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Benefits Law Advisor

New Regulatory Guidance Issued on Plan Benefit Suspensions and Plan Partitions for Multiemployer Pension Plans at Risk of Insolvency

As part of on-going efforts to prevent the collapse of financially troubled multiemployer pension plans, the Pension Benefit Guaranty Corporation (“PBGC”) and Internal Revenue Service (“IRS”) have issued regulatory guidance under the Multiemployer Pension Reform Act of 2014 (“MPRA”). Together, the Treasury Proposed and Temporary Regulations, a new Revenue Ruling, and PBGC interim rule prescribe how multiemployer pension plans in critical and declining status can apply for plan partitions and plan benefit suspensions.

Plan Partitions

A partition order provides for the transfer of an original multiemployer pension plan’s liabilities to a successor plan backed by the PBGC. The amount transferred from the original plan is the minimum amount necessary to keep the original plan solvent. Prior to the MPRA, partitions were not available to multiemployer plans unless a participating employer member was involved in bankruptcy. The PBGC’s authority to partition plans has been expanded under the MPRA and implemented under the interim final rule, which sets forth partition application and notice requirements under ERISA § 4233 (29 USC § 1413).   Partitions may now be sought by “eligible multiemployer pension plans.” Under ERISA, a plan is an “eligible multiemployer plan” if:

  • The plan is in critical and declining status (as defined under ERISA, The plan sponsor has demonstrated all reasonable measures have been taken to avoid insolvency (including “maximum benefit suspensions”);
  • The PBGC has determined a partition is necessary for the plan to remain solvent and will reduce the PBGC’s expected long-term loss with regards to the plan;
  • The PBGC can meet its existing financial obligations to assisting other plans (as certified to Congress); and,
  • Costs for partition are paid entirely from PBGC’s fund for basic benefits guaranteed for multiemployer plans.

The PBGC will not recognize an application as complete until all required information is provided, which includes plan information, partition information, financial and actuarial information about the plan (including its most recent actuarial report and certification of critical and declining status), plan participant census data used for actuarial and financial projections, and any additional information related to the plan’s request for PBGC assistance. Once an application is deemed complete, the PBGC provides notice to the plan sponsor and has 270 days to review. The plan sponsor must provide notice to interested parties within 30 days of receiving notice that a complete partition application has been accepted.

Since a partition applicant must show it has taken “all reasonable measures”—including benefit suspensions—to avoid insolvency, the PBGC expects that plans seeking partitions will also apply for proposed suspension of benefits. Therefore, the PBGC strongly recommends that plan sponsors file concurrent applications for partition and suspension of benefits. If a plan seeks both a suspension of benefits and a plan partition, the partition must occur first.

Suspension of Benefits

Multiemployer pension plans in “critical and declining status” may seek approval for proposed benefit suspensions in certain situations under the Treasury’s Temporary Regulations, Proposed Regulations, and the new Revenue Procedure 2015-24. Plan proposals for suspension of benefits must satisfy certain statutory requirements (i.e., actuarial certification and plan-sponsor determinations). Additionally, certain limitations and exemptions apply; for example, benefits may not be suspended for certain categories of individuals based upon age or for benefits based upon disability. Applications for benefit suspensions must be certified by an authorized trustee on behalf of the board of trustees, and each application with supporting material is to be published for public disclosure on the Treasure Department website.

Public Comment

Partition application requirements issued by the PBGC apply to applications received as of June 19, 2015. The PBGC is seeking comments on its interim final rule. Comments may be submitted on or before August 18, 2015. Although the IRS has begun accepting applications for proposals of suspension of benefits, the Treasury will not approve proposal applications until regulations are finalized. Public comment on the Treasury’s proposed regulations is set for September 10, 2015.

What the Supreme Court’s Decision on Affordable Care Act Subsidies Means for Employers

The Internal Revenue Service was authorized to issue regulations extending health insurance subsidies to coverage purchased through health insurance exchanges run by the federal government or a state, the U.S. Supreme Court has ruled in a 6-3 decision. King v. Burwell, No. 14-114 (June 25, 2015).

This means employers cannot avoid employer shared responsibility penalties under Internal Revenue Code section 4980H (“Code § 4980H”) with respect to an employee solely because the employee obtained subsidized exchange coverage in a state that has a health insurance exchange set up by the federal government instead of by the state. It also means that President Barack Obama’s 2010 health care reform law will not be unraveled by the Supreme Court’s decision in this case. The law’s requirements applicable to employers and group health plans continue to apply without change.

What Was the Case About?

