By Jules Levenson and Mark Casciari

Seyfarth SynopsisIn a decision with major significance for ERISA plans, the Court of Appeals for the Ninth Circuit has upheld the validity of forum selection clauses in those plans.

ERISA is replete with details. Among them is the proper forum for litigation under the statute. ERISA lists multiple potential venues.  The question then becomes whether an ERISA plan can mandate that litigation must be commenced in one of those venues. Pondering this question is not merely an academic exercise as ERISA jurisprudence is not uniform, raising the risk of inconsistent interpretations by different courts. Additionally, certain courts see more ERISA litigation than others, allowing greater familiarity with the statute.

In the case of In re Becker, No. 20-72805, – F.3d – (9th Cir. April 1, 2021), the Ninth Circuit considered whether the district court properly transferred a 401(k) plan lawsuit from the Northern District of California to the District of Minnesota (where the plan sponsor resides and the plan is administered) pursuant to the plan’s forum-selection clause.

ERISA provides that lawsuits “‘may be brought’ where: (1) the plan is administered; (2) the breach took place; or (3) a defendant resides or may be found.” The Court held that the statute’s use of “may” indicates that any of these options is acceptable. (Indeed, the Court said, even an arbitration forum is permitted). Accordingly, it held that a plan clause mandating where a lawsuit may be commenced is permitted by the statute if the selected forum is one of those listed in the statute.

The Court noted that a forum selection clause can support the important ERISA goal of uniform plan administration by having the same court interpreting the plan.  Plan sponsors can readily appreciate this point as they prefer to select individuals to serve as plan fiduciaries who can be expected to review many claims in a consistent fashion.

The Ninth Circuit decision comports with all other Courts of Appeal decisions that have considered the ERISA plan forum selection issue and should make ERISA litigation more predictable, while frustrating any potential forum shopping by plaintiffs.

By Mark Casciari and Kathleen Cahill Slaught

Seyfarth Synopsis:  A recent panel decision from the Ninth Circuit rejects an ERISA preemption argument that a Seattle ordinance regulating private sector health care should be nullified in order to safeguard the ERISA administrative scheme.

On March 17, 2021, a three judge panel of the Court of Appeals for the Ninth Circuit found that ERISA did not preempt a provision in the Seattle Municipal Code that mandates hotel employers and ancillary hotel businesses to provide money directly to designated employees, or to include those employees in the employer’s health benefits plan.  If the employer provides self-insured health benefits, that plan ordinarily would be protected from state laws intruding on its administration, under the broad ERISA preemption clause that nullifies state and local laws that “relate to” ERISA plans.

This case is captioned — The ERISA Industry Committee v. City of Seattle, No. 20-35472.

The three panel judges reasoned that the Seattle ordinance was not preempted by relying on the  Ninth Circuit decision in Golden Gate Rest. Ass’n v. City & Cnty. of San Francisco, 546 F.3d 639 (2008).  The panel said that the Seattle ordinance does not “relate to” any ERISA plan, in accord with Golden Gate, because the employer may fully discharge its expenditure obligations by making the required level of employee health care expenditures to a third party, here the employees directly.  The decision was unsigned (per curiam).

There are a number of interesting aspects to the Seattle decision.

First, the panel labeled the decision as an unpublished Memorandum.  Circuit Rule 36-3(a) states that unpublished Memoranda are not precedent.  The panel thus limited the impact of its decision, which is unfortunate given a conflict in the circuits (noted below).

Second, the Ninth Circuit panel made no mention of the conflict between Golden Gate and Retail Indus. v. Fielder, 475 F.3d 180 (4th Cir. 2007).  In Fielder, the Court of Appeals for the Fourth Circuit ruled that a Maryland law that required large employers to spend at least 8% of their total payrolls on employee health insurance costs or pay the shortfall to the state was preempted by ERISA.  The court reasoned that the Maryland law was preempted because it “effectively” required employers in Maryland to restructure their ERISA plans, and thus conflicted with ERISA’s goal of permitting uniform nationwide administration of those plans.

