From time to time employers ask us how long they need to retain records relating to their ERISA plans. Though the question is most frequently asked with respect to retirement plans, it applies equally to health and other welfare benefit plans. The rules under ERISA that govern the retention of records haven’t changed in years, and neither has our answer. But a case of first impression recently decided by the First Circuit Court of Appeals brings the question into sharp focus and provides a nice opportunity for us to share our thoughts on the matter.
Entries in Plan Administration (45)
As all sponsors and fiduciaries of tax-qualified retirement plans should know by now, written fee and expense disclosures are due to be provided to plan fiduciaries by “covered service providers” by July 1. As we explained in a prior post, this important disclosure is mandated by final regulations under ERISA Section 408(b)(2). The disclosure requirements apply to a variety of retirement plan service providers, such as providers of fiduciary services, investment managers, record keeping firms, and others, who expect to receive at least $1,000 for their services. Certain service providers whose compensation is paid directly by the plan sponsor (e.g., an accounting firm that audits a 401(k) plan and is paid directly by the employer sponsoring the plan) may not have to comply.
Sponsors of plans subject to these requirements should contact their vendors to request confirmation that the vendor will deliver the mandatory disclosures on time. For vendors who claim they are not subject to the regulation, a plan sponsor should ask the vendor to explain, in writing, why the vendor is not a “covered service provider.” A plan sponsor wishing to reach out to its vendors could begin by reviewing its most recent Schedule C to Form 5500, which should provide at least a good starting point for a list of service providers that might fall into the regulation’s definition of “covered service provider.”
The U.S. Department of Labor considers these fee disclosures a critical component in the overall structure of fiduciary responsibility. The disclosures also support the participant-level disclosures that plan fiduciaries must distribute later this year (by August 30 for calendar year plans). Plan fiduciaries should keep track of the fee disclosures they receive and promptly follow up with vendors that have not provided the necessary disclosures but appear to be covered service providers under the regulation.
On May 31, 2012 the U.S. Court of Appeals for the First Circuit, in Massachusetts v. United States Department of Health and Human Services, declared Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Section 3 defines marriage for purposes of applying all federal statutes as “a legal union between one man and one woman as husband and wife.” The First Circuit held that this definition of marriage violates the Equal Protection Clause by denying federal benefits to same-sex couples lawfully married under state law. The Court, however, stayed enforcement of its decision pending appeal.
As a reminder, DOMA does not formally invalidate same-sex marriages in the states that legally recognize them, but it does have several consequences for same-sex married couples under federal law. For example, same-sex married couples may not file joint federal income tax returns, enjoy the preferential tax treatment afforded employer-sponsored spousal health insurance benefits, or receive health insurance as the spouse of a federal employee. So what does this decision mean to employers and sponsors of employee benefit plans?
As we have noted, high-deductible health plans (HDHPs) with a Health Savings Account (HSA) feature are growing in popularity. Our last post on HDHP/HSA arrangements explored some of the general eligibility questions we are asked most frequently. Today we address common questions about HSA contributions.
1. Are contributions limited by the number of months an employee is HSA-eligible, or is an employee entitled to the full contribution limit for being HSA-eligible for just part of the year? HSA contributions generally may be made for months in which an individual is HSA-eligible, and the individual’s annual HSA contributions may not exceed the sum of the “monthly limitations” (the annual contribution limit divided by 12) for all months in the calendar year in which the individual actually is HSA-eligible. Said another way, an employee’s yearly contribution limit is prorated based on the period the employee is actually HSA-eligible. That is the general rule, often called the “general monthly contribution rule.” By contrast, under the “full-contribution rule” described below an individual may be treated as HSA-eligible for the entire year and entitled to make contributions up to the annual maximum HSA contribution limit if the employee becomes covered by an HDHP in a month other than January and is HSA-eligible on December 1 of that year.
After our recent post on the fiduciary-level fee disclosure rules under ERISA Section 408(b)(2), we wanted to complete the picture for plan fiduciaries by revisiting the participant-level fee disclosure rules under ERISA Section 404(a). These rules require fiduciaries of participant-directed individual account plans (such as 401(k) and 403(b) plans) to periodically disclose certain plan- and investment- related information to plan participants, beneficiaries, and eligible employees (without regard to whether an eligible employee has actually become enrolled in the plan). The rules were finalized in July, 2011 and are effective for the first plan year on or after November 1, 2011 (January 1, 2012 for calendar year plans).
Non-ERISA plans are not required to comply with these disclosure obligations, though it may become a best practice to do so. More on that later.