On August 17, the US Court of Appeals for the Fifth Circuit affirmed the dismissal of an action brought by a company’s pension plan participants against the company and the plan's fiduciaries. The dismissed action alleged that the company's decision to de-risk its pension plan by transferring approximately $7.4 billion in pension obligations to a third-party insurer through the purchase of a single-premium group annuity contract ran afoul of various ERISA rules and requirements.

Among other allegations, the company’s plan participants asserted that the plan, plan sponsor, and plan fiduciaries violated ERISA by (1) failing to obtain participants' consent to the annuitization transaction, (2) failing to disclose to participants (in the plan's summary plan description or otherwise) that the transaction might result in a “loss of benefits” (e.g., the loss of Pension Benefit Guaranty Corporation (PBGC) guarantees and other ERISA protections), and (3) using $1 billion of plan assets to pay the third-party insurer and other third-party providers for administrative costs associated with the annuity transaction.

The Fifth Circuit’s decision uniformly dismissed all of the participants’ claims, noting that (1) the related decision to settle pension obligations through an annuity purchase is a settlor decision that is immune from fiduciary obligations; (2) the plan was amended appropriately to allow for the annuity purchase; (3) the plan fiduciary timely communicated the annuity purchase-related changes to plan participants through a summary of material modifications; (4) ERISA does not provide an absolute entitlement to PBGC protections, and there was no loss of benefits associated with the annuity purchase; and (5) the type of expenses paid from the plan did not raise ERISA concerns, and the participants provided no information to support the conclusion that the amount of the expenses was unreasonable.

All in all, the court's decision should provide additional comfort to plan sponsors and plan fiduciaries (particularly in the Fifth Circuit) that pension de-risking initiatives implemented through an annuity purchase do not run afoul of ERISA.

Readers of a certain generation will remember the 1980s G.I. Joe cartoon that often ended with the tagline "Knowing is half the battle." On August 26, in Mirza v. Insurance Administrator of America, Inc., the US Court of Appeals for the Third Circuit made a similar pronouncement: when seeking to enforce an ERISA plan's imposed statute of limitations, the court stated that "notice of the statute of limitation is half the battle." On the heels of this decision, plan administrators are cautioned to make certain that their benefit denial letters clearly disclose any applicable statute of limitations in the plan that may shorten the period for filing suit.

Often described as a "statute of repose," a statute of limitation (SOL) imposes a deadline by which an individual must bring a claim. After that deadline, the claim is considered "time-barred," meaning that the claimant is SOL . . . that is, in this case, "simply out of luck." If a lawsuit is brought after the expiration of the SOL, the court is empowered to dismiss the case without ever considering the merits in the underlying dispute.

ERISA contains a six-year SOL for fiduciary breach claims but does not impose a limitations period for benefit claims. As a consequence, courts typically look to an applicable state SOL for breach of contract claims (by analogizing ERISA plans to contracts). However, as the Supreme Court recently affirmed, an ERISA plan can impose its own SOL, and that provision will be enforced, provided that the limitations period is "reasonable."

The US Department of Health and Human Services’ Office for Civil Rights (OCR) is gearing up for the second phase of Health Insurance Portability and Accountability Act (HIPAA) audits. As reported in trade press, a government official announced that the audits may be rolled out shortly. The OCR has chosen a vendor to conduct the audits and has started verifying contact information for potential auditees.

We will continue to monitor for a written announcement and/or guidance from the OCR. In the meantime, HIPAA-covered entities should review (and update as necessary) their policies and procedures and make sure that their workforce members are trained to comply with HIPAA’s privacy and security rule requirements.

