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Seyfarth Synopsis: New rules change the method of counting participants for Form 5500 purposes, possibly both eliminating audits and allowing use of the abbreviated Form 5500-SF.

On February 23, 2023, the Department of Labor released its changes to the 2023 Form 5500 filing instructions. Among the changes was a modification of the participant counting methodology for small/large plan determination from all eligible participants to only those participants with account balances at the beginning of the year.  {The end of the year in the case of the first plan year.} This counting method will push many plans, especially 401(k) and 403(b) plans, below the 100 participant audit threshold, potentially saving plan sponsors time and money.

In addition, more plans may become eligible to use Form 5500-SF instead of the more cumbersome Form 5500.

Unfortunately, the changes are not effective until the 2023 5500 filing, i.e. for plan years beginning on or after January 1, 2023, which means that the audit requirement and/or the use of Form 5500 may continue for one more year (the 2022 plan year). However, this delay provides employers that sponsor plans that are near the 100 participant account balance threshold the opportunity to make extra efforts to force out small account balances as may be permitted under the plan.  And remember that, pursuant to the SECURE Act 2.0, starting in 2024 plans can adopt rules that permit the mandatory distribution of small accounts up to $7,000 (the present limit is $5,000).  See our Legal Update on the Secure Act 2.0 for more information about those rules.

Please reach out either to the authors of this Blog Post or to your Seyfarth Employee Benefits attorney if you need additional information.

Seyfarth Synopsis: A recent decision from the Eastern District of Michigan serves as a reminder that—while courts are often quick to certify classes in ERISA cases—plaintiffs must satisfy the requirements of Rule 23 and that courts can (and do) refuse class certification where those requirements are not met.

In Davis v. Magna International of America, Inc., Plaintiffs Melvin Davis and Dakota King sought to represent a class of more than 20,000 participants in the Magna Group of Companies Retirement Savings Plan (the “Plan”), on claims broadly alleging that the Plan’s fiduciaries breached ERISA’s duties of loyalty and prudence with respect to the Plan’s investment lineup. The Court denied the motion for class certification, finding that Plaintiffs failed to satisfy the adequacy requirement for class certification under Rule 23(a).

With respect to Plaintiff Davis, the Court noted that he had pleaded guilty to federal wire fraud—a crime of dishonesty—years earlier. While Plaintiffs’ conduct and credibility would not be a focus of a bench trial involving defendants’ alleged actions, the Court found that—combined with his lack of knowledge about the case overall—Davis’s fraud conviction weighed against his adequacy as a class representative.

Turning to Plaintiff King, the Court found “concerning” King’s testimony about the quantity of prior criminal charges against him, as well as testimony that he may still owe fines related to some of those charges, and the general “vagueness about the status of his prior alcohol-related convictions.” Compounding those issues, the Court also found that certain “confusing” testimony King gave as to the circumstances surrounding his termination from Magna—while “probably not enough to find him an inadequate representative” on in its own—took on more significance when combined with his “past legal problems.”

The Court outlined a number of issues with Plaintiffs’ personal knowledge of, and commitment to, their own case. Plaintiff Davis, for example, testified that he had not read the full complaint, and—though the parties had agreed to schedule his deposition around his work schedule—Davis attended his deposition via Zoom on his cell phone, first sitting in his car in his employer’s parking lot, and later walking into a facility where other employees were present. King, for his part, was not clear on whether the case was a class action, or what his role would be as a class representative.  The Court found this knowledge to be insufficient and noted that Plaintiffs had identified no cases in which a court certified a class with representatives who were “less familiar” with the claims presented in the case, or “less prepared” to serve as class representative, than Plaintiffs.

