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Employee Benefits Blog

Insights on Employee Benefits and Executive Compensation

IRS Announces Major Changes to Its Determination Letter Program for Individually Designed Retirement Plans

Posted in Benefit Controversies, Labor, Retirement Plans

On July 21, 2015, the Internal Revenue Service (IRS) issued Announcement 2015-19 (the Announcement), which ends the five-year remedial amendment cycles for individually designed plans effective January 1, 2017.  For remedial amendment cycles beginning after 2016, plan sponsors will no longer be able to apply for determination letters on their individually designed defined contribution and defined benefit plans, except for initial qualification and qualification upon termination. Effective on the Announcement date, off-cycle requests for determination letters will no longer be accepted. The IRS intends to publish additional guidance periodically, and seeks comments on the upcoming changes.

Click here to read the full On the Subject.

Independent Contractor and Exempt Employee Classification Review Should Include Joint-Employer Status

Posted in Employment, Labor

Recent independent-contractor misclassification guidelines, and proposed changes to the overtime rules by the U.S. Department of Labor, underscore that employers should be reviewing their independent-contractor classifications and wage and hour exempt-employee classifications. But even if an employer has correctly classified its own workforce, it still may be held responsible for a variety of employment liabilities if it is found to be a ‘joint employer’ with another company which has misclassified its workers. This On the Subject provides practical tips for avoiding joint-employer arrangements.

Read the full article.

China Issues New Guiding Opinions for Public Hospital Reform

Posted in Employee Benefits

In order to direct the ongoing reform of Chinese public hospitals, the Chinese central government recently issued the Guiding Opinions on Pilot Comprehensive Reform of Urban Public Hospitals, which highlight various strategies to replace the current profit-driven model, reduce patients’ medical expenditures, improve the current management system, establish appropriate remuneration mechanisms to motivate medical personnel, and optimize the distribution of medical resources.

Read the full article here.


WEBCAST: The Future of Benefits for Same-Sex Spouses and Partners

Posted in Employee Benefits, Employment

Thursday, July 30, 2015
12:00 – 1:00 pm EDT

On June 26, 2015, the Supreme Court of the United States ruled in Obergefell v. Hodges that it is unconstitutional for a state to ban same-sex couples from exercising the fundamental right to marry. All states are now required to permit same-sex couples to marry and to recognize same-sex marriages validly entered into in other jurisdictions.

McDermott Will & Emery invites you to a live webcast to discuss the impact of this landmark decision on employee benefit plan sponsors and to address key considerations for employer-provided plans, including:

  • An up-to-date description of federal and state taxation of health and welfare benefits
  • A summary of steps employers must take in light of the Supreme Court’s decision
  • The future of employee benefits for unmarried same-sex and opposite-sex partners

Click here to view the event listing.


Privacy and Security Concerns for Employee Benefit Plans with Service Provider Relationships

Posted in Benefit Controversies, Employment, Fiduciary and Investment Issues, Health and Welfare Plans, Labor, Privacy and Data Security, Retirement Plans

Recent cyber-attacks on health insurers have heightened awareness that sensitive participant and beneficiary information may not be adequately secure. There will undoubtedly be other attacks on databases maintained by service providers to employee benefit plans, which raises an important question for Employee Retirement Income Security Act of 1974 (ERISA) fiduciaries: what should be done now to protect participant and beneficiary information entrusted to service providers against future attacks and unauthorized disclosure? While the extent of a fiduciary’s responsibility to protect personal identifiable information of participants and beneficiaries is unclear, the fiduciary provisions of ERISA can be interpreted to impose a general duty to protect this information when it is part of a plan’s administration. In addition, plan fiduciaries also may have obligations under other federal and state laws governing data privacy and security that are not preempted by ERISA. This article addresses the nature of the problem, identifies the types of data breaches that can occur with employee benefit plans, provides an overview of relevant law that may apply, and sets forth practical steps that can be taken by plan fiduciaries with service providers to address privacy and security concerns.

Click here to read the full article from Benefits Law Journal.

