President Trump Orders Review of DOL Fiduciary Rule and Addresses Financial Industry in Latest Actions

On February 3, 2017, President Trump took actions aimed at alleviating some of the regulatory burdens on the financial services industry. Through a Presidential Memorandum, President Trump ordered the DOL to “examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice” and prepare an updated economic and legal analysis concerning the impact of the rule, while taking into account several enumerated considerations. While the Memorandum does not delay the rule or have any immediate effect on affected parties, if the DOL finds that the rule runs contrary to any of the considerations in the Memorandum, the DOL is directed to “publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and consistent with law.”

This action is not a surprise as President Trump has characterized the fiduciary rule as a “complete miss.” Although he did not directly take aim at the fiduciary rule during the campaign, Washington insiders had predicted action on the rule to be one of President Trump’s early priorities. The Memorandum comes on the heels of increasingly vocal opposition to the rule from Congressional Republicans. On the other side of the aisle, Senator Elizabeth Warren (D-MA) recently sent a letter to 33 major financial firms asking them to provide information about their compliance efforts to date and whether they would support a delay or change in the rule.

Opponents of the rule maintain that the increased regulation of retirement advisors will result in less choice and fewer lower cost options for individual investors. Notably, the rule has also been challenged in litigation questioning the DOL’s exercise of authority in issuing the rule. Thus far, federal courts have upheld the rule, with the U.S. District Court for the Northern District of Texas scheduled to weigh in next week.

Immediately following the issuance of the Memorandum, the acting U.S. Secretary of Labor, Ed Hugler, responded to the President’s direction through a News Release stating that “The Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”

Employers should keep in mind that this action in no way lessens their fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA) with respect to employer sponsored retirement plans. Rather, it signals a potential cut back on a regulatory action attributing fiduciary status to certain financial advisors. If the rule is revised or rescinded, many advisors will not be required to act in the “best interest” of their retirement account customers. Part and parcel of the DOL’s attempt to expand who are considered fiduciaries is further delineation of what constitutes a conflict and a move away from commission-based compensation. As a result of ongoing implementation of the rule, many employers have seen changes in the structure surrounding individual investment advice provided to employee/participants in company sponsored 401(k) and 403(b) plans.

While proffered as an effort to remove an unnecessary burden on the financial services industry, it is unclear how much of an effect any delay, revision or rescission of the rule will have. Many financial firms have already spent significant resources on complying with the rule, including revamping products and business models, and are likely to continue on this course.

Moreover, many current and potential retirement account customers are now cognizant of how a “best interest” or some comparable standard applicable to retirement industry professionals would serve their long-term retirement goals. The retirement industry is also aware of the advantages to be leveraged by complying with fiduciary standards — whether those standards are mandated by a DOL rule or simply by competitive forces — in retaining and attracting retirement savings customers.

In a related Executive Order issued the same day on “Core Principles for Regulating the United States Financial System,” President Trump also aimed at loosening regulation of the financial services industry. Though the Executive Order largely states very broad principles and his Administration’s philosophy towards the United States financial system, many believe this is the first step in efforts to scale back parts of the Dodd-Frank Act. Several statements from the Administration have suggested that the tighter controls put into place after the 2008 financial crisis have led to further strangulation of the ability of banks to lend and in an unnecessary limitation on consumer choice.

We will continue to monitor and keep readers apprised regarding the future of the DOL fiduciary rule and any related initiatives.

Church Plan Cases: Federal Agencies Finally Speak

As many of you know, currently pending before the Supreme Court are consolidated cases from the Third, Seventh, and Ninth Circuits holding that, for religiously affiliated employers, employee benefits plans must initially be established by a church for the plans to be exempt from ERISA as “church plans.” The circuit courts issued these holdings when, after decades of ostensibly settled law regarding church plans, dozens of class-action lawsuits were filed by employees of religiously affiliated hospitals and healthcare providers, contending that their employers’ plans do not qualify for ERISA’s church plan exemption “because the plans were not established by a church.”

In an unusual statement favoring employer interests, the Internal Revenue Service (“IRS”), the Department of Labor (“DOL”), the Pension Benefit Guaranty Corporation (“PBGC”), and a slew of other federal agencies jointly submitted an amicus brief to the United States Supreme Court seeking reversal of the decisions.

The brief presents four arguments urging the High Court to read ERISA’s church plan exemption to apply to employee benefits plans of religiously affiliated employers notwithstanding that the plans initially may not have been established by a church.