Internal Revenue Code section 36B (“Code § 36B”), created by the Patient Protection and Affordable Care Act of 2010 (“ACA”), provides that an individual who buys health insurance “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act” (emphasis added) generally is entitled to subsidies unless the individual’s income is too high (or too low, in which case, the individual is entitled to Medicaid or another subsidized health program). Thus, the words of the statute conditioned one’s right to Code § 36B subsidies on one’s purchase of ACA § 1311 state-run exchange coverage.

Since 2014, an individual who fails to maintain health insurance for any month generally is subject to a tax penalty under Code § 5000A unless the individual can show that no affordable coverage was available. The law defines affordability for this purpose in such a way that, without a subsidy, health insurance would be unaffordable for most people.

The plaintiffs in King, residents of one of the 34 states that did not establish a health insurance exchange under ACA § 1311 (hereinafter called a “1311 exchange”), argued that if subsidies were not available to them, no health insurance coverage would be affordable for them and they would not be required to pay a penalty for failing to maintain health insurance. The IRS, however, made subsidized exchange coverage available to them just as if they resided in a state with a 1311 exchange.

It is ACA § 1311 that established the funding and other incentives for “the States” to each establish a state-run exchange through which residents of the state could buy health insurance. Section 1311 also provides that the Secretary of the Treasury will appropriate funds to “make available to each State” and that the “State shall use amounts awarded … for activities (including planning activities) related to establishing an American Health Benefit Exchange.” Section 1311 describes an “American Health Benefit Exchange” as follows:

Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”) for the State that (A) facilitates the purchase of qualified health plans; (B) provides for the establishment of a Small Business Health Options Program … and (C) meets [specific requirements enumerated].

Section 1311 further provides for the Secretary of the Treasury to impose certain administrative and operational requirements on each state in order for the state to receive funding for its 1311 exchange. An entirely separate section of the ACA provides for the establishment of a federally-run exchange for individuals to buy health insurance if they reside in a state that does not establish a 1311 exchange. That section – ACA § 1321 – also withholds funding from a state that has failed to establish a 1311 exchange.

Notwithstanding the statutory language Congress used in the ACA (i.e., literally conditioning an individual’s eligibility subsidized exchange coverage on the purchase of health insurance through a state’s 1311 exchange), the Supreme Court determined that the language is ambiguous. Having found that the text is ambiguous, the Court stated that it must determine what Congress really meant by considering the language in context and with a view to the placement of the words in the overall statutory scheme.

When viewed in this context, the Court concluded that the plain language could not be what Congress actually meant, as such interpretation would destabilize the individual insurance market in those states with a federal exchange and likely create the “death spirals” the ACA was designed to avoid. The Court reasoned that Congress could not have intended to delegate to the IRS the authority to determine whether subsidies would be available only on 1311 exchanges because the issue is of such deep economic and political significance. The Court further noted that “had Congress wished to assign that question to an agency, it surely would have done so expressly” and “[i]t is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.”

What Now?

“Move along – nothing to see here, folks!” Regardless of whether one agrees with the Supreme Court’s King decision, the decision obviates any practical purpose for further discussion about whether the IRS had authority to extend taxpayer subsidies to individuals who buy health insurance coverage on federal exchanges.

Move on to the ACA’s next major compliance requirements for employers: Employers with fifty or more fulltime and fulltime equivalent employees need to ensure that they are tracking hours of service and are otherwise prepared to meet the large employer reporting requirements for 2015 (due in early 2016) ). (For details, see our article, Health Care Reform: Employers Should Prepare Now for 2015 to Avoid Penalties.) Employers of any size that sponsor self-funded group health plans need to ensure that they are prepared to meet the health plan reporting requirements for 2015 (also due in early 2016). All employers that sponsor group health plans also should be considering whether and to what extent the so-called Cadillac tax could apply beginning in 2018.

If you have any questions about this or other workplace developments, please contact the Jackson Lewis attorney with whom you regularly work.

A Look Ahead to The Supreme Court’s 2015-16 Term

As the Supreme Court winds down its 2014-15 term, the Benefits Law Advisor looks ahead to the ERISA cases and issues the Supreme Court may confront in its next terms. The Supreme Court’s recent ERISA jurisprudence has touched on issues such as remedies (CIGNA Corp. v. Amara and US Airways v. McCutchen), retiree entitlement to healthcare benefits (M&G Polymers v. Tackett), time-based defenses to ERISA claims (Tibble v. Edison Int’l and Heimeshoff v. Hartford Life & Accident Ins.), and the now-defunct “presumption of prudence” that lower courts had applied to ERISA plans’ decision to offer employer stock as an investment option (Fifth Third Bank v. Dudenhoeffer).

