In furtherance of the Biden Administration’s January 28, 2021, Executive Order 14009 and April 5, 2022, Executive Order 14070 to protect and strengthen the ACA, the Treasury Department and IRS published a proposed rule on April 7, 2022, advancing an alternative interpretation of Internal Revenue Code Section 36B.  Employers can breathe a sigh of relief as the proposed changes do not alter the Employer Shared Responsibility Payment (ACA penalty) construct.  Employers can continue to offer affordable employee-only coverage and spousal or dependent coverage that is unaffordable.  However, the potential indirect effects of the proposed regulations on employers are noteworthy.

At its core, the proposed regulation eliminates the current regulatory concept that the cost of coverage for a spouse and dependent children is deemed affordable if the lowest-cost silver plan for employee-only coverage is affordable.  Citing studies addressing the “family glitch” that disqualifies employees from subsidized Marketplace coverage if the employee-only coverage is affordable and finding this inconsistent with the purpose of the ACA of expanding access to affordable care, the Treasury Department and IRS have reinterpreted Section 36B as permitting a Premium Tax Credit to individuals if the only coverage available to them is unaffordable spousal or dependent coverage.

Allaying employers’ concerns that this proposed rule will affect their cost-sharing schedules, the Preamble to the proposed rule notes:

The proposed regulations would make changes only to the affordability rule for related individuals; they would make no changes to the affordability rule for employees.  As required by statute, employees continue to have an offer of affordable employer coverage if the employee’s required contribution for self-only coverage of the employee does not exceed the required contribution percentage of household income.  Accordingly, under the proposed regulations, a spouse or dependent of an employee may have an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage.

The proposed rule also modifies the minimum value regulations to include the entire family and addresses multiple offers of coverage.

Although not directly affecting employer-sponsored plans, employers may experience indirect effects of the changes if the proposed rule is finalized.  For example, in order for the Internal Revenue Service to make Premium Tax Credit determinations involving family coverage, they may require further information reporting from employers.  The IRS Forms 1094 and 1095 might be modified to require separate affordability reporting regarding both employee-only coverage and other coverage offers.

Further, employer-sponsored plans may see an uptick in enrollment if the Premium Tax Credit becomes available to families when employer-sponsored coverage is unaffordable for spouses and dependent children.  The Premium Tax Credit would help offset the high cost of coverage in employer-sponsored plans.

With the protection and strengthening of the Affordable Care Act being a focus of the current Administration, employers should prepare for further changes.

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (“SECURE 2.0”, HR 2954).  The vote was largely supported by both parties (414-5).  The Senate will likely act on the bill later this spring.  While we expect several changes in the Senate version, it is widely anticipated that the legislation will ultimately become law in some form.  Below we highlight a few provisions of the bill we believe are of interest to employers.

Expanding Automatic Enrollment in Retirement Plans

For plan years beginning after December 31, 2023, SECURE 2.0 would mandate automatic enrollment in 401(k) and 403(b) plans at the time of participant eligibility (opt-out would be permitted).  The auto-enrollment rate would be at least 3% and not more than 10%, but the arrangement would need an auto-escalation provision of 1% annually (initially capped at 10%).  Auto-enrolled amounts for which no investment elections are made would be invested following Department of Labor Regulations regarding investments in qualified default investment alternatives.  Plans established before the enactment of the legislation would not be subject to these requirements.  Additional exclusions also apply.

Increase in Age for Required Beginning Date for Mandatory Distributions

For certain retirement plan distributions required to be made after December 31, 2022, for participants who attain age 72 after such date, the required minimum distribution age is raised as follows: in the case of a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2030, the age increases to 73; in the case of a participant who attains age 73 after December 31, 2029, and age 74 before January 1, 2033, the age increases to 74; and in the case of a participant who attains age 74 after December 31, 2032, the age increases to 75.

Higher Catch-Up Limit for Participants Age 62, 63 and 64

For taxable years beginning after 2023, the catch-up contribution amount for certain retirement plans would increase to $10,000 (currently $6,500 for most plans) for eligible participants who have attained ages 62-64 by the end of the applicable tax year.

