The list of the federal courts of appeals enforcing unambiguous anti-assignment provisions in ERISA health benefit plans continues to grow:  almost exactly one year ago, the Third Circuit joined its sister circuits in holding “that anti-assignment clauses in ERISA-governed health insurance plans as a general matter are enforceable.” As the Third Circuit opinion noted, every circuit court to address the issue – seven to date (the First, Second, Third, Fifth, Ninth, Tenth, and Eleventh) – has reached this same conclusion of law.

This very issue was recently addressed by the Eastern District of New York in Long Island Neurological Assocs., P.C. v. Highmark Blue Shield, No. 2:18-cv-81 (DRH)(AYS), 2019 U.S. Dist. LEXIS 46176 (E.D.N.Y. Mar. 20, 2019).[1] But, in that case, the court concluded the otherwise unambiguous anti-assignment provision at issue was unenforceable.

The problem was not that the district court went against precedent.  The problem was the document in which the anti-assignment provision appeared.  It was not in a formal plan document, nor in a Summary Plan Description or a Statement of Material Modification. It was contained in the Administrative Services Agreement (“ASA”) between the plan insurer and the plan sponsor. The court determined that, for purposes of enforcing a provision against plan participants, the provision must appear in a “plan document.” The court explained, “For ERISA-purposes, a plan document is one which a plan participant could read to determine his or her rights or obligations under the plan.” Because the ASA at issue was not a document designed to inform participants of their rights and obligations, and as, apparently, there was no language in the formal plan document that arguably incorporated the ASA by reference, the court held the anti-assignment provision was unenforceable.

This decision demonstrates the importance of keeping the formal plan document properly updated, as opposed to attempting to utilize ancillary documents to modify controlling plan terms.  To be sure, the use of ancillary documents to establish the terms of a plan can be appropriate, but only if the formal plan document expressly anticipates and authorizes the expansion of plan terms through incorporation of other documents, such as summary plan descriptions or insurance policies, or, possibly, administrative services agreements.  It appears there were no such provisions in the plan at issue in Long Island Neurological Assocs., P.C. v. Highmark Blue Shield. As a result, an otherwise proper anti-assignment provision was ruled ineffective.


[1] At the time of posting, the caption for this case in Lexis identified the Plaintiff as “Long Island Neurological Assocs.” We note the caption for the matter reported on PACER reads “Long Island Neurosurgical Assocs.”

Changes to Employee Benefit Plans May Create Unforeseen Disclosure Deadlines

Believe it or not, it may be time to distribute a new Summary Plan Description (SPD) to include all changes made since the last issuance or a Summary of Material Modifications (SMM) for any amendments adopted during the 2018 plan year.

The Rules:  The Department of Labor (DOL) regulations and Employee Retirement Income Security Act (ERISA) require qualified retirement plans distribute an updated SPD to participants and beneficiaries within 210 days following the end of the 5th plan year in which the plan issues the last updated SPD.  An exception applies if a plan has had no amendments in the prior five years.  But really, who among us has not had amendments in the last five years where we saw natural disasters, a fiduciary rule roller coaster, the Tax Cuts and Jobs Act, the Bipartisan Budget Act, new disability claims procedures, etc.  If you have not amended your plan in the last 5 years, you may qualify for a longer period before you must distribute an updated SPD.  The alternative to sending a new SPD for every amendment is the SMM, containing only the information changed by a material amendment (material being based on facts and circumstances).  Plans must distribute SMMs within 210 days of the end of the plan year which includes the change.  Examples of a material change can include

  • name and address of the employer, plan sponsor, plan administrator, trustees;
  • collective bargaining agreements;
  • vesting;
  • eligibility for participation & plan benefits;
  • circumstances which may cause plan disqualification;
  • circumstances which may cause denial or loss of benefits or ineligibility;
  • plan year-end date; and
  • benefit claim procedures and remedies available for denied claims.

The Plans:  Qualified plans, including health and welfare plans, individually designed plans (IDPs), and pre-approved plans are subject to the SPD and SMM timing and distribution requirements.  If the issue date of your active SPD is before or within 2013, your plan may be due to distribute an updated SPD within 210 days of the plan year ending in 2018.  For calendar year plans, that date is Monday, July 29, 2019.  The updated SPD should contain all the information from any SMMs distributed over that period.

