Tag: ERISA

Welfare Benefits Strategies For Small to Mid-Size Employers After The ACA

Lovitt & Touche’s Chris Helin has a great article out detailing two innovative approaches to dealing with the challenges posed to small and mid-sized businesses resulting from the continued rise in rates and coverage mandates under the Affordable Care Act (ACA).

Retention Accounting

Chris explains that “[w]hen you receive a quote from a carrier under a retention accounting contract instead of a fully insured contract, you are given the chance to share in the savings in a good claims year.” These contracts used to be available only to employers with more than 5000 people on their medical plan. They may now be an option even if you have as few as 100 employees on your plan.

Private Marketplace

The second approach is one on which Lovitt & Touche has taken a lead: the Private Marketplace. Not to be confused with the public exchanges, a private marketplace can be custom designed to deliver all of your welfare benefits, including medical, dental, vision, life, and disability. A private marketplace offers several innovations that employers may find attractive, including: (1) you can offer many more than just two or three plan designs within each insurance option; and (2) you can also use a defined contribution strategy and provide a specific dollar amount for each employee to spend.

Even if the ACA is repealed or significantly altered in 2017, these trends will likely continue, and they may be worth a look.

For more information read Chris’s article Here.

 

ERISA Benefits Law Receives Recognition as a Top Tier Law firm in 2017 U.S. News – Best Lawyers® “Best Law Firms” Rankings

Just eight months after opening its doors as a niche ERISA and employee benefits law firm focused on providing the highest quality legal services at the most affordable rates anywhere, ERISA Benefits Law has been recognized as a top tier law firm in the 2017 U.S. News – Best Lawyers® “Best Law Firms” rankings. The firm received a Tier 1 metropolitan ranking in Tucson, Arizona in Employee Benefits (ERISA) Law.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process.

A Retirement Plan Established by a Church-Affiliated Organization is not an ERISA-Exempt Church Plan (at least in the 9th, 3rd and 7th Circuits)

The 9th Circuit Court of Appeals recently held that, to qualify for the church plan exception to the requirements of the Employee Retirement Income Security Act (ERISA), a church plan (i) must be established by a church or by a convention or association of churches and (ii) must be maintained either by a church or by a church-controlled or church-affiliated organization whose principal purpose or function is to provide benefits to church employees.

The specific holding in in Rollins v. Dignity Health, 2016 WL 3997259 (9th Cir. 2016) was that Dignity Health’s pension plan was subject to the requirements of ERISA and did not qualify for ERISA’s church-plan exemption because it was not originally established by a church, even if it was maintained by a “principal purpose” organization. The 3rd and 7th circuits have reached the same conclusion when confronted with this question. See Kaplan v. Saint Peter’s Healthcare Sys., 810 F.3d 175, 180–81 (3d Cir. 2015); Stapleton v. Advocate Health Care Network, 817 F.3d 517, 523–27 (7th Cir. 2016).

Background

  • 29 U.S.C. § 1003(b)(2) provides that a church plan is exempt from ERISA.
  • 29 U.S.C. § 1002(33)(A) provides that in order to qualify for the church-plan exemption, a plan must be both established and maintained by a church.
  • 29 U.S.C. § 1002(33)(C)(i) provides that a plan established and maintained by a church “includes” a plan maintained by a principal-purpose organization.

The 9th Circuit reasoned that “there are two possible readings of subparagraph (C)(i). First, the subparagraph can be read to mean that a plan need only be maintained by a principal-purpose organization to qualify for the church-plan exemption. Under this reading, a plan maintained by a principal-purpose organization qualifies for the church-plan exemption even if it was established by an organization other than a church. Second, the subparagraph can be read to mean merely that maintenance by a principal purpose organization is the equivalent, for purposes of the exemption, of maintenance by a church. Under this reading, the exemption continues to require that the plan be established by a church.”

The 9th Circuit then held that “the more natural reading of subparagraph (C)(i) is that the phrase preceded by the word “includes” serves only to broaden the definition of organizations that may maintain a church plan. The phrase does not eliminate the requirement that a church plan must be established by a church.”

