Go Your Own Way (Or Maybe Not): New Heightened Fiduciary Standards are Coming to Group Health Plans

/in , , , , , , , , , , , , , ,

by Bret Busacker

There has been a shift taking place in ERISA litigation and compliance that could significantly impact group health plan fiduciary requirements. We anticipate group health plan fiduciary standards will evolve along the same lines as what occurred in the 401(k) industry after the ERISA 408(b)(2) rules became effective in 2012.

401(k) plans for years have been subject to fee disclosure and relatively well-defined fiduciary standards of conduct. Much of the improvement in 401(k) fiduciary practices over the past decade can be attributed to the ERISA 401(k) fee disclosure requirements that went into effect in 2012 under ERISA 408(b)(2) and the resulting fee litigation fueled by the ERISA 408(b)(2) fee disclosure rules. As a result of the ERISA 408(b)(2) and the related litigation, employers and plan fiduciaries, often with the aid of counsel, have become significantly more proficient in monitoring fees and negotiating agreements with 401(k) plan TPAs and investment service providers.

The Consolidated Appropriations Act (CAA) in 2021 extended the ERISA 408(b)(2) fee disclosure requirements to group health plans. Based on what took place in the 401(k) industry after 2012 when the ERISA 408(b)(2) disclosure went into effect, we anticipate the ERISA 408(b)(2) fee disclosure requirement, now also applicable to group health plans, will make it easier for plan participants to bring breach of fiduciary duty claims against employer and plan fiduciaries. There are already several such cases currently making their way through the courts.

In addition to the ERISA 408(b)(2) fee disclosure requirement, group health plan fiduciaries now have a better line of sight into the structure and economics of their group health plans than ever before. This insight comes in the form of a series of new disclosure requirements that require plans to obtain and publish network and out of network payment rates, and to report plan drug and service cost information to HHS. Further, the CAA now requires employers to prepare periodic reports demonstrating compliance with the Mental Health Parity rules. These new rules give employers and plan fiduciaries unprecedented leverage with their service providers through increased transparency and improved awareness of the structure and economics of their group health plans.

With this greater knowledge and understanding comes more risk of criticism that an employer or plan fiduciary could have looked closer—and should have looked closer—at fees and plan design in carrying out their fiduciary responsibilities. We think these new group health plan transparency and disclosure rules will drive new litigation against group health plan fiduciaries similar to what occurred in the retirement plan industry after ERISA 408(b)(2) became effective for 401(k) plans.

Employers and plan fiduciaries should be considering now how to formalize appropriate compliance structures to ensure that reasonable fiduciary standards are being applied to group health plan administration. Our general recommendation is to adopt similar group health plan governance structures and practices that are now common in 401(k) plan administration. These governance structures may take on different forms than what we see in the 401(k) industry, but employers should be thinking now how best to match step with the shifting fiduciary standards applicable to group health plans.

Should’ve Been a Cowboy, Court Inflicts Pain on Health Plan Sponsor After Participant Kicked by Bull

/in , , , , ,

by Alex Smith

A recent decision by a federal district court in Ohio in a health plan benefits dispute highlights the importance for health plan fiduciaries to properly review benefit claim denials to ensure that the claims administrator’s basis for denial is appropriate and that the claims administrator has properly considered information provided by the participant.

In this case, the participant sued after he was denied coverage for more than $100,000 of medical bills related to a broken ankle suffered when he was kicked by his bull calf. Even though the participant worked as an HVAC division manager, the health plan’s third-party administrator denied the claims based on the plan’s exclusion for on-the-job injuries because the participant owned a cattle farm from which he sold beef. The court ruled that the participant was entitled to coverage for his medical expenses because the health plan fiduciaries had the burden of demonstrating the plan exclusion applied. Read more

I’ve Been Trying to Get Down to the Heart of the Matter – the Board Action

/in , ,

by John Ludlum

If you ever want to see a benefits lawyer get nervous, start talking about corporate intent.  Yes, the company intended to grant options at an earlier and lower exercise price, and yes it may have made promises to the individuals who would receive the awards; everybody seems to be in agreement. But there may be inadequate documentation, or worse, none at all, and the tax implications have to be considered. The foundation for any equity grant will be corporate action, and the experienced perspective is that if there is doubt about the corporate action, it will be hard to defend.

The Incentive Stock Option (“ISO”) regulations and the Code Section 409A regulations (“Section 409A”) both provide guidance on when an equity grant is actually made for the purposes of those Code Sections. For ISOs, the “date or time when the granting corporation completes the corporate action” constituting an offer under the terms of a statutory option which is not considered complete until the maximum number of shares and the minimum price are fixed or determinable. For Section 409A, the date when the “granting corporation completes the corporate action” necessary to create a legally binding right to the option which is not complete until the date on which the maximum number of shares and the minimum exercise price are fixed or determinable, and the class of underlying stock and the identity of the service provider are designated. Obviously, the regulations have similarities, but the common and essential element is the requirement for a corporate action. Read more

The Time Has Come, A Fact’s A Fact: Consider Adding a Welfare Plan Committee

/in , , , , , , , , ,

by Brenda Berg

The time may have come to add a welfare plan committee to your company’s governance of employee benefit plans. New legal obligations and other developments impose fiduciary risks for welfare plans similar to what already exist for retirement plans.