Penalties:  Failure to adhere to these requirements can trigger criminal penalties against the plan sponsor and personally against the plan fiduciaries up to $500,000 for the Plan Sponsor and $100,000 or up to 10 years imprisonment for the individual fiduciaries.

What to do:  If your plan is not among those due for the full SPD update distribution and your plan adopted any amendments during the plan year ending in 2018, the 210 day distribution requirement for the SMM will be here before you know it.  For calendar year plans, that date is Monday, July 29, 2019.

Contact your local Jackson Lewis office for assistance in determining your plan’s timetable for distribution of an SPD or SMM.  The “How” to distribute warrants its own article, but we can help with that too.

The IRS Reopens the Determination Letter Program for Merged Plans and Cash Balance Plans

On May 1, 2019, the IRS issued Revenue Procedure 2019-20, which reopens the determination letter program in a limited manner for individually designed plans that are merged plans or statutory hybrid plans, such as cash balance plans. The new IRS guidance provides that sponsors of merged plans may request determination letters going forward, while sponsors of statutory hybrid plans may request determination letters only during a limited window of time. The effective date of the new guidance is September 1, 2019.

As background information, the IRS closed the determination letter program for individually designed plans in 2016, with the final five-year cycle ending on January 31, 2017. From that point, sponsors of individually designed plans generally could request determination letters only upon the initial adoption or termination of a plan. The 2016 change to the determination letter program increased uncertainty and risk associated with the sponsorship of individually designed plans, causing many plan sponsors to move their individually designed plans to preapproved plan documents.

Beginning September 1, 2019, and continuing on an ongoing basis, merged plans that satisfy the requirements of Rev. Proc. 2019-20 may apply for a determination letter. When applicable, sponsors of individually designed plans that are the subject of a merger, should consider a determination letter application during the post-closing benefits integration process. To qualify for the expanded determination letter program, a business transaction, such as a merger or acquisition, must occur involving two or more entities that are not in the same controlled group or affiliated service group. Following the business transaction, two or more plans must be merged into a single individually designed plan.

Rev. Proc. 2019-20 defines a merged plan as a plan that results from the merger or consolidation of two or more plans into a single individually designed plan under a plan merger that occurs no later than the last day of the first plan year that begins after the plan year that includes the date of a business transaction. Thus, the plan merger must occur during the Code Section 410(b)(6)(C) transition period for mergers and acquisitions.  Plan Sponsors must submit the determination letter application to the IRS no earlier than the date of the plan merger and no later than the last day of the first plan year that begins after the date of the plan merger.

Under Rev. Proc. 2019-20, statutory hybrid plans may apply for a determination letter during the twelve-month period beginning on September 1, 2019, and ending on August 31, 2020. A statutory hybrid plan is a defined benefit plan that contains a lump sum based formula or a formula with an effect similar to a lump sum based formula. A lump sum based formula is a formula used to determine all or a part of a participant’s accumulated benefit where the formula is expressed as either the current balance of a hypothetical account maintained for the participant or the current value of the accumulated percentage of a participant’s final average compensation.  Examples of statutory hybrid plans include cash balance plans and pension equity plans. Sponsors of hybrid plans must act quickly to capitalize on the limited window to obtain a determination letter.

Although the expansion of the determination letter program under Rev. Proc. 2019-20 is welcome news, it is still relatively limited in scope. Plan sponsors and practitioners would welcome additional, periodic opportunities to obtain determination letters on other individually designed plans.

Is Your Employer Worksite Medical Clinic a Group Health Plan?

Worksite medical clinics, some offering round-the-clock access to medical providers via telemedicine, seem to be growing in popularity.  Promoters tout cost savings resulting from what would otherwise be lost productivity (employees whiling away afternoons waiting to see their private doctors or having to drive long distances to have blood drawn for routine laboratory work) and expenses otherwise borne by self-insured group health plans at a far higher cost per service.  Some worksite clinics have existed for decades for reasons other than cost-savings – for example, to ensure immediate treatment is available to employees if work-related injuries or illnesses occur or as part of a workplace well-being program.

The variety of reasons for having worksite clinics has caused at least as much variety in worksite clinic designs – from those that provide only first aid treatment to employees if workplace injuries occur to those that provide a full array of primary medical care services to employees and family members despite the source of injury or illness.  There also are a variety of legal considerations applicable when employers provide medical care at the worksite – particularly if the arrangement constitutes an employer group health plan.

