Category: Benefits

In this Q & A discussing The 401(k) Fair Disclosure for Retirement Secutiry Act of 2009, George Miller, Chairman of the House Education and Labor Committee, spoke about the status of H.R. 1984:

We’ve had hearings and we hope to schedule a markup on the bill in the near future. As far as when it might come to the House floor, we’ll have to discuss that with the leadership.

The Wall Street Journal today highlights one of the issues facing plans sponsors of 401(k) plans in this current economic downturn: “401(k)s Hit by Withdrawal Freezes.” Excerpt:

Investors in the Principal U.S. Property Separate Account said they understood the risk of losses, but didn’t think their money could be locked up for months or years. Most participants in the 15,000 plans holding the fund haven’t been able to make any withdrawals or transfers since late September.

“To sell property at inappropriately low prices in order to generate cash for a few would hurt the majority of investors and violate our fiduciary obligations,” said Terri Hale, spokeswoman for Principal Financial Group Inc., the parent of the fund’s manager. The fund, which had $4.3 billion in net assets at the end of April, still is making distributions for death, disability, hardship and retirement at normal retirement age.

As of April 28, redemption requests that had yet to be honored totaled nearly $1.1 billion, or roughly 26% of the fund’s net assets. Principal doesn’t anticipate that it will make any distributions to investors who have requested redemptions until late 2009 or beyond, Ms. Hale said. Meanwhile, the fund continues to fall, declining 25% in the 12 months ending April 30.

See also yesterday’s WSJ article entitled: “When Safe Places No Longer Feel So Safe.”

The Eighth Circuit applied the Supreme Court’s MetLife v. Glenn conflicts analysis and turned the tables for a disabled participant’s decade-long quest for disability benefits in the case of Chronister v. Unum Life Insurance Company of America (posted at Plan Sponsor), holding that the insurer had abused its discretion in terminating the participant’s disability benefits. While the Eighth Circuit noted the insurer’s “history of biased claims administration” as one factor that the court must consider in determining whether there was an abuse of discretion, the court considered the insurer’s “failure to follow its own claims-handling procedures” with respect to how it dealt with the Social Security’s determination that the participant was disabled to be “most egregious.”

Specifically, the court noted the insurer’s failure to consider the SSA’s disability determination (“It appears from the denial letter that [the insurer] did not consider the SSA’s disability determination at all”) and its failure to articulate in its denial letter to the participant as to why the insurer was disregarding the SSA disability determination. The court noted that the insurer’s own claims procedures required the insurer to accord “significant weight” to the SSA’s disability determination and that any denial letter should articulate the reasoning and analysis for disregarding the determination as the claims manual required.

In the end, the court cut to the chase and bypassed a remand for further proceedings by entering judgment in the participant’s favor “given that her benefits claims have been pending for more than a decade.”

UPDATE: By the way, the CDC said last week that 1 in 5 Americans are living with at least one disability.

Roth CPA.com has some info regarding recently-passed Iowa legislation that indicates taxpayers will be required in 2010 to report on their state tax returns whether or not dependent children have health insurance coverage. If they don’t, the taxpayer is required to submit an application for such coverage within 90 days.

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.

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.

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.

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.

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

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.