More

Rollins v. Dignity Health, 2016 WL 3997259 (9th Cir. 2016)

Kaplan v. Saint Peter’s Healthcare Sys., 810 F.3d 175, 180–81 (3d Cir. 2015)

Stapleton v. Advocate Health Care Network, 817 F.3d 517, 523–27 (7th Cir. 2016)

Attorney Erwin Kratz Named to the Best Lawyers in America© 2017

ERISA Benefits Law attorney Erwin Kratz was recently selected by his peers for inclusion in The Best Lawyers in America© 2017 in the practice area of Employee Benefits (ERISA) Law. Mr. Kratz has been continuously listed on The Best Lawyers in America list since 2010.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

HHS Announces Two More Significant HIPAA Privacy and Security Settlements

The U.S. Department of Health and Human Services, Office for Civil Rights (OCR) has announced two more significant settlements in cases of alleged violations of the Health Insurance Portability and Accountability Act (HIPAA) involving electronic protected health information (ePHI). These settlements highlight the need for HIPAA covered entities and their business associates to:

  • Conduct an accurate and thorough assessment of the potential risks and vulnerabilities to all of their ePHI;
  • Implement policies and procedures and facility access controls to limit physical access to their electronic information systems;
  • Implement physical safeguards for all workstations that access ePHI to restrict access to authorized users;
  • Assign a unique user name and/or number for identifying and tracking user identity in information systems containing ePHI;
  • Reasonably safeguard laptops with unencrypted ePHI (or better yet, secure all ePHI);
  • Implement policies and procedures to prevent, detect, contain, and correct security violations; and
  • Obtain satisfactory assurances in the form of a written business associate contract from their business associates that they will appropriately safeguard all ePHI in their possession.

In addition, if it has been more than a few years since you conducted a security and privacy assessment and adopted privacy and security policies and procedures under HIPAA, you should be working on updating that assessment and the resulting policies and procedures. As in many areas, making a good faith effort at compliance is half the job.

Details

In the first case, Advocate Health Care Network (Advocate) agreed to a settlement with OCR for multiple potential HIPAA violations involving ePHI pursuant to which Advocate agreed to pay a $5.55 million settlement and adopt a corrective action plan. This significant settlement, the largest to-date against a single entity, is a result of the extent and duration of the alleged noncompliance (dating back to the inception of the Security Rule in some instances), the involvement of the State Attorney General in a corresponding investigation, and the large number of individuals whose information was affected by Advocate, one of the largest health systems in the country. OCR began its investigation in 2013, when Advocate submitted three breach notification reports pertaining to separate and distinct incidents involving its subsidiary, Advocate Medical Group (“AMG”). The combined breaches affected the ePHI of approximately 4 million individuals. The ePHI included demographic information, clinical information, health insurance information, patient names, addresses, credit card numbers and their expiration dates, and dates of birth. OCR’s investigations into these incidents revealed that Advocate failed to:

  • Conduct an accurate and thorough assessment of the potential risks and vulnerabilities to all of its ePHI;
  • Implement policies and procedures and facility access controls to limit physical access to the electronic information systems housed within a large data support center;
  • Obtain satisfactory assurances in the form of a written business associate contract that its business associate would appropriately safeguard all ePHI in its possession; and
  • Reasonably safeguard an unencrypted laptop when left in an unlocked vehicle overnight.

Read the Advocate Health Care Network resolution agreement and corrective action plan.

In the second case, the University of Mississippi Medical Center (UMMC) agreed to settle multiple alleged violations of HIPAA. OCR’s investigation of UMMC was triggered by a breach of unsecured ePHI affecting approximately 10,000 individuals. During the investigation, OCR determined that UMMC was aware of risks and vulnerabilities to its systems as far back as April 2005, yet no significant risk management activity occurred until after the breach, due largely to organizational deficiencies and insufficient institutional oversight. UMMC will pay a resolution amount of $2,750,000 and adopt a corrective action plan to help assure future compliance with HIPAA Privacy, Security, and Breach Notification Rules. On March 21, 2013, OCR was notified of a breach after UMMC’s privacy officer discovered that a password-protected laptop was missing from UMMC’s Medical Intensive Care Unit (MICU). UMMC’s investigation concluded that it had likely been stolen by a visitor to the MICU who had inquired about borrowing one of the laptops. OCR’s investigation revealed that ePHI stored on a UMMC network drive was vulnerable to unauthorized access via UMMC’s wireless network because users could access an active directory containing 67,000 files after entering a generic username and password. The directory included 328 files containing the ePHI of an estimated 10,000 patients dating back to 2008. Further, OCR’s investigation revealed that UMMC failed to:

  • implement its policies and procedures to prevent, detect, contain, and correct security violations;
  • implement physical safeguards for all workstations that access ePHI to restrict access to authorized users;
  • assign a unique user name and/or number for identifying and tracking user identity in information systems containing ePHI; and
  • notify each individual whose unsecured ePHI was reasonably believed to have been accessed, acquired, used, or disclosed as a result of the breach.