Collective Redundancy Consultation: European Court Judgment is Good News for UK Employers

Posted in Employment


UK legislation provides that, when a UK employer proposes to make redundant 20 or more employees at one establishment within a period of 90 days or less, the employer is required to collectively consult representatives of those affected, prior to implementing that proposal. Failure to do so can lead to the employer being required to pay up to 90 days’ pay to each affected employee (a Protective Award).

In 2013, when considering the lawfulness of the collective redundancy process carried out by Woolworths in the throes of its closure, the UK Employment Appeal Tribunal caused havoc by deciding that the words “at one establishment” should be deleted from the legislation.

The deletion meant that, in order to avoid liability for a Protective Award, an employer proposing make 20 or more redundancies, anywhere in their UK business, within the relevant timeframe, needed to collectively consult about those proposals, no matter how geographically disparate and wholly unconnected the proposed dismissals might be.


The Court of Appeal, thinking that this really could not be right, asked the European Court for a preliminary ruling on the issue.

The way the European system works is that an Advocate General (AG) first considers the question and then delivers his opinion. The European Court then uses the AG’s opinion to assist it in coming up with its Judgment. The European Court can disagree with the AG, but it usually follows the AG’s recommendation.

In this case, the AG decided that, in his opinion, the term “establishment” in UK legislation means the local employment unit to which the relevant workers are assigned to carry out their duties.

European Court Decision

On April 30, 2015, the European Court confirmed that the trigger for collective redundancy consultation is a situation where, within a 90 day period, an employer proposes to make 20 or more employees redundant at one establishment, as opposed to anywhere within its UK business, as had been suggested by the UK Employment Appeal Tribunal.

The court’s decision therefore narrows the instances in which employers will be required to collectively consult about proposed redundancies in the United Kingdom. The focus will now return to how many redundancies are proposed at each establishment within the UK business over the 90 day period. Whether or not a particular site or office qualifies as an establishment for collective redundancy purposes will be determined by the familiar tests used previously.

Data Breach Insurance: Does Your Policy Have You Covered?

Posted in Privacy and Data Security

Recent developments in two closely watched cases suggest that companies that experience data breaches may not be able to get insurance coverage under standard commercial general liability (CGL) policies. CGLs typically provide defense and indemnity coverage for the insured against third-party claims for personal injury, bodily injury or property damage. In the emerging area of insurance coverage for data breaches, court decisions about whether insureds can force their insurance companies to cover costs for data breaches under the broad language of CGLs have been mixed, and little appellate-level authority exists.

On May 18, 2015, the Connecticut Supreme Court unanimously affirmed a state appellate court decision that an IBM contractor was not insured under its CGL for the $6 million in losses it suffered as the result of a data breach of personal identifying information (PII) for over 500,000 IBM employees. The contractor lost computer backup tapes containing the employees’ PII in transit when the tapes fell off of a truck onto the side of the road. After the tapes fell out of the truck, an unknown party took them. There was no evidence that anyone ever accessed the data on the tapes or that the loss of the tapes caused injury to any IBM employee. Nevertheless, IBM took steps to protect its employees from potential identity theft, providing a year of credit monitoring services to the affected employees. IBM sought to recover more than $6 million dollars in costs it incurred for the identity protection services from the contractor, and negotiated a settlement with the contractor for that amount.

The contractor filed a claim under its CGL policy for the $6 million in costs it had reimbursed to IBM. The insurer refused to pay. In subsequent litigation with the contractor, the insurer made two main arguments. First, it argued that it only had the duty to defend against a “suit,” and that the negotiations between the contractor and IBM were not a “suit.” Second, the insurer argued that the loss of the tapes was not an “injury” covered by the policy.

The Connecticut Supreme Court adopted both of the insurer’s arguments, and the decision highlights two key areas for any company considering whether it needs additional insurance coverage for data breaches: what constitutes an “injury” under a CGL, and when an insurer is required to reimburse a company for costs associated with an injury. First, the court held that the loss of the computer tapes was not a “personal injury” under the CGL, because there had been no “publication” of the information stored on the tapes. In other words, because there was no evidence that anyone accessed or used the stolen PII, the court found that the data breach did not constitute a “personal injury” under the policy—even though the contractor spent millions of dollars reimbursing IBM for costs associated with the data breach.

