Of interest to 401(k) plan sponsors and administrators, the IRS recently issued Notice 2024-55, providing guidance on SECURE 2.0’s new exceptions—effective January 1, 2024—to the additional 10% tax on early qualified retirement plan distributions for emergency personal expenses and victims of domestic abuse.  Both types of distributions are optional and may be adopted through discretionary plan amendments. 

Emergency personal expense distributions are those made to an individual to meet unforeseeable or immediate financial needs relating to necessary personal or family expenses.  Participants are limited to one emergency personal expense distribution per calendar year, and the distribution cannot exceed $1,000 (not indexed for inflation) or, if less, the excess of the participant’s vested account balance.  In addition, once an emergency personal expense distribution is taken, the participant cannot take another emergency personal expense distribution during the following 3 calendar years unless the previous distribution has been repaid or the participant’s contributions to the plan at least equal the amount of the unpaid distribution.      

Domestic abuse victim distributions are those made to a domestic abuse victim during the 1-year period beginning on the date the individual is a victim of domestic abuse by a spouse or domestic partner.  “Domestic abuse” is defined as physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim or to undermine the victim’s ability to reason independently, including by means of abusing the victim’s child or another family member living in the household.  Domestic abuse victim distributions are limited to $10,000 (indexed for inflation) or, if less, 50% of the participant’s account balance.

Plan sponsors can rely on a participant’s written certification that the distribution is due to an emergency personal expense or being the victim of domestic abuse.  In addition, a participant must be allowed to repay any emergency personal expense or domestic abuse victim distribution during the 3-year period following the date the distribution was received if the participant is eligible to make rollover contributions.  Finally, such distributions are not treated as eligible rollover distributions, and Code Section 402(f) notices and 20% mandatory income tax withholding are not required.

The IRS has invited comments on all the matters discussed in the Notice, including whether exceptions should be created to plan sponsor reliance on participant certification and whether procedures to address employee misrepresentations should be included.

We are available to help plan sponsors understand and implement SECURE 2.0’s requirements.  If you have questions or need assistance, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

For the last 40 years, judges were required to defer to administrative agencies’ reasonable interpretations of ambiguous federal statutes under Chevron v. Natural Resources Defense Council. The Supreme Court upended that precedent in Friday’s 6-3 ruling in Loper Bright Enters. v. Raimondo, which overturned Chevron and instructs judges to rely on their own judgment in determining whether an agency’s regulation falls within its authority.  

Chevron’s repeal has both immediate and concrete impacts on ERISA’s interpretation, as well as the potential for significant, broader effects.  More…

When an employee is on an extended leave of absence, there is often confusion regarding whether and to what extent the employer must continue to provide coverage to the employee under the employer-provided health plan.  To determine whether coverage is required, the employer should consider the terms of the plan, COBRA requirements, and whether the leave is covered by FMLA. 

The Plan Terms.  Employer-provided health plans include continuing service requirements for continuing eligibility.  For example, it is common for a health plan to require employees to perform an average of at least 30 hours of service per week to be eligible for coverage under the plan.  When an employee goes out on a leave of absence, and the employee’s average hours of service typically fall below the minimum coverage requirement, the employee may no longer be eligible for coverage under the plan.   

FMLA Leave. Suppose an employer is subject to the Family and Medical Leave Act (FMLA). In that case, the employer must maintain group health benefits to employees on FMLA leave “on the same basis as coverage would have been provided” had the employee been employed throughout the leave period.  This means, for example, that if an employer pays a portion of the group health plan premiums for active employees, the employer must pay the same portion for employees on FMLA leave.  The obligation to continue active-employee coverage under FMLA terminates if the employee does not return to work at the end of the FMLA leave.   For this purpose, the “end of the FMLA leave” is generally the last scheduled day of the FMLA leave.  That said, if the employee “unequivocally” communicates to the employer that the employee does not intend to return to work before the last scheduled day of the FMLA leave, the end of the FMLA leave is the day that the employee communicates such intent.   

While active coverage terminates as of the last day of the FMLA leave, the employer may have an obligation to permit the employee to elect to continue coverage under COBRA following the end of the FMLA leave.

