Group Health Plans &No-Fault & Worker’s Comp Ruled Primary Plans When Coordinating With Medicare Advantage Plans

May 9, 2013

Group health plans and liability, no-fault and worker’s compensation insurers should confirm they are properly coordinating benefits with Medicare Advantage organizations (MAOs) to avoid a private cause of action for double damages to recover amounts under the Medicare Secondary Payer Act (MSP Act) in light of the U.S. Supreme Court’s denial of certiorari on an appeal of the Third Circuit’s decision in In Re Avandia Marketing Sales Practices GlaxoSmithKline LLC v. Human Medical Plans, Inc.  (Glaxo).  The Supreme Court’s decision denying certiorari reported here lets stand a Third Circuit decision that the private right of action provision in the MSP Act, set forth at 42 U.S.C. 1395y(b)(3), gives Humana a private cause of action as a primary plan against GSK to recover the double damage award.

MSP Act Secondary Payor Rules Require Proper Coordination

The MSP Act contains specific rules about when and how group health plans, automobile and liability insurance, no fault insurance policies and amounts recovered from tort actions are coordinated with benefits under the Medicare Statute.  The MSP Act’s Secondary Payor Rules require group health plans, automobile and liability insurance and  no fault insurance policies to treat their coverage as  the “primary plan” for purposes of coordinating their coverage with the benefits provided under the Medicare Statute under certain conditionsbenefits face double damage for improperly coordinating their benefits and coverage with those provided under the Medicare Statute.  The MSP Act generally dictates the conditions under which these coverages are primary to benefits provided under the Medicare Statute and obligates primary plans and individuals receiving judgment or settlements that include payment for medical expenses for which benefits were received under the Medicare Statute to repay Medicare. Violation of these rules exposes the applicable plan to double damages and other costs of recovery.

Glaxo On MA Plan MSP Act Rights

In Glaxo, the Third Circuit ruled that MAOs can sue primary plans under the MSP Act for double damages when a primary plan fails to appropriately reimburse the MAO as a secondary payor.

In Glaxo, Humana Medical Plan Inc. and Humana Insurance Company (collectively, Humana) sued GlaxoSmithKline LLC and GlaxoSmithKline PLC (collectively, GSK) for reimbursement of expenses Humana incurred from injuries its MA members sustained from use of GSK’s type 2 diabetes drug, Avandia. GSK has paid more than $460 million to Avandia patients settle patient claims that Avandia patients sustained heart attacks, strokes or other injuries from taking the drug.  In the settlement, GSK reserved monies to reimburse the Medicare Trust Fund for payments it made to cover the costs of treatment for the Medicare fee-for-service (FFS) enrollees’ Avandia-related injuries but did not set aside funds for reimbursement to MAOs. Humana sued GSK for reimbursement, claiming that GSK has a primary plan obligation under the MSP Act to reimburse Humana as a secondary payor.

The Supreme Court’s decision not to review the appeal from this Third Circuit decision means that in the Third Circuit (and perhaps other jurisdictions), MAOs can pursue an action for double damages under the Medicare Secondary Payor Act against a group health plan, no-fault carrier or worker’s compensation insurer that fails to fulfill its obligation as a primary plan to reimburse Medicare conditional payments paid by the MAO.

The Third Circuit’s decision in Glaxo is distinguishable from the Ninth Circuit’s position on a similar issue in Parra v. PacifiCare of Arizona, Inc.   (PacifiCare), where the 9th Circuit ruled PacifiCare did not have a private right of action under the MA statute or under 42 U.S.C. 1395y(b)(3)(A) against the surviving family members for amounts recovered in a wrongful death action since that provision of the MSP Act only applies in cases where a primary plan fails to reimburse an insurer as a secondary payor.

Proper identification and payment of claims and settlements in coordination with MAOs and their Plans is important because improper coordination may expose a group health plan or other primary payer to double damage liability, attorneys fees’ and other costs.

In light of Glaxo, group health plans and their administrators, and group health insurers, worker’s compensation insurers, and liability insurers should ask if asking Medicare beneficiares if they are or have been enrolled in a MA plan when paying or processing claims and if so, act proactively to ensure that payments under their programs are properly processed and paid to take into account responsibilities under the Medicare Secondary Payer rules.  Determination and handling these types of payments and settlements likely will require special handling because the Medicare Secondary Payer system currently doesn’t distinguish MA Plans as primary plans.  Accordingly, group health plans and the fiduciaries and administrators involved in their administration will want to take proper steps to identify claims that may involve individuals covered by MA Plans in a manner that allows the group health plan to track and distinguish the coverage provided by the MA Plan from other insurance coverage as needed to comply with the MSP Act.

For Help or More Information

If you need help with the MSP Act or with reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters including extensive experience on HIPAA and other privacy and data security issues. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns. 

Extensively published and a popular speaker on HIPAA and other data security matters, Ms. Stamer works extensively with health care providers, health plans, employers, insurance and financial services, technology and other clients on privacy, data seurity and other privacy and cybercrime concerns.  She also serves as the Scribe for the ABA JCEB Agency Techical Sessions Meetings with the Office of Civil Rights which occur each May in Washington, D.C.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved

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Posted by Cynthia Marcotte Stamer

Changing Plan Years Won’t Extend Health Plan’s Affordable Care Act Annual Limit Waiver Eligibility

May 6, 2013

Employer and other group health plan sponsors, insurers, fiduciaries and administrators should brace to cope with difficulties in upcoming 2014 health plan enrollment challenges in light of sweeping health plan changes, process and system disruptions complicated by incomplete and delayed guidance, and other changes arising from the rollout of the Patient Protection & Affordable Care Act (ACA), particularly with the deadline to provide ACA-required Summary of Benefits and Coverage (SBC) disclosures by the first day of the annual enrollment period for the 2014 plan year rapidly approaching. 

Confusion and indecision about health plan choices is a common challenge for employees and participants that historically has plagued efforts by employer and other group health plans, their sponsors, administrators and insurers to efficiently conduct annual enrollment.  Sweeping health plan changes and other simultaneous changes to the U.S. health care system resulting from the reforms enacted as part of ACA promise to add significant complexity and confusion to the process.  

Recent polls confirm that American workers generally are unfamiliar and confused about ACA, its status and its implications for them.  See Kaiser Tracing Poll:  April 2013 ;  See also Kaiser Foundation Poll Finds Confusion Over ACA Abounds With Open Enrollment Six Months Away.

Amid this confusion, employer and other group health plans and insurers are struggling to finalize decisions and begin preparations as a result in delays in guidance, delayed or slow implementation of exchanges, and other challenges arising in response to the ACA reforms that obstruct plan sponsor decision-making and health plan’s ability to implement these decisions.  Much guidance group health plans, their sponsors and insurers need to make decisions and implement arrangements is only now emerging, and that in largely late-breaking and/or transitional form.  These delays, in turn, are making group health plans, their sponsors, insurers, fiduciaries and administrators ability to finalize arrangements and contracts, amend plan documents, prepare newly required Summary of Benefits & Coverage (SBC) disclosures (required to be distributed by first day of enrollment period), summary plan descriptions (SPDs), enrollment materials and other communications and processes.  With SBCs due to be distributed by the first day of any enrollment period for 2014, the time to prepare is running extremely short.  Deadline To Send ACA Summary of Benefits & Coverage Adds Pressure To Finalize 2014 Plan Designs As Agencies Add MEC & MV Disclosures To SBC.

In the face of these challenges, Federal regulators are looking to shift many of the burdens of dealing with enrollment difficulties on employers and insurers.  See Insurers Prepare, Reluctantly, To Help With Obamacare Enrollment.

