Editor's Overview

As the summer heats up, so too has the U.S. Supreme Court's docket for next term where it has already agreed to hear three ERISA cases and more may be in the works. On the docket already are ERISA cases involving employer stock fund litigation, statute of limitations, and standing. Readers can learn more about each of these cases on our blog at www.erisapracticecenter.com. The Supreme Court also has requested the views of the Solicitor—often an indication that the Court is interested in the issue—in a case deciding which party in litigation bears the burden of proving loss causation. In this Newsletter, Joe Clark explores the First's Circuit's decision that is currently being considered for review by the Supreme Court, and the implications of a decision by the Supreme Court on the issue.

Separately, Jennifer Rigterink provides us with a comprehensive update on recent wilderness therapy litigation and what it all means for plans and plan sponsors.

As always, the Newsletter highlights recent developments that have been written about on our blog, including issues pertaining to the IRS determination letter program, HSA and HDHP Limitations for 2020, 403(b) plan litigation, 403(b) plan audits, HHS proposal to narrow scope of nondiscrimination regulations under ACA, health reimbursement arrangements, anti-assignment clauses, and the SECURE Act.

ERISA Burdens of Proof Ripe for SCOTUS Review*

By: Joseph E. Clark

The U.S. Supreme Court asked the federal government to file a brief in a case about whether fiduciaries of employee benefit plans or people covered by the plans must prove that alleged fiduciary misconduct caused plan losses. Proskauer Rose's Joseph Clark looks at the existing circuit court split and how the court could rule.

In federal litigation, including under the Employee Retirement Income Security Act, a plaintiff generally bears the burden of proving each element of his or her claim.

As a practical matter, this means that in an action alleging that ERISA plan fiduciaries breached their fiduciary duties, a plaintiff ought to have the burden of establishing the existence of a fiduciary breach, loss to the plan, and loss causation.

This so-called "default rule," however, has been met with considerable resistance in several circuits when it comes to determining who has the burden of proving loss causation in ERISA fiduciary breach actions. In fact, of the nine circuits that have ruled on the issue, four have concluded that, upon plaintiff proving the existence of a fiduciary breach and a loss, the burden of proof shifts to the defendant fiduciary to disprove that the breach caused the loss.

There is renewed attention to this issue, since the U.S. Supreme Court requested the Solicitor General's views on whether it should grant certiorari in the latest case to be decided, Brotherston v. Putnam Investments, LLC, 907 F.3d 17 (1st Cir. 2018).

Below, we discuss the Brotherston decision and the impact that Supreme Court review may have on ERISA litigation.

Background

Plaintiffs, former employees of Putnam Investments and participants in Putnam's 401(k) plan, contended, among other things, that the plan fiduciaries breached their fiduciary duty of prudence by selecting and failing to prudently monitor an investment lineup for the plan that consisted almost exclusively of Putnam-affiliated, actively managed mutual funds that were too expensive and underperformed certain alleged comparators.

About midway through trial, and before defendants presented their case, the district court entered judgment on partial findings for defendants. The court concluded that while plaintiffs presented sufficient evidence to support a finding of fiduciary breach, they failed to make out a prima facie case of loss to the plan, and dismissed the case.

First Circuit Decision

On appeal, the First Circuit vacated the district court's ruling. As a preliminary matter, the circuit court determined that plaintiffs had established a loss.

In so ruling, the circuit court explained that, in evaluating whether the plan suffered losses, it should compare the performance of the plan's investments with that of a "prudently invested portfolio." The court found it appropriate for plaintiffs' expert to compare the performance of the plan's actively managed funds, which "claim to be able to pick winners and losers, [and] charge for doing so," with that of a passively-managed index fund, which does not.

Applying this methodology, the court concluded that plaintiffs presented evidence sufficient to support a finding of loss.

The court then addressed the question of who has the burden of proving loss causation, so that on remand the district court could apply the circuit's view of the proper standard.

Aligning itself with the Fourth, Fifth and Eighth Circuits and departing from the Second, Sixth, Ninth, Tenth and Eleventh Circuits, the First Circuit concluded that once a plaintiff establishes a breach and loss to the plan, the burden of disproving that the breach caused the loss shifts to the defendant.

While it acknowledged that plaintiffs typically bear the burden of proving all elements of their claim, the court explained that the default rule has exceptions, such as cases like this one, where the facts are "peculiarly within the knowledge of" the defendant. The court also observed that shifting the burden of proof was consistent with the common law of trusts and ERISA's goal of enhancing protection for employees.

Putnam's Petition for Certiorari

Putnam petitioned the Supreme Court for review on two questions. First, it requested that the Supreme Court decide whether, in ERISA fiduciary breach cases, the plaintiff bears the burden of proving loss causation, or if instead it is the defendant that bears the burden of disproving loss causation.

Second, Putnam asked the Supreme Court to determine whether "showing that particular investment options did not perform as well as a set of index funds, selected by the plaintiffs with the benefit of hindsight, suffices as a matter of law to establish 'losses to the plan.'"

The Supreme Court has signaled its interest by requesting the Solicitor General's views, but this is no guarantee that it will agree to hear the case.

Proskauer's Perspective

Given the deep circuit split on the loss causation issue, the question appears ripe for Supreme Court review. The issue is more than just a mere technicality; often times, it is outcome determinative.

If the Supreme Court upholds the burden-shifting approach, it may become considerably more challenging for fiduciaries to defend against fiduciary breach claims. A decision from the Supreme Court, regardless of its outcome, is likely to have a significant impact on the future of ERISA litigation. At a minimum, it ought to reduce forum shopping by plaintiffs looking to commence suit in those circuits that adopted a burden-shifting framework.

There does not appear to be a clear circuit split on the second issue as to what type of comparative performance constitutes evidence of loss. But if the First Circuit's ruling is adopted by other circuits, plan fiduciaries may lose the incentive to offer actively managed funds for fear that their actions will be subject to challenge whenever index funds happen to generate better returns.

What Recent Wilderness Therapy Litigation Means for Plans and Plan Sponsors*

By: Jennifer Rigterink

Health plan coverage for wilderness therapy—a combination of wilderness experiences and more traditional mental health care—has been the subject of at least 15 recent court decisions. Proskauer Rose's Jennifer Rigterink takes a look at the issue and gives key takeaways for plans and plan sponsors.

Health plan coverage for wilderness therapy is very much "in the news."

In the last several months, federal district courts across the country have issued at least 15 decisions addressing whether the denial of coverage for wilderness therapy violates the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the Parity Act).