Ultimately—based on a combination of all these factors—the Court was “unpersuaded that the Plaintiffs are in a position to take any form of ‘supervisory role over lead counsel,’ including as to decisions regarding settlement.” Instead, the Court found Plaintiffs had done “no more than ‘simply lend their names to a suit controlled entirely by the class attorney[s],’” and were not adequate class representatives. While courts tend to certify non-opt out classes in ERISA excessive fee cases (and some defendants have recently chosen to stipulate to certification), this decision—and others like it—demonstrate that it remains plaintiffs’ burden to demonstrate that they can meet the certification requirements set out in Rule 23. To that end, thorough investigation throughout discovery can play a vital role in defense of these actions, and can serve to develop facts related to plaintiffs’ individualized circumstances that can be used to defeat showings of adequacy or commonality, or to identify intra-class conflicts sufficient to defeat class certification.

By: Ronald Kramer and Seong Kim

Seyfarth Synopsis:  Another court has found that actuaries who set discount rates for withdrawal liability purposes that are not based upon their “best estimate of anticipated experience” for investments under the plan—in this case, basing the rate assumption only on estimated returns for 40% of the Plan’s assets in low risk fixed income investments—cannot withstand judicial scrutiny.

Yet another multiemployer pension plan’s withdrawal liability interest rate assumption has been shot down by the courts, this time by the Federal District Court for the District of Columbia in Employees’ Retirement Plan of the National Education Association v. Clark County Education Association, Case No. 20-3443 (RDM), 2023 BL 62912 (D.D.C. Feb. 27, 2023), due to the actuary’s failure to adequately justify his decision to use a lower interest rate than that used for funding obligation purposes.  This case is worth noting, as it interprets the D.C. Circuit Court’s decision in United Mineworkers of America 1974 Pension Plan v. Energy West Mining Co., 39 F.4th 730 (D.C. Cir 2022), which struck down the use of PBGC plan termination rates for withdrawal liability purposes.

For background, the Clark County Education Association (“CCEA”) was a contributing employer to the Employees’ Retirement Plan of the National Education Association of the United States (the “Plan”), a multiemployer pension plan.  CCEA withdrew from the Plan in 2018, and the Plan subsequently assessed withdrawal liability of $3,246,349 against CCEA.

In calculating withdrawal liability, the Plan actuary did not use the PBGC plan termination rates, the Plan’s 7.3% funding rate-of-return, or any combination thereof, as the interest rate assumption.  Instead, the actuary utilized a discount rate assumption of 5%, and explained this  was his best estimate of the expected returns on low investment risk and fixed income investments of the types in which the Plan invested.  The actuary explained he adopted this methodology, because the rate reflected both a low-rate investment environment and the expected returns on lower-risk fixed income investments.  Moreover, such a lower rate recognized that a withdrawing employer no longer participates in any future risks regarding plan investments, and the actuary believed it did not make sense to value a liability based on higher rates of return that provided for additional investment risk that only the remaining participating employers had to bear. 

After an arbitrator found the actuary’s assumptions to be unreasonable in the aggregate because the discount rate was unreasonable, the Plan appealed.  The Court found it was “evident from the record that the 5.0% withdrawal liability discount rate . . . was not [the actuary’s] ‘best estimate of anticipated experience under the plan’ as Energy West interpreted that language.’”  Granted, contrary to Energy West, where the actuary used PBGC plan termination rates totally divorced from Plan assets, the discount rate applied here was based investment types actually in the NEA plan.  Yet only 40% of plan assets were in low-risk investments, and that did “not cut it.”  “Energy West requires that an actuary ‘estimate how much interest the plan’s assets will earn based on their anticipated rate of return.’ 39 F.4th at 738.  A discount rate assumption based on the expected returns on a type of asset that makes up less than half of a Plan’s portfolio falls short of that standard.”

