The US Internal Revenue Service has released proposed regulations requiring retirement plans to eliminate the six-month suspension for hardship withdrawals made on and after January 1, 2020, with the option to eliminate it earlier, and providing important clarifications for plan sponsors on other hardship requirements. Please see our LawFlash for more information about these proposed regulations, including next steps. If you have questions about the proposed regulations, please feel free to reach out to the authors or your Morgan Lewis contact.
Drafting and negotiating data protection provisions in services agreements is critical, but it can also be one of the trickier and more time-consuming aspects of the contracting process. Tech & Sourcing @ Morgan Lewis addresses data safeguards in services agreements in this comprehensive four-part series: Part 1, Part 2, Part 3, and Part 4. If you have questions on how to best protect data in your service provider relationships, please feel free to reach out to the author or your Morgan Lewis contact.
Congratulations to our employee benefits practice for being recognized as Law Firm of the Year in the Employee Benefits (ERISA Law) category by the US News & World Report– Best Lawyers Best Law Firms. The Law Firm of the Year distinction is awarded to only one law firm in each practice area nationwide. The rankings are determined by evaluating client, lawyer, and peer review.
Additional congratulations to Morgan Lewis’s securities regulation practice for also being named Law Firm of the Year in their subsequent category, and to the 256 practice areas named as leading law firms across national and metropolitan categories. Find more information via our firm press release.
With the economy humming along and unemployment at historic lows, it seems a strange time for a blog post about severance plans. This is the ideal time, however, to start planning for the next phase of the business cycle and the inevitable reductions in workforce that will follow. In connection with this planning, we wanted to remind our readers of the numerous advantages of adopting an ERISA-compliant severance plan. While many employers think they do not have an ERISA-covered plan—because it is not written or is not distributed to employees—they may in fact have a de facto plan if they have a routine policy for providing severance benefits that requires ongoing administrative discretion. Don’t panic: ERISA coverage is generally a good thing.
The Internal Revenue Service (IRS) issued guidance on September 18 that modifies its safe harbor explanations that may be (and typically are) used to satisfy Section 402(f) of the Internal Revenue Code (IRC). IRC Section 402(f) requires plan administrators of 401(a) qualified plans to provide a written explanation of an individual’s rollover rights (of eligible rollover distributions) within a reasonable period of time (i.e., no fewer than 30 days and no more than 180 days) before the date a plan distribution is to be made.
The modifications, described in Notice 2018-74, reflect changes made under the Tax Cut and Jobs Act of 2017 (TCJA) relating to the rollover of qualified plan loan offset amounts and guidance issued in IRS Revenue Procedure 2016-47 (Rev. Proc. 2016-47) on self-certification of eligibility for a waiver of the 60-day deadline for completing a rollover.
The end of summer doesn’t always mean the end of employment for seasonal employees. Employers often rely on the pool of talent they have developed through seasonal hiring when it comes time to fill new or newly vacated ongoing positions. Here are several things to keep in mind when hiring or rehiring a seasonal employee into a year-round, benefits-eligible role.
Employers that do not have large employee populations have for many years struggled to provide competitive health coverage to their employees. In an effort to offer the economies of scale and risk spreading that exist when large numbers of employees are covered in a single group health plan, there have been many attempts to structure health insurance arrangements (typically referred to as multiple employer welfare arrangements, or MEWAs) in which unrelated employers can participate. Unfortunately, many MEWAs have been undercapitalized, unable to provide the cost savings they promoted, and/or noncompliant with state and federal law. Although there has been a recent effort by the US Department of Labor (DOL) (through a final regulation issued in June of 2018) to expand the ability of employer associations to offer group health plan coverage to their members, this effort will primarily benefit small employers who currently obtain health coverage through the individual or small group insurance markets.
On July 24, the US Court of Appeals for the Ninth Circuit held in Munro v. University of Southern California that ERISA Section 502(a)(2) claims for breach of fiduciary duty fell outside the scope of the plaintiffs’ individual arbitration agreements because only those individual employees—and not their 403(b) plans—consented to arbitration. The ruling affirmed the district court’s denial of the University of Southern California’s motion to compel arbitration. The 403(b) plan litigation will now continue in the Central District of California, where District Judge Virginia A. Philips had previously stayed the matter pending USC’s appeal.
In Munro, the plaintiffs brought a putative class action lawsuit against USC alleging claims for breach of ERISA’s fiduciary duties in connection with fees and expenses charged to two ERISA defined contribution plans (the USC Plans). The plaintiffs filed their claims under ERISA Section 502(a)(2), 29 U.S.C. § 1132(a)(2), on behalf of the USC Plans. Thereafter, USC moved to compel arbitration pursuant to arbitration agreements signed by each of the nine plaintiffs. These agreements required the plaintiffs to arbitrate “claims for violation of any federal, state or other governmental law, statute, regulation, or ordinance.” However, the district court denied USC’s motion to compel arbitration, holding that the arbitration agreements were unenforceable as to the plaintiffs’ ERISA claims because the USC Plans were the real parties in interest to Section 502(a)(2) claims, and the USC Plans had not consented to arbitration. Munro v. Univ. of S. Cal. (C.D. Cal. Mar. 23, 2017) (“[P]articipants cannot sign an arbitration agreement, without the consent of a plan, that prevents the participants from bringing a § 502(a)(2) claim on behalf of the plan.”).
In recent weeks, there have been a number of reports that the US Department of Labor (DOL) has been taking a more aggressive approach in enforcement actions involving late participant contributions and loan repayments and other errors self-reported by ERISA plans on their Forms 5500. These reports underscore the importance of timely, full correction when a plan discovers such late contributions and loan repayments, and other fiduciary breaches.
Under applicable DOL rules, participant contributions and loan repayments must be remitted to the plan’s trust as soon as the money can reasonably be segregated from the employer’s assets (and no later than 15 days, unless the plan qualifies for a small plan exception). The DOL’s view is that it is a breach of fiduciary duty when the payments are made into the plan’s trust later than that. The delay is treated as an unauthorized loan of plan assets and, therefore, a nonexempt prohibited transaction. The DOL has treated these breaches as an enforcement priority and regularly reviews this issue during its plan investigations (the DOL having primary investigatory authority of ERISA’s fiduciary duty provisions, and a robust investigatory program). The DOL frequently cites ERISA plan fiduciaries for fiduciary breaches due to such late contributions and loan repayments.
On June 1, New Jersey Governor Phil Murphy signed legislation that imposes new disclosure obligations on state healthcare providers and insurers, and changes the way healthcare providers can charge for out-of-network services. The new law, titled the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act, also has an impact on self-insured health plans subject to ERISA and their participants. As explained below, self-insured health plans subject to ERISA that cover individuals who obtain healthcare in New Jersey will need to determine by the end of August whether to elect to be subject to the act.
In broad brush, the legislation addresses “surprise” out-of-network medical charges, such as charges for services administered during an emergency from providers who are not part of the patient’s network. For nonemergency patients, the statute requires healthcare facilities and professionals to provide information—before the patient receives services—as to the in-network or out-of-network status of the providers, and a disclaimer regarding the responsibility of the patient to pay any additional out-of-network fees. The statute also requires providers to supply each patient, upon request, an estimate of fees, and requires facilities to establish public postings regarding standard charges. Health insurance carriers are required to provide written notice of changes to their network, and provide detailed information about out-of-network services, including the methodology used to determine the allowed amount for out-of-network services.