The Department of Labor (“DOL”) recently published a final regulation providing a 60-day extension (from April 10th to June 9th) of the applicability date for the Fiduciary Rule — the rule that expands the definition of an employee benefit plan “fiduciary” to include members of the financial services industry — as well as exemptions from that definition, including the Best Interest Contract Exemption (“BIC Exemption”) (PTE 2016-01) and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02).

The DOL’s final regulation also requires those fiduciaries who rely on the exemptions — which include securities broker/dealers, agents, insurance companies and benefit consultants who advise employee benefit plans — to adhere to “Impartial Conduct Standards” through a new transition period from June 9, 2017 to January 1, 2018.

Effective January 1, 2018, the Impartial Conduct Standards require written statements to appear in any contract for services when a securities broker/dealer, agent or consultant renders advice to an employee benefit plan in exchange for fees or commissions. The Impartial Conduct Standards also require, among other things, that such broker/dealers, agents or consultants disclose in a written contract that they are ERISA fiduciaries, that they will render advice solely for the benefit of the plan, that they will charge a reasonable fee, that they will disclose any conflicts of interest, and that they will not receive incentives for recommending any particular investment.

Also extended for 60 days are the new amendments to prohibited transaction rules: PTEs 75-1, 7-4, 80-83, 84-24, and 86-128. These amended PTEs provide relief from prohibited transaction excise taxes when securities are sold to employee benefit plans, when plan assets are deposited in mutual funds, when securities are sold to generate funds to be paid out as retirement benefits to plan participants, and when non-discretionary trustees or other fiduciaries receive fees in connection with plan investment transactions.

What does this mean for employers who sponsor retirement plans, such as 401(k) and 403(b) plans? Employers need to be aware that the Fiduciary Rule — and any delay of the applicability date thereof — does not impact employer fiduciary responsibility under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) with regard to the retirement plans they sponsor. Employers should expect that their financial service industry plan service providers will be in touch concerning amendments to service agreements to incorporate the terms required by the Impartial Conduct Standards.

For more information on the DOL announcement, please see https://federalregister.gov/d/2017-06914.

The American Heath Care Act was designed to provide health care reform and to replace former President Obama’s Affordable Care Act (the “ACA”). However, the House of Representatives, under President Trump’s direction, cancelled its vote in late March because of lack of overall support from Republicans to get passage of the bill in the House. Now what?

ACA is Still in Effect

The stop-and-start and vacillation regarding health care reform produces confusion: for those on the Hill, for businesses, for lawyers, for individuals and for those in the health insurance business itself. For now, however, the ACA remains the law of the land.
Companies.

For companies, the “play or pay” provisions of the ACA apply only to “Applicable Large Employers” (“ALEs”), generally those with 50 or more full-time employees in the prior calendar year, including full-time equivalent employees. A company with fewer than 50 full-time employees, including full-time equivalent employees, is not an ALE subject to the ACA (and not subject to the employer shared responsibility provisions or the employer information reporting provisions). Those companies that are not ALEs may be eligible for the Small Business Health Care Tax Credit and should seek advice to determine how the ACA affects them.

• We often see clients encounter problems in determining “full-time” employees and how “full-time equivalent” plays into the calculation. Knowing the difference between those terms and what the ACA requires is why a company, who may have 80 full-time equivalents, has to offer health care to only its subset of 40 full-timers, as the ACA imposes a penalty only for the failure to extend an offer of coverage to full-time employees, but not those who are counted as part of the full-time equivalent formula.

• We also see clients considering shifting their employees between related companies (to a parent company, a subsidiary, or a company owned by a spouse), so that each company has an employee count below the ALE threshold of 50 full-time equivalents. For the most part, such maneuvering will not work, as related companies are generally grouped together as one ALE under ACA controlled group rules.

• We also caution against simply reducing an employee’s work hours to below 30 hours (the hour requirement for an employee to be considered “full-time”), in an effort to avoid having to offer health care to that now lower-hour employee. Since the enactment of ACA, there has been a rise in claims from employees who were denied health care because employers reduced their hours, under what ostensibly could have looked like a viable business solution.

