Source: https://www.jdsupra.com/legalnews/erisa-newsletter-second-quarter-2018-63126/
Timestamp: 2018-09-20 13:28:36
Document Index: 266207510

Matched Legal Cases: ['art 39', 'art 38', 'art 39', 'art 39', 'art 39', 'art 39', 'art 39', '§ 515']

ERISA Newsletter - Second Quarter 2018 | Proskauer Rose LLP - JDSupra
On May 7, 2018, the DOL issued a Field Assistance Bulletin ("FAB") addressing the Department's enforcement policy on the fiduciary rule that was recently vacated by the Fifth Circuit. Although the DOL has elected not to continue defending the rule before the Fifth Circuit, the FAB leaves the rule's status in a holding pattern.
Rather than scrapping the rule in toto, the FAB continues a temporary "no enforcement" policy until the DOL issues new regulations or guidance. This posture has two key consequences:
DOL will not enforce the fiduciary rule's test for determining whether a service provider is a fiduciary by reason of providing investment advice for a fee. This means that fiduciary status by reason of providing investment advice for a fee will be determined based on the five-part test from DOL's 1975 regulation.
On April 26th, the IRS released Rev. Proc. 2018-27, effectively reinstating a $6,900 limit on 2018 health savings account ("HSA") contributions for family coverage. This is welcome relief for individuals who planned on contributing the maximum permitted HSA contributions for 2018 as well as employers who offer plans that facilitate these contributions.
In our March 7, 2018 blog entry, we described the IRS's retroactive downward adjustment (from $6,900 to $6,850) of the HSA contribution limit for individuals enrolled in family coverage (see Rev. Proc. 2018-18). This adjustment was based on a change in the method by which inflation adjusted limits were to be determined. At that time, the IRS did not provide any transition relief for those individuals who had already contributed up to the limit or who made elections under cafeteria plans to contribute up to the limit. Since the release of Rev. Proc. 2018-18, numerous employers, trade groups, and other stakeholders have asked the IRS to reconsider its retroactive limit adjustment and allow the $6,900 limit announced in 2017 to remain applicable.
On April 26th, the IRS relented and released Rev. Proc. 2018-27, stating that it "would be in the best interest of sound and efficient tax administration" to apply the originally announced contribution limit. Therefore, for 2018, the HSA contribution limit for those enrolled in family coverage is $6,900.
Rev. Proc. 2018-27 also contains guidance for individuals who contributed the full $6,900 and then received a distribution of excess contributions and earnings based on Rev. Proc. 2018-18. These individuals may repay the excess contributions and earnings and treat the distribution as a "mistake of fact" (as described in IRS Notice 2004-50). Mistaken distributions that are repaid are not included in gross income or subject to either the 20% tax on non-medical expense distributions or the 6% excise tax on excess contributions.
The IRS's decision to return to the originally announced HSA limit is welcome news for employers and individuals. Employers that did not reduce the contribution limit and adjust employee elections may continue to operate their HSA contribution programs without regard to Rev. Proc. 2018-18. Employers that did take corrective action and automatically reduce employee's contribution elections should consider whether to again adjust employee contributions to be consistent with their original elections.
By Damian A. Myers and Steven A. Sutro
As explained in FAQs Part 39, a plan cannot impose a NQTL with respect to mental health or substance abuse benefits "unless, under the terms of the plan…as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the NQTL to [mental health and substance abuse] in the classification are comparable to, and are applied no more stringently than the processes, strategies, evidentiary standards, or other factors used in applying the limitation to medical/surgical benefits in the same classification." A summary of the key aspects of the Agencies' guidance on NQTLs is provided below.
Experimental/Investigational Exclusions. An exclusion based on the experimental or investigational nature of a service or treatment is a NQTL. Therefore, the method by which a service or treatment is determined to be experimental or investigational cannot be applied more stringently to mental health and substance abuse benefits than it is to medical/surgical benefits. For example, suppose a plan provides that any treatment (whether mental health/substance abuse or medical/surgical) will be denied as experimental when no professionally recognized treatment guidelines define clinically appropriate standards of care and fewer than two randomized controlled trials support the treatment's use for a particular condition. Despite the plan language, the plan is administered such that it covers treatment for a medical/surgical condition with only one supporting randomized trial, but it still requires two supporting randomized trials before covering treatment for a mental health/substance abuse condition in the same MHPAEA classification. Because the plan's experimental/ investigational exclusion is applied more stringently to mental health/substance abuse benefits, a MHPAEA violation would have occurred.