An employer group health plan is an arrangement established by an employer to provide or pay for medical care – something all worksite clinics do.  Group health plans generally are subject to specific disclosure and reporting requirements under the Employee Retirement Income Security Act (ERISA), continuation requirements under the Consolidated Omnibus Budget Reconciliation Act (COBRA), special tax treatment conditions under the Internal Revenue Code (IRC), privacy and other requirements under the Health Insurance Portability and Accountability Act (HIPAA), and health care reform provisions under the Patient Protection and Affordable Care Act (ACA).  That said, a worksite clinic might be exempt from some or all of these requirements.

Unfortunately, whether a worksite clinic is exempt from one or another compliance requirement is a murky issue.  If the worksite clinic does more than treat minor workplace injuries and illnesses during work hours, it will be subject to ERISA, including the requirements of issuing a summary plan description and filing an annual Form 5500.  It also will be subject to COBRA, unless it is primarily providing free first aid treatment to employees for workplace injuries and illnesses.  The employer must consider how it will satisfy these disclosure, reporting and coverage continuation requirements or manage the risk of violating those requirements.  How would the employer respond to a terminated employee’s assertion of a COBRA right to continued access to the clinic?

An ERISA-covered worksite clinic might still escape other requirements unique to group health plans under HIPAA and the ACA if it qualifies as an excepted benefit by virtue of being a worksite medical clinic.  However, the enforcement agencies have not defined a worksite medical clinic for these purposes.  Given the nature of the other enumerated excepted benefits – all of which are secondary or incidental to group health benefits – it is unlikely that a worksite clinic providing services (beyond workplace first aid for employees) that supplant benefits ordinarily provided under a group health plan would qualify as an excepted benefit.  How would the worksite clinic comply with the ACA’s coverage mandates – particularly regarding employees and family members not enrolled in the employer’s otherwise compliant group health plan?

In addition to litigation that can arise over group health plan noncompliance, the enforcement agencies – primarily the Department of Labor, Internal Revenue Service and Department of Health and Human Services, can impose significant penalties on employers for violating the myriad of compliance requirements applicable to group health plans.

The bottom line is that an employer maintaining a workplace clinic (or considering one) needs to understand the group health plan compliance risks and the general risks associated with doing so and take reasonable steps to mitigate those risks.

A Quick Form W-4 Reminder for Employers: May 10, 2019 Deadline for Updates

The Tax Cuts and Jobs Act (the “Tax Act”) significantly changed the federal income tax rules.  Several of these changes impact income tax withholding, including changes to the tax rates and brackets, increasing the standard deduction, and eliminating personal exemptions.

Normally, employees must provide their employers with an updated Form W-4 within 10 days of a change in their personal circumstances that affects their withholding.  However, the IRS in Notice 2018-92 gave employees a temporary reprieve from this 10-day rule when their withholding changed solely as a result of the Tax Act.  In these circumstances, employees must update their Form W-4 within 10 days of April 30, 2019 – or by May 10, 2019.

With the 2018, individual tax filing season in the rearview mirror, now is a great time to remind employees about the requirement to update their Form W-4 and to encourage them to take advantage of the IRS withholding calculator to determine if updates are needed.  The IRS withholding calculator is available here.

THEY’RE HEEEEERRRREE!! But Have No Fear – Long Awaited Changes to EPCRS Are Good News for Plan Sponsors

Long on the wish list of practitioners and plan sponsors alike, self-correction of certain common plan document issues and loan failures is finally an option under the Internal Revenue Service’s Employee Plans Compliance Resolution System (“EPCRS”), newly minted via Rev. Proc. 2019-19.

It is no secret that the IRS is continually dealing with reduced budgets and staffing.  This, in part, has led to recent changes to EPCRS and its component program, the Voluntary Correction Program (“VCP”).  The VCP involves submitting a filing to the IRS that discloses a qualified plan’s document and/or operational failure(s), and seeks approval of a plan sponsor’s proposed corrections.  In early 2018, the IRS increased fees for certain VCP filings to align the costs of processing a VCP with the related user fee.  More recently, the IRS has begun to require that all VCPs be submitted electronically.  Now, the calls from practitioners to simplify the correction process and reduce the costs for plan sponsors by allowing self-correction (under ECPRS’s Self-Correction Program (“SCP”)) for certain common issues have been answered.  Presumably, this is a win-win for all involved since it will also lessen the administrative burden for the IRS of reviewing and approving VCPs for some of the most comment and straightforward corrections.