While employer and other plan sponsors, insurers, fiduciaries and administrators may not have all of the information and rules they might need or ideally like to finalize all arrangements and documents, they generally must get moving on those preparations that they can begin now to allow adequate time to deal with late-breaking guidance and finalize other arrangements.   To minimize the risk of running outof time and to allow time to smooth out confusion and other arrangements, employer and other health plans, their sponsors, insurers, fiduciaries and administrators should get started preparing draft contracts, plan amendments or restatements, draft SBC, SPD and other enrollment and coverage materials and processes to position themselves to be able to timely finalize and launch these arrangements.

For Help or More Information

If you need help with the SBC or other 2014 health plan decision-making or preparation, or with reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials about regulatory, investigatory or enforcement concerns. 

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved

Leave a Comment » | Employee Benefits, Employers, ERISA, Excise Tax, Health Plans, Human Resources, Insurance, Tax, Uncategorized | Tagged: , , , , , , , , , | Permalink
Posted by Cynthia Marcotte Stamer

Former White House Cybersecurity Coordinator Schmidt, Stamer & Others Share Key HIPAA & Other Privacy & Data Security Insights 5/21 In LA

May 3, 2013

Former White House Cybersecurity Coordinator Howard Schmidt and Solutions Law Press, Inc. editor attorney Cynthia Marcotte Stamer are two of an impressive lineup of leaders scheduled to share key HIPAA & other privacy and data security compliance and risk management strategies at the Healthcare HITECH Privacy and Security Summit at the Fifth Annual Information Security Summit on May 21 in Los Angeles.

The Healthcare HITECH Privacy and Security Summit will bring together leaders in Privacy and Security within government and private industry for a day of collaboration, networking and presentations by leading Privacy and Security professionals sharing who HIPAA covered entities and business associates need to know to  comply with new HITECH rules and  OCR investigations.

Solutions Law Press, Inc. editor attorney Cynthia Marcotte Stamer will help lay the foundation for the workshop by briefing participants on changes made to HIPAA rules by the new Omnibus HIPAA Rulemaking changes that the Office of Civil Rights (OCR) plans to start enforcing in September, 2013.

With  the rapidly approaching and privacy and data breach penalties and enforcement rising, health care providers, health plans, health care clearinghouses and their business associates must get moving to update business associate contracts, policies and notices and processes to meet changing HIPAA rules while managing ongoing compliance and risks. 

Stamer Speaks On Latest HIPAA Privacy, Security, Breach Notification & Enforcement Rules & Developments

Armed with the latest insights from serving as the scribe for the ABA JCEB annual agency meeting with the Office of Civil Rights (OCR), Ms. Stamer, a practicing attorney and widely published author and speaker, will discuss required changes and other recommended steps and strategies that covered entities and their business associates should take to maintain HIPAA compliance and manage HIPAA and other related risks  in light of the Omnibus HIPAA Rulemaking changes, new OCR guidance for health care providers about disclosures to avert threats to health or safety, recent audit and enforcement activities and other changing risks and responsibilities including:

  • The latest on OCR’s regulatory guidance, audit and investigation and enforcement rules, actions and strategies and their implications on covered entities and business associates;
  • Changes to breach notification rules and their implications on covered entities and their business associates;
  • Practical implications of new rules on who is covered and their responsibilities;
  • Required and recommended updates to policies, business associate and other agreements, privacy notices and other HIPAA compliance arrangements;
  • Effective training and other risk management strategies;
  • Planning for, investigating and mitigating PHI privacy breaches and other compliance concerns under new rules other selected events; and
  • Other selected strategies for coordinating HIPAA and other privacy and data breach responsibilities and risk management; and
  • Participant questions.

For a complete agenda, to register, to get details on sponsorship or for other information, see here.

For Help or More Information

If you need help with the HIPAA, Affordable Care Act or other 2014 health plan compliance, risk management or defense, or with reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters including extensive experience on HIPAA and other privacy and data security issues. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns. 

Extensively published and a popular speaker on HIPAA and other data security matters, Ms. Stamer works extensively with health care providers, health plans, employers, insurance and financial services, technology and other clients on privacy, data seurity and other privacy and cybercrime concerns.  She also serves as the Scribe for the ABA JCEB Agency Techical Sessions Meetings with the Office of Civil Rights which occur each May in Washington, D.C.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved

Leave a Comment » | Employee Benefits, Employers, ERISA, Excise Tax, Health Plans, Human Resources, Insurance, Tax, Uncategorized | Tagged: , , , , , , , , , , , , , , , | Permalink
Posted by Cynthia Marcotte Stamer

Strengthen Health Plan Privacy Compliance & Risk Management Using Lessons From New OCR Provider & Consumer Tools

April 30, 2013

Get More Key Information By Participating in 5/21 Workshop In LA

The U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) has developed an array of new tools to educate consumers and health care providers about the Health Insurance Portability and Accountability Act (HIPAA) Privacy and Security Rules.  

Many consumers are unfamiliar with their rights under the HIPAA Privacy Rule.  With that in mind, OCR has posted a series of factsheets, also available in eight languages, to inform consumers about their rights under the HIPAA Privacy Rule. These materials are available on OCR’s website here. 

The fact sheets compliment a set of seven consumer-facing videos released earlier this year on OCR’s YouTube channel.  An additional video, The HIPAA Security Rule, has been designed for providers in small practices and offers an overview of how to establish basic safeguards to protect patient information and comply with the Security Rule’s requirements. The videos are available on the HHS OCR YouTube Channel at here.

OCR has also launched three modules for health care providers on compliance with various aspects of the HIPAA Privacy and Security Rules, available at Medscape.org:

  • Patient Privacy: A Guide for Providers at here;
  • HIPAA and You: Building a Culture of Compliance here; and
  • Examining Compliance with the HIPAA Privacy Rule here.

The Medscape modules offer free Continuing Medical Education (CME) credits for physicians and Continuing Education (CE) credits for health care professionals. 

Although the materials are primarily consumer and provider focused, health plans and their sponsors, fiduciaries, administrators, business associates and others in the health plan workforce should review and incorporate the materials and principles contained in these materials as part of their own HIPAA compliance efforts.  With the deadline to comply with recent amendments to the HIPAA rules in September, 2013 and enforcement and penalties rising,  the insights and resources provided these rules can help strengthen compliance efforts.

Participate In 5/21 Workshop In LA To Get Other Key Information Needed To Update Compliance & Risk Management

With the September 23, 2013 enforcement date of the new Omnibus HIPAA Rulemaking changes rapidly approaching and privacy and data breach penalties and enforcement rising, health care providers, health plans, health care clearinghouses and their business associates must get moving to update business associate contracts, policies and notices and processes to meet changing HIPAA rules while managing ongoing compliance and risks. 

Armed with the latest insights from serving as the scribe for the ABA JCEB annual agency meeting with the Office of Civil Rights (OCR), attorney and author Cynthia Marcotte Stamer will discuss required changes and other recommended steps and strategies that covered entities and their business associates should take to maintain HIPAA compliance and manage HIPAA and other related risks  in light of the Omnibus HIPAA Rulemaking changes, new OCR guidance for health care providers about disclosures to avert threats to health or safety, recent audit and enforcement activities and other changing risks and responsibilities including:

  • The latest on OCR’s regulatory guidance, audit and investigation and enforcement rules, actions and strategies and their implications on covered entities and business associates;
  • Changes to breach notification rules and their implications on covered entities and their business associates;
  • Practical implications of new rules on who is covered and their responsibilities;
  • Required and recommended updates to policies, business associate and other agreements, privacy notices and other HIPAA compliance arrangements;
  • Effective training and other risk management strategies;
  • Planning for, investigating and mitigating PHI privacy breaches and other compliance concerns under new rules other selected events; and
  • Other selected strategies for coordinating HIPAA and other privacy and data breach responsibilities and risk management; and
  • Participant questions.         

