This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors

Transcription

1 This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors Kansas City Omaha Overland Park St. Louis Jefferson City

2 Agenda Understanding When Welfare Plan Assets Must be Held in Trust ERISA Preemption Claims and Appeal Procedures and Judicial Review of Denied Claims Cafeteria Plan Compliance Issues Fiduciary Duties Plan Discrimination Issues After Health Care Reform Copyright

3 Key ERISA Requirements Plan document See Compliance 101 SPD, SMM See Compliance 101 Participant disclosures See Compliance 101 Form 5500 and SAR See Compliance 101 Plan assets held in trust Fidelity bond Reasonable claim/appeal procedures Fiduciary standards Copyright

4 Funding of Welfare Plans No ERISA funding standards for welfare plans Four primary funding methods: General assets of employer Insurance Separate funds set aside for plan purposes Contributions from participants Copyright

5 Why Does Funding Matter? ERISA s trust requirement applies only to funded plans (those with plan assets ) ERISA s exclusive benefit and fiduciary requirements apply to arrangements with plan assets Bonding requirement applies when there are plan assets Funding method dictates extent of state regulation Copyright

6 What Are Plan Assets? ERISA does not define plan assets Generally, two categories of plan assets : Participant/beneficiary contributions are always plan assets Use of separate funds to pay benefits may create plan assets (e.g., trust, separate account in plan s name) Copyright

7 ERISA s Trust Requirement General Rule: Section 403(a) of ERISA requires plan assets to be held in trust Trust options: VEBA Taxable trust Copyright

8 Exceptions to Trust Requirement Exemption for assets held by insurance company DOL nonenforcement policy (Technical Release 92-01) for participant contributions Under cafeteria plan, if such contributions are sole source of plan assets and contributions held as general corporate assets Under insured plan accepting participant contributions, if: Benefits paid exclusively through insurance policies Premiums paid directly by employer from general assets Participant contributions forwarded within 3 months Certain insurance refunds returned to participants Also applies to after-tax and COBRA contributions Copyright

9 Examples of Nonenforcement Policy Insured Plan Employer Contributions Only No employee contributions; no cafeteria plan Employer sends premiums directly to insurer from corporate checking account No plan assets; no trust required Copyright

10 Examples of Nonenforcement Policy Insured Plan Employer Contributions Only COBRA contributions paid to employer, who pays all premiums to insurer out of corporate checking account COBRA premiums are plan assets; trust requirement subject to nonenforcement policy Copyright

11 Examples of Nonenforcement Policy Insured Plan Employee Contributions Through Payroll Deduction or 125 Plan After-tax or pre-tax employee contributions Employer sends one check for employee and employer contributions to insurer Employee contributions are plan assets; trust requirement subject to nonenforcement policy Copyright

12 Examples of Nonenforcement Policy Insured Plan TPA Collects and Forwards Employee Contributions Employees pay premiums through payroll deduction, collected by employer, who forwards to TPA in single corporate check TPA forwards premiums to insurer Employee contributions are plan assets; trust may be required Copyright

13 Examples of Nonenforcement Policy Insured Plan Premium Payments from VEBA Employee and employer contributions made to VEBA Premium payments to insurer made by VEBA Employee contributions and VEBA assets are plan assets ; trust present Copyright

14 Examples of Nonenforcement Policy Self-Insured Plan Benefits Paid from Checking Account in Plan s Name Employer contributions only; no employee contributions Employer pays benefits from checking account in plan s name Plan assets due to employer s transfer to checking account in plan s name; trust required Copyright

15 Caveats to Nonenforcement Policy Exclusive benefit rule still applies Fiduciary duties still apply Participants and beneficiaries may still sue to enforce Copyright

16 ERISA Preemption Primary purpose of ERISA is uniform, national system of enforcement ERISA contains a broad preemption clause, superseding application of most state laws State laws (statutes or common law) that relate to ERISA plans are preempted (i.e., do not apply) Copyright

17 The Savings Clause Many state insurance laws are saved from preemption State insurance laws governing insurance policies (e.g., to require mandated benefits) still apply Fully-insured plans therefore remain subject to indirect state regulation Copyright

18 ERISA Preemption So What? Preemption protects employers and fiduciaries Self-insured plans not subject to mandated benefits State causes of action for benefits are preempted Bad-faith refusal to pay Claims for punitive and compensatory damages Generally no jury trials Copyright

19 Claims and Appeals ERISA requires reasonable procedures Rules/time frames differ by benefit Group health Disability Other (severance, life, AD&D, etc.) Formal claim/appeal procedures must appear in SPD (or be furnished in separate document with SPD) Copyright

20 Who is Responsible? Insured Plans Insurer typically decides all claims and appeals Employer may retain responsibility for distributing claims and appeals procedures with SPD Make sure policy and certificate accurately reflect who decides claims and appeals Self-Insured Plans Plan fiduciaries decide claims and appeals Copyright

21 Compliance Affords Protection Compliance with reasonable procedures affords protection to plan sponsors Claimants must exhaust administrative procedures before suing Unreasonable procedures, or failure to follow them, allows immediate resort to courts Courts defer to decisions made under such procedures unless arbitrary and capricious 1989 Supreme Court decision in Firestone Tire & Rubber v. Bruch But plan (and SPD) must afford plan administrator or fiduciary the discretionary authority to interpret plan Copyright

