April 25, 2014
- New Council Benefits Blueprint Examines Legal 'Presumption of Prudence' for Employer Stock Fund Fiduciaries
- Council Comments on Proposed Rules Regarding PPACA 90-Day Waiting Period Limitation
- Council Comments on Interim Final Regulations Providing for Access to Death Master File
New Council Benefits Blueprint Examines Legal 'Presumption of Prudence' for Employer Stock Fund Fiduciaries
Now available for Council members is a Benefits Blueprint summary, prepared for the Council by O’Melveny & Myers, LLP, that discusses the history and possible future of the so-called “Moench” or “Kuper” presumptions – legal presumptions of prudence on the part of benefit plan fiduciaries. The Blueprint also offers a “checklist” of actions that fiduciaries should consider in response to recent developments in the U.S. Supreme Court.
The high court recently took up the matter when it heard oral arguments on April 2 in the case of Fifth Third Bancorp v. Dudenhoeffer. As we have previously reported, this case centers on allegations that the defined contribution plan sponsor violated its fiduciary duty under ERISA by providing an investment option composed primarily of company stock when it was "imprudent" to do so. When the employer's stock price declined, retirement plan investment returns were negatively affected (commonly known as a "stock drop" case). Dudenhoeffer is the first employer stock case brought under ERISA to be heard by the Supreme Court, though the matter has arisen in many other cases at the district and appeals court levels.
The Council and four other trade groups filed an amicus ("friend of the court") brief with the Supreme Court on February 3, urging the justices to uphold the "Moench” presumption of prudence, noting that Congressional policy strongly favors the offering of employee stock funds, the unique nature of employer stock funds warrant a presumption that fiduciaries act prudently by offering them, and if such presumption is not provided, sponsors will be discouraged from offering employer stock. The U.S. Department of Labor filed a brief with the Supreme Court in 2013 at the earlier petition stage, recommending that the court consider whether a presumption of prudence should ever apply in employer stock cases.
The Council has consistently defended plan sponsors against claims of fiduciary duty breach in "stock drop" cases, supporting the application of the presumption of prudence. For more information on this issue or the Council's amicus brief program, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice present, retirement and international benefits policy. Both can be reached at (202) 289-6700.
Council Comments on Proposed Rules Regarding PPACA 90-Day Waiting Period Limitation
In an April 28 letter to the Employee Benefits Security Administration of the U.S. Department of Labor, the Council commented on proposed rules issued with respect to the 90-day waiting period limitation of Section 2708 of the Public Health Service Act (PHSA), as added by the Patient Protection and Affordable Care Act (PPACA).
PHSA Section 2708 provides that, in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period for coverage that exceeds 90 days. As we reported in the February 20 Benefits Byte, the U.S. departments of Treasury, Labor and Health and Human Services released final regulations on February 20, implementing the 90-day waiting period limitation.
In the run-up to the issuance of these final regulations, the Council had asked for flexibility to begin coverage effective the first day of the first month following a 90-day waiting period, or to impose a waiting period of three calendar months instead of 90 days, since the great majority of employers carry out enrollment activities as of the first day of a month, rather than in terms of the lapse of a certain number of days.
Although the final regulations concurrently issued with the proposed regulations do not permit a waiting period limitation of three full calendar months, both sets of rules expressly provide that “satisfaction of a reasonable and bona fide employment-based orientation period of up to one month may be used as a condition of eligibility under the plan."
The Council’s April 28 letter expresses support for this proposal, while encouraging the departments to retain both the one-month limitation and the flexibility in design of the orientation period in final rulemaking. The Council also supports the ability of employers to rely on the proposed rules at least through the end of 2014. For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
Council Comments on Interim Final Regulations Providing for Access to Death Master File
In April 23 written comments to the National Technical Information Service (NTIS), a division of the U.S. Department of Commerce, the Council suggested refinements and clarifications to the recent Interim Final Rule (IFR) that would support legitimate use of the Death Master File (DMF) by employee benefit plans.
The DMF is a list of deceased individuals maintained by the Social Security Administration and distributed through the Commerce Department. These records, updated weekly, contain the full name, Social Security number, date of birth, and date of death for listed decedents. Defined benefit and defined contribution plans commonly use these files for administrative purposes, such as determining when benefits to a deceased participant should be terminated or when a payment should be made to a surviving beneficiary.
However, under the Bipartisan Budget Act enacted in December 2013 (and effective March 26, 2014), the Secretary of Commerce must restrict access to the information in each individual’s DMF for a three-year period beginning on the date of the individual’s death, except to persons who are certified under a program to be established by the Secretary of Commerce. Only parties that have “a fraud prevention interest or other legitimate need for the information and agree to maintain the information under safeguards similar to those required of federal agencies that receive return information” may apply for certification.
On March 18, the Council, leading a group of 15 employer and retirement industry organizations, filed a letter urging NTIS to provide retirement plans (and their service providers) with uninterrupted access to the DMF. The Council and other organizations filed a similar group letter on January 28.
The IFR, issued March 25, formally established a temporary certification program for access to the DMF. The Council’s April 23 letter recommends:
- In connection with administering retirement plans, the certified entity should be permitted to disclose the fact that a participant has died without regard to whether the recipient of that information meets the certification requirements. Correspondingly, there should be no restriction on the use of such public information for other legitimate purposes, such as research, beyond the disclosure for plan administration.
- The same points apply equally to the disclosure of the date of death: it is public information that cannot lead to abuse and that is critical to retirement plan administration. There is no reason to restrict disclosure or legitimate use of the date of death.
- The certified entity should be able to confirm whether a Social Security number provided by a plan, non-DMF service provider, or other person contacted by the certified entity (such as a family member) is the Social Security number of the deceased without regard to whether the plan, non-DMF service provider, or other person can meet the certification requirements. Unless this is permitted, plans will not be able to know if their participant has died, without which basic plan administration would become significantly compromise.
- In designing the audit program, NTIS should formally recognize the extent to which certified entities are already regulated and audited in determining whether further audits are needed, and in determining the extent and timing of such audits.
The Council notes that the IFR does not prohibit any of the above actions and suggests that if any of these clarifications cannot be made, any more restrictive rule should only apply prospectively.
The certification form and instructions are currently available on the NTIS website and NTIS has begun accepting completed certification forms and filing fees ($200). For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.