Benefits In Brief

After months of delay, the Department of Labor (“DOL”) today released final regulations under Section 408(b)(2) of ERISA, requiring retirement plan service providers to disclose information about their services and fees to plan sponsors.  In doing so, the DOL delayed the effective date of those rules and made minor modifications to them.  The final regulations defer the compliance date from April 1 to July 1, 2012.  As a consequence, plan sponsors will also have more time to comply with the related participant-level fee disclosure rules.

The Affordable Care Act (“ACA”) requires each employer group health plan to provide a 4-page summary of its benefits to all individuals who are eligible for coverage. This requirement takes effect on March 23, 2012 (two years after the enactment of the ACA). The three agencies charged with implementing many of the ACA’s requirements have just issued proposed regulations, along with templates of proposed formats, under which a plan may furnish this new “summary of benefits and coverage” (“SBC”).

A long-awaited ruling issued by the United States Supreme Court this spring gives employers both reason to celebrate and cause for concern.  The Court’s decision in CIGNA Corp. v. Amara (May 16, 2011) reaffirms that courts will not enforce benefit rights that are described in a summary plan description (“SPD”) as if those rights were actually set forth in the plan document.  At the same time that it foreclosed this avenue of relief for plan participants, however, the Court apparently opened up another by concluding that participants who are actually harmed by inconsistent or misleading plan summaries may have an equitable right to be compensated for that harm.  As a result, participant communications are likely to be a new source of ERISA litigation in the coming years.

Employers sponsoring ERISA-covered, participant-directed, individual account plans (such as 401(k) or 403(b) plans) are constantly reminded of their fiduciary duties. In recent years, almost any discussion of these duties has included the issue of fees that are charged to participants’ accounts (or that otherwise affect a participant's account balance). Fiduciaries are being told that they must (i) know what fees are being charged to or paid from plan assets, (ii) understand what those fees are for, (iii) make sure that the fees paid are reasonable in relation to the services provided, (iv) disclose certain fees to plan participants, and (v) report certain fees to the government. But where are all of these requirements coming from? And why is there so much more focus on fees than there was 10 years ago?

Target-date funds have become increasingly popular with 401(k) plan investors in recent years. A target-date fund (“TDF”) is typically a mutual fund that contains a mix of underlying investments and automatically adjusts the asset allocation (stocks, bonds, cash equivalents) within the fund’s portfolio according to a selected “target date” such as retirement. As a participant approaches the "target date," the fund moves its allocation to more conservative investments (e.g., bonds and cash) and away from riskier investments (e.g., equities).

The passage of comprehensive health care reform legislation under the Affordable Care Act (“ACA”) made 2010 a monumental year for group health plans. As a result, plan sponsors are faced with a dizzying array of action items for 2011.

A recent decision by an Illinois federal court (Majestic Star Casino, LLC v. Trustmark Insurance Co.) carries two important lessons for sponsors and administrators of self-funded health plans. Unfortunately for the plan sponsor involved in this case, those lessons came at a steep price — in the form of denied stop-loss claims.

As we reported in our February 2009 article, the Children’s Health Insurance Program Reauthorization Act of 2009 (“CHIPRA”) directed the Department of Labor (“DOL”) to draft model notices by which sponsors of employer group health plans could notify their employees of the premium assistance made available under both CHIP and Medicaid. The DOL has now issued a model notice that may be used for this purpose.

As we reported in our December 2009 article, Congress and the President have extended the 65% COBRA premium subsidy enacted as part of the American Recovery and Reinvestment Act (“ARRA”). The maximum subsidy period is now 15 months (rather than 9), and the subsidy will now apply to COBRA coverage attributable to involuntary terminations occurring on or before February 28, 2010 (rather than December 31, 2009).

The IRS has finally updated the model “rollover notice” it issued in 2002. In fact, we now have two new models. Plan administrators will want to start using these new notices on or before January 1, 2010.

As explained in our March 2009 and September 2009 articles, employer health plans and other “covered entities” are required to notify affected individuals and the Department of Health and Human Services (“HHS”) when they breach certain of the privacy requirements imposed by the Health Insurance Portability and Accountability Act (“HIPAA”). HHS has now posted on its website an online form by which such breaches may be reported to HHS.

