Employers occasionally find themselves in litigation with current or former employees. Sometimes an employer-defendant will uncover communications between the plaintiff-employee and her personal attorney or spouse on an employer-owned email or computer system.
These communications might ordinarily be privileged, but inadvertent disclosure to a third party–in this case, the employer–could waive the privilege if the employee failed to take reasonable precautions to maintain confidentiality. Many employers maintain policies informing employees that communications on work systems are not private and may be monitored. Employers seeking to use otherwise-privileged communications in litigation have argued that any asserted employee privilege is misplaced or waived, because the employee had no reasonable expectation of privacy on company systems.
But courts have not always agreed. The existence of a computer use policy only begins the analysis. Employers might therefore seek a court’s permission before reviewing or using potentially-privileged communications. The chances of a favorable ruling improve if some or all of the following occur: Continue Reading
Seems like we’ve written this before, but this time we (actually a federal district court) really means it: the court in Lee v. Verizon granted last Friday Verizon’s motion to dismiss a class action lawsuit challenging its transfer in late 2012 of $7.5 billion of pension liabilities to Prudential (Lee v. Verizon, N.D. Tex.). The court had dismissed the case once before but allowed the plaintiffs to amend their complaint. This time, the court dismissed the amended complaint with prejudice, meaning that the court would not accept any further amendment to the complaint.
The court reiterated much of its prior ruling and made clear that ERISA permits an employer to decide, as settlor of a pension plan, to transfer assets and liabilities to an insurance company. The court summed up the case as follows:
“It is apparent … that … plaintiffs fundamentally disagree with the premise that an ERISA pension plan can, as here, purchase an annuity to fund plan benefits and remove only some plan members, thereby eliminating the protections of ERISA and the PBGC for the removed members…. But at bottom, plaintiffs are disagreeing with the rights of a settlor under ERISA, and such a disagreement must be addressed to Congress through requests for legislative changes to ERISA, not through litigation that complains of the decisions that ERISA empowers a plan sponsor as settlor to make.”
Covington partners T.L. Cubbage, Jeff Huvelle, and Chris Pistilli represent Verizon in the litigation.
When the Supreme Court held in United States v. Windsor last June that federal law recognizes same-sex marriages, the question arose whether this ruling would apply to tax-qualified retirement plans retroactively. Last week, the IRS answered that question, in part. For tax-qualification purposes, plans must generally recognize the Windsor decision as of the date of the decision (June 26, 2013). Plans could also voluntarily recognize the effect of the decision as of an earlier date. The IRS, however, left open several questions, including how Windsor would apply with respect to a claim by a participant or beneficiary for retroactive benefits. Below are highlights of the recent IRS guidance (consisting of Notice 2014-19 and FAQs).
Many employers will face two significant new reporting requirements for employee health coverage starting next year:
- Section 6055 Return: Employers and insurers that provide minimum essential coverage must report information to the IRS about each covered individual for each month, and provide a copy of the report to covered employees and retirees.
- Section 6056 Return: Employers with at least 50 full-time employees must report additional information to the IRS (with a copy to the employee) to confirm that the employer offers health coverage that is affordable and provides minimum value to full-time employees and their dependents.
Final regulations (available here and here) adopt the reporting requirements proposed last fall, with only modest changes. (We described the proposed requirements in our earlier post: Health Coverage Reporting Rules Create New Burdens for Employers.) These are some of the challenges employers will confront as they prepare to comply with the new requirements:
No Further Extension of the Reporting Deadline
The IRS announced last year that it would waive the reporting penalties for coverage provided in 2014. The final regulations do not provide any further extension of the reporting deadline. Accordingly, the first reports will be due early in 2016 for health coverage provided in 2015.
Employers will have to develop administrative systems and procedures to collect the required information, and many employers will wish to engage outside vendors to help them comply with the new reporting requirements. These arrangements generally must be in place by January 1, 2015, when the new requirements take effect.
No Electronic Statements Unless the Employee Consents
An employer must provide individual statements to employees showing the health coverage information reported to the IRS for the employee and the employee’s family. Although employers had requested rules that would allow them to furnish these statements electronically, the final regulations continue to provide that an employer may furnish an electronic statement only if the individual consents. The consent rules will make electronic delivery impractical for many employers.
