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The U.S. Supreme Court has refused to engage in expedited review of the decision of a Virginia District Court that held unconstitutional the individual mandate contained in the Patient Protection and Affordable Care Act (“PPACA”). The Supreme Court’s April 25 decision suggests there will be a long road to resolution of the constitutional attack on the PPACA.

On the political front, however, there is good economic news for employers. On April 14th and 15th, the President signed into law H.R. 4 and H.R. 1473.

H.R. 4, http://thomas.loc.gov/cgi-bin/bdquery/z?d112:h.r.4: repeals provisions of the PPACA that expanded Form 1099 reporting requirements for payments in excess of $600 to individuals to payments made to individuals and corporations. P.L. 112-9. The repeal lifts from employers the obligation, which was to commence in 2012, to issue a Form 1099 to virtually every person or entity with whom they conduct business.

H.R. 1473, http://thomas.loc.gov/cgi-bin/bdquery/z?d112:h.r.1473: completely repeals all provisions of the PPACA concerning “Free Choice Vouchers.” P.L. 112-10. The Free Choice Voucher requirements, if they had remained law, would have compelled employers to ascertain which employees in their workforce have family incomes at or below 400% and pay to certain of these employees money in lieu of health plan coverage equal to the highest contribution cost of any participant in the group health plan.

The repeal of these provisions reflects both Congress’ and the President’s willingness to address those aspects of the PPACA that may harm the country’s fragile economic recovery.

The Patient Protection and Affordable Care Act (Affordable Care Act), requires the Secretary of Health and Human Services (HHS) to impose restrictions on the imposition of annual limits on the dollar value of essential health benefits in a new or existing group health plan for plan years beginning on or after September 23, 2010 and prior to January 1, 2014. Interim final regulations published on June 28, 2010, established these restricted annual limits, along with the possibility for a waiver from these restricted annual limits as granted by HHS if complying with the interim final regulations would result in a significant decrease in access to benefits or a significant increase in premiums.

 

On September 3, 2010, HHS provided some initial guidance on the waiver process.  On November 5, 2010, HHS updated that guidance, the provisions of which applicable to group health plans are summarized below. Plans seeking a waiver should be sure to make their best case and, if granted, implement as appropriate.

 

Notice Requirement. As a condition of receiving a waiver of the annual limits requirements, group health plans must notify each participant that the plan does not meet the restricted annual limits for essential benefits set forth in the interim regulations due to the waiver obtained by the plan. Notice requirements: 

·        Include the dollar amount of the annual limit along with a description of the plan benefits to which it applies.

·        Prominently display the notice in clear, conspicuous 14-point bold type.

·        State the waiver applies for only one year.

·        HHS will soon be issuing a model notice language for health insurance issuers which will be posted on the website in the near future at: http://www.hhs.gov/ociio/regulations/index.html.

 

Factors Considered. HHS has stated that all applications will be reviewed on a case-by-case basis. However, the Bulletin lists several factors that may be considered as each application is reviewed to determine whether compliance with the interim regulations would result in a “significant decrease in access to benefits” or a “significant increase in premiums.” The Bulletin sets out the following factors:

 

  • The application’s explanation as to how compliance with the restriction on annual limits would result in a significant decrease in access to benefits.
  • The policy’s current annual limits. Higher annual limits would be more likely to experience lower premium increases to comply with the restricted annual limit requirement than plans with lower limits.
  • The change in premium in percentage terms. The lower the percentage increase to comply, the less likely compliance with the restricted annual limit requirement would be found to be “significant.”
  • The change in premium in absolute dollar terms. A large percentage increase may only translate to a small increase in absolute dollar terms and therefore may not be “significant.”
  • The number and type of benefits affected by the annual limit. Some policies have limits on only some essential health benefits, such as prescription drugs, and may not significantly increase the overall cost of health insurance for enrollees.
  • The number of enrollees under the plan seeking the waiver.  

Mini-Med Policies and Medical Loss Ratio Requirement.  Because the premium and cost structure of mini-med policies create significant challenges for those plans in regard to satisfying the medical loss ratio requirements, expect to see medical loss ration regulations addressing, among other things, a special methodology that takes into account the special circumstances of mini-med plans in determining how administrative costs are calculated for medical loss ratio purposes.

 

Record Retention and Audits. As a condition for obtaining a waiver, HHS retains audit authority over applicants. In the event of an audit, if it is determined that the data submitted to HHS in support of a waiver contain material mistakes or omissions, HHS may in its discretion deny future waiver requests.