As of this writing, the Court has only granted certiorari in one ERISA case for next year’s term, Montanile v. Board of Trustees, No. 14-723, cert. granted Mar. 30, 2015. The Montanile case arose from the familiar situation where an ERISA plan seeks to recover medical benefits paid to an injured participant, after that participant receives a tort recovery for those injuries. Both lower courts granted summary judgment to the plan, with the additional proviso that the plan could impose an equitable lien (under the terms of the plan) on Montanile’s settlement proceeds, even if those monies have been dissipated.

In granting Montanile’s petition, the Court interprets, once again, the term “equitable relief” in ERISA §502(a)(3) – an issue the Court has repeatedly revisited. In particular, the Montanile case gives the Court a chance to address an open question from its equitable-remedies jurisprudence: is there an “equitable tracing” requirement that obligates ERISA plaintiffs to identify a specific sum of money that may be the subject of an equitable recovery?

The existence of an equitable-tracing requirement has been hotly debated since at least 2003, when the Court’s decision in Great West Life & Annuity v. Knudson firmly established that equitable relief under ERISA was limited to those forms of relief traditionally available in the courts of equity. Since Knudson, many ERISA defendants have successfully argued that equitable relief was only available where plaintiff could identify a particular asset or sum of money that could be made subject to a restitutionary recovery, constructive trust or equitable lien. As a result, the Court has struggled (in this author’s view) with how to apply traditional “tracing” rules, because the Court’s answer could have far-reaching implications both for plans seeking reimbursement, and for participants invoking ERISA §502(a)(3) for redress in fiduciary-breach claims or other violations of ERISA.

It seems that the Court is ready to answer that question in Montanile, judging from the question presented in the Court’s writ. Another similar case, Elem v. AirTran Airways, No. 14-1061 (cert. pet. filed Feb. 27, 2015). is pending before the Court on the participant’s petition.

Beyond Montanile, the Court has several other writ petitions pending, including three cases where the Court has invited the Solicitor of Labor to weigh in with an amicus brief. These cases include:

  • Smith v. Aegon Cos. Pension Plan – In this case, the lower courts dismissed benefits claims on grounds of improper venue. In doing so, the lower courts held that an exclusive-venue provision in the plan required the participant to bring his benefits suit in the specified venue. The Department of Labor (DOL) had submitted an amicus brief to the Sixth Circuit, arguing that venue-selection provisions ran afoul of ERISA’s goal of providing participants with ready access to the courts. The Sixth Circuit, however, rejected DOL’s position and enforced the plan’s venue provision. A Supreme Court decision on this issue would likely be significant, because many plan sponsors are using the plan document to “hard wire” certain defenses to benefits claims – for example, the Court’s recent Heimeshoff decision approved a limitations period established by the plan.
  • Gobeille v. Liberty Mut. Ins. Co. – This case presents a pre-emption question – specifically, whether ERISA pre-empts a Vermont law requiring healthcare payors (including ERISA plans) to submit certain claims data to the state. A split panel of the Second Circuit held the Vermont law was pre-empted because it imposed additional reporting requirements on those already imposed by ERISA. At the Court’s invitation, DOL filed an amicus brief opining that ERISA does not pre-empt the Vermont statute because it applies to non-ERISA entities, as well, and does not impose significant reporting burdens. The DOL brief added, however, that the Court’s review was not currently warranted, and suggested that “further percolation” of the issue in the appellate courts would be beneficial. Given that the Court’s last decision on ERISA pre-emption was over 10 years ago, the Court may nevertheless be signaling its readiness to take the case, and to issue further guidance on ERISA’s pre-emptive reach.
  • RJR Pension Inv. Comm. v. Tatum – The Tatum case arose from a dispute over plan fiduciaries’ decision to divert the plan of company stock, at a time when the stock was distressed. After the company stock recovered dramatically, participants asserted ERISA claims that plan fiduciaries had acted imprudently in selling the stock at a time when the price was down significantly. The Fourth Circuit held, among other things, that (1) the burden of proving loss causation shifted to plan fiduciaries, upon a showing that the fiduciaries had breached their duty of prudent investment; and (2) plan fiduciaries must show a hypothetical prudent fiduciary “would have” (as opposed to “could have”) made the same investment decision, where there was no evidence that the plan’s fiduciaries had undertaken robust deliberations before divesting the plan’s holdings in company stock. The Court invited the DOL to brief both issues. If the Court takes the case, its decision could be significant. On the former issue, a decision from the Court would resolve diverging lower-court decisions on whether the plaintiff bears the ultimate burden of proof (including loss causation), or whether the burden-shifting approach of trust law – requiring a trustee, upon a showing of a breach of duty, to demonstrate that the breach did not cause the loss – is more appropriate for ERISA cases. On the latter issue, a decision from the Court could provide much-needed guidance on the proper scope of judicial review of fiduciary decision-making.

