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  • BC Network
    Wednesday, July 19, 2017

    Plan sponsors are typically forced to wait for last minute guidance to satisfy year-end compliance obligations. As a result, those of us who work with these plans spend the last days of the year frantically ensuring plans are in compliance mode while friends and family ring in the new year with frivolity and festivities. While we can’t guarantee that won’t happen again this year, if it happens to you because you are evaluating the impact of the new disability claim procedures on plans, then shame on you. As discussed below, the information necessary to comply with the new rules is already available. So address these obligations now – then dig out your little-black-dress or tux, and join the year-end frivolity!

    The final rule modifying the disability claims procedures, issued late last year, became effective January 18, 2017, and applies to claims for disability benefits which are filed on or after January 1, 2018.  Plan sponsors should identify their claims procedures, plan documents and SPDs that may need to be updated to reflect the new rule. To assist in that endeavor, the key changes implemented by the new rule are summarized below.

    1. New Independence and Impartiality Provisions. These new provisions are intended to reduce the possibility of unfair claims review. The change requires that “decisions regarding hiring, compensation, termination, promotion, or other similar matters…must not be based upon the likelihood that the individual will support the denial of benefits.” That being said, the regulation does not represent a significant change from prior law as both industry practice and case law have generally protected procedural independence.
    2. New Disclosure Requirements. The new disclosure requirements mandate three new disclosures upon an adverse benefit determination. First, the plan must provide a “discussion of the decision” explaining the basis for disagreeing with views presented by certain professionals. The regulation requires the discussion when the plan administrator disagrees with the (1) “views presented by the claimant to the plan of health care professionals treating the claimant and vocational professionals who evaluated the claimant,” (2) “views of medical or vocational experts whose advice was obtained on behalf of the plan…regard[less of] whether the advice was relied upon in making the benefit determination,” and (3) “disability determination[s] regarding the claimant presented by the claimant to the plan made by the Social Security Administration.” Second, the plan must disclose the specific internal rules, guidelines, protocols, standards and other similar criteria which were relied upon in making the adverse determination. If such guidelines, protocols, etc. do not exist, the plan must make a statement saying so. Third, the plan must make a statement that the claimant is entitled to receive upon request and free of charge all the documents, records, and other information relevant to the claimant’s claim for benefits.
    3. Enhanced Review Rights. The final rule also requires affords enhanced rights to review and respond to new information before the final decision. The plan must promptly disclose (1) “new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination…in connection with the claim;” and (2) new or additional rationales forming the basis of the plan’s determination. The disclosures must be made free of charge and “as soon as possible and sufficiently in advance of the date on which the notice of [an] adverse benefit determination on review is required.”
    4. New Deemed Exhausted Provisions. The new deemed exhausted provision allows claimant to immediately pursue civil enforcement if the plan fails to strictly adhere to all the requirements of the ERISA claims procedures in connection with the claim.
    5. Expanded Definition of Adverse Benefit Determination. The new regulation adds that in the case of a plan providing disability benefits, the term ‘adverse benefit determination’ includes any cancellation or discontinuance of disability coverage that, except to the extent it is attributable to a failure to timely pay required premiums or contributions, has a retroactive effect with respect to a participant or beneficiary.
    6. New Culturally and Linguistically Standards. New standards apply when the claimant’s address is in a county in which ten percent or more of the population is literate only in the same non-English language (e.g. ten percent of the county is literate in Spanish but not English). In those circumstances, a notice will not be culturally and linguistically appropriate unless the plan meets the following requirements: (1) “[t]he plan provide[s] oral language…that include answering questions in any applicable non-English language and providing assistance with filing claims and appeals,” (2) “[t]he plan must provide, upon request, a notice in any applicable non-English language,” and (3) “[t]he plan must include in the English version of all notices, a statement prominently displayed in any applicable non–English language clearly indicating how to access the language services provided by the plan.”
    7. New Disclosure Requirements. The new regulation provides additional requirements to the process of notifying the claimant of the plan’s benefit determination following review. While the prior regulation required a statement of the claimant’s right to bring an action under § 502(a), the new regulation also requires the plan to describe any applicable contractual limitations periods applying to the claimant’s right to bring the action as well as the calendar date upon which the claimant’s rights expire.

    Party on!

