Affordable Care Act “compliance season” begins November 15, 2014

There used to be a brief three month respite between October 15, the final due date for extended Form 5500s, and the following January 1, when the annual administrative cycle began again.

Not any more. The Affordable Care Act (“ACA”) provides another set of compliance deadlines starting on November 15, 2014. The new deadlines involve:

  1. Open Enrollment
  2. Health Plan Identifiers (“HPID”)
  3. Reporting Requirements for Self-Funded Group Health Arrangements
  4. Document Updates
  5. 2015 and beyond

Following is a brief explanation of each:

1. Open Enrollment

A three month open enrollment period begins on November 15, 2014. This is the first ACA renewal period and the first time all the related tax requirements will be in place. This presents a significant administrative challenge. Many employers also face their own November compliance deadline. Here’s what’s just around the corner:

2. Health Plan Identifier (“HPID”)

Both self-funded and insured, with annual “receipts” in excess of $5 million must obtain a ten-digit Health Plan Identifier (“HPID”) by November 5, 2014 (smaller plans have until November 5, 2015). In accordance with an official description, the sign up process requires users

to go through the CMS Enterprise Portal, access the Health Insurance Oversight System (HIOS), and apply for an HPID from the Health Plans and Other Entity Systems (“HPOES”).

Got that?

For insured plans, it is likely the insurer will apply for your plan’s HPID, but check to be sure. Self-funded plan sponsors may have to go it alone. The CMS has posted step-by-step instructions and an explanatory video. Allow some time because there are reported delays in the online registration system and there could be a rush of applications as the deadline approaches.

 2. Reporting Requirements for Self-Funded Group Health Arrangements

Self-funded plans are also required to report their average number of enrolled employees, spouses and dependents for the period from January 1, 2014 through September 30, 2014. The report is required by November 15, 2014 and is made by setting up an account at “” and then accessing the “ACA Transactional Reinsurance Program, Annual Enrollment and Contributions Submission Form.”

This will allow such plans to compute their transitional reinsurance fee, which is $63.00 per covered life payable during 2015 in installments ($52.50 per covered life on January 15, 2015 and $10.50 per covered life on November 15, 2015). Yes, this is another ACA fee and is not to be confused with the Patient-Centered Outcome Research Institute (“PCORI”) fee. For insured plans, the transitional reinsurance fee will be paid by the group health carrier.

3. Document Updates

In addition to the new filings, plan documents must be updated.

COBRA Election Notice

A model COBRA election notice with a beefed up description of “Marketplace” (ACA) coverage is available on the Department of Labor website along with a revised Children’s Health Insurance Program Reauthorization Act (CHIPRA) notice that mentions the Marketplace coverage option. Use of the model notices, with appropriate adaptation for specific plans, is optional but recommended because it assures compliance with the applicable disclosure requirements.

 Cafeteria Plans

Cafeteria plan rules have been modified by the IRS in Notice 2014-55 to allow additional ACA-related mid-year election changes. Under current rules, a cafeteria plan cannot provide participants an option to revoke their group health elections solely to enroll in ACA coverage. Under the IRS notice, cafeteria plans can allow plan participants to revoke their cafeteria plan elections if they incur a reduction in service below a 30 hours per week average but are still eligible for employer-provided coverage OR the employee wants to purchase ACA coverage but can’t do so without incurring a gap in coverage or a period of duplicate coverage (this happens when the employer-provided plan is not a calendar year plan because ACA coverage is based on the calendar year).

The changes are effective September 18, 2014 but do not apply to cafeteria plan flexible spending arrangements (FSAs). Cafeteria plan documents will have to be modified to permit these mid-year election changes.