Treatment of Student Loan Payments As Elective Deferrals for Purposes of Matching Contributions

For plan years beginning after December 31, 2022, employers may amend their plans to make matching contributions to employees based on an employee’s qualified student loan payments.  Qualified student loan payments are defined in the legislation as amounts in repayment of qualified education loans as defined in Section 221(d)(1) of the Internal Revenue Code (which provides a very broad definition).   This student loan matching concept is not a novel idea – prior proposed legislation included a similar provision, and the IRS has approved student loan repayment matching contributions in a private letter ruling.  Given the difficulty many employers are finding in hiring and retaining employees, this provision of SECURE 2.0 may prove popular if it ultimately becomes law.

Small Immediate Financial Incentives for Contributing to a Plan

Under the “contingent benefit rule,” benefits (other than matching contributions) may not be contingent on the employee’s election to defer (subject to certain exceptions).  Thus, an employer-sponsored 401(k) plan with a cash or deferred arrangement will not be qualified if any other benefit is conditioned (directly or indirectly) on the employee’s deferral election.  SECURE 2.0 would add an exception to this restriction for de minimis financial incentives (such as gift cards), effective as of the date of enactment.

Safe Harbor for Corrections of Employee Deferral Failures

Under current law, employers could be subject to penalties if they do not correctly administer automatic enrollment and escalation features.  SECURE 2.0 encourages employers to implement automatic enrollment and escalation features by waiving penalty fees if, among other requirements, they correct administrative errors within 9 ½ months after the last day of the plan year in which the errors are made.  This provision would be effective as of the date of enactment.

One-Year Reduction in Period of Service Requirement for Long-Term Part-Time Workers

In a provision aimed at increasing retirement plan coverage for part-time employees, the bill would reduce the current requirement to permit certain employee participation following three consecutive years during which the employee attains 500 hours of service to two-consecutive years during which the employee attains 500 hours of service.   The preceding are the maximum service requirements that a plan can impose – employers are free to impose lesser service requirements.

Recovery of Retirement Plan Overpayments

The bill includes several provisions aimed at reducing the claw-back of overpayments from retirement plans to retirees to help ensure that the fixed income of retirees is not diminished.  Plan fiduciaries would have more latitude to decide whether to recoup inadvertent overpayments made to retirees from qualified plans.  Further, plan fiduciaries would be prohibited from recouping overpayments that are at least three years old and made due to the plan fiduciary’s error.  If a fiduciary did attempt to recoup an overpayment, the fiduciary could not seek interest on the overpayment, and the beneficiary could challenge the classification of amounts as “overpayments” under the plan’s claims procedures.  Certain overpayments protected by the new rule would be classified as eligible rollover distributions.

Reduction in Excise Tax on Certain Accumulations

SECURE 2.0 would reduce the penalty for failure to take required minimum distributions from a qualified plan from 50% to 25%.  The reduction in excise tax would be effective for tax years beginning after December 31, 2022.

Although we do not know exactly which provisions of SECURE 2.0 will be reflected in the Senate version, the Retirement Savings and Security Act of 2021 is expected to form the basis of the Senate’s bill.   Between the Senate’s current draft and this SECURE 2.0, significant changes to retirement plans are on the horizon.

We are available to help plan administrators understand the legislation as it progresses through Congress.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

NoteThe original version of this article was based on the bill as originally passed in the House on March 29.  On March 30, the bill was sent to the Senate.  The March 30 version of the bill included different effective dates with respect to certain of the provisions of the bill described herein.  Effective as of April 13, 2022, this article has been updated to provide for the March 30 effective dates. 

It started sometime last year and, in hindsight, was inevitable.  Clients with 401(k) plans and a crypto-savvy employee population began asking whether they could offer cryptocurrency as a plan investment option.  In the 401(k) world, where even a self-directed brokerage window with built-in investment limitations can be too risky, the answer seemed obvious – watch out!  Cryptocurrency is notoriously volatile and, quite frankly, confusing for many investors.  For that reason, it doesn’t seem to pair well with 401(k) retirement planning, where plan fiduciaries are charged with choosing investments that balance long-term growth with a certain level of stability and reasonable fees.

Cryptocurrencies were first introduced in 2009 when Bitcoin software was released.  While there are many forms of cryptocurrency, they generally use blockchain technology and cryptography to secure transactions.  Likely due to the anonymity of transactions, the currency became attractive in the online black market, facilitating transactions for illegal drugs and false IDs.  It is also the currency of choice for threat actors, making seven-figure, sometimes eight-figure demands in connection with ransomware and other attacks.  However, some years later, Bitcoin, Ethereum, and other cryptocurrencies became more mainstream, valuations rose, and markets for trading these currencies emerged, such as Coinbase.