    The author thanks St. Louis summer associate Ben Ford for his assistance in researching and preparing this blog post.

    Tuesday, June 6, 2017

    The Department of Labor has issued guidance in the form of Frequently Asked Questions to help firms and their advisers impacted by the Fiduciary Rule know what is expected on and after June 9, 2017, on and after January 1, 2018, and during the period between (the “Transition Period”).  We’ve outlined a few of the highlights below:

    As of June 9, 2017, firms and their advisers must comply with the “Best Interest Contract Exemption” and the “Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs”.  However, fewer conditions must be met to comply with these exemptions during the Transition Period.

    As described fully in the Fiduciary Rule, the “impartial conduct standards” generally require fiduciaries to make recommendations that are prudent, loyal, and free from material misrepresentation and to receive only reasonable compensation for such recommendations.  The impartial conduct standards do not apply to PTE 84-24 until January 1, 2018 but apply to PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 on and after June 9, 2017.

    The DOL reassured firms implementing new compensation systems which will not be in place by June 9, 2017, that their advisers may still satisfy the impartial conduct standards – by, for example, disclosing that a certain recommended investment benefits the adviser more than another investment.

    Of specific interest to plan sponsors is Question 12.  There, the DOL outlines three types of communications a plan (including its representatives and an interactive tool) has with a participant and confirms all three still are not considered investment advice covered by the Fiduciary Rule because the plan only provided plan information or general financial, investment, and retirement information.

    The DOL also used these FAQs as a forum to explicitly state that making certain provisions applicable June 9th does not mean its review of the Fiduciary Rule (pursuant to the Presidential Memorandum issued February 3, 2017) is complete.  Changes may be forthcoming, but until a further delay or change to the Fiduciary Rule is announced, good faith efforts to comply with the Fiduciary Rule as it is currently drafted are required.

    Friday, May 5, 2017

    Health Care ReformAfter weeks of “will they or won’t they” that rivals some of the great TV sitcom near romances for suspense (even though it was considerably shorter), House Republicans passed the American Health Care Act (“AHCA”) just before going on recess (more information on the bill here and here).   As with the version that was released in early March, this is designed to meet the Republicans’ promise to “repeal and replace” the ACA.  As before, in many respects, the AHCA is less “repeal and replace” and more “retool and repurpose,” but there are some significant changes that could affect employers, if this bill becomes law as-is.

    Below is a brief summary of the most important points (many of which may look familiar from our prior post on the original iteration of the AHCA . Where we did not make any substantive changes from our prior post, we have indicated those with the words “No change”):