Generally, ALEs must either (a) offer “affordable” “minimum essential coverage” that provides “minimum value” to “full-time employees” (and offer coverage to the full-time employees’ “dependents”) or (b) pay an employer shared responsibility excise tax. All the quoted terms have complex meanings, and compliance often requires a company to coordinate with outside experts to ensure that any offered health care program meets applicable requirements. Even when a company unequivocally has the requisite “affordable” “minimum essential coverage” with “minimum value,” if the company fails to offer such health coverage to enough of its full-time employees, there can be a substantial penalty.
We also have clients who decide simply not to offer health care at all to their employees, choosing instead to pay the non-deductible employer shared responsibility tax.
With the ACA still in effect, so too are the IRS mandatory health insurance reporting requirements. For employers, this generally includes reporting the value of the health insurance coverage provided to each employee on Form W-2 and certain information regarding health insurance offerings to full time and other individuals on Forms 1094-C and 1095-C. The IRS uses the information provided on such information returns to administer the employer shared responsibility provisions.

Individuals.

Under the ACA, individuals must report qualifying health coverage for themselves, their spouse (if filing jointly), and any of their dependents on an individually-filed federal tax return, or pay a penalty. In fact, Line 11 on Form 1040-EZ and Line 61 on Form 1040 asks for self-disclosure:

Health Care [Tax]: individual responsibility. . . Full year coverage [check for yes; pay tax if no]

IRS Enforcement of ACA

President Trump’s very first Executive Order “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal,” released on the day of his inauguration, mandated:

Sec. 2. To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [Patient Protection and Affordable Care] Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

Now that initial repeal and replace efforts have failed, and the ACA remains governing law, focus turns to whether we will see relaxed enforcement as a response to the President’s Executive Order. It is unclear how and when the IRS and other agencies will act to “exercise authority and discretion available to them to…reduce [the ACA’s] burden.”

Because there is nothing published indicating how the IRS will respond to the Executive Order, companies should continue to comply with their obligations under the ACA. With respect to individuals, the IRS has already indicated that it will accept electronic and paper Forms 1040 and 1040-EZ returns for processing even if those forms not indicate compliance with the individual health care coverage requirement. We will continue to monitor the Executive Order’s impact on enforcement activities, especially with respect to employer penalties.

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We blog and publish regularly on all things Employment and Employee Benefits, including topics that relate to the still-evolving health care law. Sign up at http://www.jacksonlewis.com/publications or contact me at Jewell.Esposito@JacksonLewis.com or 703.483.8300.

In Halo v. Yale Health Plan, decided in April of 2016, the Second Circuit expressly rejected the “substantial compliance” doctrine with respect to alleged violations of the ERISA Claims Procedure regulation. Instead, the Court held that, in order to preserve otherwise properly reserved discretionary authority, the decisionmaker must demonstrate that any deviation from the requirements of the regulation in the processing of a particular claim was “inadvertent and harmless,” and that the plan’s claim and appeal procedures were otherwise fully compliant with the regulation.

District courts within the Second Circuit have issued numerous decisions interpreting Halo since then, but none have been as harsh as a recent decision issued by the Southern District of New York on February 28, 2017. Salisbury v. Prudential Ins. Co. of Am., 2017 U.S. Dist. LEXIS 27983 (S.D.N.Y. Feb. 28, 2017). In that decision, the court held de novo review was required under the Halo standard, even though the decisionmaker’s determination was otherwise timely. The court reasoned the claim administrator’s letter, which advised the claimant that it was invoking the regulation’s 45-day extension for issuing appeal determinations “to allow for review of the information in [the claimant’s] file which remains under physician and vocational review,” did not sufficiently specify the “special circumstances” necessitating the extension as required by the regulation. In reaching this conclusion, the court recognized the result “may appear harsh,” but found that Second Circuit law requires “strict compliance” with the Claims Procedure regulation. While the insurer-defendant explained to the court that the extension was needed because the claim file was “voluminous, containing 4,623 pages of medical records and several days of surveillance,” the court held this explanation came too late.

