Month: March 2005

For those of you following developments in the health care subrogation arena, the Third Circuit has issued an important opinion reversing a decision reached by a federal district court in New Jersey. The district court had ruled that a New Jersey statute which prohibited the enforcement of health care subrogation claims was saved from preemption under ERISA’s insurance savings clause. The Third Circuit decision–Levine v. United Healthcare Corp.–held that the statute was preempted under ERISA and not “saved” from preemption under the ERISA insurance savings clause. The decision will apparently impact several class action lawsuits which are pending against major health care insurers in New Jersey, brought by plan participants seeking to recover amounts that insurers had recovered from plan participants who in turn had recovered against tortfeasors. The Third Circuit utilized the new factors set forth in the Miller case, and held that the New Jersey statute was not “specifically directed toward entities engaged in insurance” so that it did not fall within the “savings” clause of ERISA:

To avoid ERISA preemption a state law must be “specifically directed” toward the insurance industry. The New Jersey statute is not. Because the New Jersey statute could be applied to any contributor in any civil action, it is merely a statute that has a significant impact on the insurance industry. As in Pilot, this is not sufficient.

There is a very interesting dissent in the case which argued that the New Jersey collateral source statute was a “law specifically directed towards the insurance industry that has some bearing on noninsurers.”

Read more about ERISA preemption in previous posts which you can access here.

Also, you can access the DOL’s Amicus Brief in yet another well-known subrogation case–the QualChoice case–here. This article here from Law.com indicates the QualChoice case is one the U.S. Supreme Court will consider as a possibility for review.

Earlier this week, the IRS and the U.S. Department of Treasury held a hearing to receive comments regarding the proposed regulations on phased retirement (discussed in a previous post here). SHRM has posted an article which discusses the comments received from the various groups represented at the hearing: “Groups Ask IRS for Phrased Retirement Flexibility.”

Comments on phased retirement presented by:

• ASPPA
• ERIC
• American Benefits Council

Also, a report by AARP: “Attitudes of Individuals 50 and Older Toward Phased Retirement.”

Jason J. Fichtner (Joint Economic Committee) has posted The Taxation of Individual Retirement Plans: Increasing Choice for Seniors on SSRN. Here is the abstract:

For many senior citizens, individual retirement plans, such as IRAs and 401(k)s, are a primary saving vehicle for retirement. Along with Social Security, individual retirement plans (“IRPs”) represent a major source of money for retirement. However, even though IRPs are a valuable saving vehicle for many seniors, many IRPs have one major drawback: the forced distribution of assets and the associated taxation of those assets for senior citizens at age 70½ for traditional IRAs and the later of age 70½ or the year in which the account holder retires for 401(k)s. This requirement forces many seniors to take distributions when they do not need them. Worse, in cases of a down market, the forced distributions may require seniors to sell assets at depressed prices to pay taxes, even if investment losses have been incurred. This study addresses the minimum distribution requirement that effectively forces senior citizens to withdraw funds from IRPs or face a 50 percent excise tax, the reasoning behind the requirement, and the economic harm it can have on seniors, and some policy alternatives to this requirement that would help mitigate the bias against seniors and their retirement that this requirement creates. This study proposes several options that would either repeal or modify the minimum age requirement for forced distributions beginning at age 70½. These options include: repeal, limited repeal, an increase in the minimum withdrawal age, a limited exclusion, a credit for excess withdrawals, allowing losses to be applied to other gains, and a grace period. Any of the proposals would enhance efficiency by providing seniors with the choice of determining when it is in their best interest to make a withdrawal from their IRP, how much to withdraw and subsequently pay the appropriate tax. The individual is in the best position to know when is the right time to elect to make withdrawals, not the government. Further, forcing seniors to sell assets in market conditions that have reduced their retirement plan assets may undermine the retirement security of seniors and produce less tax revenue to the government.

(Source: The TaxProf Blog)

Yesterday, the DOL released an “interim final rule” that contains sample text for the notice required under USERRA. You can access the notice here. The notice was required to be posted beginning March 10, 2005. All employers, regardless of size, are required to comply. Read more about it here from Faegre.com: “Department of Labor Publishes USERRA Notice Just Before the Deadline.”