    • Employer Mandate, We Hardly Knew You (No change). The ACA employer play or pay mandate is repealed retroactive to January 1, 2016, so if you didn’t offer coverage to your full-time employees, then this is the equivalent of the Monopoly “Get out of Jail Free” card.
    • OTC Reimbursements Allowed from HSAs and FSAs, Without a Prescription (No change). This goes back to the old rules that allowed these reimbursements. This would begin in 2018.
    • Reduction in HSA Penalty (No change). One of the pay-fors for the ACA was an increase in the penalty for non-health expense distributions from HSAs from 10% to 20%. The AHCA takes it back to 10% starting in 2018.
    • Unlimited FSAs Are (or Would Be) Here Again (No change). AHCA repeals the $2,500 (as adjusted) limit on health FSA contributions starting in 2018.
    • Medicare Part D Subsidy Expenses Would Be Deductible Again (No change). The ACA still allowed Medicare Part D subsidies to be excluded from a company’s income, but denied the deduction, for tax purposes, for any expenses that were subsidized.  This reinstates the prior law that allowed a “double tax benefit” of both the exclusion of the subsidy from income and the deduction for the costs funded by the subsidy starting in 2018.
    • A New COBRA Subsidy (No change). The AHCA does away with ACA’s income-based subsidies in favor of age-based subsidies from $2,000 to $4,000 per individual per year (with a max of $14,000 for a family) with a phaseout for incomes over $75,000 per year ($150,000 for married filing jointly). However, unlike the ACA subsidies (which could only be used for individual market insurance), the new subsidies would also be available for unsubsidized COBRA coverage.   This would not kick in until 2020.  The subsidies are adjusted based on the CPI+1, which means they are probably unlikely to keep pace with medical inflation.  Additionally, any excess subsidy (which seems unlikely) would be put into an HSA for the individual’s benefit.
    • Trading in The Cadillac Tax for a Newer Model Year (No change). Hearing the outcry of employers who did not want their health benefits taxed, the bill instead kicks the Cadillac Tax down the road. Instead of applying in 2020, it now applies in 2025.  There is no adjustment to the thresholds in this bill, so it will still pick up coverage that is not all that “Cadillac” (despite its name). Despite being highly unpopular, the Cadillac Tax has basically survived.
    • HSA Enhancements (1 change). The HSA contribution limits would be increased effective in 2018 so that they are the same as the out of pocket maximums that apply to HSAs (currently $6,550 for self-only coverage and $13,100 for family coverage). Additionally, expenses incurred up to 60 days before the account is established could be reimbursed from the account.  This version of the bill would also allow both spouses to make HSA catch-up contributions to the same HSA.
    • Continuous Coverage Requirement (Minor Changes). In lieu of the individual mandate, the law would require individuals to maintain continuous coverage (with no more than a 63-day break in the twelve months prior to enrollment). If they did not, then insurance companies could assess a 30% enrollment surcharge above their regular premium through the end of the year in which they enroll.  This is designed to encourage individuals to stay in the insurance market.  Employers will recognize the 63-day break rule from the old HIPAA creditable coverage rules.  This is basically the same concept, only applied across both employer plans and the individual market (the HIPAA rules did not apply to the individual market).  And unlike the HIPAA rules, the penalty here is a 30% premium increase, whereas under the HIPAA rules, pre-existing conditions could be excluded for a period of time if the individual did not maintain creditable coverage.  For employers, this will probably mean a return to having to issue creditable coverage certificates.
    • No More Small Business Health Care Tax Credit. This would be eliminated starting in 2020. The tax credit was limited to ACA SHOP coverage and could only be claimed for two consecutive years.
    • Elimination of Additional Medicare Tax. The ACA added an additional 0.9% tax on wages above certain thresholds ostensibly to fund Medicare (although, given the way Congress budgets, it could theoretically have been used for anything). AHCA takes this tax away beginning in 2018.
    • Not so Essential Health Benefits. The AHCA allows states to seek a waiver of the current essential health benefits requirement to establish their own set of essential health benefits. For small group plans, this would mean a change in what they have to cover, if the state in which the insurance is issued obtains a waiver.  For large group plans and particularly self-insured plans, it is unclear what impact this will have.  While those plans are not required to cover essential health benefits, they cannot impose annual or lifetime limits on those benefits.  As a practical matter, most plans simply don’t have these limits on nearly all benefits to avoid confusing participants and complicating administration.  However, if a state obtains a waiver, its list of EHBs may be so small that some employers could consider changing their plan designs.

    The AHCA would make many other changes that are beyond the scope of this post, but these are the ones that are most likely to impact on employers or their plans.  Notably, the employer reporting requirement is not removed by this bill, so that will continue to be a compliance obligation.

    The open question is whether this bill will make it through the Senate.  It passed the House 217-213, which was one more than the bare minimum needed to achieve a majority (with certain House seats currently empty).   In the Senate, the margin is even thinner with Republicans holding a 51-49 majority and Vice President Pence holding a tie-breaking vote in the event of a 50-50 split.  Some key Republican Senators are also reportedly saying they will start with a clean slate, which means more negotiation and potential for talks within the Senate or in conference between the Senate and the House to stall.  At the present time, no Democratic support is expected in the Senate.

    Regardless, if and until this bill becomes law, we repeat, yet again, our earlier admonition: continue keeping up with your compliance obligations – and keep your eye on twitter.

    Thursday, April 13, 2017

    Challenges AheadRetirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.

    These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.  In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.

    In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death.  In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz.  According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered it to Publix indicating the new person she wanted to be her beneficiary and that person’s Social Security number.  She was advised that such a letter had to be signed and dated.

    The instructions provided by the Publix representative were contrary to a card system maintained by Publix especially designed for changes in beneficiary designations.  Ms. Ruiz alleged that the Publix representative advised her that including a beneficiary designation change card with her correspondence was not necessary.  Following the instructions of the Publix representative, Ms. Ruiz signed a letter following the instructions provided to her and included one of the Publix beneficiary designation change cards that contained the same pertinent information as the letter with the exception that the participant, Ms. Rizo, did not sign the card.  Instead, on that card, she simply referenced her accompanying correspondence.