The days of the substantial compliance doctrine thus appear to be at an end in the Second Circuit. But plan fiduciaries expecting to rest easy, because their ERISA disability benefits litigations are likely to arise elsewhere, should think again. On December 16, 2016, the DOL issued final revisions to the Claims Procedure regulation that, among other mischief, provide as follows regarding disability claims: “if the plan fails to strictly adhere to all the requirements of this section with respect to a claim, … the claim or appeal is deemed denied on review without the exercise of discretion by an appropriate fiduciary.” As if this language were not enough to put the final nail in the coffin of the substantial compliance doctrine for disability claims, the same provision goes on to explain that loss of deferential review is prevented only by “de minimis violations that do not cause, and are not likely to cause, prejudice or harm to the claimant so long as the plan demonstrates that the violation was for good cause or due to matters beyond the control of the plan and that the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.” Note that the burden is upon the decisionmaker to prove violations were “de minimis.” This particular provision of the final revised regulation, along with certain other new provisions, is slated to become effective for disability claims filed on or after January 1, 2018. Despite President Trump’s Executive Order of January 20, 2017, which placed regulations published, but first effective on or after January 20, 2017, on administrative hold for sixty days pending further consideration, we are aware of no indication from the Department of Labor that any sections of the revised Claims Procedure regulation that have a delayed effective date are under any kind of review.
Accordingly, plan fiduciaries can likely expect courts all over the country to increase scrutiny of administrators’ claim handling procedures, especially with respect to disability claims. Therefore, we recommend plan administrators and third-party administrators audit their claim handling procedures to ensure compliance with the regulation’s requirements. Regarding requirements for invoking decision deadline extensions, we offer the following suggested guidelines:

• Requests for extensions of determination deadlines should be the exception, not the rule, especially for appeal decisions.
• Letters notifying claimants of an extension should explain:
o why more time is needed,
o why the need for more time is beyond the control of the decisionmaker,
o a description of any unusual difficulties with the claim,
o if the delay is because the claimant needs to submit additional information, the date established by the decisionmaker for furnishing such requested information, and
o the date by which the decisionmaker expects to make a decision.

• When a claim determination is delayed by the need for additional information from the claimant, notify the claimant that the determination deadline has been suspended (tolled) from the date of the extension notification to the claimant to the earlier of:
o The date on which a response from the claimant is received by the plan, or
o The date established by the decisionmaker for the furnishing of the requested information, which should be at least 45 days, but advising that an additional reasonable amount of time will be granted provided the claimant so requests.

• Consider including a description of the appeals process with each notification sent to claimants.

Just how the courts will apply the provisions of the revised regulation regarding determination deadline extensions remains to be seen (except probably for the courts within the Second Circuit, which already has a position similar to the new regulatory requirements). The new sections of the regulation, overall, reflect a clear intent by the DOL to force courts into an increased role as “substitute plan administrators” – a role courts have generally eschewed so far. See Perry v. Simplicity Eng’g, Div. of Lukens Gen. Indus., 900 F.2d 963, 966 (6th Cir. 1990) (“Nothing in the legislative history suggests that Congress intended that federal district courts would function as substitute plan administrators.”). Following the above suggestions should at least provide a reluctant court with plausible grounds for avoiding the role of substitute plan administrator in spite of the revised regulation.

Please watch this blog for future discussions regarding other significant new requirements imposed on disability claim administration under the revised Claims Procedure regulation.

On Monday, the Supreme Court heard oral argument in the consolidated “church plan” cases, Advocate Health Care Network v. Stapleton, St. Peter’s Healthcare System v. Kaplan, and Dignity Health v. Rollins.  As an initial matter, unless the Senate confirms Neil Gorsuch in the very near future, the case will be decided by an eight-Justice court.  While it’s impossible to say for sure how Justices will vote, there may be cause for optimism for the Defendants (against whom the lower courts ruled in all three cases).

At first, Justices Sotomayor and Kagan both seemed hostile to the Defendants’ view of the construction of the church-plan exemption.  But this view seemed to change during the Plaintiffs’ presentation.  Justice Sotomayor commented to Plaintiffs’ counsel “I’m torn,” and – saying that ERISA’s church-plan provision “could be read either way” – asked counsel how to “break the tie.”  Both Sotomayor and Kagan also appeared to struggle with the idea that Plaintiffs’ reading would likely exclude some of the organizations that the 1980 amendments to the church plan exemption were intended to encompass.

Justices Alito and Kennedy seemed to focus on church-plan sponsors’ long-standing reliance on the IRS/PBGC interpretations of the exemption.  Defendants’ counsel noted that their liability for penalties alone could exceed $66 billion.  Justice Alito seized on Plaintiffs’ counsel suggestion that the church-plan cases were “primarily about forward-looking relief” (as opposed to penalties), going so far as to ask counsel to disavow seeking penalties in light of Defendants’ reliance on IRS letters.