Other NQTLs. The Agencies also identified and provided examples for the following NQTLs: prescription drug dosage limitations, step therapy programs, healthcare facility restrictions, and provider network administration (such as network access standard and network adequacy measurements). The message is clear – if any of these limitations are applied to mental health and substance abuse benefits, the method by which a plan determines whether to apply the NQTL and the method to determine the scope of the NQTL cannot be applied more stringently to mental health and substance abuse benefits than it is applied to medical and surgical benefits.
The new guidance contains too much information to cover in a single blog, so this is the first of three blogs covering the guidance. In this entry, we highlight the Agencies' proposed rule that would require plan administrators to distribute hard copy health care provider lists when the ERISA electronic disclosure standards cannot be met. This proposed requirement deviates from the standard practice of directing plan participants to network administrator websites for provider lists and would be sure to significantly increase administration costs.
The MHPAEA requires that group health plans provide mental health and substance abuse benefits in parity with medical and surgical benefits. Although the requirements are complex (a summary can be found here), the basic structure of the law is that both quantitative limitations (e.g., dollar and visit limits) and nonquantitative limitations (e.g., medical management techniques) applied to mental health and substance abuse benefits must be the same or better than the predominant limitations applied to substantially all medical and surgical benefits. This "predominant/substantially all" requirement applies on a classification-by-classification basis, based on six classifications of benefits: (i) inpatient, in-network; (ii) inpatient, out-of-network; (iii) outpatient, in-network; (iv) outpatient, out-of-network; (v) emergency care; and (vi) prescription drugs.
The 21st Century Cures Act enacted in 2016 mandated that the Agencies issue guidance with respect to disclosures related to NQTLs and application of the NQTL parity requirements. The first set of Agency guidance under this direction was released in June 2017 as FAQs about Mental Health and Substance Abuse Disorder Parity Implementation and the 21st Century Cures Act, Part 38. Those FAQs addressed parity requirements related to eating disorders and included a draft model form request for disclosure of treatment limitations. The Agencies' most recent proposed guidance, Proposed FAQs about FAQs about Mental Health and Substance Abuse Disorder Parity Implementation and the 21st Century Cures Act, Part 39 ("FAQs Part 39"), builds upon prior mental health parity guidance.
Prior agency guidance has made clear that plans must disclose information related to NQTLs when that information is requested by participants, and FAQs Part 39 updates the model request form for participants. Perhaps the most surprising aspect of FAQs Part 39 was the proposed guidance regarding disclosure of the healthcare provider network in a plan's summary plan description ("SPD"). The question related to availability of a psychiatrist within a network, but the implications of the Agencies' proposed response goes beyond mental health services.
As a general matter, the DOL regulations setting forth the content requirements for SPDs state that the SPD must contain a description of the "composition of the provider network." Changes to the provider network would also require a summary of material modifications describing the changes within 210 days following the year in which the changes occurred.
The DOL regulations also state that the list of in-network providers can be provided in a separate document as long as the SPD contains a general description of the provider network and a statement that the list of the network providers is automatically provided in a separate document. Although separate hard copy network provider books once existed, for years, insurance carriers and network administrators have given participants access to the provider lists through the carrier's or administrator's website. SPDs now often give a general description of the network and provide a URL address for the provider list website.
FAQs Part 39 contains guidance that is generally consistent with that described above with one major exception. Proposed Q&A 12 states that SPDs are permitted to direct participants to the network administrator's website only if the DOL's electronic disclosure safe harbor requirements are met. In general, the DOL's electronic disclosure rule provides that ERISA-required notices can be sent electronically only if the recipients have access to the internet as part of their day-to-day job functions. This means that employees in many industries, such as retail, hospitality, manufacturing, and transportation, would have to receive hard copy network provider books unless they affirmatively consent to receive electronic disclosures. Terminated employees and retirees who have group health coverage would also have to be provided hard copy provider lists unless they consent to receive electronic disclosures.
A federal district court in Indiana recently granted preliminary approval of a settlement between Anthem and a class seeking coverage of Applied Behavior Analysis ("ABA") treatment for autism disorders. The three-year old litigation involved claims that Anthem violated the federal Mental Health Parity and Addiction Equity Act ("MHPAEA") by limiting the hours of ABA therapy that would be covered for children ages seven and older. As part of the settlement, Anthem will pay $1.625 million to a common fund for the benefit of approximately 200 class members; the amount per person will vary based on individual claims for ABA therapy that were denied. Anthem also agreed to stop using guidelines that limited ABA coverage based solely on an individual's age. Anthem will further require employees who review treatment plans to participate in periodic external continuing education relating to autism and/or ABA therapy.
As we have discussed previously, MHPAEA claims related to ABA treatment have become more common, but courts have yet to issue many substantive decisions on the lawfulness of plans' ABA restrictions. Plan sponsors and fiduciaries should expect scrutiny of ABA restrictions to continue.
