The U.S. Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) have issued a set of Frequently Asked Questions (FAQs) clarifying the limitations on cost sharing under the Affordable Care Act.
In many transactions, particularly those where the buyer is a portfolio company of a private equity fund, the buyer agrees to cause its 401(k) plan to accept a transfer of assets from the seller’s 401(k) plan. The asset transfer from the seller’s plan provides the buyer’s with an asset base with which to negotiate the best possible administrative fee structure, and seamlessly transfers the retirement plan benefits of employees being retained or hired by the buyer. If the seller’s plan contains employer stock as an investment however, the buyer should be aware of fiduciary concerns that may arise under the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
“Stock-drop” litigation is a well-known phenomenon centering on plan fiduciary liability to plan participants when the value of employer stock investments in a retirement plan drops significantly. Less well-known is the fiduciary liability exposure facing new 401(k) plan sponsors and fiduciaries accepting a transfer of assets from the seller’s plan that includes former employer stock. Holding a significant block of a single security that is not company stock implicates ERISA prudence and diversification issues, and must be closely monitored.
Fiduciaries of 401(k) plans considering accepting asset transfers of former employer stock have often been advised to engage counsel to evaluate the prudence of holding the former employer stock in the buyer’s plan as an investment alternative (even if “frozen” to new investment) and establish a timeline for requiring that plan participants divest the former employer stock within one to two years of the asset transfer from the seller’s plan.
In light of the decision in Tatum v RJR Pension Inv. Comm., 2014 U.S. App. LEXIS 14924 (4th Cir. Aug. 4, 2014), buyer 401(k) plan sponsors and plan fiduciaries must now be even more careful to engage in a process that separates fiduciary from non-fiduciary acts and carefully follows established procedures for implementing any required divestitures of former employer stock. In Tatum, the plan was not properly amended to require the divestiture of former employer stock. This failure to properly amend the plan converted a plan design decision, which was a non-fiduciary or “settlor” decision, into a fiduciary act. In Tatum, the plan fiduciaries also failed to follow a prudent process for determining whether or not to eliminate former employer stock and for determining the timeline for implementing such divestitures.
The Tatum decision highlights that, in addition to fiduciary risk in holding former employer stock in the buyer’s 401(k) plan as an investment, there is also fiduciary risk in the process of eliminating former employer stock as an investment in the buyer’s plan.
When establishing a new 401(k) plan, the buyer should consult with legal counsel regarding the risks involved in accepting an asset transfer from a seller’s plan that includes former employer stock. Any new plan sponsors or plan fiduciaries that are contemplating accepting former employer stock as part of an asset transfer should consider whether or not they should engage an independent third party to monitor the former employer [...]
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HIPAA covered entities have reported that the HHS Office for Civil Rights recently sent pre-audit screening surveys to a pool of covered entities that may be selected for the previously delayed second phase of HIPAA compliance audits. This On the Subject describes the phase two audit program and identifies steps that covered entities and business associates should take to prepare for these audits.
Yesterday the U.S. Internal Revenue Service issued new Questions & Answers regarding the Affordable Care Act’s reporting rules under Code Section 6055 and 6056. The categories under the guidance include: Basics of the Reporting, Who is Required to Report, Methods of Reporting (for employers), What Information Must be Reported (for providers), and How and When to Report the Required Information.
As the U.S. Supreme Court weighs whether gay couples are constitutionally entitled to marry, more companies in states with marriage equality have begun to mandate that gay employees marry in order to maintain benefits, including health care coverage. In a recent interview with the Wall Street Journal, McDermott partner Todd Solomon discusses the shifting terrain of coverage and benefits that companies offer unmarried gay partners. McDermott lawyers have been monitoring domestic partnership benefits for almost two decades, and, as Mr. Solomon notes, the landscape is definitely changing.
Read the full article, “Firms Tell Gay Couples: Wed or Lose Your Benefits,” in the Wall Street Journal.
McDermott Will & Emery will be holding the next invitation-only Benefits Innovators Roundtable series in our New York office on May 19, 2015. These roundtables offer senior, experienced professionals an opportunity to discuss employer-provided benefits best practices with peers and experienced McDermott employee benefits lawyers. Previous events in this series have led to spirited discussions on a broad range of cutting-edge topics.
This session’s topics will include:
If you are interested in attending, please contact Donna Baker.
The Equal Employment Opportunity Commission (EEOC) released a long-awaited proposed rule amending regulations implementing Title I of the Americans with Disabilities Act to provide guidance regarding the extent to which employers may use incentives to encourage employees to participate in wellness programs that include disability-related inquiries and/or medical examinations. The proposed rule provides insight into the EEOC’s approach to regulating employer wellness programs, so employers should consider reviewing their wellness programs for consistency with the proposed rule.
On March 4, 2015, the Supreme Court of the United States heard oral arguments in King v. Burwell, the highest profile challenge to the Affordable Care Act (ACA) since the Supreme Court’s 2012 decision to uphold the law. The oral arguments featured sharp questioning of both sides. A decision is anticipated in June to determine whether the high court will maintain the status quo with respect to the availability of premium tax credits to lower-income exchange customers in all states.
The Internal Revenue Service (IRS) published final forms and instructions addressing information reporting requirements applicable to employers and insurers under Internal Revenue Code Sections 6055 and 6056. The reporting requirements are effective for tax years beginning in 2015, with the first report due in 2016 for 2015 coverage.
The Affordable Care Act (ACA) generally requires individuals (with limited exceptions) to maintain minimum essential coverage or pay an individual shared responsibility payment with their annual federal income tax return. The IRS will use the information reported by employers and insurers under the information reporting requirements of the ACA to determine individual compliance with the individual shared responsibility requirements and to determine individual eligibility for premium tax credits.
Reporting of Minimum Essential Coverage
Code Section 6055 imposes annual information reporting requirements on insurers, employers that self-insure group health plans and certain other providers of minimum essential health insurance coverage. These entities are required to file annual returns reporting information about the entity and specific information for each individual for whom minimum essential coverage is provided. Covered entities will report the required information to the IRS and to covered individuals on Form 1095-B (click here for instructions). Entities should use Form 1094-B to transmit Form 1095-B to the IRS.
Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans
Code Section 6056 imposes annual information reporting requirements on applicable large employers (generally defined as employers with 50 or more full-time employees) that are subject to the employer shared responsibility provisions of Code Section 4980H. These large employers are required to report to the IRS the health insurance or self-insured health care coverage the employer provides to its full-time employees. The return filed with the IRS will describe the health care coverage the employer provides to its full-time employees, including a list of full-time employees, the coverage offered to each full-time employee and the months to which the coverage applied. Entities will report the required information to the IRS on Form 1095-C (click here for instructions), and to each of their full-time employees. Entities should use Form 1094-C to transmit Form 1095-C to the IRS.
Next Steps
Employers sponsoring group health plans should prepare for compliance with the ACA’s information reporting requirements by reviewing their systems to ensure they are able to capture the necessary information to be reported to the IRS based on the above forms.
M&G Polymers USA, LLC v. Tackett, a recent unanimous decision by the Supreme Court of the United States, is a game changer. By expressly repudiating the U.S. Court of Appeals for the Sixth Circuit’s 1983 Yard-Man decision and the many decisions following it, the Supreme Court rejected three decades of Sixth Circuit law inferring that retiree health benefits are vested for retirees’ lives, and provided new clarity in interpretation of retiree medical benefits under collective bargaining agreements.
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