Employee Benefits Law Report

ERISA plan service provider avoids fiduciary status—what it means for service providers and plan sponsors

A recent Third Circuit decision (Santomenno v. John Hancock, et. al.) has been described as a win for service providers to ERISA plans. It certainly is important because this decision, along with other fairly recent decisions, helps to illustrate when service provider actions become significant enough to make them fiduciaries. A somewhat less discussed point, however, is that this decision also serves as a reminder to plan sponsors about their fiduciary duties and the need to be vigilant in monitoring fees. This blog will provide a brief summary of the decision and the lessons it offers both to service providers to plans and plan sponsors.

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Windsor decision on DOMA–does your plan have a year-end plan amendment deadline?

In April, 2014, the Internal Revenue Service (“IRS”) issued Notice 2014-19, which provided additional guidance addressing the impact on tax-qualified retirement plans of the Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013). In the Windsor decision, the Supreme Court struck down as unconstitutional Section 3 of the Defense of Marriage Act (“DOMA”), which had defined marriage for federal law purposes as a legal union between one man and one woman. Before the Windsor decision, the term “spouse” did not include a same-sex spouse under federal employee benefit laws. After Windsor, same-sex marriages that are recognized under state or foreign law generally must be recognized for federal law purposes.

In Revenue Ruling 2013-17, the IRS ruled that the determination of who is a spouse would be determined by whether the marriage was valid in the state or foreign jurisdiction where that marriage was celebrated without regard to where the individual was domiciled (this standard often is referred to as the place of celebration rule). The Department of Labor also issued guidance adopting this place of celebration rule for ERISA purposes.

Among other things, Notice 2014-19 dealt with the need for tax-qualified retirement plans to adopt plan amendments to conform to the new Windsor standard (the Notice also covered various operational issues that are beyond the scope of this article). Whether or not a tax-qualified retirement plan needs to be amended to conform to Windsor depends on plan design. Any plans that have provisions that are inconsistent with Windsor (e.g., if the term “spouse” is defined under a retirement plan by citing to the old DOMA standard or by referring to the laws of the state of domicile) will have to be amended. On the other hand, plans that currently have provisions that are consistent with the new Windsor standards (e.g., the term “spouse” means the legal spouse of the participant and the plan refers to federal law as the guiding law in that context) do not need to be amended. It seems likely that some plan sponsors will opt to make conforming amendments if there is any uncertainty (e.g., if a “spouse” is defined by reference to a marriage under state law but the plan has in the past been interpreted to follow DOMA). Of course, a retirement plan may refer to a spouse but not specifically define the term. In that case, a plan amendment might not be necessary.

Under the Notice, an amendment to conform a tax-qualified retirement plan to Windsor must be adopted by the latest of (i) the last day of the plan year in which the amendment is first effective; (ii) the due date of the employer’s tax return for the tax year that includes the date that the amendment is first effective; or (iii) December 31, 2014. For calendar year plans, the deadline will be December 31, 2014—not too far down the road. Please note that for 403(b) plans, amendments must be adopted not later than the general amendment deadline specified in IRS Revenue Procedure 2013-22, which has not yet been announced.

Electronic filing requirements take another step –this time it’s top hat plans

Section 110(a) of ERISA authorizes the Department of Labor (the “DOL”) to permit an alternative form of compliance with the reporting and disclosure obligations of Part 1 of Title I of ERISA for “top hat” plans (i.e., “unfunded” plans established for a select group of management or highly compensated employees). Under that authority, the DOL issued a regulation way back in 1975 (29 CFR 2520.104-23) to provide such an alternative method of compliance with reporting and disclosure requirements for top hat plans. Under that guidance, top hat plans are not required to file annual reports (tax-qualified plans use Form 5500 to file those reports). Under this alternative method, a plan administrator must file with the DOL a statement that sets forth the name and address of the employer and its employer identification number; a statement that the employer maintains a plan or plans primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, the number of such plans and the number of participants in each plan. This statement generally must be filed within 120 days of plan adoption.

On September 30, 2014, the DOL proposed new regulations that would require these top hat statements to be made electronically. The stated goal of the DOL is to make the filing of these statements easier—both for plan administrators and for the DOL. The DOL no longer believes making the filings via regular mail or personal delivery is efficient or cost-effective, and noted that it annually receives approximately 2,000 top hat plan statement filings. To make the information on these statements accessible, the DOL has been converting the paper filings to electronic format. Apparently, the DOL wishes to save itself from that work in the future in a way that should not impose undue burdens on plan administrators. Under the proposed regulation as currently drafted, electronic filing for all new top hat plans would become mandatory 120 days after the final regulation is published in the Federal Register. Filings with the DOL via mail or personal delivery no longer would be acceptable.

