Benefitsblog

Denial of Petition for Rehearing in the Deere Case

You can read about it here at the Fiduciary Guidebook.

One Way to Lower Health Costs: Pay People to Be Healthy

There is a very interesting study here from Wharton suggesting that better wellness programs could be created by employers to encourage workforce health and lower health insurance costs. The article suggests that offering employees a discount in their health insurance premiums at the end of the year is less effective than smaller incremental incentives of cash or lottery tickets given throughout the year. However, the article notes the following negatives with such programs:

Pauly pointed out that there are other issues that incentive programs must overcome, such as regulatory and legal barriers, employer reluctance to invest in programs that might not pay off until years later when many workers will be at different companies, and the resistance from employees themselves, who may see such incentive-based programs as overly paternalistic. It will also be tricky for employers to establish incentive-based programs without creating resentment among workers who don't have any bad health habits to kick.

ABC/Washington Post Poll on Health Care Reform. . .

Indicates wide-spread concern. Excerpt:

• An overwhelming 70 percent oppose taxing benefits worth over $17,000 a year, a funding mechanism under discussion.
• Fifty-eight percent don't buy President Obama's pledge that reform can occur without forcing people to make undesired changes in their current coverage.
• The public splits about evenly, 49-47 percent, on another basic element, requiring all Americans to have health insurance. That varies widely, though as high as 70 percent support, as low as 44 percent depending on the terms of such a requirement.
• About eight in 10 are concerned that reform may reduce their quality, coverage and choice of care, and increase their costs, government bureaucracy and the federal deficit, with anywhere from 51 to 62 percent very worried about each of these.

More at Freedom Project here.

Tax-Exempt Governmental Plans Guidebook

Another Guidebook is in the works: The Tax-Exempt/Governmental Plans Guidebook. . .

The SEC and Treasury on Executive Compensation Practices

TheCorporateCounsel.net Blog has a good summary here of the SEC's and Treasury's proposed changes to the executive compensation arena.

Also, Gene Sperling, Counselor to the Secretary of the Treausry, made the following statement:

. . . [T]here is substantial evidence that "firms use retirement benefits to provide executives with substantial amounts of `stealth compensation' -- compensation not transparent to shareholders that is largely decoupled from performance."

Article on 401(k) Loans

Great article here on 401(k) plan loans. The article actually discusses the effect 401(k) plan loans have on individuals contemplating bankruptcy.

Canadian Employer Cutting Retiree Perq

As I read this account of Molson Canada's decision to no longer supply its retirees with a certain beverage, I could not help pondering whether such a practice in the U.S. might be deemed to be an "ERISA plan." While I won't go into all the nuances of an argument like that, I will leave you with a link to a previous post--Benefits in Kind--Could They Be Subject to ERISA--in which I discussed how one court found (and the Fifth Circuit agreed) that a promise of grocery vouchers to retirees constituted a benefit protected by ERISA.

Eighth Circuit Instructs District Courts on Attorneys' Fees

This recent Eight Circuit case--Pendleton v. QuickTrip Corporation--is an ERISA 510 case that did not make it past a Motion for Summary Judgement. However, the case is noteworthy for the court's discussion of attorneys' fees:

The district court's decision to deny attorney fees in this case was entered on the docket as ordered denied without authority. This statement could be interpreted as a determination that QuikTrip had not made a sufficient showing of factors in its favor to authorize an award of fees, but it is not free of ambiguity. Trial courts have many demands on their time, but nonetheless a district court should state the factors it is relying on in deciding an ERISA fee motion. See e.g. Toy v. Plumbers & Pipefitters Local Union No. 74 Pension Plan, 2009 WL 692398, *2 (3d Cir. 2009); Riley v. Admr of Supersaver 401K Capital Accumulation Plan for Employees of Participating AMR Corp. Subsidiaries, 209 F.3d 780, 782 (5th Cir. 2000).

Understanding the Proposed House Democrats' Health Care Bill

From Keith Hennessey.com:

Here is a three-page outline of Key Features of the Tri-Committee Health Reform Draft Proposal in the House of Representatives, dated yesterday (June 8, 2009). . .

ScotusBlog Following the Indiana Pension Funds' Supreme Court Challenge to the Chrysler Sale

Read ScotusBlog if you want to find out what is happening in the Supreme Court Chrysler sale challenge. Excerpt:

The case of In re Chrysler LLC, Debtor has the potential to produce the most significant Supreme Court ruling on the government's power to deal with economic crisis since the Court struck down major parts of President Franklin Roosevelt's New Deal, in Schechter Poultry Corp. v. U.S. in 1935 and U.S. v. Butler in 1936. But the Supreme Court will not actually rule on any of the basic legal challenges unless it first puts the Chrysler sale on hold, and then agrees to hear and decide the case itself. It has no legal obligation to do either. Two challenges have now been filed. UPDATE: A third challenge has been filed. . .

Read the Application filed in the case here.

UPDATE: Supreme Court Grants a Temporary Stay. Access the Order here.

UPDATE: The stay was lifted. You can access the two-page order here.

Glitch in the 409A Regulations Created by EESA

The Treasury could not have foreseen that it would have to carve out an exception under the 409A change in control rules for the federal government acquiring interests in financial institutions. Hence the issuance of Notice 2009-49 announcing future changes to the 409A regulations:

Questions have arisen whether the Federal government's acquisition of an equity interest in a financial institution or other entity in connection with a Treasury EESA Equity Acquisition Transaction constitutes a change in control event and accordingly a permissible § 409A payment event. . .

Treating a Treasury EESA Equity Acquisition Transaction as a change in control event and, therefore, a permissible payment event, would be inconsistent with the purposes of EESA and § 409A, and would be contrary to the public interest. For example, payment of nonqualified deferred compensation amounts as a result of a Treasury EESA Equity Acquisition Transaction could reduce the liquidity of the financial institution or other entity, which is directly contrary to the purpose of a Treasury EESA Equity Acquisition Transaction.

Public Plan Fiduciaries Battling the Federal Government

From a Press Release:

Indiana Treasurer Richard Mourdock announced that two state pension funds have filed with the US Bankruptcy Court presiding over Chryslers Chapter 11 case objecting to the proposed sale of substantially all of Chryslers assets and seeking the appointment of a trustee to protect their security interests and property rights. Indiana was the sole creditor to file objections with the court. . .

"As fiduciaries, we can't allow our retired police officers and teachers to be ripped off. . . "

You can view the documents filed in the case here.

See also this article from Bloomberg: "Chrysler Sale Appeal Will Bypass a Court to Save Time."