Soon, the idea of offering cryptocurrencies as an investment option in a 401(k) plan gained traction.  After all, nothing under ERISA or the Internal Revenue Code expressly prohibits cryptocurrency from being included as a 401(k) plan investment option.  The Department of Labor is now weighing in, however, and recently released Compliance Assistance Release No. 2022-01 (Release), in which it “cautions plan fiduciaries to exercise extreme care before they consider adding cryptocurrency to a 401(k) plan’s investment menu for plan participants”.

The Release expresses concern about the prudence of a fiduciary’s decision to expose participants to either direct investments in cryptocurrencies or other products tied to the value of cryptocurrencies for the following reasons:

  1. cryptocurrencies are highly speculative and volatile, which can have a devasting effect on participants—in particular those close to retirement;
  2. cryptocurrency is still new and can be confusing for plan participants who are hearing the anecdotes of big returns without necessarily understanding the risks involved;
  3. there are custodial and recordkeeping concerns since cryptocurrencies general exist as lines of computer code in a digital wallet, rather than in trust and custodial accounts like traditional 401(k) plan assets;
  4. there are concerns about the reliability and accuracy of cryptocurrency valuations—the methodology for which is still contested; and
  5. cryptocurrency regulation is still in flux—the Release provides the example that some cryptocurrency sales may constitute the unlawful sale of securities in unregistered transactions.

The Release further indicates that the DOL expects to conduct an investigative program aimed at plans offering investments in cryptocurrency and related products and to “take appropriate action to protect the interests of plan participants and beneficiaries” regarding cryptocurrency investments.  Plan fiduciaries are put on notice that they must be ready to “square their actions with their duties of prudence and loyalty” in light of the risks set out by the Release.

The stakes are high when plan fiduciaries make investment choices in any scenario, since a breach of their duties to, as the Release puts it, “act solely in the financial interests of plan participants and adhere to an exacting standard of professional care” can lead to personal liability for any losses to the plan resulting from that breach.

This isn’t to say that cryptocurrency won’t eventually be accepted as a prudent 401(k) plan investment option.  But, for now, it’s probably wise for plan fiduciaries to hit the pause button.

If you have any questions about compliance or litigation issues, the members of the Jackson Lewis Employee Benefits and ERISA Complex Litigation Practice groups are available to assist.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

According to a recent survey, about 45% of companies do not have a Chief Information Security Officer (CISO). As West Monroe’s “The Importance of a CISO” observes, it would be terrific for all organizations to have a CISO, but that simply may not be practical for some, particularly smaller organizations. Recent internal audit guidance issued by the federal Department of Labor (DOL), however, directs its investigators to verify the designation of a CISO when auditing retirement plans.

Nearly a year ago, on April 14, the DOL issued cyber security guidance for retirement plans (Guidance). Shortly thereafter, the Department began to weave its newly-minted cybersecurity guidance into plan audits. Basically, the Guidance has three prongs:

  • Cybersecurity best practices for the plan and their service providers
  • Exercise of prudence as an ERISA fiduciary when selecting service providers with respect to cybersecurity practices
  • Educating plan participants and beneficiaries on basic rules to reduce risk of fraud or loss to their retirement plan accounts

The DOL offers 12 helpful “best practices” for any cybersecurity program. Number four on its list provides:

  1. Clearly Defined and Assigned Information Security Roles and Responsibilities. For a cybersecurity program to be effective, it must be managed at the senior executive level and executed by qualified personnel. As a senior executive, the Chief Information Security Officer (CISO) would generally establish and maintain the vision, strategy, and operation of the cybersecurity program which is performed by qualified personnel who should meet the following criteria:
    • Sufficient experience and necessary certifications.
    • Initial and periodic background checks.
    • Regular updates and training to address current cybersecurity risks.
    • Current knowledge of changing cybersecurity threats and countermeasures

Currently, DOL personnel who conduct retirement plan audits are likely to be very familiar with the full range of ERISA requirements for retirement plans. Until recently, however, the DOL had not made clear that cybersecurity was one of those requirements. In an effort to assist its investigators when auditing such plans, the agency provided an investigative guide that closely tracks the Guidance, and offers investigators suggestions for practices to look for during the cybersecurity audit. With regard to number four above, the investigative guide urges investigators to:

Look for:

    • Evidence verifying the designation of a senior leader as the Chief Information Security Officer (CISO) and demonstrating the CISO’s qualifications and accountability for the management, implementation, and evaluation of the cybersecurity program.