On the same day the proposed regulations were issued the DOL launched a new web-based filing system for the notices described above, which can be found here. Use of this new system is voluntary pending the adoption of a final regulation, but the DOL stated it will treat plan administrators who use the new system as having satisfied the requirement to provide the statement.

The preamble to the proposed regulations states that these new filing rules are not intended to change the content requirements for top hat statements. Of course, an email address would have to be provided with electronic filings (email addresses are not currently required). If adopted, the electronic filing process would include an email confirmation back to the plan administrator that the filing has been received. All filed statements would be posted on the DOL’s website.

Employee Benefit Plan Limits – Reference Chart for 2015 and Prior Cost-of-Living Adjustments

The Internal Revenue Code sets forth various dollar limitations on benefits, contributions, compensation under employee benefit plans. The IRS has announced limits for 2015 tax years. For your reference, the IRS Cost-of-Living Adjustments summarizes these dollar limitations, as modified by the IRS for cost-of-living adjustments (COLAs), for 2015 and prior years.

Here we go again: Does the DOL’s request for information regarding self-directed brokerage accounts mean new fee disclosure requirements are coming soon?

If you’re a fan of the tv show “The Simpsons,” you might remember an early episode where Homer Simpson launched a crusade against every public safety issue in the city. The result was practically every square inch of the town contained signs alerting people to every dip, pothole, and other nuisance on the roads. After watching that episode again recently (we won’t admit which one of us got sucked into the tv marathon), we were reminded of a first year torts class in law school that discussed the efficacy of public safety notices. The professor made the comment, “A wealth of information leads to a poverty of attention.”

That comment is especially fitting with respect to ERISA fee disclosures, particularly regarding defined contribution plans. Recently, the DOL requested information and comments about self-directed brokerage accounts (“SDBAs”). The DOL’s history with trying to provide guidance on SDBAs provides a great illustration of the difficulty of determining how much information is too much. On one hand, the DOL has been concerned that defined contribution plan participants will be unable to navigate the wide universe of investment options available under SDBAs unless strict procedural rules are in place. On the other hand, the plan sponsor community has tried to make clear that rank-and-file employees typically are not interested in SDBAs. Instead, more sophisticated investors request this feature, and they do not need a detailed protective regime. The DOL, to its credit, has recognized the different points of view on this issue and has sought input to help develop a balanced approach to regulating SDBAs.

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ERISA contractual time limitations for filing civil actions: why you may want to add these provisions to your benefit claim denial letters

ERISA plan sponsors were given what was described in our earlier post as a “holiday gift” last December with respect to plan-based statutes of limitation when the Supreme Court decided Heimeshoff v. Hartford Life & Accident Insurance Co. There, the Court declared a three-year plan-based (or contractual) time limitation for the filing of an ERISA civil action based on a benefit claim denial to be reasonable. Recently, the Sixth Circuit returned to the subject of plan-based statutes of limitation in Moyer v. Metropolitan Life Insurance Co., decided in August.

In Moyer, a divided panel of the U.S. Court of Appeals for the Sixth Circuit declined to enforce the contractual time limitation expressed in the plan documents, holding that the plan’s administrators did not substantially comply with ERISA Section 503 when they failed to include the plan’s own limitations period for filing an action based on a claim denial in the plan’s denial letter to the participant. ERISA’s Section 503 claims procedures and its explanatory regulations provide that claim denial letters must include a “description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action.” 29 C.F.R. 2560.503-1(g)(iv). Some courts have interpreted this provision to simply require a statement instructing the participant or beneficiary of his/her general right to sue.

However, the Moyer majority did not adopt this view, finding that the inclusion of the time limitation within the plan document did not equate to constructive notice to the participant or beneficiary. Instead, the court held, “[t]he exclusion of the judicial review time limits from the adverse benefit determination letter was inconsistent with ensuring a fair opportunity for review and rendered the letter not in substantial compliance….” with the ERISA requirements. As a result, the Sixth Circuit found that the notice was insufficient to trigger the plan-based limitations period for filing the civil action.