The employer’s request for consent must refer to the specific forms that the employer wishes to provide electronically. Accordingly, even if an employer has previously received the employee’s consent to furnish other forms (such as Form W-2) electronically, or has received a general consent to furnish all forms electronically, these consents will not extend to the new health coverage statements. Continue Reading
Earlier today, the Supreme Court issued its opinion in United States v. Quality Stores. The opinion, authored by Justice Kennedy, reverses the Sixth Circuit and concludes that the supplemental unemployment benefit payments (or “SUB” payments) at issue in the case are subject to tax under the Federal Insurance Contribution Act (“FICA”). The Government has previously stated that more than $1 billion is at issue in similar cases throughout the country. In light of today’s decision, we expect the pending FICA tax refund claims in those cases to be denied.
The Court noted, however, that under existing Revenue Rulings certain severance payments tied to the receipt of state unemployment benefits are exempt from FICA taxes and observed that it did not need to reach the question of whether that exemption is consistent with the broad definition of wages under FICA.
On March 19, the Eighth Circuit addressed a long-running case involving alleged fiduciary duty breaches in the administration of 401(k) plans. (Tussey v. ABB, Inc.) Although the Eighth Circuit emphasized that courts owe deference to choices entrusted by plan documents to fiduciary discretion – and reversed one finding of liability partly on that basis – the decision affirmed a finding that plan fiduciaries in this case are liable for $13.4 million for failing to monitor and assess the reasonableness of the plan recordkeeper’s compensation from revenue sharing.
Tussey was among a wave of plan expense cases filed in 2006; a 16-day trial occurred in 2010. Two years later, the trial court ruled that:
- The plan’s fiduciaries breached their responsibilities with respect to 401(k) plan fees paid to the plan’s recordkeeper, Fidelity, by (i) failing to monitor the level of fees (particularly fees from revenue sharing); (ii) failing to negotiate rebates from Fidelity or the plan’s investment funds; and (iii) failing to select the least expensive share class for certain funds. The court noted that, as a result of the compensation that Fidelity received from the 401(k) plan (mostly through revenue sharing from mutual funds), Fidelity was able to provide discounts to ABB for other services, such as health plan administration;
- The fiduciaries also imprudently replaced a Vanguard mutual fund with Fidelity-managed target date funds; and
- Fidelity improperly failed to allocate to the plans the interest earned by brief deposits of contributions and disbursements going to or from investment options (“float”).
The trial court assessed the fiduciaries’ liability to the plans at more than $35 million, ruled that Fidelity owned $1.7 million related to float, and held both the fiduciaries and Fidelity liable for more than $13 million in attorneys’ fees and costs.
The appellate court reversed the trial court in part, remanding the target date fund ruling for reconsideration and exonerating Fidelity with regard to float. But the Eighth Circuit affirmed the $13.4 million judgment against the fiduciaries for failing to ensure that the recordkeeper’s revenue-sharing income was not unreasonable and not subsidizing the provision of other Fidelity services to ABB. Continue Reading
The final shared responsibility regulations under the Affordable Care Act, issued earlier this month, in large part maintain the rules set forth in the proposed regulations. However, there are several ways in which the final regulations modify or clarify these rules. Below is a top ten list (which we’re sure David Letterman would use if he were a benefits lawyer) of things to know about the final regulations.
The rules govern the requirement that employers with at least 50 full-time employees could owe a “shared responsibility” excise tax if they fail to offer group health coverage. One penalty (known as the “A” penalty) applies if an employer fails to offer group health coverage to 95% of its employees on every day of a month and at least one employee purchases coverage through an exchange with a federal subsidy; the “A” penalty each month is an excise tax of 1/12 of $2,000 for each full-time employee in excess of 30. Even if the employer meets the 95% test, a separate penalty (known as the “B” penalty) applies if the employer fails to offer affordable health coverage to an employee, and the employee purchases coverage through an exchange with a federal subsidy; the “B” penalty each month is an excise tax of 1/12 of $3,000 per each such employee who actually purchases coverage through an exchange with a federal subsidy. A “full-time employee” is a common-law employee who works an average of at least 30 hours per week. (You will find a more detailed description of the shared responsibility rules here and here.)
