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Recently, HHS Office of Civil Rights (OCR) announced that it has entered into settlement agreements with two entities following enforcement actions, both arising from stolen laptops that were not encrypted in accordance with the Security Rule.

According to HHS, an unencrypted laptop was stolen from a physical therapy center in Springfield, Missouri.  The center was part of a larger health system, Concentra Health Services.  Through conducting required HIPAA risk analyses, Concentra had previously recognized that the lack of encryption on its devices posed a security risk.  However, HHS found that Concentra’s efforts to address this risk were “incomplete and inconsistent over time.”  Concentra has agreed to pay over $1.7 million to settle potential violations, as well as to submit a corrective action plan.  This significant monetary penalty suggests HHS will not look favorably upon violations of the Security Rule that the covered entity has documented but not taken reasonable efforts to correct.
Continue Reading Two HIPAA Settlements Follow Stolen Laptops

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 Appellate Court Affirms Fiduciaries’ Liability for Failure to Monitor Revenue Sharing Paid to Recordkeeper

On Monday, the Supreme Court unanimously ruled that a reasonable deadline for filing a lawsuit for benefits was enforceable.  (Heimeshoff v. Hartford Life & Accident Insurance Co.) The decision is important because it confirms that the clock may start before a claim is filed under the plan’s mandatory administrative process.  Plan sponsors who have not already done so should review the limitations periods under their plans and consider revising or stating more clearly when the limitations clock starts.
Continue Reading Supreme Court Confirms Plan Sponsor’s Right to Set Deadline for Filing Lawsuits

A recent GAO Report offers interesting insight into the Department of Labor’s thinking on electronic disclosure.

For the better part of the last ten years, many plan sponsors and service providers have been pushing for more flexibility to provide required disclosures electronically.  In particular, they have asked the Labor and Treasury Departments to replace an existing “opt in” regime with an “opt out” regime.  Instead of requiring affirmative consent to distribute communications electronically, many plan sponsors and service providers would like the default to be electronic disclosure–with an opportunity to elect to receive paper.

In 2011, the Department of Labor issued a public request for information regarding electronic disclosures.  The responses included thoughtful suggestions for moving toward an “opt out” regime while still ensuring that important communications are actually received.  The Department has not formally taken action in response to the RFI, but comments included in the GAO report offer insight into the Department’s thinking.

The GAO report summarizes the existing Labor and Treasury rules on electronic disclosure, and offers three suggestions for improvement:
Continue Reading Electronic Disclosure: Which Way Are We Going?

By now, employers who sponsor self-insured medical plans are familiar with the fees they must pay to fund Patient-Centered Outcomes Research (“PCORI”) and the Transitional Reinsurance Program. This post describes a detail that can have a significant effect on the amount that each sponsor must pay.

Both fees are calculated as a dollar amount per covered life.  The implementing regulations describe three ways to determine the number of covered lives:

  1. Actual count (averaging), where you count the number of covered lives on each day of a period (a year for the PCORI fee and 9 months for the Reinsurance fee), and then divide by the number of days;
  2. Snapshot, where you count the number of covered lives on one or more days per calendar quarter and then divide by the number of days; and
  3. Form 5500, where the number of covered lives is based on the number of participants reported on the plan’s Form 5500.

There are minor differences in the calculations for the PCORI fee and the Reinsurance fee.  Those differences and other details are not discussed in this post.

Whereas the actual count and snapshot methods require counting every person in the plan–including employees, spouses, and dependents–the Form 5500 method offers a shortcut that can produce significant savings for large employers.  Instead of actually counting covered lives, the plan sponsor simply deems the number of covered lives to be the number of participants at the beginning of the year plus the number of participants at the end of the year.

The reason for this shortcut is that a Form 5500 reports only the number of participants, and not spouses or dependents.  The shortcut assumes an average of one spouse or dependent per participant.  For plans that have an average of more than one spouse or dependent per participant, this shortcut will result in savings.
Continue Reading Potential Savings Opportunity for Sponsors of Self-Insured Medical Plans

We recently observed that ERISA gives employers considerable leeway to design plan rules that fill in gaps in ERISA.  A recent Second Circuit case, Thurber v. Aetna Life Ins. Co., illustrates two important ways that plan drafting can meaningfully affect the outcome of litigation involving the plan:

  • First, a plan may specify the standard of review that a court must apply in a dispute.
  • Second, plan language can affect a plan’s ability to recover overpayments.

The case illustrates that good language that fills in gaps can save a lot of money.  In contrast, not filling in gaps — or having language that is not clear — can prove costly.
Continue Reading Second Circuit Reinforces Plan Drafting Opportunity for Employers

Our colleagues at InsidePrivacy recently observed that employers are increasingly giving employees access to work email and apps on their personal devices.  In a recent survey, 38 percent of CIOs said that their organizations will stop providing laptops, smartphones, and tablets to workers by 2016.  As our colleagues noted, Bring Your Own Device (“BYOD”) policies

Employees and retirees frequently receive information relating to benefits – eligibility to participate, coverage for certain medical treatment, enrollment status, anticipated benefits at retirement, and so forth.  Sometimes that information appears in formal documents published by named plan fiduciaries.  Other times it comes in response to one-off inquiries made to persons working in the HR department or employed by a third-party administrator.  A recent Fifth Circuit decision highlights the risk posed by erroneous information:  fiduciaries’ possible liability for extra-contractual relief that will make a misinformed plaintiff “whole.”
Continue Reading Providing Erroneous Information to Participants May Expose Plan Fiduciaries to Liability for “Make Whole” Relief

Many appellate courts have ruled that fiduciaries who allow plan investment in employer stock are entitled to deferential judicial review or a “presumption of prudence” when the plan document requires or encourages the offering of employer stock as an investment option.  But a new Second Circuit decision demonstrates that references to an employer stock fund in the plan document may not sufficiently “encourage” that option to give rise to the presumption.  Taveras v. UBS AG, No. 12-1662 (2d Cir. Feb. 27, 2013).
Continue Reading When Does a Plan Document “Encourage” an Employer Stock Fund Enough to Justify the Presumption of Prudence?

As recently reported in a Wall Street Journal article, plaintiffs’ lawyers hatched a new generation of executive compensation lawsuits in 2012, which are expected to be rolled out again in 2013.  These lawsuits are distinct from the first generation of “say-on-pay” lawsuits in 2011, which generally were filed against companies following shareholder meetings based