The opinion itself was delivered along with a dissent, positing that majority oversimplified the issue and, in fact, relied upon inadequate briefing as the issue of sufficiency of notice under Section 503 was not central to the appeal. Further, many courts outside of the Sixth Circuit have found that the text of this regulation does not require claims letter disclosure of limitations periods for bringing civil actions. In addition, the dissent opined that the majority gave short shrift to considering whether the Section 503 “substantial compliance test” was satisfied, even if the limitations period was required to be stated. As a result, the Moyer decision does not necessarily suggest a changing of the tide on the issue, but does indicate that the Sixth Circuit takes seriously the need to communicate these provisions to participants in at least some manner other than simply including them in the plan document.

It is important to note here that the summary plan description for the plan at issue in Moyer did not include the plan-based limitations period for filing a civil action. Had the summary plan description disclosed this information (and presuming the summary was properly provided to the participant), the issue may not have progressed to the Sixth Circuit at all. Further, this particular limitations period began running when proof of claim was required, rather than upon adverse determination or upon final determination upon review. Had the statute of limitations run from the final determination upon review, the limitations would not have been pertinent yet at the time of the initial claim denial letter.


Even if the majority opinion in Moyer fails to apply in other fact scenarios or garner broad support across circuits, at the very least, the decision represents the current interpretation of the law within the Sixth Circuit. For plan administrators of benefits plans governed by the Sixth Circuit and beyond, we’d recommend the same course of action – in drafting future denial of claims letters, any plan-based limitations period should be added to the explanations regarding a participant’s right to bring suit, even if you already include this information in your summary plan descriptions. This is a belt and suspenders approach to compliance, but it is a simple step that could save much consternation and expense down the road. In short, add it to the to do list — the sooner, the better.

Join Us In Cleveland On Thursday, October 23 for The Greatest Seminar on Earth!*

Register here

There is no charge for this seminar; however, seating is limited. Please RSVP by Monday, Oct. 20. If you have questions, please contact
Erin Hawk.

Thursday, Oct. 23, 2014

7:45 – 8:30 a.m.
Registration and Breakfast

8:30 – 11:00 a.m.

LockKeepers Restaurant
8001 Rockside Road
Valley View, OH 44125

Come One, Come All!

Feel like a lion tamer or a trapeze artist trying to avoid a risky move or a dangerous misstep?

Join Porter Wright’s Labor and Employment Group in Cleveland on Thursday, October 23 as we present . . .

The Greatest Seminar On Earth!*
The Circus Is Coming . . . To A Workplace Near You

Walking the Tightrope: Balancing Your HR Decision-Making Process to Reduce Risk
Tracey L. Turnbull

In your role, every day is a balancing act. You face significant challenges where one misstep can put your business at risk. In this session, we will review recent significant judicial and administrative decisions addressing a variety of employment law issues. This review will highlight the best practices and instincts that will keep you in balance and aloft.

Become the Accommodation Ringleader: Managing Workers’ Compensation and ADA Issues Effectively
Fred J. Pompeani and Leigh Anne Benedic

Feeling like ADA and Workers’ Compensation issues are a juggling act? In this session, we will help you keep from dropping the ball by discussing key Workers’ Compensation and ADA concerns that any employer might face, and walk you through some of our best practices so you can keep accommodation issues from becoming a circus.

The Healthcare Reform Sideshow Takes Center Stage
Ann M. Caresani

Keeping up with the latest developments in healthcare reform is not a task for the faint of heart. In this session, we will discuss some of the most recent guidance, strategies and issues that employers are dealing with as they strive to get their workforce and their healthcare plans into shape prior to compliance deadlines.

You won’t want to miss this one!

*In our humble opinion

The greatest seminar on Earth! In our opinion...

Join us for our upcoming program in Columbus on the benefits of ESOPs

Employee Stock Ownership Plans (ESOPs):
A Tax-Advantaged Strategy for Growth, Liquidity and Succession Planning

Tuesday, September 23, 2014


3:30 – 4:00 p.m. –  Registration
4:00 – 6:00 p.m. – Program

Join us for hors d’oeuvres and cocktails immediately following the program in our Atrium.

Porter Wright
41 S. High Street, 29th Floor
Columbus, Ohio 43215

Complimentary Parking: We will validate parking tickets from the Huntington Garage, located directly behind our building.

In an uncertain tax and financial environment, business owners are increasingly looking at ESOPs as a potential strategy for tax-preferred growth and business succession planning. Join us for two panel discussions as we discuss the ins and outs of ESOPs.

  • The ABCs of ESOPs
  • In this panel discussion, we will cover:
  • What is an ESOP?
  • Why are ESOPs popular?
  • Tax advantages and planning strategies
  • Valuation considerations
  • Creating liquidity for the selling owner
  • Is an ESOP right for your company?