[While these plans are governmental plans not subject to ERISA, if Indiana has laws which would impose fiduciary responsibility on fiduciaries of government plans similar to ERISA (as many states do), then these fiduciaries would have no choice but to file their objections if their plans' rights are not being protected in accordance with the law.]

Interesting Preemption Case Cites Glenn

Don't miss this Sixth Circuit case--American Council of Life Insurers v. Ross--holding that ERISA does not preempt a Michigan state law which prohibits insurers from including the Firestone discretionary language in insurance policies. The case is particularly noteworthy because the court cites the Glenn case in support of its decision that the state law should not be preempted:

Finally, we observe that Glenn provides further support for holding that Michigan's law is not preempted by ERISA. There, the Court reiterated that a conflict of interest exists when the same insurer is responsible for examining and paying a benefits claim. Glenn, 128 S. Ct. at 2348. In view of that conflict, Glenn determined that courts, in reviewing a benefits decision by an insurer who has discretion over assessing and paying benefits, may consider that conflict as a factor in deciding whether the plan administrators decision amounts to an abuse of discretion. Id. at 2351. If, as Glenn reaffirms, there is a conflict of interest when the same plan administrator decides the merits of a benefits plan and pays that claim, and if, as Glenn also holds, it is consistent with ERISA to account for that conflict of interest in reviewing a plan administrator's decision, it is difficult to understand why a State should not be allowed to eliminate the potential for such a conflict of interest by prohibiting discretionary clauses in the first place.

Read about the Glenn case in previous posts which you can access here.

New Executive Compensation Model Being Advocated

From Knowledge Wharton--"Incentives for the Long Run: An Executive Compensation Plan That Looks Beyond the Next Quarter." Excerpt:

In a working paper titled, "Dynamic Incentive Accounts," Edmans, along with Xavier Gabaix and Tomasz Sadzik of New York University, and Yuliy Sannikov of Princeton University, outline a system that escrows compensation for a set period of years stretching into the executive's retirement. The longer time frame is designed to prevent the executive from taking short-term actions that may enrich the manager at the expense of the firm's future profits. The plan also provides a rebalancing mechanism to maintain a constant percentage of compensation in cash and stock, so that the executive always has sufficient equity in the firm to provide performance incentives -- even if the stock price falls.

The Mind-Numbing Aspects of ERISA Drove Justice Souter to Retire?

I am sorry to have missed this one, but am grateful to xtremERISA for pointing it out:

The following is from an article in The Wall Street Journal on May 1, 2009, discussing possible bases for Justice Souter's impending retirement:

. . . Justice Souter has complained about life in Washington and even about aspects of the court's work, such as the numbingly technical cases involving applications of pension or benefits law.

IRS Provides Copy of Internal Controls Questionnaire Online

At the Joint Meeting of the Pension Liaison Councils held earlier this year, the IRS in several presentations to practitioners discussed how, in an examination of a qualified plan, the examiner's primary focus initially will be on the "internal controls" that a plan sponsor has in place to ensure that the plan is being run in accordance with its terms and the law. If the IRS finds that the "internal controls" are not in place, officials indicated that this will lead to further examination and inquiries into the plan's practices and may lead to sanctions if issues are uncovered.

So, just what questions will the IRS be asking in order to found out what "internal controls" the plan sponsor has in place? You can now view the questionnaires online at this link here. (You can also find the links in this recent IRS newsletter here.)

The posting of these questionnaires is helpful to plan sponsors because they now have a "heads up" as to what to anticipate in an IRS examination and can use these questionnaires to be better prepared. Please note that, while the IRS has stated informally that it no longer asks for a copy of formal or informal self-audits conducted by the plan sponsor, some of the questions that the IRS asks in its questionnaires does appear to be aimed at extracting information that would normally be obtained from such audits, i.e. "Do you know of any operation or form failures with the plan" and "What are the failures and how many years did it occur?" In the past, practitioners were critical of any attempts by IRS to obtain copies of formal self-audits for several reasons, one of which was the attorney/client privilege, and another of which was the "chilling effect" this would have on self-audits, as plan sponsors would be hesitant to perform their own audits if they thought IRS was going to ask for the results in an examination. My guess is that practitioners will likely be critical of these particular questions in the Internal Controls Questionnaire for some of the same reasons.

Sixth Circuit: Anti-Cutback Rule Does Not Apply to Ad Hoc Post-Retirement Benefit Increases

The "anti-cutback rule" under ERISA and the Internal Revenue Code is well-known to benefits lawyers and involves the idea that, once benefits are promised under a qualified plan and participants vest in those benefits, those benefits cannot be taken away from the participant. However, in determining what "benefits" are protected by this rule, one must understand the definition of "accrued benefit" which was the focus of this recent Sixth Circuit opinion--Thornton v. Graphic Communications Conference of the International Brotherhood of Teamsters Supplemental Retirement and Disability Fund, et al. case.

The case involved a multi-employer plan that provided retirement benefits to employees in the graphic communications industry. The plan's Board of Trustees served as the plan's sponsor and administrator. Certain individuals retired and began receiving benefits under the plan. During their retirement, on several occasions and on what appears to be an ad hoc basis, the Board amended the plan to provide increases in benefits for all active and retired participants. However, five years later, the Board then voted to rescind those benefit increases due to a funding shortfall which threatened to jeopardize the plan's long term financial viability.

The retirees filed a class action, claiming an improper cut-back of accrued benefits in violation of the anti-cutback rule under ERISA and a breach of fiduciary duty by the Board in passing the amendment. The district court ruled that the action by the Board of rescinding the increase did not violate the ERISA anti-cutback rule because the plan amendment granting the increase was adopted after the individuals retired, and that the Board did not breach their fiduciary duty.

In affirming the decision of the district court, the Sixth Circuit provides a classic 15-page discussion on the definition of "accrued benefit" under ERISA and the Code that is a 'must-read' for benefits lawyers (IMHO).

Some key points of the decision:

(1) The court agreed with the Fourth Circuit that "Congress did not consider a post-retirement increase in pension benefits to be an 'accrued benefit'":

We believe the Fourth Circuit's thorough analysis of the text and context of IRC § 411(a)(7)(A)(i) demonstrates that Congress did not consider a post-retirement increase in pension benefits to be an accrued benefit. Section 411's repeated emphasis on the accrual of benefits during service makes plain that the terms of pension plan document(s) in effect while a participant worked for a covered employer dictate his or her accrued benefits. We do not find, and Thornton has not offered, any indication in the language of § 411(a)(7)(A)(i), or statutory construction thereof, that even remotely suggests that a given participant may amass accrued benefits after he or she permanently separates from covered employment. Consequently, we hold that a postretirement increase in benefits does not create an accrued benefit for a given participant under IRC § 411(a)(7)(A)(i) unless it is in accordance with the plan in effect while the employee works in the service of the employer. . .