Although it is still too early to know for sure whether courts will ultimately determine the Parity Act requires group health plans and insurers to cover wilderness therapy, the evolution of the case law is instructive for plans facing wilderness therapy claims and may frame future coverage disputes under the Parity Act.

The Parity Act and Wilderness Therapy

Although the Parity Act does not require group health plans and insurers to provide coverage for mental health and substance abuse (MHSA) disorders, if MHSA coverage is provided, the Parity Act requires that it is "in parity" with coverage for medical/surgical benefits.

Wilderness therapy uses a combination of wilderness experiences and more traditional mental health care to treat adolescents with MHSA disorders. In response to several plans and insurers denying coverage for wilderness therapy, plan participants have brought claims seeking reimbursement on the ground that the plans and insurers denied coverage in violation of the Parity Act.

They have argued that the denial of coverage for wilderness therapy was the result of a plan or insurer applying nonquantitative treatment limitations (NQTLs)—limits on the scope or duration of benefits for treatment that are not expressed numerically—more stringently to wilderness therapy than to comparable medical/surgical benefits where the plan or contract had either a "facial" exclusion (complete exclusion of wilderness therapy) or an "as-applied" exclusion (different application of facially neutral plan terms such that wilderness therapy is excluded).

Recent Court Decisions

Until recently, courts had mostly rejected Parity Act complaints that alleged only that the plan or insurer did not cover wilderness therapy (but provided coverage for medical/surgical benefits in equivalent treatment settings).

Depending on the exclusion or practice at issue, courts reached this conclusion for the following reasons.

First, some courts accepted the argument that as long as the wilderness therapy exclusion applied to both MHSA benefits and medical/surgical benefits—a so-called "categorical exclusion"—plan participants could not state a Parity Act claim based solely on a facial plan exclusion. See, e.g., A.G. v. Cmty. Ins. Co., 363 F. Supp. 3d 834 (S.D. Ohio 2019).

The idea was that as long as the wilderness therapy exclusion applied to all benefits offered under the plan or contract, no Parity Act violation could occur because the limitation applied to both MHSA benefits and medical/surgical benefits.

Second, some courts rejected complaints that failed to identify a specific medical/surgical analogue and compare it to the coverage of wilderness therapy. See, e.g., H.H. v. Aetna Ins. Co., 342 F. Supp. 3d 1311 (S.D. Fl. 2018).

Courts reasoned that if the complaint did not point to a specific medical/surgical analogue and allege that the NQTL at issue was applied more stringently to wilderness therapy than the relevant analogue, plan participants could not show any disparity between the coverage of wilderness therapy and medical/surgical benefits and could not state a Parity Act claim. See, e.g., Mike G. v. BlueCross BlueShield of Tex., 2019 BL 205122 (D. Utah June 4, 2019).

However, both rationales have been challenged in some recent decisions. Some courts have rejected the notion that as long as the exclusion for wilderness therapy is a categorical one (i.e., the wilderness therapy exclusion applies to both MHSA benefits and medical/surgical benefits), there can be no Parity Act violation. See, e.g., Michael D. v. Anthem Health Plans of Ky., 2019 BL 47620 (D. Utah Feb. 13, 2019). Instead, they have reached a tentative consensus that any categorical exclusion for wilderness therapy is itself a type of "process" that may constitute an NQTL. See, e.g., A.Z. v. Regence Blueshield, 333 F. Supp. 3d 1069 (W.D. Wash. 2018).

Courts taking this position have tended to conclude that discovery is needed to determine whether the NQTL is applied more stringently to wilderness therapy than medical/surgical benefits—and whether any disparity violates the Parity Act. See, e.g., Gallagher v. Empire Healthchoice Assurance, Inc., 339 F. Supp. 3d 248 (S.D.N.Y. 2018).

Courts have also questioned whether plan participants must identify the medical/surgical analogue to wilderness therapy at the pleading stage to state a Parity Act claim. They have concluded that it is sufficient to allege that the plan or insurer denied coverage for wilderness therapy, but covers medical/surgical benefits in other "intermediate" treatment settings—with further details to be revealed during discovery. See, e.g., Timothy D. v. Aetna Health and Life Ins. Co., 2019 BL 219802 (D. Utah June 14, 2019).

Proskauer's Perspective

Given the conflicting decisions, it is uncertain whether courts will ultimately conclude that the Parity Act requires coverage of wilderness therapy. While plan participants have succeeded in some cases in withstanding a motion to dismiss, it is important to recognize that participants have not prevailed in any case in a final judgment.

Thus, while some courts have allowed the claims to proceed past a motion to dismiss, discovery and further briefing may ultimately yield favorable results for plans and insurers on the basis of either rationale.

More broadly, continued development of the case law in the context of wilderness therapy could frame future coverage disputes under the Parity Act, so plans and plan sponsors should carefully monitor these developments.

Highlights from the Employee Benefits & Executive Compensation Blog

IRS

IRS Announces Limited Expansion of its Determination Letter Program for Individually Designed Retirement Plans – But Questions Remain

By: Damian A. Myers and Jennifer Rigterink

On May 1, 2019, the IRS released Revenue Procedure 2019-20 which provides for a limited-scope expansion of its determination letter program for individually designed plans. Beginning on September 1, 2019, the IRS will accept determination letter applications submitted for the following types of plans:

• Statutory hybrid plans (e.g., cash balance or pension equity plans). Applications will need to be filed during the 12-month period beginning on September 1, 2019 and ending on August 31, 2020.
• "Merged Plans" (i.e., plans that have had other plans merged into them in connection with business transactions). Applications for merged plans will be accepted on an ongoing basis provided that (i) the plan merger was completed by the end of the first full plan year following the business transaction, and (2) the application is submitted by the end of the first full plan year following the plan merger.

By way of background, prior to 2017, individually designed retirement plans were generally required to renew IRS determinations of qualified status every five years (called the "remedial amendment cycle program"). The IRS announced in Revenue Procedure 2016-37 that it was ending the remedial amendment cycle program effective January 31, 2017, and that it would review only new or terminating individually designed plans going forward. The IRS reserved the right to open limited review periods at its discretion to ensure that plans are properly amended for law changes during the applicable remedial amendment period, which for required amendments, generally runs from the date the IRS issues the applicable "Required Amendment List" to the end of the second full plan year following that date. Similar to the old "Cumulative Lists," the Required Amendment List is an annual list of required plan amendments issued by the IRS.