COBRA, Generally.  Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), an employee must be given the right to elect to continue coverage under an employer-provided health plan (at the employee’s expense) if the employee would otherwise lose coverage due to a “qualifying event.”  An employee’s termination of employment and reduction in hours are considered “qualifying events.”  So when an employee goes out on leave (i.e., the employee’s hours are reduced) and the leave causes the employee to lose coverage under the group health plan, the employee should be offered COBRA continuation coverage.  The end of an employee’s FMLA leave is also a COBRA qualifying event.  An employee who does not return to work and loses coverage as of the end of the employee’s FMLA leave should also be offered the opportunity to elect COBRA continuation coverage. 

Leave Policies.  Often, employers will let employees continue coverage under the employer-provided health plan during a leave of absence or after an FMLA leave, either because the employer is unclear about the coverage requirements or out of a desire to help the employee.  While generally well-intentioned, this practice could lead to an insurer’s refusal to cover the employee’s claims (or, in the case of a self-insured plan, the stop-loss carrier’s refusal to cover the employee’s claims).  In that case, the employer may be liable for all or some costs of the employee’s claims.  In addition, the employer may be penalized for failing to comply with COBRA requirements.  It is essential that employers review and understand the coverage requirements of the employer’s group health plan and implement written policies to properly administer the group health plan in connection with employee leaves of absence.   

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

A recent rash of class action lawsuits in California claim that using forfeitures to reduce future employer contributions to tax-qualified retirement plans runs afoul of the Employee Retirement Income Security Act (ERISA). These cases have continued to advance despite their central claim seeming to contradict long-standing Internal Revenue Service (IRS) guidance for the permitted use of plan forfeitures.  (Retirement plans are governed by both ERISA and the Internal Revenue Code (Code).)  Considering these developments, how can an employer best use the forfeiture dollars without risking exposure to litigation?

Background

Certain employer contributions to tax-qualified retirement plans may be subject to vesting requirements. When an employee separates from service with the employer before these contributions fully vest, the unvested contributions will be forfeited back to the plan. Forfeitures attributable to a plan year generally must be used before the end of the following plan year.

The use of plan forfeitures is subject to limits imposed by the Code. For example, the Code prevents forfeited contributions from being returned to the employer – they must stay in the plan to be used to benefit plan participants. Prior IRS guidance, along with the proposed regulations issued by the IRS in February 2023, indicates that employers may use forfeitures to offset future employer contributions, to pay for plan administrative expenses, and/or to provide additional contributions to participants. We discussed the IRS’s proposed regulations here. Yet recent lawsuits claim that plan fiduciaries violate ERISA when they choose to use forfeitures to offset employer contributions rather than allocating such forfeitures to plan participants or paying reasonable plan expenses.

The litigants allege that when an employer uses forfeitures to offset future employer contributions, it benefits the employer rather than the participants and that the plan cannot grow as large as it would if it had the benefit of both the forfeitures and future employer contributions. The former is an alleged breach of the duty of loyalty, which requires that the plan administrator act solely in the interest of the plan’s participants and beneficiaries. The latter is an alleged breach of the plan sponsor’s fiduciary duty, which litigants argue obligates the fiduciary to maximize asset growth. Further, by not applying forfeitures to the plan’s administrative costs, those costs may instead be borne by the plan participants, which is also an alleged breach of the duty of loyalty.

How can companies mitigate their litigation risk?

  • Ensure plan documents allow the use of forfeitures in the manner intended by the plan fiduciary. For example, if the employer wishes to maintain flexibility, the plan document should clearly state that forfeitures may be used for any of the above purposes. A case arising from forfeitures being used in accordance with the terms of the plan document is easier for an employer to defend.
  • Establish a policy outside the plan if the plan document provides discretion over the use of forfeitures. Employers may find that their plan document, particularly a pre-approved document that cannot be revised, allows the use of forfeitures for all three purposes but then provides discretion to the employer regarding the hierarchy of how forfeitures are used. An employer may wish to establish a separate policy outside the plan that memorializes the intended hierarchy for forfeiture use.
  • Establish a well-documented fiduciary review process. The fiduciary duty of prudence is a test of process.A well-documented and reasonable decision-making process offers a strong defense against forfeiture claims and other types of claims that may be brought against plan fiduciaries. In the forfeiture context, it means demonstrating an adherence to the plan terms and any standing policy/procedure regarding the order and use of forfeitures. 

