Friday, July 30, 2021
2:00 p.m. to 3:30 p.m. Eastern
1:00 p.m. to 2:30 p.m. Central
12:00 p.m. to 1:30 p.m. Mountain
11:00 a.m. to 12:30 p.m. Pacific

On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance.

In this webinar, Seyfarth attorneys review the interim final rule, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Plan eligibility;
  • The amount of SFA;
  • The application process;
  • Conditions and restrictions on receipt of SFA, including limitations on reductions in contributions and increases in benefits, and investment restrictions;
  • Withdrawal liability considerations; and
  • What’s Next

Register Here

By: Mark Casciari, Tom Horan, and James Nasiri

Seyfarth Synopsis: In a recent decision highlighting the potential for far-reaching responsibility for withdrawal liability payments, the Court of Appeals for the Seventh Circuit affirmed a judgment against two individuals contending that their ownership interest in the contributing company’s principal place of business was a purely passive investment.

In February 2018, a trucking company ceased all operations and withdrew from the Local 705 Teamsters Multi-Employer Pension Fund.  The fund sent the company, and the individuals who owned its principal place of business, a demand for payment of withdrawal liability.

The company and the individuals did not request review of the demand.  The fund then commenced litigation to collect on its demand.

The Seventh Circuit affirmed a judgment in favor of the fund and against the contributing company and individuals.  The decision is reported as Local 705 International Brotherhood of Teamsters Pension Fund v. Pitello, 2021 WL 2818326 (7th Cir. July 7, 2021).

The court explained that withdrawal liability extends to all “trades or businesses” under common control with the withdrawing employer, on a joint and several liability basis.  The court said that joint and several liability does not extend, however, to parties with purely “passive or personal investments.”

The individuals argued that their ownership of the at-issue property should not be deemed a trade or business because they: (1) never received any rent or tax benefits as a result of the company’s use of the property, (2) purchased the property 18 years earlier and held it purely as an investment, (3) did not lease it to anyone after the company ceased operations, and (4) never employed anyone to manage the property.

The court found that another company the individuals owned did charge rent for the property after the contributing company ceased operations.  The court thus reasoned that “whatever value the[y] received through their rent-free arrangement with [the company] had been lost,” and the decision to generate replacement rental income thereafter made clear that their ownership of the property was a business venture.

Moving forward, this decision should serve as a reminder that courts are willing to entertain expansive definitions of who may be jointly and severally liable for withdrawal liability. See our articles that address the complexity of judicial review on the scope of liability.  No Partnership, No Common Control, No Withdrawal Liability: Private Equity Funds Not Liable for Portfolio Company’s Multiemployer Plan Withdrawal Liability | Beneficially Yours and The Ninth Circuit Hammers Out A New Successorship Liability Test Under The MPPAA | Beneficially Yours.  All companies and individuals in this space also should become familiar with the PBGC’s interim final rule on the Special Financial Assistance provisions of the American Rescue Plan Act, which sets forth rules on employer withdrawals and withdrawal liability settlements.  See PBGC Issues Much Anticipated Interim Final Rule on Special Financial Assistance Under American Rescue Plan Act | Beneficially Yours.

Friday, July 30, 2021
2:00 p.m. to 3:30 p.m. Eastern
1:00 p.m. to 2:30 p.m. Central
12:00 p.m. to 1:30 p.m. Mountain
11:00 a.m. to 12:30 p.m. Pacific

On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance.

In this webinar, Seyfarth attorneys review the interim final rule, address what it means for multiemployer plans, and discuss what it means for employers participating in those plans.

Topics will include:

  • Plan eligibility;
  • The amount of SFA;
  • The application process;
  • Conditions and restrictions on receipt of SFA, including limitations on reductions in contributions and increases in benefits, and investment restrictions;
  • Withdrawal liability considerations; and
  • What’s Next

Register Here

By: Seong Kim, Ronald Kramer, and Alan Cabral

Seyfarth Synopsis:  On July 9, 2021, the PBGC issued its interim final rule on ARPA’s Special Financial Assistance Program for financially troubled multiemployer pension plans.  The new regulations provide guidance on the application process for Special Financial Assistance and the related restrictions and requirements, including the priority in which applications will be reviewed.  The guidance also sets forth special rules regarding employer withdrawals and withdrawal liability settlements for plans receiving Special Financial Assistance. Seyfarth has prepared a Legal Update summarizing the interim final rule and will be holding a webinar on the rule on July 30, 2021.