In 2018, the IRS sought comments on whether and to what extent the determination letter program should be expanded. In response to those comments, the IRS has now expanded the program to cover two areas ripe for IRS review – hybrid plans and merged plans. Key aspects of the new revenue procedure, including the deadlines and eligibility rules, are summarized below.

Individually Designed Statutory Hybrid Plans – Special One-Year Period for Review

As explained above, the IRS reserves the right to open limited review periods to ensure required amendments are timely adopted. Overall, there have been relatively few statutory and regulatory changes requiring amendments after the remedial amendment cycle program for individually designed retirement plans ended.

There have been, however, required amendments for statutory hybrid benefits plans that were not covered by prior IRS determinations. The IRS is opening a limited review period to pick up these changes. In brief, statutory hybrid plans are generally defined benefit plans that use either: (i) a cash balance formula (the balance of a hypothetical account maintained for the participant); or (ii) a pension equity formula (an accumulation percentage of the participant's final average compensation).

Although it is not entirely clear, it would appear that the one-year review period would be open to any defined benefit plan that has a hybrid benefit formula, even if the plan's hybrid formula applies only to a subset of the plan's participants. In that case, the IRS would still review the entire plan for compliance with the 2017 Required Amendments List and all Required Amendments Lists and Cumulative Lists issued prior to 2016. As explained below, the IRS will assess penalties if it finds a plan document failure that is not related to the hybrid plan regulations.

Employers and other organizations sponsoring hybrid defined benefit plans should consider submitting their plans to the IRS in the upcoming review period. The guidance includes a favorable penalty structure in the event the IRS finds a plan document failure (whether or not related to the hybrid plan regulations). Even if a plan sponsor is confident that its plan has no document failures, obtaining a new determination letter provides important protection if the IRS audits a plan (and would mitigate some of the complications described in our May 3, 2017 blog entry describing life without a determination letter program). Further, although expiration dates on determination letters are no longer applicable (as set forth in Rev. Proc. 2016-37), plan sponsors cannot rely on a determination letter with respect to provisions that have been affected by a change in law.

Merged Plans – Ongoing Determination Letter Program

Beginning on September 1, 2019, the IRS will accept determination letter applications for individually designed "merged plans," which are defined to include a single individually designed plan that results from the consolidation of two or more plans maintained by unrelated entities in connection with a corporate merger, acquisition, or other similar transaction between unrelated entities.

At first glance, the merged plan review procedure appears relatively straight-forward. However, the guidance gives rise to a number of important issues:

• Are Sponsors Required to Submit Merged Plans for Review? Although IRS determinations are technically optional, the old remedial amendment cycle program imposed a significant cost for not participating – prior determinations would expire. After the old determination letter program was terminated, the IRS issued guidance stating that expiration dates in determination letters were no longer operative. Nevertheless, that guidance stated that a plan sponsor could rely on a determination letter only with respect to plan provisions that were not amended or affected by a change in law. Plan mergers require amendments related to, among other things, eligibility, vesting, transfer of assets, and maintenance of protected benefits. By not submitting a merged plan for review under the expanded review program, a sponsor would not be able to rely on a prior determination letter for provisions added to effectuate a plan merger occurring after the prior determination letter program was issued.
• Merging Pre-Approved Plans into Individually Designed Plans. It is clear that in order to be eligible for the new merged plan review program, the end-product (i.e., the merged plan) must be individually designed. It is not clear, however, whether each merging plans needs to be individually designed. For example, many large companies routinely acquire small companies with pre-approved plans and then merge those pre-approved plans into the company's individually designed plan. Although a pre-approved plan should be covered by an IRS opinion letter, it would make sense for the individually designed merged plan to be eligible for review.
• Plan Document Failures from Acquired Plans. Even pre-approved plans can cause a plan document failure if the sponsor is unable to produced signed documents and amendments in connection with a determination letter review. Although the IRS's expanded determination letter program has a favorable penalty structure when compared to the old remedial amendment cycle program, the program's penalties for document failures in acquired plans are still higher than under the IRS's Voluntary Correction Program. Therefore, the IRS has maintained an incentive to use the Voluntary Correction Program for document failures unrelated to provisions necessary to effectuate a plan merger.
• Pre-2017 Transactions. Under the timing requirements set forth above, a number of plan mergers that occurred after the old remedial amendment cycle program ended would not be eligible for review.
• Multiple Plan Mergers. Many companies make acquisitions every year. For these companies, complying with the expanded determination program could be burdensome. To get IRS review of each plan merger (and, thus, take advantage of the favorable penalty structure), these companies would have to submit their merged plans for review every year.

Special Sanction/Penalty Structure

The IRS also outlined a special sanction structure for plan document failures identified during the expanded determination letter review program. The IRS will not impose sanctions for any document failure (i) related to a plan provision required to meet the statutory hybrid plan regulations, or (ii) related to a plan provision intended to effectuate a plan merger (provided application timing requirements are met). For plan document failures unrelated to plan provisions implementing the statutory hybrid plan regulations or to the plan provision effectuating a plan merger, the IRS will impose a reduced sanction as if the plan sponsor self-identified the error through the IRS's Voluntary Correction Program (provided that the error was made in good faith).

For all other plan document failures identified during the determination letter review process, the IRS will impose a sanction equal to 150% or 250% (depending on duration of failure) of the IRS user fee that would have applied had the error been self-identified under the Voluntary Correction Program. Under this special sanction structure, penalties (if any) for document failures are generally less severe than they would have been had they been discovered by IRS review under the old remedial amendment cycle program. The IRS maintained the incentive to correct under the Voluntary Correction Program, which is generally a cheaper option when correcting document failures.

The IRS is accepting comments on the expanded determination letter program. A plan sponsor considering whether to submit a plan for review under the expanded program should consult with counsel to ensure that the plan is eligible for the program and that all potential qualification issues are considered prior to submission.

IRS Announces HSA and HDHP Limitations for 2020

By: Damian A. Myers

On May 28, 2019, the IRS released Revenue Procedure 2019-25 setting dollar limitations for health savings accounts (HSAs) and high-deductible health plans (HDHPs) for 2020. HSAs are subject to annual aggregate contribution limits (i.e., employee and dependent contributions plus employer contributions). HSA participants age 55 or older can contribute additional catch-up contributions. Additionally, in order for an individual to contribute to an HSA, he or she must be enrolled in an HDHP meeting minimum deductible and maximum out-of-pocket thresholds. The contribution, deductible and out-of-pocket limitations for 2020 are shown in the table below (2019 limits are included for reference).