The Jackson Lewis Employee Benefits Practice Group members continue to monitor developments in forfeiture-related cases and are here to help employers with questions on best practices for using forfeitures. Please contact a Practice Group member or the Jackson Lewis attorney with whom you regularly work for assistance.

The November 30, 2023, opinion of a New York administrative law judge in In the Matter of the Petition of Edward A. and Doris Zelinsky upholds the state’s so-called income tax “convenience rule” with an expanded legal rationale that New York employers with remote and hybrid employees outside of New York State will want to note. The case is now pending in the New York Tax Appeals Tribunal.

The convenience rule is an income-sourcing rule applicable to New York state income tax. According to current administrative guidance, days worked by a non-New York resident at home out of state are considered workdays in New York if

  • the employee’s “assigned or primary work location” is at an established office or other bona fide place of business of the employer in New York State; and
  • the employee performs the work outside of New York not because the employer’s business requires it but rather for the convenience of the parties, especially the employee.

New York is one of six states with similar versions of a convenience rule, but New York’s is arguably the most aggressively interpreted and enforced. In addition to double state income taxation of the employee on the same wages earned physically outside of New York, the rule often requires New York employers to withhold from the same wages both state income tax for the employee’s resident state and New York income tax. This is because most resident states in which the employee may be working for a New York employer do not grant a tax or wage withholding credit against the resident state’s required tax withholding for wages that are merely deemed to be worked in New York rather than earned while the employee is physically in New York.

In the post-pandemic world of rapidly increasing remote and hybrid employment, the employers most adversely affected by the New York convenience rule are those with no offices or facilities outside of New York. Such employers cannot plausibly reassign employees working in other states to an office in a state with no convenience rule.

The 26-page opinion addresses New York convenience rule taxation of wages from remote work performed in Connecticut, both before the pandemic (2019) and during the pandemic (2020), by a law professor at a New York City law school. Part of the opinion relates only to remote work in 2020 pursuant to pandemic work-from-home requirements. Moreover, some of the authorities and grounds, in the opinion, assume the nonresident employee works in New York for at least part of a tax year. However, much of the opinion’s reasoning would apply to the ongoing enforcement of the rule to withholding on wages of pure remote employees who are hired to work outside of New York exclusively and may never set foot in New York during a tax year.

In this regard, the opinion includes a rationale for the rule based on the 2018 U.S. Supreme Court sales tax “nexus” opinion in South Dakota v. Wayfair, Inc. Wayfair overturned prior precedent that required a business to have a physical presence in a state in order to have sufficient constitutional nexus for the state to impose sales taxes on the business. Relying on Wayfair, the judge stated that Professor Zelinsky’s use of Zoom classes and other Internet collaborative tools to connect him with his students gave him a “virtual” presence in New York that justified imposition of New York income tax on his wages earned while at his home in Connecticut.

New York’s convenience rule ultimately depends on the legal significance of the remote or hybrid employee’s deemed presence in the state; however, reliance on a sales tax constitutional nexus case to find a legally sufficient non-physical presence is highly questionable in an income tax sourcing issue for an individual.  In addition to the employee’s residence, the almost universal income tax sourcing factor for wages and other personal service income is the place where the work is physically performed. Nevertheless, this virtual presence argument now appears to be a part of New York’s position for continued application of the convenience rule to hybrid and remote employees, including those initially hired to work solely remotely and who may never actually go to New York for work.

We will follow and report on future developments in this case. The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.  

In 2021, the Department of Labor (DOL) issued cybersecurity guidance for ERISA-covered retirement plans. The guidance expands the duties retirement plan fiduciaries have when selecting service providers. Specifically, the DOL makes clear that when selecting retirement plan service providers, plan fiduciaries must prudently assess the cybersecurity of those providers.  