Ann Caresani, Partner
Porter Wright
Greg Daugherty, Partner
Porter Wright
Ted Lape, Principal
Lazear Capital Partners
Lori Stuart, Executive
Crowe Horwath LLP

ESOP Success Stories

This panel discussion will feature current ESOP companies discussing why they adopted their ESOP and how it has benefitted their company.


Rich Helmreich, Partner
Porter Wright
Barry Lubow, Vice President and General Counsel
DLZ Corporation
Bob Lyon, President
Lyon Video
Art DeCrane, CEO
FST Logistics, Inc.

Please join us on Tuesday, September 23, to discuss the advantages that ESOPs provide and learn why ESOPs are rapidly gaining popularity as a business succession alternative. 


SEC money market reform – ERISA impact

Our sister blog reported recently that the Securities and Exchange Commission (the “SEC”) published final regulations that reform money market mutual funds (“MMFs”). The regulations provide for two core reforms: (1) “Institutional” MMFs, other than those invested primarily in government securities, are prohibited from using a stable net asset value (“NAV”), and (2) MMFs must impose redemption fees or liquidation gates when the fund’s liquidity falls below certain levels. The specific details of these rules are beyond the scope of this blog. Instead, the message of this blog is that these regulations could affect many ERISA plans because MMFs are an important part of the investment strategy of both defined contribution and defined benefit plans. Unfortunately, the regulations raise several ERISA questions and provide little in the way of answers. The SEC has acknowledged these concerns in the preamble of the regulations and has promised to work with the Department of Labor (the “DOL”) to answer these questions. In the meantime, however, plan sponsors and fiduciaries should consider several issues.

1.  General Fiduciary Responsibilities Prime MMFs.
With respect to the requirement that ERISA plan fiduciaries prudently manage plan assets, the DOL staff advised the SEC staff that a MMF’s liquidity and potential for redemption restrictions is just one of many factors a plan fiduciary would need to consider in evaluating the role of a MMF in a plan’s investment portfolio. This issue is a particular concern to defined benefit plans that invest in prime MMFs. Fiduciaries of defined benefit plans must recognize that prime MMFs under the new rules will have more volatility and less liquidity than MMFs that invest in governmental securities. Fiduciaries should consult the fund strategy and investment policies to determine whether prime MMFs still fit in the investment strategy.

Defined contribution plans generally should not have these concerns because under the “retail” exception, MMFs offered as investment options under these plans may still have a fixed $1 per share value.

2. QDIAs.
The SEC acknowledged in the preamble that the imposition of a liquidity fee or redemption gate within 90 days of a participant’s default investment to a MMF could impair the ability of the MMF to qualify for QDIA relief. The SEC cited DOL Field Assistance Bulletin in 2008-03 and said that to avoid this concern, a plan sponsor or service provider could pay the fee rather than the participant. Alternatively, the plan sponsor or other party in interest could loan the funds for the payment of ordinary expenses of the plan for a purpose incidental to the ordinary operating expenses of the plan to avoid the effects of the fee or gate. The preamble to the regulations state that the DOL and the SEC will work together to provide additional guidance on this issue at a later date.

3. RMDs and Refunds.
With respect to the processing of required minimum distributions and certain distributions of refunds on a timely basis, the SEC was less helpful. It said generally that it seems rare that these types of issues would arise. To the extent that a redemption fee prevented a timely distribution of RMDs, the individual could file a Form 5329 with the IRS to require a waiver from excise taxes. The SEC acknowledged in a footnote that the discretion to grant or waive the excise taxes rests with the IRS. Additionally, if a refund could not be distributed in a timely basis because of a redemption fee or gate, and that raised plan qualification issues, employers should consult with EPCRs.

Where Do We Go From Here?
It is encouraging that the SEC and DOL are aware of these issues and have promised to provide guidance in the future. The potential problem, however, is that the DOL or the IRS could take positions in an audit that put the plan sponsors or fiduciaries on the defensive, despite the lack of guidance. What should plan sponsors and fiduciaries do in the meantime? They should review their MMF fund offerings and determine if they continue to remain appropriate investment options. They also should plan for any redemption fees or gates. Finally, they should document any decisions they make with respect to these issues. Hopefully, the SEC and DOL will provide additional guidance in the future that will make these decisions easier. Until then, the classic fiduciary advice of monitoring investments and documenting the reasons for making decisions is critically important.