“Natural Reading”

Invoking the interpretive influence of the IRS, DOL, and PBGC as “the agencies responsible for administering ERISA’s complex regulatory scheme,” the amici argue that “the natural reading of the statutory text” requires adherence to the agencies’ interpretation that “a [church] plan need not be initially established by a church to qualify as exempt.”  (Emphasis added).  This argument challenges the circuit courts’ interpretation of the statute’s “plain text,” which read the exemption provision to hold fast to the “requirement that a church establish a plan in the first instance” before the plan may be called a “church plan;” an interpretation behind which much of the force of the decisions was placed.

Context, History, and Purpose

Next, the agencies point to one of the fundamental goals of the Multiemployer Pension Plan Amendments Act (“MPPAA”). That goal sought to eliminate uncertainty over whether a plan is established by a church.  Sponsors of the MPPAA “resolved this uncertainty by making clear that ‘a plan or program funded or administered through a pension board will be considered a church plan’ if the board meets the requirements [under] ERISA section 1002(33)(c)(i).”  The requirements under that section include:  (1) that the plan is maintained by an organization; (2) the principle purpose of which is the administration of an employee benefits plan; (3) for the employees of a church; (4) if such organization is controlled by or associated with a church.

Consistent and Long Term Application

In further reference to the High Court’s ability to defer to agency discretion, the brief next argues that, “if there were any doubt about the best interpretations of the church-plan definition, it would be resolved by the position adopted and consistently applied by the IRS, DOL, and PBGC.” The argument additionally notes that Congress, when revisiting the church exemption provision in its several refinements of the statute, left undisturbed the agencies’ interpretation—a sure sign, the brief argues, that the interpretation is the one intended by Congress.

No Sound Reason for Radical Re-Interpretation

Lastly, raising a sort of agency stare decisis, the collective agencies argue simply that the circuit courts gave no good reason to upend decades of singular interpretation of the church plan exemption provision nor any reason to “upset decades of reliance” on the interpretation.  Thus, the amici conclude, “Congress did not condition the church-plan exemption on a church establishing the plan in the first instance.”


The outcome of these cases has the potential to affect thousands of religiously affiliated employers across the nation and places billions of dollars in the balance. Jackson Lewis will continue to monitor this case and provide updates as new developments emerge.

Affordable Care Act is Target of Trump Executive Order on Inauguration Day

In one of his first actions in office, President Donald Trump signed an Executive Order to “Minimize the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal.” In a few short paragraphs, President Trump has given a very broad directive to federal agency heads, including the Department of Health and Human Services, to take steps to grant waivers, exemptions, and delay provisions of the ACA that impose costs on states or individuals.

Although the Order does not refer to employers specifically, the intent and breadth of its sweeping statements appear to direct agencies to take the same type of actions with regards to provisions of the ACA that similarly affect employers.

Importantly, the Order does not itself effect any change; rather, it acts as a road map to some of the desired changes of the administration, while urging the agencies to soften enforcement of pieces of the ACA until a repeal can be accomplished. It is clear that the Order cannot undo the ACA itself. As widely discussed, that will take a coordinated act of Congress. Trump and Congressional Republicans still have much work ahead in agreeing on the legislation that will repeal and replace the ACA, including taking into account the unsettling effect such initiatives will have on the health insurance market in general.

The language of the Order addresses the actions of agencies in the interim period before a repeal occurs, but does not grant any powers above what already exist. The Order also acknowledges that any required changes to applicable regulations will follow all administrative requirements and processes, including notice and comment periods. However, it leaves the important question of how much discretion the agencies have and in what manner (and on what timetable) will they exercise that discretion.

We will continue to closely monitor agency reaction to the Executive Order, especially as it relates to the responsibilities of employers.

Also on Inauguration Day, the President’s Chief of Staff told federal agencies in a memorandum (“Regulatory Freeze Pending Review”) not to issue any more regulations. Such regulatory freezes by new presidential administrations are common.

Please contact your Jackson Lewis attorney if you have with any questions.

January 20, 2017; A Historical Day

This is another article in our series addressing the continued deterioration and downward spiral of multi-employer defined benefit pension funds and the resulting impact upon participants, unions and most importantly on employers.

As the American public focuses on January 20, 2017 as the beginning of the Trump administration, the day may also have historical significance for employee benefits law as the date on which a reduction in core pension benefits was permitted. Since the enactment of ERISA more than forty (40) years ago, a revered tenet of employee benefits law has been that core benefits once earned could never be reduced.

By January 20th,  all participants in the Iron Workers Local 17 Pension Fund are required to have cast their ballots whether or not to reduce core benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”).  The reductions were approved by the Department of Treasury in December which left the ultimate decision to a vote of the fund’s participants.