(2) The most interesting aspect of the opinion, however, is the discussion by the court of the Code's parallel anti-cutback provisions contained in Section 411(d)(6) of the Code and the Treasury's resulting regulatory guidance regarding the definition of "accrued benefit" for purposes of the anti-cutback rule. The court notes that the Treasury's 2005 Regulation Section 1.411(d)-3 interprets the definition of "accrued benefit" to include post-retirement increases, which Regulation states in part:

The protection of section 411(d)(6) [anti-cutback rule] applies to a participant's entire accrued benefit under the plan as of the applicable amendment date, without regard to whether the entire accrued benefit was accrued before a participant's severance from employment or whether any portion was the result of an increase in the accrued benefit of the participant pursuant to a plan amendment adopted after the participant's severance from employment.

However, the court refused to consider the Regulation as determinative of the outcome because of the Regulation's effective date, which stated that the Regulation was only effective as to amendments "adopted on or after August 12, 2005", and the Board's adoption of the amendment rescinding the benefit increase took place before the amendment became effective. The court also rejected the plaintiffs' argument that the Regulation reflected Treasury's long-standing position on the issue. After a very long discussion of the Treasury's treatment of this issue, the outcome appears to have boiled down to an IRS letter contained in the record on appeal, dated December 5, 2008 (unrelated to the plan at issue):

The record on appeal includes a recent IRS letter, dated December 5, 2008, discussing the agency's audit of the Graphic Artists Industry Joint Pension Trust Plan (JPT), a multi-employer pension benefits plan entirely separate from the Defendant in this case. Letter from Monika A. Templeman, Director Employee Plans (EP) Examinations, Internal Revenue Service, to Graphic Arts Industry Joint Pension Plan Trust (Dec. 8, 2008). The letter indicates the IRS had initially considered a JPT amendment to eliminate a COLA benefit, previously granted to retirees, to be a violation of the anti-cutback rule under the 2005 Regulation, consistent with its litigation position in Sheet Metal Workers. Id. But the letter goes on to state that the IRS abandoned this position after realizing JPTs amendment occurred prior to August 12, 2005, the effective date of the 2005 Regulation. As a result, the IRS advised JPT that rescinding the COLA previously granted to plan participants who were already retired at the time the COLA was introduced did not violate the anti-cutback rule:

However, the Service recognizes, in light of the 2005 final section 411(d)(6) regulations, the plan should not be considered as failing to satisfy [the anti-cutback rule of IRC § 411(d)(6)] as a result of the amendments eliminating the retirees benefit increases, because the amendments were adopted before the effective date of the final regulations.

Id. (emphasis added). We can logically deduce from this declaration that the IRS did not consider the post-retirement COLA an accrued benefit under the 2002 Regulation, which was unquestionably applicable prior to August 12, 2005. This position is diametrically opposed to Treasury's proffered interpretation in Sheet Metal Workers.

Because Treasury has abandoned the litigation position it took in that case, the Court is relieved of any obligation to defer to it under Auer. Cf. Rust v. Sullivan, 500 U.S. 173, 186-87 (1991) (holding that a longstanding agency interpretation was no longer entitled to Chevron deference given that the agency had changed its position on the issue).

(3) There was also a very interesting discussion of the "Pattern Regulation" which says:

if an employer establishes a pattern of repeated plan amendments providing for similar benefits in similar situations for substantially consecutive, limited periods of time, such benefits will be treated as provided under the terms of the plan, without regard to the limited periods of time, to the extent necessary to carry out the purposes of [the anti-cutback rule].

The plaintiffs tried to argue that the increases were protected under this Pattern Regulation, but the court rejected the argument because the increases occurred on a post-retirement basis.

(4) Finally, the court also takes note of the defendants' argument that when they had submitted the plan document for IRS review, they had clearly indicated in the application that they had amended the plan to rescind the benefits increase and the IRS issued a favorable determination letter. However, the court said the Determination letter did not "carry any weight" for two reasons:

First, it is not clear that Treasury in fact endorsed the December 2002 Amendment in light of the anti-cutback rule. The letter merely provides a summary conclusion regarding the Plans tax-exempt status and does not make any specific findings regarding the anti-cutback rule. See Hickey, 980 F.2d at 469 (citing the informal nature of [IRS determination] letters, the express limitations included in the IRS letter, and the absence of any reasoning in refusing to accord a favorable IRS tax-exempt status determination letter any weight in interpreting the anti-cutback rule). Second, even if we assume Treasury found that the December 2002 Amendment complied with the anti-cutback rule, the absence of a rationale explaining how the agency arrived at this conclusion militates against granting deference under Mead. See 533 U.S. at 228. Thus, the IRS Determination letter lacks the power to persuade this Court in our construction of the statutory definition of accrued benefit and the corresponding scope of the anti-cutback rule.

Conclusion: Employers faced with difficult decisions in this economy may find themselves evaluating their options and will most certainly look to this Sixth Circuit decision as important in their decision-making. Certainly, for benefits increases granted before the effective date of Treasury's 2005 regulations, the result is more clear than for benefits increase granted after the effective date.

Employee Benefits Research Tips and Techniques

You can access a copy of the outline I prepared for a presentation given to the Louisville Employee Benefits Council on March 10, 2009 here.

Announcing a New Blog. . .

For some time now, I have had a great interest in starting a website devoted to following legal developments related to ERISA fiduciary law as the whole area seems to be exploding with developments and it is difficult to cover them all at this site. The new site can be found at www.fiduciaryguidebook.com and is called "The Fiduciary Guidebook." It is, of course, a work in progress. . .

White House Memo on Preemption

The White House has issued a general Memo here to "Heads of Executive Departments and Agencies" relating to the issue of federal preemption of state law. ERISA lawyers will want to read it and reflect on how the policy might or might not impact an already complicated and tangled ERISA preemption regime. Excerpt from the Memo:

1. Heads of departments and agencies should not include in regulatory preambles statements that the department or agency intends to preempt State law through the regulation except where preemption provisions are also included in the codified regulation.

2. Heads of departments and agencies should not include preemption provisions in codified regulations except where such provisions would be justified under legal principles governing preemption, including the principles outlined in Executive Order 13132.

3. Heads of departments and agencies should review regulations issued within the past 10 years that contain statements in regulatory preambles or codified provisions intended by the department or agency to preempt State law, in order to decide whether such statements or provisions are justified under applicable legal principles governing preemption. Where the head of a department or agency determines that a regulatory statement of preemption or codified regulatory provision cannot be so justified, the head of that department or agency should initiate appropriate action, which may include amendment of the relevant regulation.

