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This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors Kansas City   Omaha.

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Presentation on theme: "This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors Kansas City   Omaha."— Presentation transcript:

1 This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors Kansas City   Omaha  Overland Park St. Louis  Jefferson City This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors

2 Copyright 2009 2 Compliance 201 for Plan Administrators Gregory L. Ash Julia M. Vander Weele June 15, 2010

3 Copyright 2009 3 Presenters Gregory L. Ash, JD Partner 913-327-5115 Julia Vander Weele, JD Partner 816-292-8182

4 Copyright 2009 4 Agenda  Understanding When Welfare “Plan Assets” Must be Held in Trust  ERISA Preemption  Claims and Appeal Procedures and Judicial Review of Denied Claims  Cafeteria Plan Compliance Issues  Fiduciary Duties  Plan Discrimination Issues After Health Care Reform

5 Copyright 2009 5 Key ERISA Requirements  Plan document – See “Compliance 101”  SPD, SMM – See “Compliance 101”  Participant disclosures – See “Compliance 101”  Form 5500 and SAR – See “Compliance 101”  Plan assets held in trust  Fidelity bond  Reasonable claim/appeal procedures  Fiduciary standards

6 Copyright 2009 6 Funding of Welfare Plans  No ERISA funding standards for welfare plans  Four primary funding methods:  General assets of employer  Insurance  Separate funds set aside for plan purposes  Contributions from participants

7 Copyright 2009 7 Why Does Funding Matter?  ERISA’s trust requirement applies only to “funded” plans (those with “plan assets”)  ERISA’s exclusive benefit and fiduciary requirements apply to arrangements with “plan assets”  Bonding requirement applies when there are “plan assets”  Funding method dictates extent of state regulation

8 Copyright 2009 8 What Are “Plan Assets”?  ERISA does not define “plan assets”  Generally, two categories of “plan assets”:  Participant/beneficiary contributions are always plan assets  Use of separate funds to pay benefits may create plan assets (e.g., trust, separate account in plan’s name)

9 Copyright 2009 9 ERISA’s Trust Requirement  General Rule: Section 403(a) of ERISA requires plan assets to be held in trust  Trust options:  VEBA  Taxable trust

10 Copyright 2009 10 Exceptions to Trust Requirement  Exemption for assets held by insurance company  DOL nonenforcement policy (Technical Release 92- 01) for participant contributions  Under cafeteria plan, if such contributions are sole source of plan assets and contributions held as general corporate assets  Under insured plan accepting participant contributions, if: Benefits paid exclusively through insurance policies Premiums paid directly by employer from general assets Participant contributions forwarded within 3 months Certain insurance refunds returned to participants  Also applies to after-tax and COBRA contributions

11 Copyright 2009 11 Examples of Nonenforcement Policy  Insured Plan – Employer Contributions Only  No employee contributions; no cafeteria plan  Employer sends premiums directly to insurer from corporate checking account  No plan assets; no trust required

12 Copyright 2009 12 Examples of Nonenforcement Policy  Insured Plan – Employer Contributions Only  COBRA contributions paid to employer, who pays all premiums to insurer out of corporate checking account  COBRA premiums are plan assets; trust requirement subject to nonenforcement policy

13 Copyright 2009 13 Examples of Nonenforcement Policy  Insured Plan – Employee Contributions Through Payroll Deduction or 125 Plan  After-tax or pre-tax employee contributions  Employer sends one check for employee and employer contributions to insurer  Employee contributions are plan assets; trust requirement subject to nonenforcement policy

14 Copyright 2009 14 Examples of Nonenforcement Policy  Insured Plan – TPA Collects and Forwards Employee Contributions  Employees pay premiums through payroll deduction, collected by employer, who forwards to TPA in single corporate check  TPA forwards premiums to insurer  Employee contributions are plan assets; trust may be required

15 Copyright 2009 15 Examples of Nonenforcement Policy  Insured Plan – Premium Payments from VEBA  Employee and employer contributions made to VEBA  Premium payments to insurer made by VEBA  Employee contributions and VEBA assets are “plan assets”; trust present

16 Copyright 2009 16 Examples of Nonenforcement Policy  Self-Insured Plan – Benefits Paid from Checking Account in Plan’s Name  Employer contributions only; no employee contributions  Employer pays benefits from checking account in plan’s name  Plan assets due to employer’s transfer to checking account in plan’s name; trust required