Although the voting process at first glance appears to be facially neutral, it seems to favor acceptance of the cuts for several reasons; the most significant reductions were directed to a minority of the participants, the younger employees. Moreover, unlike typical votes, the rescue proposal will be approved unless specifically rejected by a majority of plan participants.  If a participant does not cast a ballot, he will be deemed to have voted in favor of the rescue reduction.

Based upon the demographics of the fund it is predicted that the reductions in core benefits will be approved.

The significance of this historical vote should not be lost on employers. The reductions will fall most heavily upon active participants, your current work force.  Importantly, the reductions in benefits will not mean a reduction in contributions nor in the calculation of potential withdrawal liability.  It simply means that your employees will receive a diminished benefit from your contributions.  This fact should impact upon an employer’s negotiating strategy.  If other pension funds are also successful in reducing core benefits, the incentive for employers and their work forces to remain as contributing employers will be further diminished.  This is another reason for employers to adopt and begin to implement an exit strategy from these funds.

The New ERISA Claims and Appeals Regulations for Disability Benefits

The Employee Benefits Security Administration of the U.S. Department of Labor recently published final regulations governing the ERISA claims and appeals process that will apply to all claims for disability benefits filed on or after January 1, 2018. These regulations add procedural safeguards to the claims and appeals process for disability benefits, and largely track the provisions of regulations proposed in 2015.

The new regulations add the following requirements to the claims and appeals process for disability benefits:

• Claims and appeals must be decided independently and impartially, meaning that those who decide claims should not be incentivized to deny claims. Some examples of prohibited conduct include:
o A plan providing bonuses to claims adjudicators based on the number of denials they make.
o A plan contracting with a medical expert based on his or reputation for outcomes in contested cases.

• Denial letters must include the following:
o An explanation as to why the plan did or did not agree with the views of health care and vocational professionals, or with disability determinations made by the Social Security Administration.
o Notice about claimants’ rights to access their claim file and other relevant documents.
o Any internal rules or guidelines the plan relied upon in deciding the claim. If no such internal rule or guideline exists, the letter must state that fact.
o Denial letters must be culturally and linguistically appropriate. This means that if a claimant’s address is in a county where 10% or more of the population is literate only in the same non-English language, such letters must include a prominent statement in that language about the availability of language services. Furthermore, the plan must provide a copy of the applicable letter or notice in that language upon request, and it must provide oral language services.

• Before an appeal can be denied, claimants must be given notice and a fair opportunity to respond if the appeal denial is based on new or additional rationales or evidence. Furthermore, appeal denial letters must describe any applicable plan imposed time limits on filing a lawsuit, as well as the date the limitations period expires.

• Claimants are not barred from suing due to failure to exhaust the plan’s claims procedures where the plan itself failed to comply with its claims procedures (except for certain minor failures).

• Retroactive rescissions of coverage are considered benefit denials that trigger the plan’s appeals procedures.

The new regulations apply to all ERISA-governed plans that provide disability benefits. This not only includes short-term and long-term disability plans, but it can also include other plans that condition the availability of benefits upon the plan’s determination that the participant is disabled, such as 401(k) plans and pension plans. For example, if a pension plan provides for a benefit conditioned upon the participant being disabled, and the plan must make a determination as to whether the participant is disabled, then the new regulations apply. In contrast, if a pension plan provides for a benefit conditioned upon the participant being disabled, but that finding is made by a party other than the pension plan (e.g., a finding of disability by the Social Security Administration or under the employer’s LTD plan) for purposes other than a benefit determination under the plan, then the new regulations would not apply.

While there may be a possibility that the new administration will try to rescind the new regulations, there is no certainty that will occur. Now is the time for plans and insurers to begin reviewing their claims and appeals procedures for compliance with the new regulations. For many plans, this will involve working with the plan’s service providers to ensure compliance.

Jackson Lewis attorneys are available to assist with this review.

21st Century Cures Act Would Give Small Employers Greater Use of HRAs

Passed swiftly by Congress, the 21st Century Cures Act (H.R. 34) seeks to hasten cures for killer diseases, among other things. President Obama is expected to sign the bill on Tuesday, December 13. One of those other things would seem to advance a goal of the GOP’s plan for further healthcare reform, known as “A Better Way,” which is to encourage the use of health reimbursement arrangements (HRAs). Whether this new HRA provision will survive President-elect Trump’s “repeal and replace” plans remains to be seen. But for now, if signed into law, small employers would have a new tool for designing health plan options for their employees.

