American Benefits Council
Benefits Byte

2015-060

May 29, 2015

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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CMS Soliciting Feedback on HIPAA Health Plan Identifier Requirement

The Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services (HHS) is seeking input on Health Plan Identifier (HPID) requirement under HIPAA, after having delayed enforcement of the requirement in October 2014.

An HPID is a standard, unique health plan identifier that must be obtained by health plans that are “controlling health plans”, including self-insured health plans. (See also the dedicated CMS website with information on the application process and links to HPID frequently asked questions.)

Under September 2012 final regulations, these health plans were required to obtain an HPID by November 5, 2014, until HHS announced prior to that deadline that it would delay enforcement of the regulations until further notice. At that time, the National Committee on Vital and Health Statistics (NCVHS), an advisory body to HHS, had recommended that HHS rectify in rulemaking that all covered entities (health plans, healthcare providers and clearinghouses, and their business associates) not use the HPID in the HIPAA transactions.

The new CMS request for information was issued on May 29 “to collect perspectives from all segments of the industry on the current HPID policy in order to determine future policy directions.” Specifically, the RFI seeks information from the health care industry about:

  • The HPID enumeration structure outlined in the HPID final rule.
  • The use of the HPID in HIPAA transactions in conjunction with the Payer ID.
  • Whether changes to the nation's health care system, subsequent to the issuance of the final regulations, have altered stakeholder perspectives about the function of the HPID.

Comments are due July 28. For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.



ERISA Advisory Council Hears Testimony on Benefits Issues, Including Witness from American Benefits Council on Pension De-Risking Disclosures

On May 27, 28 and 29, the ERISA Advisory Council (EAC) heard testimony on a number of vital benefits matters, including testimony provided on the Council's behalf on the subject of pension plan de-risking disclosures.

The EAC is a group of benefits experts established by Congress and appointed by the U.S. Department of Labor (DOL) to identify emerging benefits issues and advise the Secretary of Labor on health and retirement issues. (For more information on the composition of the 2015 EAC, including Council members on the panel, see the December 17, 2014, Benefits Byte.)

The two topics the EAC has identified to examine this year are: (1) “pension fund de-risking” (activities where plan sponsors partially or fully discharge their ERISA plan liabilities) which the EAC has renamed “pension risk transfer” and (2) “lifetime plan participation” (relating to plan distributions and rollovers). The EAC has previously addressed both of these topics, examining pension fund de-risking in 2013 and lifetime plan participation in 2014, and stated that it plans to focus on notices and disclosure, providing administrative assistance to the DOL.

On May 27, Craig Rosenthal, a partner with Mercer, gave testimony on behalf of the American Benefits Council emphasizing that any future guidance on pension plan de-risking disclosure to participants should allow plan sponsors the flexibility to accommodate their unique plan provisions.

“We firmly believe that due to the wide variety of plan provisions that exist in the defined benefit universe, there is no ‘one-size-fits-all’ approach that will accommodate or contemplate every possible option. As such, it is very important for any future guidance to be flexible enough to allow plan sponsors to customize the language to accommodate different plan features,” Rosenthal said.

The Council testimony outlined the information participants typically receive when companies engage in pension de-risking activity, such as offering employees a lump sum distribution in lieu of a monthly benefit. Rosenthal also made suggestions related to a recent GAO report on lump sum windows. He noted that some of the charts recommended and shown in the GAO report, including one depicting the lump sum amount needed to replicate an annuity, would be very difficult for many participants to comprehend. He suggested that rather than trying to explain the complex calculations involved in calculating a lump sum amount, disclosures should instead focus on what participants need to know to make an informed decision.

His testimony also outlined the Council’s priorities for additional guidance regarding disclosure notices, particularly that guidance be applied prospectively only and that guidance “provide flexibility for plan sponsors to fulfill their disclosure obligations in a way that fits their circumstances and their workforce.”

