Employers Preparing for the A(H1N1) Virus: Benefits Preparedness

Some employers appear to be nervous and bracing for the worst with the World Health Organization having raised the influenza pandemic alert from a phase 4 to a 5 due to an outbreak of swine flu (which we are now being asked to call the “A(H1N1) Virus”). The CDC is providing interim guidance daily regarding the status of the outbreak. While some are downplaying the outbreak, others appear to be taking the warnings more seriously. With many large employers having already developed extensive Pandemic Plans, labor and employment law firms are churning out notices to their clients, urging them to activate their plans and take necessary precautions in the workplace.

In the benefits arena, employers whose employees and family members are impacted by the malicious bug would need to gear up for the fact that benefit plans such as employer-provided health plans and flexible spending accounts will likely get a work-out. Short-term disability programs which are often self-funded by the employer would get significant use as well in addition to paid-time off policies and employee assistance plans. Since most or all of these programs may be considered to be ERISA-covered plans and have either named or functional ERISA fiduciaries who are responsible for overseeing these plans, such individuals should, with the assistance of legal counsel, seriously consider taking steps now to determine whether their providers are prepared for a pandemic.

The CDC currently has a Workplace Planning webpage which may provide large and small employers with needed assistance. Included in their materials is a “Health Insurer Pandemic Influenza Planning Checklist.” See also this section entitled “Workplace Benefits Questions.”

In light of all of this, here are some steps for employers to consider taking in regards to benefits pandemic preparedness:

(1) Identify fiduciaries of benefit plans that might receive heavy usage in the case of a pandemic.

(2) Identify steps their fiduciaries need to take to communicate with insurers and providers about their preparedness to meet increased demand for their services. Document such steps when they are taken. Consider sending a questionnaire to providers, using the CDC’s checklist as a starting place.

(3) Even though EBSA has not as yet released anything in writing about steps fiduciaries need to take in preparing for a pandemic, guidance issued by EBSA many years ago to assist plan administrators in preparing for Y2K might offer some analogous clues as to what the agency might expect of plan fiduciaries if faced with a pandemic.

(4) Fiduciaries should work through, with their advisors, how a pandemic might affect their benefit plans and consider preparing now a benefits communications document regarding pandemic issues.

(5) Make sure that Summary Plan Descriptions and benefits booklets are up-to-date so that employees and their dependents can access accurate information that they might need in case of a pandemic.

Agencies Request Comments on the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008

The Departments of Labor, Health and Human Services and the Treasury are inviting public comment “in advance of future rulemaking” regarding the MHPAEA enacted on October 3, 2009. Comments must be submitted on or before May 28, 2009. There are a number of methods for making comments as indicated in the Notice here.

How Does the Red Flags Rule Impact Employee Benefit Plans?

Benefits lawyers are trying to determine how new identity theft rules labeled the “Red Flags Rule” will impact employee benefit plans. To get familiar with the rules generally, you can go to the Federal Trade Commission’s Red Flags website here. There are published articles which you can access here entitled “What Health Care Providers Need to Know About Complying with New Requirements for Fighting Identity Theft,” as well as similar ones for telecom companies and utility companies, but nothing yet regarding employee benefit plans.

A number of law firms have posted analysis of how the rules impact employee benefit plans, including this one by Pillsbury here. However, White & Case has had some ongoing discussions with the FTC and has posted its findings here and here.

Regardless of what the FTC has to say about this, many practitioners would argue that plan fiduciaries generally have duties to protect participant information under ERISA’s fiduciary rules. Thus, the FTC’s rules might serve as a starting place for fiduciaries to assist in building some processes and procedures into their current systems to protect plan participants and beneficiaries against identity theft.

Debate Over the Fiduciary Duty to Collect Delinquent Employer Contributions

With the economy in a tail-spin, it is likely that employers who are in financial difficulties may find themselves struggling to meet their contribution promises under their ERISA plans. A recent federal district court case in Massachusetts puts the spotlight on this whole issue and should garner some concern for those who serve in the fiduciary function for a troubled plan.