The Court made clear that Energy West “does not deprive actuaries of all flexibility” in determining interest rate assumptions for withdrawal liability purposes, nor does it preclude any consideration of risk shifting.  Instead, the Court recognized that there can be a range of permissible discount rate assumptions.  The Court also noted that Energy West does not hold that an actuary’s estimate must encompass the expected rate of return of all of the Plan’s assets.  It could preclude, however, estimates that disregard the expected returns of the majority of the Plan’s assets.  The Court noted that the fact that the actuary reviewed a portion of the Plan’s assets cannot make up for the fact that he failed to consider most of them.  An actuary may be able to weigh risk shifting in the course of selecting a discount rate assumption at the conservative end of a range of reasonable estimates of anticipated investment returns, but “an actuary cannot risk shift his way to a discount rate ‘divorced from’ a plan’s anticipated returns or, as in this case the majority of the assets that drive such returns.” (Citations omitted).

The Court also refused to credit the conclusion of the Plan’s expert witness that 5.0% could be a reasonable estimate of the expected returns of the Plan’s entire portfolio.  The Court was focused not on what an actuary might have done, but what the actuary actually did. Here, the Plan actuary did not look at the Plan’s entire portfolio to determine what a reasonable discount rate was.  The discount rate assumption was unreasonable because it did not give due regard to the Plan’s experience, and given the overall calculation contained no offsetting changes to blunt the impact of that assumption, was unreasonable in the aggregate as well.

Although the arbitrator ordered the NEA Plan to recalculate liability using the actuary’s 7.3% funding rate of return, the Court remanded the matter back to the arbitrator for reconsideration.  The Court noted that while in certain circumstances arbitrators have the authority to impose set remedies, in general arbitrators must defer to the reasonable assumptions made by plan actuaries, and must avoid substituting their own views for those of the actuaries. 

Here, the arbitrator did not explain why setting a discount rate as opposed to a more open-ended remedy was appropriate.  On remand, and in light of the Court’s decision, if the arbitrator concludes it should give the actuary another opportunity to set a reasonable rate, it should do so.  If the arbitrator finds that the actuary really believed that a discount rate of 7.3% reflected the Plan’s anticipated experience, then the arbitrator should say so and could order that rate be used.

Yet again, the use of a discount rate assumption that is divorced from the actual expected investment returns of the majority of plan assets has been found to be unreasonable in the aggregate, and not the actuary’s best estimate.  While the pending PBGC regulations setting forth accepted discount rate methodologies—assuming they are adopted and withstand judicial scrutiny—may resolve this dispute for withdrawals going forward, litigation remains ongoing for those withdrawals that predate the ultimate adoption of the regulations.

Coffee Talk SG

Signed into law in the waning days of 2022, the SECURE 2.0 Act contains over 90 provisions impacting qualified retirement plans. Several of these provisions materially expand how Roth contributions are to be used, that impact employers and participants alike. We are witnessing the Rothification of retirement accounts. Grab your cup of coffee and tune in to hear Richard and Sarah chat with Seyfarth colleague Ben Spater about the many Roth related changes in SECURE 2.0. We will continue to discuss the multitude of other (non-Roth) provisions in SECURE 2.0 in future episodes as well. So bookmark us!

Click here to listen to the full episode.

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By: Cassandra Frias and Ada Dolph

Seyfarth Synopsis: After focusing most of its attention on retirement benefit plans, a recent complaint filed in the District of Connecticut shows that the plaintiffs’ bar is turning to health and welfare plans as targets for their new theories of breach of fiduciary duty under ERISA.

Plaintiff Aubrey Srednicki is enrolled in a group health plan provided by her employer and administered by Cigna Health and Life Insurance Company. She filed suit against Cigna Health and Life Insurance Company in the District of Connecticut on February 24, 2023.  In her Complaint, Srednicki alleges that a Cigna-affiliated medical provider overcharged her for services, allowing Cigna to take credit for a larger discount than was given, and to balance bill her significantly more than her copay would have been on the actual price of the services.  Notably, Srednicki seeks to represent a class of individuals much broader than those in her own benefit plan.  She seeks to certify a class of all individuals who were or are enrolled in an employee benefit plan insured or administered by Cigna, who had lab work done at one of two Cigna-affiliated laboratories, and whose cost share was more than the amount paid actually paid by Cigna for the lab work. 