17 Copyright 2009 17 Caveats to Nonenforcement Policy  Exclusive benefit rule still applies  Fiduciary duties still apply  Participants and beneficiaries may still sue to enforce

18 Copyright 2009 18 ERISA Preemption  Primary purpose of ERISA is uniform, national system of enforcement  ERISA contains a broad “preemption” clause, superseding application of most state laws  State laws (statutes or common law) that “relate to” ERISA plans are preempted (i.e., do not apply)

19 Copyright 2009 19 The “Savings Clause”  Many state insurance laws are “saved” from preemption  State insurance laws governing insurance policies (e.g., to require mandated benefits) still apply  Fully-insured plans therefore remain subject to indirect state regulation

20 Copyright 2009 20 ERISA Preemption – So What?  Preemption protects employers and fiduciaries  Self-insured plans not subject to mandated benefits  State causes of action for benefits are preempted  Bad-faith refusal to pay  Claims for punitive and compensatory damages  Generally no jury trials

21 Copyright 2009 21 Claims and Appeals  ERISA requires “reasonable” procedures  Rules/time frames differ by benefit  Group health  Disability  Other (severance, life, AD&D, etc.)  Formal claim/appeal procedures must appear in SPD (or be furnished in separate document with SPD)

22 Copyright 2009 22 Who is Responsible?  Insured Plans – Insurer typically decides all claims and appeals  Employer may retain responsibility for distributing claims and appeals procedures with SPD  Make sure policy and certificate accurately reflect who decides claims and appeals  Self-Insured Plans – Plan fiduciaries decide claims and appeals

23 Copyright 2009 23 Compliance Affords Protection  Compliance with reasonable procedures affords protection to plan sponsors  Claimants must “exhaust” administrative procedures before suing  Unreasonable procedures, or failure to follow them, allows immediate resort to courts  Courts defer to decisions made under such procedures unless arbitrary and capricious  1989 Supreme Court decision in Firestone Tire & Rubber v. Bruch  But plan (and SPD) must afford plan administrator or fiduciary the discretionary authority to interpret plan

24 Copyright 2009 24 Judicial Deference  Even conflicted decision makers entitled to deference  Metropolitan Life v. Glenn (S. Ct. 2008) – when “dual role” administrators both fund plan and decide claims, conflict of interest is just one factor courts must weigh  Conkright v. Frommert (S. Ct. 2010) – if administrator’s first decision is rejected by court, administrator still entitled to deference on second review

25 Copyright 2009 25 Steps to Preserve Deferential Review  Wall off claims from financial departments  Avoid placing CFO on claims committee  Have two committees; one to hear claims, and one to review plan finances  Document and follow procedures for claim/appeal processing

26 Copyright 2009 26 Steps to Preserve Deferential Review  Produce thorough, carefully reasoned claim decisions  Denial letters should articulate all grounds on which claim is being rejected  Include citations to applicable plan provisions  Describe appeal process (for claim denials) or right to bring suit (for appeal denials)

27 Copyright 2009 27 Steps to Preserve Deferential Review  Do not weigh economic consequences of claim decisions  Don’t ask about extent of benefits that may be paid  Minimize incentives for claim denials  Ensure that claims examiners aren’t paid more for denying claims  Make sure the party to whom the plan gives discretionary authority is the party deciding claims/appeals

28 Copyright 2009 28 What is a Cafeteria Plan?  Choice between taxable benefits (e.g., cash) and non-taxable benefits (e.g., health care coverage)  Section 125 is the exclusive means by which employer can offer a choice without the choice itself resulting in taxable income to the employee (under “constructive receipt” doctrine)  A plan offering a choice between only taxable benefits (cash or paid time off), or only non- taxable benefits (e.g., a “flex plan”) is not a cafeteria plan

29 Copyright 2009 29 Qualified Benefits  Employer-provided health coverage  Health flexible spending account (“FSA”)  Dependent care FSA  Group-term life insurance  AD&D insurance  STD and LTD insurance  Adoption assistance  HSA contributions  401(k) contributions

30 Copyright 2009 30 Impermissible (But Tax-Favored) Benefits  Scholarships  Educational assistance benefits  Dependent life insurance  Long-term care insurance  Fringe benefits  403(b) deferrals

31 Copyright 2009 31 Eligibility  Current employees  Former employees (so long as plan is not maintained predominantly for them)  But not self-employed individuals, sole proprietors, partners, directors, or 2% shareholders of S- corporations