Note that the Affordable Care Act (ACA) also applies an out-of-pocket maximum on expenditures for essential health benefits. However, employers should keep in mind that the HDHP and ACA out-of-pocket maximums differ in a couple of respects. First, ACA out-of-pocket maximums are higher than the maximums for HDHPs. As explained in our May 9, 2014 blog entry, the ACA's out-of-pocket maximum was identical to the HDHP maximum initially, but the Department of Health and Human Services (which sets the ACA limits) is required to use a different methodology than the IRS (which sets the HSA/HDHP limits) to determine annual inflation increases. That methodology has resulted in a higher out-of-pocket maximum under the ACA. The ACA out-of-pocket limitations for 2020 were announced in the 2020 Notice of Benefit and Payment Parameters and are shown in the table below (2019 limits are included for reference).

Second, the ACA requires that the family out-of-pocket maximum include "embedded" self-only maximums on essential health benefits. For example, if an employee is enrolled in family coverage and one member of the family reaches the self-only out-of-pocket maximum on essential health benefits ($8,150 in 2020), 

that family member cannot incur additional cost-sharing expenses on essential health benefits, even if the family has not collectively reached the family maximum ($16,300 in 2020).

The HDHP rules do not have a similar rule, and therefore, one family member could incur expenses above the HDHP self-only out-of-pocket maximum ($6,900 in 2020). As an example, suppose that one family member incurs expenses of $10,000, $8,150 of which relate to essential health benefits, and no other family member has incurred expenses. That family member has not reached the HDHP maximum ($16,300 in 2020), which applies to all benefits, but has met the self-only embedded ACA maximum ($8,150 in 2020), which applies only to essential health benefits. Therefore, the family member cannot incur additional out-of-pocket expenses related to essential health benefits, but can incur out-of-pocket expenses on non-essential health benefits up to the HDHP family maximum (factoring in expenses incurred by other family members).

Employers should consider these limitations when planning for the 2020 benefit plan year and should review plan communications to ensure that the appropriate limits are reflected.

403(b) Plans

Third Circuit Resuscitates Claims Against University 403(b) Plan Fiduciaries

By: Myron Rumeld, Stacey Cerrone, Russell Hirschhorn and Kyle Hansen

Over the past several years, the ERISA plaintiffs' bar has targeted university-sponsored 403(b) plans, arguing that the plan fiduciaries breached their fiduciary duties and engaged in prohibited transactions in connection with offering certain investment options and the administrative fees associated with such plans. Among other things, they have argued that the plan fiduciaries offered too many investment options, and that the investment options were imprudent because they were too expensive and/or underperformed. They also have argued that the plans retained too many record-keepers and paid those record-keepers unreasonable fees. To date, these lawsuits have had mixed results. Some have been dismissed at the initial pleading stage; some have settled after motions to dismiss were denied; and one lawsuit was dismissed after a full trial.

The Third Circuit recently issued the first circuit court decision addressing these claims and, in doing so, issued a split decision that breathed new life into a case involving a 403(b) plan sponsored by the University of Pennsylvania. Sweda v. Univ. of Penn., No. 17-3244, 2019 WL 1941310 (3d Cir. May 2, 2019). In Sweda, the plaintiffs-plan participants argued that the plan fiduciaries breached their fiduciary duties by: (1) locking the plan into investment arrangements with the plan's record-keepers for up to ten years, (2) paying unreasonable administrative fees insofar as they used two plan record-keepers instead of one, (3) paying record-keeping fees through an asset-based arrangement instead of a flat per-participant fee, (4) investing in more expensive retail share class mutual funds when identical lower cost institutional share classes were available, (5) offering numerous duplicative investment options, and (6) selecting and retaining expensive, underperforming funds. Plaintiffs also alleged that the defendants violated ERISA's prohibited transaction rules by paying record-keeping fees through revenue sharing rather than a per participant fee basis and by agreeing to the lock-in agreement.

The district court dismissed all of the claims at the initial pleading stage, and, in doing so, observed that many of the allegations sought to fault the University for rational and competitive business strategies. In a split (2-1) decision, the Third Circuit reversed the district court's decision dismissing all of the fiduciary breach claims, but affirmed the dismissal of plaintiffs' prohibited transaction claims.

As a preliminary matter, the Third Circuit determined that an ERISA plan participant is not required to rule out every lawful explanation for the plan fiduciary's conduct in order to state a plausible claim for relief. According to the Court, that pleading requirement, established in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), is limited to antitrust cases because in such cases "a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality."

The Third Circuit next rejected the University's argument that the Court's earlier decision in Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011) insulated plan fiduciaries from liability for a breach of fiduciary duty where plans offer a mix and range of investment options, because such a ruling would allow a fiduciary to avoid liability by stocking a plan with hundreds of options even if the majority were overpriced or underperforming. Furthermore, it would hinder courts from evaluating fiduciaries' performance against contemporary industry practices because practices change over time and ERISA fiduciaries have a duty to act prudently according to current practices.

Next, the Court concluded that plaintiffs plausibly alleged their breach of fiduciary duty claims because there were several "well-pleaded facts" in the complaint. For instance, the Court determined that plaintiffs plausibly alleged that the plan paid $4.5 to $5.5 million in annual record-keeping fees when similar plans paid $700,000 to $750,000 for the same services. The Court also cited plaintiffs' allegation that the percentage-based fees increased as assets in the plan grew, despite there being no corresponding increase in record-keeping services. Plaintiffs also included a table comparing options in the plan with "readily available cheaper alternatives," which allegedly showed that 60% of plan options underperformed comparable benchmarks. The Court further observed that plaintiffs provided examples of prudent actions taken by similarly situated universities, but not here, including hiring an independent consultant to request record-keeping proposals, offering a single record-keeper, and negotiating for revenue sharing rebates. Construing the allegations in the light most favorable to plaintiffs, the Court determined that Plaintiffs had plausibly alleged their breach of fiduciary duty claims.

Lastly, the Court held that plaintiffs' prohibited transaction claims were properly dismissed. In so ruling, the Court determined that plaintiffs did not plausibly allege that the record-keeper was a party-in-interest who provided services to the plan at the time the first lock-in agreement was entered into. The Court also determined that the allegations of revenue sharing did not amount to a prohibited transaction because, among other things, mutual funds were not plan assets and therefore plaintiffs did not plausibly allege that revenue sharing involved a transfer of plan property or assets.

