In companion decisions in Fischer v. Philadelphia Electric, the 3d U.S. Circuit Court of Appeals has presented a blueprint for employers contemplating benefit program changes and enhancements, while at the same time responding to employee inquiries about such possibilities in the context of day-to-day operations. Yet the court's unwillingness to establish a bright-line rule reaffirms the need for precision, clarity, accuracy and consistency in communicating with employees and other beneficiaries about not only plan operations, but also contemplated changes.
The Pension Benefit Guaranty Corporation (PBGC) announced on March 13 proposed regulatory changes to extend deadlines and simplify procedures companies must follow in closing out fully-funded pension plans insured by PBGC.The proposed regulation, in the March 14, 1997, Federal Register, was developed after conducting focus groups with pension plan practitioners and takes into account participant concerns and PBGC's experience.
The current rules used to end a fully-funded single-employer pension plan insured by PBGC have caused some plan administrators to miss deadlines and restart the process, which added cost and time to the process and delayed payments to participants.
The proposed changes would give plan administrators more time to meet deadlines. The deadline for filing a standard termination notice with PBGC would be extended from 120 days to 180 days after the proposed termination date. Plan administrators would also have up to 120 days, rather than the current 60 days, to distribute the plan assets after they have received a clearance letter from the IRS. Plan assets are normally distributed through the purchase of annuities or lump sum payments.
The proposal waives penalties for late filing of the post-distribution certification if it is filed within 90 days after the distribution deadline. A separate notice in the March 14, 1997, Federal Register applies the waiver immediately.
The proposal adds a new requirement that plan administrators inform participants about state guarantees that apply to their benefits in the event the annuity provider encounters financial problems. To make it easier for administrators to comply, PBGC has developed a model notice.
To further simplify the termination process, PBGC has also developed a model notice of intent to terminate that plan administrators may use to inform plan participants of the intended plan termination and the effect it will have on their benefits.
Both model notices would become part of the forms and instructions in the standard termination package.
Financial institutions may not use employee benefit plans as bargaining chips in negotiations to sell their subsidiaries or divisions, warned the U.S. Department of Labor's Pension and Welfare Benefits Administration (PWBA).PWBA Deputy Assistant Secretary Alan D. Lebowitz said, "The department is concerned that other financial institutions may be using their plans to barter for higher purchase price. There is no gray area under the law employers cannot promise prospective buyers that they will get plan business, especially if they stand to profit by reaping a higher price on the sale of an affiliate."
The department has learned that some financial institutions may be misusing their authority to hire investment managers and service providers for plans when engaging in such sales. One recent settlement with the Labor Department involved such an arrangement regarding the sale of a subsidiary by a nationally prominent bank. As part of the sale, the bank had agreed to continue to retain the subsidiary being sold as investment manager of the bank's employee benefit plans in exchange for a higher sale price for the subsidiary.
Under the proposed nonenforcement policy, the department would not reject as deficient the Form 5500 reports of a multiemployer collectively bargained welfare plan under certain conditions. Reports would not be rejected if the opinion of the plan's accountant, accompanying the Form 5500, is either "adverse" or "qualified" solely because the plan's financial statements do not include the plan's estimated cost for providing future retiree health and other post-retirement welfare benefits. The American Institute of Certified Public Accountants' (AICPA) Statement of Position 92-6 (SOP 92-6) requires that the financial statements of the plan include this projected cost.
QUESTION 38: Our company will be offering dental insurance for the first time this January. Do we have to offer this benefit to former employees who are currently participating in other health plans through COBRA?
QUESTION 39: What are the legal requirements for notification to a qualified beneficiary (QB) before the end of the COBRA continuation period that COBRA coverage is about to expire?
QUESTION 40: Would a child who has been determined by the Social Security Administration to be disabled qualify for the COBRA 29-month extension due to disability? This presumes that the child was not the employee.
QUESTION 41: Under COBRA, an employee has the right to elect to continue to participate in our medical flexible spending account (FSA) after termination of employment. May the employee pay for the FSA "premium" in a lump sum at termination of employment?
QUESTION 42: A cafeteria plan allows for premiums on policies held by dependents to be paid for by employees on a pre-tax basis. These other policies are not maintained by the employer running the cafeteria plan. Are they subject to COBRA from the employer maintaining the cafeteria plan?
QUESTION 43: An employee working in one state who became pregnant has voluntarily quit to move with her husband to another state where he is employed. Is she eligible for the same benefits coverage under COBRA for the pregnancy even though she no longer resides in the state where she worked?
QUESTION 44: An employee left the country and was placed on a leave of absence. We dropped the employee from coverage and did not offer COBRA coverage. At that time, the employee intended to return to work. The employee has now returned to the country and has decided not to be reemployed. He also wants to elect COBRA. Is he entitled to elect COBRA?
QUESTION 45: Is the spouse of a federal employee who voluntarily separates from federal service entitled to continuation of health coverage even when the former employee elects not to continue coverage for himself?
QUESTION 46: A group health plan excludes coverage for pregnancy related care for dependent daughters. Pregnancy care is a covered expense for female employees and dependent spouses of male employees. A dependent daughter elected COBRA coverage due to a loss of dependent child status upon reaching the plan's limiting age of 19. The daughter elected COBRA coverage and is now pregnant. Does COBRA require that the daughter's coverage be the same as a pregnant female employee or the same as the more limited coverage given to dependent daughters?
QUESTION 47: If the plan administrator provides a COBRA notice to the qualified beneficiary on the day before the qualifying event, along with the employee's termination notice, is there any validity to the argument that the COBRA notice is ineffective because it wasn't provided after the qualifying event?
A plan with two participants was last amended in 1990. The accountant who did the contract administration for the plan advised the plan sponsor that a TRA '86 restatement was needed, but the sponsor took no action. The plan sponsor has switched the administration work to a third party administrator (TPA) and is now restating the plan to comply with TRA '86 and subsequent changes. There may also be operational problems. Can those be corrected through the IRS' Closing Agreement Program ("CAP")?Read the answer.