Most employers that sponsor a 401(k) plan or other retirement plan set up a committee to administer and oversee the plan. This is generally a best practice to ensure that the plan is properly administered in compliance with employee benefits laws and, for plans subject to the Employee Retirement Security Act of 1974 (ERISA), to have a process for following ERISA fiduciary duties. Fiduciary duties include acting prudently and in the best interests of participants, such as in overseeing service providers and monitoring plan fees. Read more

Better Hide the Wine … Employer Considerations as the DOL Doubles Down on Mental Health Parity Compliance in New Proposed Regulations

/in , , , , , , ,

by Alex Smith

The Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Department of Treasury (collectively, the Departments) recently issued proposed Mental Health Parity and Addiction Equity Act (MHPAEA) regulations and their second joint report to Congress regarding their MHPAEA enforcement activities as required under the MHPAEA and the Consolidated Appropriations Act, 2021 (CAA).

In addition, the DOL issued Technical Release 2023-01P, requesting comments on potential data requirements related to non-quantitative treatment limitations (NQTLs) and network composition. The proposed regulations and Technical Release indicate that employers can expect increased compliance obligations related to NQTLs and the NQTL comparative analysis reporting and disclosure requirements established by the CAA. For additional information about the CAA’s MHPAEA NQTL comparative analysis reporting and disclosure requirements, please see our blog posts from 2022 and 2021. Read more

Should I Pay Or Should I No(t) Now: Which Expenses Can be Paid with Plan Assets?

/in , , , , , , , ,

by Brenda Berg

One question that often comes up is whether an expense related to an ERISA plan can be paid with plan assets. The decision of whether to use ERISA plan assets to pay an expense is an ERISA fiduciary decision. With the recent IRS guidance clarifying the timing of use of forfeitures, this question may come up even more.[1] Using plan assets inappropriately is a fiduciary breach and subject to possible DOL and IRS penalties. It is important to have a fiduciary process in place for reviewing expenses and determining whether a payment is proper. Read more

It Doesn’t Have To Be That Way: Negotiating Good Service Provider Agreements Is More Important than Ever

/in , , , , , , , , , , , , , , , , , ,

by Bret F. Busacker

It may be an understatement to say that compliance with benefit plan laws and regulations is becoming increasingly more complicated. In my experience, the COVID era has brought about some of the widest-sweeping changes on the burden of administering benefit plans in some time.

There has been major evolution around service provider fee disclosure, DOL reporting and disclosure on mental health parity and disclosure of plan costs, new claims procedure rights, expanded expectations around Cyber Security protections, and expansion of the use of ESG and crypto currency (and on-again, off-again regulatory efforts). Read more

What Happens In A Small Town Stays In A Small Town … Until The Tenth Circuit Rejects ERISA Arbitration Provision

/in , , , , , , ,

by Alex Smith

While case law regarding the enforceability of arbitration provisions in ERISA retirement plans has been mixed, since the Ninth Circuit’s 2019 decision in Dorman v. Charles Schwab Corp. enforcing a 401(k) plan’s arbitration provision, some employers and plan sponsors have given increased consideration to adding arbitration provisions to their retirement plans based on that decision and the proliferation of class action ERISA lawsuits.  However, following the Tenth Circuit’s February 9 decision in Harrison v. Envision Management Holding, Inc. Board, which appears to be the first time the Tenth Circuit considered the issue, employers based in the Tenth Circuit’s jurisdiction (Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming) may want to think twice before adding an arbitration provision to their plans.

Read more

Hole in the Bottle … Protecting Against 401(k) Cybersecurity Leakage

/in , , , , , ,

by Alex Smith

Both the Department of Labor (DOL) and plaintiffs’ lawyers have taken an interest in retirement plans’ cybersecurity in recent years. Last year, the DOL issued guidance on the cybersecurity considerations plan fiduciaries should be mindful of. In addition, cyber theft in recent years has led to multiple lawsuits. A specific recordkeeper involved in many of these lawsuits is currently being investigated by the DOL with respect to cybersecurity incidents that have impacted certain of its retirement plan clients. Read more

You Spin Me QPAM Baby QPAM: DOL’s Proposed QPAM Rule May Mean Changes to Collective Trust Agreements for Plan Sponsors

/in , , , , , , , , , , , , ,

by Bret F. Busacker

The DOL published on July 27, 2022 a proposed change to the QPAM Exemption (“Proposed QPAM Amendment”) that may require retirement plan sponsors to update their collective trust agreements in order to satisfy the new DOL requirements.  Collective trusts have become an increasingly common way for qualified retirement plan committees/plan sponsors to achieve lower investment expenses for some of the investment options in their plans.

These collective trusts are managed by investment managers who often engage other financial institutions to execute trades involving the pension assets held by the collective trust. These trades involving retirement plan assets may at times be executed by a financial institution that is also providing services (such as recordkeeping services) to the same retirement plan.  Absent an exemption, these sorts of related party transactions may violate the ERISA prohibited transaction rules.   Read more