United States: Recent Employee Benefit Developments: Fall 2014

IRS Expands Cafeteria Plan Status Change Events

On September 18, 2014, the Internal Revenue Service issued Notice 2014-55, which establishes two new change in status events for cafeteria plans. The new change in status events apply only to coverage under a group health plan that provides minimum essential coverage (within the meaning of the Affordable Care Act). Changes under health flexible spending accounts are specifically excluded.

Cafeteria plans (also known as flexible benefit plans or section 125 plans) allow employees to pay for certain employer welfare benefits (such as health insurance premiums) on a pre-tax basis. In general, cafeteria plan elections must be irrevocable during a period of coverage – frequently a twelve month period of coverage that coordinates with the welfare benefit plan year.

The change in status rules provide specific exceptions to the irrevocable election rule. The existing change in status rules include events such as change in legal marital status, change in number of dependents, or change in employment status that affects eligibility under the underlying benefit plan. The two new change in status events are described below:

Reduction in Hours of Service

The first new change in status event applies to an employee who was expected to average at least 30 hours of service per week, but as a result of a mid-year employment change, is expected to average less than 30 hours of service per week. Such an employee may prospectively revoke his election for group health plan coverage during the year. The election change is allowed even if the reduction in hours does not cause the employee to lose eligibility under the underlying health plan.

There are two conditions that an employee must satisfy before the change is allowed:

  • The drop in coverage must correspond to the intended enrollment of the employee (including any dependents whose coverage would also be dropped) in other minimum essential coverage (such as a coverage through the exchange or another group health plan); and
  • The new coverage must be effective no later than the first day of the second month following the month that includes the date as of which coverage is dropped.

In applying the above rules, the plan administrator may rely on an employee's reasonable representation of the intended enrollment and the effective date of the new coverage.

Enrollment in Exchange Coverage

The second new status change event applies to an employee who is eligible to enroll in coverage through the exchange (during an exchange open enrollment or special enrollment period). Such an employee may prospectively revoke his election for group health plan coverage during the year. There are two conditions to that an employee must satisfy before the change is allowed:

  • The drop in coverage must correspond to the intended enrollment of the employee (including any dependents whose coverage would also be dropped) in exchange coverage; and
  • The new coverage must be effective no later than the day after the employer's coverage is dropped.

The plan administrator may rely on an employee's reasonable representation about the intended enrollment.

Employer Action Items

The new status change events are optional. Plan administrators may allow such elections beginning September 18, 2014. However, the cafeteria plan must be amended to provide for such election changes. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed. A special rule allows amendments effective in 2014 to be adopted no later than the end of the plan year beginning in 2015.

Sixth Circuit Enforces Forum Selection Clause

The enforceability of forum selection clauses in ERISA plans has been a hot topic in ERISA litigation circles in recent years. The substantial majority of district courts have enforced forum selection clauses that have designated a federal court sitting in the district where the plan is administered. We have been successful in enforcing such clauses for our clients all 10 instances where they have been challenged, winning the argument before courts in Louisiana, Michigan, New York and Ohio and multiple courts sitting in California. But the Department of Labor has filed amicus briefs opposing the enforceability of forum selection clauses and a handful of courts have adopted the Department's position.

The first federal appellate court has now weighed in on the issue and in a 2-1 decision held that such clauses are enforceable. Roger L. Smith v. Aegon Companies Pension Plan, No. 13-5492 (6th Cir. Oct. 14, 2014). The Sixth Circuit majority held that the DOL's opinions expressed in its amicus brief were not entitled to any deference under either Chevron or Skidmore. Moreover, even if deference was given to the DOL's opinions, the majority held that it would enforce the forum selection clause before it. That clause required the Kentucky participant to litigate his claim in Cedar Rapids, IA.

The Sixth Circuit noted that plan sponsors are given great leeway by ERISA to draft their plans and that nothing in ERISA suggests that sponsors cannot include a forum selection clause. The appellate court explained it would apply the same rules it applied whenever any party challenged the enforceability of a forum selection clause. First, was the forum selection clause obtained by fraud, duress or unconscionable means? Second, would the designated forum ineffectively or unfairly handle the suit? Third, would the designated forum be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust?

Usually, it is the third question that is the focus of the court's analysis. We, however, have persuaded five different California judges to transfer cases to New York over the strenuous objections of the plaintiffs. Because courts most always resolve ERISA benefit claims on summary judgment decided on the briefs, it is not inconvenient to have the case decided in a distant forum. Rarely would the participant be required to travel to the distant court.

The Sixth Circuit adopted several of the reasons we have argued forum selection clauses in ERISA plans are enforceable. First, nothing in ERISA expressly prohibits forum selection clauses. Had Congress intended to forbid them, it could have included such a prohibition in ERISA, either initially or at any time since 1974. Second, limiting venue to one designated jurisdiction encourages uniformity of decisions interpreting the plan, thereby allowing administrators to establish a uniform administrative scheme. This uniformity allows for more consistent and less expensive administration. Third, other courts have enforced arbitration clauses in ERISA plans, and arbitration clauses are merely another form of forum selection clauses. Moreover, a plan participant forced to arbitrate loses the protection of having her case heard by an Article 3 judge and the benefits of the Federal Rules of Civil Procedure. Neither of these protections is lost when a court enforces a forum selection clause.

We have advised our clients that when they designate a forum, it should be where the plan is administered, one of the three venues permitted by § 502(e). But the Smith majority, in dicta, allowed that the plan could select any forum, that its choices were not limited to one of the three specified in § 502(e). This portion of the ruling surprises us. It seems to us that to allow a plan sponsor to mandate one of the three venues expressly allowed in ERISA is one thing. But to allow that sponsor to mandate a venue not permitted by ERISA is a further reach.

The dissenting judge argued that § 502(e) was intended to grant an affirmative right to ERISA participants and beneficiaries to choose the forum where they wanted their cases heard and that a forum selection clause thwarts that right. He asserted that allowing a plan sponsor to designate the forum was contrary to ERISA's strong public policy considerations. He was specifically concerned that the clause would require the Kentucky plaintiff to litigate his claim in Iowa, more than 500 miles from his home.

The majority's opinion in Smith is not the last word on the issue. We expect the plaintiff will seek a rehearing en banc, and the Sixth Circuit has not been the most friendly of circuits for ERISA plan sponsors, administrators and fiduciaries.

But forum selection clauses offer many benefits to plan sponsors and we think it makes sense to seriously consider inserting them in every ERISA plan. Some facts may weigh against including such a clause. For instance, if your plan is administered in a district or circuit that is unfriendly to ERISA sponsors/administrators/fiduciaries (e.g. the Ninth Circuit), you may prefer not to have a forum selection clause.

Year End Reminders Group

The end of 2014 is rapidly approaching and Plan Sponsors of calendar-year employee benefit plans would be well served by making certain any required or discretionary amendments are adopted in a timely manner. For example, Plan Sponsors should consider if a change needs to be made before year end to recognize same-sex marriages.

Plan Sponsors should also make certain that required year-end notices are provided. Items to consider include qualified default investment alternative notices, automatic enrollment notices, safe harbor plan notices, Summary Annual Reports, Summaries of Benefits and Coverage and wellness program disclosures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.