. With this repeal, employers will no longer need to worry about implementing this particular ACA requirement.

HR 1314

IRS Updated Plan Limits for 2016

IRS has announced the retirement plan and employee benefits limits for 2016. Most of the limits are unchanged. The exception is the HSA Maximum Contribution for Family increased $100 to $6,750.  Here is a chart showing the limits for 2014 through 2016:

Type of Limitation 2016 2015 2014
415 Defined Benefit Plans $210,000 $210,000 $210,000
415 Defined Contribution Plans $53,000 $53,000 $52,000
401(k) Elective Deferrals, 457(b) and 457(c)(1) $18,000 $18,000 $17,500
401(k) Catch-Up Deferrals $6,000 $6,000 $5,500
SIMPLE Employee Deferrals $12,500 $12,500 $12,000
SIMPLE Catch-Up Deferrals $3,000 $3,000 $2,500
Annual Compensation Limit $265,000 $265,000 $260,000
SEP Minimum Compensation $600 $600 $550
SEP Annual Compensation Limit $265,000 $265,000 $260,000
Highly Compensated $120,000 $120,000 $115,000
Key Employee (Officer) $170,000 $170,000 $170,000
Income Subject To Social Security Tax  (FICA) $118,500 $118,500 $117,000
Social Security (FICA) Tax For ER & EE (each pays) 6.20% 6.20% 6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays) 1.45% 1.45% 1.45%
SECA (FICA Portion) for Self-Employed 12.40% 12.40% 12.40%
SECA (Med. HI Portion) For Self-Employed 2.9% 2.90% 2.90%
IRA Contribution $5,500 $5,500 $5,500
IRA catch-up Contribution $1,000 $1,000 $1,000
HSA Max Single/Family $3,350/6,750 $3,350/6,650 $3,300/6,550
HSA Catchup $1,000 $1,000 $1,000
HSA Min. Annual Deductible Single/Family $1,300/2,600 $1,300/2,600 $1,250/2,500

DOL Opinion Finds Stop Loss Policy is not a Plan Asset

DOL recently issued Advisory Opinion 2015-02A, concluding that an employer’s stop loss policy, purchased to manage the risk associated with its liabilities under a self insured medical plan, was not a Plan asset. This accords with our long held view that neither participant contributions toward the cost of their coverage, nor a stop loss insurance policy, need result in the creation of plan assets or trigger ERISA’s trust requirements. The relevant facts in Advisory Opinion 2015-02A:

  • The stop loss insurer would reimburse the Plan Sponsors only if, during the policy year, they pay benefit claims required under the Plans in excess of a pre-determined amount, or attachment point.
  • The insurance would not relieve the Plans of their obligations to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants.
  • The Plan Sponsors would be the named insured under the Policies.
  • Reimbursements to the Plan Sponsors would be made at the end of the calendar year after the Plan Sponsors have paid for plan benefits and presented appropriate stop-loss claims to the insurer for reimbursement.
  • The Policy would reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plan from their own assets, so that the Plan Sponsors will never receive any reimbursement for claim amounts paid with participant contributions.
  • No monies attributable to employee contributions are used for paying premiums on the Policies.
  • Specifically, participant contributions are paid into the general account of the employer and recorded in a balance sheet. All health claims and other Plan expenses are paid from this general account.
  • The Plan Sponsor pays premiums for the Policies, or any other stop-loss insurance, exclusively from its general account.

Advisory Opinion 2015-02A

Exchange Notices to Employers When Employees Receive Premium Tax Credits

CMS just announced that, beginning in 2016, all exchanges will start to notify certain employers if one or more of their employees has received an advance payment of premium tax credits.  As discussed previously here, an unintended consequence of this is that, if not properly handled, the employer’s receipt of these notices could increase the risk of a retaliation claim against employers under the ACA.  Talk to your counsel about how you can segregate the information you receive in these notices from HR decision-makers, and whether you ought to respond if you learn an employee is getting a premium tax credit that you don’t think they should be eligible for (based on the coverage you are offering them).