In a separate opinion, Senior Judge Roth agreed with the majority's decision affirming the dismissal of the prohibited transaction claims, and stated that he also would have affirmed the dismissal of all of the fiduciary breach claims. Judge Roth stated his belief that the majority misapplied the Third Circuit's prior ruling in Renfro, and that the fiduciary breach claims presented here were "virtually identical" to the claims that the Court dismissed in Renfro. Judge Roth also expressed the concern that, by exposing university sponsors and volunteer fiduciaries to the risk of litigation, the majority's decision would cause universities to stop offering benefit plans.

A Good 403(b) or a Bad 403(b)? A Question IRS Auditors Look to Answer

By: Paul M. Hamburger

In each case, the answer depends on whether the document and operation are in compliance with the many technical requirements for section 403(b) plans. IRS officials have recently indicated that the IRS expects to launch audit initiatives this summer targeting section 403(b) plan compliance, so now is a good time for employers with section 403(b) plans to take a close look at their documents and administrative practices.

Tax-exempt organizations and public schools often sponsor section 403(b) plans for retirement. Sometimes vendors will market the section 403(b) plans as "turn-key" products where the employer simply signs up with the vendor and the vendor takes it from there. It seems like an easy way to make a retirement savings plan available to employees with a minimum amount of employer involvement.

Yet the tax rules governing section 403(b) plans can be quite technical and are sometimes overlooked. For example, section 403(b) plans are subject to a "universal availability" requirement. See our blog on recent developments in this area. If a plan does not comply with that rule, there could be significant tax consequences for employees.

If plan sponsors self-identify errors, they can take advantage of the IRS Employee Plans Compliance Resolution System (EPCRS) to correct the mistakes—often without penalty. Many errors can be self-corrected without even having to request IRS approval. Even if IRS approval is required, the cost of voluntary correction is generally less than if the IRS discovers errors on audit.

The old saying goes "To err is human; to forgive divine." But when it comes to plan administration, administrators tend to be more human than the IRS is divine. Therefore, it is well worth the effort to conduct a compliance review, identify errors, and correct them before the IRS comes calling.

Affordable Care Act

HHS Proposes to Narrow Scope of Nondiscrimination Regulations under Affordable Care Act

By: Damian A. Myers and Malerie Bulot

The U.S. Department of Health and Human Services (HHS) recently proposed regulations that scale back nondiscrimination protections under Section 1557 of the Affordable Care Act (ACA). The new regulations, proposed on May 24, 2019, represent a marked shift in HHS's policy by loosening the nondiscrimination requirements imposed on health plans and other entities and substantially narrowing the universe of entities covered by Section 1557.

Background

Section 1557 of the ACA generally prohibits certain health programs and activities from discriminating on the basis of race, color, national origin, age, disability or sex, or protected groups under civil rights statutes. Final regulations issued in 2016 adopted a broad application of the statute's nondiscrimination requirement. As finalized, the regulations apply, in part, to all operations of "covered entities," which include entities that operate health programs or activities, any part of which receives Federal financial assistance (such as Medicare subsidies). In general, a group health plan could be a covered entity if (i) it was a fully-insured plan and the insurance carrier received Federal financial assistance, (ii) it was a self-insured plan sponsored by an entity engaged in a health-related business, or (iii) it was a self-insured plan sponsored by an entity that received Federal financial assistance.

In addition, under the 2016 final regulations, HHS expanded the definition of discrimination on the basis of sex to include discrimination based on gender identity and the termination of pregnancy. However, once the regulations were put into effect, there was significant pushback against HHS's interpretation of sex discrimination. In particular, one action challenged HHS's inclusion of gender identity and termination of pregnancy as protected groups. Franciscan All. Inc. v. Burwell, 227 F. Supp. 3d 660 (N.D. Tex. 2016). In this case, the court not only found that the plaintiffs had standing to maintain the action, but also issued a nationwide preliminary injunction, preventing the enforcement of the department's rule regarding gender identity and termination of pregnancy.

The 2016 regulations also contain several provisions aimed at informing participants of the nondiscrimination requirements and encouraging access for individuals with limited English proficiency. First, the regulations mandate that a covered entity take both initial and continuing steps to inform beneficiaries, enrollees, applicants and members of the public of the entity's compliance with Section 1557. Also contained in these notices are general statements that the entity provides auxiliary aids and language assistance services to help individuals with disabilities or limited English and does not discriminate on the basis of race, color, national origin, sex, age, or disability. Second, all notices and large significant plan communications (e.g., summary plan descriptions) must contain "taglines," or short two-sentence statements translated in the top 15 languages spoken in the relevant state(s). However, if the communication is small in size, such as a post-card or brochure, taglines in only 2 languages are required. For many plan sponsors and insurers, these notice and tagline requirements can prove quite burdensome—not only in terms of added costs to send and post such notices but also in terms of identifying which languages to use for the taglines.

Proposed Regulations

On May 24, 2019, HHS issued proposed regulations which, if finalized, would roll-back many of the requirements from the 2016 regulations. Among the proposed changes are the following:

• Re-focus on existing civil rights laws. Perhaps the most notable change is that the new proposal encourages a return to existing civil rights laws. In summarizing this change, HHS stated that the previous regulations exceeded the agency's regulatory authority by defining discrimination on the basis of sex to include discrimination based on gender identity or termination of pregnancy. The proposal's preamble explains that those definitions were inconsistent with Title VI and Title IX of the Civil Rights Act of 1964 and other federal nondiscrimination rules. By returning to existing civil rights laws, HHS addressed the concerns raised in Franciscan and further narrows the scope of Section 1557.
• Repeal and replace the covered entities definition. As proposed, the rules would apply, in part, to (i) all operations of an entity principally engaged in the business of health care that receive federal financial assistance, or (ii) an operation of an entity not principally engaged in the business of health care for which it receives federal financial assistance. The rules continue to provide that an entity principally engaged in providing health insurance would not automatically be considered an entity principally engaged in the business of providing health care. Overall, this change would narrow the scope of the regulations significantly—no longer would all operations of an non-health care entity be covered, but instead only the individual activities funded by HHS. As a result, the proposed rules would be inapplicable to most self-insured plans.
• Repeal the mandatory notice and tagline requirements. In the preamble to the proposed regulation, HHS noted that it underestimated the costs to plans to comply with these requirements. After discussions with trade associations and large insurers, HHS now estimates that the annual burden of these requirements, which was originally estimated at $7.2 million in one-time costs, is now somewhere in the range of $147 million to $1.34 billion. As such, HHS proposes repealing in their entirety the provisions requiring taglines and nondiscrimination notices.