Second, the court found that the CGL policy only required the insurer to reimburse costs stemming from a lawsuit or “other dispute resolution proceeding.” The contractor’s voluntary negotiations with IBM to reimburse it for the cost of data protection services were not a “suit” or “other dispute resolution proceeding” under the policy. Thus, the court reasoned that the insurer was not obligated to cover the contractor’s costs under the CGL policy.

Even with the recent decision from the Connecticut Supreme Court, however, some companies have been able to get compensation from their insurance providers even without appellate-level precedent. Sony recently settled with its insurers in a dispute over whether the insurers would cover data-breach losses under Sony’s CGL. Sony had sought insurance coverage when it was sued by customers after hackers stole confidential data of millions of Sony PlayStation users. Its insurance claim was based on policy language covering costs for “personal advertising injury,” which the policy defined specifically as “oral or written publication in any manner of the material that violates a person’s right to privacy.” The insurers refused to provide coverage, arguing that under the policy and case-law precedent, an insurer would only be obligated to provide coverage if the insured party caused the data to be published. Because third-party hackers, not Sony, stole the data (and arguably “published” it), the insurers claimed they had no duty to provide coverage.

A New York trial court judge ruled from the bench in favor of the insurance companies, concluding that the policy language only covered injuries stemming from publication of data by the insured, not by a third party such as a hacker. Sony appealed the decision, but prior to a decision from the appellate court, the parties settled for undisclosed terms. The settlement seems to suggest that the insurers were not convinced the appellate court would uphold the trial court’s decision.

While some companies have been successful in obtaining coverage for data-breach liability under their CGL, there are no guarantees. As these cases illustrate, insurers may not willingly provide such coverage under CGLs, requiring companies to engage in expensive legal battles with their insurers about coverage while they are simultaneously defending themselves in litigation arising directly from data breaches. As companies continue to experience major—and costly—data breaches at an increased rate, it is imperative for companies to understand exactly what their CGL insurance policy will cover and to consider obtaining a cyber-specific insurance policy to specifically address data breaches and other cyberattack risks.

Effective Employee Suspension Agreements to Facilitate Compliance Investigations

Posted in Employment

The proper handling of employees who are under investigation, is crucial to ensuring effective compliance investigations that minimize disruption to the organization. The first step often involves entering into a suspension agreement with employees whose conduct is being investigated.

Read the full article.

View From McDermott: DOL Re-Proposes Regulations to Expand ERISA ‘Fiduciary’ Definition

Posted in Retirement Plans

The U.S. Department of Labor (DOL) issued proposed regulations on April 14, 2015 that would expand the types of investment advice covered by fiduciary protections under the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (the Code). The proposed regulations would require advisers to ERISA-governed retirement plans and individual retirement accounts (IRA) to act as ‘‘fiduciaries’’ within the meaning of ERISA and the Code, subject to certain carve-outs identified by the DOL for nonfiduciary adviser services. Advisers that become fiduciaries under the proposed regulations would be subject to ERISA fiduciary duties and prohibited from engaging in certain non-exempt transactions. The proposed regulations are accompanied by two new class prohibited transaction exemptions and amendments to several existing class exemptions, which recognize the expanded scope of ERISA’s fiduciary protections under the proposed regulations while allowing advisers to continue certain types of transactions and existing fee arrangements that would otherwise be prohibited for ERISA fiduciaries. While the proposed regulations likely would have the greatest impact on the IRA marketplace, advisers to plan sponsors, and therefore plan sponsors themselves, are likely to be impacted. Comments on the proposed regulations are due by July 21, 2015.

Read the full article.

King v. Burwell Decision Upholds Subsidies in Federal Exchanges

Posted in Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Health and Welfare Plans, Labor

On June 25, 2015, the Supreme Court of the United States ruled in King v. Burwell that the Affordable Care Act (ACA) requires premium tax credits to be made available in states that use a federal exchange. The case challenged an Internal Revenue Service (IRS) regulation allowing tax credits in federal exchanges. The Supreme Court upheld the regulation as consistent with the statute. Our On the Subject provides a discussion on the issue.

Click here to read the full article.