Compensation and Benefits Insights – September 2014

Missing Participants in Your Terminated Defined Contribution Retirement Plan? The DOL Has Issued Guidance to Help You

Authors, Donna Edwards, Atlanta, +1 404 572 2701, dedwards@kslaw.com.

Background

The U.S. Department of Labor ("DOL") recently issued Field Assistance Bulletin 2014-01 (the "FAB"), which provides guidance about how fiduciaries of terminated defined contribution retirement plans can fulfill their ERISA obligations to locate missing participants and properly distribute their account balances. The FAB replaces Field Assistance Bulletin 2004-02. This alert summarizes the FAB.

Before making a distribution in connection with a terminating defined contribution plan, the DOL notes that the plan administrator must contact the plan's participants for directions on how to distribute their account balances. If a participant does not respond with the information necessary for a distribution, or the plan fiduciary reasonably believes that a participant has not informed the plan of a new address, the fiduciary needs to take steps to locate the participant or a beneficiary.

Required Search Steps

At a minimum, the DOL states that fiduciaries should take all of the following steps before abandoning efforts to find a missing participant and obtain distribution instructions:

• Use Certified Mail.
  
  
• Check Related Plan and Employer Records. 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.
  
  
• Check With Designated Plan Beneficiary. Plan fiduciaries must try to identify and contact any individual that the missing participant has designated as a beneficiary to find updated contact information for the missing participant.
  
  
• Use Free Electronic Search Tools. Plan fiduciaries must make reasonable use of Internet search tools that do not charge a fee to search for missing participants. Such online services include Internet search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries and social media.

Additional Search Steps

If a plan administrator follows the required search steps, but does not find the missing participant or beneficiary, the DOL states that the fiduciary is required to consider if additional search steps are appropriate, such as the use of Internet search tools, commercial locator services, credit reporting agencies, information brokers, investigation databases, and analogous services that may involve charges. The plan fiduciary should consider the size of a participant's account balance and the cost of further search efforts in deciding if any additional search steps are appropriate.

Distribution Options

Where, despite their use of the search steps described above, the fiduciaries of terminated defined contribution plans are unable to locate missing participants or obtain distribution directions, the DOL notes that the fiduciaries will have no choice but to select an appropriate distribution option to complete the plan's termination.

Individual Retirement Plan Rollovers — Preferred Distribution Option

The DOL states that section 404(a) of ERISA requires plan fiduciaries to consider distributing missing participant benefits into individual retirement plans.

The DOL has published a safe harbor regulation for plan fiduciaries to satisfy their fiduciary responsibilities under section 404(a) of ERISA when making certain mandatory rollover distributions to individual retirement plans.

In addition, the DOL has published a similar safe harbor regulation covering distributions from a terminated defined contribution plan on behalf of a missing participant or beneficiary into an individual retirement plan or inherited individual retirement plan. When they comply with the conditions of the safe harbor, fiduciaries satisfy their ERISA section 404(a) duties in connection with the distribution of benefits, the selection of an individual retirement plan provider and the investment of the distributed funds.

In the DOL's view, the best approach in selecting among individual retirement plans in most cases will be to distribute the missing participant's account balance into an individual retirement plan in accordance with the DOL's regulatory safe harbor for terminated defined contribution plans.

Alternative Distribution Options

If a plan fiduciary cannot find an individual retirement plan provider to accept a direct rollover distribution for a missing participant or determines not to make a rollover distribution for some other compelling reason based on the particular facts and circumstances, the DOL states that the fiduciary may consider two other options: 1) opening an interest-bearing federally insured bank account in the name of the missing participant or beneficiary, or 2) transferring the account balance to a state unclaimed property fund.

Before making such a decision, however, the fiduciary must prudently conclude that such a distribution is appropriate despite the potential adverse tax consequences to the plan participant. The DOL warns that a prudent and loyal fiduciary would not voluntarily subject a missing participant's funds to such negative consequences in the absence of compelling offsetting considerations, and, in most cases, that 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.

100% Income Tax Withholding Is Not An Option. The DOL states that using 100% income tax withholding for missing participant benefits, which would in effect transfer the benefits to the IRS, would violate ERISA's fiduciary requirements.

Scope of FAB

The DOL notes that the FAB applies only in the context of terminated defined contribution plans. Thus, the FAB does not apply to ongoing defined contribution plans or to defined benefit plans. The Pension Benefit Guaranty Corporation ("PBGC") has a missing participants program for searching for and distributing benefits on behalf of missing participants in terminated defined benefit plans. The DOL states in the FAB that Congress has directed the PBGC to expand its defined benefit missing participants program to include distributions from terminated defined contribution plans, but that no PBGC regulations have been proposed. The DOL states that it intends to reevaluate the guidance in the FAB after the PBGC publishes such regulations in final form.

King & Spalding would be happy to assist you with any questions you have about the new FAB.

Hobby Lobby and the Employer-Sponsored Health Plan

Author, Laura Westfall, New York, +1 212 556 2263, lwestfall@kslaw.com.

In Burwell v. Hobby Lobby Stores, Inc. (134 S. Ct. 2751, June 30, 2014), the Supreme Court ruled that closely-held for-profit corporations may refuse for religious reasons to cover contraceptives otherwise required to be covered by the Patient Protection and Affordable Care Act (PPACA). Despite subsequent guidance from the Departments of Labor, the Treasury and Health and Human Services (the "Departments"), questions remain outstanding as to which employers may rely on Hobby Lobby to refuse contraceptive coverage to their employees.

PPACA's Contraceptive Coverage Requirement and Hobby Lobby

PPACA requires employment-based group health plans covered by the Employee Retirement Income Security Act of 1974 (ERISA) to cover certain types of preventive health services without cost sharing, including women's preventive services recommended by the Health Resources and Services Administration (HRSA), which include all FDA-approved contraceptive methods. Failure to provide such contraceptive coverage if required by PPACA can subject an ERISA-covered group health plan to a penalty of $100 per day, per employee not receiving compliant coverage. Recognizing that some religions object to contraceptive coverage, in 2012 the Departments exempted from this requirement any group health plan sponsored by a "religious employer," such as a non-profit organization run by a church or church auxiliary organization. The Departments expanded the exemption in July 2013 to include other non-profit "eligible organizations" (such as religious universities, hospitals, and charities) that objected to providing contraceptive coverage for religious reasons. In order to take advantage of the exemption, organizations were required to self-certify that they were a "religious employer" or "eligible organization," and either provide a copy of the self-certification to their insurer (for fully-insured plans) or their third-party administrator ("TPA") (for self-insured plans). The insurer or TPA, as applicable, rather than the employer's plan, was then responsible for providing such contraceptive coverage to the organization's employees, at no cost to the organization.

The Departments did not exempt for-profit corporations from the contraceptive coverage requirement of PPACA, and as a result several religious for-profit businesses owned by religious families sued, claiming that the Religious Freedom Restoration Act (RFRA) protected them from having to provide such coverage. In Hobby Lobby, the Supreme Court agreed with the businesses, holding that for-profit, closely held corporations holding "sincerely-held religious beliefs" had religious free exercise rights protected by RFRA, that PPACA's contraceptive coverage requirement imposed a substantial burden on such rights, and that less restrictive means were available to further the government's interest in providing contraceptive care at no cost to employees (as shown by the Departments' existing workaround for "religious employers" and other "eligible organizations," as discussed above).

The Hobby Lobby decision raised several related questions regarding the scope of the exemption from PPACA's contraceptive coverage requirement. For example, in holding that "closely held corporations" with sincerely-held religious beliefs were exempt from the requirement, the Court neglected to define the term "closely held corporation," leaving open the possibility that a far larger subset of corporations could be exempt from the requirement. Similarly, after Hobby Lobby, entities that were clearly exempt from the contraceptive coverage requirement (such as religious non-profits) questioned whether the Departments could require them to file a self-certification with their insurer or TPA. (Several days after the Supreme Court issued its decision in Hobby Lobby, the Court also enjoined the Departments from requiring Wheaton College, a religious university, to file a self-certification with their TPA in Wheaton College v. Burwell; however, the scope of that holding was limited to Wheaton College.) Guidance issued by the Departments in late August addresses both of these questions.

Departmental Guidance Issued Subsequent to Hobby Lobby

Consistent with the Court's order in Wheaton College, the Departments issued new interim final rules on August 27, 2014, which allow a "religious employer" or other "eligible organization" to notify the Secretary of HHS, instead of its insurer or TPA, of its religious objection to coverage of contraceptive services, so long as the notice to HHS includes certain specified information about the employer and the plan. The Departments would then notify the relevant insurer or TPA, requiring them to provide contraceptive coverage directly to the organization's covered employees, and designating such insurer or TPA as the plan administrator for purposes of such coverage.

INSIGHT: One question raised (but not answered) by the new interim final regulations is whether an insurer or TPA would be considered an ERISA fiduciary where such insurer or TPA is required to act as the plan administrator for purposes of administering contraceptive coverage benefits to the employees of an employer exempted on religious grounds.

The Departments also issued proposed regulations on August 27, 2014 (the "Proposed Regulations") that would, pursuant to the Court's decision in Hobby Lobby, expand the definition of an "eligible organization" exempt from PPACA's contraceptive services requirement to include certain closely held for-profit entities that take a valid action in accordance with their governing structure under state law to state their religious objections to providing contraceptive coverage. The Proposed Regulations also request comments on two proposed definitions of "closely-held corporation," one based on the number of owners of the corporation (such as having 100 or fewer owners), and the other based on having a certain percentage of the corporation's equity owned by no more than a certain number of owners (such as having 50% owned by five or fewer owners). Further, the Proposed Regulations request comments on the number of for-profit entities that might claim the exemption if they were to be considered an "eligible corporation," a figure the Departments noted in the preamble to such Proposed Regulations was likely to be small.

INSIGHT: The definitions of "closely held corporation" proposed in the Proposed Regulations do not require such a corporation to be owned and/or controlled by members of a single family, even though the Court's discussion of the owners' familial relationships seemed integral to its decision in Hobby Lobby. However, the final regulations issued by the Departments could add such a requirement in response to comments received regarding this point. If the existence of a familial relationship were required, questions would likely need to be answered regarding how such a requirement would relate to the closely-held ownership requirement, and which familial relationships would be recognized (for example, whether spouses and in-laws would count as "family").

Conclusion

Although several months have passed since the Supreme Court issued its decision in Hobby Lobby, the implications of its effect on corporations holding sincere religious beliefs are not yet fully known, and subsequent guidance issued by the Departments does little to address questions raised by the decision, such as the issues mentioned in the above "Insights" and others too complex to raise in this article. Looking at the bigger picture, despite the fact that Hobby Lobby may only directly impact a small percentage of employer-sponsored plans, the case serves as a good reminder that while there may be differences of opinion about specific PPACA rules and requirements, PPACA itself is not going away any time soon, and all employers need to continue to monitor new developments and implement strategies for PPACA compliance. We would be happy to assist you in this process.

October and November 2014 Filing and Notice Deadlines for Qualified Retirement and Health and Welfare Plans

Author, Ryan Gorman, Atlanta, +1 404 572 4609, rgorman@kslaw.com.

Employers and plan sponsors must comply with numerous filing and notice deadlines for their retirement and health and welfare plans. Failure to comply with these deadlines can result in costly penalties and excise taxes. To avoid such penalties and excise taxes, employers must remain informed with respect to the filing and notice deadlines associated with their plans.

The filing and notice deadline table below provides key filing and notice deadlines common to calendar year plans for the next two months. Please note that the deadlines will be different if your plan year is not the calendar year. Please also note that the table does not include all applicable filing and notice deadlines, just the most common ones. King & Spalding is happy to assist you with any questions you may have regarding compliance with the filing and notice requirements for your employee benefit plans.

*Qualified Retirement Plans include all defined benefit and defined contribution plans that are intended to satisfy Code §401(a).

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