PBGC Deficit at $33.5 Billion

At a hearing today before the Senate Special Committee on Aging, the PBGC Acting Director Vince Snowbarger will speak about how the PBGC will post a $33.5 billion deficit for the first half of fiscal year 2009. The Hearing is entitled "No Guarantees: As Pension Plans Crumble, Can PBGC Deliver?"

More from this press release here about his testimony:

The increase in the PBGCs deficit is driven primarily by a drop in interest rates and by plan terminations, not by investment losses, Snowbarger states in his written testimony. The PBGC has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums. Nevertheless, over the long term, the deficit must be addressed.

Supreme Court Issues Decision in AT&T Corp. v. Hulteen case

The Supreme Court has issued its opinion in the case of AT & T Corp. v. Hulteen. The case focuses on calculation of pension accruals under the Pregnancy Discrimination Act.

The district court decision, which had been affirmed by the Ninth Circuit and held for the employee, is reversed in a 7-2 opinion by Justice Souter. Justice Stevens filed a concurring opinion. Justice Ginsburg filed a dissenting opinion, joined by Justice Breyer.

IRS Proposes Rules Allowing Employers to Suspend or Reduce Safe Harbor Nonelective Contributions

The IRS has come up with some new rules to "ease the pain" of these dire economic conditions and has issued some proposed regulations allowing employers to reduce or suspend their 401(k) or 403(b) safe harbor nonelective contributions mid-year in the case of a "substantial business hardship described in section 412(c) [of the Internal Revenue Code]." The IRS notes in the preamble to the proposed regulations (in today's Federal Register) that the new rules will "provide an employer an alternative to the option of terminating the employer's safe harbor plan in such a situation" (i.e. better to ease the rules a bit, than have employers ditch the plans altogether in an attempt to get rid of the mandatory contribution). There is a 30-day advance notice requirement and a requirement that employees be allowed to change their salary deferral elections in order to take advantage of the new rules.

Please note the following regarding the proposed effective date of the new rules:

These regulations are proposed to be effective for amendments adopted after May 18, 2009. Taxpayers may rely on these proposed regulations for guidance pending the issuance of final regulations. If, and to the extent, the final regulations are more restrictive than the guidance in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect.

IRS Begins Internship Program in Employee Plans Division

The National Law Journal reports that the Employee Plans Division of the Internal Revenue Service has started an internship program for law students. This is a great opportunity for law students to break into the employee benefits arena and receive law school credit at the same time. However, the bad news is that the positions appear to be unpaid--not an uncommon scenario in this economy.

Reporting of COBRA Subsidy

RIA indicates:

Joseph Tiberio, IRS Program Manager, Employment Tax Policy, has confirmed that the IRS will not require COBRA subsidy payments to be reported on Form W-2 or Form 1099. Tiberio made his comments on the May 12th IRS Tax Talk Today webcast entitled Specialty Taxes: Estate and Gift, and Employment Taxes.

When asked how a tax practitioner would know that some or all of the subsidy should be reported on a personal income tax return if the "Assistance Eligible Individual" does not receive a Form W-2 or Form 1099, Tiberio advised practitioners "to ask their clients about the subsidy before the practitioner begins preparation of the return."

Seventh Circuit Discusses IMEs in a Footnote

The Seventh Circuit did not feel that the new Glenn standard made a difference in the outcome of this long-term disability case--Jenkins v. Price Waterhouse Long Term Disability Plan. However, the court did, in a footnote, issue a warning about "independent medical examinations":

. . . [W]e don't want the phrase independent medical examination to pass without a comment. IMEs are designed to turn a spotlight on claims that are exaggerated or downright fraudulent. They are advertised as, and often passed off as, completely neutral examinations by disinterested medical professionals. But that is not always the case, especially when the professionals bill is paid by an insurance company (or a self-insured employer) with an interest in receiving a report that minimizes, or discounts, a disability claim. How much an IME professional is paid, and how often he or she is used, are certainly important considerations that bear on what weight should be attached to their reports.

Ninth Circuit Addresses Retiree Claims Under Bankrupt Employer's Self-Funded Medical Plan

With bankruptcy filings soaring during this economic downturn, it is always of great interest to benefits practitioners to learn how bankruptcy courts are dealing with the unmet employee benefit obligations that get thrown in the mix. The Ninth Circuit in the case of Consolidated Freightways Corp. v. Aetna, Inc. dealt a blow to retirees (and the insurer who had advanced amounts in payment of retiree claims) by ruling that the retirees' claims for benefits under a self-funded retiree medical portion of the employer's health plan were not entitled to "priority" in determining the number of employees under Section 507(a)(5) of the Bankruptcy Code, even though active employees' claims were so entitled. The court looked at the history of the Bankruptcy Code and determined the outcome based upon what the court determined to be the intent of Congress:

The next question is: For purposes of this priority, what is meant by employees and arising from services rendered? While at first blush there may be some ambiguity in that regard, we think that a consideration of § 507(a)(5) in the context of the statute renders the answer quite clear. . .

Considering, then, the provisions as a whole, and giving similar language similar meaning,we find the intent of Congress and the purpose of the provisions to be far from opaque; rather they are hyaline. In general, the scope of services rendered is those services performed by persons employed by the debtor during the 180-day period preceding bankruptcy.

Alternatives to Lay-Offs

One CEO reveals: "How to Keep Your Staff and Your Bottom Line Intact." (And your benefits.)

The Workforce Prof Blog raises concerns about FLSA here.

Agencies Post More Information on COBRA Subsidy

The IRS has posted its fourth installment of Q & A's concerning the ARRA COBRA Subsidy.

See also these links from the Department of Health and Human Services ("HHS"):

HHS's webpage on the COBRA Subsidy here.

Helpful Information About State Continuation Coverage (Mini-COBRA Programs) and the American Recovery and Reinvestment Act of 2009 (ARRA)

COBRA Helpful Tips

The DOL has posted a draft of the new Application which it will use to review private employer group health plan denials of the COBRA subsidy. The applications have apparently been submitted to the federal Office of Management and Budget for approval by May 15, 2009. In this DOL Supporting Statement here, the DOL provides this estimate of how many applications the agency expects to receive:

The Department estimates that approximately 40.8 million individuals will initially file for Unemployment Insurance between September 1, 2008 and December 31, 2009 from the private-sector. Of these, 11.4 million will be eligible for a COBRA subsidy due to the following factors: their enrollment in employer sponsored insurance (ESI); their employment by a firm of 20 or more employees; and their lack of other options for health insurance coverage. Of those, 50 percent or 5.7 million are expected to actually apply for the subsidy and enroll in COBRA. National Unemployment Insurance data reported a 5.8 percent appeal rate of initial claims in 2008. The Department assumed that roughly half that share, or 3 percent, of those that applied for the subsidy would contact the Department to appeal a denial, or 172,000. Of these, it was assumed that 45 percent, or 77,000, would involve an initial call to an EBSA benefits advisor who would be able to resolve the issue without going through a formal appeal. The remaining 55 percent, or 95,000, would go through a formal appeal.