Justice Kennedy also seemed concerned that hundreds of plans had sought and obtained the blessing of the IRS and/or PBGC, and could still face liability 30 years later.  Chief Justice Roberts appeared to align with this view, asking Plaintiffs’ counsel why those agencies took a view opposite to Plaintiffs’ interpretation.

Not surprisingly, Justice Ginsberg seemed to be squarely in Plaintiffs’ camp, and dismissed other Justices’ concerns by noting that the lower courts could fashion a remedy that takes Defendants’ good faith into account.

Justice Breyer took a pragmatic approach – he asked several hypotheticals, pressing Plaintiffs’ counsel to say whether a plan would be a church plan in each scenario.  This line of questioning seemed to highlight for Justice Sotomayor that Plaintiffs’ reading would deny church-plan status to many of the plans that lobbied for the 1980 amendments.

As usual, Justice Thomas was silent throughout.

In short, although any prediction would be speculative, the Justices’ questions suggest that Alito and Kennedy would take the defense view, based on the reliance concerns, likely joined by Roberts.  And it’s probably safe to assume Justice Thomas would side with these Justices.

Justices Sotomayor and Kagan could go either way, but if they adopt the Defendants’ view of the statute, it will probably be based on their concerns that the Plaintiffs’ reading ignores the purpose of the 1980 amendments (i.e., exempting plans maintained by church-affiliated groups).  If the conservative wing of the Court holds together, then the addition of either Sotomayor or Kagan would yield a victory.

However, if the usual ideological split prevails, a 4-4 tie would leave the adverse rulings intact.

Courts continue to be split over the availability of disgorgement and “accounting for profits” in ERISA class actions involving in-house investment plans. On March 3, 2017, in Brotherston v. Putnam Investments, LLC, No. 1:15-cv-13825-WGY (D. Mass. March 3, 2017), the court declined to resolve the dispute at the summary judgment stage, allowing the certified class of employees to move forward with their claim that the company should be forced to disgorge profits earned from defendant’s in-house 401k plan.  Previously, the court denied defendant’s motion to dismiss this claim.

This decision is in contrast to recent decisions in other courts. In Urakhchin v. Allianz Asset Management of America LP, 2016 U.S. Dist. LEXIS 104244 (C.D. Cal. Aug. 5, 2016), plaintiffs brought claims against fiduciary and non-fiduciary defendants involved in the plan under Section 502(a)(3) 29 U.S.C. §1132(a)(3). The court granted the non-fiduciary defendant’s motion to dismiss plaintiffs’ disgorgement claim, finding that the plaintiffs failed to allege that any of the money sought to be disgorged could be traced to particular funds in those defendants’ possession.

Relying in part on the Urakchin decision, the court in Moreno v. Deutsche Bank Americas Holding Corp., 2016 U.S. Dist. LEXIS 142601 (S.D.N.Y. Oct. 13, 2016), likewise held that plaintiffs could not state a claim for disgorgement and accounting of funds against the defendants, which included both fiduciary defendants and defendants whom the court determined Plaintiff had not sufficiently pled as fiduciaries.  The Moreno plaintiffs asserted that they were only seeking “an accounting of profits” under 29 U.S.C. section 1132(a)(3) and that therefore the traceability requirement did not apply.  The court held, however, that because the complaint failed to limit the request for equitable relief to an accounting, and the plaintiffs did not allege facts to meet the traceability requirement, the claim should be dismissed.

More recently, in Wildman v. American Century Services, LLC, 2017 U.S. Dist. LEXIS 31700 (W.D. Mo. Feb. 27, 2017), the court held that plaintiffs had sufficiently met the traceability requirement by alleging that the payments in question were “traceable to specific transactions that have been taken on specific dates.”  The court noted that the complaint alleged that the non-fiduciary defendant employer, American Century, had actual or constructive knowledge of the circumstances that rendered the transactions unlawful.  Accordingly, the plaintiffs were allowed to proceed with their disgorgement claim against both fiduciary and non-fiduciary defendants.

The upshot is that in some of these cases, the reason for the dismissal appears to turn on fiduciary status. In the Urakhchin and Moreno cases, the claims were asserted by non-fiduciary parties alone.  As the Urakhchin court explained, accounting and disgorgement claims are claims for equitable relief, but claims seeking these remedies against non-fiduciary parties are generally considered legal (i.e., not equitable) claims.  As a result, the court required tracing.