On May 15, 2024, the Securities and Exchange Commission (SEC) adopted amendments to Regulation S-P which governs the treatment of nonpublic personal information about consumers by certain financial institutions, many of which are commonly vendors and service providers to retirement plans. For example, the amendments reach broker-dealers, investment companies, registered investment advisers, and transfer agents. Importantly, the amendments establish specific cybersecurity requirements for these entities, requirements that retirement plan fiduciaries should be aware of. More…

Background

Section 1557 is the non-discrimination provision of the Affordable Care Act (ACA).  Section 1557, which has been in effect since 2010, is intended to prevent discrimination in certain health programs or activities that receive federal financial assistance.   In May of 2024, the Department of Health and Human Services’ (HHS) Office of Civil Rights (OCR), the agency responsible for the implementation and administration of Section 1557, issued final regulations governing Section 1557 (the 2024 Final Rule).  The 2024 Final Rule is not OCR’s first bite at this apple.  In fact, the 2024 Final Rule represents OCR’s third attempt to establish regulations under Section 1557: 

The 2024 Final Rule is based on the NPRM and comments received in response to it. While the Rule applies broadly to nearly every healthcare industry sector, this article addresses its impact on employer-provided group health plans. 

Scope of the 2024 Final Rule

Under the 2024 Final Rule, a “covered entity” receiving federal financial assistance is prohibited from discriminating on the basis of “race, color, national origin, sex, age, disability, or any combination thereof” concerning the provision or administration of health benefits.   For this purpose, a “covered entity” includes any health insurance issuer, broker, pharmacy benefit manager, or third-party administrator receiving federal financial assistance, including Medicare payments, grants, loans, credits, subsidies, and contracts.  The preamble to the 2024 Final Rule states that most employer-provided group health plans are not covered entities.  However, because the 2024 Final Rule will apply to most service providers, the rule will indirectly affect employer-provided group health plans.   

Protections Under the 2024 Final Rule

The 2024 Final Rule clarifies OCR’s position on certain open issues affecting employer-provided group health plans, notably:

  • Transgender Care.  Section 1557 and the journey to the Final 2024 Rules have been largely driven by litigation surrounding coverage of gender-affirming care.  On the heels of Bostock, the 2024 Final Rule attempts to establish that the federal prohibition against discrimination on the basis of “sex” includes gender identity.   The 2024 Final Rule specifies that sex discrimination includes discrimination on the basis of “sex characteristics, including intersex traits … sexual orientation; gender identity; and sex stereotypes.”  This means that covered entities are prohibited from denying, limiting, or otherwise excluding gender-affirming care or placing stricter restrictions or more significant cost-sharing requirements on services performed for gender-affirming care as those imposed on the same services when performed for other medical diagnoses.   

The 2024 Final Rule attempts to ward off challenges to the prohibition against categorical exclusions of gender-affirming care by preempting those challenges. The 2024 Final Rule explicitly states that, to the extent states have laws prohibiting gender-affirming procedures, Section 1557 preempts such laws. The state of Florida has already challenged this preemption provision.    

  • Pregnancy and Abortion.    The 2024 Final Rule also clarifies that “sex discrimination” includes discrimination related to pregnancy and pregnancy-related conditions.  The 2024 Final Rule does not address abortion.  However, in the preamble, OCR affirms that Section 1557’s protections include discrimination in abortion coverage.  However, the 2024 Final Rule does not require the coverage of abortion and is not intended to override any state-specific laws regarding abortion.  Under Section 1557, a decision not to provide abortions is discriminatory only if the decision is applied differently based on prohibited classifications. 

Conscience Exemption

Throughout the 2024 Final Rule, OCR specifies that Section 1557 should not be construed to affect federal laws regarding conscience or religious protection.  Covered entities can either rely on the federal protections for religious freedom and conscience laws or apply for a “conscience exemption” from the OCR.  Because the 2024 Final Rule directly governs covered entities, not plan sponsors, employers seeking a conscience or religious exemption from Section 1557 may not be able to rely on the 2024 Final Rule as the basis of such exemption.    

The Path Forward

Generally, the 2024 Final Rule is effective as of the first day of the first plan year beginning on or after January 1, 2025.  However, the 2024 Final Rule will likely have the same challenging road as its predecessors.  Litigation involving prior Section 1557 legislation remains pending in more than one federal district court.  And, on May 6, 2024, mere days after the 2024 Final Rule was passed, the state of Florida filed a lawsuit on behalf of a religious medical group seeking an injunction against the 2024 Final Rule. 