A Texas federal court just shook the foundation of HIPAA’s reproductive health privacy protections — but the Supreme Court may have the final word. In a sweeping decision, Judge Matthew Kacsmaryk vacated key provisions of the 2024 Reproductive Health Rule, stripping away national safeguards on disclosing reproductive health information. Yet, a recent SCOTUS ruling in Trump v. CASA, Inc. could rein in the reach of that decision. What does this mean for healthcare providers, insurers, and patients navigating a patchwork of federal and state privacy laws?  More…

As we bid farewell to 2024 and look ahead to the new year, we reflect on the many evolving compliance obligations that health and welfare plan sponsors tackle each year. Although this list is by no means exhaustive, it highlights four items and associated deadlines that have recently emerged on the health and welfare scene. Plan sponsors should review their routine compliance checklists and update as necessary to ensure a smooth transition into 2025.

  1. Gag Clause Attestations

The Consolidated Appropriations Act of 2021 generally prohibits the use of gag clauses in certain agreements and requires group health plans and health insurance issuers to annually submit a Gag Clause Prohibition Compliance Attestation. A fully insured group health plan’s responsibility is satisfied if the issuer submits an Attestation on behalf of the plan. Similarly, a self-insured plan may delegate the task of submitting the Attestation to a third-party administrator (TPA) via a written agreement if the TPA will accept this responsibility. The Attestation must be submitted to the Departments of Labor, Health & Human Services, and the Treasury by December 31st.  See this link for further details and instructions on submission.

  1. Mental Health Parity – Fiduciary Certification

In September, the Departments of Labor, HHS, and the Treasury issued new final rules amending regulations implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) and adding new regulations implementing the nonquantitative treatment limitation (NQTL) comparative analyses requirements. Consistent with the proposed rules, the final rules strengthen consumer protections by aiming to achieve parity between mental health/substance use disorder (MH/SUD) benefits and medical/surgical (M/S) benefits. The final rules generally apply to group health plans and group health insurance coverage for plan years beginning on or after January 1, 2025, although many provisions will not apply until 2026.

The final rules require that, in addition to the NQTL comparative analysis, each plan or issuer must prepare and make available to the Secretary, upon request, a written list of all NQTLs imposed under the plan or coverage. In addition, for ERISA-covered plans, this written list must be given to the named plan fiduciaries, who are required to include a certification as part of the comparative analysis. At least one of these named fiduciaries will certify they have engaged in a prudent process to select one or more qualified service providers to perform and document a comparative analysis in connection with the imposition of any NQTLs that apply to MH/SUD benefits under the plan in accordance with applicable law and regulations and have satisfied their duty to monitor those service providers as required by part 4 of ERISA. At a minimum, the certifying fiduciary should review the comparative analysis, ask questions, and discuss the findings and conclusions with the service provider responsible for performing and documenting the comparative analysis, and obtain assurance from the service provider that, to the best of its ability, the NQTL and associated comparative analysis complies with MHPAEA and its implementing regulations.

Plans subject to MHPAEA should update their existing comparative analyses to reflect the new certification requirement by the first day of the 2025 plan year.

  1. Reproductive Health Care ‒ Updates to HIPAA Policies, Procedures, and Notice of Privacy Practices

In response to the decision in Dobbs v. Jackson Women’s Health Organization that effectively overturned Roe v. Wade, the Biden-Harris Administration, through OCR, issued a final rule to modify the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule to support privacy in reproductive health care. The rule places limitations on the use and disclosure of reproductive healthcare information by healthcare providers and group health plans. The rule also requires several updates to HIPAA policies and procedures concerning health plans and operations of health care providers. Although most of those changes went into effect on December 23, 2024, HIPAA-covered entities have until February 16, 2026, to update their Notices of Privacy Practices. For more information about this change, see our blog posts: New HIPAA Final Rule Imposes Added Protections for Reproductive Health Care Privacy and HIPAA Final Rule For Reproductive Health Care Privacy with December 23, 2024, Compliance Deadline.

  1. ACA Section 1557 Notices of Nondiscrimination and Availability

The U.S. Department of Health and Human Services’ (HHS) Office for Civil Rights (OCR) enforces Section 1557 of the Affordable Care Act (Section 1557), which prohibits discrimination on the basis of race, color, national origin, age, disability, or sex (including pregnancy, sexual orientation, gender identity, and sex characteristics), in covered health programs or activities. Last spring, OCR issued a final rule under Section 1557 advancing protections against discrimination in health care. Under the final rule, covered entities (i.e., health programs and activities that receive HHS funding or are administered by HHS) must provide an annual notice of nondiscrimination to participants, beneficiaries, enrollees, applicants of their health programs and activities, and members of the public. This notice must be provided within 120 days of July 5, 2024, under the requirements of 45 CFR § 92.10. Similarly, covered entities must provide, within one year of July 5, 2024, a notice of the availability of language assistance services and auxiliary aids and services, stating at a minimum that these are free of charge when necessary for compliance with Section 1557. See 45 CFR § 92.11.