The American Recovery and Reinvestment Act (“ARRA”) gave the Department of Labor (“DOL”) 30 days to draft and issue model notices for use by employers and insurers in complying with the COBRA-related provisions of that economic stimulus package.  This 30-day period ended on March 19, 2009, with the DOL just barely meeting that deadline – by posting on its website four different model notices, along with an additional set of FAQs.

Tough financial times may tempt struggling employers to fudge a little when it comes to making contributions to their retirement plans. A construction company owner in Michigan recently learned the hard way, however, that leading participants to believe that contributions have been made, when in fact they haven’t, is a bad idea. (Safran v. Donagrandi, E.D. Mich. 1/30/09).

Plan administrators should review and update the written notices they send to participants when making distributions from their retirement plans. Recent changes in the law have expanded the rollover options available to recipients of such distributions, and these should be reflected in the notice.

More and more employers are choosing to post employee handbooks and related documents on the employer’s intranet site. In many respects, this is an elegant solution to the problem of ensuring that the latest version of each such document is readily and conveniently available to all employees. Updates can be made electronically — and incorporated directly into the text of the document — so that employees can always access a single document containing all of the latest provisions. Unfortunately, employers who rely solely on their intranet sites for distributing a Summary Plan Description (“SPD”), as required for each ERISA plan, may find that this approach carries a costly downside.

A major insurer learned, to its chagrin, that it doesn’t pay to include soothing words in a summary plan description (“SPD”) unless those words are actually acted upon. The result in Rosenberg v. CNA Financial Corp. was potential liability for nearly $5 million in severance benefits that were clearly not payable under the terms of the plan.

A recent case in Pennsylvania illustrates the importance of understanding and documenting when COBRA premium payments are made. In Hall v. Glenn O. Hawbaker, Inc., the court found that a COBRA-qualified beneficiary had mailed her premium payment for September coverage on October 5th. Based on this finding, the court denied the beneficiary’s motion for a preliminary injunction that would have reinstated her COBRA coverage.

Effective for plan years beginning on and after January 1, 2007, defined contribution plans must provide such statements at least once each quarter (if they allow participants to direct the investment of their account balances) or at least once each year (if participants are not permitted to direct investments). Sponsors of defined benefit plans must furnish benefit statements at least once every three years.

As you probably already know, President Bush signed the Pension Protection Act of 2006 (the “PPA”) into law on August 17, 2006. Some PPA provisions became effective as of the date of enactment; others preserve existing laws that were set to expire in 2010; and still others are not effective until mid-2007 or 2008. This article summarizes some of the important provisions of the PPA that are effective as of plan years beginning on or after January 1, 2007 – or which apply to distributions, notices, or other events that will occur on or after that date.

The Internal Revenue Service has issued final regulations governing the disclosure of the financial effect and relative value of optional payment forms offered under defined benefit and money-purchase pension plans. Such plans must describe these optional forms (and their relative values) in the qualified joint and survivor annuity ("QJSA") explanation they are required to provide to participants just before their benefit commencement date.

When ERISA fiduciaries speak, they must recognize that what they say, and how they say it, will be held to a higher standard than ordinary speech. This is because ERISA imposes special rules governing the manner in which information about benefits is communicated. Although courts disagree about the scope of this duty of disclosure, it is well established that communications must give participants information that is both accurate and sufficiently detailed to allow them to make informed decisions.

In January, the Department of Labor (“DOL”) finalized regulations intended to increase understanding on the part of multiemployer plan participants and beneficiaries of the funding status of their defined benefit pension plans. Issued under the Pension Funding Equity Act of 2004, the new rules require multiemployer plans to provide an annual “funding notice” with respect to all plan years beginning after December 31, 2004. Unions and employers that co-sponsor such plans are also intended to benefit from this new notice requirement. In January, the Department of Labor (“DOL”) finalized regulations intended to increase understanding on the part of multiemployer plan participants and beneficiaries of the funding status of their defined benefit pension plans.