In the case of Hilda Solis v. Plan Benefit Services, Inc.(“PBS”) (posted by McKay Hochman), the district court dealt with the following factual scenario:

The DOL had sued a construction company and Master Plan sponsor alleging violations of fiduciary duty. The DOL had investigated the Master Plan due to the failure of the construction company to make certain promised contributions to the Master Plan for work performed by its employees. On a motion for summary judgment, the DOL asked the court to rule on two claims: (1) That the Master Plan sponsor had violated its fiduciary duties under ERISA because it had “relieved the Trustee of responsibilities for collection of employee contributions” and (2) that a plan provision written into the Master Plan document relieving the Trustee of responsibility for collection of employee contributions was “void as against public policy pursuant to [ERISA] Section 410.”

The DOL had relied on Field Assistance Bulletin No. 2008-01 (which the defendant in the case argued the DOL had issued targeting the facts of the case at hand). In the FAB, the DOL answered the following question: “What are the responsibilities of named fiduciaries and trustees of ERISA-covered plans for the collection of delinquent employer and employee contributions?” The answer given by the DOL in a nutshell was that, when contributions are “due and owing to the plan under the documents and instruments governing the plan but have not been transmitted to the plan in a timely manner,” the plan has a claim against the employer for the contribution and the claim becomes an “asset of the plan” which the appropriate fiduciary is bound under ERISA to collect. The FAB also provides that, if the documents are “fuzzy” about who has this responsibility to collect delinquent contributions, then the responsibility under the DOL’s view ultimately gets pinned on the fiduciary who has “the authority to hire and monitor trustees.”

The federal district court agreed with the DOL in the PBS case that “plan assets include the right to collect unpaid employer contributions” relying on a Tenth Circuit case–In re Luna, 406 F.3d 1192 (10th Cir. 2005) and a Second Circuit case–United States v. LaBarbara, 129 F.3d 81 (2d Cir. 1997). While the Master Plan sponsor had argued that these cases were not pertinent since they were Taft-Hartley plans subject to collective bargaining agreements, the court disagreed and, in light of its ruling, that “due and owing” unpaid employer contributions are “plan assets”, the court then held that the Master Plan’s provisions eliminating Trustee responsibility for the collection of the employer contributions did not comply with ERISA and therefore were “void as against public policy.”

However, the court declined to go so far as saying that the Master Plan sponsor had violated its fiduciary duty in relieving the Trustees of responsibility for collection of employer contributions through the adoption of the violative language.

The court appears to have departed from the DOL’s views established under the FAB that fiduciaries who have authority to hire and monitor trustees under an ERISA plan have the ultimate responsibility for overseeing the collection of unpaid employer contributions. Even though in the PBS case, PBS had the power “to appoint and to remove the Trustee,” Judge Woodlock who wrote the opinion concluded:

I have found no case that addresses whether under these circumstances, based on its power to remove the Trustee, PBS is acting in its fiduciary capacity and is therefore subject to fiduciary liability. Nor am I persuaded that the power to remove the Trustee is sufficiently tied to a decision regarding Trustee responsibilities such that PBS is acting as a fiduciary when it designs the plan structure in this way. I therefore conclude that PBS’s fiduciary liability, if it exists, cannot be based on its power of Trustee appointment and removal.

Conclusion: It is likely that there are quite a number of documents out there that will be found to have the same exculpatory language noted in the PBS case. Trustees and fiduciaries of ERISA plans should review their plans and consult with their advisors as to whether such provisions should be removed and, if faced with the dilemma of delinquent employer contributions, determine what action is appropriate in light of the DOL’s views expressed in its FAB as well as recent governing case law.

Insta-Poll on Health Care Reform

Do you want law remaking the U.S health care system passed with minimal public deliberation by Congress? Answer the poll here.

401(k) Fair Disclosure for Retirement Security Act of 2009

The Health, Employment, Labor, and Pensions Subcommittee of the House Education and Labor Committee held a hearing yesterday to discussed proposed legislation entitled the 401(k) Fair Disclosure for Retirement Security Act of 2009.

Text of the proposed legislation is here.

View the testimony given here.