On the other hand, in both the Wildman and Putnam cases, the disgorgement claims were asserted against fiduciary and non-fiduciary parties (in Putnam, Plaintiff argued that all defendants were fiduciaries, but the employer/plan sponsor defendant and its CEO are disputing that claim in their pending motion for summary judgment), but the courts do not appear to have drawn distinctions based on fiduciary status.

In response to a February 3, 2017 memorandum by the President to the Secretary of Labor, on March 2, 2017, the DOL proposed to extend for 60 days the applicability date for final rules on the Best Interest Contract Exemption (the “BIC Exemption”), the Principal Transactions Exemption, certain other prohibited transaction exemptions, and the definition of who is a “fiduciary” under ERISA and the Internal Revenue Code.

The final rule defining a “fiduciary,” promulgated on April 8, 2016, significantly broadened the class of persons treated as fiduciaries with regard to an employee benefit plan by including persons who provide investment advice or recommendations regarding plan assets in exchange for compensation. Administrative class exemptions from the prohibited transaction rules provided very specific rules that broker-dealers, insurance agents and investment advisors were required to follow in order to avoid engaging in prohibited transactions, which if engaged in would subject them to excise taxes and civil liability. Together, these “Rules” have been viewed as over-reaching and burdensome by the investment advisor and financial services communities. Plan sponsors and fiduciaries commonly viewed the Rules as one more plan administration due diligence “headache.”

By Notice published on March 10, 2017, the DOL also announced a temporary enforcement policy on the Rules. The extension and temporary enforcement policies materially impact employers, plan fiduciaries and financial service providers, who were concerned that confusion as to the effective date of, in particular, the BIC Exemption, would cause significant issues with inadvertent non-compliance and breaches of fiduciary duties in ERISA plan administration.

In the March 2nd publication, the DOL proposed to extend for 60 days the Rules that are otherwise applicable on April 10, 2017. The new applicability dates are proposed to be extended from April 10, 2017 to June 9, 2017 for, specifically, the fiduciary rule, the BIC Exemption, the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, and Prohibited Transactions Exemptions (“PTEs”) 84-24, 86-128, 75-1, 77-4, 80-83, and 83-1.

The DOL temporary enforcement policy of March 10, 2017 provides that:

• If the proposed rule providing for a 60-day extension of the applicability dates of the Rules becomes final, the DOL will not initiate enforcement action against an investment advisor or financial institution due to non-compliance with the Rules during the “gap” period between the original applicability date of April 10, 2017, and the date the DOL issues a final determination which officially extends the Rules’ applicability date to June 9, 2017; and

• In the event the DOL decides not to extend the April 10, 2017 applicability date of the Rules, the DOL will not initiate enforcement action against an investment advisor or financial institution that fails to comply with the Rules, but corrects the non-compliance, and thus satisfies the rules, within a “reasonable period.” The DOL will treat the 30-day cure period under the BIC Exemption as a “reasonable period” for cure for incidents of non-compliance.

The DOL says it will consider publishing other relief from these Rules as the need for such relief becomes evident. In the March 10th Notice, the DOL stressed, however, that the provision of temporary enforcement relief should not be taken as foreshadowing a determination that applicability dates will, in fact, be extended to June 9, 2017. It is this author’s opinion that the temporary enforcement relief should also not be construed as any evidence that the DOL will back off the aggressive compliance posture reflected by the these Rules in future rulemaking.

On February 23 and March 7, 2017, the Internal Revenue Service (“IRS”) issued memoranda to examination agents addressing review of substantiation provided in support of safe harbor hardship distributions under 401(k) and 403(b) plans. Although the memoranda cannot be relied upon as official guidance, they are good reference points to help plan sponsors and third party administrators (“TPAs”) avoid issues on audit.

Hardship Distributions

401(k) and 403(b) plans may allow hardship distributions on account of immediate and heavy financial need of an employee that cannot be satisfied from other sources, including plan loans. The Treasury Regulations provide a safe harbor for certain distributions that — if properly substantiated — will be deemed to be on account of an immediate and heavy financial need, including:

• medical care for the employee or the employee’s spouse, children or dependents;
• purchase of a principal residence;
• payment of tuition, related educational fees, room and board expenses for up to the next 12 months of post-secondary education for the employee or the employee’s spouse, children or dependents;
• payments necessary to prevent eviction of the employee from the employee’s principal residence or foreclosure of the mortgage on that residence;
• payments for burial or funeral expense for the employee’s deceased parents, spouse, children or dependents; or
• expenses for the repair of damages to the employee’s principal residence that would qualify for a casualty deduction.