To register, review the agenda, get details on sponsorship or for other information, see here.

For Help or More Information

If you need help with the SBC or other 2014 health plan decision-making or preparation, or with reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters including extensive experience on HIPAA and other privacy and data security issues. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns. 

Extensively published and a popular speaker on HIPAA and other data security matters, Ms. Stamer works extensively with health care providers, health plans, employers, insurance and financial services, technology and other clients on privacy, data seurity and other privacy and cybercrime concerns.  She also serves as the Scribe for the ABA JCEB Agency Techical Sessions Meetings with the Office of Civil Rights which occur each May in Washington, D.C.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

 

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved

Leave a Comment » | Employee Benefits, Employers, ERISA, Excise Tax, Health Plans, Human Resources, Insurance, Tax, Uncategorized | Tagged: , , , , , , , , , , , , , , , | Permalink
Posted by Cynthia Marcotte Stamer

Changing Plan Years Won’t Extend Health Plan’s Affordable Care Act Annual Limit Waiver Eligibility

April 29, 2013

Changing plan years won’t extend the period that a group health plan or group or individual health insurance policy can qualify for a waiver of the annual limitation restrictions (Annual Limit Rule) of the Patient Protection & Affordable Care Act (Affordable Care Act) according to new guidance issued by the US Departments of Health & Human Services (HHS), Treasury (IRS) and Labor (DOL)(collectively, the Agencies) on April 29, 2013.

PHS §2711 as amended by the Affordable Care Act generally prohibit nongrandfathered group health plans and health insurance issuers offering group or individual health insurance coverage from imposing lifetime or annual limits on the dollar value of essential health benefits within the meaning of Affordable Care Act § 1302(b) but allow ‘‘restricted annual limits’’ with respect to essential health benefits for plan years (in the individual market, policy years) beginning before January 1, 2014 (hereafter, the Annual Limit Rule).

Interim regulations (IFR) implementing this Annual Limit Rule allowed the Secretary of HHS temporarily to waive compliance with the Annual Limit Rule for certain group health plans that showed that compliance with the IFR would result in a significant decrease in access to benefits or a significant increase in premiums and timely applied for and received a waiver in accordance with guidance established by HHS. See 26 CFR 54.9815-2711T; 29 CFR 2590.715-2711; 45 CFR 147.126. For a listing of relevant guidance, see here. 

While HHS no longer allows new applications for waivers, certain group health plans previously timely applied and qualified to for waiver of compliance for the Annual Limit Rule for their group health plan for the plan or policy year in effect when the plan or issuer applied for the waiver. Many of these group health plans later extended and currently continue to qualify for relief from the obligation to comply with the Annual Limit Rule based on extensions of that waiver.

According to FAQs About Affordable Care Act Implementation (Part XV), changes in plan or policy years made subsequent to the application for an Affordable Care Act Annual Limitation waiver do not extend the expiration date of a waiver.

In the FAQ, the Agencies state changes in plan or policy years made after the waiver is obtained and while a waiver remains in effect do not change the termination date of an otherwise applicable waiver.  Rather, Annual Limit Rule waivers are granted based on the date of the plan or policy year in effect when the initial application was submitted regardless of whether the plan or issuer later amends its plan or policy year. That said, the FAQ confirms that waiver recipients may end the waiver at any time prior to its otherwise applicable approved expiration date.

The Guidance nixes hopes of many group health plans and insurers that obtained waivers that they could extend temporarily their ability to avoid complying with the Annual Limit Rule by cutting short their current plan or policy year so as as to cause a new plan year to start before January 1, 2014.  The idea suggested by some was that starting a plan year mid-year during 2013 would push back the start of the first plan or policy year beginning after December 31, 2013, and thereby delay the deadline for complying with the Annual Limit Rule until a later day in 2014.  Today’s Guidance makes clear that the Agencies do not intend to allow such delays.  Therefore, group health plans and health insurance issuers with current waivers should be ready to begin complying with the Annual Limit Rule no later than the date that their existing waiver is scheduled to expire and budget accordingly.

For Help or More Information

If you need help with the SBC or other 2014 health plan decision-making or preparation, or with reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns. 

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved

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Posted by Cynthia Marcotte Stamer

Deadline To Send ACA Summary of Benefits & Coverage Adds Pressure To Finalize 2014 Plan Designs As Agencies Add MEC & MV Disclosures To SBC

April 25, 2013

Employer and union group health plan sponsors and insurers of group and individual health plans (Health Plans) agonizing over 2014 health plan design decisions need to keep in mind that impending deadlines to update and deliver required Summary of Benefits and Communications (SBC) disclosures mandated by the Patient Protection and Affordable Care Act (Affordable Care Act) shorten the time to finalize decisions including new requirements to disclose whether the Affordable Health Plan-covered Health Plans provide “minimum essential coverage” (MEC) and “minimum value” within the meaning of the Affordable Care Act.

The Affordable Care Act’s requirement that Health Plans distribute updated SBCs before the beginning of the enrollment period for coverage to be provided in 2014 creates added urgency and pressure for Health Plans and their employer and other sponsors to finalize and implement their decisions on their Health Plans 2014 plan designs and coverages to allow adequate lead time to prepare and deliver the required SBCs for 2014.

The Departments of Health & Human Services (HHS), Labor (DOL) and Treasury (IRS)(collectively, the Agencies) announced April 23, 2013 that SBCs for periods of coverage after December 31, 2013 must disclose if the Health Plans provide MEC and minimum value.  Health Plans, their sponsors, fiduciaries, and insurers generally will need to update their Health Plans’ SBCS to include these disclosures as well as to incorporate other changes necessary to accurately disclose other plan design changes made to post-December 31, 2013 coverage before the enrollment period begins.  Plan sponsors planning changes to their health plans must allow sufficient lead time to finalize plan designs and contracts, amend plan documents, make MEC and minimum value determinations, and then timely update and distribute the SBC in accordance with the SBC rules.  This means that most plan sponsors of Health Plans have much less time than historically used to finalize their decisions.

ACA SBC Mandate Overview

As amended by the Affordable Care Act amended the Public Health Services Act (PHS) § 2715, Employee Retirement Income Security Act (ERISA) § 715 and the Internal Revenue Code (Code) §§ 9815 require that Health Plans provide a SBC and a “Uniform Glossary” that “accurately describes the benefits and coverage under the applicable plan or coverage” in a way that meets the format, content and other detailed SBC standards set for the Affordable Care Act as implemented by the Departments regulatory guidance. 

The Summary of Benefits and Coverage and Uniform Glossary Final Regulation  (Final Regulation) implementing this requirement published February 14, 2012 generally requires Health Plans at specified times including before the first offer of coverage under the Plan as well as following certain material changes to the Plan. For Health Plans providing group health plan coverage, FAQs About Affordable Care Act Implementation (Part VII)[*] set the deadline for Health Plan to deliver a SBC as follows, while at the same time indicating that the Departments would not impose penalties on plans and issuers “working diligently and in good faith” to provide the required SBC content in an appearance consistent with the Final Regulations:

  • To covered persons enrolling or re-enrolling in an open enrollment period (including late enrollees and re-enrollees) as the first day of the first open enrollment period that begins on or after September 23, 2012; and
  • For individuals enrolling in coverage other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees) as the first day of the first plan year that begins on or after September 23, 2012. See FAQs About Affordable Care Act Implementation (Part VIII).

The Final Regulation and other existing guidance generally dictates that Health Plans follow a required template for providing the SBC and accompanying glossary. When publishing the Final Regulation, the Departments also published the required SBC template form (2013 SBC Template) and instructions for Health Plans to use to prepare and provide the required SBC for coverage beginning before January 1, 2014 and promised updated guidance and templates for use in providing SBCs for post-2013 coverage. While the Agencies clarified certain other details about the SBC rules, they did not materially change the required content or form of the 2013 SBC Template until their April 23, 2013 release of FAQs About Affordable Care Act Implementation (Part XIV). See e.g. FAQs About Affordable Care Act Implementation Part IX and Part X.