Since 2016, record keepers for large 401(k) plans have been defending litigation over investment advice provided by the Financial Engines investment advice algorithm. (This kind of arrangement is commonly referred to as "robo-advice.") The lawsuits claim, in essence, that fees collected by record keepers for investment advice were unreasonably high, because the fees exceeded the amount actually paid to Financial Engines. The suits claimed that the record keepers did not provide services of sufficient value to justify retaining the spread between the amount charged and the amount actually paid to Financial Engines.
In March, two federal courts dismissed claims against the record keepers, bringing the total to four similar cases that all have been dismissed. The courts ruled that the record keepers were not acting as fiduciaries in setting fees at a level that allowed them to retain an amount in excess of what was paid to Financial Engines and thus plaintiffs could not proceed with claims that the record keepers breached fiduciary duties or engaged in prohibited self-dealing.
Despite the record keepers' success in this first round of litigation, the courts have not completely foreclosed plaintiffs' claims. In three of the four cases, the courts gave the plaintiffs a chance to replead their claims. In addition, the courts noted the responsibility of plan sponsors or their designees to review fee arrangements for investment advice (as well as other services) to ensure that the total amount paid is reasonable. That said, the courts have not accepted the plaintiffs' premise that the fees in any case were unreasonable.
The cases are: Patrico v. Voya Financial, Inc., No. 16-7070, 2018 WL 1319028 (S.D.N.Y. Mar. 13, 2018) (denying leave to amend); Scott v. Aon Hewitt Financial Advisors, LLC, et al., No. 17 C 679, 2018 WL 1384300 (N.D. Ill. Mar. 19, 2018); Chendes v. Xerox HR Solutions, LLC, 2017 WL 4698970 (E.D. Mich. Oct. 19, 2017); and Fleming v. Fid. Mgmt. Tr. Co., No. 16-CV-10918-ADB, 2017 WL 4225624 (D. Mass. Sept. 22, 2017).
On Feb. 9, 2018, Congress passed, and the president signed, the Bipartisan Budget Act of 2018 (the "Budget Act"). As we previously discussed here, the Budget Act contains a number of provisions that affect qualified retirement plans. These changes include expanding the type of funds that can be distributed under Code Section 401(k) in the event of a hardship withdrawal, beginning with plan years commencing after December 31, 2018, to include not only a participant's elective deferral contributions, but also qualified nonelective contributions, qualified matching contributions, and earnings on each of those three contribution sources. While this change applies to 401(k) plans, there is uncertainty whether it will apply to 403(b) plans.
The regulations under Code Section 403(b) provide that a hardship withdrawal under Code Section 403(b) has the same meaning, and is subject to the same rules and restrictions, as a hardship distribution under the regulations governing 401(k) plans. This would indicate that if the rules and restrictions applicable to hardship withdrawals for 401(k) plans change, the rules and restrictions applicable to hardship withdrawals for 403(b) plans would change as well. However, the regulations under Code Section 403(b) also state, "In addition, a hardship distribution is limited to the aggregate dollar amount of the participant's section 403(b) elective deferrals under the contract (and may not include any income thereon)…" (Treas. Reg. Section 1.403(b)-6(d)(2)). Furthermore, Code Section 403(b)(11) provides that an annuity contract under a 403(b) plan cannot provide for distributions of any income attributable to a participant's elective deferral contributions.
Reading these provisions together, it appears that while the intent may have been to allow 403(b) plans to take advantage of these relaxed rules regarding the types of funds that can be distributed in the event of a hardship withdrawal, Code Section 403(b) and the regulations governing Section 403(b) appears to limit the ability of a 403(b) plan to do so. Sponsors of 403(b) plans should watch for guidance on this issue.
ERISA's Duty To Inform – Distinguishing Between Existing and Possible Benefits
A recent ERISA opinion gives us occasion to point out the important distinction under ERISA concerning fiduciary duties as they pertain to existing benefits and possible benefits. In this case, the plaintiff alleged that defendants misrepresented to her that her retirement benefit plan would not change or would only change to her advantage after the residency program that she participated in was terminated, and that she relied on that misrepresentation in suspending her search for a new job. On reconsideration of its prior ruling, the district court realized that it had misapplied Third Circuit precedent as it pertains to the duty to inform. It thus reversed course and ruled that while plan fiduciaries have an affirmative duty to ensure that participants inquiring about existing benefits receive relevant information, they do not have a duty to inform participants inquiring about future benefits of possible changes to the plan unless they are under serious consideration at the time of the inquiry. Because there was no evidence that plaintiff was misinformed about existing benefits at any time, or that changes to future benefits were under serious consideration at the time the inquiries were made, they were not material misrepresentations, and the court granted summary judgment dismissing the case. The case is Kovarikova v. Wellspan Good Samaritan Hospital, No. 1:15-CV-2218, 2018 WL 2095700 (M.D. Pa. May 7, 2018).