As DOL investigators grapple with applying the Guidance along with their internal resources, it remains unclear whether they will be fixated on requiring in all cases an express designation of a “CISO” by all retirement plan sponsors and plan service providers. Of course, it will be important for organizations to clearly define and assign information security roles and responsibilities. The lack of a “CISO” designation alone should not necessarily mean an organization’s data security efforts are rudderless.

Persons in positions such as Director of IT, Chief Information Officer, or IT manager, all may help to support the organization’s efforts to maintain the privacy and security of plan data. But their roles and expertise may not be sufficient to fully address data security for the organization, the plan, or its service providers. For instance, persons in these positions may be appropriately focused on the organization’s IT systems and equipment for which security is only one issue. While these roles are important as well, the focus should be to make sure there is qualified senior leadership with information security roles and responsibilities. The West Monroe article above identifies nicely the attributes such senior leadership might have to fill this need:

  • Executive Presence: The [leader] should have the executive presence to effectively represent the organization’s position regarding information security and the ability to influence executives. They need to be able to identify and assess threats, and then translate the risks into language executives can understand
  • Business Knowledge: The [leader] needs to understand business operations and the critical data that organization is trying to protect. She needs to view business operations from a risk versus security perspective and implement controls to minimize risks and business disruptions.
  • Security Knowledge: A [leader] must be capable of understanding complex security configurations and reports from the technical perspective, and then be capable of translating the relevant technical details into language that other executives can understand.

This raises an important question for many organizations struggling to address cybersecurity, and not just for their retirement plans – how does the organization assess the qualifications of candidates for such a position, and then the individual(s)’ performance when in the position(s). Another important question, suggested above, is whether smaller organizations can support a position with this level of expertise and qualifications. The DOL’s investigative guide seems to acknowledge this issue:

For many plans – especially small plans – IT systems, data, and cybersecurity risks are chiefly managed by third-party recordkeepers and service providers, and these service providers are an appropriate focus for an investigation of cybersecurity practices.

In doing so, the DOL also brings into focus to the plan’s service providers.

The key takeaway is to think carefully about your organization’s approach to managing its cybersecurity obligations and requirements, including with respect to employee benefit plans. Organizations should have a qualified member of its senior leadership assigned and accountable for the management, implementation, and evaluation of its cybersecurity program.

While health plans, insurers, and providers are busy understanding and implementing the new requirements under the No Surprises Act, a U.S. District Court recently vacated an essential portion of the interim regulations carrying out the Act.  While this decision applies nationwide, the court only vacated a portion of the interim regulations affecting the new dispute resolution system created under the Act—leaving the rest of the Act and its interim regulations intact.

The Ruling

Among the No Surprises Act’s requirements is a new binding arbitration system to handle disputes between plans/insurers and providers about the cost of out-of-network services.  Under the Act, if the parties cannot agree informally, they submit a proposed payment amount and explanation to an arbitrator.  The arbitrator then must select one of the two proposed payment amounts—taking into account the qualifying payment amount (QPA) and other considerations enumerated in the Act.  The QPA is generally the median rate the plan/insurer would have paid for the service if an in-network provider or facility provided it.

The main issue raised in the Texas case focuses on the interim regulations issued to carry out this new arbitration process.  The interim regulations effectively create a presumption that the amount closest to the QPA is the proper payment amount to be selected by the arbitrator to resolve the dispute.  The court held this presumption is contrary to the Act’s plain language, which requires the arbitrator to evaluate multiple considerations in determining the appropriate payment amount, including but not limited to the QPA.  According to the court, that presumption impermissibly places its thumb on the scale in favor of the QPA.  As a result, the court vacated the portion of the interim regulations that elevates the QPA over the other statutory considerations.  This ruling currently applies nationwide.

Effect on Plan Sponsors

The portions of the interim regulations elevating the QPA over the other factors to be considered by the arbitrator in determining the payment amount are no longer in effect.  But, the federal Departments charged with carrying out the Act quickly published a statement that this court decision affects no other aspect of the interim regulations or the Act.  The issue in dispute is the amount to be paid to out-of-network providers for disputed claim amounts only and does not impact the fact that the Act still requires group health plans to allow for payment of all agreed upon out-of-network claim amounts.  Plan sponsors, insurers, and other plan service providers should continue implementing the Act and its related guidance to ensure compliance by all required effective dates.