The Supporting Statement also indicates:

The information provided on the Application will be used by EBSA to make a determination regarding the applicant’s eligibility for premium assistance with[in] the 15-business day time frame required under the legislation. EBSA’s determination upon review of the denial will be de novo and serve as the final determination of the Secretary. A reviewing court is required to grant deference to the Secretary’s determination. . .

CMS has provided a similar draft Application here to be used "under COBRA laws applicable to Federal, State and local government employees and comparable State laws."

Delay of Enforcement Date for Red Flags Rule

The FTC has announced that it will delay enforcement of the Red Flags Rule (discussed in previous post here) until August 1, 2009. Access the FTC's press release here.

Senate Finance Committee Hearing on Health Care Reform

Today the Senate Finance Committee held a Roundtable Discussion on Financing Comprehensive Health Care Reform. The Wall Street Journal Health Blog reports here on how single-payer advocates apparently staged a protest at the meeting.

Q & A With Rep. Miller on H.R. 1984, The 401(k) Fair Disclosure for Retirement Security Act of 2009.

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.

WSJ: 401(k)s Hit by Withdrawal Freezes

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."

Glenn Is Turning Point in Decade-Long Battle Over Disability Benefits

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.

Iowa Moving Towards Mandated Health Insurance Coverage for Children

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.

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.

. . . [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.

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.

(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.

Third Circuit: No More "Sliding Scale" Standard of Review

The Third Circuit has officially opined in the case of Schwing v. Lilly Health Plan (3rd Cir 04/14/2009) that MetLife v. Glenn overruled the "sliding scale" standard of review previously adopted by the Third Circuit in reviewing decisions of ERISA fiduciaries: 

. . . [W]e find that, in light of Glenn, our sliding scale approach is no longer valid. Instead, courts reviewing the decisions of ERISA plan administrators or fiduciaries in civil enforcement actions brought pursuant to 29 U.S.C. § 1132(a)(1)(B) should apply a deferential abuse of discretion standard of review across the board and consider any conflict of interest as one of several factors in considering whether the administrator or the fiduciary abused its discretion.

The Schwing case resolves a post-Glenn conflict created by differences of opinion on the issue among district courts in the Third Circuit.

Benefits lawyers will also want to note the Third Circuit's disagreement with the district court over its finding of a conflict of interest created by the benefits lawyer's dual representation of both the plan fiduciaries (the Employee Benefits Committee) and the plan sponsor: 

Here, and in broad summary, the District Court applied a heightened standard of review based on its finding of a conflict of interest involving the EBC’s attorney, who was also an attorney for Lilly. The Court concluded that the conflict of interest tainted the deliberations to such a degree as to render the EBC’s decision arbitrary and capricious. In the alternative, the Court concluded that, even ignoring the conflict of interest, the EBC’s decision was arbitrary and capricious largely because the EBC failed to undertake a full investigation of Schwing’s claim.

We disagree with the District Court and find that the EBC did not abuse its discretion when it denied Schwing’s claim for severance benefits, even considering, as factors, the attorney’s conflict of interest and the conflict of interest inherent in the fact that Lilly funds and administers the plan. The attorney’s role visa-vis the EBC was advisory only and her conduct, although criticized by the Court, was altogether appropriate. We note that ERISA fiduciaries are not required to engage independent counsel to aid in their interpretation and administration of an ERISA plan. . .

While the Third Circuit ruled that the dual representation was "altogether appropriate," there are many reasons why separate representation of plan fiduciaries might be preferable.

Announcement of the 403(b) Prototype Program

The IRS has issued Announcement 2009-34 which provides details regarding a new program for the pre-approval of prototype plans under Section 403(b) of the Internal Revenue Code.  The announcement includes a draft revenue procedure that contains the Service’s proposed procedures for issuing opinion letters on 403(b) prototype documents.  The Service is simultaneously posting draft sample plan language on their website for use in drafting the prototypes.

The Service is seeking feedback before finalizing the procedures and sample plan language, and invites interested persons to comment. 

Latest on EFCA

Campaign Diaries appears to have the latest tally regarding the Employee Free Choice Act here. One senator cites the looming health care debate as one reason why he has concerns about EFCA in its present form, i.e. if supporters of the bill splinter relationships over EFCA, there might not be enough supporters left for the current administration's proposed health care agenda.

Retiree Medical Legislation Introduced

Employers and their advisors will want to keep an eye on some legislation that has been introduced and referred to Committee called the "Emergency Retiree Health Benefits Protection Act of 2009" (H.R. 1322). The bill would effectively prevent employers from terminating or reducing retiree medical after participants retire, or even passing additional costs of the coverage along to retired participants. In other words, the legislation would attempt to "vest" retirees in their retiree medical benefits upon retirement, regardless of any provisions in the Plan documents to the contrary.

Here is a portion of the language in the legislation:

Notwithstanding that a group health plan described in subsection (b) may contain a provision reserving the general power to amend or terminate the plan or a provision specifically authorizing the plan to make post-retirement reductions in retiree health benefits, it shall be prohibited for any group health plan, whether through amendment or otherwise, to reduce the benefits provided to a retired participant or his or her beneficiary under the terms of the plan if such reduction of benefits occurs after the date the participant retired for purposes of the plan and reduces benefits that were provided to the participant, or his or her beneficiary, as of the date the participant retired. Any group health plan provision which purports to authorize the reduction of benefits in a manner inconsistent with the foregoing prohibition shall be void as against public policy.

The American Benefits Council, SHRM, and ERIC and others have expressed their concern over the legislation in a letter.

The concern, of course, is that employers will jettison these programs if the legislation is passed (retirees would be vested under the legislation, but employers would likely be able prevent future vesting for active employees by terminating the programs.)

Cuts in Jobs, Pay and Benefits Spur Fears of Unionization

With many employers weathering the economic slump by cutting jobs, pay and/or benefits, employers also fear the repercussions that could come from such actions. Particularly, the Wall Street Journal today notes that employers are gearing up for how such actions might make them vulnerable to workers seeking to unionize:

U.S. businesses, fearful of rising union influence and a crackdown by the Obama administration on workplace practices, are scrambling for legal advice and training. . .