5.  2015 And Beyond

ACA “large employers” (those with at least 50 “full-time equivalent” employees including tax-exempt and government employers) must file annual returns with the IRS and provide coverage statements to their full-time (30 hour per week) employees. The IRS reporting is made on Form 1094-C (this contains the employer’s certification of all calendar months that it has offered minimum essential coverage to full-time employees and their dependents) and Form 1095-C (each full-time employee is to be issued a copy of this form to report the employee’s portion of the least costly monthly premium for employee-only coverage that satisfies the ACA minimum value requirements as well as the calendar months when such coverage was available to the employee).

The Form 1095-C for each covered employee is also filed with the IRS along with Form 1094-C much like Form W-2 and Form 1098, the W-2 transmittal form. The Form 1095-C must be issued to employees by January 31 of the following calendar year with the first deadline falling on February 1, 2016 (January 31, 2016 is a Sunday) with respect to 2015 data. The IRS filing is due by February 28 of the following year (March 31 if filed electronically) with the first filing deadline also falling on February 1, 2016. The IRS has published FAQs and draft instructions for completing the required forms that provide additional details.

Sponsors of self-funded health plans (not insured plans), regardless of size, must file an annual information return on Form 1095-B (“large employers” will use Form 1095-C mentioned above) and provide a statement to each covered employee to report the months during which the employee was enrolled in the plan. The purpose of this reporting is to police the individual mandate that requires individuals to maintain minimum essential coverage or pay a penalty (or is it a tax?). The deadlines track the rules above for Forms 1095-C and 1094-C with the first disclosure and filing due February 1, 2016 (the filing, if made electronically, can be made as late as March 31).


Annual returns due in 2016 sound like they are a long way off. However, employers, HR staff, insurers and third party administrators for self-funded plans need complete 2015 data in order to be in a position to provide individual information to each participant during the January, 2016 reporting window. For many employers, it will make sense to establish internal protocols to capture the required participant data as early in 2015 as possible. If that data is not readily available by early January, 2016, it could prove very difficult to distribute individual statements to all employees by the end of that month.

What we can learn from Ernest Hemingway in communicating 401(k) benefits to employees

That’s a picture of the second-story writing studio that adjoins the Key West house in which Ernest Hemingway lived in the 1930s. He wrote many of his best and most famous stories and books there. His house is now a museum, and the cat in the foreground is one of the approximately 59 others who are the sole residents.

A recent visit triggered some fond memories of reading some of those classics in my American Lit course:

  • For Whom the Bell Tolls
  • The Green Hills of Africa
  • The Snows of Kilimanjaro
  • The Short Happy Life of Francis Macomber

But Hemingway’s sparse and compelling style that appealed to me went for naught. Instead of writing the Great American Novel, I entered the world of ERISA trying to explain difficult and technical concepts, many of which prefaced by numerical references to Internal Revenue Code sections and Department of Labor regulations. Not a feeling of a job well done to see otherwise bright people getting that glazed-over look.

Kevin Morris on the Principal Blog reminds us of that danger when he writes, Is Jargon Getting in Your Way? Financial terms can be confusing and have negative connotations, he says, and provides some suggestions to improve our communication.

Avoiding the jargon trap was a lesson taught to me years ago by a business associate who counseled me, “Jerry, when I asked you time it was, you told me how to make a watch”.

But it’s not just the jargon to avoid. Words themselves can have underlying emotional meanings. Invesco points out in its white paper, New Word Order that there are “words to use” and “words to lose” when communicating with employees. They describe the four core communication principles from their research.

  • Positive: Don’t sell fear or risk
  • Plausible: Sell credible benefits
  • Plain English: Avoid jargon
  • Personalize: Personalize the benefits

So can we learn to write like Hemingway in communicating the value of 401(k) plans to employees?

No problem. There’s an app for that. Mobile and desktop versions available.

Now whether legal counsel and compliance officers will let us use it, well, that’s another story.

Picture credit: The Hemingway Home and Museum.

How safe is your retirement nest egg from creditors?

So, you’ve transferred your 401(k) retirement nest egg into an individual retirement account (IRA). This gives you more control over management and distribution of IRA assets. But, you may have concerns about creditors and their ability to attack your retirement assets, which are now conveniently consolidated from several employer plans into one convenient IRA. Will those IRA assets be protected from creditors regardless of what happens to you?

