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Inside Compensation

Developments in Employee Benefits & Executive Compensation

Vodafone Announces Progressive Global Maternity Policy, Touching on Two Hot Topics in Employee Benefits

Posted in Employment, International

By Helena Milner-Smith, Kamakshi Venkataramanan and Jenna Wallace

Vodafone announced recently a new progressive and generous mandatory minimum global maternity policy.  According to the company, under the new policy, to be in effect by the end of this year, female employees of Vodafone in 30 countries will be offered two maternity benefits: (1) at least 16 weeks of maternity leave at full pay, and (2) the opportunity to work a 30-hour week at full pay for the first 6 months after they return to work from leave.

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Update on Final Rule for the Family Medical Leave Act

Posted in Employment

On March 26, 2015—just one day before the Final Rule for the Family Medical Leave Act (“FMLA”) was to take effect—a federal court in Texas blocked the Final Rule’s application to the states of Texas, Arkansas, Louisiana, and Nebraska, pending a full determination of the issue on the merits in Texas v. United States.

The plaintiff States sued the U.S. Department of Labor (“DOL”) over the promulgation of the Final Rule, arguing that the DOL exceeded its authority by requiring states to violate Section 2 of the Defense of Marriage Act and their respective state laws prohibiting recognition of same-sex marriages from other jurisdictions.  Under the Final Rule, which we discussed here, legally married same-sex couples are included in the FMLA’s definition of “spouse” and are eligible to use FMLA leave to care for their spouse or family member, regardless of whether their marriage would be recognized in the state where they live.  In response to the plaintiff States’ lawsuit, the U.S. District Court for the Northern District of Texas ordered a preliminary injunction staying the implementation of the Final Rule to the plaintiff States.

The court first held that the plaintiff States have a substantial likelihood of succeeding on their claims that the Final Rule improperly conflicts with (i) the FMLA’s traditional definition of “spouse,” (ii) the Federal Full Faith and Credit Statute, and (iii) the states’ own definitions of marriage.  According to the court, the Final Rule interferes with the ability of state agencies to abide by the states’ definitions of marriage, causing the plaintiff States to suffer irreparable harm.

Supreme Court Makes New Rule in Analyzing Pregnancy Discrimination Act

Posted in Employment

The Supreme Court held on March 25, 2015 in Young v. UPS that a plaintiff alleging pregnancy discrimination based upon the denial of an accommodation may proceed under the familiar McDonnell Douglas framework generally applied to Title VII discrimination claims. The Court’s decision, which resulted in a remand to the Fourth Circuit, surprised many observers in rejecting the arguments set forth by both parties in the case and instead setting forth a new rule for applying the Pregnancy Discrimination Act (“PDA”). Continue Reading

SEC Order May Prompt Employers to Review Employee Confidentiality Obligations

Posted in Employment

By Richard Shea and Barbara Hoffman

These days, many employment agreements, severance agreements, releases, plan documents, SPDs, and other compensation and benefits arrangements impose confidentiality requirements on employees, both current and former. Yesterday the SEC issued its first order addressing how employee confidentiality obligations can be phrased consistent with the agency’s regulations implementing the Dodd-Frank whistleblower provisions. Companies may want to review the SEC order and the wording of their existing employee confidentiality obligations to determine whether changes might be helpful or required.

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IRS Issues Warning on Documentation Requirements for 401(k) Plans

Posted in Defined Contributions Plans

A recent post in the IRS’s Employee Plans News has two important tips for employers who sponsor 401(k) and similar plans:

  1. The plan sponsor is ultimately responsible for maintaining records that document compliance with tax-qualification requirements. Many employers rely on third-party administrators to maintain records of day-to-day transactions, such as loans, hardship withdrawals and distributions. It is important to confirm with the third-party administrators that the records are being kept and that the sponsor will have access to the records–in a usable format–including after the sponsor changes administrators.
  2. The IRS expects the administrator to collect documentation in support of any hardship withdrawal–saying “[i]t’s not sufficient for plan participants to keep their own records of hardship distributions.”

In an effort to streamline plan administration, some third-party administrators have promoted a simplified procedure that would allow employees to get hardship withdrawals without submitting documentation. Continue Reading

HHS Creates A New Out-of-Pocket Limit For Health Plans

Posted in Health Plans, Welfare Plans

In case you missed this development—which was buried in the preamble of a 129-page Federal Register notice dealing mainly with rules for the individual and small group markets—HHS has created a new out-of-pocket limit for group health plans that provide family coverage. HHS says that the limit for self-only coverage applies to each individual who has family coverage. This new individual limit is in addition to the existing limit for family coverage, which applies to the aggregate costs of the covered individuals. Continue Reading

Department of Labor Establishes Two-Month Grace Period for Participant-Level Fee Disclosure

Posted in Defined Contributions Plans

In 2010 the DOL published a final regulation requiring plan administrators of participant-directed individual account plans to disclose fees, expenses, and certain other plan information to participants and beneficiaries. The regulation requires plan administrators to provide these disclosures on or before the date on which a participant or beneficiary can first direct investments and “at least annually thereafter.” The regulation defines “at least annually thereafter” to mean “at least once in any 12-month period, without regard to whether the plan operates on a calendar year or fiscal year basis.” For example, if a plan administrator provided the initial disclosure on August 25, 2012, the plan administrator had to provide the first annual disclosure no later than August 25, 2013. See our previous discussion of the final regulation and temporary transition relief offered by the DOL.