The new proposed regulations appear to be less burdensome than the 2016 final regulations and would apply to a smaller scope of entities. Currently, the proposed regulations are in a public comment period. If finalized in their current form, many health plans will be relieved of the burdensome disclosure requirements, including those on notices and taglines. For now, however, the 2016 final regulations still govern to the extent their enforcement is not enjoined by Franciscan.

Departments Publish Final Regulations Expanding the Availability of HRAs

By: Damian A. Myers, Kaitlin Hulbert and Malerie Bulot

On June 13, 2019, the Department of Labor, together with the Department of Health and Human Services and the Department of the Treasury (collectively, the "Departments"), published final regulations designed to expand the use of health reimbursement arrangements ("HRAs"). The final regulations provide, in general, that HRAs may be used to (1) reimburse premiums for individual insurance market coverage, and (2) reimburse non-premium (other than COBRA premium) medical expenses even if the participant is not enrolled in health coverage. These new HRAs are likely to be a welcome development for employers who seek to expand health coverage opportunities for employees while controlling benefit program costs.

Background

Before the passage of the Patient Protection and Affordable Care Act ("PPACA"), many employers offered HRAs that paid or reimbursed employees for the cost of individual insurance premiums and other eligible health expenses. However, as described in our November 2014 blog entry, guidance released under PPACA made clear that HRAs were considered "group health plans" and subject to PPACA's market reforms, including first dollar coverage of preventive services and the prohibition of annual and lifetime dollar limits. The nature of HRAs (e.g., that they have an annual dollar limit) meant they could not comply with PPACA, except where the HRA was provided in conjunction with (or was "integrated") with a group health plan that satisfied PPACA requirements. As discussed in our 2015 blog entries here and here, subsequent guidance further clarified that HRAs could not integrate with individual market insurance, and therefore could not be used to reimburse employees for the cost of individual insurance coverage (whether on a pre-tax or post-tax basis).

On October 12, 2017, the President signed The Executive Order Promoting Healthcare Choice and Competition, which directed federal agencies to create or modify the treatment of certain alternatives to traditional group medical insurance under PPACA, including HRAs. Proposed regulations regarding the expansion of HRAs were released in October 2018. The final regulations issued last week create two types of HRAs—Individual Coverage HRAs and Excepted Benefit HRAs.

New HRAs

The final regulations contain significantly more detail than we can summarize in a single blog entry, so the summary that follows presents a high-level overview of the changes. Over the next week or so, we will post subsequent blog entries digging into the new HRAs and the legal and administrative implications of each.

• Individual Coverage HRAs. The most significant aspect of the final regulations is the creation of the "Individual Coverage HRA," which allows employers to create HRAs through which employee can purchase health coverage on the individual market. These HRAs are subject to numerous requirements, including uniform access among employment classifications (subject to minimum class sizes), employee notification requirements, and employee attestations. These requirements and the implications on ERISA and PPACA's employer mandate and premium tax credit will be described in detail in the forthcoming blogs.
• Excepted Benefit HRAs. The final regulations also create "Excepted Benefit HRAs," which permit employers to credit up to $1,800 per year (indexed for inflation after 2020) to HRAs from which employees can get reimbursed for certain medical expenses. Unlike Individual Coverage HRAs, Excepted Benefit HRAs must be offered in connection with a traditional group health plan, though employees need not participate in the group health plan to take advantage of the Excepted Benefit HRA. Excepted Benefit HRAs are considered "excepted benefits" that are exempt from many requirements under ERISA and the PPACA.

The final regulations are effective for plan years beginning after December 31, 2019, and, with respect to the premium tax credit, tax years beginning after December 31, 2019. Employers that might be interested in offering either of the new HRAs should consider planning now so that appropriate adjustments are made for the upcoming open enrollment period.

Digging into the New HRA Regulations Part 1 – Individual Coverage HRAs

By: Damian A. Myers, Kaitlin Hulbert and Malerie Bulot

As discussed in our June 18^th blog entry, the Departments of Labor, Health and Human Services, and Treasury (collectively, the "Departments") recently released final regulations expanding the use of health reimbursement arrangements ("HRAs"). Among the more important aspects of the final regulations was the reversal of long-standing Affordable Care Act ("ACA") policy that HRAs or premium payment plans could not be used to reimburse premiums paid for individual market coverage. Through "Individual Coverage HRAs," employers may now create HRAs to allow some or all of their employees to purchase insurance on the individual market. This blog entry summarizes the key characteristics and design considerations for Individual Coverage HRAs.

Integration with Individual Coverage

In general, HRAs cannot comply with the ACA's market reforms (particularly the preventive care coverage requirement and the prohibition on annual and lifetime dollar limits) on a stand-alone basis. In order to comply with the ACA, HRAs must integrate with ACA-compliant coverage. Prior to the new regulations, HRAs could only integrate with group health plans and, in limited situations, Medicare. The new Individual Coverage HRAs can integrate with:

• individual insurance coverage purchased on the ACA marketplace;
• individual insurance coverage purchased outside of the ACA marketplace (including on a private exchange);
• student health insurance coverage;
• individual insurance coverage obtained in states that have received a waiver (called a Section 1332 waiver) of certain ACA requirements from the Departments;
• individual catastrophic coverage;
• "grandmothered" coverage (i.e., non-grandfathered coverage that is not compliant with ACA but that the Department of Health and Human Services has announced it will not take enforcement action on); and
• coverage under Medicare Parts A, B, C, or D and Medigap.

Individual Coverage HRAs may not, however, be integrated with short-term limited duration insurance or excepted benefit coverage. A second type of HRA created by the final rule, the "Excepted Benefit HRA" can be integrated with such coverage and will be discussed in greater detail in a later part of this series.

Employees are not required to prove that the integrated individual insurance coverage complies with the ACA. Instead, the regulations include a "proxy" rule that deems all eligible individual health insurance coverage as complying with ACA restrictions on lifetime and annual dollar limits and first dollar coverage of preventive care services.