If you have any questions about compliance or litigation issues, the members of the Jackson Lewis Employee Benefits and ERISA Complex Litigation Practice groups are available to assist.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

The normal difficulties that employers have adhering to the technical requirements of COBRA have been exacerbated during the past two years as COBRA rules were changed to recognize the complications accompanying the COVID-19 pandemic.  This added complexity is particularly worrisome as an employer’s simple oversight in administering COBRA can result in ERISA penalties, an excise tax, unintended self-insurance of medical claims, and litigation, including class-action lawsuits.

To better mitigate their exposure, employers should know these significant developments with COBRA during the past two years.

  • Updated Model COBRA Notices: On May 1, 2020, the Department of Labor (DOL) published a new model general COBRA notice and a new model election COBRA notice.  The primary update to the DOL model notices is an added section for those considering Medicare in lieu of COBRA.  Use of the model notices, if properly adapted for the specifics of an employer’s group health plan, is considered good faith compliance with the notice content requirements of COBRA.  The model notices are available on the Department of Labor website.  (For additional information, please see our Benefits Law Advisor article.)
  • Extended COBRA Deadlines: On April 29, 2020, the DOL and Internal Revenue Service (IRS) issued a Joint Notice extending many deadlines relating to COBRA, including the deadlines for an individual to elect COBRA coverage and pay COBRA premiums.  Generally, the deadlines were extended by requiring plans to disregard the period from March 1, 2020, until 60 days after the announced end of the COVID-19 National Emergency (known as the “Outbreak Period”).  The DOL later issued guidance clarifying that a COBRA deadline cannot be delayed for more than one year after the date of the original deadline (see our Benefits Law Advisor article).  This extension of COBRA deadlines is still in effect.  An employer should consider revising its standard COBRA notices to reflect the extended deadlines or provide a supplemental notice explaining the revised deadlines.
  • COBRA Subsidy: The American Rescue Plan Act of 2021 (ARPA) included a provision to fully subsidize COBRA premiums for a period of up to 6 months from April 1, 2021, through September 30, 2021, for individuals who lost health coverage (including dental and vision) due to involuntary termination or reduction in hours since November 2019.  The DOL issued model ARPA COBRA notices and guidance, which required health plans to notify eligible employees about the availability of the subsidy.  The IRS followed with its own expansive guidance on the ARPA subsidy and related tax credit issues for those employers paying for the subsidy (see our Benefits Law Advisor article).  Though the COBRA premium subsidy ended on September 30, 2021, employers that did not administer the ARPA subsidy provisions correctly may still need to take actions to mitigate their risks (COBRA’s existing penalty structure also applies to failures relating to ARPA subsidies).
  • Increase in COBRA Litigation: Even before the above changes went into effect, our firm noted the explosion of class action litigation under COBRA.  These cases usually alleged a purely technical violation of the content requirement of the COBRA notice, showing little or no actual harm to the plaintiff class members.  As the complexity of COBRA administration has grown in the past two years, these class action lawsuits will likely continue to take advantage of the situation.  Consequently, it is essential that employers take steps to mitigate their exposure.

If you have any questions about COBRA compliance or litigation issues, the members of the Jackson Lewis Employee Benefits and ERISA Complex Litigation Practice groups are available to assist.  Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

As employers and insurers continue to establish programs to enable participants in group health plans to receive at-home COVID-19 tests at no cost, even without a prescription, the Department of Labor (DOL) has issued additional guidance and an updated FAQ providing further clarification and flexibility to insurers and plan sponsors in providing coverage to eligible individuals.  This additional guidance is effective February 4, 2022.

As a recap, effective January 15, 2022, all insurers and other group health plans must cover all types of COVID-19 tests, including those performed or prescribed by a physician or other health care provider, and for in-home COVID-19 tests procured without a doctor’s order.  The DOL issued FAQ Part 51 to provide guidance about how insurers and plans can comply with the obligation to provide at-home COVID-19 tests at no-cost, including the establishment of two “safe harbors” that plans and insurers can follow to ensure compliance:

Safe Harbor #1: The plan or insurer can satisfy its coverage obligation by providing “direct coverage” of at-home COVID tests through network pharmacy arrangements and other direct contract arrangements, with the participant paying no up-front cost to receive COVID testing kits through these services at the counter or other points-of-service.  If a participant submits invoices for COVID tests purchased through other non-pharmacy or retailer arrangements, the insurer or plan must reimburse the participant for the cost of such COVID tests at the lessor of the actual cost of the test purchased or $12 per test (noting that if a “kit” comes with two tests per kit, the amount to be reimbursed would be up to $24 in total).