Memoranda Guidance

In reviewing safe harbor hardship distributions, auditors will review source documents — such as estimates, contracts, bills and statements from third parties — or a summary of the information contained in the source documents. The memoranda’s reference to review of a “summary of information” seems to contemplate — and signal tacit approval of — electronic or streamlined hardship distribution processes, pursuant to which requests do not include submission of source documents, but rather require only the employee’s certified representation concerning the content of, and a promise to preserve, the source documents.

Summary of Information

In order to avoid potential unpleasantries on audit, plans that use an electronic or streamlined hardship distribution request process will need to take certain steps. First, the employer or TPA must provide the employee notice that, inter alia, the distribution is taxable, cannot exceed the immediate and heavy financial need, cannot be made from earnings on elective deferrals and — perhaps most importantly — the employee must agree to preserve the underlying source documents and make them available at any time upon request of the employer or TPA. Second, the summary of information must include, at a minimum, the information specified in the memoranda required to substantiate the hardship distribution in question — for example, a hardship distribution request for funeral expenses should include the name of the deceased, the deceased’s relationship to the employee, the date of death and the name and address of the service provider of the funeral or burial. Third, if a TPA administers hardship distributions, it should provide a report to the employer at least annually that describes the hardship distributions made during the year.

Where a summary of information is incomplete or inconsistent on its face, the auditor may ask the employer or TPA for the source documents. In addition, where an employee has received more than two hardship distributions in a plan year, in the absence of adequate explanation — such as follow-up funeral expenses — and with IRS managerial approval, the auditor may ask to review source documents.

Recommended Next Steps

Review your plan’s hardship distribution procedures and, if applicable, confer with your TPA to ensure compliance with the memoranda. Although the memoranda cannot be relied upon as binding authority, conforming your hardship distribution procedures should go a long way to helping you complete a successful hardship distribution audit.

Citing to the “significant uncertainties in predicting the outcome” of their litigation “where the critical issue is pending before the Supreme Court” (oral argument on the scope of ERISA’s church plan exemption is set in three consolidated cases for March 27), Plaintiffs in Butler et al. vs. Holy Cross Hospital, another church plan class action, have filed an unopposed motion for preliminary approval of settlement.

In Butler, former employees of Holy Cross Hospital filed suit in June of 2016 in the United States District Court for the Northern District of Illinois on behalf of themselves and other participants of the Pension Plan for Employees of Holy Cross Hospital, alleging that Defendants breached duties under ERISA by incorrectly treating the Plan as an ERISA-exempt “church plan.” Among Plaintiffs’ allegations are that Defendants underfunded the Plan by $31 million and improperly attempted to terminate the Plan while it was underfunded.

The Plan was originally sponsored by Holy Cross Hospital, which transferred plan sponsorship and liabilities to the Sisters of Saint Casimir shortly before the hospital’s merger with Sinai Health System. Plaintiffs allege that this transfer was an unlawful attempt to avoid liability for the Plan’s underfunding. They claim that upon the Plan’s purported termination, Defendants offered participants a discounted distribution based on incorrect classification of the Plan as a church plan.

The parties’ settlement provides for a settlement amount of approximately $9 million, which would consist of $4 million paid by Defendants into an escrow account (less attorney’s fees not to exceed 15% of the amount in escrow), as well as approximately $5 million in Plan assets held in trust that have not yet been distributed. According to the motion, after notice and administrative costs, Defendants anticipate that approximately $8.4 million will be available for distribution to Plan participants. After final distribution of the settlement amount will the Plan be fully liquidated and formally terminated.

The House Ways and Means Committee and the Energy and Commerce Committee (the two congressional committees having primary responsibility for health care legislation) released draft legislation for repealing and replacing aspects of the Obama administration’s 2010 health care reform law on March 6, 2017 (the “ACA”).

The bill, dubbed the American Health Care Act, is scheduled for committee markups on March 8, 2017, where it could be revised but is expected to advance to the House floor for consideration on a date yet to be determined.  Once up for consideration in the House, the bill could be subject to further change before it is approved and can advance to the Senate.  The final version of the bill has to be agreed to by both chambers before it can be presented to President Trump for signature.  If the Senate decides to amend the American Health Care Act or propose an alternative fill, it may send its proposal back to the House for consideration and another vote and the House may respond with a counterproposal, and so on. This ping-pong game would go on until both chambers agree to the same bill.