Individual Coverage HRA Design and Eligibility

The final regulations establish several requirements for Individual Coverage HRAs. These include:

• Employers can specify the maximum annual HRA allocation and define which expenses can be reimbursed through the HRA.
• To be eligible, employees cannot also be eligible for a traditional group health plan sponsored by their employers.
• Employees must be enrolled in individual health insurance coverage and be able to substantiate enrollment both annually and with every request for reimbursement. If an individual covered by the HRA fails to have individual health insurance coverage for any month, the HRA would not comply with the ACA for that month, and the participant could not seek reimbursement under the HRA for claims incurred after the individual coverage ceases. Further, if an entire family covered by the HRA no longer has individual coverage, the HRA will be forfeited. If the HRA is forfeited in this manner, the loss of coverage under the HRA is not a COBRA qualifying event that would allow the individual(s) to continue reimbursements.
• Employers must offer Individual Coverage HRAs on the same terms to all members of a permissible class (as identified in the regulations), except that the amounts offered may be increased for older workers (maximum ratio of 3:1) and for workers with more dependents within a class. Permissible classes include full-time employees, part-time employees, classes based on geographic areas, seasonal employees, employees covered by a collective bargaining agreement, salaried workers, non-salaried workers, temporary employees, alien employees, etc. Each employer can choose to which classes of employees it wishes to offer Individual Coverage HRAs.
• If an employer makes Individual Coverage HRAs available to some classes of employees and a traditional group health plan to other employee classes, a "minimum class size requirement" will apply. The minimum number of employees for each class varies depending on the employee population. For example, the minimum class size is ten employees, for an employer with fewer than 100 employees; ten percent of the total number of employees, for employers with between 100 and 200 employees; and 20 employees, for employers with more than 200 employees. If the minimum class size requirement is violated, the classes chosen by the employer will be disregarded such that all of the employees will be treated as a single class of employees with varying terms within that class; therefore, the Individual Coverage HRA will not satisfy ACA requirements.
• Employees must be given the opportunity to opt-out of Individual Coverage HRAs on an annual basis and waive future reimbursements.

Eligible Reimbursements

In general, Individual Coverage HRAs can reimburse eligible employees for individual market insurance premiums and other eligible medical expenses. The IRS's Publication 502 defines which medical expenses may be reimbursed under an HRA. Employers are not required to permit reimbursement for all medical expenses. When designing Individual Coverage HRAs, employers can limit reimbursements to insurance premiums. Alternatively, reimbursements could be limited to insurance premiums and point-of-sale out-of-pocket costs (such as copayments, deductibles, or coinsurance).

Notice of Independent Coverage HRA Availability

The final rule requires that employers offering Individual Coverage HRAs provide written notice at least 90 days before the beginning of each plan year to participants. Participants who do not receive the notice because they were not eligible when the notice was sent should receive the notice no later than the date the HRAs become effective for them.

The regulations require that the annual notice contain the following:

• an explanation of the HRA terms and conditions;
• the maximum annual allocation;
• a statement and explanation regarding the different kinds of HRAs;
• a statement that the HRA cannot integrate with short-term limited-duration insurance;
• a statement as to whether the HRA is subject to ERISA;
• a statement regarding the impact the HRA will have on premium tax credit availability;
• information as to how participants can enroll in individual coverage on the ACA marketplace and elsewhere; and
• information related to the participants' coverage substantiation obligation.

To help employers comply with the notice requirement, the Departments have issued a model notice which contains language addressing certain elements of the required notice. The notice must be tailored to the specific terms of the HRA. Employers do not have to use the model notice, but if the model notice is tailored to the HRA and provided timely, they will be considered to be in good faith compliance with the notice requirement. The model notice can be found at the end of Frequently Asked Questions published by the Departments.

Substantiation Requirement & Model Notices

As noted above, Individual Coverage HRA participants must substantiate their enrollment in individual coverage both annually and on an ongoing basis. In that regard, the Departments have issued a model attestation form for Individual Coverage HRAs. The model annual substantiation form identifies who in an employee's is covered by the individual insurance, the name of the insurance company, and when coverage began. With respect to the ongoing substantiation requirement, the Departments issued a model attestation form similar to the annual one. However, the final regulations state that the ongoing attestation could be simply part imbedded in the reimbursement request form.

Other Considerations

Individual Coverage HRAs will impact compliance with the ACA's employer shared responsibility mandate and how individual interact with the ACA marketplace (i.e., availability of premium tax credits and special enrollment). Additionally, these HRAs give rise to ERISA, COBRA, and Medicare implications. These issues will be addressed in upcoming blog entries. Stay tuned.

Employee Stock Fund Litigation

U.S. Supreme Court Agrees to Hear IBM's Challenge to Second Circuit Ruling in ERISA Stock-Drop Suit

By: The ERISA Litigation Group

In December 2018, we reported here that the Second Circuit became the first court at any level to allow an ERISA stock-drop claim to survive a motion to dismiss since the Supreme Court revamped the pleading standard for such claims several years ago. The Second Circuit reinstated a claim for breach of fiduciary duty under ERISA brought by participants in IBM's 401(k) plan who suffered losses from their investment in IBM stock. Jander v. Retirement Plans Committee of IBM, et al., 2018 WL 6441116 (2d Cir. Dec. 10, 2018). Since then, IBM petitioned the U.S. Supreme Court for review of the Second Circuit's decision on multiple grounds, including that the decision stood in direct conflict with decisions from the Fifth and Sixth Circuits. IBM's petition was supported by an amici brief written by Proskauer on behalf of the U.S. Chamber of Commerce, American Benefits Council, and ERISA Industry Committee.

On June 3, 2019, the Supreme Court granted IBM's petition for certiorari. It is, of course, impossible to predict how the Supreme Court will ultimately rule in this case, but we are hopeful that the Court's decision to grant certiorari is a signal that it disagrees with the approach the Second Circuit has taken in the case against IBM.

Benefits Claims

Third Circuit Upholds Health Plan's Anti-Assignment Clause

By: Russell Hirschhorn

The Third Circuit recently held that anti-assignment clauses in ERISA-governed healthcare plans are enforceable as long as they are unambiguous. The Court concluded that the anti-assignment clause clearly stated that participants could not assign their rights under the plan; and the plan's statement that payments made directly to a provider did not transfer to that provider any legal or equitable rights under the plan did not render the clause any less clear or imply that payment and an assignment of rights should be treated as synonymous. In so ruling, the Court rejected the provider's argument that the anti-assignment clause was invalid because it did not explicitly state that an assignment is void or that the purported assignee acquires no rights in the event of a non-conforming assignment. Accordingly, the Court concluded that the provider lacked statutory standing to assert a claim for benefits under ERISA. The case is University Spine Center v. Aetna, Inc., No. 18-2842, 2019 WL 2149590 (3d Cir. May 16, 2019).

Retirement Plans

SECURE Act: Key Changes for Plan Sponsors and Employer

By: Paul M. Hamburger, Seth Safra and Jennifer Rigterink

Last week, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancements (SECURE) Act of 2019. To become law, the bill still needs to be passed by the Senate and signed by the President. Because there appears to be bipartisan support, there is a chance that some form of the SECURE Act could be signed into law.