The Act creates “qualified small employer health reimbursement arrangement” under Internal Revenue Code Section 9831(d)(2), or, if you like acronyms, the “QSEHRA.” For plan years beginning after December 31, 2016, “small employers” can adopt a QSEHRA for their employees. Here are some of the basic rules:

  • “Small employers” means employers that (i) are not applicable large employers under Sec. 4980H(c)(2), which generally means that they do not have more than 50 full time employees, including full time equivalents, during the prior year, and (ii) do not offer a group health plan to any of their employees.
  • The QSEHRA must be offered to all of the eligible employers’ employees, except that employers may exclude employees: (i) who have not completed 90 days of service; (ii) under age 25; (iii) who are part-time or seasonal; (iv) not included in the arrangement but covered by a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining; and (v) who are nonresident aliens without earned income from sources within the United States.
  • The QSEHRA must be provided “on the same terms to all eligible employees of the eligible employer.” However, benefits under the QSEHRA could be varied based on the price of an insurance policy in the relevant individual health insurance market due to age and family size.
  • The QSEHRA can be funded only by employer contributions, no salary deferrals are permitted.
  • The QSEHRA provides for the payment or reimbursement of expenses for medical care (as defined in Sec. 213(d)) incurred by the eligible employee or the eligible employee’s family members.
  • The maximum benefit under the QSEHRA for any year may not exceed $4,950 ($10,000 in the event the HRA also covers the employee’s family members).
  • Employers must provide a notice to employees about the QSEHRA at least 90 days before the beginning of the year informing them (i) about the amount of the benefit under the QSEHRA, (ii) that they should let the health insurance exchange know of the benefit if they are applying for an advance of premium tax credits, and (iii) that if they do not have minimum essential coverage for any month, they may be subject to tax under section 5000A for such month and reimbursements under the QSEHRA may be includible in gross income.

Remember that the IRS had prohibited stand-alone HRAs. See Notices 2013-54 and 2015-17. However, the Act would save QSEHRAs from that IRS position by removing these arrangements from the definition of “group health plans.” The Act also would amend the definition of group health plan in ERISA Sections 607 and 733 to exclude these arrangements, which includes an exclusion from the requirements under COBRA.

This comes a little late in the game for employers that have already made plans for 2017, but it is an option many small employers may want to consider.

What to Expect in the Employee Benefits and ERISA World

President-elect Trump’s new administration will be in place in just two months.  Employers wonder about what the incoming administration will do with respect to workplace laws that impact them.  In the Employee Benefits and ERISA (Employee Retirement Income Security Act) world, what comes to mind immediately are the Affordable Care Act and the Department of Labor’s expanded definition of a “fiduciary” (which an effective date of April 10, 2017).

We do not know how quickly the new administration might dismantle or replace the ACA or fiduciary definition, but we know is that a mere two days after Election Day 2016, President-elect Trump named J. Steven Hart (an accountant, a lawyer, and a lobbyist all in one) to lead the Labor transition team.  As a lobbyist, Hart focused on benefits and tax policy.  In the government, Hart worked on the White House Office of Management and Budget on ERISA issues  and in what is now known as the Employee Benefits Security Administration at the Department of Labor.  The DOL’s EBSA is tasked with enforcing ERISA rules.    The immediate naming of someone who has had regulatory and enforcement experience on and drill-down understanding of employee benefits, retirement plan, and tax issues might signal that the undoing of both the ACA or fiduciary rules might come early in the 2017 year.

For now, we advise clients to continue to conform with the ACA and to be aware of the fiduciary rule that is slated to go into effect.  Specifically, we note that, if clients were thinking of altering their group health plans to address ACA rules (including financial incentives, flex credits inside of cafeteria plans, Tricare, Medicare, coordination with Service Contract Act/Prevailing wage issues, etc.), those plans should be suspended until we get more direction on what may or may not remain of the ACA.


For Those with an Interest in Employee Stock Ownership Plans (ESOPs)

Jackson Lewis P.C. has a deep practice niche in employee stock ownership plans. We regularly assist our clients in structuring ESOP transactions and with related compliance matters, and in helping to further the success of our clients’ businesses by evolving an “employee ownership” culture using ESOPs. We also regularly represent and assist institutional trustees of ESOPs.

If you would like to learn more about the advantages of establishing and/or selling to an ESOP, we encourage you to review the following papers:

Description and Purpose of an ESOP

An Introduction to Employee Ownership and Selling to an ESOP

Tax Incentives for Employee Stock Ownership Plans

If you have any questions about a potential ESOP transaction or an existing ESOP, please contact me.