Below are our top 10 highlights of the final regulations: Continue Reading
If an employee assistance program (“EAP”) provides counseling for substance abuse, stress, depression, and similar health problems, the Labor Department and IRS regard it as a group health plan. Unless the EAP qualifies for an exception, it will have difficulty complying with the group health plan coverage requirements and other mandates.
Recent guidance from the federal regulatory agencies gives many EAPs a “free pass” for 2014, and creates new compliance options for 2015 and beyond. In order to keep their EAPs in compliance after 2014, employers might need to make design changes or satisfy other new requirements. EAP sponsors should take this opportunity to review their compliance options and develop a compliance strategy. Continue Reading
As many of you have no doubt heard, President Obama introduced a new retirement savings vehicle, known as a myRA, in his State of the Union address. At first blush, the program appears aimed exclusively at employees with no company-sponsored retirement plan and therefore of little interest to employers with sophisticated retirement programs already in place. However, deciding not to explore myRAs based on that first impression could be a mistake.
Treasury’s just released myRA fact sheet flatly states that employees participating in an employer-sponsored retirement plan are still eligible to make myRA contributions, as long as their annual incomes are less than $129,000 for individuals and $191,000 for couples. It appears that all employers—even those that already sponsor a retirement plan—will be eligible to participate in the myRA program and to sign up their employees for automatic payroll deduction contributions. In addition, because myRAs are structured as Roth IRAs, employers might be able to offer myRA contributions as an after-tax elective contribution option under their 401(k) and 403(b) plans, although Treasury has yet to confirm that and data links between Treasury and plan recordkeepers might be difficult and expensive to establish.
Whether employers participate in the myRA program inside or outside their 401(k) and 403(b) plans, the hidden gem in the program is the Treasury security employees will be eligible to buy. It is a nonmarketable Treasury security that until now has been available only to federal workers through the federal Thrift Savings Plan G Fund. The security pays interest at a variable rate equal to the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. This means it carries no principal risk, offers a blended mid- and long-term government bond yield, and would be a safer and possibly higher yielding alternative to a money market, stable value, or bond fund, all while being backed by the full faith and credit of the United States government.
Because of their unique characteristics, myRA Treasury securities could form a valuable part of the fixed-income component of employees’ retirement savings portfolios. Although myRA account balances are capped at $15,000, even that amount would enhance the fixed-income allocation in most employees’ retirement portfolios, given the low average account balance in the typical 401(k) and 403(b) plan.
So, what’s not to like about this new retirement savings alternative? Our prediction is that, once employees come to understand them, demand might maybe, just possibly, become brisk.
Starting in 2014, most individuals must maintain minimum essential health coverage or pay a penalty. (Please see our post here for a description of the health coverage mandates that apply to individuals and their families.) The Internal Revenue Service recently issued a proposed regulation clarifying the minimum essential coverage rules and other aspects of the individual mandate. Several points addressed in the proposed regulation will be of interest to employers that offer group health coverage to their employees.
Excepted Benefits Are Not Minimum Essential Coverage
Employers might wish to structure programs providing limited health benefits—such as dental and vision coverage or employee assistance—as “excepted benefits” so that these programs will avoid the group health plan requirements. Final regulations issued last year explained that minimum essential coverage does not include “health insurance coverage” consisting only of excepted benefits. The proposed regulation clarifies that no coverage (whether insured or self-insured) consisting solely of excepted benefits will qualify as minimum essential coverage.
This clarification confirms that coverage consisting solely of excepted benefits will not satisfy the employer’s obligation to offer minimum essential coverage to at least 95% of its full-time employees or the individual’s obligation to maintain minimum essential coverage. Employers must offer, and individuals must maintain, other group health coverage in order to satisfy these shared-responsibility mandates.
On the positive side, however, a lower-income employee who is covered by a plan that offers only excepted benefits will not be prevented from receiving premium tax credits. The tax credits help lower-income individuals purchase individual health coverage on an exchange. An employee who has minimum essential coverage from an employer health plan is not eligible for premium tax credits; but employer coverage consisting solely of excepted benefits will not affect the employee’s eligibility. Continue Reading