Although the Court has taken no action yet on the petition, it may be worth watching to see whether the Court takes up the case of UnitedHealthcare of Arizona, Inc. v. Spinedex Physical Therapy USA, Inc., No. 14-1286 (cert. pet. filed April 24, 2015). There, the Ninth Circuit held that a claims administrator is a proper party defendant in a medical benefits claim, even though it otherwise had no obligation as the benefits payer. Because ERISA §502(a)(1)(B) only authorizes suit for “benefits due … under the terms of his plan,” the Ninth Circuit’s reading of the statute – which purports to make claims administrators liable for benefits in a manner not contemplated by “the terms of the plan” – clearly seems overbroad. If left unaddressed, the Spinedex decision could ultimately prove counter-productive, in that it will inevitably raise costs for service providers, which in turn, will be passed along to the plans, and ultimately to the participants in the form of higher premiums, larger deductibles, or less-generous coverage.

The Supreme Court has demonstrated some enthusiasm for ERISA in recent years. The Montanile case represents a significant beginning to the Court’s ERISA work for the next term. Given the cases and issues before it, however, the odds are that the Court will consider more ERISA cases in the next twelve months. The Benefits Law Advisor will continue to monitor the Court’s docket, and report on significant developments.


When a Deferred Compensation Plan Qualifies for “Top-Hat” Plan Status under ERISA

In a recent decision, Tolbert v. RBC Capital Markets Corp., _________ (S.D. Texas April 28, 2015), the district court wrestled with the question of how to determine whether a deferred compensation plan was a “top-hat” plan exempt from many of the substantive requirements of the Employee Retirement Income Security Act (“ERISA”).

The Fifth Circuit previously had determined that the deferred compensation plan was a “pension plan” covered by ERISA. ERISA defines a “pension plan” to be any plan, fund, or program established or maintained by an employer which (1) provides retirement income to employees OR (2) results in a deferral of income for periods extending to the termination of covered employment or beyond. Section 3(2) of ERISA. Under this definition, some but not all, deferred compensation plans will be subject to ERISA.

ERISA generally requires pension plans to comply detailed and complex requirements with respect to participation, vesting, funding, and reporting and disclosure. However, a retirement or deferred compensation plan, however, will be exempt from these requirements if (1) the plan is an “unfunded” plan within the meaning of Title I of ERISA, and (2) the plan is maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” Such plans are commonly referred to as “top-hat” plans.

There are no explicit statutory or regulatory guidelines under ERISA for determining whether employees covered by a plan constitute “a select group of management or highly compensated employees.” Individually issued opinions of the Department of Labor (“DOL”), as well as its informal public statements, have evidenced a significant degree of ambivalence in making this determination. Similarly, the courts have not applied consistent guidelines in determining whether a plan covers a “select group”.

Several court decisions and some old DOL Advisory Opinions have taken a fairly mathematical approach focusing on the size of the covered group in relation to the employer’s total workforce and the select group’s average salary in relation to the remainder of the workforce in determining whether the covered employees constitute a “select group”.

In Advisory Opinion 90-14A (May 8, 1990), the DOL indicated that it would take a more subjective approach and look at the job positions included in the covered group in determining whether the “top-hat” requirements have been met – in particular, whether a covered employee has the ability to influence his or her compensation. The DOL also took the position that a plan which extended coverage to employees who were not part of a “select group of management or highly compensated employees” would not constitute a “top-hat” plan. The DOL, however, did not include any examples in Advisory Opinion 90-14A and, to date, has not provided any additional discussion or details as to its view of the application of the select group requirement of the “top-hat” plan exemption.

The district court had to wrestle with this definitional question and held that too many factors remained at issue to determine whether the plan was a top-hat plan exempt from most of the ERISA requirements.

It is important to note that the top-hat status question is much more likely to come up in a situation involving employer contributions (and the forfeiture of those contributions) as opposed to pure employee-only compensation deferrals.


