Just one month ago the U.S. Department of Labor released its long awaited final rule re-defining who is considered a “fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code). The final rule (which can be found here) targets those that give investment advice to a plan, its participants or its beneficiaries (including IRAs and 401(k)s); and, as a result, effectively expands the group of individuals who may be considered a fiduciary. Because of the definition’s expansion, a plan sponsor who may have freely provided recommendations and information in the past could now be on the hook as a fiduciary for this same behavior. The final rule is an extensive read. However, below are a few key points that may help provide a better understanding of how the April 10, 2017 final rule applicability date may affect plan sponsors in particular.

1. What is considered “investment advice?”

The final rule and the definition of a fiduciary hinges on this very point. Providing investment advice is what differentiates a non-fiduciary from a fiduciary under the new regulation. However, investment advice must be provided in the form of a recommendation. A recommendation is a “communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.” Definition of the Term “Fiduciary”; Conflict of Interest Rule, 81 Fed. Reg. 20946, 20997 at § 2510.3-21(b)(1) (April 8, 2016)

Specifically, a person provides investment advice if they offer the following types of advice for a fee or other form of compensation (whether direct or indirect): (i) recommendations involving the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property, or a recommendation as to how securities or other investment property should be invested following their rollover, transfer or distribution from the plan; (ii) recommendations involving the management of securities or other investment property, including investment policies/strategies, portfolio composition, selection of investment account arrangements, selection of other persons to provide investment advice or investment management services, or recommendations with respect to rollovers, distributions or transfers from the plan (including whether, in what amount, in what form, and to what destination such a rollover, transfer or distribution should be made).

However, there are a few exceptions to the broad reach of providing investment advice. In particular, plan fiduciaries that are independent of the adviser and have financial expertise are identified as an exception in the final rule. Additionally, the marketing of retirement plan platforms (without regard to the plan’s individualized needs and with confirmation that the desire is not to provide impartial investment advice or serve in a fiduciary capacity) and providing responses to RFPs are not considered investment advice.

2. Investment Advice vs. Investment Education.

This much has not changed in the final rule: investment education can still be provided by service providers and plan sponsors without triggering fiduciary status, provided certain conditions are met. Investment education is considered non-fiduciary when it consists of providing the following: (i) information and materials that describe investments or plan alternatives without specifically recommending particular investments or strategies; (ii) general information about a plan; (iii) general financial, investment and retirement information; (iv) information and materials that provide a plan fiduciary, participant or beneficiary with models of asset allocation portfolios of hypothetical individuals with different time horizons; and (v) interactive investment materials (such as worksheets, software, questionnaires, etc. that generally provide the means to estimate and evaluate future retirement income needs and assess the impact of different allocations on that income).

However, it is worth noting that asset allocation models and interactive investment materials that identify specific products or investment alternatives must meet additional requirements as well. Primarily, they may only identify designated investment alternatives offered by the plan that are overseen by a fiduciary that is independent from the person who developed or marketed the investment alternative or distribution option. Additionally, other designated investment alternatives, if any, offered under the plan that have similar risk and return characteristics must be identified, the similar characteristics must be described, and participants must be notified where they can obtain additional information regarding the designated investment alternatives.

3. What about a plan sponsor’s employees who provide advice, are they fiduciaries?

Generally speaking, no. A major component of a recommendation being deemed “investment advice” is the receipt of a fee or other form of compensation for that advice. Because employees of plan sponsors are typically paid in the average course of their employment, any advice which they provide generally will not make them an investment advice fiduciary. Therefore, providing information to participants about the plan and distribution options is typically fine, assuming of course that the employee does not receive any payment outside of their normal compensation for work performed.

4. So, what now?

Under the final rule, many common practices are now considered investment advice. Therefore, more and more advice issued to participants will now invoke fiduciary status. Because of the expansion of the fiduciary definition, employers and plan sponsors are encouraged to review their policies and procedures to ensure that any information provided does not cross over into what is deemed “investment advice for a fee,” thus rendering the advisors a fiduciary.

In a case of first impression, the United States Circuit Court of Appeals for the Tenth Circuit held that work performed by a non-union company acquired after a construction industry employer ceased contributing to a multiemployer pension plan (MEP) triggered withdrawal liability.  The case, Ceco Concrete Construction, LLC v. Centennial State Carpenters Pension Trust, Nos. 15-1021, 15-1190 (10th Cir. May 3, 2016), should be paid close heed by unionized construction companies.