32 Copyright 2009 32 Written Plan Document  Must have a written plan document  Program must be operated in accordance with plan’s terms  Plan must be adopted and effective on or before first day of plan year  Any amendments must be made through formal written instrument

33 Copyright 2009 33 Value to Employees  Advantages for employees:  No income tax  No FICA or Medicare tax  Generally, no state or city tax  Allows choice among benefits (or cash)  Disadvantages for employees:  Irrevocable elections  “Use-it-or-lose-it” rule  Possibly lower Social Security benefits

34 Copyright 2009 34 Value to Employers  Advantages for employers:  No FICA or Medicare tax  Cushion blow of premium increases  Non-comparable employer HSA contributions  Disadvantages for employers:  Set-up and administration costs  “Uniform coverage” rule (under health FSAs)

35 Copyright 2009 35 Election Rules  General Rule: Elections must be made – and irrevocable – before beginning of coverage period (generally, 12 months)  Several exceptions specified in IRS regulations  Exceptions apply only if also set forth in plan document

36 Copyright 2009 36 Cafeteria Plans and Health Care Reform  OTC medicines (other than insulin) may not be reimbursed from FSA, HRA, HSA, or Archer MSA – unless prescribed by a physician (effective in 2011)  Excise tax on non-medical distributions from HSA increased from 10% to 20% (effective in 2011)  Health FSA contributions capped at $2,500 (effective in 2013)

37 Copyright 2009 37 Fiduciary Basics  Who Are Fiduciaries?  Discretionary authority or control concerning management or administration of plan  Any authority or control over management or disposition of plan assets  Renders investment advice for a fee  “Named” fiduciary

38 Copyright 2009 38 Fiduciary Duties  Exclusive Benefit Rule… fiduciaries must discharge their duties solely in the interests of participants and beneficiaries, and for the exclusive purpose of:  providing benefits, or  defraying reasonable expenses of plan administration

39 Copyright 2009 39 Fiduciary Duties  Prudent Expert Rule... fiduciaries must discharge their duties:  With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims

40 Copyright 2009 40 Fiduciary Duties  Comply with Plan Documents... fiduciaries must discharge their duties:  In accordance with the documents and instruments governing the plan

41 Copyright 2009 41 Fiduciary Duties  Duty to Monitor... “At reasonable intervals the performance of … other fiduciaries should be reviewed by the appointing fiduciary in such manner as may be reasonably expected to ensure that their performance has been in compliance with the terms of the plan and statutory standards, and satisfies the needs of the plan.”

42 Copyright 2009 42 Minimizing Fiduciary Risk  Carefully Review Plan Documents  Watch What You Say to Plan Participants  Identify and Educate Fiduciaries  Document Plan Governance Structure  Hold Regular Meetings  Choose Service Providers Carefully  Review Fiduciary Liability Insurance

43 Copyright 2009 43 Discrimination Issues  As part of health care reform, fully insured plans must comply with nondiscrimination requirements of Code Section 105(h)  These are the same rules to which self-funded plans are already subject

44 Copyright 2009 44 Discrimination Issues  Plans may not discriminate in favor of “highly compensated individuals” in terms of eligibility to participate or benefits  HCI = five highest paid officers, any 10% or more owners, and the highest paid 25% of all employees

45 Copyright 2009 45 Discrimination Issues  Effective for plan year beginning on or after September 23, 2010 (January 1, 2011 for a calendar-year plan)  Grandfathered plans exempt  Unclear whether renewal or change in carriers will destroy grandfathered status

46 Copyright 2009 46 Discrimination Issues  Consequences of noncompliance fall on the plan (in the form of a $100 daily penalty)  In contrast to self-funded plans, where consequences of noncompliance fall on the highly compensated individuals (in the form of taxable benefits)

47 Copyright 2009 47 Contact Information Gregory L. Ash, JD Partner 913-327-5115 Julia Vander Weele, JD Partner 816-292-8182

48 Thank You For Your Participation Kansas City   Omaha  Overland Park St. Louis  Jefferson City This webinar has been submitted to HRCI for 1.5 hours of recertification credit toward PHR, SPHR and GPHR designation through the HR Certification Institute. At this time, UBA has not received notification of approval from HRCI. Once received, UBA will send an email to each attendee notifying them of the event number. As always, certificates will not be sent for this event.

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