    Faced with these facts, the Court concluded that it was clear that Ms. Rizo intended to change her beneficiary but that she did not strictly comply with the directions contained in the plan’s summary plan description for how to change a beneficiary designation.  The issue for decision, according to the Court, was whether the equitable doctrine of substantial compliance required a ruling in favor of Ms. Ruiz.  The doctrine of substantial compliance would give effect to a beneficiary designation where a participant evidenced his or her intent to make a change and made discernible attempts to effectuate the change.  The Court concluded that the doctrine of substantial compliance did not survive the Supreme Court decision in Kennedy given the Supreme Court’s emphasis on the duty of a plan administrator to act in accordance with the plan documents.

    The 11th Circuit decision should be helpful to plan administrators, although it highlights (i) the necessity of having a clearly stated process for changing beneficiary designations, (ii) for requiring that participants follow those procedures, and (iii) for being consistent in the administration of those procedures.

    On the other hand, consistently applied administrative procedures will not necessarily solve all of a plan administrator’s issues with beneficiary designations.  Apart from failed or incomplete efforts to change designations, we have encountered a number of thorny situations raising the question of who is the rightful beneficiary, including divorces, simultaneous deaths, multiple spouses, and beneficiaries as murderers of their benefactors.  With these situations in mind, plan sponsors may wish to consider some of the following practices and additions to plan language in anticipation of these situations:

    • Giving frequent written reminders to participants about their beneficiary designations
    • Resoliciting updated beneficiary designations from participants on a periodic basis
    • Adopting a rule providing for the revocation of spousal designations upon divorce
    • Adopting a rule specifying a presumption of survival in the event of the simultaneous death of a participant and beneficiary
    • Adopting a rule that voids a beneficiary designation naming a person who is convicted of the murder of the participant

    While state law may address some of these situations, ERISA preemption muddies those waters and adopting a plan rule should avoid any debate over the applicability of a state law.  Another helpful procedural provision to consider is a freeze on the distribution of a participant’s account where there is a dispute over the rightful beneficiary.

    Where a dispute among beneficiary claimants appears insoluble, filing an interpleader action in federal court may be the only definitive way to resolve the dispute without exposing the plan to the possibility of having to pay twice for the same benefit.

    Tuesday, March 21, 2017

    Pen Marking Days on a CalendarThe Department of Labor (DOL) released Field Assistance Bulletin 2017-01 on March 10, 2017, which outlines a temporary enforcement policy related to its final fiduciary rule.

    Background

    On February 3, 2017, President Trump directed the DOL to re-examine the final rule’s impact. As a result, on March 2, 2017, the DOL opened a 15-day comment period (which ended last Friday) on a proposed 60-day delay of the rule’s effective date, from April 10, 2017 to June 9, 2017.

    Simultaneously, the DOL opened a 45-day comment period on the substance of the actual rule. This second comment period affords the DOL with an opportunity to review comments before June 9, 2017 (the proposed delayed effective date). At such point, the DOL could allow the final rule to take effect, propose an additional extension in order make amendments to the rule based on the comments received or withdraw the rule.

    With the final rule’s current effective date quickly approaching and no indication on whether a delay would occur, there was growing uncertainty among members of the retirement services industry about how to proceed. For example, if the DOL doesn’t announce its decision to delay implementation of the rule until after April 10, 2017, a “gap” would exist between April 10, 2017 and the date the DOL actually issues the final rule delaying the implementation.  The other issue is that with entities ceasing their compliance efforts in anticipation of a delay it is highly unlikely such entities will be able to comply with the rule by April 10, 2017, if the delay does not occur.

    Temporary Relief

    The DOL issued Field Assistance Bulletin 2017-01 to assuage the above concerns. Pursuant to the Bulletin, the DOL will not take enforcement action against an adviser or financial institution during the “gap” period.  In addition, in the absence of a delay in the final rule’s effective date, the DOL will refrain from initiating enforcement actions provided the adviser or financial institution complies with the final rule, including sending out required disclosures to retirement investors, within “a reasonable period” after the publication of a decision not to delay the effective date.