Although the rule was scheduled to go into effect on July 5, 2024, certain provisions have been stayed or enjoined pending multiple lawsuits. For example, under the final rule, a notice of nondiscrimination states in part that the covered entity does not discriminate on the basis of sex, which includes discrimination based on gender identity. However, in Tennessee v. Becerra, No. 1:24cv161-LG-BWR (S.D. Miss.), the court stayed nationwide several regulations to the extent they “extend discrimination on the basis of sex to include discrimination on the basis of gender identity”. The case is currently pending appeal.

Covered entities must continue to provide notices of nondiscrimination and availability unless specific provisions are stayed or enjoined. OCR’s sample notice of nondiscrimination currently characterizes as optional the inclusion of a statement of nondiscrimination based on gender identity. Still, covered entities should be prepared to adjust their notices if the stay is lifted. Sample notices are available on OCR’s website. For more information, see Section 1557 of the Patient Protection and Affordable Care Act | HHS.gov.

The new year often presents an opportunity to renegotiate or terminate existing service provider agreements, so now is a perfect time to reanalyze contracts before renewal. For an overview of health plan fiduciary compliance issues and strategies, see our five-part blog series, Health Plan Hygiene.

If you have questions, please contact a member of the Jackson Lewis Employee Benefits Practice Group or the Jackson Lewis attorney with whom you regularly work.

In a win for plan sponsors, the recently enacted Employer Reporting Improvement Act and the Paperwork Burden Reduction Act (the Acts), among other things, introduce several significant changes to the reporting and enforcement rules of the Affordable Care Act (ACA). 

The Current Rules

Forms 1095-B and 1095-C:  Under the ACA, plan sponsors, specifically Applicable Large Employers (ALEs), must report information about the health coverage they offer to their employees.  This ACA reporting is done through Forms 1095-B and 1095-C, which must be filed with the IRS and provided to all full-time employees and employees receiving employer-sponsored coverage. (This is the case, even though the ACA’s individual mandate is currently set to $0, and therefore functionally isn’t being enforced.)

Key aspects of ACA enforcement also include:

  • A Tight Turnaround to Respond to Proposed Assessments: The IRS may assess employer shared responsibility payments (ESRP) based on a plan sponsor’s reporting.  Before making this assessment, the IRS will send a letter with a proposed ESRP, to which sponsors can respond with corrected coding and other mitigating information.  Plan sponsors currently have only 30 days to respond to these letters.  This can be particularly challenging, as the letters are sent via US mail and often take time to get to the right person.  A late response can result in an ESRP assessment when one isn’t warranted, and additional penalties.
  • No Statute of Limitations: The period for assessing and collecting ESRPs has generally been open-ended, with no statute of limitations to potentially limit liability for aged amounts.

Changes Introduced by the Acts

The Acts introduce several changes which will improve the reporting and enforcement process for sponsors:

  • Forms 1095-B and 1095-C:  Plan sponsors (and health insurance providers for fully insured plans) are no longer required to send these Forms to all full-time employees and covered individuals. Instead, these Forms must only be sent in response to an employee/covered individual’s request.  If requested, the applicable Form must be provided by the later of January 31 or 30 days after the date of the request. One big caveat – in order to take advantage of this change, sponsors must provide notice to employees, telling them about their right to ask for a Form.  Further guidance on the form and requirements for this notice is likely forthcoming. Meanwhile, a good faith interpretation may suffice when drafting the notices.
  • Extended Response Time for Proposed ESRPs: Plan sponsors will now have at least 90 days to respond to a proposed ESRP before further action is taken. This extension provides plan sponsors more time to open their mail! (With more time to gather necessary information and respond appropriately, which may result in fewer ESRP assessments and other penalties.)
  • Statute of Limitations on Penalty Assessment: There will now be a six-year period for collecting ESRPs, counting from the due date for filing the applicable Forms 1095-B and 1095-C or the actual filing date, whichever is later. This extension provides clarity and predictability for plan sponsors, capping potential assessments and allowing sponsors to better manage their compliance efforts.

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

A little more than three years ago, the U.S. Department of Labor (DOL) posted cybersecurity guidance on its website for ERISA plan fiduciaries. That guidance extended only to ERISA-covered retirement plans, despite health and welfare plans facing similar risks to participant data.