University of Mississippi is the state’s sole public academic health science center with education and research functions. In addition it provides patient care in four specialized hospitals on the Jackson campus and at clinics throughout Jackson and the state. Its designated health care component, UMMC, includes University Hospital, the site of the breach in this case, located on the main UMMC campus in Jackson.

Read the University of Mississippi resolution agreement and corrective action plan.

Significant Changes Proposed for Form 5500

On July 21, 2016 the Department of Labor (DOL), the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) published proposed rules that would make significant revisions to the Form 5500 Annual Return/Report as of the 2019 filing year.

DOL explains in a Fact Sheet that the proposed form revisions and the DOL’s related implementing regulations are intended to address changes in applicable law and in the employee benefit plan and financial markets, and to accommodate shifts in the data the DOL, IRS and PBGC need for their enforcement priorities, policy analysis, rulemaking, compliance assistance, and educational activities.

The major proposed changes are summarized below:

  • Retirement Plan Changes– The new Form 5500 will request more information about participant accounts, contributions, and distributions. It will also ask about plan design features, including whether the plan uses a safe harbor or SIMPLE design and whether it includes a Roth feature. The form will also ask about investment education and investment advice features, default investments, rollovers used for business start-ups (ROBS), leased employees, and pre-approved plan designs. Schedule R will include new questions about participation rates, matching contributions, and nondiscrimination.
  • Group Health Plan Changes– The most significant change for health plans is that all ERISA group health plans, including small plans that are currently exempt from filing, will be required to file a Form 5500. The new filing requirement includes a new Schedule J (Group Health Plan Information), which will list the types of health benefits provided, the plan’s funding method (self insured or fully insured), information about participant and employer contributions, information about COBRA coverage, whether the plan is grandfathered under health care reform, and whether it includes a high deductible health plan, HRA, or health FSA. In addition, most filings (except those for small fully insured plans) would have to provide financial and claims information, disclose stop-loss carriers, third party administrators and other plan service providers, and provide details regarding compliance with HIPAA, GINA, health care reform and other compliance issues.
  • Other Changes– The proposed changes affect many of the existing Form 5500 schedules, including:
    • Schedule C would be revised to coordinate with the service provider fee disclosure rules.
    • Schedule C would be required from some small plans currently exempt from filing it.
    • Schedule H would be expanded to include questions on fee disclosures, annual fair market valuations, designated investment alternatives, investment managers, plan terminations, asset transfers, administrative expenses and uncashed participant checks.
    • Schedule I would be eliminated.
    • Small plans that currently file Schedule I would generally need to file Schedule H.

Effective Date– The new Form 5500 is expected to be required as of the 2019 plan year filings.

Proposed Rule Making Form 5500 Changes

DOL Adjusts ERISA Penalties

The Department of Labor, Employee Benefits Security Administration has issued interim final rules increasing certain DOL compliance penalties effective as of August 1, 2016. The highlights are:

  • The maximum penalty for failure or refusal to file the Form 5500 annual report is increasing from $1,100 per day to $2,063 per day
  • Failure to furnish information to the DOL under ERISA Section 104(a)(6 will now carry penalties equal to $147 per day (up from $110 per day)
  • The maximum penalty for failing to provide a summary of benefits and coverage for a group health plan is increasing from $1,000 to $1,087 per failure
  • Numerous miscellaneous penalties are increasing from $100 per day to $110 per day, including
    • Certain violations of the Genetic Information Nondiscrimination Act (GINA), such as establishing eligibility rules based on genetic information or requesting genetic information for underwriting purposes, and
    • An employer’s failure to inform employees of CHIP coverage opportunities
  • The penalty for failure to provide benefit statements to certain former participants and beneficiaries in a retirement plan are increasing from $11 per employee to $28 per employee
  • The penalties for failure to furnish a blackout notice (when participants are precluded from changing investment instructions, taking a loan or a distribution) are increasing from $100 per day to $131 per day

Why are the Penalties Being Increased Now? In 2015, Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (2015 Inflation Adjustment Act) as part of the Bipartisan Budget Act of 2015. The new law directs agencies to adjust their civil monetary penalties for inflation.