Employer Plans in Bankruptcy

Employer sponsored retirement plans, such as 401(k) plans, are protected from creditors by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “Act”) as well as a specific ERISA statutory provision. The Act also protects other “retirement funds” like IRAs, in an aggregate amount of up to $1,000,000 (indexed for cost of living increases and now set at $1,245,475). The protection from creditors is implemented through an exemption from the assets available to creditors in bankruptcy, and this protection is available on a nation-wide basis (individual states can elect alternative exemptions).

Inherited IRAs as “Retirement Funds”

Do “inherited” IRAs set up on the death of an IRA holder for a named beneficiary fall within the category of “retirement funds” protected by the Act? The U.S. Supreme Court recently considered this issue in Clark v. Rameker, a case involving the assets of a mother’s IRA inherited by the named beneficiary (her daughter) upon the mother’s death. The daughter subsequently filed for bankruptcy and the IRA assets were claimed to be part of the daughter’s bankruptcy estate to be shared by her creditors.

The Supreme Court concluded that such inherited IRAs are not retirement funds in the hands of the beneficiary (in this case, a non-spouse beneficiary) who may be a younger family member many years from retirement, and so such inherited IRAs are not protected from creditors by the Act. Left undecided by the Supreme Court is the status of inherited IRAs benefiting surviving spouses (favorable language in the lower court opinion in Clark suggests that inherited IRAs in the hands of a surviving spouse continue to be retirement funds).

IRAs and State Bankruptcy Exemptions

The Supreme Court’s decision does not deal with bankruptcy protection of retirement funds like IRAs in those states which have bankruptcy exemptions that are not based on federal law. For example, Illinois law provides an exemption for assets of “retirement plans” in bankruptcy. Although inherited IRAs with non-spouse beneficiaries are generally regarded as not protected by the Illinois statutory exemption, the status of inherited IRAs in the hands of surviving spouses remains an open question.

Inherited IRAs and Beneficiaries

When an IRA owner dies, an inherited IRA is created by simply changing the title to the existing IRA. For example, if a family trust is the beneficiary, the inherited IRA might be retitled the “Individual’s Family Trust as Beneficiary of the Individual’s Inherited IRA.” Funds do not have to be transferred from the IRA to the beneficiary except as otherwise required by the required minimum distribution (RMD) rules. Bear in mind that if the deceased IRA owner had attained age 70 ½ and had been taking required minimum distributions, any distributions not yet made for the year of the owner’s death will still have to be made to the designated beneficiary by the end of that year.

An inherited IRA is not like the beneficiary’s personal IRA unless the beneficiary is a surviving spouse. A surviving spouse can roll over funds into and out of an inherited IRA. A non-spouse beneficiary cannot although non-spouse beneficiaries can make direct trustee-to-trustee transfers to a different IRA custodian (but be careful – it’s still an inherited IRA, not your IRA, and a non-spouse beneficiary cannot make any additional contributions to it).


Overall, IRA funds dwarf the amount of retirement assets held in employer sponsored retirement plans. Those IRAs will offer tempting targets to creditors when they pass on death to beneficiaries other than a surviving spouse.

  1. Consider leaving retirement assets in your employer sponsored plans, where protection from creditors is assured, as long as possible.
  2. Alternatively, for assets currently held in an IRA, consider retaining the spouse as the primary beneficiary (that appears to be safe for now) and naming only a spendthrift trust as the alternative beneficiary (this can get complicated, so proceed with caution – and professional advice).

Other asset protection strategies may make sense for assets held outside retirement accounts, but carefully consider those options with advice from an experienced tax or benefits advisor.

The above material is intended for general information purposes and should not be relied on or construed as professional advice. Under the applicable Illinois Rules of Professional Conduct, the contents of this article may be considered to be advertising material. The transmission of this information is not intended to create, and receipt of it does not create a lawyer-client relationship.