DOL updates missing participant guidance

On Thursday, the Department of Labor issued a Field Assistance Bulletin updating its prior guidance on locating missing participants. As before, the guidance technically only applies in the context of terminating defined contribution plans, though the guidance can be instructive for fiduciaries trying to locate missing or unresponsive participants in other retirement plan contexts as well. A central reason for the update from the Department is that two of the mandatory locator options noted in the now 10-year-old prior guidance are no longer available (the Social Security letter forwarding program ceased in May of this year, and the IRS letter forwarding program became unavailable for retirement plans as of August 2012).

The new guidance in FAB 2014-01 reiterates that even though a decision to termination a retirement plan may be a settlor decision, any steps a fiduciary takes to implement such a decision will administrative in nature and subject to ERISA’s fiduciary responsibility provisions. In carrying out this responsibility, the Department basically maintains its prior guidance while replacing the now-unavailable letter forwarding service steps with a requirement to free internet search tools (elevating this step from optional in the prior guidance to required in the current guidance). Accordingly, from FAB 2014-01, these are now the required steps:

  1. Use Certified Mail. Certified mail is an easy way to find out, at little cost, whether the participant can be located in order to distribute benefits. The Department provided a model notice that could be used for such mailings as part of a regulatory safe harbor, but its use is not required and other notices could satisfy the safe harbor.
  2. Check Related Plan and Employer Records. While the records of the terminated plan may not contain current address information, it is possible that the employer or another of the employer’s plans, such as a group health plan, may have more up-to-date information. For this reason, plan fiduciaries of the terminated plan must ask both the employer and administrator(s) of related plans to search their records for a more current address for the missing participant. If there are privacy concerns, the plan fiduciary engaged in the search can request that the employer or other plan fiduciary contact or forward a letter for the terminated plan to the missing participant or beneficiary. The letter would request that the missing participant or beneficiary contact the searching plan fiduciary.
  3. Check With Designated Plan Beneficiary. In searching the terminated plan’s records or the records of related plans, plan fiduciaries must try to identify and contact any individual that the missing participant has designated as a beneficiary (e.g., spouse, children, etc.) to find updated contact information for the missing participant. Again, if there are privacy concerns, the plan fiduciary can request that the designated beneficiary contact or forward a letter for the terminated plan to the missing participant or beneficiary.
  4. Use Free Electronic Search Tools. Plan fiduciaries must make reasonable use of Internet search tools that do not charge a fee to search for a missing participant or beneficiary. Such online services include Internet search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries and social media.

If these steps don’t yield any results, the fiduciary must still consider whether additional steps are appropriate considering account balance size for the missing participants, and cost of search. This is where paid search services come into the equation, such as “commercial locator services, credit reporting agencies, information brokers, investigation databases and analogous services that may involve charges.”  On the topic of charges, the DOL maintains its position that it is permissible to charge individual participant accounts for the efforts made to find participants, provided the charges are reasonable.  The reasonability of charges against participant accounts must be assessed not only in the context of actually charging participant accounts for search expenses, but also in weighing between alternative distribution options if a participant cannot be located, such as fees that would apply to a rolled-over IRA or to a deposit account.  The bottom line here is that while it is permissible to charge participant accounts, fiduciaries cannot attempt to liquidate small account balances through fees and charges, if they are keeping with their fiduciary duties.

Similar to the prior guidance, the new FAB also then lays out distribution options for plan fiduciaries where all required and reasonable searches have not located missing participants. An IRA rollover remains the preferred option (following the applicable safe harbor fiduciary rules for automatic rollovers, linked above), with alternative options to open an interest-bearing federally insured bank account in the participant’s name, or to transfer the account to a state unclaimed property fund. The DOL cautions fiduciaries to keep in mind that the latter two alternatives result in tax consequences to the participant, and that this must be taken into account in determining if these options are in fact appropriate in the circumstances. Taking a clearly skeptical view of these two alternatives, the DOL goes farther that it had in previous guidance in saying ” in most cases, a fiduciary would violate ERISA section 404(a)’s obligations of prudence and loyalty by causing such negative consequences rather than making an individual retirement plan rollover distribution.”

Lastly, the DOL also reiterated that a distribution with 100% income tax withholding (effectively transferring the entire account balance to the IRS), is NOT an acceptable option for fiduciaries in its view.

In the end, this update doesn’t provide much additional guidance for fiduciaries that wasn’t likely being utilized in practice already.  If nothing else, the DOL formalized its foray into modern technology by essentially telling plan fiduciaries to “Google it.” Here’s hoping the same happens for the DOL’s electronic disclosure guidance.