Srednicki offered her own lab work as an example: she alleged that her doctor called LabCorp to inquire about the cost for a patient without insurance and was told that the lab work cost $449. Srednicki alleges, however, that the billed amount on her explanation of benefits (EOB) was $17,362.66. Of this amount, $14,572.66 was the purported discount arranged by Cigna. Of the difference, Cigna allegedly paid $471.02 and billed Srednicki for the $2,315.98. Having already fully paid LabCorp, Srednicki alleges that the $2,315.98 was a windfall for Cigna.

Srednicki’s brings claims under both ERISA 502(a)(1)(B) and 502(a)(3).  She seeks clarification of her benefit rights, a finding from the court that the putative class members were overcharged, an accounting of the overcharges, and the return of the amounts the members were overcharged.  Srednicki alleges that Cigna’s overcharging constituted a prohibited transaction and benefited a party in interest.  She also alleges that Cigna failed to monitor appointed fiduciaries, failed to apply plan terms to the calculation of benefits, failed to follow plan procedure, and violated the duty of prudence. 

In short, with increased focus on the fees and billing arrangements in the health and welfare benefit plan sphere, whether plan administrator or claims administrator, now is the time to examine your plan and shore up its compliance with ERISA. Please reach out either to the authors of this Blog Post or to your Seyfarth Employee Benefits attorney if you need additional information.

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Seyfarth Synopsis: New IRS FAQs provide helpful clarifications on eligible medical expenses for HSAs, FSAs, MSAs, and HRAs (including the conditions for reimbursement of those gym memberships).

On March 17, the Internal Revenue Service (IRS) posted a new set of Frequently Asked Questions (FAQs) aimed at individual taxpayers, addressing whether certain medical expenses related to nutrition, wellness, and general health may be paid or reimbursed from health savings accounts (HSAs), health flexible spending arrangements (FSAs), Archer medical savings accounts (MSAs), and health reimbursement arrangements (HRAs) (collectively, “Accounts”).

Notably, the list of eligible expenses differs slightly from the medical expenses that are deductible by a taxpayer under Section 213(d) of the Internal Revenue Code (Code). Although Internal Revenue Service (IRS) Publication 502, Medical and Dental Expenses addresses the deductibility of various medical and dental expenses, it may not be relied upon for answers to all questions regarding eligible Account expenses. Therefore, these FAQs specifically addressing Account-eligible expenses are particularly helpful to individual taxpayers who are Account holders, and to the benefits practitioners who respond to their questions. (Additional information about these Accounts also may be found in IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.)

The FAQs reiterate the definition of medical expenses found in Publication 502 and in Code § 213(d):

“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.”

In addition, “[medical] expenses must be primarily to alleviate or prevent a physical or mental disability or illness” rather than being “merely beneficial to general health.”

The FAQs then provide the following specific guidance on whether various expenses are eligible for payment or reimbursement from Accounts.