The employer was a signatory to a collective bargaining agreement obligating the company to make contributions to a MEP. This obligation ceased when the CBA expired on April 30, 2010.  The company then acquired a non-union construction company and resumed operations in the CBA’s jurisdiction on a non-contributory basis.

The MEP determined that this resumption triggered withdrawal liability. Under ERISA’s mandatory arbitration regime, the arbitrator (and subsequently the district court) found for the employer.

An employer who withdraws from a MEP is liable for its allocable share of underfunding (“withdrawal liability.”) Withdrawal generally occurs when an employer permanently ceases to have a contribution obligation or permanently ceases covered operations.  Under a special rule applicable to “building and construction industry” employers, however, withdrawal does not occur unless such employer continues to perform on a non-contributory basis (or resumes within 5 years) work in the collective bargaining agreement’s jurisdiction for which contributions were previously required.

Under the applicable definition of “employer”, all trades or businesses which are under common control (a “control group”) are treated as a single employer. The question before the Court was whether the control group must be determined when the employer ceased its obligation to contribute (April 2010) or when the control group triggers withdrawal liability by resuming covered work (October 2010, following the acquisition of the non-union company).

Both the arbitrator and the district court held that the control group was determined on the date the obligation to contribute to the plan ceased, and that the non-contributory work performed by the after-acquired non-union company did not therefore trigger withdrawal liability. The 10th Circuit, however, reversed.

The Court’s holding was rooted in several factors, including: (i) the definition of “employer”, which the Court found included both present and future control group members; (ii) statutory language indicating that the control group must be determined when a withdrawal is triggered, which occurs upon the resumption of CBA-covered work on a non-contributory basis; and (iii) the remedial purposes of the withdrawal liability rules (to protect pension beneficiaries) and the definition of employer (to prevent employers from avoiding their withdrawal liability obligations by fractionalizing operations between entities). The Court also drew upon recent decisions in the First and Seventh Circuits which construed the term “employer” broadly.

Unionized construction employers should now closely scrutinize acquisitions within jurisdictions where the employer had previously contributed to a MEP: non-contributory work performed by an after-acquired entity will (at least within Oklahoma, Kansas, New Mexico, Colorado, Wyoming, and Utah) likely trigger withdrawal liability.

For the past several months, we have been reporting on the application filed by the Central States Southeast and Southwest Areas Pension Fund  (“Central States”) to the Department of Treasury to reduce “core” benefits to participants.    This extraordinary remedy is permitted by the  Kline-Miller Multiemployer Pension Reform Act of 2014 (“Kline-Miller Act”).

Public hearings conducted by Special Master Feinberg have revealed that the proposed cuts can be between 39.9% and 60.7%.

Special Master Feinberg must decide by May 7th whether to approve the reductions to the Fund which has approximately 400,000 participants.

There has been opposition expressed by retirees as well as retiree groups. A group of fifty United Senators has also written to the Secretary of the Treasury indicating their concern with the proposed reductions.

As the multi-employer pension fund world awaits a decision, a fifth multi-employer pension fund, the Iron Workers Local Union 16 Pension Fund located in Baltimore, Maryland filed its application to the Treasury Department to reduce core benefits.

These actions highlight the risk that employers contributing to multi-employer funds are now facing.  It is not beyond the realm of possibility that the burden of providing the promised benefits will fall even more heavily upon employers.

We suggest that employers become proactive in considering strategies to exit these plans in future negotiations.

Clearly the situation will not get better.

As companies complete their Section 6055 and 6056 reporting under the Affordable Care Act (ACA), now it’s time to be on the lookout for notices regarding ACA penalties.

Watch for Notice Letters:  According to CMS, the Federally-Facilitated Marketplace will begin sending batches of notifications to certain employers whose employees received premium subsidies when purchasing health insurance on the marketplace exchange.  Click here for a link to the publication from CMS regarding  the 2016 Employer notice Program:  https://www.cms.gov/site-search/search-results.html?q=employer%20notice%20program.  Employers should be on the lookout for these notification letters; they might be hard to spot because it’s unclear whom they will come from or to whom they will be addressed.  They could look like junk mail, and employers don’t want them to get thrown away.

Why Would A Company Get A Letter If It Complied With the ACA?:  If an individual calls the Healthcare.gov helpline and attests that his employer failed to provide affordable minimum value coverage, the employee can receive coverage subsidies based on his own statements, whether accurate or not.  Uninsured part-time employees, contractors and temps might have received subsidies, claiming to be full-time employees.  Whether obtained by fraud or mistake, when an eligible employee receives subsidies, it brings risk to the employer.