Will the Penalties be Adjusted again in the Future? The law requires federal agencies to adjust their civil monetary penalties for inflation by July 1, 2016. After this initial “catch-up” adjustment, the agencies must adjust their civil monetary penalties annually for inflation.

When are the New Penalty Amounts Effective? The new civil penalty amounts are applicable only to civil penalties assessed after August 1, 2016, whose associated violations occurred after November 2, 2015, the date of enactment of the 2015 Inflation Adjustment Act.

More…

The interim final rule

EBSA Fact Sheet, including full chart showing all the new penalty amounts

Plan Administrator Bears Burden to Produce Key Information Regarding Claimant’s Service and Benefits Eligibility

The 9th Circuit Court of Appeals ruled on April 21, 2016 that where a claimant has made a prima facie case that he is entitled to a pension benefit, but lacks access to the key information about corporate structure, or hours worked, needed to substantiate his claim, and the defendant controls this information, the burden shifts to the defendant to produce this information. Estate of Bruce H. Barton v. ADT Security Services Pension Plan (9th Cir., 2016).

The Plan Administrator could not place the burden of producing records establishing which entities participated in the pension plan between 1967 and 1986, and the claimant’s service record, on the claimant where the Plan Administrator had no records of its own.

The Plan Administrator originally denied the claim on the basis of an absence of records establishing eligibility for plan participation, actual participation, or accrual of plan benefits. This was wrong where the Committee rather than the claimant would likely be in possession of such records.

The lesson for Plan Administrators: keep plan documents,service records and contemporary records establishing benefit accruals forever -there is no practical document retention period for these documents.

The lesson for claimants: don’t be deterred from asserting a claim if you have enough evidence to state a prima facie case and the definitive documents or information ought to be in the Plan Administrator’s possession.

Estate of Bruce H. Barton v. ADT Security Services Pension Plan (9th Cir., 2016)

Fiduciaries Ultimately Prevail in Tibble v. Edison

On remand from the United States Supreme Court, which held in May 2015 that ERISA imposes on retirement plan fiduciaries an ongoing duty to monitor investments, even absent a change in circumstances, the 9th Circuit Court of Appeals recently affirmed the district court’s original judgment in favor of the employer and its benefits plan administrator on claims of breach of fiduciary duty in the selection and retention of certain mutual funds for a benefit plan governed by ERISA.

The court of appeals had previously affirmed the district court’s holding that the plan beneficiaries’ claims regarding the selection of mutual funds in 1999 were time-barred. The Supreme Court vacated the court of appeals’ decision, observing that federal law imposes on fiduciaries an ongoing duty to monitor investments even absent a change in circumstances.

On remand, the panel held that the beneficiaries forfeited such ongoing-duty-to-monitor argument by failing to raise it either before the district court or in their initial appeal. While the fiduciaries ultimately prevailed in this case, the lesson for fiduciaries remains clear: You have an ongoing duty to monitor the investment options in your retirement plans.

Tibble v. Edison International (9th Cir., 2016)

Full Text of the Supreme Court Decision in Tibble v. Edison International (2015)

DOL Finalizes Regulations and Related Exemptions on ERISA Fiduciary Definition and Conflicts of Interest in Investment Advice

The Department of Labor (DOL) has adopted its long-awaited final rule defining who is a fiduciary investment adviser, and has issued accompanying prohibited transaction class exemptions that allow certain broker-dealers, insurance agents and others that act as investment advice fiduciaries to continue to receive a variety of common forms of compensation, as long as they adhere to standards aimed at ensuring that their advice is impartial and in the best interest of their customers.

Going forward, individuals and firms that provide investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners must either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the DOL.

Under new exemptions adopted with the rule, firms will be obligated to acknowledge their status and the status of their individual advisers as “fiduciaries.” Firms and advisers will be required to:

  • make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer;
  • charge only reasonable compensation; and
  • make no misrepresentations to their customers regarding recommended investments.

I. What Is Covered Investment Advice Under the Rule?

Covered investment advice is generally defined as a recommendation to a plan, plan fiduciary, plan participant and beneficiary and IRA owner for a fee or other compensation, direct or indirect, as to the advisability of buying, holding, selling or exchanging securities or other investment property, including recommendations as to the investment of securities or other property after the securities or other property are rolled over or distributed from a plan or IRA.

