Spotlight on Benefits

Rehiring Employees by End of 2020 Could Prevent Partial Plan Terminations

In our May 2020 client alert, we addressed the possibility that COVID-19 layoffs could inadvertently cause a partial termination of a company’s qualified retirement plan. Recently issued IRS guidance provides that if participating employees whose employment was terminated due to COVID-19 are rehired by the end of 2020, the IRS generally will not deem a partial plan termination to have occurred. However, rehiring employees by the end of 2020 will not guarantee that employers will avoid a partial plan termination.

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The Clock Is Ticking: DOL Issued Interim Final Rule on Lifetime Income Disclosures for Defined Contribution Plans

The Setting Every Community Up for Retirement Enhancement (SECURE) Act included several provisions related to lifetime income strategies under retirement plans, including a requirement that pension benefit statements for defined contribution plans disclose the “lifetime income stream equivalent” of each participant’s current account balance – both as a single life annuity (SLA) and as a qualified joint and survivor annuity (QJSA). On August 18, 2020, the Department of Labor (Department) issued an interim final rule implementing this requirement that includes a model disclosure and assumptions for converting benefits (the Rule), and a fact sheet.

As background, under ERISA, administrators of defined contribution plans (such as 401(k) and 403(b) plans) are required to provide pension benefit statements quarterly if the plan allows participant-directed investment, otherwise annually. Among other requirements, the benefit statements must include the participant’s current account balance.

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Federal Courts Continue to Dismiss ERISA Stock-Drop Claims Post-Jander

Ever since the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), plaintiffs’ attorneys have been trying to crack the code for pleading an ERISA duty-of-prudence claim against fiduciaries of employee stock ownership plans (ESOPs) following a drop in the company’s stock price. Those attempts have been largely unsuccessful, with the notable exception of Jander v. Retirement Plans Committee of IBM, 910 F.3d 620 (2d Cir. 2018), vacated and remanded, 140 S. Ct. 592, reinstated, 962 F.3d 85 (2d Cir. 2020). When the Supreme Court granted certiorari in Jander, many ERISA lawyers expected the Court to clarify how a plaintiff could satisfy the Dudenhoeffer standard while still preventing meritless stock-drop claims. But as it often does, the Supreme Court ducked the issue and remanded the case without addressing the merits.

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Tenth Circuit Interpretation of ERISA Notice Requirement Impacts Plan Administrator’s Right to Deferential Standard of Review

When an ERISA plan delegates authority to the plan administrator to interpret the plan documents for benefit determinations, the plan administrator typically is entitled to a deferential standard of judicial review, and courts will look for abuse of discretion rather than impose a de novo standard of review. In Lyn M. v. Premera Blue Cross, – F.3d –, 2020 WL 4249129 (10th Cir. Jul 24, 2020), the U.S. Court of Appeals for the Tenth Circuit limited the deferential standard of review, holding that a de novo review applied when the plan administrator did not adequately disclose to the plan participants the instrument delegating discretionary authority to the plan administrator.

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Top 7 Things Health and Welfare Sponsors Should Be Thinking About Now

It’s hard to believe August is already here, and with 2021 annual enrollment and year-end rapidly approaching, there are a number of issues health and welfare plan sponsors should be thinking about now.

Here’s a list of some of the most important items:

SMMs. Have you issued a summary of material modifications (SMM) for any changes you’ve made to your plan for COVID-19 testing/ treatment and for telemedicine?
Deadline extensions. Have you talked to your vendors about the extensions the agencies created between March 1, 2020, and the end of the pandemic period (as yet unknown) for COBRA, special enrollment and claims periods? Have you added information regarding the deadline extension to any claim and appeal responses issued during the pandemic period?
Plan amendments. Do you need to amend your plans for any of the following? (Note that many of these plan amendments are not required to be completed until 2021, but you may wish to address them sooner.)
1. Increasing the health flexible spending account carryover from $500 to $550
2. Allowing retroactive pre-tax deductions for special enrollments on account of birth or adoption during the pandemic period for those enrolling late under the deadline extensions
3. Allowing employees to enroll, change or revoke their existing health plan elections for 2020
4. Allowing employees to decrease or increase their existing dependent care and/or health flexible spending account elections for 2020
5. Reflecting any plan changes as a result of furloughs (such as continuing coverage that would otherwise end)
6. For a plan year or grace period ending in 2020, giving participants until 12/31/20 to incur eligible health and/or dependent care expenses
7. Allowing your health flexible spending account to cover over-the-counter drugs and menstrual care products (beginning as early as 1/1/20).
COBRA. Have you reviewed your COBRA notices for accuracy/conformance to the COBRA regulations in light of increased litigation in this area? Have you updated your COBRA notice for the new Department of Labor models published in May 2020 that address coordination of COBRA with Medicare?
Premium refunds. Have you received any premium refunds/rebates from insurers or third-party administrators due to favorable claims experience during the pandemic? If so, are you aware of and following the fiduciary guidelines regarding such refunds?
Wellness plans. Will employees be able to complete any biometric screenings required to obtain wellness credits? If not, do you need to make any changes to your wellness program?
Employer Shared Responsibility. If you use the lookback measurement method, how are you treating coverage for employees who are furloughed during their stability period? How are you counting the furlough period for purposes of the measurement-period hours calculation?

If you need assistance in thinking through these issues, please contact your Faegre Drinker attorney with questions.

Reminder for 401(k) Plan Sponsors: Long-Term, Part-Time Employee Eligibility Requirements Take Effect in 2021 under the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 changed a number of requirements for retirement plans in 2020 and beyond.

Certain changes under the SECURE Act already are in effect in 2020, including changes to the required minimum distribution rules for participants and beneficiaries, and changes to qualified automatic contribution arrangements under defined contribution plans, as discussed in more detail in our prior alert.

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Executive Order Revives HHS Proposed Rule on Prescription Drug Rebates

On July 24, 2020, President Trump signed four Executive Orders related to drug pricing that direct the Secretary of Health and Human Services (HHS) to take a number of actions aimed at lowering prescription drug prices. These HHS actions generally are not expected to apply directly to employer-sponsored group health plans. However, the Executive Order on “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen” (the Order) could have an indirect impact on such plans, or provide an indication of things to come.

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Summer To-Do List: Determination Letter Filing for Cash Balance Plans and Pension Equity Plans

The IRS deadline to file for a determination letter for an individually designed statutory hybrid plan is August 31, 2020. Statutory hybrid plans include cash balance plans, pension equity plans and certain other variable annuity plans. This deadline has not been extended under any recent IRS pandemic-related guidance.

Beginning in 2017, the IRS suspended the cyclic determination letter program for individually designed retirement plans. However, subsequent IRS guidance established a limited window for statutory hybrid plans to apply for a new determination letter.

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IRS Issues New Guidance for Mid-Year Changes to Safe Harbor 401(k) and 403(b) Plans

On June 29, 2020, the IRS issued Notice 2020-52 addressing mid-year reductions and suspensions of contributions to Safe Harbor 401(k) and 403(b) plans. In response to the COVID-19 pandemic, the Notice provides some temporary relief for plan sponsors that wish to reduce or eliminate safe harbor contributions mid-year.

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New Guidance on Health Coverage Issues Relating to COVID-19

On June 23, 2020, the Department of Labor, Department of Health and Human Services (HHS), and Department of the Treasury (the Departments) issued new frequently asked questions (FAQs) regarding coverage for COVID-19 testing under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The FFCRA and the CARES Act generally require employer health plans to provide coverage for COVID-19 testing without imposing any cost sharing (including deductibles, copayments and coinsurance), prior authorization or certain other medical management requirements. Prior FAQs were issued on April 11, 2020 (FAQs Part 42).

The June 23, 2020, FAQs provide additional guidance on health coverage issues for sponsors of group health plans during the COVID-19 pandemic, and are particularly relevant for employers considering return-to-work policies.

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