90 Days to Appeal:  If an employer receives a notice, the company should act quickly because employers only have 90 days to appeal.  Click here for a link to the Employer Appeal Request Form:  https://www.healthcare.gov/marketplace-appeals/employer-appeals/.  Take note that only the Internal Revenue Service can determine whether an employer is subject to a penalty under 4980H(a) or (b).

ACA Retaliation Rules:  Employers should carefully consider how to proceed in light of the ACA retaliation rules, which say that a company cannot “discharge or in any manner discriminate against any employee with respect to his or her compensation, terms, conditions, or other privileges of employment because the employee (or an individual acting at the request of the employee) has received a credit under the ACA or reported any violation of, or any act or omission the employee reasonably believes to be a violation of the ACA.”  See our previous blog about the retaliation rules:  http://www.jacksonlewis.com/resources-publication/health-care-reform-law-protects-employees-employment-retaliation.

Action Steps:  We recommend that employers put a (documented) process in place to put outside counsel or other persons who are not responsible for employee discipline in charge of the notification letters and related appeals in order to help avoid or defeat a later adverse action claim.  If an employer can show that the person who made a termination or disciplinary decision did not have knowledge that the employee had received a credit under the ACA or reported any violation of the ACA, that will help the company prove that it would have taken the same adverse action in the absence of the employee’s protected activity.

In recent weeks, much of the discussion around a recent Supreme Court case, Gobeille, has focused on ERISA preemption. But for fiduciaries of benefit plans the case can serve as a reminder of important duties that often go unexplored—protecting the private data of participants.

Briefly, the case challenged a Vermont law that required reporting of health care claim payments to a state agency for inclusion in a healthcare database. But in reading the case, I was reminded about how much data—sensitive and personal data—hovers in and around employee health and benefits plans. It seems like news of data breaches can be seen almost daily in the headlines. And anyone familiar with databases maintained for plans can imagine what alluring targets they must be. On top of that, when one considers how often this data is shared with third parties in day-to-day plan administration, (consultants, TPAs, payroll providers, investment advisors, etc.) data breaches will increasingly expose fiduciaries and plans to liability.

When a fiduciary sits down to think about its responsibilities to participants in regards to personal information, a complex and often unclear picture emerges. And a large part of that picture comes outside of the “ERISA-box” plan fiduciaries typically consider. The few court cases exploring this subject are generally not brought as ERISA claims but rather are based on financial regulations and consumer protection laws. As fiduciary standards continue to evolve and differences in privacy protection laws appear from jurisdiction to jurisdiction, there are a host of laws and regulations to keep in mind.

A short list of legislation that touch on the area includes: the Health Insurance Portability and Accountability Act, the Gramm-Leach Bliley Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, along with numerous state laws relating to “personally identifiable information” and “protected health information.”

At this point, even though the scope of a fiduciary’s duty under ERISA with respect to data protection has yet to be addressed by the courts and the DOL, there are still a number of practical steps that plan sponsors and other fiduciaries can take in the hope of preventing problems. These include:

  • Performing due diligence on all data and security protocols when selecting and monitoring vendors;
  • Developing privacy provisions for contracts with TPAs and other service providers over and above standard confidentiality agreements;
  • Limiting access to sensitive information to necessary personnel;
  • Training personnel on the law and the fiduciary responsibilities;
  • Developing written policies and procedures detailing for personnel the applicable state and federal laws;
  • And continuing to monitor and watch over service providers with access to sensitive data.

Unfortunately, data breaches are here to stay and so are government agencies’ attempts to develop guidance on how they should be handled. Plan sponsors and other fiduciaries need to be aware of these sensitive issues and put into place defensible policies and procedures. Such actions will not only help protect participant information but will also help limit exposure to liability for the plan and the fiduciaries to the myriad of laws aimed at these issues.

Less than one week after hearing oral arguments on seven consolidated cases in which non-profit organizations challenged the opt-out process for religious organizations opposing the Affordable Care Act’s contraceptive coverage mandate, the United States Supreme Court took the unusual action of ordering the lawyers on both sides to brief additional issues. The Court’s Order asked the attorneys to address whether contraceptives could be provided to employees of objecting religious nonprofits without requiring them to comply with the current ACA opt-out process. See Order, March 29, 2016. The opt-out process — outlined in final regulations — requires religious nonprofits (and for-profit companies with religious objections) to submit a form with their insurer or the government stating their objection to providing contraceptive coverage. See Treasury, Labor and Health and Human Services, Final Regulation, July 14, 2015.