Labor consultants and lawyers are . . briefing companies large and small on a range of matters such as complying with current and recently enacted legislation, and how to detect union organizing and prevent it without breaking the law. Another pressing issue is whether companies have opened themselves to union organizing drives because they have cut jobs, pay or benefits to weather the economic slump.

House Passes H.R. 1253, the Health Insurance Restrictions and Limitations Clarification Act of 2009

Yesterday, the House passed (422 Ayes, 3 Nays) “H.R. 1253, the Health Insurance Restrictions and Limitations Clarification Act of 2009" which amends ERISA, the Code, and the Public Health Service Act to require that limitations and restrictions on coverage under group health plans be timely disclosed to group health plan sponsors and timely communicated to participants and beneficiaries under such plans in a form that is "clear and explicit."

To get a good understanding of what this bill is supposed to accomplish, I refer you to the floor speech given by Representative Michael Burgess [R-TX]:

Mr. Speaker, in January 2001, the Department of Labor, the Internal Revenue Service, and the Health Care Finance Administration issued a rule in accordance with the Health Insurance Portability and Accountability Act, better known as HIPAA, of 1996 that was designed to guard against discrimination in coverage in the group health market. While addressing the issue of discrimination based upon participation in certain activities, these rules allowed continued discrimination in the form of nonpayment based upon the source of the injury.

So, in other words, you could have an employer-sponsored health insurance, which many of us do, have your premiums deducted from your paycheck, and yet be responsible for paying your own medical treatment if you were harmed. Trip and fall at home, no problem. Trip and fall while skiing on vacation with the family, and you get the bill. This is simply unfair.

People are led to believe that care for a broken arm, for example, is the same regardless of how the injury happened, but in fact that is not the case.

The lack of clarity underlying these exclusions has created a confusing situation for individuals that may ride motorcycles, horses, snowmobiles, or participate in other activities that could result in an injury. Millions of American enjoy these activities safely every year within the framework of State laws and utilizing proper safety precautions. The bill we are voting on today will take away the ambiguity and make certain that people are aware of any such restrictions in their coverage.

Again, this is not a bill that would require anything new to be done other than people be told up front and in plain language if there are limitations on their health care policy.

We are going to stand up and shine the light on these exclusions so that Americans will not be caught off guard by exclusions buried deep within an insurance plan.

The legislation would retain HIPAA's provision of allowing group health plans to establish limitations or restrictions on the amount, level, extent, or nature of benefits or coverage provided, but would require that any limitations and restrictions:

(1) Be disclosed in writing to the plan sponsor in advance of the point of sale to the plan; and

(2) Be disclosed by the plan sponsor to participants and beneficiaries in a form "that is easily understandable" by such participants and beneficiaries.

The legislation also provides that the plan sponsor and the issuer of the coverage must provide such description to participants and beneficiaries "upon their enrollment under the plan at the earliest opportunity that other materials are provided."

IRS Provides Detailed Q & As Regarding COBRA Subsidy

The IRS has issued Notice 2009-27 addressing a lot of issues pertaining to the COBRA subsidy program under ARRA.

Please note that the Notice makes it clear about which entities are eligible to take the credit against payroll tax liabilities:

Under ARRA, the “person to whom premiums are payable” is based on the nature of the plan and which COBRA continuation coverage provisions apply. In the case of a group health plan that is a multiemployer plan, the multiemployer plan is allowed the credit. In the case of a group health plan subject to the Federal COBRA requirements or the temporary continuation coverage requirements under the FEHBP, or a group health plan under which some or all of the coverage is not provided by insurance, the employer maintaining the plan is allowed the credit. For any other group health plan subject to ARRA (generally, fully insured coverage subject to State continuation coverage requirements), the insurer providing coverage under the group health plan is allowed the credit. These are the exclusive rules for who may take the credit unless the Secretary provides otherwise pursuant to the authority in section 6432(b).

Also, Q & A 58 provides further coverage of this issue:

Q-58. In the case of an insured plan subject solely to State law requiring the insurer to provide continuation coverage, if the employer collects the reduced premiums from assistance eligible individuals and pays the full premium to the insurer, is the employer eligible to take the payroll credit directly?

A-58. No. Under section 6432(b)(3), in the case of an insured plan subject solely to State law with respect to the requirement to provide continuation coverage, the only person entitled to be reimbursed for the premium reduction through the payroll credit (unless and until provided otherwise in future guidance) is the insurer providing the coverage under the group health plan.

The Notice also provides helpful guidance regarding what constitutes an involuntary termination of employment, for purposes of determining whether a terminated employee is entitled to the COBRA subsidy. Included is a statement that an "involuntary termination" does not include a reduction in hours, but that an employee’s voluntary termination in response to an employer-imposed reduction in hours "may be an involuntary termination if the reduction in hours is a material negative change in the employment relationship for the employee."

So, it appears from this statement, that an employer might, due to economic conditions, reduce an employee's hours, causing them to lose health care coverage, but the affected employee would not be entitled to the subsidy unless he or she went ahead and voluntarily terminated.

Finally, the Notice makes it clear that an employer may allow an eligible individual to elect coverage different from the coverage under the plan in which such individual was enrolled prior to the involuntary termination, but that the premium for coverage offered under this option cannot exceed the premium for the coverage the individual had prior to the involuntary termination.

Stable Value Funds Discussed

From the Wall Street Journal: 'Stable' Funds in your 401(k) May Not Be. The article discusses how fiduciaries are reviewing their stable-value fund offerings and "looking to move retirement-plan assets out of certain stable-value funds because of performance concerns" but "finding it's not always easy to do so."

More:

In a recent report, David Merkel, chief economist and director of research at brokerage firm Finacorp Securities, advised clients who use stable-value funds to "consider moving funds out if the market value is unlikely to be able to support the book value."

"I would not be surprised to see a stable-value fund fail in 2009," Mr. Merkel later said in an interview.

The Stable Value Investment Association's Ms. Mitchell replies: "It's got to be a cataclysmic event for that to happen. I'm not saying it can't happen, but it would be the perfect storm."

DOL Issues COBRA Subsidy Model Notices

The DOL has posted on their website model notices to be used in complying with ARRA's COBRA subsidy provisions. Please note that there are different notices available for the different groups of qualified beneficiaries that are required to receive notices about the premium reduction pursuant to ARRA. The notices must be provided by April 18, 2009 which leaves very little time for employers to act.