Website for Savings Recovery Act of 2009

House Republican Leader John Boehner and others have put together a website supporting the Savings Recovery Act of 2009 which was introduced yesterday as H.R. 2021. According to this press release here, this is what the bill will accomplish:

  • Make it easier for Americans to save more for their retirement by increasing the contribution and catch-up limits for individuals and families.
  • Restore college savings by extending the existing SAVERs Credit to contributions made to 529 college savings accounts.
  • Increase retirement income by doubling the Social Security earnings limit from $14,160 to $28,320 and allowing more Americans to increase their income without being hit by the Social Security earnings penalty.
  • Provide tax relief for investors and seniors by immediately suspending the capital gains tax on newly acquired assets for the next two years, raise and index to inflation the amount of capital losses allowed against ordinary income to $10,000, and suspend taxes on dividend income through 2011.
  • Stabilize worker pensions and helping employers invest in the future by temporarily providing an increased glide path for recognizing losses and two additional years to resolve pension funding shortfalls.
  • Preserve employee-controlled 401(k)s by blocking efforts to wipe out 401(k)s entirely and replace them with government-run accounts.
  • More on the purpose of the bill here:

    . . . [A]ccording to a March 2009 National Public Radio (NPR) survey conducted by Public Opinion Strategies/Greenberg Quinlan Rosner, Americans concern about decline in the stock market and investment losses trumps even concerns about losing their jobs. But instead of taking action to help Americans rebuild their savings as quickly as possible, Washington is pursuing policies that are causing Americans savings to evaporate even more quickly. Some are even proposing to wipe out 401(k)s entirely, replacing them with government-run accounts that put bureaucrats in charge of savings decisions instead of families.

    Both the American Benefits Council and ERIC have expressed their support for the bill. You can express your support here by signing an online petition.

    Impact of Recession on Benefit Plans: Most Employers Staying the Course

    Towers Perrin has published an interesting report on the impact of the current recession on benefit plans–Benefits in Crisis – Weathering Economic Climate Change:

    Some companies, of course, have already taken steps to reduce benefits, including suspending contributions to 401(k) plans. But in contrast to media attention on the most severe cutbacks, most companies in the Towers Perrin survey are staying the course in the benefits arena, with very few taking precipitous action right now in terms of dramatic reductions or outright elimination of current plans. In part, this is because many have actively managed their programs over the past decade, particularly in terms of limiting new participation in traditional pension plans and increasing employee cost sharing for both active and retiree health benefits.

    Some interesting trends to note from the survey:

    (1) Nearly 40% of respondents are making or increasing investments in financial education for employees. A similar percentage have changed or plan to change the investment options in DC plans.

    (2) Just over half (51%) of respondents have taken or plan to take steps to reduce or eliminate subsidized coverage for future retirees, compared with only about a quarter taking or considering such action for current retirees. 59% do not intend to cut back on or eliminate subsidized coverage for current retirees at all.

    (3) While a third of respondents already have health savings accounts built into their plans, a roughly similar number are planning to introduce such features over the next two years or are considering doing so.

    Eighth Circuit Reverses District Court on Vesting Issue

    The recent Eighth Circuit case of Halbach v. Great-West Life & Annuity Insurance Company involves another controversy over the issue of vesting in regards to medical benefits. The Eighth Circuit overturned the district court on two issues:

    (1) Whether there was a valid plan amendment eliminating medical benefits for long-term disability recipients; and

    (2) Whether the disability recipients were vested in their medical benefits prior to the plan amendment.

    The lower court said there was no valid amendment and that the disability recipients were indeed vested. However, the Eighth Circuit reversed the district court and ruled there was a valid amendment, but held that whether or not the disability recipients were vested presented a genuine issue of material fact that needed to be resolved at trial.

    While there appears to have been a plan document for the plan, the document which the plan sponsor claimed was the plan amendment terminating benefits and which gave rise to the controversy consisted of a letter to the disability recipients notifying them of the cessation of their benefits. The letter referenced an attached SPD-type document which summarized the changes that were being made. Because the plan document indicated that the plan could be amended by a “written instrument signed by an officer of the Company,” the Eighth Circuit felt that the letter to the disability recipients qualified as a plan amendment.

    While the conclusion reached by the Eighth Circuit might have gotten the plan sponsor to the result they wanted in the case, sometimes a loose interpretation of what constitutes a plan amendment can go the other way. Remember the Fifth Circuit Halliburton case holding that a Merger Agreement acted as a plan amendment?

    Last Minute Filing Tips

    Great advice from Joe Kristan: E-File, Use Certified Mail or Roll the Dice.