Safe Harbor #2:   The plan or insurer can limit the total number of COVID tests to 8 per person, per month (or 4 kits, if the kit includes two tests).  A separate limit applies for each covered family member (e.g., a family of 4 could receive up to 32 tests per month (or 16 kits, if it includes two tests each).  There is no annual maximum limit.

FAQ Part 52 Update

On February 4, 2022, the DOL issued FAQ Part 52 to further clarify what COVID tests qualify for the no-cost coverage options under Safe Harbor #1, how a plan or insurer provides “direct coverage” of COVID-19 tests at no cost to the participant, and provides flexibility in coverage when the plan or insurer experiences supply shortages.  Lastly, the latest guidance confirms the coordination of plan coverage between the plan or insurer and related health flexible spending plans and health savings account arrangements.

Q/A-1 confirms that employers have flexibility in establishing a “direct coverage” arrangement to satisfy Safe Harbor #1 in FAQ Part 51.  At a minimum, the plan or insurer must provide at least one “direct-to-consumer shipping mechanism” and at least one “in-person mechanism.”

  • A direct-to-consumer shipping mechanism is any program that provides direct coverage of over-the-counter COVID-19 tests without requiring the individual to obtain the test at an in-person location. It can include an online or telephone ordering system provided through a pharmacy network or other non-pharmacy retailer that has contracted with the insurer or plan to provide COVID-19 tests to eligible participants at no-cost at the time of ordering.
  • The guidance emphasizes that systems and technology changes need to be modified to the extent necessary to ensure that pharmacy networks and retailer arrangements, including all direct-to-consumer shipping mechanisms, operate sufficiently with no upfront cost to the participant for the purchase of at-home COVID-19 test kits.
  • Plans and insurers must pay for all shipping costs consistent with the plan’s mail-order shipping arrangements.
  • When implementing an in-person mechanism, the plan or insurer can satisfy this requirement by offering alternative COVID-19 testing at in-person distribution sites with drive-through or walk-up testing services at no-cost to the participant. These services can also be provided through participating pharmacies and other contracted service providers available based on the locality of participants and beneficiaries and the current utilization of participants at each location.  Key information must be provided to all participants to ensure they are aware of each location and what other information they need to have available to receive COVID-19 testing coverage at no-cost.

Q/A-2 provides a crucial clarification that plans and insurers will not be deemed to violate Safe Harbor #1 if they are temporarily unable to provide over-the-counter COVID-19 tests due to supply shortages, as long as they have taken all other steps necessary to establish direct coverage arrangements in the manner required under Safe Harbor #1.  In that case, the plan or insurer can still meet its coverage responsibility by reimbursing the cost of COVID-19 tests/kits purchased outside of the prescribed direct coverage arrangement for up to $12 per test.

Q/A-3 clarifies that plans and insurers can disallow reimbursement for tests purchased by participants from a private individual via an in-person, online person-to-person sale, or any seller using online auctions or other resale marketplace arrangements.  Proof of purchase through a verified retailer with actual documentation of the item purchased will not violate the obligations set forth above or from previous guidance issued that restricts any medical management of COVID-19 coverage (see DOL FAQ Part 44).

Q/A-4 clarifies that the type of COVID-19 tests that must be covered under FAQ Parts 51 and 52 do not include COVID-19 tests that use a self-collected sample that must be processed by a lab or other health care provider to return a valid result—the type of COVID-19 tests referred to under FAQ Parts 51 and 52 are only tests that can be self-administered and self-read without the involvement of a health care provider.

Q/A-5 also clarifies that the cost of a COVID-19 test covered under the group health plan is not eligible for reimbursement under a health flexible spending arrangement (FSA), health reimbursement arrangement (HRA), or a health savings account (HSA) for the same expense.  To the extent an individual mistakenly receives reimbursement for the same COVID-19 test costs from a health FSA, HRA, or HSA arrangement separately covered and paid through an employer’s or insurer’s group health plan, such individual would need to contact their plan administrator for correction of the error or could be subject to income tax on the amounts overpaid.