The new and improved EPCRS, which became effective April 19, 2019, allows:

  1. Self-correction of certain plan document failures. Proc. 2019-19 allows the sponsor of a plan under IRC Section 401(a) (which would include a 401(k) plan) or Section 403(b) to self-correct certain failures to adopt a required plan amendment within the prescribed timeframe, if the plan has a favorable determination letter and such a correction is made within the self-correction period (i.e., by the end of the second plan year following the year of the failure).  Self-correction continues to be unavailable for failing to timely adopt an initial plan document.
  1. Self-correction by retroactive plan amendment. Often plan sponsors would like to adopt a retroactive plan amendment to align the terms of a plan document with the plan’s prior operations.  Under Rev. Proc. 2019-19, a sponsor may now do so without a VCP filing if three conditions are satisfied: (a) the plan amendment would cause an increase of a participants’ benefits, rights or features under the plan, (b) the increase in the benefits, rights or features is available to all eligible employees, and (c) the increase in the benefits, rights or features is permitted under the Internal Revenue Code and follows the general correction principals under EPCRS.  SCP is not available to retroactively amend a plan if such amendment does not provide for a uniform increase in benefits, rights or features available to all employees eligible to participate in the plan.  Instead, a plan sponsor, under those circumstances, will still need to do a VCP filing. 
  1. Self-correction of certain loan failures. The following corrections for common loan failures are available if all conditions of Rev. Proc. 2019-19 are satisfied:
  • A loan that does not satisfy the requirements of IRC Section 72(p), or that is in default, may be corrected via a deemed distribution in the year of correction, rather than the year of the failure;
  • A defaulted loan may be corrected with a lump-sum catch-up payment, re-amortized payments over the remaining life of the loan, or a combination of the two (as long as the maximum period for repayment of the loan has not been exceed);
  • A failure to obtain spousal consent for a loan (if required) can be obtained retroactively, as long as the spouse consents; and
  • A plan may be retroactively amended to conform the plan’s terms to the plan’s operations when participants have been granted loans in excess of the number allowed under a plan’s existing terms. 
  1. Self-correction of failures to obtain spousal consent. A failure to obtain spousal consent to a distribution option other than a qualified joint and survivor annuity may now be self-corrected via a retroactive consent, as long as the spouse will provide it. 

We hope, and anticipate, these changes will lead to easier, and more cost-efficient, correction options for our clients, which in turn will cause increased compliance with the EPCRS correction principals.  We are available to answer any questions about the ECPRS changes and to help navigate the guidance when plan document and operational failures are discovered.


 On January 15, 2019, the federal Eighth Circuit Court of Appeals issued its decision in Peterson v. UnitedHealth Group, Inc., 913 F.3d, 769 (8th Cir. 2019), in which the Court upheld the federal district court’s holding that UnitedHealth Group, Inc. (“United”) was not authorized to reduce (or “offset”) payments to medical providers under ERISA group health plans for which United was the third-party administrator (or “TPA”) by the amounts United determined had been previously overpaid to the same providers under completely different  group health plans also administered by United.  This practice is known as “cross-plan offsetting.”  It arose in the last 20 years as a unilateral, informal overpayment settlement device applied by large insurers and TPAs administering both third-party insured health plans and self-insured health plans.

The court based its decision on its determinations that (i) the group health plans at issue in the case contained no language addressing the offsetting of payments by the amount of overpayment to a provider in another plan and (ii) based on this absence of plan language it was unreasonable for United, as an ERISA plan fiduciary, to interpret the plans to permit this practice.  The plaintiffs here were out-of-network medical providers under certain plans whose professional fees or bills had been offset by amounts United had determined were excessive payments by United to those providers in other plans.