FAQ Part XIV Updates To SBC

FAQs About Affordable Care Act Implementation (Part XIV) published April 23, 2013 announces the updated required 2014 SBC Template that the Agencies are requiring to SBCs for periods of health coverage from January 1, 2014 to December 31, 2014.  Along with the 2014 SBC Template, the Agencies also published 2014 Sample Completed SBC, which provides an example of a SBC completed for a hypothetical health plan prepared by the Agencies.

The 2014 SBC Template updates the 2013 SBC Template and Sample Completed Template to add information the Agencies believe individuals eligible for Health Plan coverage should know in light of the impending implementation of the individual shared responsibility requirements of Internal Revenue Code (Code) § 5000A and the employer shared responsibility rules of Code § 4980H commonly called the Affordable Care Act’s “pay-or-play” rules.   These were the “penalty” provisions that the Supreme Court ruled are taxes last Summer.

Rationale For SBC Changes

Beginning in 2014, Code § 4980H generally requires employers of 50 or more full-time employees to pay a penalty if the employer fails to offer a group health plan providing MEC and meeting the “minimum value” requirements of the Affordable Care Act.  Code § 36B(c)(2)(C)(ii) provides that an employer-sponsored Health Plan provides MV if the ratio of the share of total costs paid by the Health Plan relative to the total costs of covered services is no less than 60% of the anticipated covered medical spending for covered benefits paid by a group health plan for a standard population, computed in accordance with the plan’s cost-sharing, and divided by the total anticipated allowed charges for covered benefits provided to a standard population is no less than 60%.  See Patient Protection and Affordable Care Act: Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation Regulation.  HHS has published a MV Calculator for use in calculating this percentage.

Meanwhile, Code § 5000A generally imposes a penalty tax on individuals that fail to maintain enrollment in “minimum essential coverage” (MEC) within the meaning of Code § 5000A(f) and not otherwise exempt under Code § 5000A(d).

SBC Changes Required By FAQs XIV In Response To Pay-Or-Play Rules

Since choosing to enroll in an employer-sponsored health plan providing MEC is one of the options that individuals can choose to avoid incurring the individual penalty under Code § 5000A, the Agencies feel that the SBC should disclose whether the offered Health Plan provides MEC and provides the requisite Minimum Value.  Accordingly, the 2014 SBC Template requires that the SBC disclose if the Health Plan provides MEC and meets Minimum Value. The Agencies did not make any changes to the uniform glossary, Instructions for Completing the SBC, “Why This Matters” language, or to the coverage examples for the SBC.

In general, the SBC requires that Health Plans update their existing SBCs to make the following disclosures for post-December 31, 2013 periods of coverage:

”Does this Coverage Provide Minimum Essential Coverage?

The Affordable Care Act requires most people to have health care coverage that qualifies as “minimum essential coverage.” This plan or policy [does/does not] provide minimum essential coverage.

Does this Coverage Meet the Minimum Value Standard?

In order for certain types of health coverage (for example, individually purchased insurance or job-based coverage) to qualify as minimum essential coverage, the plan must pay, on average, at least 60 percent of allowed charges for covered services. This is called the “minimum value standard.” This health coverage [does/does not] meet the minimum value standard for the benefits it provides.”

Health Plans will need to finalize plan designs and conduct the necessary analysis to decide the correct way to complete this language, then update SBCs to be provided for post-December 31, 2013 periods of coverage to include the required language appropriately completed based on the findings.  Where the design of the 2014 SBC is too advanced already to do this, the Guidance allows Health Plans to provide the required language by sending the language in a supplemental SBC communication.  However, most Health Plans will want to avoid the added cost and expense of the printing and distribution of this notification.

Other SBC Requirement Clarifications in FAQs XIV

While the 2014 SBC Template remains unchanged other than for the additional required statements about the MEC and minimum essential coverage, FAQs XIV does provide various other helpful clarifications about how to complete the 2014 SBC Template about the applicability of lifetime and annual limits in light of the Affordable Care Act’s restrictions on these limitations.

In addition, FAQs XIV also continues for another year the guidance in:

  • Affordable Care Act Implementation FAQs Part VIII, Q2 (regarding the Departments’ basic approach to implementation of the SBC requirements during the first year of applicability) for another year;
  • Affordable Care Act Implementation FAQs Part IX, Q1 regarding the circumstances in which an SBC may be provided electronically and associated enforcement relief;
  • Affordable Care Act Implementation FAQs Part IX, Q8 (regarding penalties for failure to provide the SBC or uniform glossary);
  • Affordable Care Act Implementation FAQs Part IX, Q9 (regarding the coverage examples calculator); and related information related to use of the coverage examples calculator;
  • Affordable Care Act Implementation FAQs Part IX, Q10 (regarding an issuer’s obligation to provide an SBC with respect to benefits it does not insure); and
  • Affordable Care Act Implementation FAQs Part IX, Q13 (regarding expatriate coverage);
  • Current enforcement relief about the Special Rule contained in the Instruction Guides for Group and Individual Coverage and about Medicare Advantage Plans contained in Affordable Care Act Implementation FAQs Part X, Q1
  • Continues Affordable Care Act Implementation FAQs Part VIII, Q5 regarding use of carveout arrangements “until further guidance is issued.”
  • Extends to September 23, 2014 existing relief for plans and issuers with respect to an insured health insurance product is not being actively marketed where the health insurance issuer has not actively marketed the product at any time on or after September 23, 2012 provided the SBC is provided for that product no later than September 23, 2014; and
  • The anti-duplication rule for student group health coverage in the Final SBC regulations.

SBC Delivery Deadline Means Time Short To Finalize 2014 Plan Designs

Employer and other health plan sponsors, insurers, administrators and others involved in 2014 Health Plan decisions and preparations must take into account the deadline for distributing the SBC before the enrollment period begins and allow adequate lead time to properly finalize their Health Plan design decisions and the analysis required to accurately prepare and deliver the SBC.

Since Health Plan design decisions must be finalized to properly prepare the newly added MEC and minimum value and other required SBC disclosures, the need to prepare and distribute the SBC by the beginning of enrollment periods for post-December 31, 2013 periods of coverage means time running short to finalize 2014 plan designs.   Employer and other Health Plan sponsors and others involved in 2014 Health Plan decision-making must take into account the SBC requirements and deadlines to ensure that they allow adequate time to complete the analysis and other preparations necessary timely to prepare and distribute SBCs in respond to the design decisions ultimately elected.

For Help or More Information

If you need help with the SBC or other 2014 health plan decision-making or preparation, or with reviewing and updating, administering or defending your group health or other employee benefit, human resources, insurance, health care matters or related documents or practices, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 25 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns. 

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

For important information about this communication click here. THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2013 Cynthia Marcotte Stamer, P.C.  Nonexclusive license to republish granted to Solutions Law Press, Inc.  All other rights reserved

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Posted by Cynthia Marcotte Stamer

Company President, Officer Can’t Use Bankruptcy To Avoid Liability For Using Plan Money For Company Operations

December 27, 2012

John Dombek III and John Dombek Jr. cannot use personal bankruptcy to avoid complying with a federal court order to restore $69,521 in health-care premiums and retirement plan contributions withheld from the paychecks of employees at several companies that are part of the JJD Industries in violation of the Employee Retirement Income Security Act (ERISA).  The recent judgement against the two men in Solis v. John Dombek Jr., John Dombek III, Wisconsin Tool & Stamping Co. 401(k) Profit Sharing Plan & Trust, J.D. Acquisition 401(k) Profit Sharing Plan and Trust, and the JJD Industries Group Health Plan is a reminder to business owners, management and others with discretionary control over employee contributions or other plan assets of the importance of ensuring that all employee contributions withheld from pay and other plan assets are used only for appropriate plan expenses and timely deposited in trust or otherwise appropriately  applied.  Businesses owners and managers should treat these and other similar judgmentsas a wake-up call to meet employee benefit funding obligations, not to use plan monies for company operations and to take other required steps to make sure that retirement, health and other employee benefit plans moneys and other responsibilities are properly handled.