As with the previous guidance on this topic, these obligations will continue until at least the end of the current national emergency period.

Members of the Jackson Lewis Employee Benefits group are available to discuss these latest updates and other options and alternatives for compliance.

Hot button ERISA fiduciary issues remain a focus for investment committees of 401(k) plans in 2022.  From “excessive” fee litigation – including litigation over the duty to monitor the fees charged by various mutual funds made available to plan participants (the U.S. Supreme Court reaffirmed this duty in January 2022) – to the U.S. Department of Labor’s (the “DOL’s”) evolution in its position on investments in environmental, social, and governance (“ESG”) funds – making pecuniary gain one factor, but not the sole factor, relevant to ERISA fiduciaries in deciding whether to invest in ESG funds – to the DOL’s issuance of a “supplemental statement” noting its concerns with including private equity (“PE”) investments in designated investment alternatives offered under defined contribution plans, the 401(k) plan investment landscape has become significantly more challenging for ERISA fiduciaries to navigate.

The DOL’s recent guidance on private equity investments is a case in point.  On June 3, 2020, the DOL issued an Information Letter regarding PE investments in designated investment alternatives made available to participants and beneficiaries in defined contribution plans.  In the Information Letter, the DOL took the position that PE investments are more complex, illiquid and difficult to value than more traditional investments and, therefore, that ERISA fiduciaries seeking to add or maintain as a plan investment option an asset allocation fund (e.g., a target date, target risk, or balanced fund) that includes such investments must exercise a heightened level of review and diligence in their investment decision making.

To satisfy this heightened level of review and diligence, not only would ERISA fiduciaries need to undertake several DOL-prescribed steps to evaluate the PE investments thoroughly, but they also would need to ensure adequate disclosure of investment objectives and risks to plan participants and beneficiaries and “consider whether [they (the ERISA fiduciaries) have] . . . the skills, knowledge, and experience to make the required determinations or whether [they (the ERISA fiduciaries)] . . . need to seek assistance from a qualified investment adviser or other investment professional.”

In short, the DOL put ERISA fiduciaries on notice that the bar for including PE investments in the funds offered under the plan is a high one.  However, the DOL concluded that ERISA fiduciaries would not violate ERISA’s fiduciary standards solely because they offer a professionally managed asset allocation fund with a PE component as a designated investment alternative under a defined contribution plan, provided that the requirements of the Information Letter are satisfied.

Fast forward to December 21, 2021.  In a Supplemental Statement, the DOL, focusing on a Securities and Exchange Commission (“SEC”) “Risk Alert” issued shortly after issuing the Information Letter – in which the SEC raised compliance concerns (conflicts of interest, fees, and policies regarding the use of material non-public information) for investment advisors managing PE funds and hedge funds – and concerns raised by various stakeholders regarding the Information Letter, “concluded that it should supplement the Information Letter to ensure that plan fiduciaries do not expose plan participants and beneficiaries to unwarranted risks by misreading the letter as saying that PE – as a component of a designated investment alternative – is generally appropriate for a typical 401(k) plan.”

The DOL clarified that the Information Letter is to be construed as applying only to its limited facts – i.e., that PE investments may be appropriate for a defined contribution plan if a plan-level fiduciary who has experience in evaluating PE investments in a defined benefit pension plan enlists the assistance of an investment advisor in evaluating such investments for the defined contribution plan: “Except in this minority of situations, plan-level fiduciaries of small, individual account plans are not likely suited to evaluate the use of PE investments in designated investment alternatives in individual account plans.”

Investment committees of 401(k) plans should take heed of the DOL’s concerns raised in the Information Letter and the Supplemental Statement.  The key takeaways regarding adding or maintaining an asset allocation fund including PE investments are:

  • Ensure adequate disclosure of the fund’s investment objectives and risks to plan participants and beneficiaries.
  • Review and analyze, with respect to any PE investments, the investment valuations, the extent of investment illiquidity and fees, conflicts of interest, and other SEC-raised concerns.
  • Enlist the assistance of a registered investment advisor to evaluate the PE investments and the fund as a whole.
  • Carefully consider whether members of the committee have experience in evaluating PE investments in a defined benefit pension plan, which appears to be a de facto requirement of the Supplemental Statement.

Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.