United, and other large insurers and TPAs, have in many cases notified existing and/or prospective plan sponsors of the practice of cross-plan offsetting in their administrative services contracts and related communications.  Even so, a key issue surrounding this practice is whether any such service contract language, or even actual plan language permitting the practice, could ever be upheld, given ERISA’s fiduciary duty to act “for the exclusive purpose of…providing benefits to participants and their beneficiaries… .”  Those duties, as the Department of Labor argued in a friend-of-the-court brief submitted in the case, can only apply within a single plan and cannot be effectively applied or administered and balanced across a group of ERISA health plans that happen to have the same contract fiduciary administrator.  By holding back payments to providers in a plan under such an offset mechanism United arguably breaches this duty because, among other reasons, it puts the participants in the plan who incurred the services at financial risk since they could be sued for payment by the provider for the offset amount that arose from an alleged overpayment in a different plan.

Though the court in Peterson rejected United’s offsetting on the narrow grounds noted above, it specifically noted the possibility of this bigger possible ERISA general fiduciary prohibition of offsetting.    We can expect to see more litigation testing this broader ERISA prohibition theory as cases work through the courts based on plan and service contracts language that expressly permit this practice.

New Jersey Requires Employers to Offer Employees Pre-tax Commuter Benefits

Last month, New Jersey Governor Phil Murphy signed S.1567 into law, making the Garden State the first state to mandate a commuter benefit law, joining cities such as New York and San Francisco that have similar laws. In short, this law requires employers in the state to offer pre-tax commuter benefits to employees. While the law is currently in effect, it is not operative until the earlier of (i) 365 days following the date of enactment (March 1, 2019), or (ii) the effective date of rules and regulations that the law directs the Commission of Labor and Workforce Development to adopt.

Federal law. Before digging in further to New Jersey’s new law, let’s revisit some of the commuter benefits provisions under federal law, including a change made under the Tax Cuts and Jobs Act (passed in late 2017).

Under the Internal Revenue Code, the value of a “qualified transportation fringe” benefit provided by an employer to an employee is treated as tax-free, subject to monthly limits. A “qualified transportation fringe” is defined as:

  • transportation in a commuter highway vehicle for travel between the employee’s residence and place of employment;
  • transit passes;
  • qualified parking; and
  • qualified bicycle commuting reimbursement.

In late 2018, the IRS released new monthly contribution limits for 2019:

  • Parking – $265
  • Mass Transit – $265

Employers can still provide tax-free qualified transportation fringe benefits to employees (although qualified bicycle commuting reimbursements cannot be provided tax-free). Under the Tax Cuts and Jobs Act, an employer can no longer deduct the expenses for providing tax-free transportation fringe benefits. However, employers that treat the transportation fringe benefits as taxable W-2 wages to the employee are able to deduct the expenses of providing those benefits.

New Jersey. The state’s new commuter benefits law requires employers that employ at least 20 persons to offer a pre-tax transportation fringe benefit to all of the employer’s employees that are not subject to a collective bargaining agreement. For purposes of this law, an employee means anyone hired or employed by the employer and who reports to the employer’s work location (this follows the definition under the state’s unemployment compensation law). A pre-tax transportation fringe benefit is a benefit that allows an employee to set aside wages on a pre-tax basis, which is then only made available to the employee for the purchase of certain eligible transportation services, including transit passes and commuter highway vehicle travel.

Employers can expect the Commissioner of Labor and Workforce Development to adopt rules and regulations, in consultation with transportation management associations, transit agencies in New Jersey, and third-party transit benefit providers concerning the administration and enforcement of the law’s requirements in a manner that is “most compatible with current practices for providing pre-tax transportation fringe benefits.”

Employers that fail to comply with the law are subject to a penalty of between $100 to $250 for the first violation. Before a penalty is imposed, however, employers will have 90 days from the date of the violation to offer the pre-tax transportation fringe benefit program. If, after the 90-day cure period, the employer does not adopt a pre-tax transportation fringe benefit, it will be subject to a $250 penalty for each additional 30 day period in which an employer fails to offer the benefit.

New Jersey employers should begin thinking about the steps they will need to take to provide this benefit. Areas for consideration include the specific features of the pre-tax transportation fringe benefit program, developing a document to communicate the program to employees, and coordinating the administration of requirements in other jurisdictions, if applicable. Of course, employers will want to be on the lookout for guidance from the Commissioner of Labor and Workforce Development.

Could This Be Your Retirement Plan?