22 Judicial Deference Even conflicted decision makers entitled to deference Metropolitan Life v. Glenn (S. Ct. 2008) when dual role administrators both fund plan and decide claims, conflict of interest is just one factor courts must weigh Conkright v. Frommert (S. Ct. 2010) if administrator s first decision is rejected by court, administrator still entitled to deference on second review Copyright

23 Steps to Preserve Deferential Review Wall off claims from financial departments Avoid placing CFO on claims committee Have two committees; one to hear claims, and one to review plan finances Document and follow procedures for claim/appeal processing Copyright

24 Steps to Preserve Deferential Review Produce thorough, carefully reasoned claim decisions Denial letters should articulate all grounds on which claim is being rejected Include citations to applicable plan provisions Describe appeal process (for claim denials) or right to bring suit (for appeal denials) Copyright

25 Steps to Preserve Deferential Review Do not weigh economic consequences of claim decisions Don t ask about extent of benefits that may be paid Minimize incentives for claim denials Ensure that claims examiners aren t paid more for denying claims Make sure the party to whom the plan gives discretionary authority is the party deciding claims/appeals Copyright

26 What is a Cafeteria Plan? Choice between taxable benefits (e.g., cash) and non-taxable benefits (e.g., health care coverage) Section 125 is the exclusive means by which employer can offer a choice without the choice itself resulting in taxable income to the employee (under constructive receipt doctrine) A plan offering a choice between only taxable benefits (cash or paid time off), or only nontaxable benefits (e.g., a flex plan ) is not a cafeteria plan Copyright

27 Qualified Benefits Employer-provided health coverage Health flexible spending account ( FSA ) Dependent care FSA Group-term life insurance AD&D insurance STD and LTD insurance Adoption assistance HSA contributions 401(k) contributions Copyright

28 Impermissible (But Tax-Favored) Benefits Scholarships Educational assistance benefits Dependent life insurance Long-term care insurance Fringe benefits 403(b) deferrals Copyright

29 Eligibility Current employees Former employees (so long as plan is not maintained predominantly for them) But not self-employed individuals, sole proprietors, partners, directors, or 2% shareholders of S- corporations Copyright

30 Written Plan Document Must have a written plan document Program must be operated in accordance with plan s terms Plan must be adopted and effective on or before first day of plan year Any amendments must be made through formal written instrument Copyright

31 Value to Employees Advantages for employees: No income tax No FICA or Medicare tax Generally, no state or city tax Allows choice among benefits (or cash) Disadvantages for employees: Irrevocable elections Use-it-or-lose-it rule Possibly lower Social Security benefits Copyright

32 Value to Employers Advantages for employers: No FICA or Medicare tax Cushion blow of premium increases Non-comparable employer HSA contributions Disadvantages for employers: Set-up and administration costs Uniform coverage rule (under health FSAs) Copyright

33 Election Rules General Rule: Elections must be made and irrevocable before beginning of coverage period (generally, 12 months) Several exceptions specified in IRS regulations Exceptions apply only if also set forth in plan document Copyright

34 Cafeteria Plans and Health Care Reform OTC medicines (other than insulin) may not be reimbursed from FSA, HRA, HSA, or Archer MSA unless prescribed by a physician (effective in 2011) Excise tax on non-medical distributions from HSA increased from 10% to 20% (effective in 2011) Health FSA contributions capped at $2,500 (effective in 2013) Copyright

35 Fiduciary Basics Who Are Fiduciaries? Discretionary authority or control concerning management or administration of plan Any authority or control over management or disposition of plan assets Renders investment advice for a fee Named fiduciary Copyright

36 Fiduciary Duties Exclusive Benefit Rule fiduciaries must discharge their duties solely in the interests of participants and beneficiaries, and for the exclusive purpose of: providing benefits, or defraying reasonable expenses of plan administration Copyright

37 Fiduciary Duties Prudent Expert Rule... fiduciaries must discharge their duties: With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims Copyright

38 Fiduciary Duties Comply with Plan Documents... fiduciaries must discharge their duties: In accordance with the documents and instruments governing the plan Copyright

39 Fiduciary Duties Duty to Monitor... At reasonable intervals the performance of other fiduciaries should be reviewed by the appointing fiduciary in such manner as may be reasonably expected to ensure that their performance has been in compliance with the terms of the plan and statutory standards, and satisfies the needs of the plan. Copyright

40 Minimizing Fiduciary Risk Carefully Review Plan Documents Watch What You Say to Plan Participants Identify and Educate Fiduciaries Document Plan Governance Structure Hold Regular Meetings Choose Service Providers Carefully Review Fiduciary Liability Insurance Copyright

41 Discrimination Issues As part of health care reform, fully insured plans must comply with nondiscrimination requirements of Code Section 105(h) These are the same rules to which self-funded plans are already subject Copyright

42 Discrimination Issues Plans may not discriminate in favor of highly compensated individuals in terms of eligibility to participate or benefits HCI = five highest paid officers, any 10% or more owners, and the highest paid 25% of all employees Copyright

43 Discrimination Issues Effective for plan year beginning on or after September 23, 2010 (January 1, 2011 for a calendar-year plan) Grandfathered plans exempt Unclear whether renewal or change in carriers will destroy grandfathered status Copyright

44 Discrimination Issues Consequences of noncompliance fall on the plan (in the form of a $100 daily penalty) In contrast to self-funded plans, where consequences of noncompliance fall on the highly compensated individuals (in the form of taxable benefits) Copyright