The DOL’s Employee Benefits Security Administration (“EBSA”) recently completed its report on the quality of audit work performed on employee benefit plans by independent qualified public accountants (“IQPA”) and was not pleased with the results. EBSA reviewed a sample of the 81,000 audits completed as a part of each plan’s Annual Report/Form 5500 filing requirement and found that only 61% of the audits fully complied with the applicable standards or had only minor deficiencies. That means that nearly 4 out of 10 audit reports contained “major deficiencies” which places “$653 billion and 22.5 million plan participants and beneficiaries at risk.”

Even though the DOL may be over-dramatizing the “risk” to plan assets and participants, the report’s findings speak for themselves. In 2011, there were 7,330 different CPA firms performing plan audits. Most of those firms perform only a small number of plan audits and those are the firms that appear to be most concerning to the DOL. The EBSA’s report determined that “CPAs who performed the fewest number of employee benefit plan audits annually had a 76% deficiency rate” versus “the firms performing the most plan audits [that] had a deficiency rate of only 12%.”

Many plan administrators have received deficiency notices from EBSA regarding their audit report and have experienced the time, effort, and expense of coordinating and re-submitting their Annual Report/Form 5500 in order to avoid ERISA’s $1,100 per day civil penalty. EBSA is proposing to make the auditors accountable for the deficient audits and responsible for those penalties, but that recommendation would require legislative action from Congress to amend ERISA. The other noteworthy recommendation in EBSA’s report is that the agency should re-evaluate its enforcement targets and focus on CPAs with smaller employee benefit plan audit practices. This recommendation does not require Congressional approval so we expect to see an uptick in IQPA investigations in the near future.

Plan auditors are not the only benefit plan service provider in the EBSA’s enforcement spotlight. The report comes on the heels of the proposed changes to ERISA’s definition of fiduciary that would broaden that definition to include a greater number of service providers giving investment advice for a fee. This sharpened focus on service providers falls in line with EBSA’s trend towards targeting service providers for investigations instead of individual plans.

What does this mean for retirement plan sponsors and administrators?

Although there appears to be a greater EBSA focus on enforcement against plan service providers, it is important to remember that plan fiduciaries are ultimately responsible for the proper administration of an employee benefit plan. Thus, plan fiduciaries should be sure to act in accordance with ERISA in selecting and monitoring plan service providers. With respect to plan auditors, care should be taken to ensure, among other things, that the plan’s auditor is experienced in auditing employee benefit plans and continues to spend a significant time of his or her practice auditing such plans.

401(k) Plan Investment Committee Best Practices After Tibble v. Edison

On May 18, 2015, the United States Supreme Court, in a unanimous decision, held that an ERISA fiduciary responsible for the selection of ERISA plan investment choices has an ongoing duty to monitor such choices.

As discussed in greater detail in our May 18th Benefits Law Advisor post, Tibble v. Edison International, No. 13-550 (U.S. May 18, 2015) involved a plan’s selection of six mutual funds offered as plan investment options. Three of the funds were selected in 1999 and three were chosen in 2002. All were so-called “retail class” funds that were identical (other than carrying higher fees) to other available “institutional class” funds with lower expenses (and consequently higher returns). The plaintiffs argued that the selection of the costlier funds, where identical lower-cost funds were available, was a breach of fiduciary duty under ERISA.

The principal legal issue in the case was whether, since the selection decision was made more than 6 years after the action was commenced, the claims were barred by ERISA’s 6-year statute of limitations. The United States District Court for the Central District of California dismissed the claims as time-barred, and the Ninth Circuit affirmed, based on Ninth Circuit precedent holding that there is no “continuing violation” theory under ERISA.

In a rare unanimous ERISA decision, the Supreme Court reversed. The Court held that ERISA fiduciary duty “is derived from the common law of trusts,” that at common law a trustee had a continuing duty “to monitor, and remove, imprudent investments,” and that, as a result, an ERISA fiduciary has a continuing duty to monitor investments that “exists separate and apart from the trustee’s duty to exercise prudence in selecting investments.”

Tibble is unremarkable in that it broke no new ground; the ongoing “duty to monitor” has been long-recognized by both fiduciaries and attorneys alike. The principle take-away from Tibble is the reiteration of risk mitigation best practices for fiduciaries tasked with the selection of investment options for an ERISA plan.