FAQ Number(s)Expense(s)Eligible Expense(s) for Account Purposes?
1, 2, 3dental, eye, and physical examsYes, because these exams “[provide] a diagnosis of whether a disease or illness is present.”
4, 5, 6programs to treat drug-related substance or alcohol use disorders and smoking cessation programsYes, because these programs each treat a disease (a substance, alcohol, or tobacco use disorder).
7therapyMaybe—if the therapy is treatment for a disease; “therapy to treat a diagnosed mental illness is [eligible], but an amount paid for marital counseling is not.”
8, 9nutritional counseling and weight-loss programsMaybe—only if the counseling or program is used “[to treat] a specific disease diagnosed by a physician [(e.g., obesity, diabetes, hypertension, or heart disease)].”
10gym membershipMaybe—“only if the membership was purchased for the sole purpose of affecting a structure or function of the body (such as a prescribed plan for physical therapy to treat an injury) or the sole purpose of treating a specified disease diagnosed by a physician (such as obesity, hypertension, or heart disease).”
11swimming or dancing lessons or other exercise for general health improvementNo, because these are “only for the improvement of general health,” and so are not eligible expenses “even if recommended by a doctor.”
12food or beverages purchased for health reasons (including weight loss)Maybe—only if all three of the following are true with respect to the food or beverage: (i) it “doesn’t satisfy normal nutritional needs,” (ii) it “alleviates or treats an illness,” and (iii) its need “is substantiated by a physician.”
If these three requirements are met, only “the amount by which the cost of the food or beverage exceeds the cost of a product that satisfies normal nutritional needs” is eligible.
13over-the-counter drugs and medicine (even if not prescribed) and menstrual care productsYes, these are eligible expenses for Account purposes (for expenses incurred after 2019, under changes made by the CARES Act).
14nutritional supplementsMaybe—“only if the supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.”

What should you do with this new guidance? Because each of these FAQs is dated, we suspect (and hope) that this is a page that the IRS intends to maintain, and so we suggest a bookmark to this page for your reference and to watch for future developments. We also suggest including a link to these FAQs in your summary plan descriptions (SPDs) and other plan communications in which any of these Accounts are discussed. You might also confirm with your Account service providers that the information provided in these FAQs is consistent with their administration.

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Seyfarth Synopsis: New IRS guidance suggest that many NFTs may be considered “collectibles,” causing concerns for IRAs and individually-directed accounts under a tax-qualified plan.

On March 21, 2023, the Internal Revenue Service (IRS) issued Notice 2023-27, announcing that the Treasury Department and the IRS intend to issue guidance with respect to the treatment of nonfungible tokens (NFTs) as collectibles for certain tax purposes. Pending the issuance of that guidance, the IRS will determine whether an NFT is a collectible by looking through the NFT to see if its associated right or asset is a collectible described in Section 408(m) of the Internal Revenue Code. Section 408(m) defines the term “collectible” as meaning “any work of art, any rug or antique, any metal or gem, any stamp or coin, any alcoholic beverage, or any other tangible personal property specified by the Secretary (of the Treasury)…”, with an exception for certain coins and bullion.

If NFTs (or their associated rights and assets) are deemed collectibles by the IRS under Section 408(m), it could have a material and negative impact on individual retirement accounts (IRAs) and individually-directed accounts under a tax-qualified plan, such as a 401(k) plan. This is because the acquisition of a collectible by an IRA or an individually-directed account under a tax-qualified plan will be treated as a taxable distribution equal to the cost of the collectible (or NFT, in this case). In addition, the sale or exchange of an NFT that is deemed a collectible and held for more than a year is subject to a maximum 28% capital gains tax rate, rather than a lower maximum long term capital gains tax rate. Further, because Section 408(m) refers to the acquisition of a collectible, it is unclear what the treatment will be of NFTs that were already acquired and are being held in a retirement account, but only deemed collectibles upon the effective date of final IRS guidance.

The Treasury Department and the IRS are requesting comments on any characteristic of NFTs that might impact the treatment of NFTs as Section 408(m) collectibles.

Please reach out either to the authors of this Blog Post or to your Seyfarth Trusts and Estates or Employee Benefits attorney if you need additional information.

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Seyfarth Synopsis: New SEC rules aiming to curb insider trading by directors and officers of public companies took effect on February 27, 2023.

On December 14, 2022, the Securities and Exchange Commission (“SEC”) adopted by unanimous vote: (1) final amendments to Rule 10b5-1 (17 CFR § 240.10b5-1) under the Exchange Act of 1934 (the “Exchange Act”) for insider trading plans and (2) new disclosure requirements intended to remove many of the loopholes that allowed corporate insiders to take undue advantage of these trading plans. The adopting release is available here and publication in the Federal Register is available here.