Early Holiday Gift from the IRS – Due Date Extension for Furnishing Forms 1095 and Related Relief

In IRS Notice 2016-70, the IRS announced a 30-day automatic extension for the furnishing of 2016 IRS Forms 1095-B (Health Coverage) and 1095-C (Employer-Provided Health Insurance Offer and Coverage), from January 31, 2017 to March 2, 2017.  This extension was made in response to requests by employers, insurers, and other providers of health insurance coverage that additional time be provided to gather and analyze the information required to complete the Forms.  Notwithstanding the extension, the IRS encourages employers and other coverage providers to furnish the Forms as soon as possible.

Notice 2016-70 does not extend the due date for employers, insurers, and other providers of minimum essential coverage to file 2016 Forms 1094-B, 1095-B, 1094-C and 1095-C with the IRS.  The filing due date for these forms remains February 28, 2017 (March 31, 2017, if filing electronically), unless the due dates are extended pursuant to other available relief.

The IRS also indicates in Notice 2016-70 that, while failure to furnish and file the Forms on a timely basis may subject employers and other coverage providers to penalties, such entities should still attempt to furnish and file even after the applicable due date as the IRS will take such action into consideration when determining whether to abate penalties.

Additionally, Notice 2016-70 provides that good faith reporting standards will apply for 2016 reporting. This means that reporting entities will not be subject to reporting penalties for incorrect or incomplete information if they can show that they have made good faith efforts to comply with the 2016 Form 1094 and 1095 information-reporting requirements. This relief applies to missing and incorrect taxpayer identification numbers and dates of birth, and other required return information. However, no relief is provided where there has not been a good faith effort to comply with the reporting requirements or where there has been a failure to file an information return or furnish a statement by the applicable due date (as extended).

Finally, an individual taxpayer who files his or her tax return before receiving a 2016 Form 1095-B or 1095-C, as applicable, may rely on other information received from his or her employer or coverage provider for purposes of filing his or her return. Thus, if employers take advantage of the extension in Notice 2016-70 and receive employee requests for 2016 Forms 1095-C before the extended due date, they should refer their employees to the guidance in Notice 2016-70.

Employee Benefit Issues to Keep You Awake at Night

Last week I made a presentation in the Omaha office of Jackson Lewis with the above title. I thought it might be helpful to outline the basic points of my presentation.  The following items should keep you awake at night unless you can comfortably answer them:

  • Does your employer have ERISA fiduciary insurance? If you are a fiduciary for your 401(k) plan or other employee benefit plans, you have personal liability for fiduciary breaches. Therefore, you should make sure that your employer has insurance coverage for ERISA fiduciary breaches. This coverage is not the same as directors and officers coverage. Generally, it is a rider to directors and officers coverage or a separate policy.
  • Do you know the amount of fees paid by your 401(k) plan for 2015? Do you know both the fees in an absolute dollar amount and as a percent of assets? Have you compared vendor fees in the past? Are you monitoring the vendor fees at least annually? If you cannot comfortably answer all of these questions, the plaintiff lawyers and the Department of Labor are coming after you.
  • Does your 401(k) plan have an investment policy? The Department of Labor asks for this upon audit. Does your 401(k) plan have a benefits committee charter? This is important in order to make sure that you are separating settlor and fiduciary functions. Who is your 401(k) plan administrator? Is it the employer? That is generally a bad practice.
  • What standard do you impose upon your vendors? Is the standard in your vendor contract gross negligence? A gross negligence standard by your vendor is unacceptable. A gross negligence standard is a very low standard of conduct and is very difficult to prove. Similarly, what indemnification provisions does your contract have?
  • Is your investment advisor a fiduciary? Do you know? Do you get recommendations from your fiduciary? You should make sure that even if your investment advisor is not a fiduciary, you are getting recommendations from that advisor. In addition, those recommendations should be adequately documented.
  • Do you have complete, historic retirement plan records? How far back do your records go? Do you use the statute of limitations as the standard for determining when you can dispose of records? The statute of limitations is not a good standard for many documents of your retirement plan. Many retirement plan documents should be kept forever, for example, plan documents, summary plan descriptions, plan merger documents, and payment records. We see retirees request benefit payments that were made 20 years prior to the claim. Do you have the records to prove that you actually made the payment?
  • Are your temporary/staffing workers, independent contractors, and leased employees your employees for the Affordable Care Act (ACA) purposes? If you are treating a significant number of these types of workers as not your employees, ACA creates a huge down-side risk since you can only exclude 5% of eligible employees to avoid the major ACA penalty. If these types of employees are reclassified as employees, you could end up with an ACA penalty equal to $2,000 (with COLA adjustment) multiplied by the number of full-time employees you have minus the first 30.