At minimum, these best practices should include:

  • Establishing a 401(k) investment committee comprised of members both willing and able to fully understand the roles and responsibilities of the position and educated on the basics of ERISA fiduciary responsibility, plan procedures, investment review guidelines, and plan documents.
  • Establishing and adhering to procedures for the selection and periodic review of investment choices. These procedures are generally set forth in an “investment policy statement” which includes suggested guidelines for both initial selection and monitoring of investment alternatives.
  • Holding regularly-scheduled committee meetings, generally quarterly.
  • Regularly reviewing of the fees associated with investment choices and other service providers (such as record keepers), including compliance with the Department of Labor’s fee disclosure requirements.
  • Perhaps most importantly, clearly and thoroughly documenting, via committee meeting minutes, both the decisions resultant from the investment committee’s periodic review and the empirical rationale for such decisions.

Waiting for GINA Guidance on Wellness Programs? EEOC Announces Anticipated Timing of Proposed Regulations

Since April, employers have been mulling over proposed wellness program regulations issued by the Equal Employment Opportunity Commission (EEOC) to address certain issues under the American with Disabilities Act (ADA). We briefly summarized those proposed rules, and remind readers that there still is time to submit comments to the EEOC in order to seek clarity or request changes, additions to the proposed rules. But the content of those proposed rules left many to ask, “What about GINA?”

According to a recent announcement by the EEOC, the agency plans to issue in July proposed rules that would amend earlier regulations issued under the Genetic Information Nondiscrimination Act (GINA). According to the EEOC’s announcement, the amendments would “address inducements to employees’ spouses or other family members who respond to questions about their current or past medical conditions on health risk assessments (HRA).” Of course, as there are many other popular features of wellness programs beyond HRAs, we hope that the new guidance will also address some of those features. These include, without limitation, biometric screenings, health coaching, health fairs, and others programs that provide incentives for employees and their spouses and dependents to adopt healthier lifestyles.

Employers – Are You Ready to Report Offers of Health Insurance?

As you may already know, generally, each “applicable large employer” (see our article Health Care Reform: Employers Should Prepare Now for 2015 to Avoid Penalties to determine if you are an applicable large employer) is required to file information returns with the IRS (Form 1094-C) and provide statements to its employees (Form 1095-C) about the health insurance offered by the employer. In connection with these requirements, the IRS previously published detailed instructions regarding how to complete Forms 1094-C and 1095-C (see our article What’s Next for the Affordable Care Act…Information Reporting for background information regarding these reporting requirements). In an effort to assist employers in completing these forms and to provide additional guidance, the IRS released more detailed reporting information this week in the form of Questions and Answers. The IRS also provided additional information regarding basic Affordable Care Act reporting requirements.

These materials clarified that employers are not required to complete Form 1095-C for any employee who is a part-time employee for the entire calendar year. However, an employer that sponsors a self-insured health plan in which any employee or employee’s spouse or dependent has enrolled is required to file Form 1094-C and Form 1095-C, whether or not that employer has any full-time employees and whether or not that individual is a current employee or a full-time employee. The Questions and Answers also provide much needed guidance regarding how Form 1095-C should be completed for a full-time employee who terminates employment or experiences a reduction in hours and receives an offer of COBRA continuation coverage.

In preparation for reporting on Form 1094-C and 1095-C in early 2016, applicable large employers should be thinking about the following issues, among other things:

  1. Has the employer identified all members of its controlled group? The employer will need to report this information on Line 21 of the Form 1094-C.
  2. Does the employer have a recordkeeping system in place that will let the employer easily access the data needed to complete these Forms?
  3. If the employer contributes to a multiemployer plan on behalf of some or all of its employees, has it coordinated reporting and information exchanges with the multiemployer plan administrator? An employer will likely need to do so in order to ensure complete and accurate Form 1095-C reporting.
  4. How does an employer ensure compliance with COBRA when it is using the look back method to determine full-time employee status? Where an employee changes status from full-time to part-time resulting in a qualifying event, when should the COBRA notice be provided?
  5. Does the employer have an administrative process in place to ensure that it promptly responds to exchange notices indicating that employees have claimed eligibility for exchange subsidies? Failure to timely respond to a notice could cause the employer to forego its opportunity to contest an employee claim that it did not offer affordable coverage.
  6. Employers sponsoring self-insured plans generally have to transmit to the IRS the Social Security numbers of spouses and dependents of employees covered under the plan.  Is the employer able to comply with this requirement?

Note that penalties for reporting failures will not be imposed if an employer can show that it has made good faith efforts to comply with the information reporting requirements. However, no relief is provided in the case of an employer that cannot show a good faith effort to comply with the information reporting requirements or who fails to timely file an information return or furnish a statement. Thus, employers should make good faith efforts to comply with these reporting requirements even if completing the Forms seems like an impossible task.