During the question-and-answer portion of Rosenthal’s testimony, EAC members asked about the types of information participants need to make an informed decision regarding taking a lump sum or remaining in the plan. They also asked about the balance between providing enough information and giving participants “information overload.” Rosenthal responded that much of the complex actuarial work involving calculating a participant’s lump sum offer are likely too complicated for many participants and not very helpful toward their decision. He therefore advocated for any guidance to prefer simpler information. For example, Rosenthal referred to lump sum calculations based on multiple interest rates that could be boiled down to a single interest rate to show what the participant would need to earn to replicate the benefit (when comparing the annuity to a lump sum payment).

Rosenthal also noted that some of the more complex decision-making information that could be misconstrued as investment advice should not be provided by the plan sponsor but through a conversation with a financial advisor. He suggested that certain online modeling tools could be used to help participants work through scenarios.

A full report of the May EAC hearings will be provided in a future Benefits Byte. The EAC is expected to hold additional hearings in August. For more information on the EAC’s activities and opportunities to testify, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.



Council Urges Supreme Court Review in Case Involving ERISA Action against Claims Administrator

The American Benefits Council, along with America’s Health Insurance Plans (AHIP), filed an amicus (“friend of the court”) brief with the U.S. Supreme Court supporting review of United Healthcare v. Spindex, a federal appeals court decision holding that a third-party claims administrator could be sued for ERISA benefits.

The question the Supreme Court is being asked to review is whether a claims administrator with no obligation to pay benefits under an ERISA plan, is an appropriate defendant in a claim for benefits under the plan.  The litigation was initiated by Spinedex, a provider of chiropractic services, which brought ERISA claims challenging the sufficiency of payments made to it by a self-funded health plan.Spinedex sued the plan and UnitedHealth Group, the plan’s claims administrator.  The federal district court dismissed the claims against United on the grounds that it had no obligation to pay benefits and thus could not be named as a defendant in a claim for benefits. The U.S. Court of Appeals for the Ninth Circuit reversed and held that an administrator with discretionary authority concerning the payment of benefits was a proper defendant in a claim for ERISA benefits. 

The Council’s brief argues that the Ninth Circuit misunderstood the role played by a claims administrator for a group health plan, noting that “The panel seemed to believe that there is no difference between an ERISA plan administrator and a mere claims administrator.” The brief also explains that allowing ERISA suits against claims administrators will add cost and complexity to plan administration because “Claims administrators will face an increased risk of litigation … [and] will face uncertainty concerning their responsibility to pay for settlements and judgments in suits seeking plan assets, which in turn could result in additional litigation between plans and their claims administrators.”

For more information on health care litigation matters or the Council’s amicus brief program, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.



Ninth Circuit Amends Opinion, Denies Review in ‘Stock Drop’ Case, With Strong Dissent

In a May 26 decision, the U.S. Ninth Circuit Court of Appeals amended and replaced an earlier opinion but denied a more comprehensive re-hearing in the case of Harris et al. v. Amgen et al.

In this case, the plaintiffs (current and former employees of Amgen and AML), participated in two retirement plans that qualified as "eligible individual account plans" under ERISA. When the value of Amgen common stock fell, the plaintiffs alleged that the employers breached their fiduciary duties. The U.S. District Court for the Central District of California found that the plaintiffs' claim could not proceed because they had not alleged any misrepresentation made while defendants were performing a fiduciary function and because plaintiffs had not, in any event, alleged individual reliance on any misrepresentation.

The district court dismissed the complaint, finding that the plan fiduciaries did not violate their ERISA duties and were furthermore entitled to a presumption of prudence, as precedent had been established in other cases at the circuit court level. However, in June 2013, the U.S. Ninth Circuit Court of Appeals overturned the district court ruling, concluding that the presumption of prudence did not apply in this case, and sent the case back to the trial court for further proceedings. That decision was appealed to the U.S. Supreme Court, which vacated the ruling and sent the case back to the Ninth Circuit for further consideration in light of the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer. The case is significant because it is applying securities law to a fiduciary breach case. The May 26, 2015, amended Ninth Circuit opinion again reversed the district court’s decision and remanded the case for further proceedings.