A “recommendation” is a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.

II. What Is Not Covered Investment Advice Under the Rule?

The final rule includes some specific examples of communications that would not rise to the level of a recommendation and therefore would not constitute a fiduciary investment advice communication, including:

  • Education about retirement savings and general financial and investment information. For example, education can include specific investment alternatives as examples in presenting hypothetical asset allocation models or in interactive investment materials intended to educate participants and beneficiaries as to what investment options are available under the plan, as long as they are designated investment alternatives selected or monitored by an independent plan fiduciary and other conditions are met. In contrast, because there is no similar independent fiduciary in the IRA context, the investment education provision in the rule does not treat asset allocation models and interactive investment materials with references to specific investment alternatives as merely “education.”
  • General communications that a reasonable person would not view as an investment recommendation
  • Simply making available a platform of investment alternatives without regard to the individualized needs of the plan, its participants, or beneficiaries if the plan fiduciary is independent of such service provider
  • Transactions with Independent Plan Fiduciaries with Financial Expertise. ERISA fiduciary obligations are not imposed on advisers when communicating with independent plan fiduciaries if the adviser knows or reasonably believes that the independent fiduciary is a licensed and regulated provider of financial services (banks, insurance companies, registered investment advisers, broker-dealers) or those that have responsibility for the management of $50 million in assets, and other conditions are met.
  • Employees working in a company’s payroll, accounting, human resources, and financial departments who routinely develop reports and recommendations for the company and other named fiduciaries of the sponsors’ plans are not investment advice fiduciaries if the employees receive no fee or other compensation in connection with any such recommendations beyond their normal compensation for work performed for their employer

III. Best Interest Contract Exemption

The Best Interest Contract Exemption permits firms to continue to rely on many current compensation and fee practices, as long as they meet specific conditions intended to ensure that financial institutions mitigate conflicts of interest and that they, and their individual advisers, provide investment advice that is in the best interests of their customers. Specifically, in order to align the adviser’s interests with those of the plan or IRA customer, the exemption requires the financial institution to:

  • acknowledge fiduciary status for itself and its advisers
  • adhere to basic standards of impartial conduct, including giving prudent advice that is in the customer’s best interest, avoiding making misleading statements, and receiving no more than reasonable compensation.
  • have policies and procedures designed to mitigate harmful impacts of conflicts of interest and
  • disclose basic information about their conflicts of interest, including descriptions of material conflicts of interest, fees or charges paid by the retirement investor, and a statement of the types of compensation the firm expects to receive from third parties in connection with recommended investments.
  • Investors also have the right to obtain specific disclosure of costs, fees, and other compensation upon request.
  • In addition, a website must be maintained and updated regularly that includes information about the financial institution’s business model and associated material conflicts of interest, a written description of the financial institution’s policies and procedures that mitigate conflicts of interest, and disclosure of compensation and incentive arrangements with advisers, among other information.

IV. Additional Exemptive Relief

In addition to the Best Interest Contract Exemption, the DOL issued a Principal Transactions Exemption, which permits investment advice fiduciaries to sell or purchase certain recommended debt securities and other investments out of their own inventories to or from plans and IRAs. As with the Best Interest Contract Exemption, this requires, among other things, that investment advice fiduciaries adhere to certain impartial conduct standards, including obligations to act in the customer’s best interest, avoid misleading statements, and seek to obtain the best execution reasonably available under the circumstances for the transaction.

V. Effective Date

Compliance with the new rule is required as of April 2017. The exemptions will generally become available upon the applicability date of the rule. However, the DOL has adopted a “phased” implementation approach for the Best Interest Contract Exemption and the Principal Transactions Exemption. Both exemptions provide for a transition period, from the April 2017 applicability date to January 1, 2018, under which fewer conditions apply. This period is intended to give financial institutions and advisers time to prepare for compliance with all the conditions of the exemptions while safeguarding the interests of retirement investors.

During this transition period, firms and advisers must adhere to the impartial conduct standards, provide a notice to retirement investors that, among other things, acknowledges their fiduciary status and describes their material conflicts of interest, and designate a person responsible for addressing material conflicts of interest and monitoring advisers’ adherence to the impartial conduct standards. Full compliance with the exemption will be required as of January 1, 2018.

VI. More…

Regulations and Related Exemptions

DOL Fact Sheet

DOL FAQs