The final rules became effective 60 days after the date the rules were published in the Federal Register, i.e., December 29, 2022. That means the changes to Rule 10b5-1 became effective on February 27, 2023. After that, all Rule 10b5-1 trading plans adopted or modified should comply with the new requirements or the person adopting the plan will not be able to rely on the affirmative defense to Rule 10b-5.

Many observers have pointed out that for the last two decades, officers and directors at U.S. public companies seeking to trade illicitly on inside information had a giant loophole for avoiding SEC restrictions on insider trading. The loophole arose as an unintended consequence of the SEC’s adoption in 2000 of Rule 10b5-1, which created an affirmative defense to Rule 10b-5 for trades made pursuant to a compliant trading plan, but which academic research has shown created a gap in enforcement. By using such plans, SEC enforcement actions were infrequent because the SEC’s chances of success against someone who used such a plan were unlikely.

“Before the change occurred, you could have an executive utilize a $100 million 10b5-1 plan, and there would be no trace in public disclosures that they were utilizing such a plan,” said Daniel Taylor, an accounting professor at the University of Pennsylvania and the co-author of a 2021 study on 10b5-1 abuses that was cited in the SEC’s final rule.

It was reported that some insiders were selling shares less than a month after adopting their plans, sometimes even the same day, or adopting and initiating trading plans right before earnings announcements. Another trick had been to adopt multiple 10b5-1 plans and later selectively cancel the ones that wouldn’t work to the insider’s benefit. Potential abuses of 10b5-1 plans were the subject of a Wall Street Journal article in June 2022 that also was cited in the SEC’s final rule.

The changes to the rule update the conditions that must be met under a 10b5-1 trading plan to trigger the affirmative defense to Rule 10b-5 liability for insider trading.

Cooling Off Period

The amendments adopt cooling-off periods for persons other than issuers before trading can commence under a Rule 10b5-1 plan. Specifically, trading cannot begin under a plan adopted by a director or officer until the later of (a) 90 days after the adoption of the trading plan or (ii) two business day after the disclosure of the company’s financial results in a Form 10-Q or 10-K for the fiscal quarter in which the plan was adopted. The cooling off period is capped at 120 days. For insiders other than officers and directors, the colling off period is 30 days.

Director and Officer Certification

The amendments further provide that directors and officers must include representations in their plans certifying at the time of the adoption of a new or modified Rule 10b5-1 plan that: (1) they are not aware of any material nonpublic information about the issuer or its securities; and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.

Insiders that report on Forms 4 or 5 will be required to indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and to disclose the date of adoption of the trading plan. Finally, bona fide gifts of securities that were previously permitted to be reported on Form 5 will be required to be reported on Form 4.

Restrictions on Overlapping and Single Trade Plans

The amendments restrict the use of multiple overlapping trading plans and limit the ability to rely on the affirmative defense for a single-trade plan to one single-trade plan per twelve-month period for all persons other than issuers.

Quarterly Disclosure of Insider Trading Policies

The amendments will require more comprehensive disclosure about issuers’ policies and procedures related to insider trading, including quarterly disclosure by issuers regarding the use of Rule 10b5-1 plans and certain other trading arrangements by its directors and officers for the trading of its securities.

Annual Disclosure of Insider Trading Policies and Procedures

The final rules require disclosure of issuers’ policies and practices around the timing of option grants and the release of material nonpublic information.

Tabular Disclosure of Certain Equity Awards

The rules will require that issuers report on a new table any option awards beginning four business days before the filing of a periodic report or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic information, including earnings information, other than a Form 8-K that discloses a material new option award grant under Item 5.02(e), and ending one business day after a triggering event.