Participants in a voluntary separation program filed suit for breach of fiduciary duty under ERISA seeking additional benefits after learning that greater benefits were provided to individuals who did not participate in the program but were later part of an involuntary reduction-in-force. The Third Circuit concluded that the program was not an ERISA plan because there was no ongoing administration. More specifically, the Court determined that the program was only available for approximately two months and only required the employer to make an initial, discretionary determination of applicants' eligibility for the program, calculate certain one-time payments, and, in some cases, determine whether the applicant was eligible to work part-time for a defined period or subsequently be re-hired. As such, the Court affirmed the lower court's ruling dismissing the case. The case is Girardot v. The Chemours Company, No. 17-1894, 2018 WL 2017914 (3rd Cir. Apr. 30, 2018).
By Neal Schelberg and Randall Bunnell
While the term "co-pay" might suggest a sharing of costs between patients and their health plans, a recent study by the University of Southern California Schaeffer Center found that almost a quarter of patients are paying more than the full price for their prescription drugs under their insurance plans due to "clawbacks." A prescription drug clawback occurs when patients purchasing drugs from pharmacies make co-payments required under their insurance plans that exceed the price of the prescriptions and then the insurers and/or pharmacy benefit managers ("PBMs") clawback from the pharmacies the excess amounts paid.
There have been frequent media reports on the practice of prescription drug clawbacks and federal lawsuits have been filed against insurance companies and PBMs, such as UnitedHealth, Cigna, Humana, and Optum Rx. The theories of liability being asserted include breach of fiduciary duty under the Employee Retirement Income Security Act ("ERISA"), violations of the Racketeer Influenced and Corrupt Organizations Act, as well as under various state laws. These actions are all in their early stages, with none having been decided on the merits.
With respect to the ERISA claims, plan participants and beneficiaries have argued that the insurers and PBMs are liable as ERISA plan fiduciaries. In two recent cases, the courts have concluded that the fiduciary duty analysis turns on whether the defendants exercised any discretionary authority or control in creating and implementing the alleged clawbacks and acted in accordance with the terms of the plans. See Negron v. Cigna Health & Life Ins., No. 16-cv-1904, 2018 WL 1258837 (D. Conn. Mar. 12, 2018); In re UnitedHealth Grp. PBM Litig., No. 16-cv-3352, 2017 WL 6512222 (D. Minn. Dec. 19, 2017).
In In re UnitedHealth, the court dismissed plaintiffs' ERISA fiduciary argument because the plaintiffs failed to allege facts sufficient to demonstrate that the defendants exercised any discretion and thus UnitedHealth and its PBM, Optum Rx, were not acting as ERISA plan fiduciaries. In so ruling, the court determined that the defendants' performance of "instantaneous calculations" in accordance with the terms of the plan was insufficient to show that their conduct was "anything more than ministerial claims processing." More recently, in Negron, plaintiffs' claim survived a motion to dismiss. The court found plaintiffs alleged facts sufficient to assert a plausible claim of fiduciary status based on the argument that Cigna's conduct was in violation of plan terms and thus necessarily required the exercise of discretion.
In light of the Negron decision, and armed with a new academic study establishing the overpayment of a large portion of prescription drug claims, we may see an increase in actions involving health insurers and PBMs targeting clawbacks. As the existing cases continue to be litigated and decisions on the merits are rendered, the impact of this trend will become more apparent. In the interim, plan fiduciaries should consider: (i) reaching out to their health insurer and/or PBM to determine whether or not participants are being advised when the co-pay under the plan exceeds the cost of the prescription; and (ii) advising plan participants who fill prescription drugs to ask the pharmacy whether the cash price for that prescription is less than the co-pay required under the plan.
The Ninth Circuit held that employer contributions due to a Taft Hartley fund are not plan assets until they are actually paid to the fund, irrespective of whether the plan document defines plan assets to include unpaid employer contributions. As a result, a fund could not hold a contributing employer's owner and treasurer personally liable for breach of fiduciary duty for failure to pay the contributions. (The employer was found liable for delinquent contributions under ERISA § 515.) The Ninth Circuit's decision deepens a split between, on the one hand, the Sixth and Tenth Circuits, which have similarly rejected such claims, and, on the other hand, the Second and Eleventh Circuits, which have recognized that unpaid contributions may be plan assets where the plan document defines plan assets as including unpaid employer contributions. The case is Glazing Health and Welfare Fund v. Lamek, No. 16-16155, 2018 WL 1403579 (9th Cir. Mar. 21, 2018).