Third, the Ninth Circuit panel applied a presumption “against” ERISA preemption.  By contrast, a recent (unanimous) ERISA preemption decision of the Supreme Court, Rutledge v. Pharmaceutical Care Management Assn., discussed in a previous blog post, makes no reference to any such presumption.

Fourth, the Ninth Circuit panel seems to apply field preemption concepts set forth in Justice Thomas’s concurring opinion in Rutledge.  That test can be explained by asking whether a provision in ERISA governs the same matter as the state law, and thus could replace it.  ERISA, of course, does not regulate direct payments to employees. This construct of preemption appears to narrow the ERISA preemption standard now applied by a solid majority of the Supreme Court.

We live in an age of state experimentation with matters arguably regulated by ERISA.  Expect to see more such experimentation and more litigation to defend the federal scheme in ERISA.

Seyfarth Synopsis: Avid readers of Beneficially Yours may recall that just over a year ago we asked the pressing question of whether surgical mask purchases could be covered under a health care FSA, among other “novel” coronavirus questions — see what we did there? [Click here for our previous post.] The IRS has confirmed our ground-breaking declaration that masks purchased to prevent contracting the coronavirus could be reimbursable under your health care FSA.

The IRS has finally weighed in — Announcement 2021-7 — allowing personal protective equipment (PPE) to be treated as qualifying medical expenses under Internal Revenue Code Section 213. PPE includes such items as masks, hand sanitizers and sanitizing wipes for the primary purpose of preventing the spread of the virus that causes COVID-19. So, if these items are not otherwise covered by insurance or deducted on an individual’s tax return, they can be reimbursed under the individual’s health care flexible spending account (FSA), health care reimbursement account (HRA), health care savings account (HSA), or Archer medical savings account (MSA).

To the extent these health care arrangements have been permitting these reimbursements already, this announcement provides welcome confirmation. Other plan sponsors may want to use this opportunity to review the rules for their FSAs and HRAs to determine if they should be expanded to specifically allow for reimbursements for these PPE purposes. The IRS states that FSAs and HRAs may be amended for any period beginning on or after January 1, 2020, as long as the plan has been operated consistently and the amendment is in place before the end of the calendar year following the end of the year for which the change is effective. For example, by December 31, 2021 for a change effective January 1, 2020. No retroactive amendment may be adopted later than December 31, 2022.

On Thursday, April 8 at 2:00 p.m. ET, Seyfarth employee benefits attorneys Sarah Touzalin, Christina Cerasale and Irine Sorser will present the ERIC Webinar: “Unfinished Business – Guidance and Questions Under the SECURE Act.”

The COVID-19 pandemic created many forms of legislative relief and regulatory guidance in 2020. However, the pandemic also necessarily resulted in the delay of SECURE Act guidance. While the end of the year presented some guidance, there are still questions and future guidance expected on many issues including Required Minimum Distributions (RMDs), long-term, part-time employees, and other issues.

Our presenters will address questions and guidance under the SECURE Act. If you have a specific question or issue you would like discussed, please forward it [email protected].

Click here to register for the webinar.

Wednesday, March 24, 2021
1:00 p.m. to 2:00 p.m. Eastern
12:00 p.m. to 1:00 p.m. Central
11:00 a.m. to 12:00 p.m. Mountain
10:00 a.m. to 11:00 a.m. Pacific

One part of the recently passed $1.9 trillion “American Rescue Plan” is the “Butch Lewis Emergency Pension Plan Relief Act of 2021” (“Butch Lewis”). Butch Lewis is the long awaited law designed to provide underfunded multiemployer pension plans with sufficient monies to pay for all accrued benefits owed to retirees, without reduction, through the plan year ending in 2051. Is this the reform plans and participating employers have been looking for?  In this webinar, Seyfarth attorneys will review Butch Lewis, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Overview of prior pension reform attempts and the state of multiemployer pension plans
  • Butch Lewis as adopted
  • Plan eligibility for relief and the application process
  • Conditions on relief
  • Impact for multiemployer plans
  • Impact for participating employers

