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Baker & McKenzie Compensation and Benefits Quarterly Update

Articles include: PBGC Issues Proposed Rule on Reportable Events; HIPAA Final Rule Issued; Time to Review Medical Plans in Light of Supreme Court Decision; New PPACA Guidance on Expat Plans; FATCA and FBAR Compliance Deadlines Approaching for 2013; IRS Prevails on Application of Section 409A to Discounted Stock Options; Federal District Court Reinforces that Typical Equity Plans are not Subject to ERISA; Target Stock Option Deductions May No Longer Be Available to Acquiring Corporations; Same-Sex Marriage, DOMA and Employee Benefits.  MORE >>

Baker, Daschle, Dole, and Mitchell Launch Health Care Project

Excerpt: Former U.S. Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole, and George Mitchell today announced the launch of the Bipartisan Policy Center's (BPC) Leaders' Project on the State of American Health Care. The Leaders' Project is an unprecedented effort that will produce politically viable policy recommendations to address the delivery, cost, coverage, and financing challenges facing the nation's health care system. 'All four of us have seen many legislative battles over health care in our careers. The time has come to put aside partisanship and put forward solutions,' said Senator Dole.

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Ohio Makes a Baker's Dozen

"The state of Ohio announced [on May 26] that its CO-OP would shutter, forcing its more than 20,000 participants to find new coverage within the next 60 days. The announcement marks 13 out of the original 23 Obamacare CO-OPs that have closed its doors at a total cost to taxpayers of $1.36 billion."

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U.S. Supreme Court Poised to Address ERISA Pleading Standards for Underperformance Claims

"The question now before the Court is whether plaintiffs alleging imprudence based on underperformance must plead a 'meaningful benchmark' at the motion-to-dismiss stage and, if so, how closely the comparator must align with the challenged fund's objectives, risks, and strategy.... Briefing and oral argument will occur this spring and a decision is expected in or before June 2026." [Anderson v. Intel Corp. Inv. Policy Comm., No. 22-16268 (9th Cir. May 22, 2025; cert. pet. granted Jan 16, 2026, No. 25-498)]  MORE >>

2024 HIPAA Action Items for Health Plans

"Due December 23, 2024: [1] Update HIPAA policies and procedures.... [2] Update business associate agreements ... [3] Create attestation form.... [4] Update HIPAA training presentations.... Due February 16, 2026: Update Notice of Privacy Practices."  MORE >>

Recent Trends in Excessive Fee Litigation

"In evaluating the plausibility of excessive fee claims, courts have held plaintiffs to pleading standards focused on [1] the requisite specificity of alleged excessive fees; [2] whether comparisons used of such fees are appropriate 'apples-to-apples' comparisons; and [3] whether fees are truly excessive compared to the services rendered. In addition, lack of standing remains an important ground for potential dismissal."

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Third Circuit Affirms Certification of ERISA Class Though Named Plaintiffs Had Not Invested in All Challenged Investment Options

"By tying alleged injuries to root decisions or broader courses of conduct, participants and beneficiaries may more readily be able to challenge a defined-contribution plan's investment lineup on a class basis, even if those participants and beneficiaries have not invested in each of the options about which they seek to complain." [Boley v. Universal Health Serv. Inc., No. 21-2014 (3d Cir. Jun. 1, 2022)]  MORE >>

Supreme Court Considers the Right Balance in ERISA Excessive Fees Case

"The justices search for the proper balance between preventing plan misconduct and imposing too many burdens on plan fiduciaries.... Justices Sotomayor and Kagan propose a middle ground.... The Court is wary of excessive litigation.... The Court seems unlikely to dispose of the case on standing or the 'large menu' defense." [Hughes v. Northwestern Univ., No. 18-2569 (7th Cir. Mar. 25, 2020; oral arg. transcript Dec. 6, 2021)]  MORE >>

Tax Bill's Impact: Consider Payment of Executive Comp Before Year-End

"Companies subject to the $1 million deduction limitation of Section 162(m) in 2018 may want to consider accelerating payment of compensation otherwise payable in 2018.... Annual bonuses in respect of 2017 are worthy of particular (and quick) examination."  MORE >>

ERISA Stock-Drop Litigation and the Dudenhoeffer 'More Harm Than Good' Pleading Standard

"It is not clear what specific facts a plaintiff could allege that would support the claim that a prudent fiduciary in the same circumstances could not have concluded that the proposed alternative actions would do more harm than good with respect to the plan's participants. One question is whether there can ever be disclosure of negative news with respect to a company's stock, or negative actions taken with respect to employer stock fund, that will not contribute to the lowering of the stock price and thereby, in the eyes of a prudent fiduciary, do more harm than good to current participants in the fund."  MORE >>

Cigna Ordered to Pay More Than $13 Million in Out-of-Network Healthcare Provider Billing Dispute

"The court's decision relied primarily on two findings. First, the court determined that Cigna improperly applied the 'exclusionary language' contained in the plans it administered. Second, the court determined that Cigna failed to establish that the relevant language in the plan documents created a constructive trust or equitable lien." [Connecticut General Life Ins. Co. v. Humble Surgical Hospital, No. 4:13-cv-3291 (S.D. Tex. June 1, 2016)]  MORE >>