Image result for cardboard box record storageAs reported by CBC, B.C. Pension Corporation announced a data breach involving pension plan records after discovering a box containing microfiche could not be found following a recent office move. The box contained personal information (names, social insurance numbers and dates of birth) on approximately 8,000 pension plan participants. The company employed those participants during the period 1982 to 1997. Learning of this incident, persons responsible for pension plan administration might be wondering how secure are their facilities (or their service provider’s facilities) for remote storage. And, pension plan participants might be wondering why do plans need this information and for so long.

In the U.S., the Employee Retirement Income Security Act (ERISA) governs the administration of pension plans, and the law includes specific record retention requirements. For example, persons who are responsible for filing plan reports must “maintain records to provide sufficient detail to verify, explain, clarify and check for accuracy and completeness.” ERISA Section 107. In addition, ERISA requires employers to maintain sufficient records to determine benefits due to employees. ERISA Section 209. Because employees may not retire for many years after accruing benefits under the pension plan, plans need to maintain records until plan participants retire and the records must be sufficient to determine benefits under the plan.

These record retention requirements present important issues for employers, plan administrators, and pension plan service providers. We have written about pension plans experiencing data breaches caused by malicious attackers. But, relatively straightforward administrative recordkeeping activities also can result personal information being compromised.  In late 2016, the ERISA Advisory Council, a 15-member body appointed by the Secretary of Labor to provide guidance on employee benefit plans, shared with the federal Department of Labor some considerations concerning cybersecurity. To date, the DOL has not issued any formal guidance on these recommendations, however, employers, plan administrators, and pension plan service providers should revisit their procedures for handling sensitive personal information maintained in their pension plan records.

According to the Council’s recommendations, there are four major areas for effective practices and policies: (i) data management; (ii) technology management; (iii) service provider management; and (iv) people issues. This is a good list to work from. However, while not an exhaustive list, the following action items may help to avoid incidents like the one discussed above:

  • Retain only the data that is needed; if certain data elements can be redacted, removed them;
  • Maintain an inventory of records that are retained regardless of format, and where to find them;
  • Outline a clear process for moving records, and track location and inventory during the move; and
  • Delete records that are no longer needed; confirm service providers have done so, as applicable.

Of course, no set of safeguards for protecting personal information will prevent all kinds of compromises to it. Mistakes happen, so employers and plan administrators should be prepared by developing and maintaining incident response plans and practice them.

IRS No Longer Forbids Pension Plans From Offering Lump Sum Payouts To Retirees Currently Receiving Payments

Over the past several years, sponsors of defined benefit pension plans have examined and implemented ways to reduce their pension liabilities. This is sometimes referred to as “de-risking.” One de-risking option is for a plan to offer a limited-duration window where participants who normally do not have the option to do so can elect to receive the value of their benefits in a lump sum (rather than a stream of payments over an extended time-period).

Most often we see lump-sum windows being offered to participants who have terminated employment but are not yet eligible to commence benefits. However, in the not so distant past, the IRS issued some private letter rulings to companies allowing them to offer lump-sum windows to retirees already receiving annuity payments. In the wake of these rulings, according to the IRS, several plan sponsors that were not subject to the private letter rulings chose to amend their plans to provide for lump-sum windows for retirees receiving annuity payments.

This caught the attention of the IRS, which in 2015 announced its intention to adopt regulations (to be effective as of July 9, 2015) to prevent pension plans from offering lump sum windows to retirees who are already receiving annuity payments. (See our prior blog post on this topic by clicking here). This put an end to this de-risking practice.

Recently, the IRS unexpectedly reversed course and announced that it no longer intends to introduce those regulations. This effectively ends the IRS ban on a plan’s ability to offer lump sum windows to retirees receiving annuity payments. Plan sponsors now have a renewed opportunity to examine whether offering a lump-sum window to retirees makes sense for their plan.

Notwithstanding, offering a retiree lump-sum window is an endeavor that requires extensive analysis and planning for several reasons, such as:

• Several decisions need to be made by the plan sponsor. For instance, who will be offered the window and how long will the window last?
• The plan document will need to be precisely amended to allow for the window.
• Communications to participants who are offered the opportunity to participate in the window must be carefully crafted and include several required legal disclosures.

If you are interested in learning more, please contact your preferred Jackson Lewis attorney.