On July 9, 2021, the Pension Benefit Guaranty Corporation (“PBGC”) issued extensive guidance in an interim final rule (the “Interim Final Rule,” “Rule,” or “regulation”) to implement the American Recue Plan Act’s Special Financial Assistance (“SFA”) Program for financially troubled multiemployer defined benefit pension plans.  Under the SFA Program, an eligible plan will receive the funds required for the plan to pay all benefits due from the date of the SFA payment and ending on the last day of the plan year ending in 2051.

The Interim Final Rule, set forth in new Section 4262 of the PBGC’s regulations, provides guidance to plan sponsors on the SFA application process, including what plans need to file to demonstrate eligibility for relief; calculating the amount of SFA; assumption requirements;  the PBGC’s review of SFA applications; and other restrictions and conditions.  The Interim Final Rule also sets forth the order of priority in which applications will be reviewed and provides much anticipated clarification on the calculation of withdrawal liability and the assumptions to be used for SFA.

There is a thirty (30) day public comment period starting from the date of publication of the rule in the Federal Register on July 12, 2021.

Seyfarth has issued a detailed Legal Update, too long for a blog post, summarizing the interim final rule which can be accessed here.  It is recommended reading.  (Our earlier Legal Update on the Pension and Executive Compensation Provisions in the American Rescue Plan Act can be accessed here.) 

In addition, there are a number of issues that have not been addressed in this regulation, and we will be issuing a further memorandum soon outlining some of the important open questions.  Seyfarth will also hold a webinar on Friday, July 30, 2021, at 1:00 central to review the regulations in more detail, as well as any considerations for plan sponsors and contributing employers.  Stay tuned to this site for more details and an invite to the webinar.

Seyfarth Synopsis: The IRS has extended its relief from the physical presence requirement related to certain plan elections through June 30, 2022.

Certain elections for distributions from plans require spousal consent provided in the presence of a notary or plan representative. Although states were relaxing their notarization requirements due to the COVID-19 pandemic, many plan administrators were reluctant to accept remote notarizations for plan elections because a “physical presence” requirement remained in the IRS guidance.

In June 2020, the IRS gave temporary relief from the physical presence requirement in the Treasury Regulations related to plan elections. The relief allowed for elections to be witnessed by a notary public of a state that permits remote electronic notarization using live audio-video technology. It also allowed remote witnessing by plan representatives using live audio-video technology if certain requirements were met. See our prior blog post on this relief here.

In January 2021, the IRS further extended this temporary relief through June 30, 2021. The IRS has now extended the relief for another 12 months through June 30, 2022. The guidance also requests specific comments on whether the relief should be permanent. Among other items, the IRS asked for comment about any costs or burdens associated with the physical presence requirement and whether the removal of the physical presence requirement could cause increased fraud, spousal coercion or abuse.

This guidance will provide plan sponsors and plans continued flexibility as plan participants continue to work remotely to some degree, and particularly with respect to former employees, and we expect that plan administrators would welcome the opportunity to continue to use remote authorizations. In fact, given the widespread acceptance of remote work technologies, including video meetings apps, it makes sense that the IRS is considering making the relief permanent. Seyfarth will continue to monitor how the physical presence requirements for plan elections are evolving.

Dismissal of ACA Lawsuit Based Only on Standing Grounds

Seyfarth Synopsis:  In Texas v. California, the Supreme Court rejected another challenge to the Affordable Care Act (“Obamacare” or “ACA”). The Court never reached the merits of the challenge, relying instead on its now robust Article III standing doctrine. The plaintiffs failed to allege injury traceable to the allegedly unlawful conduct and likely to be redressed by their requested relief.

On June 17, in Texas v. California, the Supreme Court dismissed the declaratory judgment challenge to the ACA’s constitutionality brought by Texas and 17 other states (and two individuals), finding that the plaintiffs lacked Article III standing. Our earlier blog post on this case after oral argument explained that the plaintiffs alleged that the ACA’s “individual mandate” was unconstitutional in the wake of Congress reducing the penalty for failure to maintain health insurance coverage to $0.

The Court side-stepped all issues on the merits, and ruled 7-2 that the plaintiffs did not have standing because they failed to show “a concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing the specific statutory provision they attack as unconstitutional.” The majority said that the plaintiffs suffered no indirect injury, as alleged, because they failed to demonstrate that a lack of penalty would cause more people to enroll in the state-run Marketplaces, driving up the cost of running the programs. Similarly, the majority found no direct injury resulting from the administrative reporting requirements of the mandate. The majority found that those administrative requirements arise from other provisions of the ACA, and not from the mandate itself.