Company Leaders Ordered To Restore Misdirected Monies

A Chicago federal court ordered the two men to make restitution of $69,521 of employee contributions withheld from employee pay that the court ruled the Dombeks mismanaged by failing to ensure the timely deposit of these funds with the plans.  See

Dombek III, who is president of the JJD Industries Group, and Dombek Jr. were co-fiduciaries of the Wisconsin Tool & Stamping Co. 401(k) plan and have been ordered to restore $22,164.45 in unremitted contributions and lost opportunity costs to the plan. Dombek III is also liable for an additional $2,222.78 in unremitted contributions and lost opportunity costs to the J.D. Acquisition 401(k) plan.

Dombek III must also restore $45,134.08 in unremitted contributions and lost opportunity costs to the JJD Industries sponsored group health plan. The company contracted with Blue Cross and Blue Shield of Illinois to provide health and dental benefits to the employees of its related companies, including Wisconsin Tool & Stamping Co., J.D. Acquisition Corp., Akorat Metal Fabricators Inc./Smithco Fabricators Inc. and Pavo Inc./Injection Plastics Corp. The companies paid their premiums separately, and premiums were partially funded through weekly employee payroll deductions.

The judgment also bars Dombek Jr. and Dombek III from serving as fiduciaries or service providers to any employee benefit plan subject to ERISA for a period of five years. An independent fiduciary will oversee the termination of the 401(k) plans of both Wisconsin Tool & Stamping and J.D. Acquisition, as well as the distribution of plan assets to eligible participants.

The Dombeks will not be able to claim bankruptcy protection to avoid liability for the judgments.  Dombek Jr. and Dombek III both previously had filed for Chapter 7 bankruptcy protection. The Labor Department filed separate complaints to determine the dischargeability of these obligations and seek the enforcement of any monetary judgment against both individuals to restore the funds to the employee benefit programs. On October 5 and October 16, 2012, the U.S. Bankruptcy Court for the Northern District of Illinois granted the Labor Department’s motions for default judgment, finding that the debts Dombek Jr. and Dombek III owed to the plans were not dischargeable in bankruptcy.

Business Leaders Risk Personal Liability When Employee Contributions Used In Company Operations

The judgement is another reminder to business owners and leaders not to allow employee contributions or other plan assets to be used to pay company expenses or otherwise misdirected.  The judgment is one many enforcement actions that the Department of Labor regularly takes against businesses and business leaders that allow plan assets to be used for company operations or other improper purposes.

“Failing to administer health insurance premiums properly demonstrates a total lack of concern for employees and their families,” said Steve Haugen, director of the Chicago Regional Office of the Labor Department’s Employee Benefit Security Administration. “Incorporating employees’ voluntary salary contributions into the general assets of a company and failing to forward them to the retirement plan are violations of both the law and the trust workers have placed in their employers.”

The judgement shows that owners, operators and managers of businesses that exercise discretion and control over the funding, investment or administration of employee benefit plans or their assets face significant liability for failing to properly fulfill their responsibilities with respect to their employee benefit plans.  Businesses, their owners, board members, officers, and other members of management making decisions about the maintenance, funding, administration, termination, hiring or appointment of fiduciaries or service providers or other matters impacting the employee benefit plan should ensure that they understand the potential implications and responsibilities associated with these activities for themselves and their companies.  Individuals who have authority or responsibility for employee benefit plans who also perform or take part in the performance of other company management functions also should pre-educate themselves about when ERISA may require that their plan responsibilities be put before otherwise applicable responsibilities to their company, appropriate processes for documenting decisions and activities, and other procedures to help position activities to mitigate exposures and promote defensibility.

For Help or More Information

If you need help reviewing and updating, administering or defending your employee benefit, human resources, insurance, health care matters or related documents or practices or with other employee benefits, human resources, health care or insurance matters, please contact the author of this update, Cynthia Marcotte Stamer.

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on leading health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials about regulatory, investigatory or enforcement concerns. 

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and registerto receive future updates about developments on these and other concerns from Ms. Stamer here.

Other Resources

If you found this update of interest, you also may be interested in reviewing some of the other updates and publications authored by Ms. Stamer available including:

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, compensation, data security and privacy, health care, insurance, and other key compliance, risk management, internal controls and other key operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources available at ww.solutionslawpress.com. 

THE FOLLOWING DISCLAIMER IS INCLUDED TO COMPLY WITH AND IN RESPONSE TO U.S. TREASURY DEPARTMENT CIRCULAR 230 REGULATIONS.  ANY STATEMENTS CONTAINED HEREIN ARE NOT INTENDED OR WRITTEN BY THE WRITER TO BE USED, AND NOTHING CONTAINED HEREIN CAN BE USED BY YOU OR ANY OTHER PERSON, FOR THE PURPOSE OF (1) AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW, OR (2) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED TRANSACTION OR MATTER ADDRESSED HEREIN.

©2012 Cynthia Marcotte Stamer, P.C.  Non-exclusive license to republish granted to Solutions Law Press.  All other rights reserved.

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Posted by Cynthia Marcotte Stamer

Peter Madoff 10 Sentence For Defrauding ERISA Plans Reminder Manage Plan Investment Responsibilities

December 27, 2012

Peter Madoff (Madoff), the former Chief Compliance Officer and Senior Managing Director of Bernard L. Madoff Investment Securities LLC (BLMI), was sentenced on December 20, 2012 to 10 years in prison after he pled guilty among other things, to conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud and falsifying records of an investment adviser.

In addition to the prison term, Madoff also was sentenced to one year of supervised release, ordered to pay a $200 special assessment, and ordered to forfeit $143.1 billion, including all of his real and personal property. This amount represents all of the investor funds paid into BLMIS from 1996 – the start of Madoff’s involvement in the conspiracy – through December 2008.

As part of the defendant’s forfeiture, the Government previously entered into a settlement with Madoff’s family that requires the forfeiture of all of his wife Marion’s and daughter Shana’s assets, and assets belonging to other family members. The surrendered assets include, among other things, several homes, a Ferrari and more than $10 million in cash and securities. Marion Madoff was left with approximately $771,733 to live on for the rest of her life.

Madoff’s Sentence Part of Continuing Actions Seeking To Rectify BLMIS Fraud

Among other things, the Superseding Information against Madoff charged that the overt acts in the conspiracy count also included, among other things, making false statements to investors about BLMIS’s compliance program and the nature and scope of its Investment Advisory business. Madoff pled guilty in June 2012. He was sentenced in Manhattan federal court by U.S. District Judge Laura Taylor Swain.

Manhattan U.S. Attorney Preet Bharara said: “Peter Madoff was a gatekeeper, who was supposed to guard against fraud, but instead enabled it – facilitating his brother Bernie’s breathtaking scheme by falsifying compliance records and lying to both regulators and clients of BLMIS. The decade he will spend in prison and the disgorgement of his assets are a just result. Our efforts to hold to account anyone and everyone who played a role in this unprecedented Ponzi scheme continue.”

