In our fourth installment of ERISA at 45, Sarah Bassler Millar interviews Jeremy Pelphrey regarding the DOL’s focus on the fiduciary process in ESOP transactions and administration, current trends in ESOP transactions, and the positive implications of ESOPs for employee-owners.
The Second Circuit Court of Appeals gave participants in New York University’s (NYU) retirement plans a second chance at pursuing their claims of plan mismanagement under ERISA. On October 1, 2019, the Second Circuit overturned the Southern District of New York’s dismissal of the participants’ lawsuit against the independent investment advisor who advised NYU on its retirement plans, even though the complaint alleged substantially the same claims against NYU in a separate lawsuit on which NYU prevailed.
In Sacerdote v. New York University (Sacerdote I), filed in 2016, retirement plan participants brought a class action alleging that NYU breached its fiduciary duties and committed prohibited transactions under ERISA by causing its retirement plans to pay unreasonable administrative and recordkeeping fees and maintain imprudent investment options. Plaintiffs subsequently filed a related action in November 2017, Sacerdote v. Cammack Larhette Advisors, LLC (Sacerdote II), against independent investment advisor Cammack Larhette Advisors, LLC (Cammack). The NYU defendants in Sacerdote II quickly moved to dismiss the suit as duplicative of Sacerdote I, and the Southern District of New York ultimately dismissed the action in its entirety, finding that defendants were in “privity with NYU in Sacerdote I because they had a sufficiently close relationship with NYU and their interests with aligned with those of NYU.”
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.
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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.
On September 1, 2019, the IRS reopened its determination letter program for two types of individually designed retirement plans: statutory hybrid plans and merged plans. For a detailed review of this limited expansion of the determination letter program, see our client alert, “IRS Announces Limited Expansion of the Determination Letter Program for Individually Designed Plans.”
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.
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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.