Register Here

Wednesday, March 24, 2021
1:00 p.m. to 2:00 p.m. Eastern
12:00 p.m. to 1:00 p.m. Central
11:00 a.m. to 12:00 p.m. Mountain
10:00 a.m. to 11:00 a.m. Pacific

One part of the recently passed $1.9 trillion “American Rescue Plan” is the “Butch Lewis Emergency Pension Plan Relief Act of 2021” (“Butch Lewis”). Butch Lewis is the long-awaited law designed to provide underfunded multiemployer pension plans with sufficient monies to pay for all accrued benefits owed to retirees, without reduction, through the plan year ending in 2051. Is this the reform plans and participating employers have been looking for? In this webinar, Seyfarth attorneys will review Butch Lewis, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Overview of prior pension reform attempts and the state of multiemployer pension plans
  • Butch Lewis as adopted
  • Plan eligibility for relief and the application process
  • Conditions on relief
  • Impact for multiemployer plans
  • Impact for participating employers

Register Here

By Ronald KramerSeong Kim, and James Hlawek

Seyfarth Synopsis:  On Monday, the Senate Parliamentarian ruled that the multiemployer pension plan bailout provisions in the $1.9 trillion American Rescue Plan (a.k.a. the latest COVID-19 relief bill) would be eligible for a simple majority vote in the Senate as part of the budget reconciliation process, and thus will remain as part of the relief bill likely to become law shortly.

On Monday, March 1st, Senate Finance Committee Chair Ron Wyden released a statement reporting that the Senate Parliamentarian had determined that the multiemployer pension plan reform provisions of the American Rescue Plan, entitled the “Butch Lewis Emergency Pension Plan Relief Act of 2021” (“Butch Lewis”), has the necessary budget impact to remain part of what is to be a budget reconciliation bill that will need only majority approval in the Senate.

In his press release, Senator Wyden stated the following:

“I’m pleased our pension protection package will remain in the critical relief bill. This economic crisis has hit already struggling pension plans like a wrecking ball, and the retirement security of millions of American workers depends on getting this package across the finish line.”

Given that the inclusion of Butch Lewis will not derail plans to vote the American Rescue Plan into law by a simple majority vote in the Senate, with Vice President Harris being the tie breaker, it is highly likely that Butch Lewis will remain in the final bill and, if passed, will become law very shortly.

As discussed in our prior post, Butch Lewis as drafted will make a seriously underfunded multiemployer plan eligible for “special financial assistance” that is not subject to any financial repayment obligations, designed to cover the amount required to pay all accrued benefits through the last day of the plan year ending in 2051.

By Ronald Kramer, Seong Kim, and James Hlawek

Seyfarth Synopsis:  If the Senate Parliamentarian blesses it, the $1.9 trillion American Rescue Plan (a.k.a. the latest COVID-19 relief bill) may include multiemployer pension relief that would provide underfunded multiemployer pension plans with sufficient monies from the Treasury Department to pay for all accrued benefits owed to retirees, without reduction, through the plan year ending in 2051.  Notably, any multiemployer pensions plans eligible for this relief would not have to repay those monies. 

Microscopic view of Coronavirus, a pathogen that attacks the respiratory tract. Analysis and test, experimentation. Sars. 3d render

Embedded in the $1.9 trillion “American Rescue Plan” is yet another attempt at multiemployer pension plan reform, entitled the “Butch Lewis Emergency Pension Plan Relief Act of 2021” (“Butch Lewis”).  The Senate Parliamentarian is to decide whether Butch Lewis has the necessary budget impact to remain part of what is to be a budget reconciliation bill that will need only majority approval in the Senate.  That decision should come very soon.