    So breathe easy for the moment, but recognize this development relates to a delay, and not repeal, of the final rule.

    For additional insight and perspective, read this client alert from our broker-dealer practice.

    Wednesday, March 15, 2017

    DesolationIn today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure.  While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.

    The examination guidelines describe three required components for the self-certification process:

    (1)        the plan sponsor or TPA must provide a notice to participants containing certain required information;

    (2)        the participant must provide a certification statement containing certain general information and more specific information tailored to the nature of the particular financial hardship; and

    (3)        the TPA must provide the plan sponsor with a summary report or other access to data regarding all hardship distributions made during each plan year.

    The notice provided to participants by the plan sponsor or TPA must include the following:

    (i)         a warning that the hardship distribution is taxable and additional taxes could apply;

    (ii)        a statement that the amount of the distribution cannot exceed the immediate and heavy financial need;

    (iii)       a statement that the hardship distributions cannot be made from earnings; and

    (iv)       an acknowledgement by the participant that he or she will preserve source documents and make them available upon request to the plan sponsor or plan administrator at any time.

    The participant certification statement for financial hardship distributions must contain the following information:

    (i)         the participant’s name;

    (ii)        the total cost of the hardship event;

    (iii)       the amount of the distribution requested;

    (iv)       a certification provided by the participant that the information provided is true and accurate; and

    (v)        more specific information with regard to the applicable category of financial hardship, as outlined in the examination guidelines that can be found at the following website link:  https://www.irs.gov/pub/foia/ig/spder/tege-04-0217-0008.pdf.

    In cases where any participant has received more than two financial hardship distributions in a single plan year, the guidelines advise agents to request source documents supporting those distributions if a credible explanation for the multiple distributions cannot be provided. Given the instructions being given to agents in this regard, plan sponsors may wish to consider limitations on the number of financial hardship distributions that a participant may take or to apply a more stringent process for approving requests for financial hardship distributions where more than two requests are made in any plan year.

    Plan sponsors should be aware that this IRS memorandum only addresses substantiation of “safe-harbor” distributions and that if a plan permits hardship distributions for reasons other than the “safe-harbor” reasons listed in the regulations, the IRS may take the position that self-certification regarding the nature of those hardships is not sufficient.

    The good news with these guidelines is that if a self-certification process with respect to “safe-harbor” hardship distributions adheres to these guidelines, plan sponsors should have less concern over using the self-certification process and there should be fewer, if any, disputes with IRS field agents over the need for plan sponsors to maintain or provide access to source documents.

    Wednesday, March 1, 2017

    In a prior post, we covered President Trump’s order directing the Department of Labor to review the new regulation and, as it deems appropriate, to take steps to revise or rescind it.  The Employee Benefits Security Administration (“EBSA”) has taken the first step in response to that order by proposing a 60 day delay in the applicability date. The final rule had an applicability date of April 10, 2017.  Likewise, the prohibited transaction exemptions (“PTEs”) included in the final rule, such as the Best Interest Contract Exemption, had an applicability date of April 10, 2017.

    In light of the President’s prior order, EBSA has released the text of a proposed rule, to be published on March 2, 2017, delaying the applicability date of the final rule and the PTEs by 60 days.  EBSA noted that there were only 45 days until the rule and the PTEs became effective and said that it felt it needed more time to perform the analysis required by the President’s order.

    EBSA is inviting comments on the proposal to extend the applicability date of the final rule and PTEs.  Comments must be submitted quickly; the comment period will end 15 days after publication.

    Tuesday, February 21, 2017

    On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“).  The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office.  In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.

    TimeoutThe Regulatory Freeze

    The two-page Freeze Memo requires that:

    1. Agencies not send for publication in the Federal Regulation any regulations that had not yet been so sent as of January 20, 2017, pending review by a department or agency head appointed by the President.
    2. Regulations that have been sent for publication in the Federal Register but not yet published be withdrawn, pending review by a department or agency head appointed by the President.
    3. Regulations that have been published but have not reached their effective date are to be delayed for 60 days from the date of the Freeze Memo (until March 21, 2017), pending review by a department or agency head appointed by the President. Agencies are further encouraged to consider postponing the effective date beyond the minimum 60 days.