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U.S. Supreme Court and Department of Labor Provide New Guidelines for ESOP Trustees

canstockphoto19117592 Best Practice
A recent court decisions and the Settlement Agreement in a Department of Labor (DOL) enforcement action against an institutional ESOP trustee provide new guidelines for trustees and other ESOP fiduciaries involved in the purchase or sale of company stock.

Bear in mind that all employee stock ownership plans (ESOPs) are set up to invest primarily in the stock of the sponsoring corporation. This requirement overrides the customary duty of plan trustees to diversify plan investments, but does it also affect the duty of ESOP trustees to exercise prudence in the purchase or sale of company stock?

Supreme Court Ruling

The United States Supreme Court recently considered this issue in Fifth Third Bancorp v. Dudenhoffer. ESOP fiduciaries had previously been protected by a judicial presumption that their transactions in company stock were prudent absent evidence of extreme circumstances to the contrary, such as the company’s imminent financial collapse. The Supreme Court in Dudenhoffer determined that, contrary to prior court holdings, ESOP fiduciaries are not generally subject to a presumption of reasonableness in their dealings with company stock.

The case was remanded to the trial court in order to allow the plaintiffs, plan participants who were adversely affected by a dramatic loss in value of their company stock accounts in the Fifth Third Bancorp ESOP and 401(k) plan, to amend their complaint. Because the plaintiffs’ lawyers failed to identify specific steps plan fiduciaries should have taken in oral argument before the Supreme Court, preparing an amended complaint that passes muster under the new ruling could still pose a problem for the plaintiffs (see HERE for a discussion of the plaintiffs’ dilemma in their presentation before the Supreme Court).

Department of Labor Settlement Agreement

The recent Settlement Agreement with the DOL in Perez v. GreatBanc Trust Co. et al. also provides guidance to ESOP trustees on the purchase of company stock from controlling shareholders and other insiders. The Settlement Agreement requires a $5.25 million payment from GreatBanc and its insurers for allegedly allowing the company’s ESOP to purchase stock from the company’s co-founder and top executives for a price in excess of the stock’s fair market value.

Although the price paid for company stock by the ESOP was justified by a valuation report from an outside valuation firm, the DOL attacked the validity of the valuation report as based on overly optimistic projections of the company’s future profitability and unjustified assumptions.

The Settlement Agreement also requires GreatBanc to follow certain procedures (“Process Requirements”) when it is involved in the purchase or sale of the stock of private companies. The Process Requirements include standards for determining the independence of the ESOP’s valuation firm, a requirement of a written opinion of the ESOP trustee as to the reasonableness of any financial projection relied on in the ESOP valuation report, and documentation of the ESOP trustee’s independent analysis of the valuation report.

Although these requirements apply only to GreatBanc and do not impose any formal legal requirements on other ESOP trustees, it is clear that, while the DOL wants to promote employee stock ownership, it does not want to allow ESOPs to be used, in the words of a DOL spokesperson, as “a way to create big cash-outs for owners and top executives.”


ESOP fiduciaries need to proceed with due care in the sale or purchase of company stock. If the company’s stock is publicly traded, investment decisions involving company stock should be placed in the hands of independent fiduciaries, not company insiders. This same approach makes sense for fiduciaries of 401(k) plans that offer company stock as an investment option.

For ESOP trustees responsible for the purchase and sale of the stock of privately owned companies, the GreatBanc Settlement Agreement and a number of other DOL enforcement actions make it clear that ESOP trustees cannot accept appraisal reports as the definitive determination of the stock’s fair market value until they independently review the valuation report and verify that its projections and assumptions are reasonable.

ESOP fiduciaries may want to engage an independent valuation firm to assist with this process. And, once again, these recent ESOP fiduciary cases underscore the need for fiduciaries not only to carefully consider valuation reports but also to document their deliberations.

Fiduciary decisions do not have to be perfect but they do have to reflect suitable deliberation by plan fiduciaries – and those deliberations should be documented.

Does everyone want to be an owner?

In theory, employee ownership through an Employee Stock Ownership Plan (ESOP) is an almost perfect idea, since it benefits employees and businesses equally and simultaneously.

Shares are allocated to, rather than purchased by, the employees, which puts ownership within the grasp of many who might never own a business otherwise. Employees have a strong incentive to work hard and effectively, since they will reap the reward.

Thinking like an owner helps employees to understand how their business is run, and encourages them to innovate and improve both day-to-day and long-term operations. Although an ESOP is no more a democracy than a conventional corporation is, employees often have more opportunities to be involved in corporate-level discussions, if not actual decision-making. During tough times, these informed and empowered employee-owners have a strong interest in helping the company pull through, rather than jumping ship.

Annual share allocations, along with vesting rules, also promote employee retention and minimize costly turnover. And when an employee leaves, the company “repurchases” his or her shares at the current share value (through a distribution similar to that of other pre-tax retirement plans)—and those shares are then reallocated to current employees.

So far, so good. But the theory behind ESOPs makes one assumption that is often overlooked and can cause problems in even the most well-intentioned ESOP. That assumption is that, given the opportunity, all employees would like to be (part) owners of the firm they work for. The idea of ownership as an ultimate goal and good is deeply ingrained in American society. However, like most assumptions, it is worthwhile to revisit it occasionally.

Why might a person not want to be an owner? Perhaps the most obvious reason is that ownership comes with responsibilities as well as rights. It is reasonable to expect that many people — from highly-trained senior staff to entry-level employees — feel that their responsibility to their company extends to doing their job well, and no further.

They may consider opportunities to provide input into bigger-picture company issues as incursions on their time that take away from their primary job. Similarly they might feel that the time spent in ownership education — learning to read and understand the company’s financial report, for instance — would be better spent doing the work they were hired to do.

Another reason is that an employee — again, at any level — might feel that he or she lacks the training, experience, or expertise necessary to be an effective owner, and is either uninterested in acquiring the additional skills, or lacks confidence in the ability to do so.

Finally, group ownership may not seem like “real” ownership, since it generally doesn’t include individual control over decision-making. So, even a person who does aspire to own a business might not see employee-ownership as equivalent, or even as a stepping stone, to a more autonomous model of ownership.

As those experienced in employee ownership know, these (and other) barriers to employee ownership can be surmounted or accommodated, in most cases, by training and clear communication about expectations for employee involvement, both at the initial interview/hiring stage and on an ongoing basis. But in order for such training and communication to be effective, every employee-owned company needs to recognize that not all employees, or potential employees, are equally or automatically interested in ownership.

Keeping this possibility in mind will allow an ESOP to take whatever steps are needed to bring reluctant owners into full and productive partnership; simply assuming they are already on board may result in losing them altogether.

Editor’s Note: This post originally appeared as an Op-Ed in the Deseret News. Frances Laskey, Mr. Hoffmire’s colleague at Progress Through Business, did the research. 

Image: CanStock Photo

DB(k) Plans: A Good Idea at the Time

Remember DB(k) plans?

If you were in the retirement plan business back in 2006, you probably do. If you’re new in the business, you may not know about them at all.

A DB(k) Plan, formally called an “Eligible Combined Plan”, is a hybrid retirement plan that was created by Congress as part of the Pension Protection Act of 2006 under Section 414(x) of the Internal Revenue Code.

The idea behind DB(k) was simple. By combining a defined benefit plan and a defined contribution plan, a “small employer” (at least two but less than 500 employees) could potentially reduce the cost and administration requirements of maintaining two separate plans. The two components of the DB(k) have to be generally structured as follows:

1. Defined Benefit Component

  • An employee must receive at least 1% of pay for each year of service, not to exceed 20 years.
  • Benefits must be fully vested after 3 years of service.

2. 401(k) Component

  • There must be an auto-enrollment provision with a 4% contribution rate unless the employee elects to reduce this rate or opt-out.
  • The employer must match 50% of the employee’s 401(k) contributions, up to 4% of compensation, or a 2% maximum match.
  • Employees must be fully vested in the matching contribution when made.

There are still certain general non-discrimination requirements that have to be met, but the plan automatically satisfies the 401(k) and top-heavy requirements.

Sounds intriguing, yes? An employer could have streamlined plan administration with the plan being treated as a single plan for annual Form 5500 reporting.

But after the January 1, 2010 effective date for Section 414(x), DB(k)s didn’t take off. Since then, there have been very few DB(k) sightings.

It wasn’t a case of DB(k)s being a bad idea. Rather, right from the start, DB(k)s had to overcome some difficult hurdles.

First, the Internal Service in Revenue Procedure 2011-6 announced it would issue determination letters for DB(k) Plans under the following conditions. Even if one or both components utilized pre-approved plan documents, the IRS considered the DB(k)Plan to be an individually designed plan. This meant that in order to receive a Determination Letter as a qualified plan, the employer would have to submit the DB(k) Plan with two Form 5300s, one for each component, and 2 user fees.

Second, for many small employers, the math simply didn’t work. Using existing tax law, two separate plans, a traditional defined benefit or cash balance plan paired with the 401(k)plan, could provide larger benefits and contributions to the owners and highly compensated employees.

Third, the expectant reduction in administration expenses didn’t materialize in many cases. As noted above, only one Form 5500 has to be filed for the DB(k), but the two components still have to be administered separately. An actuarial valuation still had to be done for the defined benefit component, and administration still had to be done for the 401(k) component.

Let’s not consider DB(k) plans a failure. They were an innovate attempt to address the critical problem of adequate retirement income for employees. We should encourage more innovation with that objective.

Image: CanStockPhoto

Fidelity reports average 401(k) balance up 12.9% in last 12 months. But let’s not live in the moment.

It’s a clunker of a headline, but there’s an important point to make.

Yes, it’s good news that Fidelity reported last Friday. The average account balance for participants in 401(k) plans they administered rose to $91,000 for the quarter ended June 30, 2014, an increase of 12.9% in the last 12 months.

But let’s not live in the moment. The issue of retirement readiness is still a big problem in this country. Those of us in the retirement plan business must continue to work hard with employers to encourage their employees to increase their rate of saving.

Retirement savings is not just an issue in this country. Some individuals see the issue on a worldwide basis. Dawid Konotey-Ahulu, for example is the founder and co-chief executive of Mallowstreet, a London-based social media platform that connects the pensions and insurance industries. He takes a grim global view of the situation.

Writing in Workplace Pensions, he warns that unless we deal with five great challenges, we will face dire consequences for generations to come. The first four, he says, are

  1. Global security
  2. Sustainable living
  3. Global health
  4. The economy

The fifth global challenge he says is

… inadequate retirement resources – the pensions crisis. We are living much longer than our parents and grandparents. Some 40 per cent of girls born today will live to be 100. And, by 2060, the UK expects to have half a million centenarians. But we’re also contracting chronic illnesses in old age, and the cost of being elderly is high and climbing.

Like many of us, he believes that government is unlikely to provide much assistance in the future. The government he is talking about, of course, is his own in the U.K. It’s much the same here in the U.S. In other words, employees are on their own to supplement Social Security.

But there’s a big difference.  The U.K. has a much different attitude about retirement savings than we have. Auto-Enrollment in the U.K. is the law.

Image: The Wiley Life Science Blog reporting on University of Pittsburgh  research Why Living in the Moment Is Impossible.

What’s a fiduciary to do?

what to do
Admit it: Your company, as a 401(k) sponsor, and company decision makers who direct plan operations (including in-house trustees), are ERISA fiduciaries. Don’t quibble about this but take a step back and figure out what to do about it.