Transition Periods for New Rules

For most U.S.-listed companies, the new disclosure requirements will become effective April 1, 2023. Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023. Issuers will be required to comply with the new disclosure requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F (foreign private issuers) and in any proxy or information statements in the first filing that covers the first full fiscal period that begins on or after April 1, 2023. However, the final amendments defer by six months the date of compliance with the additional disclosure requirements for smaller reporting companies.

Please reach out either to the authors of this Legal Update {Blog Post} or to your Seyfarth Employee Benefits attorney if you need additional information.

By: Ian Morrison & Jules Levenson

Seyfarth Synopsis: The 7th Circuit recently held that insurers and administrators must provide claimants an opportunity to respond to new information relied on for adverse benefit determinations, even if the claim predated the enactment of the relevant regulation.

In Zall v. Standard Ins. Co., 58 F.4th 284 (7th Cir. 2023), the Seventh Circuit Court of Appeals considered whether amendments to DOL claims procedure regulations that went into effect in 2018 applied to a claim for LTD benefits first filed in 2013. The Court of Appeals answered yes and reversed the insurer’s win in the district court because it had failed to provide the claimant with a copy of a medical evaluation with enough time for the claimant to respond before the insurer issued its final decision on the claim.

Zall, a former dentist, filed a claim for LTD benefits in 2013. After initially denying the claim, Standard granted it on appeal. In 2015, Standard began to review the claim to determine if a 24-month limitation for applied, but it did not make a determination and kept paying benefits until 2018. In 2018, it requested and reviewed updated medical records and determined that the 24-month limit applied. It stopped paying benefits in 2019. Zall appealed and Standard obtained a medical review but did not provide a copy to Zall before rendering its appeal decision in which it affirmed the denial (and only informed him that the review existed 9 days before that determination).

Zall sued, claiming that he was denied a full and fair review based on Standard’s failure to comply with the 2018 claims procedure regulations.  He lost in the district court, which found the new regulations only applied to claims first filed after April 1, 2018.

The Seventh Circuit reversed, holding that the plain language of the effective date provision of the 2018 regulations (29 C.F.R. Sec. 2560.503.1(p), which provides that the regulations generally apply to claims filed on or after January 1, 2002) dictated their application to all claims pending when the new regulations went into effect. Notably, the clarity of the regulatory language led the Court of Appeals to reject the argument that DOL rulemaking materials showed the regulations were not intended to apply to claims filed before April 1, 2018. The Court likewise held that there was no problem of retroactivity, as the new regulation had no impact on substantive rights, but instead addressed only the procedures for vindicating those rights (and that procedural changes generally do not present concerns about retroactivity). The Court distinguished other Circuit decisions reaching seemingly contrary results, stating that those cases involved pre-2018 conduct and did potentially present a retroactivity problem.

The Court of Appeals further determined that the plaintiff was prejudiced by the procedural violation (as he lost the opportunity to rebut the new negative medical review) and that he did not waive reliance on the violation, as it occurred only days before the adverse decision. The Court of Appeals thus remanded the matter to the administrative process to permit a full and fair review of the claim in compliance with the 2018 regulations.

The precise issue directly raised in Zall is of limited duration and scope, as it is only relevant to benefit claims filed between 2002 and 2018 that are still pending after 2018 and in which insurers and administrators are operating under the old regulations. For entities that have chosen to utilize a single process for all claims (both pre- and post-2018), the decision will likely have few immediate impacts. Perhaps the bigger importance going forward, though, is that the logic of Zall appears to authorize a broad swath of retroactive regulations, so long as they are procedural in nature. Insurers and administrators should be sure to track ongoing regulatory developments to ensure an appropriate response to any changes, taking into account the Seventh Circuit’s position in Zall.

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April 11, 2023 Update: On April 10, 2023, President Biden signed legislation which ended the national emergency (NE) immediately. The public health emergency (PHE) is still expected to end on May 11, 2023. The Outbreak Period discussed below will still end on July 10, 2023 (i.e. 60 days after the date previously announced by the DOL, Treasury, and IRS in FAQs, Part 58).