Justices Alito and Gorsuch dissented, opining that the states not only have standing, but that the individual mandate is now unconstitutional and must fall (as well as any provision inextricably linked to the individual mandate).

This is the third significant challenge to the ACA over the last decade.

Moreover, the latest ACA decision has implications beyond just that statute. A solid majority of the Court has emboldened its already tough standing requirements that precondition any merits consideration in federal court. Our prior blogs here and here, have explained that the Court is intent on narrowing the door to the courthouse for many cases, including ERISA cases. This is significant because ERISA fiduciary breach cases, in particular, can be brought only in federal court. As such, we expect to see more ERISA defense arguments based on Article III standing deficiencies. And it certainly will not be enough for plaintiffs to mount a challenge under the Declaratory Judgment Act as a way to avoid the very stringent Article III injury in fact requirement.

Seyfarth Synopsis: The DOL has waded into a long-simmering debate about whether audio recordings of phone calls between a plan participant and the plan’s administrator or insurer should be provided to the participant when challenging a benefit determination under the plan, and they have come down squarely on the side of the participant. 

A recent DOL information letter lays out the Department’s view that audio recordings are considered relevant documents that plan administrators, insurers, and third party administrators must provide to a claimant upon request, regardless of how the recording is used in the course of plan administration or a benefit determination.

The DOL’s position was expressed in response to a claimant’s request for an advisory opinion after a claims administrator denied the claimant’s request for audio recordings of a phone call  associated with an adverse benefits determination. The DOL felt that this issue was best addressed through an information letter (as opposed to an advisory opinion) as it invoked established principles under ERISA, which would apply more broadly than to the discreet facts of the claimant’s situation.

In the claimant’s situation, the administrator made a transcript of the call available as an alternative to the audio recording.  It asserted that it was not obligated to provide the actual recordings because they were “not created, maintained, or relied upon for claim administration purposes” and were instead made “for quality assurance purposes.”

In addressing the matter, the DOL turned to its long-standing claims regulations under ERISA Section 503.  These regulations require that a claimant be provided with copies of all documents, records and other information “relevant” to the claim for benefits. The DOL was not persuaded by the claims administrator’s arguments that the phone recordings were not relevant, and it cited to two parts of 29 CFR 2560.503-1(m)(8) in its assertion that audio recordings are indeed relevant records that should be provided to claimants.

  • First, in response to the plan administrator’s argument that the recordings were “not relied upon for claim administration purposes,” the DOL cites 29 CFR 2560.503-1(m)(8)(ii). This section notes that a record is considered relevant if it “was submitted, considered, or generated in the course of making the benefit determination, without regard to whether such document, record, or other information was relied upon in making the benefit determination.” (emphasis added). With this, the DOL is not concerned with whether the recording was used in the course of the benefit determination. Rather, if a recording was generated in the course of a benefit determination, then it is considered relevant and should be produced by the applicable plan administrator, insurer, or third party administrator.
  • Second, in response to the plan administrator’s argument that the recordings were made for quality assurance purposes, the DOL cites 29 CFR 2560.503-1(m)(8)(iii). This section notes that a record is considered relevant if it “demonstrates compliance with the administrative processes and safeguards required pursuant to” the plan’s claims procedures.  Relevance is further established if the record can be used as an administrative safeguard that verifies consistent decision making under a plan. The plan administrator’s quality assurance argument ironically works against the administrator because an audio recording made for the purposes of quality assurance and plan consistency falls squarely into the definition of section (m)(8)(iii) and, therefore, renders the recording relevant. As such, an administrator’s attempt to argue withholding on the basis of quality assurance will be futile and the recording should be produced to the claimant.

Further, the DOL shot down any argument that relevant records include only paper or other written materials, saying that the preamble to their recent amendments to the regulations makes it clear that audio recordings can be part of the administrative record.

Overall, the information letter shines a spotlight on the common practice of insurers and third party administrators to deny access to audio recordings, often even to representatives of the plan administrator. Looking forward, plan administrators should work with their vendors and review the terms of their service agreements to ensure that any requests for relevant documents, records, or information are reviewed under this broad definition and appropriately provided to the claimant upon request. Not doing so risks non-compliance with the DOL regulations and potentially the imposition of substantial penalties if challenged in court.

By Liz Deckman and Mark Casciari

Seyfarth Synopsis:  The Court of Appeals for the Ninth Circuit has once again upheld against an ERISA preemption challenge, a State private sector benefits mandate, notwithstanding that ERISA provides that the decision to establish an ERISA plan rests solely with the employer.