If they have not already, employers should start thinking about these issues now as January 2016 is fast approaching.

Tibble v. Edison International

Today, the U.S. Supreme Court announced a much-anticipated ERISA plan decision in the case of Tibble v. Edison International. ERISA practitioners and plan administrators have been watching Tibble with interest because the Supreme Court granted certiorari to consider a very broad question – namely, whether ERISA’s six-year limitations period barred imprudent investment claims where the initial investment decision was more than six years prior to suit. At only ten pages, the decision side-stepped a comprehensive discussion of numerous subsidiary questions, such as whether ERISA recognizes a “continuing violation” theory. Instead, the Court remanded the decision on the narrow ground that the Ninth Circuit had not given adequate consideration to whether fiduciaries breached a duty to monitor those investments within the six years prior to suit.


Edison International (“Edison”) is a holding company for a number of electric utilities and other energy interests, and it provided a 401(k) plan serving 20,000 employees that was valued at $3.8 billion during the litigation.[1] Under Edison’s plan, employees had a menu of possible investment options which included “institutional or commingled pools, forty mutual fund-type investments, and indirect investment in Edison stock known as a unitized fund.”[2]

The Tibble plaintiffs, on behalf of current and former 401(k) plan beneficiaries, claimed that Edison violated ERISA’s fiduciary duty of prudence by offering more expensive “retail class” shares of mutual funds, instead of relatively cheaper “institutional class” shares of the same funds.[3] The three funds challenged in the Supreme Court appeal were added in 1999 (“the 1999 funds”); but suit was not filed until 2007. Three other funds were selected in 2002 (“the 2002 funds”), but were not before the Supreme Court since they were offered less than six years before the plaintiffs’ lawsuit.

The district court held that the fiduciaries had acted imprudently by selecting the 2002 funds, noting there was no basis for selecting the more expensive retail-class shares, instead of the cheaper, virtually identical institutional shares. However, the district court found the same claims regarding the 1999 funds were barred by ERISA’s six-year limitations period.[4]

On appeal to the Ninth Circuit Court of Appeals, the plaintiffs asserted that their claims were timely so long as the 1999 funds remained in the plan. In an amicus filing, the Department of Labor (“DOL”) argued in favor of a “continuing violation” exception to the six-year period, positing that ERISA fiduciaries would otherwise have no incentive to remove imprudent investments from plan offerings.

The Ninth Circuit rejected the continuing-violation arguments, holding that the “act of the designating the investment for inclusion” triggers the limitations period absent evidence that “changed circumstances” gave rise to a new duty to conduct a “full diligence review” of existing funds.[5] The Ninth Circuit reasoned that the “changed circumstances” approach was necessary to give meaning to ERISA’s six-year limitations period, noting that a contrary view could expose fiduciaries to liability for a protracted and indefinite period.


When it granted certiorari, the Court framed the “Question Presented” broadly:

Whether a claim that ERISA plan fiduciaries breached their duty of prudence by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institution-class mutual funds were available, is barred by 29 U. S. C. §1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.

In doing so, the Court did not signal whether it would address the continuing-violation theory espoused by plaintiffs, or the policy concerns underpinning the Ninth Circuit’s decision.

The Supreme Court bypassed these issues, however. Instead, it vacated the Ninth Circuit’s ruling, and remanded for additional consideration of the fiduciaries’ ongoing duty to monitor the prudence of the 1999 funds. The Court couched its decision in traditional trust law, which requires a “regular review” of trust investments. The Court also found support in the Uniform Prudent Investor Act, which the Court viewed as embracing a continuing duty to monitor plan investments.


The Supreme Court’s Tibble decision was unusually concise, and thus did not offer any express guidance to lower courts or practitioners on whether, for instance, ERISA recognizes a continuing-violation exception to a limitations defense. Given that the Court emphasized a wholly separate duty applicable to investment practices – i.e., a well-established duty to monitor investments – it does appear that the Court opted not to recognize any continuing-violation doctrine. Similarly, given the Court’s focus on the Uniform Prudent Investors Act, the application of Tibble should be limited to imprudent-investment claims, where there is a clearly established, ongoing duty to monitor, or at least those species of fiduciary claims where there is recognized duty of an ongoing nature.

Beyond that, the reach of Tibble may be fairly short because the Supreme Court expressly declined to address the scope of the fiduciary’s ongoing duties. Indeed, the Court did not provide guidance on how to evaluate those duties, except to hold that “changed circumstances” (that is, circumstances that would render an otherwise-prudent investment imprudent) was not the only scenario in which a fiduciary’s failure to re-evaluate investments might run afoul of ERISA. The Court also left open the possibility that the Ninth Circuit could deem the ongoing-duty claims waived, if it finds that they were not adequately preserved in the earlier appeal.