According to the Superseding Information to which Madoff pled guilty and other court filings:

  • Madoff was employed at BLMIS from 1965 through December 2008. Beginning in 1969, he became the Chief Compliance Officer (“CCO”) and Senior Managing Director of BLMIS. In his role as CCO, Madoff created false and misleading BLMIS compliance documents, as well as false reports that were filed with the U.S. Securities and Exchange Commission (“SEC”) that materially misstated the nature and scope of BLMIS’s Investment Advisory (“IA”) business.
  • As CCO, Madoff created numerous false compliance documents in which he stated that he had performed compliance reviews of the trading in the BLMIS IA business on a regular basis, when in reality, the reviews were never performed. The false statements were designed to mislead regulators, auditors, and IA clients.
  • In August 2006, BLMIS registered as an investment adviser with the SEC. As a registered investment adviser, on at least an annual basis, BLMIS was required to file forms with the SEC that are used as part of the oversight process of investment advisers. Madoff was integrally involved with both the SEC registration process and in the creation of the forms, known as “Forms ADV,” which were materially false and misleading. The numerous false statements in the Forms ADV created the false appearance that BLMIS’s IA business had a small number of highly sophisticated clients and far fewer assets under management than was actually the case. Madoff also misrepresented that he, as CCO, ensured that reviews of the IA trading were being performed.
  • From 1998 through 2008, Madoff engaged in a tax fraud scheme involving the transfer of wealth within the Madoff family in ways that allowed him to avoid paying millions of dollars in required taxes to the IRS. Most, if not all of the “wealth,” came directly or indirectly from IA client funds held at BLMIS. The schemes in which he engaged also allowed Bernard L. Madoff to evade his tax obligations.
  • The methods by which Madoff engaged in tax fraud included the following:
  • Madoff also arranged for his wife to have a “no-show” job at BLMIS from which she received between approximately $100,000 to $160,000 per year in salary, a 401(k), and health benefits to which she was not entitled.
  • In December 2008, when the collapse of BLMIS was virtually certain, Madoff agreed with others to send the $300 million that remained in the IA accounts to preferred employees, family members and friends. BLMIS collapsed before the funds were ever disbursed. On December 10, 2008, one day prior to BLMIS’s collapse, Madoff also withdrew $200,000 from BLMIS for his personal use.
  • Madoff received approximately $15,700,000 from Bernard L. Madoff and his wife, and executed sham promissory notes to make it appear that the transfers were loans, in order to avoid paying taxes;
  • Madoff gave approximately $9,900,000 to family members, and in order to avoid paying taxes, executed sham promissory notes to make it appear that the transfers of these funds were loans;
  • Madoff did not pay taxes on approximately $7,750,000 that he received from BLMIS;
  • Madoff received approximately $16,800,000 from Bernard L. Madoff from two sham trades, and disguised the proceeds of the trades as long-term stock transactions in order to take advantage of the lower tax rate for long-term capital gains;
  • Madoff charged approximately $175,000 in personal expenses to a corporate American Express card and did not report those expenses as income.

Madoff  Victim Compensation Process Continues

In addition to the sentencing of Madoff, the Government has taken steps to clear the way to begin distributing assets forfeited by Peter Madoff in connection with the victim compensation process by filing a motion requesting that the Court find restitution to be impracticable, A similar motion was granted by United States Circuit Judge Denny Chin, who as a United States District Judge sentenced Bernard L. Madoff in 2009. The Department of Justice intends to return the assets forfeited as a result of the Madoff fraud to victims through the remission process.

Richard C. Breeden was retained to serve as Special Master on behalf of the Department of Justice to administer the process of compensating the victims of the Madoff fraud with the forfeited funds. A former chairman of the SEC, Mr. Breeden is Chairman of Richard C. Breeden & Co., which has been involved in (among other things) the administration and distribution of securities fraud claims since 1996. Among other things, Mr. Breeden has served as Corporate Monitor of WorldCom, Inc. and KPMG under its deferred prosecution agreement with the U.S. Attorney’s Office. Mr. Breeden also served as remission special master in connection with the fraud committed through Adelphia Communications Corporation. In April 2012, more than $728 million forfeited in connection with this Office’s investigation and prosecution of the Adelphia fraud was distributed to approximately 8,500 victims, the largest single distribution of forfeited assets to victims in Department of Justice history.

Now that a new Special Master has been retained, and given the pledge of SIPC Trustee Irving Picard and his counsel to lend their support and resources to the new Special Master for the benefit of the fraud victims, we expect the victim claims process to begin shortly. It is anticipated that victims who filed claims in the SIPA proceeding will not have to refile their claims to be eligible for remission. New information about the remission Special Master, and information about the victim claims process, will be posted on the Office’s Madoff website at http://www.justice.gov/usao/nys/vw_cases/madoff.html as soon as it becomes available, along with a link to a dedicated website Mr. Breeden’s firm will establish in connection with the remission proceedings.

Investment Advisors and Others With Discretion Over Funds Should Exercise Fiduciary Care

While the Madorf scandle represents an exceptionally large and long-standing stream of mishandling of employee benefit funds, the investigations and prosecutions also serve as a reminder of the need to carefully comply with the fiduciary responsibility and other requirements of ERISA and other laws to investment advisors and other employee benefit plan asset service providers, plan committees and fiduciaries and the plan sponsors, boards and other individuals responsible for investing or handling employee benefit monies or choosing the parties that possess and exercise that discretion. 

ERISA generally requires that plan asset investments be made prudently and for the exclusive benefit of participants and beneficiaries.  Service providers or others with discretionary responsibiliity or that are investment managers of plan assets must be prudently selected based on careful credentialing and other procedures.  e No prohibited transactions should be permitted.  Fees and other compensation must be set appropriately and properly reported in accordance with ERISA’s fee disclosure rules.  The actions and performance of parties investing in plan assets and their investment performance must be reviewed and monitored prudently.  Proper bonding must be maintained.  Concerns and questions about these activities must be timely investigated in a prudent manner.  Failure to properly conduct these and other ERISA fiduciary responsibilities can expose responsible parties to personal liability for losses, profits improperly realized, a fiduciary administrative penalties, disqualification to serve in plan fiduciary or other positions, and attorneys fees and other costs of recovery, as well as in certain cases like the Madorff fraud, criminal prosecution.

For Help or More Information

If you need help reviewing and updating, administering or defending your employee benefit, human resources, insurance, health care matters or related documents or practices to monitor or respond to evolving laws and regulations,  drafting or administering programs,  resolving or defending audits, investigations or disputes or other  employee benefit, human resources, safety, compliance  or risk management concerns, please contact the author of this update, Cynthia Marcotte Stamer.

About Ms. Stamer

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns  see here or contact Ms. Stamer via telephone at 469.767.8872 or via e-mail to  cstamer@solutionslawyer.net.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources at www.solutionslawpress.com including:

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile at here or e-mailing this information here.

©2012 Cynthia Marcotte Stamer.  Non-exclusive right to republish granted to Solutions Law Press.  All other rights reserved.

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Posted by Cynthia Marcotte Stamer

ESOP, Other Employee Plan Investments In Company Stock Land Plans, Fiduciaries, Sponsors & Others In Hot Water

December 10, 2012

 Companies that sponsor employee benefit plans that have purchased or own stock in their sponsor beware.  Declines in the stock value of company stock purchased by employee stock ownership plans (ESOP) or other employee benefit plans in their plan sponsor have a growing number of plans and the plan sponsors, sponsoring company owners and management, plan trustees and other plan fiduciaries in hot water with the Department of Labor.  ESOP or other employee plans that have purchased or allow investments in company stock and their sponsors, fiduciaries and advisors should carefully review for defensibility the current stock value, the purchase price and analysis supporting that purchase and other aspects of these investments of plan assets and take carefully documented action to prove the prudence and other appropriateness of the investment and continued retention of the investment in these assets.