Majority of Employers Continue 401(k) Match

A survey released by WorldatWork and the American Benefits Council indicates that the majority of employers are continuing to offer a 401(k) match:

A full 74 percent of employers reported no change in the employer matching contribution; 15 percent have either increased or are considering increasing the employer match; eight percent have either decreased or are considering decreasing the 401(k) match, and three percent reported eliminating the match.

According to the survey, more than nine out of ten U.S. companies offer an employee 401(k) plan. In addition, despite the widely reported drop in account balances, two-thirds (66 percent) of organizations indicated that at least 70 percent of eligible employees participated in those 401(k) plans in 2008.

The survey was conducted in December of 2008 by WorldatWork, sampling 4,938 U.S. WorldatWork members. A total of 505 members responded to the survey.

Contrast that survey with this one by Sun Life on the Social Security System which indicates that 48% of Americans would prefer to stop paying into the Social Security system, knowing that they would not receive any benefits if they did. All of this may have to do with the lack of confidence in the government's ability to continue to fund these programs as the survey indicates:

70% of workers in their 30s and 66% in their 40s do not believe Social Security will be available when they are 67.

More on this survey from Plan Sponsor here.

Pension Bills to Surge Nationwide

From the Wall Street Journal: "Pension Bills to Surge Nationwide: Many States and Cities Face Hard Choices Because of Market Declines. Excerpt:

Many state and city governments reeling from financial woes are about to get whacked again, this time by an unforeseen increase in their pension bill thanks to market declines.

In an effort to stave off tax increases, New Jersey lawmakers on Monday will consider a bill that would allow municipalities to defer payment of half their annual pension bill, due April 1, for one year. Those towns, counties and schools that opt to defer would face a higher pension bill for years to come.

Other states and municipalities are facing similarly difficult choices. In Pennsylvania, the state employees and public teachers pension funds both have warned that employer contribution rates could surge seven-fold from about 4% of payroll to 28%, starting in 2012. The Detroit police and fire pension plan might have to double employer contribution rates to 50% of payroll by 2011, according to the fund's outside actuary.

Read here how the Governor of Illinois is considering a 50% state income tax increase to assist with his state's pension funding issues (discussed here.)

Thoughts on the Employee Free Choice Act

Michael Fox over at Jottings By an Employment Lawyer has some great thoughts on the Employee Free Choice Act recently introduced into Congress, including these remarks:

I think the opponents of EFCA are making a mistake focusing so much on card check. How a union is formed is important, and my belief is that the secret ballot is far superior to card check. However, in my view the most radical change contained in EFCA is binding arbitration for the first contract. The current national policy, which as mentioned above, is that collective bargaining is the preferred way of organizing the workplace, also is founded on the principle that an employer while required to bargain in good faith, was never forced to concede or agree to any point. To "force" concessions, unions have the economic power to withhold their labor, strike. If EFCA is passed as introduced, for first contracts this would no longer be true. If agreement is not reached, a solution will be imposed, which will require an employer (and employees) to be bound for two years. It represents a total reversal of the current policy, and so far is getting relatively little attention. If that continues, what will happen is that a "compromise" will be reached that retains secret ballot elections (albeit it with major changes designed to make it easier for unions to organize) but keeping binding arbitration for first contract. That would mean that one of the underlying principles of our current system will have been changed, with little discussion or my guess, is little understanding that it is even happening.

More from this Fulbright & Jaworski article on EFCA:

Some have argued that this provision of EFCA would constitute an unconstitutional taking of an employer’s property without due process, and we anticipate years of litigation concerning the issue if this provision of EFCA becomes law. Reportedly, the unions may be willing to compromise on other aspects of the bill if they cannot otherwise muster the necessary votes to kill a filibuster (such as substituting “instant” elections for card check), but view this outrageous change in the law as non-negotiable. Ironically, for years when unions had more strength than they now have, they vehemently opposed compulsory arbitration as the antithesis of free collective bargaining.

Query as to how this would impact benefits, as benefits are often part of the bargaining process.

How Large Employers View Health Care Proposals

Watson Wyatt's survey of 489 large U.S. employers about health care produced some interesting results about how employers view the recent health care proposals floating around in Congress:

The survey found that employers do not support most of the commonly prescribed solutions to the issues that plague the health care system. More than two-thirds (68 percent) are very or somewhat supportive of reforms that advance the consumer-oriented model and emphasize greater individual responsibility. Respondents are least in favor of tax policy changes that remove tax deductibility of employer premium contributions, with only 12 percent supporting those proposals.

Also, regarding the use of health savings accounts:

Health savings accounts (HSAs) are currently offered by 34 percent of companies. By 2010, that number is expected to increase to 43 percent. Health reimbursement accounts (HRAs) are offered by 21 percent today, and only 3 percent plan to add one next year.

Workforce Management reports on the survey here.

Health, Employment, Labor, and Pension Subcommittee Hearing

Yesterday, the Health, Employment, Labor and Pensions Subcommittee of the House Education and Labor Committee held a hearing to "examine ways to increase health care insurance coverage for Americans through their employer." Access the testimony given at the hearing here.

Also, did you know that the House Education and Labor Committee now posts video excerpts of testimony on YouTube which you can access here?

UPDATE: More from KaiserNetwork.org on the hearing here.

Is Health Care a "Right"?

Professor Bainbridge gives his views on the subject here. Excerpt:

As the analysis thus far suggests, private property and freedom of contract are at the center of the debate over positive and negative rights. You cannot achieve positive rights without infringing on someone's negative rights to private property and/or freedom of contract. Health care "reform," for example, will inevitably affect -- almost certainly adversely -- my contractual relationship with my doctor.

Here, as elsewhere, achieving a system of positive rights will come at a very high cost not only to individuals but also to society as a whole. . .

When we infringe on private property and freedom of contract in the name of creating positive rights, we thus infringe on the very engine of democracy. As Russell Kirk observed, "freedom and property are closely linked: separate property from private possession, and Leviathan becomes master of all."

So, no, health care is not a "right" -- at least not the kind that advances liberty.

Blogs from the U.S. Government

You can access a list of blogs maintained by the government at this link here. There do not appear to be any benefits-related blogs yet in the line-up.

See also this post here from the Biddleblog, a blog from the University of Pennsylvania Law School, which discusses the emergence of government blogs:

Governmental web sites are usually one of the first places people go for official government information. Few of us, however, know that government blogs exist as a possible source of information. It may surprise many to learn that the federal government maintains a web page entitled "Blogs from the U.S. Government," which lists active and archived government blogs.

While governments have been slow to embrace Web 2.0 technology, it has nevertheless begun to do so. . .

There are those who will seriously question the veracity, value and reliability of information found on government blogs, as indeed should be the case. Regardless, government blogs remain a potential resource which may provide invaluable information and insight.