After soliciting and receiving comments on alternatives to a strict annual deadline, the DOL has amended its participant-level fee disclosure regulation to change “12-month period” to “14-month period,” effectively establishing a two-month grace period for providing the disclosure. Although the change is not effective until June 17, 2015, the DOL will not take any enforcement action against plan administrators who rely on the change immediately. However, because DOL non-enforcement does not preclude participant lawsuits, plan administrators may want to consider waiting until the change is effective to take advantage of the grace period. If the DOL withdraws the change before it becomes effective because of significant adverse comment, the DOL will provide additional guidance on its enforcement policy.

The flexibility of the new rule should benefit both plan administrators and plan participants. For example, the rule change mitigates the incentive for a plan administrator to delay disclosure until the latest permissible date, since it allows a plan administrator to provide disclosure early in a given plan year without accelerating the disclosure deadline for all subsequent plan years. The rule change should also make it easier for plan administrators to consolidate participant-level fee disclosures with other participant communications.

ERISA Liability Insurance: Know What’s Covered . . . And What Isn’t

Posted in Defined Benefit Plans, Defined Contributions Plans, ERISA Litigation

For sponsors and fiduciaries of employee benefit plans, the Amara case has presented many interesting and important issues that have been discussed at length in this blog and elsewhere. However, the most recent chapter in this long-running dispute has not garnered nearly as much attention as either the Supreme Court or Second Circuit decisions that came before it. Nonetheless, this latest decision, Cigna Corporation v. Executive Risk Indemnity, raises a critical issue for plan sponsors and fiduciaries: what is and, perhaps more importantly, what is not, covered by fiduciary and other liability insurance policies.

The facts of the Executive Risk case are relatively straightforward. Cigna sought a declaratory judgment that it was entitled to coverage under its fiduciary liability policies for claims asserted in the Amara case. The insurers denied coverage, relying on a policy exclusion for “deliberately fraudulent or criminal acts or omissions.” The trial court ultimately applied the exclusion and denied coverage.

Given the considerable amount at stake, the decision is undoubtedly important to Cigna, Executive Risk, and the other insurers who were defendants in the case. However, other plan sponsors and fiduciaries would be wise to understand the significance of this decision as well: insurance coverage cases often turn on the language of the insurance policies in question and there generally is not “standard” policy language on many critical issues.

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Risk Management Lessons from a Multi-Million-Dollar Class Action Award

Posted in ERISA Litigation

Not all benefits claims are created equal. At least, not from a risk management perspective. Benefits claims that reach issues applicable to a broad class of participants have the potential to exponentially increase liabilities.

Kifafi v. Hilton illustrates this risk. A recent court order quantified the cost of a judgment that Hilton Hotels and its retirement plan (“Hilton”) violated ERISA’s vesting and anti-backloading requirements. To date, Hilton has paid $33.3 million to more than 11,000 class members, approximately $22 million to Plaintiffs’ counsel, and provided notice of increased benefits to another approximately 5,600 participants.

A single individual’s claim for benefits was the genesis of this multi-million dollar award.

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Oral Misrepresentation Could Support Fiduciary Breach Claim, District Court Holds

Posted in Defined Benefit Plans, Defined Contributions Plans, ERISA Litigation

In Lees v. Munich Reinsurance America, Inc., a federal district court in New Jersey recently held that an oral misrepresentation could serve as the basis for a fiduciary breach claim.

The plaintiff in Lees worked for American Re-Insurance Company (a predecessor of the defendant), but was being paid by a related entity. Several years into his employment, the plaintiff was approached about transferring directly to American’s payroll. The plaintiff alleged that employees in American’s human resources department induced him to agree to the transfer by promising to treat his years with the related entity as pensionable under American’s defined benefit plan.   According to the plaintiff, he accepted this offer in lieu of a signing bonus. Many years later, the plaintiff was informed that the years with the related entity would not be counted. He sued, alleging, among other things, a fiduciary breach claim under ERISA § 502(a)(2). The defendants moved to dismiss.

The court rejected the defendant’s argument that an oral misrepresentation could not support a fiduciary breach claim under ERISA § 502(a)(2). The court’s reasoning focused on 3rd Circuit precedent for finding a fiduciary breach, under which a material, affirmative misrepresentation is required. The court found no requirement that the misrepresentation be written, and declined to impose such a requirement in this case. Despite the evidentiary concerns inherent to oral communications, this decision allows the plaintiff to move forward using alleged oral misrepresentations as the basis of his fiduciary breach claim.

Plan representatives should keep in mind that this is a district court decision at a relatively early stage of litigation. The sky is certainly not falling. However, plan representatives should be aware of what they say to participants and beneficiaries; if a case like this is successful, even inadvertent misstatements could come back to haunt them.