Butch Lewis is a continuation of various prior legislative efforts aimed at addressing the multiemployer pension plan crisis, including earlier versions of the Butch Lewis Act of 2019, the Emergency Pension Plan Relief Act of 2020, and other pending pension reform legislation.  Gone are attempts to share any economic pain among the stakeholders, or to provide any mechanism for the repayment of financial assistance given to underfunded multiemployer pension plans.  Instead, if it remains in the American Rescue Plan, Butch Lewis as drafted will make any underfunded multiemployer plan eligible for “special financial assistance” that is not subject to any financial repayment obligations, provided it meets one of the following criteria:

(A) The multiemployer pension plan is in critical and declining status in any plan year beginning in 2020 through 2022;

(B) The multiemployer pension plan suspended benefits in accordance with the process set forth in the Multiemployer Pension Reform Act of 2014 (“MPRA”);

(C) The multiemployer pension plan is certified by the plan actuary to be in critical status in any plan year beginning in 2020 through 2022, has a “modified funded percentage” (defined as the percentage equal to a fraction, the numerator of which is current value of plan assets and the denominator of which is current liabilities) of less than 40%, and has a ratio of active to inactive participants which is less than 2 to 3; or

(D) The multiemployer pension plan became “insolvent” after December 16, 2014, as defined under Internal Revenue Code Section 418E, and has remained so insolvent and has not been terminated as of the date of enactment of Butch Lewis.

Multiemployer pension plans seeking special financial assistance must apply no later than December 31, 2025, with revised applications submitted no later than December 31, 2026.  Butch Lewis allows the PBGC to limit applications during the first 2 years following enactment to certain plans, such as those that are insolvent or are likely to be insolvent within 5 years.

The amount of financial assistance provided to eligible multiemployer pension plans is equal to the amount required to pay all accrued benefits, without reduction, due from the date of payment of the special financial assistance through the last day of the plan year ending in 2051.  In short,  eligible multiemployer pension plans should have sufficient funds to pay benefits for the next 30 years, provided investment performance over that period is line with projected investment returns and other actuarial assumptions.

Butch Lewis does have provisions to attempt to limit plans from mismanaging the monies they receive.  The special financial assistance and any earnings on such assistance must be segregated from other plan assets, and can only be invested in investment-grade bonds or other investments as permitted by the PBGC.  The PBGC also is authorized to impose by regulation conditions on plans receiving special financial assistance relating to increases in future accrual rates and any retroactive benefit improvements; allocation of plan assets; reductions in employer contribution rates; diversion of contributions to, and allocation of expenses to, other benefit plans; and withdrawal liability.

Any multiemployer pension plan that receives special financial assistance shall be deemed to be in critical status until the last plan year ending in 2051, and it also must reinstate any previously suspended benefits under the MPRA, and provide payments equal to the amount of benefits previously suspended (either as a lump sum or in equal monthly installments).  Multiemployer pension plan accepting special financial assistance under Butch Lewis will not be eligible to apply for a new suspension of benefits under the MPRA.

The funds used to pay for the special financial assistance would come directly from the Treasury Department.  The payment to the multiemployer pension plan would be a single, lump-sum payment. There is currently no provision for a tax on participating employers, or any reduction in participating employee benefits.  The proposed law does provide, however, for an increase in premium rates for multiemployer plans from the currently indexed annual per participant rate (which is $31 per participant for plan years beginning in 2021) to $52 per participant for plan years beginning after December 31, 2030, with indexing for inflation tied to the Social Security Act’s national wage index.

Any participating employer that withdraws within 15 calendar years from the effective date of when a plan receives special financial assistance will not see any reduction in its withdrawal liability assessment due to the special financial assistance.  Withdrawal liability will be calculated without taking into account special financial assistance received until the plan year beginning 15 calendar years after the effective date of the special financial assistance.  As currently drafted, Butch Lewis would not otherwise change how withdrawal liability is calculated, including application of the withdrawal liability payment schedule, the 20-year cap on payments, or the mass withdrawal liability rules.

In short, Butch Lewis as currently drafted basically would result in the federal government picking up the tab for certain seriously underfunded multiemployer pension plans for the next 30 years, without imposing any costs directly on such plans or their participating employers, unions, participants or retirees.  As such, it could be a huge relief for such underfunded plans and their participating employers and participants if Butch Lewis is passed.  Stay tuned.