In addition to denying an “en banc” review (in which the prior decision by a three-judge panel would be heard by the full court), the court’s majority amended the opinion to address the Amgen argument that fiduciary action would have resulted in the stock drop that the court was trying to protect the participants against.  The amended opinion indicated that if fiduciaries simply stopped allowing investment in the company stock once they were made aware of information that (under securities laws) should not have been withheld, they would have mitigated the effect of the eventual stock drop on plan participants.

The Ninth Circuit’s amendment and denial drew a strong dissent from the minority judges, who argued that the majority ignored the new pleading standards outlined by the Supreme Court in the case of Dudenhoeffer and created “almost unbounded liability for ERISA fiduciaries.”

The Council, together with the U.S. Chamber of Commerce, filed an amicus ("friend of the court") brief, which refuted the Ninth Circuit court's decision and argued that meritless ERISA "stock drop" lawsuits threaten the continued viability of company stock investment options by creating intense pressure on plan sponsors to avoid litigation and settle cases for large sums. "If fiduciaries will be sued no matter what action they take, so long as the stock price drops, and if companies continue to face million-dollar settlements (or legal bills) from these cases, then employers may stop offering company stock as an investment option and, even more concerning, may scale back their plan benefits," the brief said. "The [Ninth Circuit] panel's decision here exacerbates these trends ... by blurring ERISA's fiduciary lines and removing important protections granted to defendants against meritless securities claims masquerading as ERISA claims." (See the July 2, 2013, Benefits Byte.)

For more information on this issue or the Council's amicus brief program, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.



EBSA Report Finds Flaws In Employee Benefit Plan Audits

A new report released May 28 by the U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) found that 39 percent of employee benefit plan audits “contained major deficiencies,” prompting the agency to announce that it would soon propose legislation to change the way audits are conducted.

Originating with a DOL ERISA Advisory Council recommendation from 2011, EBSA has been engaged in a project to assess the quality of plan audits, particularly “limited scope audits,” which allow plan administrators to instruct the auditor not to perform any auditing procedures with respect to certain investment information that has been otherwise prepared and certified by an outside institution.

The newly released study, conducted by EBSA’s Office of the Chief Accountant (OCA) examined the quality of audit work performed by independent qualified public accountants with respect to financial statement audits of employee benefit plans covered under the ERISA 2011 filing year (plan years beginning in 2011). It found that 61 percent of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards, but the remaining 39 percent of audits “put $653 billion and 22.5 million plan participants and beneficiaries at risk.”

The EBSA report also concludes:

  • There is a clear link between the number of employee benefit plan audits performed by a Certified Public Accountant (CPA) and the quality of the audit work performed (more audits generally means higher quality).
  • The accounting profession’s peer review and practice monitoring efforts have not resulted in improved audit quality or improved identification of deficient audit engagements.
  • CPA firms that were members of the American Institute of Certified Public Accountants’ Employee Benefit Plan Audit Quality Center tended to produce audits that have fewer audit deficiencies.
  • Training specifically targeted at audits of employee benefit plans may contribute to better audit work. As the level of employee benefit plan-specific training increased, the percentage of deficient audits decreased.
  • Of the plan audit reports reviewed, 17 percent of the audit reports failed to comply with one or more of ERISA’s reporting and disclosure requirements.

“The existing patchwork of regulations and rules needs to be overhauled and a meaningful enforcement mechanism needs to be created,” Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi said in a news release. “The department is proposing, among other measures, legislation that will fix these problems.”

These proposed legislative fixes include repealing the ERISA limited-scope audit exemption, and giving the Secretary of Labor the authority to define when a limited scope audit would be an acceptable substitute for a full audit.

The report also proposes (1) amending ERISA’s definition of “qualified public accountant” to include additional requirements and qualifications necessary to ensure the quality of plan audits, and (2) giving the Secretary of Labor authority to “establish accounting principles and audit standards to protect the integrity of employee benefit plans and the benefit security of participants and beneficiaries.”

These legislative proposals go well beyond the recommendations provided by the EAC in 2011.  The Council will review the proposed legislation as soon as it is available. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.



The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).