Company Stock Investments Carry Special ERISA Risks

Purchases of company stock by an ESOP or other employee benefit plan can create a wide range of risks under the fiduciary responsibility rules of the Employee Retirement Income Security Act (ERISA).  When making investment or other decisions under an employee benefit plan, the general fiduciary duty standards of ERISA § 404 generally require plan fiduciaries to act prudently and solely in the interest of participants and beneficiaries. Meanwhile, except in certain narrow circumstances and subject to fulfillment of ERISA § 404,  the prohibited transaction rules of ERISA § 406 among other things prohibits plan fiduciaries from causing the plan to engage in a transaction, if he knows or should know that such transaction is a direct or indirect:

  • Sale or exchange, or leasing, of any property between the plan and a party in interest;
  • Furnishing of goods, services, or facilities between the plan and a party in interest;  
  • Transfer to, or use by or for the benefit of a party in interest, of any assets of the plan; or
  • Acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 1107 (a) of this title.

Stock Drops Create Rising Exposures For Plans Invested In Company Stock

Amid economic downturns or other situations where the stock value of company held by plans significantly lower than the price the plan paid for the stock, the Labor Department, plaintiffs in private lawsuits or both may bring “stock drop” or other lawsuits against the plan, its sponsor and its officers and board members, its fiduciaries and others for breach of fiduciary duties under these rules. See e.g., Enron v. Tittle, 463 F.3d 410 (5th Cir. 2006); In Re: BP p.l.c. ERISA Litig., No. 4:10-cv-4214 (S.D. Texas); Vivian v. Worldcom (N.D. Cal. 2002).  Since the sponsoring company is a party-in-interest of the plan, using plan assets to purchase company stock or other activities resulting in the inclusion of company stock among the plan assets held by the plan creates presumptions of impropriety that impose higher than usual burdens upon the plan, its sponsor and fiduciaries to prove the appropriateness of the transaction.  See e.g., Pfeil v. State Street Bank & Trust Co., 671 F.3d 585 (6th Cir. 2012).

The filing of stock drop cases tends to rise and fall in reflection to the economic times. Following the economic downturn in 2002, federal courts saw a surge in stop drop case challenges as well as Labor Department enforcement actions.  The number of these cases dropped as the economy improved later in the decade only to rise again between 2010 and the present in response to the current economic crisis.  

Tough Economic Times Fueled Stock Drops Creating Rising Risks & Enforcement

The latest economic downturn is fueling resurgence in these “stock drop” challenges.  Fifteen stop drop lawsuits were filed during 2010 and 2011.  Additional suits and Labor Department stop drop challenges have emerged this year.

In Griffin v. Flagstar Bancorp, Inc., No. 11-1497 (6th Cir. 2012), for instance, plaintiffs alleged various fiduciaries allegedly breached their duties under ERISA by allowing employer stock to be offered as a 401(k) plan investment option while the company was facing a precarious financial situation.  The Griffin court overruled the lower court’s dismissal of the plaintiff’s lawsuit.  The Court of Appeals held that the defendants offering of company stock to plan participants made ERISA’s “safe harbor” (Section 404(c)) provision for participant self-directed investments inapplicable.  The Sixth Circuit ruled “[a]fter reviewing the factual allegations in the complaint – which go far beyond documenting a simple drop in stock price to recite announcements from Flagstar itself, statements by analysts and financial media publications, and actions taken by Flagstar suggesting a precarious financial situation– we must conclude that the complaint raises a plausible claim for breach of fiduciary duty.”

In addition to private class action lawsuits like Griffin, plans holding company stock, their sponsors, owners, management and fiduciaries also need to be ready to defend against investigations and enforcement by the Labor Department, which often zealously investigates and takes enforcement action against plans, their fiduciaries, sponsors, company boards and management and others for losses to plan asset values resulting due to the investment or retention of investments by their plans in company stock. See also Labor Department Backs M&I Employees In Stock-Plan Suit.

Labor Department Suits Show Particular Risks For ESOPs

Over the past year, the Labor Department has been particularly aggressive in taking action when the value of company stock purchased or held by employee stock purchase plans or “ESOPS” drops significantly.  

  • Rembar

For instance, the purchase by the Rembar Inc. Employee Stock Ownership Plan (“Rembar Plan”) of all the stock of its sponsor, Rembar Inc. has landed the trust company that served as the Plan’s independent fiduciary and Rembar Inc.’s owner and Chief Executive Officer in hot water.

The Labor Department is suing Rembar Inc.’s Chief Executive Officer and owner, Frank Firor, First Bankers Trust Services Inc. and the Rembar Plan to recover losses that the Labor Department charges Rembar Plan participants suffered because the Rembar Plan paid too much when it purchased all of the stock of Rembar Inc.

Rembar Inc. manufactures and distributes precision parts made from refractory metals. The Labor Department lawsuit alleges that, in June 2005, First Bankers Trust Services allowed the Rembar Plan to purchase 100 percent of the company’s stock from Firor and Firor’s relatives for $15.5 million. A Labor Department investigation found that First Bankers Trust Services failed to comply with its duty to understand the valuation report that set the purchase price, identify and question assumptions in the report, and verify that the conclusions in the report were consistent with the company’s financial data. As a result of First Bankers Trust Services’ failure to comply with its fiduciary duties, the Labor Department claims the Rembar Plan overpaid for the stock and suffered losses.  The suit seeks, among other things, to recover jointly from First Bankers Trust Services and Firor all losses suffered by the Rembar Plan.

  • Maran

Similarly, the Labor Department also has filed an ERISA stock drop lawsuit against the Maran Inc. Employee Stock Ownership Plan (Maran Plan), First Bankers Trust Services Inc. and others to recover losses suffered by participants. 

According to the pleadings, First Bankers Trust Services was hired as an independent fiduciary and trustee in connection with the company’s ESOP to decide whether, and at what price, to purchase shares of Maran Inc. from majority shareholders.  The suit charges First Bankers Trust Services violated ERISA in 2006 when it approved the ESOP’s purchase of 49 percent of the outstanding stock of Maran Inc. for about $71 million, which was more than the fair market value. The Labor Department claims that as a result of the purchase of overvalued stock, the Maran Plan participants suffered significant losses.  The suit seeks to recover all losses and have First Bankers Trust Services enjoined from serving as a fiduciary to ESOP plans.  

  • Parrot

Likewise, the Labor Department in April sued in the U.S. District Court for the Northern District of California seeking to recover losses suffered by participants in the Parrot Cellular Employee Stock Ownership Plan (Parrot Plan).

The suit names as a defendant Dennis Webb, the principal owner of Entrepreneurial Ventures Inc. (EVI), which operates Parrot Cellular telephone retail stores in northern and central California, and is the sponsor of the Parrot Plan; EVI executives Matthew Fidiam and J. Robert Gallucci; Consulting Fiduciaries Inc., an Illinois company that served as the independent fiduciary and investment manager for the Parrot Plan in 2002 when the Parrot Plan bought 90 percent of EVI stock. 

According to the pleadings, the Parrot Plan paid for more than $28 million to buy approximately 90 percent of EVI’s stock in 2002. Around the same time as the stock purchase, EVI also set aside $4 million pursuant to a deferred compensation agreement with Webb and entered into a second executive compensation agreement with Webb for $12 million.

The Labor Department charges defendants allegedly violated ERISA by rejecting their fiduciary duties of loyalty and prudence to the plan, engaging in self-dealing, permitting or engaging in prohibited transactions, and failing to monitor the performance of the plan’s appraiser when they caused or permitted the Parrot Plan to purchase EVI stock for more than fair market value.  The suit also charges that Webb enriched himself by millions of dollars at the expense of the plan and its participants because a reasonable value for the company as of November 2002 was far less than the amounts the Parrot Plan paid for the stock and the total deferred compensation agreements entered into with Webb.

In addition to seeking the recovery of all losses to the Parrot Plan resulting from the above violations, the Labor Department’s suit seeks the disgorgement of unjust profits from Webb that he received from the two deferred compensation agreements and from his sale of EVI stock to the Parrot Plan.