The Consolidated Appropriations Act of 2021 (“CAA”) offers significant relief for employers sponsoring flexible spending accounts. After much clamoring from the employer community, the IRS finally issued clarifying guidance in the form of Notice 2021-15 (the “Notice”). Check out our full Legal Update for details.

Seyfarth Synopsis: As you’ll recall, last Spring, the DOL and IRS issued guidelines providing relief from certain deadlines for employee benefit plans, retroactive to March 1, 2020 (i.e., the beginning of the COVID-19 national emergency declared by the President). The relief was issued pursuant to authority granted to the agencies under ERISA Section 518 and Code Section 7508(A) and extended through the end of the “Outbreak Period.” Click here, here and here to review our prior articles on the Outbreak Period. We wanted to provide a quick update on what we’re hearing out of Washington D.C. relating to the timing and process for the expiration of the “Outbreak Period.”

In general, the extended deadline relief applied to the following deadlines applicable to participants and plan administrators:

  • The COBRA election deadline;
  • The COBRA premium payment deadline;
  • The HIPAA special enrollment deadline;
  • The deadline for filing a claim or appeal for benefits or a request for an external review of an adverse benefits determination; and
  • The deadline for plan administrators to provide the COBRA election notice.

Under the guidance, any such deadline occurring on or after March 1, 2020, would be tolled for the entirety of the national emergency, plus 60 days (the “Outbreak Period”). That said, when the guidance was published it was widely believed that the national emergency period would be lifted at some point in 2020. In fact, the authority granted to the DOL and IRS under ERISA Section 518 and Code Section 7508(A) only allows such relief to extend for a one-year period.

Given this framework, our understanding is that the relief afforded under these rules will expire effective February 28, 2021 – and this expiration would be a “hard stop,” meaning there will not be a 60 day “wind down” period as anticipated in the original guidance. (But keep in mind that the deadlines were simply tolled during this period, so any remaining time a participant or plan administrator had to complete the action when the suspension took effect on March 1, 2020, will still be available after February 28, 2021.)

We reached out to various Washington D.C. policy groups to get insight into whether the agencies agree with this interpretation, and whether and to what extent they believe they have the authority to further extend the Outbreak Period, absent Congressional action granting them such authority. Here are a few key takeaways from that discussion:

  • Both agencies are aware of the issue and are considering whether to issue clarifying guidance.
    • The DOL seems more open to seeking avenues to further extend the Outbreak Period. The ideas they are contemplating include treating this as an “evergreen period,” with a new one year period commencing after the conclusion of the prior one year period, or perhaps even applying the one-year window on an individual-by-individual basis (which would be an administrative mess).
    • The IRS is less keen on issuing any sort of extension. They are sensitive to the fact that the IRS more broadly relies on the authority under Code Section 7508(A) to extend a number of other non-benefits-related deadlines. So, they are concerned about the precedent this might set if they extend further in this context.
  • Regardless of the above, both agencies seemed to tacitly confirm that, absent any further action, February 28, 2021 will be the end date for the deadline relief.

Looming in the background of all of this is the proposed COVID relief bill which would include a prospective COBRA subsidy of 85% of the cost of coverage, including the right for persons to elect COBRA prospectively to run for the remainder of their COBRA window, even if the election period has expired. So, seemingly the urgent need for an extension of the Outbreak Period is lessened (assuming the COBRA subsidy makes it into the final bill).

Given the balance of likelihoods, employers should consider communicating this upcoming expiration of the Outbreak Period (e.g., through a Summary of Material Modification or other participant communication), at the very least to COBRA participants but potentially to the broader population given the implications for HIPAA special enrollments and claim filing deadlines. (That is, unless the employer had previously communicated a February 28, 2021 end date.) It will also be important to coordinate with COBRA and claims administration vendors to ensure there is alignment/uniformity in approach.

In any case, we’re monitoring and will keep you posted on developments.