Severance arrangements generally provide for cash payments to an employee whose employment is involuntarily terminated and may include certain benefits, such as subsidized medical coverage and outplacement assistance.
Severance arrangements take a variety of forms. Formal severance plans often are used as a retention tool for employees across the board with no individual negotiations. In our experience, companies with formal severance plans typically treat them as ERISA plans.
In several recent ERISA plan lawsuits, plaintiffs have alleged that the plan fiduciary breached its fiduciary duties under ERISA with respect to participant data (e.g., participants’ ages, choice of investments, asset size, etc.), arguing that such participant data is a “plan asset” that the plan fiduciary failed to safeguard. Although ERISA does not specifically address whether participant data is a plan asset, the settlements reached in those lawsuits reveal an emerging trend that plan sponsors need to consider.
In Pizzella v. Vinoskey, the U.S. District Court for the Western District of Virginia held that an independent fiduciary hired to represent the interests of participants in an employee stock ownership plan (the ESOP) engaged in a prohibited transaction and breached its fiduciary duties of prudence and loyalty in a $21 million transaction involving the ESOP’s purchase of stock from one of the company’s founders. The ESOP was awarded a $6.5 million judgment based on the amount that the Court determined the ESOP had overpaid for the stock. The Court held that the founder and independent fiduciary were jointly and severally liable for this judgment.
In our third installment of ERISA at 45, Summer Conley speaks with Sarah Bassler Millar about the evolving landscape of health and welfare plan compliance, the impact these changes have on employers, and what will require their careful attention in the coming years.
The withdrawal liability case of the year came to an anticlimactic end on Monday, September 16, 2019, as the Second Circuit docket sheet of New York Times Company v. Newspaper and Mail Deliverers’ Publishers’ Pension Fund pinged to life with a stipulation withdrawing the case with prejudice.
The most-watched issue in the case was a challenge to the Segal Blend discount rate assumption used by many multiemployer pension plans to calculate employer withdrawal liability. The discount rate assumption can have a massive effect on an employer’s withdrawal liability as even a small variation can dramatically increase a withdrawal calculation.
In our next installment of ERISA at 45, Kim Jones and Sarah Bassler Millar discuss how the landscape of health and welfare plan litigation has changed over the past 45 years, and identify new trends in litigation involving excessive fees, mental health parity, cross-plan offsetting, and pharmacy benefit managers.
In Notice 2019-45 (the Notice) the IRS expands the definition of preventive care available under a high deductible health plan (HDHP) to include additional medical services and items for an individual with certain chronic conditions. This Notice was issued in response to President Trump’s June 2019 Executive Order on “Improving Price and Quality Transparency in American Healthcare to Put Patients First.” This Order directed regulatory agencies to issue guidance on a number of initiatives as a means to promote health care price transparency and enhance consumer-driven health care, such as health savings accounts (HSAs). The Notice responds to the Order’s directive that the IRS provide guidance expanding the definition of preventive care for participants with chronic conditions.
Individuals may contribute to a HSA if they are covered by a HDHP and have no disqualifying health coverage. To qualify as a HDHP, a health plan generally may not provide benefits, except for preventive care services, for any year until the participant satisfies the minimum deductible for that year. The Notice specifically expands the definition of preventive care that may be covered by a HDHP to include certain medical care services and items for chronic conditions. Based on the guidance, plan sponsors may amend their HDHPs to cover additional medical services and items for an individual with certain chronic conditions before the individual meets the HDHP deductible. Note that this expanded definition only applies for purposes of HDHPs and does not affect the definition of preventive care as used under the Affordable Care Act (ACA) rule prohibiting cost-sharing for network preventive care.
On August 26, 2019, the Internal Revenue Service (IRS), Department of Labor (DOL), and Department of Health and Human Services (HHS), collectively the “Agencies,” issued a joint FAQ announcing their intent to delay enforcement of a recent HHS final rule that would require group health plans and issuers of health insurance coverage to count certain drug manufacturer coupons toward the maximum annual out-of-pocket cost-sharing limit under the Affordable Care Act (the maximum out-of-pocket or MOOP limit). For plan years beginning in 2020, the MOOP limit on cost sharing is $8,150 for self-only coverage and $16,300 for other than self-only coverage. Drug manufacturers’ “coupons” are a form of cost-sharing assistance that offsets the amount of a participant’s copayment or coinsurance for a brand name drug.
The MOOP limit under ERISA and the Internal Revenue Code incorporates the HHS rule, thereby applying it to all non-grandfathered group health plans, self-funded or insured. The HHS rule states that plans and issuers are permitted to exclude the value of such coupons for specific prescription brand drugs from counting toward MOOP limits when a medically appropriate generic equivalent is available. However, based on language in the preamble to the HHS rule, health plans would have to count coupons toward MOOP limits when a medically appropriate generic drug is not available.
The Ninth Circuit’s recent decision forcing a 401(k) plan mismanagement lawsuit into arbitration is a significant ruling for plan sponsors. But it also leaves lingering questions about the enforceability of arbitration clauses written into plan documents. See Dorman v. Charles Schwab Corp., No. 18-15281, 2019 WL 3939644 (9th. Cir. Aug. 20, 2019).
Dorman is a putative class action involving allegations that the Schwab defendants breached their fiduciary duties by including Schwab-affiliated investment alternatives in its 401(k) plan, despite the funds’ alleged poor investment returns. Dorman, a former plan participant, sought monetary and other equitable relief on behalf of the plan under ERISA §§ 502(a)(2) and (a)(3). Schwab’s plan document included a mandatory arbitration provision for claims related to the plan and a waiver of class action lawsuits. Schwab filed a motion to compel arbitration, which was denied by the Northern District of California.
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