The US Supreme Court issued its decision in Tibble v. Edison on May 18. The participants who brought the suit in Tibble alleged that the Edison fiduciaries breached their duties by offering as investment options classes of mutual funds with higher fees than other classes. For more details on the facts, please see our LawFlash. The issue that emerged as the case worked its way up to the Supreme Court, however, was a statute of limitations defense, because some of the mutual funds in question were initially selected by the Edison fiduciaries more than six years before the lawsuit was filed. The Edison fiduciaries argued before the US Court of Appeals for the Ninth Circuit that those claims were time-barred under ERISA’s six-year statute of limitations because the alleged breach (i.e., the selection of higher fee mutual funds) occurred outside the six-year period. The participants argued that keeping these funds constituted a continuing breach of fiduciary duty that extended well into the six-year statute of limitations. The Ninth Circuit agreed with the Edison fiduciaries and held that the claims with respect to that older group of funds were time-barred.

By the time the case got to the Supreme Court, however, the focus had shifted from the statute of limitations to the nature of the duty to monitor investment options on an ongoing basis. The discussion at oral arguments focused almost exclusively on the “contours” of the alleged breach of the duty to monitor, so it was perhaps not surprising when the Court vacated the Ninth Circuit’s judgment and remanded the case to the Ninth Circuit to consider “trust law principles” and the “nature of the fiduciary duty” at issue in this case.

To most plan fiduciaries, it is not surprising that there is a fiduciary duty to monitor investments on an ongoing basis. Indeed, we might expect that many readers of this blog spend a great deal of their time doing exactly that and supporting the fiduciary committees that have this responsibility. This may be why the Tibble opinion has been largely met with the formal equivalent of “duh” by many in the plan sponsor community.

In light of robust merger and acquisition activity, companies should review their compensation and benefits programs to understand the effect that a change-in-control transaction would have. Often, in the face of an impending change-in-control transaction or at the time that a company puts itself into play, it may be too late to implement new programs or make changes to existing programs. Companies should consider change-in-control implications at the time that they adopt plans or, where applicable, at the time awards under those plans are made.

Many compensation components can be affected by a change-in-control transaction, including equity awards (in particular, those that are unvested), cash-based incentive awards (both annual and long-term) for then-in-progress performance periods, deferred compensation (and any funding of deferred compensation), severance entitlements and triggers, and noncompetition and similar restrictions. Tax considerations and, in particular, the golden parachute rules of section 280G of the Internal Revenue Code must also be taken into account.

A recent Seventh Circuit Court of Appeals case highlights a troubling trend of courts finding successor liability for multiemployer pension contributions and withdrawal liability following corporate asset sale transactions.

In 1990, the Seventh Circuit held in Upholsterers’ International Union Pension Fund v. Artistic Furniture of Pontiac that under ERISA, a purchaser of assets could be liable for delinquent pension contributions owed by the seller to a multiemployer pension fund, provided that there is sufficient evidence of continuity of operations and the purchaser knew of the liability of the seller.

Subsequently, in 2011, the Third Circuit in Einhorn v. M.L. Ruberton Construction Co. reversed a lower court ruling and held that a purchaser of assets of an employer obligated to contribute to a multiemployer benefit plan may, where there was a continuity of operations and the purchaser knew of delinquency, be held liable for the delinquent contributions.

Recently, in Tsareff v. Manweb Services, Inc., the Seventh Circuit has taken what some may consider a step too far in holding that an asset purchaser could be liable for a seller’s withdrawal liability triggered as a result of an asset sale, provided that the purchaser had known of the seller’s “contingent” withdrawal liability that would be triggered by the sale. The Seventh Circuit found that the buyer knew of the potential withdrawal liability because it engaged in due diligence and addressed withdrawal liability responsibility through an indemnification clause in the asset purchase agreement. The Seventh Circuit remanded the matter back to the district court to determine whether there was a sufficient continuity of operations after the sale for the buyer to be a “successor” and hence liable.

On July 31, US President Barack Obama extended the funding for US highways when he signed H.R. 3236 (now Public Law No. 114-41) into law, but tucked into the law were changes to some significant benefits-related tax filing dates and veterans’ benefit rules.

We describe the tax filing and veterans’ benefits changes below.