Last Friday, the DOL’s Employee Benefits Security Administration (EBSA) issued Compliance Assistance Release No. 2024-01. The EBSA’s purpose for the guidance was simple – confirm that the agency’s 2021 guidance generally applies to all ERISA-covered employee benefit plans, including health and welfare plans. In doing so, EBSA reiterated its view of the expanding role for ERISA plan fiduciaries relating to protecting plan data:

“Responsible plan fiduciaries have an obligation to ensure proper mitigation of cybersecurity risks.“

In 2021, we outlined the DOL’s requirements for plan fiduciaries here, and in a subsequent post discussed DOL audit activity that followed shortly after the DOL issued its newly minted cybersecurity requirements.

As noted in our initial post, the EBSA’s best practices included:

  • Maintain a formal, well documented cybersecurity program.
  • Conduct prudent annual risk assessments.
  • Implement a reliable annual third-party audit of security controls.
  • Follow strong access control procedures.
  • Ensure that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security reviews and independent security assessments.
  • Conduct periodic cybersecurity awareness training.
  • Have an effective business resiliency program addressing business continuity, disaster recovery, and incident response.
  • Encrypt sensitive data, stored and in transit.

Indeed, the substance of the guidance is largely the same, as indicated above, and still covers three areas – Tips for Hiring a Service Provider, Cybersecurity Program Best Practices, and Online Security Tips (for plan participants). What is different are some of the issues raised by the new plans to which the expanded guidance applies – health and welfare plans. Here are some examples.

  • The plans covered by the DOL’s guidance. As noted, the DOL’s cybersecurity guidance now extends to health and welfare plans. This includes plans such as medical, dental, and vision plans. It also includes other familiar benefit plans for employees, including plans that provide life and AD&D insurance, LTD benefits, business travel insurance, certain employee assistance programs and wellness programs, most health flexible spending arrangements, health reimbursement arrangements, and other benefit plans covered by ERISA. Recall that an “employee welfare benefit plan” under ERISA generally includes:

“any plan, fund, or program…established or maintained by an employer or by an employee organization…for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise…medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services.“

A threshold compliance step for ERISA fiduciaries, therefore, will be to identify the plans in scope. However, cybersecurity should be a significant compliance concern for just about any benefit offered to employees, whether covered by ERISA or not.

  • Identifying service providers. It is tempting to focus on a plan’s most prominent service providers – the insurance carrier, claims administrator, etc. However, the DOL’s guidance extends to all service providers, such as brokers, consultants, auditors, actuaries, wellness providers, concierge services, cloud storage companies, etc. Fiduciaries will need to identify what individuals and/or entities are providing services to the plan.
  • Understanding the features of plan administration. The nature and extent of plan administration for retirement plans as compared to health and welfare plans often is significantly different, despite both being covered by ERISA which includes a similar set of compliance requirements. For instance, retirement plans tend to collect personal information only about the employee, although there may be a beneficiary or two. However, health and welfare plans, particularly medical plans, often cover an employee’s spouse and dependents. Additionally, for many companies, different groups of employees monitor retirement plans versus health and welfare plans. And, of course, more often than not, there are different vendors servicing these categories employee benefit plans.
  • What about HIPAA? Since 2003, certain group health plans have had to comply with the privacy and security regulations issued under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The DOL’s cybersecurity guidance, however, raises several distinct issues. First, the DOL’s recent pronouncements concerning cybersecurity are directed at fiduciaries, who as a result may need to take a more active role in compliance efforts. Second, obligations under the DOL’s guidance are not limited to group health plans or plans that reimburse the cost of health care. As noted above, popular benefits for employees such as life and disability benefits are covered by the DOL cybersecurity rule, not HIPAA. Third, the DOL guidance appears to require greater oversight and monitoring of plan service providers than HIPAA requires of business associates. In several places, the Office of Civil Rights’ guidance for HIPAA compliance states that covered entities are not required to monitor a business associate’s HIPAA compliance. See, e.g., here and here.  

The EBSA’s Compliance Assistance Release No. 2024-01 significantly expands the scope of compliance for ERISA fiduciaries with respect to their employee benefit plans and cybersecurity, and by extension the service providers to those plans. Third-party plan service providers and plan fiduciaries should begin taking reasonable and prudent steps to implement safeguards that will adequately protect plan data. EBSA’s guidance should help the responsible parties get there, along with the plan fiduciaries and plan sponsors’ trusted counsel and other advisors.

Background

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

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

Scope of the 2024 Final Rule

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

Protections Under the 2024 Final Rule

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

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

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

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

Conscience Exemption

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

The Path Forward

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

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

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

Statutory and Regulatory Background 

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

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

Five Part Test 

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

2016 Final Rule and Judicial Challenges 

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

The Retirement Security Rule

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

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

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

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

The FACC Litigation

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

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

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

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

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

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

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

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

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

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

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