While it may seem the 2024 Final Rule is the last word on the topic, until the legal challenges are resolved, one would be wise to contact a knowledgeable ERISA attorney with questions.  The Jackson Lewis Employee Benefits Practice Group members can help if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

On April 23, 2024, the United States Department of Labor (DOL) issued updates to the investment advice fiduciary regulation, formally called the “Retirement Security Rule” and generally referred to as the “DOL Fiduciary Rule.”  These updates, generally effective September 23, 2024 (a one-year transition period extends the effective date for some provisions into 2025), will have broad implications in the insurance and financial services industries.  With the ink barely dry, the first legal challenge to the Retirement Security Rule has been filed.  (Federation of Americans for Consumer Choice Inc. v. DOL, complaint filed 5/2/24)(FACC Litigation.)

Statutory and Regulatory Background 

Under the Employee Retirement Income Security Act (ERISA), certain individuals are considered “fiduciaries.”  As such, they are held to the highest standards known to law and are personally liable for failing to abide by these standards.  These fiduciary duties are reinforced by prohibitions against certain Prohibited Transactions, which forbid a fiduciary from ‘‘deal[ing] with the assets of the plan in his own interest or for his own account,’’ and ‘‘receiv[ing] any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.’’ DOL has authority to grant Prohibited Transaction Exemptions to these broad prohibitions for compliant transactions.  Absent an exemption, a fiduciary cannot receive any consideration or compensation for any investment transaction involving the assets of an ERISA plan.

 Since many protections, duties, and liabilities in ERISA hinge on fiduciary status, determining who is a ‘‘fiduciary’’ is of central importance.  ERISA has a statutory definition of “fiduciary,” which includes three fiduciary categories.  Relevant to the Retirement Security Rule are those individuals who are considered fiduciaries because they “render investment advice for a fee.” 

Five Part Test 

In 1975, the DOL implemented by regulation a “five-part test” for determining whether someone was rendering investment advice to an employee benefit plan and, therefore, would be considered an ERISA fiduciary.  Under the five-part test, a person is a fiduciary only if they: (1) render advice as to the value of securities or other property, or make recommendations as to the advisability of investing in, buying, or selling securities or other property (2) on a regular basis (3) pursuant to a mutual agreement, arrangement, or understanding with the plan or a plan fiduciary that (4) the advice will serve as a primary basis for investment decisions about plan assets, and that (5) the advice will be individualized based on the particular needs of the plan.  All five parts of this test must be met for fiduciary status to attach. 

2016 Final Rule and Judicial Challenges 

Beginning in 2010, the DOL began revising the regulatory definition of an investment advice fiduciary.  The impetus for this process was the changing retirement landscape from defined benefit to defined contribution plans and the resulting shift toward individual control over investment decisions via participant-directed (e.g., 401(k)) plans and individual retirement accounts.  A proposed rule was adopted in 2010 and withdrawn in 2011 amid widespread criticism.  In April 2015, the DOL again proposed new regulations defining investment advice fiduciary status and finalized that rule in April 2016 (the 2016 Final Rule.) After a series of legal challenges, the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) vacated the 2016 Rule in Chamber of Commerce v. United States Department of Labor.

The Retirement Security Rule

On November 3, 2023, the DOL adopted a proposed Retirement Security Rule.  The Retirement Security Rule was adopted in final form on April 23, 2024.  DOL also made widespread changes to the related Prohibited Transaction Exemptions.

The Final Rule states that a financial professional acts as a fiduciary if: 

  • The financial professional makes a recommendation to a retirement investor;
  • That recommendation is for a fee (either direct or indirect); and
  • One of the following:
    • There is a representation or acknowledgment that the professional is a fiduciary; or
    • The financial professional provides investment recommendations to investors on a regular basis as part of their business, and the facts and circumstances objectively indicate all the following about the recommendation:
      • it is based on the review of the retirement investor’s particular needs or individual circumstances;
      • it reflects the professional judgment of the financial professional to the retirement investor’s particular needs; and
      • it may be relied on by the retirement investor as intended to advance the retirement investor’s best interest.

DOL has expressed concern that the “regular basis” and “mutual agreement” prongs of the prior Five-Part Test “worked to defeat legitimate retirement investor expectation of impartial advice” and attempted to close these perceived loopholes in the Retirement Security Rule.  The rule, as adopted, broadens both the number of people who will be considered ERISA investment advice fiduciaries and the advice that will be considered investment advice.