The Order proposes an example of a compromise solution which would allow the nonprofit to inform their insurance company of their objection to providing contraception coverage as part of the process of contracting for the organization’s health insurance. Under this scenario, not only would the nonprofit have no obligation to provide or pay for contraceptive coverage (as is already permitted under the ACA), but they would not be required to provide any form of opt-out notice to the government or their employees. The Court further suggests that the insurance company then would be responsible for notifying the employees of the nonprofit that cost-free contraceptive coverage would be provided by the insurer and would be completely separate from the objecting nonprofit organization’s health plan.

If the Court is deadlocked in a 4 to 4 vote on the nonprofit contraceptive cases, the lower court rulings would stand and religious nonprofits would be required to comply with the opt-out notice requirements. The issuance of this highly unusual Order suggests that in the face of a potential tie vote on these cases, the Court is seeking an extra-judicial compromise that would permit religious nonprofits to avoid any type of notice requirement.

The Court established tight filing deadlines – with the first briefs due on April 12, and reply briefs due on April 20. No additional hearings on the cases have been scheduled.

We each had to hold our collective breath, but the Wage and Hour Division (WHD) of the Department of Labor (DOL) finally issued an All Agency Memorandum 220  (AAM) last week on March 30, 2016 to provide guidance to governmental agencies on how the Affordable Care Act’s (ACA) provisions regarding the employer shared responsibility provisions interact with the fringe benefit requirements of the McNamara-O’Hara Service Contract Act (SCA) and Davis-Bacon Act and the Davis-Bacon Related Acts (DBRA) (together DBA/DBRA).

What is particularly nice about the AAM is that there are no surprises in the WHD’s position.  We feel prescient!

What we have counseled and anticipated for our government contractor clients, as we awaited the WHD’s views on the intersection of these three laws, actually is the position of the WHD. We thus summarize the salient provisions of the AAM.

SCA, DBA/DBRA, and ACA are Separate Laws.

The AAM underscores that the SCA, DBA/DBRA, and ACA are separate federal laws.  It is why we at Jackson Lewis stress that a government contractor applicable large employer (ALE) should be mindful that each law is independent.  Thus, for example, just because an ALE satisfies SCA does not necessarily mean it satisfies ACA.  None of the guidance in the AAM contradicts this principle.

ACA Employer Shared Responsibility.

In general, the ACA’s employer shared responsibility provisions require an employer with an average of at least 50 full-time employees (including full-time equivalents) to provide its full-time employees (and their dependents) affordable health care offering minimum value.  If the ALE to whom this applies chooses not to offer such health care, then it may make a non-deductible payment (by way of an excise tax) to the Internal Revenue Service (IRS).

Employer Contribution to Health — Appropriate Credit to SCA and DBA/DBRA Fringe.

Under SCA and DBA/DBRA, an employer cannot take credit against the required prevailing wage benefits for those benefits required by federal, state, or local law (such as the federal obligation for an employer to contribute to Social Security).  The AAM provides long-awaited guidance that, because an ALE may offer ACA-compliant health care or, alternatively, may simply pay an excise tax to the IRS, the ACA does not require an employer to provide health care.  Consequently, WHD permits ALEs to credit contributions to a health plan towards SCA or DBA/DBRA fringe obligations.

Employer Payment of Excise Tax – Inappropriate Credit to SCA and DBRA Fringe Care.

If an ALE decides alternatively to forego providing health care by instead paying the excise tax to the IRS, the employer cannot credit the payment of such tax towards SCA or DBA/DBRA fringe obligations.  The AAM notes that such a payment does not confer benefits specifically on the workers and therefore is not a bona fide fringe benefit as that term is defined and interpreted under SCA and DBA/DBRA.

The Choice of Providing Cash or Benefits Remains the Employer’s.

Government contractors’ employees often wrongly believe they should have the choice in receiving cash in lieu of SCA or DBA/DBRA mandated benefits.  The AAM reconfirms that whether to provide employees with benefits or cash in lieu is the ALE’s option (so long as not otherwise required under a collective bargaining agreement):

Thus, for example, if an ALE covered by SCA/DBRA chooses to provide all employees with fringe benefits in the form of health coverage, it may do so even if some or all of its employees might prefer to receive. . . cash.  * * *  [A] contractor need not obtain an employee’s concurrence before contributing the [entire fringe to health care].