Alternatively, the different chambers of congress could resolve differences between the respective bills through the conference committee process where a temporary committee negotiates a bill on which both the House and Senate can agree.  In this case, the conference committee would be made up of members of the House Ways and Means and Commerce and Energy Committees as well as Senate committees having primary responsibility for health care legislation.  Once the conference committee agrees on a bill to propose (called a conference report), both the House and Senate would have to agree to the conference report without changes in order for it to go to President Trump for signature.

In the meantime, what does the Republican-backed American Health Care Act look like in its current iteration?  A two-page summary of the American Health Care Act issued by Representative Kevin Brady (R-TX and Chairman of the Ways and Means Committee) says that the budget reconciliation legislation would eliminate the individual and employer shared responsibility penalties as well as dismantling other tax provisions enacted as part of the ACA.  This is the news many so-called “large” employers have been hoping to hear.  Some other highlights of the bill in its current form:

  • Like the ACA the American Health Care Act would prohibit health insurers from denying coverage or charging higher premiums for patients with pre-existing conditions and would allow children to stay on their parent’s plan until age 26.
  • The bill would enhance health savings accounts (HSAs) by nearly doubling the amount of money individuals can contribute annually to HSAs expand how individuals can use their HSAs.
  • Finally, the bill would provide a monthly tax credit (between $2,000 and $14,000 a year) for low- and middle-income individuals and families who don’t have employer group health coverage (and aren’t covered under a government program).

A summary issued by Greg Walden (R-OR and Chairman of the House Energy and Commerce Committee) explains that the American Health Care Act creates a $100 billion fund for states to design their own health coverage programs, including programs to help low-income persons afford health care, and unwinds the ACA’s Medicaid expansion provisions.

Meanwhile, employers are advised to continue to comply with the ACA’s requirements and stay tuned!

Eligible employers sponsoring Code Section 403(b) retirement plans have until March 31, 2020 to self-correct any defects as to the written form of those plans. In recently issued Revenue Procedure 2017-18, the IRS fixed March 31, 2020 as the last day for the current remedial amendment period for 403(b) plans, which began January 1, 2010 for plans existing on or before December 31, 2009.  Plan sponsors who have timely adopted 403(b) retirement plan documents, now, will have until March 31, 2020 to retroactively correct any plan document defects, either by adopting a pre-approved plan document or amending their existing plan.  This is welcome news for 403(b) plan sponsors and advisors to those plans who have waited nearly four years for the IRS to announce an end date to the current remedial amendment period.

Background

In March 2013, the IRS issued Revenue Procedure 2013-22, which established the program and procedures for issuing opinion and advisory letters for pre-approved 403(b) plans, and also provided a remedial amendment period for eligible employers to retroactively correct defective plan provisions violative of Code Section 403(b) written plan rules either by timely adopting a pre-approved plan or by timely amending their existing plan.  It was in this prior guidance that the IRS announced January 1, 2010, or the plan’s effective date, whichever is later, as the first day of the remedial amendment period.  Rev. Proc. 2013-22 provided that any defects in the form of a plan causing the plan to fail to satisfy IRC 403(b) and its regulations, i.e., a defective plan provision or the absence of a required one, must be corrected on or before the last day of the remedial amendment period.  The IRS, in this prior guidance, however, did not provide an end date to the remedial amendment period.  Rather, the IRS expressly reserved that it would provide the date of the last day of the remedial amendment period in subsequent guidance.  Rev. Proc. 2017-18 is that much anticipated subsequent guidance.

IRS sets March 31, 2020 as Last Day of the Remedial Amendment Period for 403(b) Plans

The recent release of Rev. Proc. 2017-18, effective January 1, 2017, has now clarified the prior guidance from Rev. Proc. 2013-22 by setting the date of March 31, 2020 as the last day of the remedial amendment period. Now, a plan that fails to satisfy written plan requirements of Code Section 403(b) on any day during the period beginning on the later of January 1, 2010, or the plan’s effective date, and ending on March 31, 2020, will be deemed to have satisfied those requirements if all 403(b)-compliant plan provisions have been adopted and made effective retroactive to the later of January 1, 2010 or the plan’s effective date, before March 31, 2020.  The revenue procedure noted that the Department of Treasury and IRS intend to issue guidance with respect to the timing of 403(b) plan amendments made after March 31, 2020 at a later date.