The FACC Litigation

On May 2, 2024 (or 9 days after the Final Rule was adopted), the FACC filed its complaint in the United States District Court for the Eastern District of Texas.  Not surprisingly, the Complaint relies heavily on the Fifth Circuit’s decision in Chamber of Commerce (which is controlling precedent.)  The complaint alleges that the DOL both exceeded their regulatory authority and acted in an arbitrary and capricious manner in adopting the Retirement Security Rule and amending the related Prohibited Transaction Exemptions.

DOL’s adoption of the Retirement Security Rule is the latest step in their ongoing (now approaching 15-year) attempt to shore up what they see as gaps in fiduciary coverage related to investment advice.  The FACC Litigation is likely the first of several judicial challenges to the Retirement Security Rule.  We will continue to monitor and report on this evolving area.  If you have any questions, please contact any member of the Jackson Lewis Employee Benefits Practice Group or the Jackson Lewis attorney with whom you work.

If the U.S. Department of Labor’s Notice of Proposed Information Collection Request, issued on April 15, 2024, becomes final, fiduciary retirement plan committees may be asked to evaluate the important question of whether the plan should voluntarily submit missing participant data to the DOL before filing the next Form 5500.  The DOL is seeking comments on the proposal by June 17, 2024.

This proposal is intended to implement Section 303 of The SECURE 2.0 Act of 2022, which adds Section 523 of ERISA and charges the U.S. Department of Labor with responsibility for establishing a “Retirement Savings Lost and Found” database by December 29, 2024.  The purpose of the database is to help connect participants and beneficiaries who are entitled to benefits with the plan administrator so they can make a claim.

The DOL has encountered several stumbling blocks with the establishment of the Retirement Savings Lost and Found.  Significantly, the DOL thought they would be able to obtain the participant data from the Form 8955-SSA that is filed with the IRS, which provides the information to the Social Security Administration (SSA).

When separated vested participants later file claims for Social Security Benefits, the SSA lets those participants know they “may be entitled to a benefit” from the XYZ plan.  It is these Form 8955-SSA that have created many headaches for employers over the years who have long-ago paid-out participants coming out of the woodwork believing they may still have a retirement plan benefit.  So it may be with a sigh of relief for fiduciaries to learn the IRS has refused to provide the DOL with the Form 8955-SSA data to be used to populate the Retirement Savings Lost and Found, citing concerns related to the confidentiality of tax information under Section 6103 of the Internal Revenue Code.

With this impediment, the DOL pivoted and concluded it instead needed to seek the voluntary disclosure of information in order to meet its 2-year deadline for establishing the Retirement Savings Lost and Found.  Fiduciaries may find value in having access to a tool that can connect participants and beneficiaries to their plan benefits and conclude the disclosure is in their best interests.  However, there are several critical countervailing considerations.

First, the scope of the information requested goes well beyond what was reflected in SECURE 2.0.  For example, the data request solicits information “dating back to the date a covered plan became subject to ERISA . . . or as far back as possible, if shorter.”  Coincidentally, ERISA is celebrating its 50th birthday this year on September 2, 1974.  Do you have 50 years of missing participant data in your files?  Do you want to tell the DOL that you do not?

Further, SECURE 2.0 contemplated the submission of only the participant’s name and taxpayer identification number to the DOL.  Yet the notice requests the submission of the participant’s name, date of birth, mailing address, email address, telephone number, and taxpayer identification number.  Fiduciaries would need to carefully weigh whether they are comfortable providing a government oversight body with this indicative data, including contact information.  The request also asks for the prior plan names, prior administrators, and prior sponsors, which would be a headache for businesses involved in a lot of mergers and acquisitions.

But wait, there is more.  The DOL also seeks information about whether any participants are over their normal retirement age and unresponsive about their benefits or whose contact information may not be accurate.  This could highlight potential 401(a)(9) minimum required distribution questions and potential vulnerabilities in fiduciary missing participant procedures.  The notice began by noting that missing participants often are the result of “inadequate recordkeeping practices, ineffective processes for communicating with such participants and beneficiaries, and faulty procedures for searching” for these individuals.