As many of you may recall, the Veterans Benefits Improvement Act signed into law late last year amended USERRA to require that eligible employees who are called to military service be allowed to continue health coverage for themselves and for their covered dependents under the employer’s plans, at the employee’s expense, for a period of up to 24 months. In the past, the requirement was limited to 18 months, which corresponded to the COBRA continuation period. The new notice issued by the DOL contains language which complies with the new new 24-month requirement.

The Conference Board has issued the results of a survey which shows job satisfaction has declined across all income brackets in the last nine years. While 55 percent of workers earning more than $50,000 are satisfied with their jobs, only 14 percent claim they are very satisfied.

The survey also finds that employees are least satisfied with their companies’ bonus plans, promotion policies, health plans and pensions. The majority are most satisfied with their commutes to work and their relationships with colleagues.

According to the survey, “workers in the Middle Atlantic and Mountain states are the least satisfied workers in the U.S” whereas the “East South Central region has the most content workers.”

The DOL has announced in a press release the issuance of long-awaited guidance governing “orphan” or abandoned plans:

Each year approximately 1,650 401(k) plans holding $868 million in assets and covering 33,000 workers are abandoned. Today, the U.S. Department of Labor announced proposed rules to allow financial institutions to take responsibility for these plans and distribute the plans’ assets to workers and their families. . .

The department currently deals with abandoned plans on a case-by-case basis, often with the involvement of the courts. The proposed rules provide standards for determining when a plan is abandoned and establishes a process for winding up the affairs of the plan and distributing benefits to workers. When implemented, the process would eliminate the need for costlier court approvals and allow workers to regain access to their benefits sooner. The proposal also provides guidance on the application of tax qualification rules to plans terminated under this regulation.

Access a Fact Sheet here and the proposed regulations here.

The regulatory initiative consists of three proposed regulations. One proposal, entitled “Rules and Regulations for Abandoned Plans,” establishes procedures and standards for the termination of, and distribution of benefits from, an abandoned pension plan. The second proposal, entitled “Safe Harbor for Rollovers From Terminated Individual Account Plans,” provides relief from ERISA’s fiduciary responsibility rules in connection with a rollover distribution on behalf of a missing or unresponsive plan participant. The last proposal, entitled “Special Terminal Report for Abandoned Plans,” provides annual reporting relief for terminated abandoned plans.

Highlights of the new rules:

(1) A plan generally will be considered abandoned under the proposal if no contributions to or distributions from the plan have been made for a period of at least 12 consecutive months and, following reasonable efforts to locate the plan sponsor, it is determined that the sponsor no longer exists, cannot be located, or is unable to maintain the plan.

(2) Only a qualified termination administrator (QTA) may determine whether a plan is abandoned under the proposal. To be a QTA, an entity must hold the plan’s assets and be eligible as a trustee or issuer of an individual retirement plan under the Internal Revenue Code (e.g., bank, trust company, mutual fund family, or insurance company).

(3) QTAs that follow the regulation will be considered to have satisfied the prudence requirements of ERISA with respect to winding-up activities.

(4) Also, accompanying the proposed regulations is a proposed class exemption that would provide conditional relief from ERISA’s prohibited transaction restrictions. The proposal would cover transactions where the QTA selects and pays itself to provide services in connection with terminating an abandoned plan, and for selecting and paying itself in connection with rollovers from abandoned plans to IRAs maintained by the QTA, including payment of investment fees as a result of the investment of the IRA’s assets in a proprietary investment product.

Finally, the proposed regulations state that the DOL has conferred with representatives of the IRS regarding the qualification requirements under the Code as applied to abandoned plans that would be terminated under the new rules. The IRS has agreed that it will not challenge the qualified status of any such plan or take any adverse action against the QTA, the plan, or any participant or beneficiary of the plan as a result of such termination, including the distribution of the plan’s assets, provided that the QTA satisfies three conditions: