ERISA Plan Research Articles

Study Shows Declining Trend in Psychotherapy by Psychiatrists

Study Shows Declining Trend in Psychotherapy by Psychiatrists

Employer Sponsored Health Savings Accounts in Bankruptcy

This article studies the unintended consequences of employers electing to not classify their employee Health Savings Account offering as an ERISA covered health plan using a legal research methodology. The article studies interpretative regulatory guidance from the Department of Labor that purports to exclude employer-sponsored Health Savings Accounts from qualification as ERISA plans, if this guidance is consistent with the congressional intent of ERISA, and the consequences of how bankruptcy courts are managing the impacts of these non-ERISA employer sponsored health/retirement plans.

What Can We Expect From New Congress on Mental Health Care?

What Can We Expect From New Congress on Mental Health Care?

APA’s Government, Policy, and Advocacy Update

Back to table of contents Previous article Next article APA & MeetingsFull AccessAPA’s Government, Policy, and Advocacy UpdateSearch for more papers by this authorPublished Online:12 Jan 2021https://doi.org/10.1176/appi.pn.2021.1.36APA’s Department of Government Relations works all year to advocate at the federal and state levels to advance the profession of psychiatry and promote high-quality care for patients. Psychiatric News is starting this regular column to bring you news of APA’s latest advocacy and government relations work.Congress Passes APA-Supported Mental Health Parity Compliance LegislationIn its massive year-end appropriations and COVID relief funding package, Congress passed the Strengthening Behavioral Health Parity Act (HR 7539), for which APA has been advocating for two years. It gives the U.S. Department of Labor (DOL) new powers to regulate and audit health plans to determine if they are in compliance with the 2008 Mental Health Parity and Addiction Equity Act (MHPAEA). President Donald Trump signed the legislation on December 27.The legislation applies to federally regulated ERISA plans as well as state-regulated insurance plans. Among its provisions, the legislation requires plans to perform comparative analyses of their mental health/substance use and medical/surgical benefits and send those analyses to the DOL or a state insurance commissioner in response to complaints or violations. It also requires that Congress receive an annual report identifying plans that are out of compliance with MHPAEA.Congress’s year-end funding package and COVID relief legislation contains several provisions that support mental health programs and initiatives in addition to the new parity law, including: $6 billion for the Substance Abuse and Mental Health Services Administration and $35 million for crisis care and coordination within the Mental Heath Block Grant, as well as increases in funding for several federal agencies that conduct mental health and substance use research.APA Reaches Out to President-elect Biden and Vice President-elect HarrisIn early December, APA CEO and Medical Director Saul Levin, M.D., M.P.A., sent a letter to President-elect Joe Biden and Vice President-elect Kamala Harris, congratulating them on their win and urging them to prioritize responding to the country’s increased demand for psychiatric services. The letter outlined several recommendations for Biden’s first 100 days in office, including improving access to treatment and investing in the mental health system.APA Prepared to Work With States to Introduce Model LegislationAs many states begin their legislative sessions this month, APA is working closely with district branches across the country to protect patient safety and introduce APA’s model legislation.Late last year, APA and its partner organizations finalized model legislation to enforce the holding of the Wit v. UBH decision. The Jim Ramstad Model State Parity Legislation would ensure health plans cover medically necessary care that aligns with practice guidelines and treatment criteria developed specifically by associations like APA. It is similar to legislation that was signed into law in California last year.APA is also working with states to introduce the Psychiatric Collaborative Care model legislation, which would require private insurers to reimburse collaborative care billing codes, and the telehealth model legislation, which would ensure fair reimbursement for psychiatrists who provide telehealth, as well as audio-only service delivery. Half the states have expressed interest in the telehealth model legislation already. APA members interested in learning more can contact APA’s director of state government relations, Erin Berry Philp. ■ ISSUES NewArchived

Comment Letter to the DOL: Fiduciary Duties Regarding Proxy Voting and Shareholder Rights (RIN 1210-AB91)

This comment letter provides support for the Department of Labor's proposed rule, Fiduciary Duties Regarding Proxy Voting and Shareholder Rights (RIN 1210-AB91). Part I of this comment letter provides a theoretical framework for shareholder voting and the creation of voting recommendations. This Part focuses on the collective action problem found in shareholder voting and its ramifications for both voting and the creation of voting recommendations by proxy advisors. I discuss this framework in more detail in my law review article The Risks and Rewards of Shareholder Voting (forthcoming, SMU Law Review). Part II recommends, as a means to help mitigate the collective action problem found in shareholder voting, that proxy advisors, such as Institutional Shareholder Services (ISS) and Glass Lewis, be designated investment advice fiduciaries under Section 3(21)(A)(ii) of ERISA. This is something I discuss in detail in my law review article Now Is the Time to Designate Proxy Advisors as Fiduciaries under ERISA (Stanford Journal of Law, Business and Finance). Part III supports the proposed rule’s approach of increasing the role of board voting recommendations in the voting policies of ERISA plans. My support is based mainly on another recent law review article I wrote, Enhancing the Value of Shareholder Voting Recommendations (Tennessee Law Review). Part IV provides support for the proposed rule’s approach to shareholder voting proposals. Part V discusses an issue that is not currently in the proposed rule but that should be considered for inclusion, i.e., how an ERISA plan manager is to incorporate into its decision-making the shareholder activism of investment advisers of mutual funds and exchange-traded funds (ETFs) with large amounts of delegated voting authority. This activism is reflected in an investment advisor’s rhetoric disclosing the objectives of its activism, shareholder voting, and engagement with portfolio companies. The incorporation of this new consideration would occur when deciding to invest in such funds or considering them as options for self-directed accounts. This Part argues that a plan manager’s duty of prudence requires it to investigate how this shareholder activism will be used prior to making these decisions. The fiduciary objective in this investigation is to ensure that the investment adviser is utilizing shareholder activism consistent with a plan manager’s duty of loyalty, i.e., “solely in the interest of the participants and beneficiaries” and for the exclusive purpose of providing financial benefits to them. If that is not happening, these funds should be excluded from an ERISA plan. This Part has at its foundation a recent white paper that I wrote, The Conflict between BlackRock’s Shareholder Activism and ERISA’s Fiduciary Duties.

Comment Letter of Professors Max M. Schanzenbach and Robert H. Sitkoff on the Department of Labor’s Proposed Rulemaking on Financial Factors in Selecting Plan Investments

In June of 2020, the Department of Labor proposed a rule-making on financial factors in selecting ERISA plan investments (“Proposal”), in particular environmental, social, and governance factors (“ESG”). In general, we are supportive of the Proposal’s central purpose of subjecting ESG investing to the same fiduciary principles of loyalty and prudence that are applicable to any type or kind of investment. We do, however, have some criticisms. Our basic point is that the law neither favors nor disfavors ESG investing. Any investment decision by an ERISA trustee or other fiduciary — whether in the context of a direct investment, shareholder engagement (including proxy voting), or menu construction, and whether reliant on ESG factors or otherwise — is subject to the same fiduciary principles embodied in the duties of loyalty and prudence. Our chief criticisms, therefore, reflect instances in which the Proposal differentiates or could be construed as differentiating ESG investing from other types or kinds of investment strategies. First, the Proposal and accompanying commentary could be read to suggest that all manner of ESG investing is inherently suspect, presumably on fiduciary loyalty grounds, and therefore that ESG investing by an ERISA trustee or other fiduciary is always subject to enhanced scrutiny that requires extra process relative to other types of kinds of investment strategies. Such a position is inconsistent with law and sound policy. To be sure, an ERISA trustee or other fiduciary violates the duty of loyalty if she uses ESG factors to provide benefits for third parties (what we call “collateral benefits ESG”). However, use of ESG factors in pursuit of enhanced risk-adjusted returns (what we call “risk-return ESG”) is not suspect under the duty of loyalty. Instead, risk-return ESG is analyzed under the duty of prudence, which applies in the same manner to risk-return ESG as to any other type or kind of investment strategy. Departure from neutral application of fiduciary principles also requires drawing distinctions between ESG investing and other investing, a definitional morass that would create uncertainty and invite litigation. Second, portions of the commentary are unclear or phrased in a manner that could be construed as taking positions, such as with respect to active versus passive investing, that are not consistent with neutral application of the principles of fiduciary investment law. The commentary is also notable for not addressing certain other relevant matters, such as the use of ESG factors in shareholder engagement (sometimes called “stewardship” or “active shareholding”). We identify material instances of such language or omissions and urge appropriate clarification, particularly regarding the “tiebreaker” rule for purportedly economically equivalent investments. This comment letter is largely but not entirely based on “Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee,” 72 Stanford Law Review 381 (2020), https://ssrn.com/abstract=3244665.

Comment Letter to DOL: ESG Investing Under ERISA

The Department of Labor (“DOL”), through its administration of ERISA, has a critical role to play in the regulation of employee pension benefit plans. Most importantly, the DOL is tasked with enforcing the fiduciary duties of ERISA plan managers. Under ERISA, plan managers owe the strictest duties of loyalty and care to their participants and beneficiaries. They are to be constantly guided by the fiduciary principles of “solely in the interest of the participants and beneficiaries” and for the exclusive purpose of providing financial benefits to them. Given this understanding of fiduciary duty under ERISA, it is easy for me to strongly support the approach taken by the DOL in its recently proposed rule, Financial Factors in Selecting Plan Investments. I agree with the DOL when it states that “ERISA requires plan fiduciaries to select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action,” “plan assets may not be enlisted in pursuit of other social or environmental objectives,” and “ERISA plan fiduciaries may not invest in ESG [Environmental, Social, and Governance] vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-pecuniary objectives.” I also find the proposed rule to be consistent with federal court cases that have subsequently interpreted ERISA. Despite ERISA being clear in what it requires of its fiduciaries, many commentators will completely disagree with the analysis provided here and, more importantly, continue to be vigorously opposed to the proposed rule. I view it as a clash between the personal desires of some commentators and what ERISA actually provides. If these commentators truly want to implement their personal desires, they have but one option: to lobby to change the statutory law. But until then, as with the DOL’s proposed rule, they must respect what the current law clearly and unambiguously provides. In sum, I strongly support the DOL’s approach in the proposed rule and hope that my observations and recommendations will assist in the process of its finalization.

What Is at the Heart of the Access Problem?

Back to table of contents Previous article Next article From the PresidentFull AccessWhat Is at the Heart of the Access Problem?Bruce Schwartz, M.D.Bruce SchwartzSearch for more papers by this author, M.D.Published Online:26 Sep 2019https://doi.org/10.1176/appi.pn.2019.10a51There is a great deal of concern among our colleagues in psychiatry and primary care, the public, and health care experts regarding the shortage of psychiatrists in the United States. My office receives multiple calls each week from people seeking care for themselves or family members. All have insurance, have often checked online directories (un)maintained by insurers, and cannot locate a psychiatrist to see them. Were those people seeking primary care or medical/surgical specialty care, there would be much less of a problem identifying a potential provider. While prospective patients might have to wait a few weeks for a primary care appointment or even several months for a specialist, they would be able to schedule an appointment. Not so for psychiatrists, especially in the greater New York area and probably in most major cities. In rural areas they would be completely out of luck.The sources of these problems are well established. Insurers—especially managed care plans—have insufficient numbers of psychiatrists on their panels who actively see new patients. It is a form of rationing and reflects the discrimination and stigma that remain so much of an issue in our field. These same insurers have fee schedules that pay psychiatrists on average 21% less than primary care physicians. These fees are probably a fraction of the actual out-of-network fees that patients pay. The 2017 Milliman Research Report on analyzing disparities between coverage of treatment for mental and substance use disorders versus other medical conditions showed that insured patients seeking psychiatric care had to access services out of network three to almost six times more frequently than for medical/surgical care. This represented a doubling of access restrictions during the first three years of parity regulatory oversight.These types of abuses by insurers would never be tolerated by private-sector employers or patients for medical/surgical care. Enforcement of the Mental Health Parity and Addiction Equity Act has been almost nonexistent. The Mental Health Parity Compliance Act, co-sponsored by Sen. Chris Murphy (D-Conn.) and Sen. Bill Cassidy (R-La.) and supported by APA, would tighten much-needed parity enforcement for these ERISA plans. At the state level, several states have enacted APA’s model parity legislation, while many other states either passed partial or more comprehensive versions. But this is only part of the problem. Imagine if we actually had full parity as required by federal law and regulations. The demand for services would be even more overwhelming, and I fear the solutions that would come from our legislators would be ones in which the lowest level of care would become the norm. The fact with which we must grapple is that there are not enough psychiatrists in the United States.The Association of American Medical Colleges reported there were about 38,000 practicing psychiatrists in the United States in 2017 (the year for which latest data are available), and 61.3% were 55 or older. Our workforce is rapidly diminishing despite an increase in psychiatry residents and renewed popularity of our field among graduating medical students. In comparison with Western European nations, the supply of psychiatrists in the United States is far lower. Our country has about 14 psychiatrists per 100,000 population. Switzerland has 45; France, Sweden, Germany, the Netherlands, Norway, Finland, and the United Kingdom all have between 20 and 22 psychiatrists per 100,000 population. Our low number hardly reflects that our citizens are less in need of psychiatric care.In fact, given the epidemics of death from opiate overdoses, suicide, and school shootings by young people with emotional problems, we need many more psychiatrists. Sen. Chuck Schumer (D-N.Y.) is advocating for legislation to add 15,000 residency positions under the so-called Physician Shortage Act of 2017. We can hope that a significant portion of any new graduate medical education funding will be allocated to psychiatry as there is bipartisan consensus that a mental health crisis exists in our nation. But we cannot train enough new psychiatrists fast enough to address the critical need for psychiatric care. My next column will address what I believe are workable and reasonable options. ■ ISSUES NewArchived

Now is the Time to Designate Proxy Advisors as Fiduciaries Under ERISA

Now is the time to designate proxy advisors as investment advice fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA). Such a designation is not only necessary to correct long standing concerns, but also to make sure voting recommendations are in compliance with the sole objective required by ERISA, shareholder wealth maximization (SWM). Utilizing voting recommendations that do not have SWM as their objective, e.g., utilizing Environmental, Social, and Governance (ESG) objectives, would be in direct conflict with the fiduciary duties of an ERISA plan manager when managing the shareholder voting rights of a plan. Being designated an investment advice fiduciary under ERISA would require proxy advisors, like plan managers, to be constantly guided by fiduciary principles in the creation of their voting recommendations for ERISA plans. These fiduciary principles include making decisions solely in the interest of the participants and beneficiaries of the plans with the exclusive purpose of providing benefits to them, and the application of the prudent man standard to proxy advisor actions. The investment advice fiduciary designation would also require proxy advisors to consider, without exception, SWM as the fiduciary objective when creating voting recommendations for ERISA plan managers. This means that ESG objectives cannot creep into these voting recommendations. To explain why this is so, a substantial portion of this Article is devoted to explaining how ESG interacts with the fiduciary duties of ERISA.

On Opioids and ERISA: The Urgent Case for a Federal Ban on Discretionary Clauses

The American opioid epidemic cuts across all social divisions, touching the employed and unemployed. Those with private health insurance are one of the fastest-growing affected groups, but this group struggles most to get care. Despite their insured status, the privately-insured received treatment at half the rate of those with Medicaid and at even lower rates than the uninsured. This article focuses on a significant barrier to treatment for those in employer-sponsored benefit plans: the discretionary clause. A discretionary clause grants the decision-maker broad latitude and ensures that any federal court review is deferential. Claims processing in such a legal climate is stingy; recent investigations show that mental health and addiction claims are treated worst of all. Twenty-five states recently banned discretionary clauses in insurance products, but the bans do not reach most ERISA plans. This article posits that ERISA should be amended to ban discretionary clauses. The article explains ERISA and discretionary clauses; it then shows the effect of discretionary clauses on actual cases and claims processing, focusing on mental health and substance abuse. The article then explains the recent movement away from discretionary clauses and shows why the arguments against discretionary clauses apply with even greater force to ERISA-governed plans.

Allowing States to Help Workers Save for Retirement Department of Laborrs Proposed Rulemaking That Provides a Safe Harbor for State Savings Programs under ERISA

There is a “retirement crisis” in America. Even though some would view this as hyperbole, the empirical evidence reflects that “[t]he average working household has virtually no retirement savings” and that the “collective retirement savings gap among working households age 25-64 ranges from $6.8 to $14 trillion.” Contributing to this crisis is that fact that almost 70 million Americans do not have access to a retirement savings plan through their employers. This problem is more prevalent in the small business community; more than half of small business employers do not offer a retirement plan to their employees. Research reflects that an important predictor for retirement readiness is participation in an employee benefit plan – employees save more in a workplace plan than they would on their own. For example, even though there are a number of non-employer based retirement savings options, such as IRAs, few workers utilize them. States, concerned with the economic stability of their citizens, have created laws that require private sector employers to implement in their workplaces state-administered payroll deduction savings programs. Even though many states are currently debating whether to adopt the programs, this Article will focus on California, Illinois and Oregon, who have enacted laws creating payroll deduction savings programs. One obstruction to wider adoption of such measures at the state level has been uncertainty about the effect of the Employee Retirement Income Security Act’s (ERISA) broad preemption of state laws that “relate to” private sector employee benefit plans and ERISA’s prohibition on requiring employers to offer employee benefit plans. To remedy this problem, the Department of Labor (DOL) has published a Notice of Proposed Rulemaking (NPRM) that would make clear “that state payroll deduction savings programs with automatic enrollment that conform to the safe harbor in [the] proposal do not establish ERISA plans.” This Article begins by discussing the current law concerning ERISA's preemption of state laws that “relate to” private sector employee benefit plans and provides a discussion of DOL’s proposed rulemaking that provides a safe harbor for state payroll deduction savings programs. The Article then transitions into an examination of the current state-based initiatives, analyzes specific state legislative proposals under the requirements of the proposed rulemaking and proposes what, if any, changes need to be made to the state payroll deduction savings programs to ensure that the programs will not run afoul of ERISA. The Article concludes by analyzing policy concerns regarding state payroll deduction savings programs, provides comment on the DOL proposed rulemaking and provides additional elements of a model state payroll deduction savings program.

Fiduciary Responsibilities in the Face of ERISA

In the early 1960’s, Americans began to notice a problem with the way in which many employee benefit plans were being managed, and how the funds of those plans were ultimately being distributed. The problem arose when companies failed and many of those companies’ retirement benefit plan participants received pennies on the dollar compared to what they were promised upon their joining the plan; that is, if they received anything at all. Both President John F. Kennedy and members of the Senate recognized this problem and began to take steps to help create a solution by forming committees and proposing legislation, which ultimately led to President Gerald Ford signing the Employee Retirement Income Security Act of 1974 (“ERISA”) into law on September 2, 1974. Up until 1984, this Act saw very little litigation, especially related to breaches of fiduciary duties. There were, however, two distinct approaches that formed to the question of whether a breach occurred. In the landmark case of Leigh v. Engle the court faced that very question. There, the court analyzed these two approaches stating that “[the] first avenue focuses on the potential for conflicts of interest between the fiduciaries and the plan beneficiaries.... The second avenue involves a broader inquiry into the fiduciaries' actions where they may have substantial interests in a control contest.” Ultimately, the court unified the two approaches, adding in a third influence, by laying out a set of non-exhaustive factors to determine whether a breach occurred. These factors are:(1) The risk of conflicts between the interests of the fiduciaries and beneficiaries; (2) Whether fiduciaries with divided loyalties make an intensive and scrupulous investigation of the plan's investment options; and (3) Whether there is consistent management of plan assets in congruence with the fiduciaries' personal interests over a substantial period of time in control contests Leigh v. Engle, 727 F.2d 113.Since these factors were laid out, they have been adopted in every federal circuit court that has heard a case on the issue. Recently, courts have started shifting their focus from the first Leigh factor, involving the risk of potential conflicts, to the second factor requiring the fiduciary to administer an investigation into potential alternatives. This shift creates a positive environment for those directors who decide to retain an incident of management of an ERISA plan, and embrace the fiduciary responsibilities that follow such a decision. Courts should continue this shift and ultimately arrive at an “ERISA Judgment Rule” to allow directors who do retain fiduciary duties to make decisions in their role as a director without fear of litigation around every corner, so long as they conduct a thorough investigation into the possible alternatives.This article begins with a description of ERISA and why it is important. It continues with the fiduciary duties required under the Act, the ways to approach avoiding liability, and a description of the “ERISA Judgment Rule,” including support for its adoption. Finally, it finishes with a look at the consequences for a breach and a brief conclusion.

The ACA's 2017 State Innovation Waiver: Is ERISA a Roadblock to Meaningful Healthcare Reform?

In 2017, the Affordable Care Act’s (ACA) State Innovation Waiver (§ 1332) will enable states to waive many of the ACA’s provisions and to develop their own creative solutions to reign in healthcare spending. The Employee Retirement Income Security Act of 1974 (ERISA) was enacted to encourage employers to sponsor benefit plans and minimize potential conflicts with existing state laws. Because of ERISA, the regulation of employee benefit plans, including health plans, falls primarily under federal jurisdiction for about 131 million people. This Note explores the ways in which ERISA presents significant roadblocks to meaningful state level healthcare reform under § 1332. State laws cannot directly refer to ERISA, nor influence the benefits, administration, or structure of an ERISA plan. Also, if a state law limits employer choices too much, it will likely violate ERISA. This Note proposes that ERISA needs to be waived, amended or repealed so that states can implement meaningful healthcare reforms under § 1332.

Mandatory Predispute Consumer Arbitration, Structural Bias, and Incentivizing Procedural Safeguards

Within the past several decades, there has been an explosion in the creation, institutionalization and use of “alternative” dispute resolution procedures. Mandatory predispute arbitration has generated the most controversy because it appears beset with structural bias. The recent cases of AT&T Mobility LLC v. Concepcion and Compucredit Corp. v. Greenwood have raised additional concerns as the Supreme Court has announced that corporations can force consumers to arbitrate their private and statutory claims and give up their rights to pursue class relief. This Article begins by arguing that the Supreme Court’s enthusiastic embrace of mandatory predispute arbitration should be understood primarily as institutional self-help, as an opportunistic search for the funding and personnel that courts need to conduct fact-finding and decision-making in cases that the courts perceive as routine. By permitting corporations to impose class waivers on consumers, the Supreme Court is incentivizing the corporations to provide and fund a national private small claims court. If the Court is incentivizing in this way, however, this Article urges that it should demand more in return for class waiver. Specifically, it should demand evidence that the arbitration procedure is sufficiently attractive to consumers so that they will pursue their claims, as well as evidence that the procedure is sufficiently fair. One difficulty in making these demands, however, is that courts are obligated to use very limited grounds and a deferential standard of review for arbitral awards. Second, therefore, this Article urges courts to mine past experience in other legal contexts that involve privatized judicial functions, a deferential standard of judicial review, and the incentivizing of procedural safeguards. For guidance, this Article examines MetLife v. Glenn and the evolution of the deferential standards of review that courts apply to ERISA plan benefit denials by private claims administrators, particularly when such administrators operate in a conflicted decision-making context. In this context, the Supreme Court has managed to acknowledge the existence of structural bias and make it a relevant and important factor to be considered as part of deferential judicial review. Further, the Supreme Court has provided guidance to lower courts regarding the weight to be given to structural bias and has provided examples of the information required to assess such weight. Structural bias has been given the stature of tiebreaker in close cases. Finally and most important for the purposes of this Article, the Supreme Court has also incentivized the provision of structural and procedural safeguards (as well as discovery into the existence and operation of such safeguards) in order to reduce the potency of the structural incentives that encourage biased decision-making. In other words, the Supreme Court has incentivized the provision of safeguards that will enhance the likelihood of accurate decision-making -- all while maintaining a deferential standard of review. Glenn and its progeny thus offer procedural safeguards that the Supreme Court could -- and should -- import into its arbitration jurisprudence. These, at the very least, are the sorts of safeguards that the valuable bargaining chip of class waiver should be able to buy.

Investment advisers to ERISA plans and plan asset funds will be subject to new disclosure obligations effective July 1, 2012

PurposeThe purpose of this paper is to explain the US Department of Labor's final regulations under Section 408(b)(2) of ERISA, concerning the fact that information investment advisers to ERISA‐covered pension plans and private investment funds deemed to hold the “plan assets” of ERISA‐covered pension plans must disclose regarding the services they provide and the compensation they receive to such ERISA plans.Design/methodology/approachThe paper summarizes the material provisions of the Final Regulations that apply to investment advisers to funds deemed to hold plan assets, including definitions of “covered service providers” and “covered plans,” a listing of required disclosures, an explanation of disclosure timing and format, and a discussion of possible responses for advisers that are not covered service providers.FindingsUnder the Final Regulations, investment advisers to ERISA‐covered pension plans and private investment funds deemed to hold the “plan assets” of ERISA‐covered pension plans must disclose certain information regarding the services they provide and the compensation they receive to such ERISA plans.Originality/valueThe paper provides practical guidance from experienced financial services lawyers.

A Flaw in ERISA’s Remedial Scheme: How Do Benefit Plans Recoup Money from Overpaid Participants?

Consider the following scenario: an ERISA plan erroneously distributes greater retirement benefits to its members than the participants and beneficiaries are actually entitled to receive — either because the plan errs when calculating benefits, or a participant induces the plan to distribute non-vested funds through misrepresentation. This article investigates the remedies available to plaintiff-plans seeking recovery for overpayments to participants. Based on the Supreme Court's recent ERISA remedies rulings, the article discusses whether the statute contains a viable cause of action for fiduciaries to recover mistaken overpayments from participants. Following a brief history of ERISA, including the statute's purpose and foundation in trust law, this article examines the Supreme Court’s construction of Section 502(a) and its test for appropriate equitable relief. The article then analyzes and compares recent cases denying monetary recovery to plan fiduciaries to those cases allowing fiduciaries to recoup overpayments to participants. Ultimately, the article's analysis illustrates that the Supreme Court's overly-narrow interpretation of ERISA’s remedial provisions frustrates the purpose of the statute.

The Federal Common Law of Vicarious Fiduciary Liability under ERISA

The Employee Retirement Income Security Act of 1974 ("ERISA"), the federal law that regulates employer-sponsored benefit plans, has a rich history of judiciallycreated federal common law. This Article explores the theoretical, policy, statutory, and stare decisis grounds for the development of another area offederal common law under ERISA-the incorporation of respondeat superior liability principles to impose ERISA fiduciary liability ("vicarious fiduciary liability") upon a corporation for the fiduciary activities of its employees or agents. The Article proposes that the federal courts should adopt a federal common law rule of vicarious fiduciary liability under ERISA based on the traditional scope of employment approach. Under such a rule, a corporate principal whose own internal employees or agents perform fiduciary functions during the course and within the scope of their employment or agency relationship would be strictly liable under ERISA for any breach of fiduciary duty by the employee or agent. Vicarious fiduciary liability should be limited, however, so that a nonfiduciary corporate principal would not be subject to damages claims under ERISA for the rogue fiduciary activities of its employees or agents, but would be subject to restitution as necessary to prevent unjust enrichment of the principal. A federal common law rule of vicarious fiduciary liability under ERISA is necessary for two reasons. First, a rule of vicarious fiduciary liability is essential to maintaining and enforcing ERISA's comprehensive system of fiduciary regulation. Second, vicarious fiduciary liability is needed to prevent employer overreaching under the judicially-created settlor function defense to breach of fiduciary duty claims. Absent a federal common law rule of vicarious fiduciary liability, a corporate employer in its nonfiduciary capacity as the settlor of its ERISA plan, may design the documents that govern the employer's plan as a shield against fiduciary responsibility for the actions of the employer's own internal fiduciary employees. This misuse of nonfiduciary settlor powers, which is contrary to both the letter and the spirit of ERISA, would be prevented by a federal common law rule of vicarious fiduciary liability.

The ERISA Eligibility of TALF and PPIP Loans and Securities: Do the Government’s Programs and ERISA Mesh?

The Term Asset-Backed Securities Loan Facility (TALF) and the Legacy Loan and Legacy Security Public-Private Investment Program (PPIP) were created anticipating investment by employee benefit plans and other retirement arrangements subject to ERISA (Plans), but there was no specific coordination of these programs with, or amendment of, ERISA-related provisions to facilitate this investment. This article describes the ERISA considerations that are relevant to a Plan’s use of a TALF loan to finance its purchase of assetbacked and commercial mortgage-backed securities (ABS/ CMBS), either via a direct purchase of ABS/CMBS or by means of an intervening fund. It then discusses the ability of Plans to become investors in PPIP funds established to purchase CMBS/MBS legacy loans or securities given the additional ERISA complications that are created when a Plan invests in a managed fund. The article concludes that while the economy, the credit markets, and Plans could all benefit from allowing greater Plan investment in PPIP funds, current ERISA provisions hamper such investment. The author suggests that the U.S. Treasury might explore with the U.S. Department of Labor the possibility of granting an administrative exemption that could allow greater Plan participation in PPIP funds than is currently available. <b>TOPICS:</b>Fundamental equity analysis, technical analysis

A Well-Reasoned But Incorrect QDRO Decision Pertaining to Life Insurance Payments from an ERISA Plan

In Metropolitan Life v. Drainville, 2009 U.S. Dist. LEXIS 63613 (DC R.I. July 23, 2009), a federal district court in Rhode Island recently explained the requirements that a domestic relations order (DRO) must satisfy to be a qualified domestic relation order (“QDRO”). The court held an ERISA life insurance plan must treat a divorce decree which required a participant to keep his first wife’s children as his beneficiaries as having gone into effect. The dispute arose because at the time of his death, the participant had not followed the terms of the decree, and his second wife was then his sole beneficiary. The Drainville court correctly concluded in a well-reasoned manner that (1) strict compliance with the QDRO disclosure requirements is not required, but substantial compliance is adequate; (2) an agreement that is merged or incorporated into a divorce decree may be a QDRO; and (3) a DRO may be a QDRO even if the plan administrator does not determine that it is a QDRO. The Drainville court, like many other courts, incorrectly disregarded the fact that the QDRO requirements, including the requirement that ERISA plans follow the designations of such an order, are applicable only to pension plans. Thus, the court should have (1) directed the life insurance plan to disregard the DRO at issue, and (2) held that the participant’s designee, his second wife, was entitled to his benefits.

Insurance in the Courts

ERISA EMPLOYEE BENEFIT PLANS PERMITTED TO SEEK REIMBURSEMENT FROM BENEFICIARIES FOR RECOVERY OBTAINED FROM THIRD PARTIES Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869,164 L.Ed.Zd 612, 2006 U.S. LEXIS 3954 (Supreme Court of the United States, May 15,2006) Marlene Sereboff's employer sponsored a health insurance plan administered by Mid Atlantic Medical Services, Inc. that was subject to and covered by the Employee Retirement Income Security Act of 1974 (ERISA). Marlene and her husband Joel were beneficiaries under the plan, which provided medical coverage and contained an Acts of Third Parties provision, stated that it applied when a beneficiary was sick or injured as a result of the act or omission of another person or party, and required those under the plan due to the medical costs of the injuries to reimburse Mid Atlantic for those benefits from [a]ll recoveries from a third party (whether by lawsuit, settlement, or otherwise). The provision stated that Mid Atlantic's share of the recovery would not be reduced in cases where the beneficiary did not receive the full damages claimed, unless Mid Atlantic and the beneficiary agreed in writing to a reduction. The Sereboff s were involved in an automobile accident in California and suffered injuries. The plan paid the couple's medical expenses. The Sereboffs also filed a tort action in state court against several third parties that eventually obtained compensatory damages for injuries suffered as a result of the accident through a $750,000 settlement of the tort action. During the pendency of the suit, Mid Atlantic sent the Sereboffs' attorney a letter asserting a lien on the anticipated proceeds from the suit for the medical expenses that Mid Atlantic had paid on the Sereboffs' behalf. As the lawsuit progressed, Mid Atlantic reiterated its position that it was entitled to reimbursement from any obtained by the Sereboffs from the lawsuit. After receiving the settlement funds, the Sereboffs and counsel took that position that Mid Atlantic's claim for reimbursement-which sought a refund for the approximately $75,000 it had paid in Sereboff medical bills -was invalid. In response, Mid Atlantic filed suit in District Court under § 502(a)(3) of ERISA, seeking to collect from the Sereboffs the medical expenses it had paid on their behalf. Mid Atlantic sought a temporary restraining order and preliminary injunction requiring the couple to retain and set aside the amount at issue. The trial court and the parties agreed to preserve $74,869.37 of the settlement funds in an investment account until the [District] Court rules on the merits of this case and all appeals, if any, are exhausted. On the merits, the District Court found in Mid Atlantic's favor and ordered the Sereboffs to pay Mid Atlantic the $74,869.37, plus interest, with a deduction for Mid Atlantic's share of the attorney's fees and court costs the Sereboffs had incurred in state court. The Sereboffs appealed and the Fourth Circuit affirmed. Because the Fourth Circuit and other United States Courts of Appeal were divided on the question whether § 502(a)(3) authorized recovery by an ERISA benefit plan under these circumstances, the Supreme Court granted review. The case presented the Court with an opportunity to consider once again the circumstances under which an ERISA fiduciary can sue a beneficiary for reimbursement of medical expenses paid by the ERISA plan in cases where the beneficiary has also obtained a monetary recovery for its injuries from a third party. The Supreme Court affirmed the lower courts and in essence approved reimbursement under these circumstances, resolving doubts that had been raised by the Court's 2002 Knutson opinion, which had suggested considerable limits on an ERISA plan's rights to reimbursement. ERISA provides that a fiduciary may bring a civil action under § 502(a)(3) of ERISA (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan. …