Bear in mind, however, that an employee’s concurrence (and a writing authorizing deductions) is needed for any benefit the employer intends to provide that requires an employee payment or premium from wages.  For example, if pays 100% of a medical plan benefit for an employee than the employer simply can provide the benefit (and take credit under SCA/DBA/DBRA).  On the other hand, if the employer pays only 80% of the medical plan benefit, then the employee must agree to the benefit and the employee portion deductions.

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Those government contractor ALEs needing guidance on the how to comply with each of the SCA, DBA/DBRA, and ACA (and how to coordinate the intersection of those independent federal laws) should contact Jewell Lim Esposito or Leslie Stout-Tabackman at 703.483.8300.

In the last six months, several clients called me regarding substantial balances in a so-called “forfeiture account” in their 401(k) plans.  A few of these clients have forfeiture accounts that violate the ERISA requirements.  It is imperative that forfeitures be handled properly since both the IRS and the Department of Labor (DOL) on audit generally review how forfeitures have been handled by the plan.

The basic rule is that forfeitures must be allocated on an annual basis.  Forfeitures should not be held over into later years.  Failure to comply with this requirement can result in disqualification of the plan or potential penalties imposed by the DOL.  Sometimes this failure is due to an accidental failure to timely deal with the forfeitures.

Proper disposition of forfeitures depends upon the terms of the 401(k) plan.  For example, many plans first use forfeitures to pay proper plan expenses.  However, the employer should make sure that the plan document specifically allows for payment of plan expenses.  Otherwise, the payment of such expenses may result in plan disqualification or a prohibited transaction. We see many adoption agreements for prototype plans that do not provide for payment of plan expenses.

In addition, forfeitures can be used to reduce employer contributions including matching contributions and non-elective contributions.  Finally, forfeitures can merely be reallocated to participants’ accounts as an additional amount for participants.  Reallocation is somewhat typical for employers who have profit sharing plans that are not 401(k) plans.

Most notably, the IRS has recently taken the position that forfeitures cannot be used to offset safe harbor contributions under a regular or QACA safe harbor plan.  Use for safe harbor contributions can also result in plan disqualification.

In addition, forfeitures cannot be used for certain corrections under the IRS Employee Plans Compliance Resolution System (EPCRS).

When a regulatory agency determines that forfeitures have been carried over, the agencies may require the plan sponsor to retroactively determine who should have received allocations each year.  If your plan has a forfeiture account that includes amounts carried over from one year to another, you should review that account and take appropriate action so that the account does not include any carryovers.  Of course, this creates a monetary burden and a significant administrative burden on employers.

An IRS plan audit uniquely focuses an employer’s mind on the core identity of its qualified retirement plan, which is that of a tax exempt organization, but one whose exemption (or “qualification”) requirements are far pickier than those applicable to one’s favorite charity. Any single material operational violation or non-conforming written plan provision risks disqualification and loss of the related special tax benefits.

And disqualification was in fact the Tax Court’s ruling in Family Chiropractic Sports Injury & Rehab Clinic, Inc. v. Commissioner, decided January 19, 2016. The plan victim was an Employee Stock Ownership Plan (“ESOP”), a type of qualified plan primarily designed to invest in the stock of the employer and whose sole participants were a divorced chiropractor and his ex-wife.  Without acknowledging the ESOP’s ownership of virtually all of the stock of the company sponsor, the couple’s divorce decree awarded each one-half of the plan sponsor’s outstanding stock.  By later documents the ex-wife transferred all of her ESOP share account to her former husband’s ESOP account.  Plan disqualification was held effective as of the date of that transfer principally because: (1) it was not pursuant to a properly approved qualified domestic relations order (“QDRO”) and, therefore, violated the anti-alienation rules of the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code — which generally prohibit assignment of a participant’s plan benefit before it is properly distributed under the plan, and, independently, (2) the transfer violated the terms of the ESOP plan document regarding the distribution rights of participants.

In addition to ERISA fiduciary liability, the consequences of disqualification include for open tax assessment years (generally three years back): taxes on the income of the plan’s trust, taxation of participants on vested undistributed benefits, taxation of otherwise tax-free rollovers from the plan, and disallowance or deferral of the plan sponsor’s deductions for contributions to the plan.  In an IRS plan audit, a plan sponsor can avoid disqualification by not only fixing the mistake financially, but also paying as a sanction a negotiated percentage of the income tax amounts described above — potentially quite expensive, but normally far preferable to actual disqualification, which occurs only rarely.

