ERISA – Page 4 – ERISA Benefits Law

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

OCR Launches Phase 2 of HIPAA Audit Program

As a part of its continued efforts to assess compliance with the HIPAA Privacy, Security and Breach Notification Rules, the HHS Office for Civil Rights (OCR) has begun its next phase of audits of covered entities and their business associates.

In its 2016 Phase 2 HIPAA Audit Program, OCR will review the policies and procedures adopted and employed by covered entities and their business associates to meet selected standards and implementation specifications of the Privacy, Security, and Breach Notification Rules. These audits will primarily be desk audits, although some on-site audits will be conducted.

The 2016 audit process begins with verification of an entity’s address and contact information. An email is being sent to covered entities and business associates requesting that contact information be provided to OCR in a timely manner. OCR will then transmit a pre-audit questionnaire to gather data about the size, type, and operations of potential auditees; this data will be used with other information to create potential audit subject pools.

The OCR’s detailed audit protcol is available here.

If an entity does not respond to OCR’s request to verify its contact information or pre-audit questionnaire, OCR will use publically available information about the entity to create its audit subject pool. Therefore an entity that does not respond to OCR may still be selected for an audit or subject to a compliance review.

To learn more about OCR’s Phase 2 Audit program, click on one of the links below:

When Will the Next Round of Audits Commence?

Who Will Be Audited?

On What Basis Will Auditees Be Selected?

How Will the Selection Process Work?

How Will the Audit Program Work?

What if an Entity Doesn’t Respond to OCR’s Requests for Information?

What is the General Timeline for an Audit?

What Happens After an Audit?

How Will Consumers Be Affected?

Will Audits Differ Depending on the Size and Type of Participants?

Will Auditors Look at State-Specific Privacy and Security Rules in Addition to HIPAA’s Privacy, Security, and Breach Notification Rules?

Who is Responsible for Paying the On-Site Auditors?

7th Circuit Holds Only a Church Can Establish an ERISA-Exempt Church Plan

On March 17, 2016 the 7th Circuit Court of Appeals joined the 3rd Circuit in holding that a network of hospitals and health care locations that is affiliated with a church cannot establish an ERISA-exempt church plan. Stapleton v. Advocate Health Care Network (7th Cir. 2016).

In Stapleton, several current and former employees of the church-affiliated hospital claimed that the organization failed to comply with ERISA’s vesting, reporting and disclosure, funding, trust, and fiduciary rules. The 7th Circuit Curt of Appeals agreed.

This issue is bubbling up all over the country. District Court cases have decided the question both ways. There is a case pending before the Ninth Circuit that held at the District Curt level that an affiliate cannot establish a church plan. Rollins v. Dignity Health, 19 F. Supp. 3d 909, 917 (N.D. Cal. 2013), appeal filed, No. 15-15351 (9th Cir. Feb. 26, 2016). The employer in Rollins faces up to $1.2 billion in funding obligations if it loses the case.

District court cases in several other states have help the other way – that affiliated organizations can establish a church plan. The only two Court of Appeals cases to decide the question have ruled that the affiliated organization cannot establish a church plan. See Stapleton and Kaplan v. St. Peter’s Healthcare Sys., 810 F.3d 175 (3d Cir. 2015).

If you an organization affiliated with a church that is relying on the church plan exemption from ERISA’s vesting, reporting, disclosure, funding, trust, and fiduciary rules, you ought to review that decision with ERISA counsel.

Plan Imposed Limitations Period Must be in Benefit Denial Notice

The First Circuit recently ruled that it will not enforce a plan-imposed deadline for filing a lawsuit because the deadline was not set forth in the plan’s benefit denial notices. Santana-Diaz v. Metropolitan Life Ins. Co. (1st Cir. 2016). This case reiterates the importance of including any plan specific limitations period for filing suit in the Summary Plan Description and in all benefit denial notices and appeal determinations.

IRS Notice 2015-87 Provides Further Guidance on the Application of ACA Market Reforms to Employer Payment Plans, Employer Mandate and COBRA

On December 16, 2015, the Department of Treasury and IRS issued Notice 2015-87 which provides further guidance on the application of the market reforms that apply to group health plans under the Affordable care Act (ACA) to various types of employer health care arrangements. The notice includes guidance that covers:

(1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan, and similar employer-funded health care arrangements; and

(2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan). The notice supplements the guidance provided in Notice 2013-54; FAQs about the Affordable Care Act Implementation (Part XXII) issued by the Department of Labor on November 6, 2014; Notice 2015-17; and final regulations implementing the market reform provisions of the ACA published on November 18, 2015.

see our previous post on this topic.

Notice 2015-87 also clarifies certain aspects of the employer shared responsibility provisions of § 4980H, and clarifies the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years pursuant to Notice 2013-71, and conditions that may be put on the use of carryover amounts.

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.

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