The Supreme Court has often stated that ERISA is not a pension mandate statute; rather it simply encourages private sector employers to establish ERISA pension plans.  See Gobeille v. Liberty Mutual Ins. Co., 136 S.Ct. 936 (2016) (“ERISA does not guarantee substantive benefits.”)

(The federal no-mandate rule is different in the health plan context, primarily due to the Affordable Care Act.)

ERISA accomplishes its purpose to encourage, and not to mandate, plans through streamlined rules of administration, limited court remedies and a broad preemption clause.  That clause preempts all state and local laws that merely relate to an ERISA plan as a “don’t worry about state law” reward for choosing to establish an ERISA plan.  The statutory scheme is that the final word on whether to establish an ERISA pension plan remains within the complete discretion of the employer.

We have reported previously on the Supreme Court’s latest preemption decision finding no preemption — SCOTUS Upholds Arkansas PBM Law Against ERISA Preemption Arguments | Beneficially Yours. We also have reported on a recent Ninth Circuit decision with the same holding — A Ninth Circuit Panel Finds No ERISA Preemption Of Seattle Health Care Ordinance | Beneficially Yours.

Now, in Howard Jarvis Taxpayers Assoc. v. CalSavers Program, the Ninth Circuit has again found no preemption.  The issue was whether a California law, like those of six other States (and Seattle and New York City), see generally The Big Apple Joins a Small Crowd, With Possible Headaches for Local Employers | Beneficially Yours, mandates private sector employers, which choose not to establish an ERISA plan, to contribute employee wages to the state to provide pension benefits.  The court found no preemption because the contributed money becomes a state, not an ERISA, plan benefit.  It is of no moment, the court said, that the employer’s contribution becomes a pension benefit, because the state’s contributory scheme imposes minimal administrative duties on the employer. The court added that the proliferation of state benefits mandates presents serious policy issues that Congress may want to address down the road.  It is unclear whether the CalSavers preemption decision will be litigated further.

It also is unclear whether the CalSavers decision will encourage private sector employers now without ERISA plans to establish (or refrain from establishing) plans.

One current example of this preemption dilemma arises in Washington State, which recently passed the Long-Term Services and Supports Trust Act.  The Act imposes a payroll tax on each employee in Washington of .58% of wages.  These amounts are collected by the employer and sent to a trust established by the State to pay long-term care (LTC) benefits for its residents. Employees who have qualifying private LTC insurance (including coverage from an ERISA long term care plan) can be exempt from the payroll tax.  Employees still must satisfy certain eligibility requirements.  Employers with unhappy workers who must pay the tax, but never become eligible for benefits, may now feel State pressure to establish an ERISA plan, when they otherwise would not.  Or they may feel pressure not to establish an ERISA plan, relying on the State to provide benefits instead.  And, of course, the Act may be challenged on preemption grounds.

Expect more State benefit mandates and perhaps more litigation throughout the country on whether these laws are preempted by ERISA.

Seyfarth Synopsis: New York City has joined the growing list of jurisdictions to establish a mandatory auto-IRA retirement savings program for private sector employers who do not offer employees access to a retirement plan. By doing so, it becomes part of the trend to provide the opportunity for employees who do not have access to an employer-sponsored plan to save for their retirement during their working years through a payroll-deduction process.

Three states — California, Oregon and Illinois — have established, and operate, such programs at the state level, whereby covered employers are required to auto-enroll employees in IRA retirement savings accounts. The California program, CalSavers, recently prevailed in the U.S. Court of Appeals for the Ninth Circuit against a challenge that the program was pre-empted by ERISA. The primary bases for this decision are that the program is not run by a private employer and that employers maintaining ERISA retirement plans are exempted from coverage by the program (hence no interference with an ERISA plan).

Several other states have begun to implement similar programs, in some cases mandatory and in others (like New York State) voluntary. All the programs appear to have in common that they create an administrative board to operate the program, and then leave such board to work out the details of implementation.

The New York City legislation follows the same pattern — one piece of legislation establishes the program and another establishes a “retirement savings board” to implement and oversee the program. The program applies to private sector employers located in the City employing at least five employees and that do not currently offer a retirement plan such as a 401(k) plan or a pension plan. The default employee contribution rate, which will apply to employees who are age 21 or older and working at least 20 hours a week, is set at 5%, although an employee can choose a higher rate (up to the IRA annual maximum) or a lower rate (including none).

Although the City’s legislation takes effect 90 days after enactment (i.e., in August 2021), the program will not go into effect until implemented by the retirement savings board, which is contemplated to take as long as two years. Further, the program will not go into effect if the City’s corporation counsel determines that there is a substantial likelihood that the program will conflict with, or be preempted by, ERISA. Such determination should take the Ninth Circuit decision into consideration, given the strong resemblance between the City’s program and the CalSavers program.