Seyfarth Synopsis: The Biden Administration has announced that the COVID-19 Public Health Emergency (PHE) and COVID-19 National Emergency (NE) will expire May 11, 2023.

In response to the COVID-19 pandemic, two separate emergency declarations have been in effect: (1) the PHE; and (2) the NE. For more information regarding the Emergency Declarations, COVID Relief, and previous deadline extensions, see our prior Legal Updates here, here, and here.

Prior to January 30, 2023, the PHE and NE were set to expire on April 11, 2023 and March 1, 2023, respectively. On January 30, 2023, the Biden Administration announced in a statement of administrative policy that, in light with the Administration’s previous commitment to give at least 60 days’ notice prior to the termination of the PHE, the Administration is extending both the PHE and NE to May 11, 2023, and will not be extended further after this date. The end of the emergency declarations will affect employer sponsors of group health plans in several ways, discussed below.

The COVID-19 Public Health Emergency

There are several requirements and forms of relief that were implemented during the PHE that apply to employer sponsored group health plans which will have to be addressed:

  • COVID-19 Testing: in-network and out-of-network COVID-19 testing are at no cost to participants until May 11, 2023. Plans will not be required to cover COVID-19 testing with no cost-sharing after May 11, 2023.
  • COVID-19 Vaccines: in-network COVID-19 vaccines have been required by the CARES Act at no cost during the PHE. Although the CARES Act requirement ends when the PHE ends, the United States Preventive Services Task Force has recommended COVID-19 Vaccines, meaning that plans must continue to cover COVID-19 Vaccines at no cost as preventive care under the Affordable Care Act (ACA).
  • Expanded Telehealth Coverage: telehealth coverage will be permitted to be offered to employees whether or not the employee is enrolled in the employer’s medical plan until the end of the plan year that begins on or before May 11, 2023. So, December 31, 2023 for calendar year plans.
  • SBC Advanced Notice Requirements: the SBC advanced notice requirements for mid-year changes will no longer be relaxed for plans implementing COVID-19 coverages/benefits after May 11, 2023.

Considering the changes in COVID-related relief once the PHE ends, plans should consider if any plan amendments will need to be enacted to reflect post-PHE period approaches and whether a summary of material modifications (SMM) or other participant communication will be required.

The COVID-19 National Emergency

Under guidance issued in 2020, various timeframes under ERISA and the Internal Revenue Code, including deadlines for filing claims for benefits, electing and paying for COBRA continuation coverage, and requesting special enrollments, were tolled or suspended until the earlier of: (a) one year from the date the individual or plan was first eligible for relief; or (b) 60 days after the announced end of the NE (“Outbreak Period”). With the announced end of the NE, the timeframes for calculating the following deadlines will begin to run again 60 days after May 11, 2023 (i.e. as of July 10, 2023):

  • COBRA deadlines
  • HIPAA special enrollment deadlines
  • ERISA claims, appeals and external review deadlines
  • Plan-related notices

Keep in mind, the deadlines applicable to the Outbreak Period are determined on an individual by individual basis and cannot last more than one year from the date the individual or plan was first eligible for relief.

For example, if a participant incurs a claim on January 1, 2023 and has one year to file the claim, the one year deadline would be suspended until the earlier of: (a) one year from the date the individual was first eligible for relief (i.e. January 1, 2024); or (b) 60 days after the announced end of the NE (i.e. July 10, 2023). Thus, the one year period to file a claim would begin to run on July 10, 2023.

Prior to the end of the PHE and NE, plans should consider sending notices to participants communicating to them the end of these emergency declarations and the effect on certain deadlines. Additionally, COBRA election notices should be reviewed to remove any language in which the tolling periods from the Outbreak Period were included.

If you have any questions regarding the end of the PHE or NE, please contact the employee benefits attorney at Seyfarth Shaw LLP you usually work with.