Nevertheless, plan administrators should keep an eye on the proceedings on remand, to see how the Ninth Circuit’s decision applies ERISA’s monitoring duty to defendants’ retention of the 1999 funds in the Edison plan. Although periodic re-evaluation of all plan investments is already a “best practice,” the decision on remand may offer guidance on particular circumstances that call for fiduciary scrutiny of specific investments.

[1] Tibble v. Edison Int’l, 711 F. 3d. 1061 (9th Cir. 2013).

[2] Id. at 1068.

[3] Id. at 1066.

[4] Tibble v. Edison Int’l, 639 F. Supp. 2d 1074, 1086 (C.D. Cal. 2009).

[5] Tibble, 711 F. 3d at 1072.

Seven Critical Tips for Employers to Minimize ERISA Fiduciary Risk

As I perform plan fiduciary governance audits, I am surprised at the continued failure of employers to take fairly simple steps that would substantially minimize employers’ fiduciary risk. Therefore, I thought it would be helpful to employers to set forth seven critical tips that employers can take to reduce potential fiduciary exposure.

Tip 1: Separate the Employer Functions from the Fiduciary Functions. Employer functions, also called settlor functions, are actions or decisions made by the employer as the employer. For example, common settlor functions are design decisions, such as establishment of a plan, the benefit formula, eligibility rules, and vesting. Settlor functions are not an exercise of fiduciary discretion and, therefore, not subject to ERISA fiduciary duties and standards. However, a fiduciary making a settlor decision may turn a non-fiduciary action into a fiduciary action. In this regard, an employer that has a committee that performs both settlor/employer functions and fiduciary functions should hold separate meetings for each function. Also do not include design or settlor functions in administrative committee minutes where the administrative committee is the fiduciary for the plan. We see this done frequently.

Tip 2: Properly Organize Your Plan’s Fiduciary Functions. Who is the plan administrator? It should not be the employer. It should generally be a committee. Have the committee members been properly appointed? Have the committee members accepted their positions and status in writing? Who is listed as the plan administrator in the summary plan description?

Tip 3: Demonstrate Fulfillment of Fiduciary Duties. This is very, very important. The court’s emphasis is on the process of fiduciary decision making, not the result. This is generally called procedural prudence. The bottom line is document, document, document. Generally, on our governance reviews we see poor and incomplete documentation. You should create detailed committee minutes that:

  • Reflect decisions and reasoning.
  • Point out discussions.
  • Set forth recommendation of investment advisors and other vendors – yes, make your investment advisors give you their recommendation. Do not let them off the hook merely because it is ultimately your decision. Document the recommendation in the committee minutes.
  • Retain documents used at meetings and meeting minutes.

Tip 4: Create a Charter for the Benefits Committee. The charter should reflect:

  • Purpose, responsibilities and obligations of the committee. Make sure you keep the settlor functions out of the charter, unless you indicate that they are settlor functions.
  • Meeting procedures.
  • Who appoints and monitors committee members.
  • The committee reviews the Form 5500.
  • The committee reviews the actuary report.
  • The committee periodically reviews the investment policies and statement.
  • The committee periodically reviews fees.

Tip 5: Properly Manage Your TPA and Other Vendor Contracts. Do not allow your vendors to use a good faith or gross negligence standard. Require that your investment advisors agree to be fiduciaries.

Tip 6: Follow the Plan’s Claims and Claims Review Procedures. Claims and claims review procedures protect the employer and the plan. Failure to follow these procedures can result in courts approving claims that otherwise would be denied. Recognize that all of these documents are subject to disclosure in the court. When you deny a claim or claim review request, make sure that your denial has the required ERISA language in the response. Recognize that the record created on the claims and claims review process is the record that will be reviewed in court. This is an opportunity for the plan to limit the record by having a good claims and claims review procedure. Respond to document requests timely. We see employers that do not want to provide this information, basically out of spite. That is not the best approach.

Tip 7: Periodically Read Your Plan and SPD. Do your plan provisions reflect your intent? Are your plan document and SPD consistent? Recognize that the plan document controls. If you’re administering the plan contrary to the plan document, this can result in plan disqualification. Many times, we see a plan restated where the restated plan document does not carry over all the provisions of the prior plan, creating administration that is different than the plan document.