Like several other states, New York State has authorized an auto-IRA program (the New York State Secure Choice Savings Program), but the New York State program differs from most other such programs by using Roth (after-tax) IRAs, which have a limit on the contributor’s income, although such limit is unlikely to be exceeded by the employees targeted by the program. Further, the New York State program is voluntary — no employer is required to make it available to employees.

No conflict should arise between the City’s program and the New York State Secure Choice Savings Program, because the current state program is voluntary. However, there are current proposals to make the New York State program mandatory, in which case a conflict could arise. Even under the current New York State program, it is unclear whether the City would accept Roth IRA contributions as meeting the City’s mandate, leaving aside questions regarding the contribution rate and which employers and employees are covered.

A more formidable operational difficulty for City employers is that Connecticut and New Jersey have authorized, but not yet implemented, mandatory auto-IRA programs for employers located in those states, although Connecticut is reported to be launching a pilot program in July, 2021. Although all these programs exempt employers that maintain an ERISA retirement plan, there may be employers located within the metropolitan New York City area whose employees will be subject to differing mandates depending on whether employed in New Jersey, Connecticut or the City itself, all of which will require compliance by that employer but with possibly differing rules.

At the moment there is nothing a New York City employer needs to do. We are monitoring developments related to this new program, including the corporate counsel’s determination as to whether or not there is a substantial likelihood that the New York City program will be preempted by ERISA, and will report back.

If you have any questions, please contact your Seyfarth attorney for additional information.

Seyfarth Synopsis: The SECURE Act, passed at the end of 2019, significantly altered the retirement landscape. Now, proposed legislation, “SECURE Act 2.0,” sets out to make even more changes. As before, several of the proposed provisions will require employers to closely consider the new rules. For newly established plans, there will be requirements that did not exist before. For a reminder on how the SECURE Act 1.0 changed the retirement landscape in 2020 click here and here.

Last week, on May 5, the House Ways and Means Committee sent the Securing a Strong Retirement Act of 2021, “SECURE Act 2.0,” to the House for consideration. Here are some of the more significant changes that the bill as currently drafted would bring to the retirement landscape:

  • Raises the minimum distribution age. After being based on attainment of age 70½ for decades, the Act would raise the required minimum distribution (“RMD”) age once again over several years. The SECURE Act 1.0 raised the RMD to age 72. If passed, SECURE Act 2.0 would continue the raise in the RMD age to 73 in 2022, 74 in 2029, and 75 in 2032.
  • Increases and “Roth-ifies” catch-up contributions. The limit on 401(k) catch-up contributions for 2021 is $6,500, indexed annually for inflation. The proposed provisions would keep the catch-up age at 50 but increase the limit by an additional $10,000 per year for employees at ages 62, 63, and 64. The Act also provides that effective in 2022, catch-up contributions to 401(k) plans must be made on an after-tax, Roth basis.
  • Also allows Roth-ification of matching contributions. Plan sponsors may, but are not required, to permit employees to elect that some or all of their matching contributions to be treated as Roth contributions for 401(k) plans.
  • Student loan matching. The Act would allow, but not require, employers to contribute to an employee’s 401(k) or 403(b) plan account by matching a portion of their student loan payments.
  • Expanding automatic enrollment for new plans. Defined contribution plans established after 2021 will be required to enroll new employees at a pretax contribution level of 3% of pay. This level will increase annually by 1% up to at least 10% (but no more than 15%). There are exceptions for small businesses with 10 or fewer employees, new businesses, church plans and governmental plans.
  • Expedited part-time workers. One of the more significant changes under SECURE Act 1.0 was the expansion of eligibility for “long-term, part-time workers” to contribute to their employers’ 401(k) plan. SECURE Act 2.0 would expedite plan participation by these workers by shortening their eligibility waiting period from 3 years to 2 years, meaning employees could contribute if they have worked at least 500 hours per year with the employer for at least 2 consecutive years and are at least age 21 by the end of that 2 year period. If passed, the first group of affected workers would become eligible on January 1, 2023, not 2024 as is the case under current law.

As noted, this bill has not been signed into law. Although there is bipartisan support, it is likely that the provisions will be modified as the bill makes its way through Congress. Presently, this proposal is expected to be taken up by the Senate after its August recess. To stay up to date, be on the lookout for additional Beneficially Yours blog posts and Seyfarth Legal Updates.