American Benefits Council
Benefits Byte

2015-108

November 11, 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.

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Council Submits Comments on ProposedĀ ACA Nondiscrimination Rules

The Council filed written comments with the U.S. Department of Health and Human Services on November 9, expressing concerns with recently proposed rules implementing section 1557 nondiscrimination provisions of the Affordable Care Act (ACA). The proposed regulation broadly applies to “all health programs and activities” that receive financial assistance through HHS (including Medicaid and Medicare) as well as insurers that market insurance policies in federally-facilitated and state-based health exchanges.

Section 1557 of the ACA prohibits discrimination on the ground of race, color, national origin, sex, age, or disability under “any health program or activity, any part of which is receiving Federal financial assistance … or under any program or activity that is administered by an Executive agency or any entity established” under Title I of the ACA. The statutory provisions of section 1557 have been in effect since 2010 when the ACA was enacted. The HHS Office of Civil Rights (OCR) released a notice of proposed rulemaking on September 8 implementing Section 1557 with respect to health programs or activities that that receive federal financial assistance (FFA) through HHS. In addition to the general prohibitions against administration, the proposed regulation includes several specific prohibits, including discrimination based on gender identity discrimination as a form of sex discrimination and discrimination against individuals with limited English proficiency.

The preamble to the proposed rule specifies OCR’s intent that if an issuer is receiving FFA generally, Section 1557 would apply to its services as a third party administrator (TPA) for self-insured employer-sponsored group health plans – even if the entity is not receiving FFA with respect to such TPA services. While noting support for the public policy goals of the nondiscrimination laws, the Council’s comment letter expressed strong concerns that OCR’s proposed interpretation would not only directly regulate the covered entity, but would have the effect of regulating self-insured employer-sponsored plans –plans which are not themselves the recipients of FFA. The comment letter requested that final regulations not extend the requirements of Section 1557 to a TPA’s administration of a self-insured plan, arguing that applying Section 1557 to such TPA services would be a broad regulatory overreach that is not supported by the statute or congressional intent. The comment letter also requested that:

  • Employer group waiver plans (EGWPs) should be excluded from the scope of Section 1557.
  • Final regulations should further clarify requirements for coverage of transgender services.
  • The effective date of the final rule be applicable no sooner than with respect to the first plan year that begins on or after 12 months following the issuance of the final rule.
  • Final regulations should clarify remedies and the enforcement scheme under Section 1557 with respect to requirements for exhaustion of administrative remedies.

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.



Fiduciary Prevails in Sixth Circuit Stock Drop Case

A three-judge panel from the U.S. Court of Appeals for the Sixth Circuit ruled in a November 10 split decision that an investment decision can be considered “prudent” if the process used to make the decision was itself prudent. The decision represents a victory for plan sponsors threatened by “stock drop” lawsuits, in which plaintiffs allege that the failure to divest of an investment that subsequently drops in value constitutes a breach of fiduciary duty.

Raymond M. Pfeil and Michael Kammer v. State Street Bank and Trust Company, centers on the plan sponsor’s offering of company stock as a voluntary 401(k) plan investment option. The case has been the subject of deliberation at the district and appellate court level for several years, with this latest ruling reflecting the U.S. Supreme Court’s 2014 decision in Fifth Third Bankcorp v. Dudenhoeffer, in which the high court eliminated the longstanding “presumption of prudence” standard.   However, the Supreme Court also indicated that the market price will generally reflect the value of a publicly traded security absent special circumstances, and the Sixth Circuit held “that a plaintiff claiming that an ESOP’s investment in a publicly traded security was imprudent must show special circumstances to survive a motion to dismiss.”

In response to an initial 2009 class-action filing, in which the plaintiffs the U.S. District Court for the Eastern District of Michigan held that the plaintiffs had sufficiently pleaded a breach of fiduciary duty, but dismissed the case on the grounds that any alleged breach did not cause plan losses; any plan losses were caused by participants’ own decisions with regard to investment in company stock. As we reported in the February 23, 2012, Benefits Byte, the Sixth Circuit subsequently overturned the decision, ruling that plan fiduciaries have a duty to offer only prudent investments and cannot escape liability for imprudent investment options on the grounds that the participants have the choice as to whether to invest in such options. The case was then remanded back to the district court. The Council filed an amicus (friend of the court) brief with the Sixth Circuit at that time, supporting the earlier findings of the district court.

After the U.S. District Court for the Eastern District of Michigan issued a new ruling in favor of the independent fiduciary on a motion to dismiss in 2014, the Sixth Circuit took up the case once again.

In light of the Supreme Court’s Dudenhoeffer decision, the three-judge panel of the Sixth Circuit rendered a 2-1 decision upholding the district court’s judgment, finding that the plan’s fiduciary “repeatedly discussed at length whether to continue the investments in GM that are at issue in this case. Given the prudent process in which State Street engaged, [the plaintiff] failed to demonstrate a genuine issue about whether State Street satisfied its statutory duty of prudence.” If the plaintiffs wish to appeal, they may request a rehearing of the case by the full circuit court.

The Council has consistently argued that ERISA stock drop lawsuits threaten the continued viability of company stock investment options in defined contribution plans. For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation 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.

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