Plans, Sponsors and Fiduciaries Must Act Continously To Manage Risks

These and other actions send a stong message for ESOP and other employee benefit plans, their fiduciaries and sponsors about the need to continuously and prudently evaluate and monitor the investment of plan assets in company stock,the analysis and decisions about whether to continue to keep and offer this stock under the plan, as well as the qualifications, credentials and conduct of the fiduciaries and others empowered to influence these decisions. The Labor Department’s statement in announcing the Parrot litigation sums up the messages from these cases. “Plan officials are required by law to manage the ESOP in a careful, prudent manner and to act solely to benefit the plan’s participants,” said Jean Ackerman, director of EBSA’s San Francisco Regional Office, which conducted the investigation. “This action underscores the department’s commitment to protect the benefits that employers promise to their employees.”  Plan fiduciaries, sponsors and their management, service providers and consultants participating in these activities need to both act with care and carefully document their actions to position to defend potential challenges.

Plans, their sponsors and fiduciaries also should ensure that appropriate steps are taken in selecting the fiduciaries, management and service providers responsible for administering or overseeing the administration of their plans, the selection of vendors, and other critical details.  Appropriate background checks and other credentialing should be done both at commencement and periodically.  Bonding and fiduciary liability insurance should be arranged and reviewed periodically along with their activities.  Documentation of these and other steps should be carefully created and preserved.

When and if a change in stock value or other event that could compromise the investment occurs, consideration should be given as to the responsibilities that such events create under ERISA.  As company leaders often have dual responsibilities to both the company and the plan, it is important that the company sponsoring the plan, its management and owners learn in advance how these responsibilities impact each other so that they are aware of the issues and have a good understanding of responsibilities and options as situations evolve.

 For Help or More Information

If you need help reviewing and updating, administering or defending your employee benefit, human resources, insurance, health care matters or related documents or practices to monitor or respond to evolving laws and regulations,  drafting or administering programs,  resolving or defending audits, investigations or disputes or other  employee benefit, human resources, safety, compliance  or risk management concerns, please contact the author of this update, Cynthia Marcotte Stamer.

About Ms. Stamer

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters.

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials about regulatory, investigatory or enforcement concerns.

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and register to receive future updates about developments on these and other concerns  see here or contact Ms. Stamer via telephone at 469.767.8872 or via e-mail to  cstamer@solutionslawyer.net.

About Solutions Law Press

Solutions Law Press™ provides business risk management, legal compliance, management effectiveness and other resources, training and education on human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested reviewing some of our other Solutions Law Press resources at www.solutionslawpress.com including:

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile at here or e-mailing this information here.

©2012 Cynthia Marcotte Stamer.  Non-exclusive right to republish granted to Solutions Law Press.  All other rights reserved.

Leave a Comment » | ADA, Corporate Compliance, EEOC, Employers, GINA, Human Resources, OFCCP, Retaliation | Tagged: , , , , , , , , , , , , , | Permalink
Posted by Cynthia Marcotte Stamer

Catch Up On Health Reform & Other Key Employee Benefits & Insurance Issues Emerging Issues and Litigation Relating to Life, Health, Disability and ERISA Symposium In Ft. Lauderdale

December 7, 2012

Cynthia Marcotte Stamer will be one of the featured panelists discussing “Implications of PPACA” on January 18, 2013 at the American Bar Association Tort Trial & Insurance Practice Section’s (TIPS) 39th Annual TIPS Midwinter Symposium on Insurance and Employee Benefits “Emerging Issues and Litigation Relating to Life, Health, Disability and ERISA” in Fort Lauderdale.

The “Implications on PPACA” program scheduled at 3:30 p.m. on January 18, 2012 is one of many content-rich series of programs on employee benefit and insurance issues that leading practitioners will lead during the Symposium W Hotel Fort Lauderdale in Fort Lauderdale, FL on January 17-19, 2013.  To register, review the full agenda or get additional information about the Symposium, see here.

About Ms. Stamer

Managing Editor of Solutions Law Press, Inc. and a noted Texas-based employee benefits and employment lawyer with extensive involvement in the leadership of the ABA and other professional organizations involved in employee benefits, health care and workforce matters, is nationally and internationally known for her knowledgeable and creative leadership and work as an attorney, consultant, policy advocate, speaker and author helping businesses, governments, and communities on health and other insurance and employee benefits, patient education and empowerment, wellness and disease management, and other programs, policies, and processes.  For more than 24 years, Ms. Stamer’s legal practice has focused on advising and representing employers, insurers, health care providers, community leaders and governments about health care and employee benefits policy and process improvement, quality, performance management, education, compliance, communications, risk management, reimbursement and finance, and other related matters.  In addition to her legal practice, Stamer also extensively consults and provides leadership to a broad range of clients, professional and civic organizations, and others on strategies for improving the health care system and the ability of health care providers, payers, employers, community organizations, government agencies to promote the ability of patients and their families to access cost-effective, quality, affordable health care and other resource needs.  She also has worked extensively with a broad range of business and government clients on health care, pension, social security, workforce, insurance and many other related policy matters.

In addition to her service with TIPS, Ms. Stamer also is active in the leadership of a broad range of other professional and civil organizations. For instance, Ms. Stamer presently serves as Executive Director of Project COPE, the Coalition on Patient Empowerment and the Coalition for Responsible Healthcare Policy; Vice President of the North Texas Healthcare Compliance Professionals Association; Immediate Past Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Committee and its representative to the ABA Joint Committee on Employee Benefits and Vice Chair of its Welfare Benefits Committee; Past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group and a current member of its Healthcare Coordinating Council; and as the Gulf Coast TEGE Council TE Committee Coordinator.  She previously served as a founding Board Member and President of the Alliance for Healthcare Excellence, as a Board Member and Board Compliance Committee Chair for the National Kidney Foundation of North Texas; the Board President of the early retirement intervention agency, The Richardson Development Center for Children; Chair of the Dallas Bar Association Employee Benefits & Executive Compensation Committee; a member of the Board of Directors of the Southwest Benefits Association; on many seminar faculties and in many other professional and civic leadership and volunteer roles. 

Author of the hundreds of publications and workshops these and other employment, employee benefits, health care, insurance, workforce and other management matters, Ms. Stamer’s insights on employee benefits, insurance, health care and workforce matters in Atlantic Information Services, The Bureau of National Affairs, HealthLeaders, Modern Healthcare, Business Insurance, Employee Benefits News, World At Work, Benefits Magazine, the Wall Street Journal, the Dallas Morning News, the Dallas Business Journal, the Houston Business Journal, and many other publications. Nationally known for her work on health care reform and related matters, Ms. Stamer also regularly conducts training and speaks on these and other  management, compliance and public policy concerns.  For more information about Ms. Stamer, upcoming training, publications or other materials or events, see here  or contact Ms. Stamer directly via email here or (469) 767-8872.

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here. For important information concerning this communication click here.    If you do not wish to receive these updates in the future, send an e-mail with the word “Remove” in the Subject to here.

©2012 Cynthia Marcotte Stamer, P.C. All rights reserved.

Leave a Comment » | 105(h), Affordable Care Act, CHIP, COBRA, Disability, Disability, Employee Benefits, Employers, Employment Tax, ERISA, Excise Tax, Fiduciary Responsibility, FMLA, Health Care Reform, Health Plans, HIPAA, Human Resources, Income Tax, Insurance, Malpractice, Medicare Part D, Mental Health, Mental Health Parity, Patient Empowerment, Patient Protection and Affordable Care Act, Payroll Tax, Preemption, Prescription Drugs, Protected Health Information, Reporting & Disclosure, Tax Credit, Wellness Programs | Tagged: , , | Permalink
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