Tax Filing Dates

The new law includes a number of revised automatic extensions of the due dates for income tax and information returns, including the Form 5500 (the annual return for employee benefit plans) and the Form 990 series (the annual return for tax-exempt organizations).

Form 5500
Typically, Form 5500 returns for employee benefit plans are due the last day of the seventh month after a plan year ends. This is July 31 for calendar-year plans. Plans may file an extension of this filing date, which, under current law, is limited to a two and a half month extension (or October 15) for a calendar-year plan. The new law requires the US Treasury Secretary to modify Treasury regulations to provide an automatic extension of the 5500 filing due date of three and a half months (or until November 15) for calendar-year plans.

On July 30, the Internal Revenue Service (IRS) released Notice 2015-52 (the Notice) addressing issues raised by the excise tax on high cost employer-sponsored health coverage (often referred to as the “Cadillac tax”). Beginning in 2018, the Cadillac tax is a nondeductible 40% excise tax on the aggregate cost of applicable employer-sponsored health coverage in excess of a baseline amount of $10,200 (for self-only coverage) and $27,500 (for family coverage). The guidance in Notice 2015-52 supplements Notice 2015-15, which was issued in February 2015.

The development of guidance on the Cadillac tax can be seen as a case study in how a federal agency develops regulations for a dysfunctional statutory provision. In less partisan times, we may have expected a technical corrections bill or follow–on legislation, but for a variety of reasons—not the least of which is the partisan political climate—we don’t anticipate that a legislative fix or repeal of the Cadillac tax is likely, at least prior to the 2016 election.

These days, it’s not uncommon for pension plans to be in some sort of frozen state. It is important for plan sponsors to remember that even though their pension plans may be totally frozen (with no one accruing benefits), partially frozen (closed to some or all new participants), or in some other “frozen status,” the plans are still subject to the PBGC reportable event rules under section 4043 of ERISA. Only once a pension plan is fully terminated and all assets are distributed do the reportable event rules no longer apply. Of course, the reportable event rules also apply to active pension plans. Failure to comply with the rules may result in steep penalties of up to $1,100 a day.

Although there may be a few reportable events that are not likely to occur if a pension plan is frozen, most reportable events can occur regardless of a pension plan’s status. These reportable events include, among others,


As we were posting, the IRS released draft instructions for 2015 ACA reporting. These draft instructions confirm that for 2015 reporting, ALEs that contribute to multiemployer health plans need only to receive confirmation from each such plan of three things: that the plan (1) offers minimum essential coverage that is affordable, (2) provides minimum value to individuals who satisfy the plan’s eligibility conditions, and (3) offers minimum essential coverage to those individuals’ dependents. The ALEs do not need more detailed information from the multiemployer plans to complete their 2015 reports. This IRS clarification is welcome guidance to ALEs that contribute to one or more multiemployer plans, as it simplifies their preparation for 2015 reporting.

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The Affordable Care Act (ACA) reporting requirements are in full force for 2015. These reporting rules require both applicable large employers (ALEs, which are generally employers with 50 or more full-time employees) and other entities that provide minimum essential health coverage—including multiemployer health plans—to gather and report certain information to the IRS and covered individuals. These entities must report 2015 health coverage information to individuals by February 1, 2016 (the annual due date is January 31, but the date is adjusted for 2016 because January 31 is a Sunday) and to the IRS by the end of February or March 2016, depending on the number of reports.

Identifying and capturing the required information can be a daunting task for an ALE. ALEs must collect a significant amount of data for each full-time employee (i.e., an employee who works on average 30 or more hours a week or 130 or more hours a month) for each month of 2015. This information includes: (i) each month that an employee enrolled in coverage (or the reason an employee was not enrolled); (ii) each month an employee was offered minimum essential coverage providing minimum value; (iii) each month that minimum essential coverage was offered to the employee’s spouse and/or dependent children under age 26; and (iv) the dollar amount of the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value that was offered.