The SECURE Act contains several provisions that would significantly change qualified retirement plan design and operation. Below is a summary of some of the key changes that will affect plan sponsors. Many of the details would be left to interpretation by the IRS and Department of Labor.

• Expansion of part-time employee eligibility: Under existing law, a section 401(k) plan may exclude part-time employees from participation if they do not complete at least 1,000 hours of service in a year. The bill would reduce the threshold to 500 hours for any employee who completes at least 500 hours per year in three consecutive years ("long-term part-time employees"); and any employee who completes 1,000 hours in a plan year would have the same rights as under existing law. This rule would not apply to collectively-bargained plans and it would not limit the ability to exclude employees for other reasons (subject to passing the nondiscrimination "coverage" test), such as position or job title. Also, this rule does not affect the ability to impose up to a two-year waiting period for employer contributions or to limit participation to employees age 21 and older. Effective date: Plan years beginning after December 31, 2020, except that for purposes of the new eligibility criteria, 12-month periods beginning before January 1, 2021 will not be taken into account.
• Changes to section 401(k) safe harbor plans: The bill includes two significant changes to section 401(k) safe harbor plans:
  • Nonelective 401(k) safe harbor plans: Under current law, if an employer sponsors a section 401(k) safe harbor plan, eligible employees must be provided with notices describing the safe harbor provisions. The bill eliminates the notice requirement for nonelective safe harbor 401(k) plans—that is, safe harbor plans under which the employer provides a nonelective contribution of no less than 3% of the employee's compensation, rather than matching contributions. The bill would also allow a retroactive election to convert to nonelective safe harbor status; if the nonelective contribution is at least 4% of compensation, the election could be made as late as the end of the next following plan year. Effective date: Plan years beginning after December 31, 2019.
  • Increase to cap on default rate for automatic enrollment 401(k) safe harbor plans: The bill increases the cap on the default rate for contributions under a qualified automatic contribution arrangement ("QACA") from 10 percent (current law) of compensation to 15 percent for years after the default contributions have started. Effective date: Plan years beginning after December 31, 2019.
• Addition of "qualified birth or adoption distributions": The bill would allow in-service withdrawals from elective deferral contribution accounts of up to $5,000 (per spouse) within one year after birth or adoption of a qualifying child. Participants would be permitted to "repay" qualified birth or adoption distributions to certain qualified plans. Effective date: Applies to distributions made after December 31, 2019.
• Prohibition on using credit card arrangements for plan loans: Some qualified plans permit participants to access plan loans through credit cards or similar mechanisms. The bill would prohibit plan loans through the use of a credit or debit card. Effective date: Applies to loans made after the date of enactment.
• New lifetime income disclosure requirement: The bill would require that defined contribution plan participants receive annual "lifetime income disclosures." This disclosure would have to show an amount of monthly income the participant could receive if his or her plan account were paid as an annuity. This requirement would apply even if the underlying plan does not offer annuities as a distribution option, and even though the actual annuity available would depend on investment performance and premium rates available from insurers. The bill includes relief from fiduciary liability if the disclosure uses safe harbor actuarial assumptions and includes model language to be prepared by the Department of Labor. Effective date: Applies to benefit statements provided more than 12 months after the Department of Labor issues (1) interim final rules, (2) the model disclosure, and (3) prescribed assumptions.
• New portability for lifetime income investment options: Some plans offer investment options with lifetime income features. If these investment options are removed from a plan's investment lineup, participants would be permitted to take a distribution of the investment option without regard to restrictions on in-service distributions – either by a direct rollover to an IRA or retirement plan or through a direct distribution to the individual. Effective date: Plan years beginning after December 31, 2019.
• Nondiscrimination testing relief for closed defined benefit plans: The bill extends nondiscrimination testing relief to certain closed defined benefit plans. Among other items, the bill expands the availability of cross-testing (aggregating defined benefit plans with defined contribution plans and testing on the basis of equivalent annuities), including to allow cross-testing with certain matching contributions. To be eligible for this relief, the closed defined benefit plan must have either (1) been closed before April 5, 2017, or (2) been in effect for at least five years without a substantial increase in coverage or the value of benefits in the last five years. Effective date: Date of enactment, or, at the election of a plan sponsor, plan years beginning after December 31, 2013.
• Changes to minimum required distributions: The bill delays the "required beginning date" from age 70½ to age 72 for distributions from retirement plans and IRAs. For death benefits, the bill would require defined contribution accounts to be distributed within 10 years after the participant's death, except where the beneficiary is not more than 10 years younger than the participant or the beneficiary is a surviving spouse or disabled individual; a special rule would apply for minor children. The bill also repeals the current prohibition on individuals over age 70½ making non-rollover contributions to traditional IRAs, aligning with the rules for contributions to employer-sponsored retirement plans and Roth IRAs. Effective dates: Effective for distributions required to be made after December 31, 2019, with respect to individuals who attain age 70½ after such date, and distributions for employees who die after December 31, 2019. Effective for contributions made to traditional IRAs for taxable years beginning after December 31, 2019. A transition rule applies for certain collective bargaining agreements.
• New statutory safe harbor for annuity provider selection: The bill includes a new fiduciary safe harbor for the selection of a lifetime income provider. Under the safe harbor, the prudent person requirement will be deemed met if: (1) the fiduciary engages in an objective, thorough and analytical search for providers; (2) the fiduciary considers the financial capability of a provider to satisfy obligations under the contract and considers the contract cost in relation to the benefits and services to be provided thereunder; and (3) on the basis of the foregoing, concludes that, at the time of the selection, the provider is financially capable of satisfying its obligations under the contract and that the contract cost in relation to the benefits and services to be provided under the contract is reasonable. Further, a fiduciary will be deemed to have met the requirement to have considered the financial capability of the provider and to have concluded that the provider is financially capable of satisfying its obligations if the fiduciary obtains certain written representations from the provider and meets other requirements. Effective date: Effective upon enactment.
• More changes: In addition to the items summarized above, the bill contains changes intended to boost retirement savings and security, including provisions that: (1) increase the availability of open multiple employer plans; (2) increase tax credits for small employers starting retirement plans and add tax credits for small employers that include automatic enrollment features in a retirement plan; (3) increase penalties relating to the failure to file Form 5500 and other notices (annual registration, notification of change of status, and withholding notices); (4) require the Treasury to issue certain guidance regarding the termination of 403(b) custodial accounts within six months of enactment; and (5) direct the IRS and Department of Labor to develop a consolidated Form 5500 for defined contribution plans with the same trustee, named fiduciary, administrator, plan year, and investment lineup.

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