Some Basic Steps

You’ve read about investment advisors who can assist in performing investment duties and fiduciary insurance for claim protection (this insurance should not to be confused with the required ERISA fidelity bond that protects the plan, not the fiduciaries). Those options may make sense for you, and may not. But, whether or not you use an investment advisor or purchase fiduciary insurance, there are other more basic steps to take.

Bear in mind that retirement plan fiduciaries do not have to make perfect decisions. For example, they don’t necessarily have to select the cheapest mutual funds in the market for their plan’s investment array. But they do need to deliberate on their investment decisions including the periodic review of investment results.

This follows because cases which question fiduciary investment decisions frequently turn on the nature of the process followed by plan fiduciaries rather than the substance of the resulting decision. In other words, a “correct” investment decision reached in a flawed decision making process is still subject to question.

So, fiduciaries need to deliberate and make considered decisions. And the best way to prove such deliberation is documentation of the decision making process. Such documentation can take the form of meeting minutes, memos or committee resolutions. There are no hard and fast rules on how to do this. The bottom line is that any reasonable written record of how and why the fiduciaries made their decision will work to protect them from breach of duty claims.

Fee Disclosure Questions to Answer

Also consider the Section 408(b)(2) fee disclosure rules that have been in effect since August 2012. The specific matters that plan fiduciaries must consider have been expanded by the new fee disclosure rules. “Responsible plan fiduciaries” have to evaluate each provider’s fee disclosure statement to determine

  1. Are provider fees reasonable?
  2. Has the provider’s fee disclosure document itself meets all of the requirements of the fee disclosure rules?
  3. Have your plan fiduciaries done this?
  4. Have those fiduciaries made a written record of their evaluation of the provider fee disclosures?
  5. Do your plan fiduciaries meet regularly to review the plan’s investment performance and provider fees?

A “no” answer to any of these questions is a red flag.

Need help with any of this? Plan service providers can provide invaluable assistance. Third party administrators (TPAs) can help benchmark provider fees so fiduciaries have some guidelines on “reasonable” fees. Investment advisors can assist in selecting investments for the plan and in monitoring investment results. And they can help with documentation of fiduciary decisions. But the ultimate responsibility for these matters likely falls on the shoulders of your in-house fiduciaries.

Helpful Guidelines for Recent Court Cases

You may have seen commentary on recent court decisions and settlements that involve multi-million dollar recoveries against retirement plans and their fiduciaries. These court decisions get the headlines but some less publicized decisions provide helpful guidelines.

Consider the U.S. Supreme Court case that can help control plan liabilities and related fiduciary exposure.  The Supreme Court’s 2013 decisions in Heimeshoff v. Hartford Life & Accident Insurance Co. demonstrates the effectiveness of the most important provision that probably is not in your plan.

Heimeshoff upheld the validity under ERISA of a plan provision which required any suit to recover plan benefits to be filed within a three (3) year period after a proof of loss is due under Wal-Mart’s insured disability plan. So, even a valid benefit claim by a plan participant cannot be pursued in court after the expiration of a claim limitation period provided in the plan document (that’s if the period is reasonable in length and there is no controlling statute to the contrary).

For states like Illinois, which provides a “borrowed” ten (10) year statute of limitations for ERISA suits to collect benefits, the imposition of a two or three year limitation period through the plan document can provide considerable additional protection.

The bottom line is that there is no downside to this kind of provision. It should be in your 401(k) plan document and summary plan description, and it should be there now.


Fiduciaries do need to deal with expanded liabilities from the changing regulatory and judicial landscape. Employers, plan administrators, HR staff and plan service providers should make sure that plan fiduciaries meet regularly to discuss plan business and document their deliberations. If you have any concerns about the prior conduct of plan fiduciaries, make sure you consult top notch plan service providers – and keep their advice confidential by dealing through independent legal counsel and not your company’s regular corporate or benefits lawyer.

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