    Putting a Pin in It: Impacted Regulations

    We have previously discussed a number of proposed IRS regulations which have not yet been finalized.  These include the proposed regulations to allow the use of forfeitures to fund QNECs, regulations regarding deferred compensation plans under Code Section 457, and regulations regarding deferred compensation arrangements under Code Section 409A (covered in five separate posts, one, two, three, four and five).

    Since these regulations were only proposed as of January 20, 2017, the Freeze Memo requires that no further action be taken on them until they are reviewed by a department or agency head appointed by the President.  This review could conceivably result in a determination that one or more of the proposed regulations are inconsistent with the new administration’s objectives, which might lead Treasury to either withdraw, reissue, or simply take no further action with respect to such proposed regulations.

    A Freeze on Reliance?

    The proposed regulations cited above generally provide that taxpayers may rely on them for periods prior to any proposed applicability date.  Continued reliance should be permissible until and unless Treasury takes action to withdraw or modify the proposed regulations.

    The DOL Fiduciary Rule

    The Freeze Memo does not impact the DOL’s fiduciary rule, which was the subject of its own presidential memorandum, discussed in detail elsewhere on our blog.

    Monday, February 6, 2017

    On Friday, President Trump issued an order directing the Department of Labor to review the new regulation to determine whether it is inconsistent with the current administration’s policies and, as it deems appropriate, to take steps to revise or rescind it.

    The long awaited Fiduciary Rule expanded protection for retirement investors and included a requirement that brokers offering investment advice in the retirement space put clients’ interests first.  Financial institutions that either implemented, or were rapidly completing, their compliance efforts to comply with the Fiduciary Rule will need to assess the impact of this order on these efforts.  Notwithstanding many earlier reports that the rule would be delayed 180 days, the date on which the rule was to take effect (April 10, 2017) has not been delayed.  However, it is anticipated that a delay will be forthcoming, making the decision whether or not to proceed with further compliance efforts a difficult one.  Many of those institutions may choose to implement only certain aspects of the Fiduciary Rule, while delaying complying with other aspects of that rule, pending the results of the DOL review.

    Some have speculated that regardless of whether the Fiduciary Rule is finally made effective, compliance with the Fiduciary Rule could become the new “best practice” model; however, it is unlikely that financial institutions will voluntarily assume most of the obligations and resulting exposure of serving retirees in a fiduciary capacity.

    Friday, January 27, 2017

    PenaltyLast week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015.  You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.

    All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:

    General Penalties

    • For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
    • If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
    • A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.

    Pension and Retirement

    • A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up from $131).
    • A failure to provide participants a notice of benefit restrictions under an underfunded pension plan under 436 of the tax code will cost $1,659 per day (up from $1,632).
      • Failure of fiduciary to make a properly restricted distribution from a defined benefit plan will be $16,169 per distribution (up from $15,909).
    • A failure of a multiemployer plan to provide plan documents and other information or to provide an estimate of withdrawal liability will be $1,659 per day (up from $1,632).
    • A failure to provide notice of an automatic contribution arrangement required under Section 514(e)(3) of ERISA will also be $1,659 per day per participant (also up from $1,632).

    Health and Welfare

    • For a multiple employer welfare arrangement’s failure to file a M-1, the penalty will be $1,527 per day (up from $1,502).
    • Employers who fail to give employees their required CHIP notices will be subject to a $112 per day per employee penalty (up from $110).
    • Failing to give State Medicaid & CHIP agencies information on an employee’s health coverage will also cost $112 per day per participant/beneficiary (again, up from $110).
    • Health plan violations of the Genetic Information Nondiscrimination Act will also go up to $112 per day per participant/beneficiary from $110. Additionally, the following minimums and maximums for GINA violations also go up:
      • minimum penalty for de minimis failures not corrected prior to receiving a notice from DOL: $2,790 (formerly $2,745)
      • minimum penalty for GINA failures that are not de minimis and are not corrected prior to receiving a notice from the DOL: $16,742 (up from $16,473)
      • cap on unintentional GINA failures: $558,078 (up from $549,095)
    • Failure to provide the Affordable Care Act’s Summary of Benefits and Coverage is now $1,105 per failure (up from $1,087).

    The penalty amounts listed above are generally maximums, but there is no guarantee the DOL will negotiate reduced penalties.  If you’re already wavering on some of your new year’s resolutions, we recommend you stick with making sure your plans remain compliant!