Second, the notice leaves the DOL’s cybersecurity measures to your imagination, simply noting that “multiple security measures will be in place” to protect the data provided.  What are those security measures?  Has the DOL conducted a risk assessment related to the transmission and storage of participant data, for example?  The DOL’s own Cybersecurity Program Best Practices publication may serve as a guide to fiduciaries in evaluating whether the security measures are sufficient.  There also may be contractual provisions with recordkeeper or other plan service providers that restrict the disclosure of participant information.

Third, the DOL did not establish a fiduciary safe harbor or any protections in the event the information the fiduciary volunteers is ultimately compromised, incomplete, or incorrect.  For example, what happens if the Social Security Number the Plan has on file is 999-999-9999 or the date of birth is 1-1-1900?  What happens if the data the fiduciary provides highlights that the participant has not received required minimum distributions?  Will the voluntary submission lead to a missing participant or a more extensive investigation?

Time will tell.  Importantly, the DOL notes that it has the authority to investigate and collect information under other sections of ERISA and to verify the identities of those accessing the database.  So, if this voluntary avenue proves unsuccessful, the DOL may pivot again to using its enforcement authority to mandate the submission of missing participant data.

For now, plan fiduciaries should keep an eye on the notice and consider voicing their feedback, positive or negative, to the DOL.  Once finalized, fiduciary committee agendas may reflect this important question.

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

To all those who work in the employee benefits arena, whether in legal, finance, benefits administration, payroll, tax, human resources, or many other disciplines, this is our annual reminder to celebrate the valuable and important work done for employees, beneficiaries, and Plan Sponsors alike.

This year, we focus on the increased attention on all things related to health and welfare plans.

Employer-sponsored health plans are perhaps the most common (and expected) benefit plan offering for employers of all sizes and industries, particularly following the enactment of the Affordable Care Act’s (ACA) employer mandate.  While plan designs, healthcare costs, and the delivery of healthcare services themselves have considerably evolved over the years, the compliance burdens and risks associated with maintaining such plans are evolving as well.

Over the last few years, we have highlighted the mounting compliance concerns for employer-sponsored health plans.  Beyond the Employee Retirement Income Security Act (ERISA), the federal tax code, COBRA, HIPAA, and the ACA, group health plans must navigate mandates imposed under the Mental Health Parity and Addiction Equity Act (MHPAEA) and transparency requirements under the Consolidated Appropriations Act of 2021 (CAA).  On top of these federal considerations, plan sponsors and fiduciaries must also navigate benefit offerings in a post-Dobbs-world where varying state legislation, regulation and litigation are pushing at the boundaries of ERISA preemption.  Most recently, these efforts have raised questions surrounding the provision of fertility/IVF benefits and transgender benefits.

Similarly, while the bulk of ERISA fiduciary litigation, and specifically class action litigation, have been focused on qualified retirement plans holding significant plan assets, there is renewed attention on group health plans.  Rising healthcare costs, complex designs, and an increased focus (both state and federal) on pharmacy benefit managers (PBMs) have thrust the fiduciary process surrounding these plans into the spotlight.

With so many moving pieces and evolving guidance, plan sponsors are well advised to revisit their governance and administration surrounding health and welfare plans.  This includes confirming the fiduciary process in place and following best practices surrounding the administration and decision-making related to these plans.  Just as in the retirement plan context, plan fiduciaries need to engage, monitor, and leverage trusted vendors in this space.  Given the complexities in benefit design and cost structures embedded in health plans, a prudent process that uses all available resources is key to establishing a plan design and structure that maximizes value for participants.

And don’t forget the proper handling of claims and appeals.  ERISA has specific processes and timelines for handling claims and appeals.  Strictly following that process (as outlined in plan documents and summary plan descriptions) allows for a deferential standard of review should a claim dispute head to litigation.  As part of that process, plan sponsors and fiduciaries often receive requests for documents and plan or claim-related information from medical providers and attorneys in an attempt to collect payments from plans.  These requests should be reviewed timely and carefully with legal counsel and third party administrators to determine what should be provided and when.

In short, on this National Employee Benefits Day, as with all others, important work continues.  While the considerations applicable to health and welfare plans are not new, they are complicated and an area of increased attention.  Please contact a member of the Jackson Lewis Employee Benefits Practice Group if you need any assistance.

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