Pictorial View of the Great Recession

Via the New York Times here. (Click on the map in the upper left-hand corner.)

ERISA Statute of Limitations Case Relating to a Ponzi Scheme

A Fourth Circuit decision (unpublished) which you can access here provides an interesting discussion of the statute of limitations issues that can arise with respect to bringing suit under ERISA for plan losses resulting from a Ponzi scheme. The case provides a summary of the various Courts of Appeals' positions on the issue of what constitutes "actual knowledge of the breach or violation" under Section 413 of ERISA.

In addition, as Eleanor Roosevelt once said: "Learn from the mistakes of others. You can’t live long enough to make them all yourself." Fiduciaries and those who represent fiduciaries may want to read the case with that adage in mind.

Government Links Pertaining to ARRA's COBRA Subsidy

Here are some helpful links I have run across pertaining to the new COBRA Subsidy:

IRS Website Links

News Release

COBRA Health Insurance Continuation Premium Subsidy

Answers for Employers

Form 941 for 2009: Employer's Quarterly Federal Tax Return

Instructions for Form 941

DOL Website Links

General Webpage on the COBRA Subsidy

Text of ARRA Pertaining to COBRA Subsidy

COBRA Premium Reduction Fact Sheet

Job Loss Poster

New FAQs for Employees

Obama Proposing Tax Increases to Fund Health Reform

From the Wall Street Journal:

President Barack Obama will propose a combined $634 billion in upper-income tax increases and cuts to government health spending over 10 years to fund a new program aimed at getting health coverage to all Americans, a senior administration official said Wednesday.

The spending cuts are aimed not just at raising money for the new program but also at curbing health-care spending overall, something that the president and many experts believe is critical to the nation's long-term financial health. The cuts would affect a range of interests, including managed care companies, prescription drug manufacturers and hospitals.

The proposed tax change would limit the deductions available to people in the highest income tax brackets.

Article Advocates Going After Personal Injury Attorneys as ERISA Fiduciaries

Please note this article: "Can You Recover Under ERISA When The Settlement Money Is Spent?- ERISA Recovery in a Post Sereboff World." At the end of the article, there is a discussion of how health plans and administrators should try to pursue the personal injury attorney as an ERISA fiduciary, once the personal injury attorney has been paid settlement funds on behalf of his or her client. It is apparently an old theory of recovery advocated in the 1990s, but, according to the author of the article, could be given new life by the post-Sereboff caselaw which is developing.

Hearings on Retirement Security

You can access testimony in yesterday's hearing on Retirement Security conducted by the House Education and Labor Committee in this link here. More here.

Plan Sponsor has a good summary of some of the testimony here: "House Committee Advised Not to Scare Participants."

Madoff-related ERISA Litigation Case Filed

Kevin Lacroix of D & O Diary is keeping track of the Madoff-related litigation here. He writes a post here about a new ERISA case filed in the Eastern District of Pennsylvania. Excerpt:

There are a number of interesting things about this lawsuit. The first is that it seeks relief under ERISA. So far as I am aware, this is the first Madoff-related lawsuit asserting claims under ERISA. The interesting thing about an ERISA class action, as opposed to a securities class action, is that the ERISA action is not subject to the PSLRA’s discovery stay and other procedural requirements. So the ERISA plaintiff is free to conduct discovery even while the dismissal motion is pending.

The opportunity under ERISA to avoid some of the challenges of litigating under the federal securities laws clearly was one of the plaintiffs’ attorney’s motivations in bringing the action. The Law.com article linked above quote the attorney as saying that ERISA provides "an easier and quicker route in repairing the damage."

Additional excerpt:

The final interesting thing about this lawsuit is what it says about just how broad the pool of Madoff-related defendants has become. The plaintiff pension fund in this lawsuit did not invest with Madoff. It did not even invest with a Madoff feeder fund. Instead, it invested with an investment advisor that invested with a feeder fund that in turn invested with Madoff. (Got that?) The sheer span of these increasingly remote connections required to establish the Madoff-related link underscores just how widespread the Madoff litigation may yet become.

You can access the complaint here and a copy of the press release here from the law firm bringing the case.

The plaintiff, a pension fund, is alleging breach of fiduciary duty under ERISA for failure "to sufficiently investigate the Madoff-related funds to insure that they were a safe, prudent, honest and suitable investment for employee pension benefit plans and their participants and beneficiaries" and for failure "to locate or give sufficient attention to warning signs about the unreliability of Madoff-related funds as investment vehicles."

Summary of ARRA 's Tax Provisions

Iowa State's Center for Agricultural Law and Taxation has posted a great summary of ARRA's tax provisions here. (Hat Tip: Tax Update Blog)

Reporting and Disclosure Guide for Employee Benefit Plans

Did you know that the DOL has posted an updated "Reporting and Disclosure Guide for Employee Benefit Plans"? It was updated as of October of last year. With the passage of ARRA and CHIPRA, it will now need to be further updated.

IRS Issues Final Regulations Governing QACAs and EACAs

The IRS has issued final regulations (copy via Benefitslink.com) relating to automatic contribution arrangements. The regulations affect 401(k) plans and other eligible plans that include an automatic contribution arrangement.

Effective Dates: The regulations have a general effective date of February 24, 2009. However, except as provided in §§1.401(k)-3(j)(1)(i) and 1.401(m)-2(a)(6)(ii), the final regulations relating to qualified automatic contribution arrangements ("QACAs") apply to plan years beginning on or after January 1, 2008. The regulations relating to eligible automatic contribution arrangements ("EACAs") apply for plan years beginning on or after January 1, 2010.

The regulations go on to provide that, for plan years that begin in 2008, a plan must operate in accordance with a good faith interpretation of Internal Revenue Code Section 414(w). The regulations state that , for this purpose, a plan that operates in accordance with the proposed regulations under §1.414(w)-1 or these final regulations will be treated as operating in accordance with a good faith interpretation of Code Section 414(w).

Participants of Retirement Plans Resilient

This article here from Vanguard reports on participant behavior in 2008. Despite the extreme volatility of the markets in 2008, the study conducted by the Vanguard Center for Retirement Research indicated that the overwhelming majority of participants "stayed the course."

House Education & Labor Committee Will Hold Hearings on Retirement Security

On Tuesday, February 24th, the House Education and Labor Committee will begin a series of hearings "to explore the shortcomings of our nation’s retirement system and look at solutions to ensure that Americans can enjoy a safe and secure retirement after a lifetime of hard work." According to the announcement, the purpose of the first hearing on Tuesday is to "examine how the current economic crisis has highlighted existing weaknesses in the 401(k) retirement savings system." You can li