Supreme Court Decision Addresses Subrogation Rights of Health Plans (Again)

"The Court noted that the Board could have enforced the lien against the settlement had it acted quickly. But when the Board acted it appeared that the identifiable funds were gone. And the law of equity does not permit the Board to enforce a lien in equity against Montanile's general or other assets. The fact that this is an ERISA plan doesn't change the result."  MORE >>

Texas Supreme Court Affirms Significant Houston Workers Pension Ruling

"Following extensive briefing and oral argument, the Texas Supreme Court ... ruled against the city and the handful of employees who had wanted to get early distribution of their pension benefit while continuing to be paid for the same job and also be eligible for a new 401(k) plan benefit." [Klumb, et al. v. Houston Municipal Employees Pension System, No. 13-0515 (Tex. Mar. 20, 2015)]  MORE >>

Same-Gender Spouses and 401(k) and Pension Plans: Does Your Plan Need to Be Amended by December 31, 2014?

"First, the plan sponsor should confirm that it has operationally complied with the requirements of the Windsor decision and the IRS rulings addressing [same-gender] spouses since June 26, 2013 (or, where appropriate and applicable, the Delayed Effective Date). Second, to the extent it hasn't done so already, the plan sponsor should review its qualified plans to determine whether any of the plans have a definition of spouse that is inconsistent with Windsor and the IRS rulings. If so, the plan will need to be amended by December 31, 2014 ... Third, when drafting the plan amendment, the plan sponsor will need to determine whether the plan relied upon the Delayed Effective Date[.]"  MORE >>

Supreme Court Does Away with Presumption of Prudence: What's Next for Employer Stock in 401(k) Plans and ESOPs?

"Before Dudenhoeffer, some employers have required a plan to offer employer stock purportedly in the employers' 'settlor' capacity in order to arguably keep decisions related to employer stock from being deemed fiduciary decisions. The Court's opinion calls into question the continued viability of such a strategy." [Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014)]  MORE >>

Text of Brief by Cambridge Financial Services, LLP Urging Supreme Court to Overturn Ninth Circuit Decision in Tibble v. Edison (PDF)

"CFS's experience in advising and counseling ERISA fiduciaries and its knowledge and understanding of prevailing and evolving best practices and 3 standards of care yields four key observations: [1] many plan fiduciaries, especially among large plans, already follow good monitoring practices, meaning that reversing the Ninth Circuit will not result in increased costs for these fiduciaries or their employers; [2] the cost of regular monitoring includes a small amount for 'benchmarking' plan fees in all service categories -- investment, administration, trustee, consulting, and the like, and is, in many cases, largely born by plan participants, not employers or fiduciaries; [3] the Ninth Circuit's decision threatens to erode the past decade's progress on fee reductions in defined contribution plans, driven in part by private lawsuits, which has saved plan participants billions of dollars ; and [4] the Ninth Circuit's standard of 'material' changed circumstances is unworkable and illogical."  MORE >>

Katten Muchin Rosenman LLP Comment Letter to IRS on Proposed Regs Regarding Calculation of UBTI for VEBAs (PDF)

"[U]nless Q&A-5 is revised, VEBAs which have been operating in a permissible manner will find that their investment income which was earned during the current year in which the regulation is promulgated, and perhaps even prior to the date that the regulation is enacted, will be subject to tax. I respectfully request that Q&A-5 be revised to provide that the effective date of the regulation be the first taxable year STARTING (not ENDING) on or after the date of publication of the final regulation[.]" [Editor's note: The author was the principal author of the 1980 proposed VEBA regulations.]

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Davis & Harman LLP Comment Letter to SEC on Standards of Conduct and Other Obligations of Broker-Dealers and Investment Advisers (PDF)

"Because it is not possible to determine the effects of possible SEC reforms without taking into account the interaction with possible DOL reforms significantly affecting the same conduct and the same IRA market, the responses to the SEC Request will virtually all be incorrect as soon as the DOL acts, thus rendering the SEC's administrative record unhelpful.... [T]here is complete overlap between the two projects with respect to investment services provided to IRA owners. Since IRA assets were approximately $4.9 trillion as of the end of 2011, the degree of overlap between the two projects is enormous."  MORE >>

Delaware Health Officials Celebrate First Health Exchange Enrollee

"Department of Health and Social Service officials have declared 59-year-old Janice Baker of Selbyville the first confirmed resident to enroll in the marketplace. Baker said Tuesday that she started looking on Oct. 1 and, like many people, made several frustrated attempts to signup online and spent hours on the phone. But Baker says she had success once she cleared the browsing history, cookies and other temporary data on her computer." [Editor's note: Janice Baker is no relation -- that we know of -- to the BenefitsLink staff.]  MORE >>

Keogh Plan Need Not Comply with ERISA to Be Exempt in Bankruptcy

In Re: Baker, Case No. 09-13144 (US 11th Cir., December 22, 2009). Excerpt: A United States District Court has affirmed the decision of a bankruptcy court that Baker's Keogh plan was not exempt under Section 222.21(2)(a)(1), Florida Statutes. Baker was the sole participant in and beneficiary of a Keogh plan managed by Fidelity Investments, which had obtained letter rulings from Internal Revenue Service that the plan was 'acceptable under Section 401 of the Internal Revenue Code.'  MORE >>