Fortunately, the IRS’s Voluntary Correction Program (“VCP”) and other IRS Employee Plans Compliance Resolution System (“EPCRS”) correction procedures can reduce exposure resulting from the inevitable plan failures. But these procedures are most attractive when the employer discovers the failures and can voluntarily propose correction before the IRS announces an audit.  Also, no standard IRS correction procedure exists to remedy a transfer of a plan benefit by a participant outside of the QDRO rules.  In Family Chiropractic, undoing the illegal assignment of the ex-wife’s ESOP account may have simply been unacceptable to the IRS and/or the parties under the circumstances.

Disqualification exposure is reduced through regular administrative and legal review of plan operations in order to discover and deal with failures before the IRS does. IRS officials have stated that an employer’s probability of plan audit is reduced if the annual Form 5500 does not contain blank fields, internal inconsistencies, large unvested benefits for terminated participants (a partial termination risk) or substantial amounts of hard-to-value “other” assets.

If you were to ask most employers whether reporting is a core function of employee benefit plan administration, they would likely say yes, particularly as many are currently in the middle of completing IRS Forms 1094-C and 1095-C. On top of the numerous reporting requirements for group health plans imposed by IRS and other federal agencies, a number of states, including Vermont, have enacted laws that add a layer of state reporting obligations for plans, including self-funded group health plans.  In what is clearly welcome news for employers and plan sponsors, this added state law burden has been lessened by yesterday’s Supreme Court decision in Gobeille v. Liberty Mutual Ins. Co., No. 14-181.

The Court decided that state reporting mandates, like the one in Vermont, are preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The essence of the Supreme Court’s rationale is that ERISA’s goal of having a uniform plan administration system — especially for core functions like reporting — would be frustrated by multi-jurisdictional mandates that impose conflicting administrative obligations, resulting in wasteful administrative costs and subjecting plans to wide-ranging liability.

Vermont’s law was intended to create a resource — a database known as an “all–payer claims database” — for insurers, employers, providers, and the state to examine health care utilization, expenditures, and performance. To create the database, the law required covered entities (which included self-funded group health plans and any third party administrators) to provide information such as health care costs, prices, quality, utilization, and health insurance claims and enrollment data. Reporting intervals could be as often as monthly, and the failure to comply could expose covered entities to penalties as high as $2,000 per day and disqualification of administrators from performing services in the state.

Liberty Mutual sponsors a self-funded group health plan which provides health benefits to over 80,000 individuals across the United States. Concerned about the burden Vermont’s law placed on its self-funded group health plan, as well as its fiduciary obligations to maintain the confidentiality of sensitive plan information that could be made available to entities with access to the database, Liberty Mutual challenged Vermont’s law, arguing it was preempted by ERISA. In short, ERISA’s preemption doctrine holds that, except for laws regulating insurance, state laws that relate to employee benefit plans covered by ERISA are preempted.

The reach of the ERISA preemption doctrine has been an area of frequent litigation, finding its way to the high court several times. Some commentators see the Court trending toward a more narrow view of ERISA preemption.  However, this decision makes clear that when core plan administrative functions such as reporting are at stake, state laws like the one in Vermont will not survive ERISA preemption.

“The fact that reporting is a principal and essential feature of ERISA demonstrates that Congress intended to pre-empt state reporting laws like Vermont’s, including those that operate with the purpose of furthering public health.”   Justice Kennedy

Thus, even though the state law’s purpose was to further the public good, it will not necessarily be enough to overcome ERISA preemption. Additionally, the state’s argument that its law had little, if any, economic impact did little to persuade the Court.  It reasoned that employer-sponsored plans should not have to wait until they are burdened by multiple state laws with inconsistent obligations resulting in growing costs before seeking protection under the preemption doctrine.

The Supreme Court’s decision may prompt many plan sponsors to look more critically at state reporting and other requirements which affect their plans, particularly larger plan sponsors with employees in multiple states. But they should proceed cautiously as the Supreme Court’s decision does not invalidate all state reporting laws.  Even though the decision places employers in a strong position, particularly with respect to onerous state and local requirements, the decision not to follow a similar law, or even to challenge it in court, should include an appropriate cost/benefit analysis.

It is also anticipated that the decision may change the focus of efforts to collect health plan data from individual states to national efforts by the federal government, notably the U.S. Department of Labor and the U.S. Department of Health and Human — the agencies vested with such authority by ERISA and the Affordable Care Act, respectively, as noted by Justice Breyer’s concurring opinion in Gobeille.