Sunshine … on my controlled group makes me happy

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by John Ludlum

The controlled group rules under the IRC are possibly one of the driest and most technical areas in benefits practice, but mistakes in controlled group status can be very expensive and complicated to correct.  The problem we are seeing is that in too many cases, it is not clear whether the plan sponsor or the plan’s service providers have responsibility for monitoring which entities are in the plan sponsor’s controlled group.

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You gotta fight for your right … to arbitrate

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by Holly Stein Sollod

The Ninth Circuit handed Charles Schwab & Co., Inc. a victory this week that could impact plan sponsors by ordering individual arbitration of ERISA claims. A three-judge panel unanimously reversed a California federal judge’s decision denying Schwab’s Motion to Compel individual arbitration of its workers ERISA breach of fiduciary duty claims. The Court overturned Amaro v Continental Can Co. 724 F.2d 747 (9th Cir. 1984), in light of more recent precedent, including the U.S. Supreme Court’s 2013 opinion in American Express v. Italian Colorado Restaurant, 570 U.S. 228, 233 (2013).

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Ch-ch-ch-changes . . . cafeteria plan change in status rules are sometimes surprisingly restrictive

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by Beth Nedrow

The IRS issued a ruling earlier this summer that serves as a reminder of how important it is to maintain the distinction between an election for health plan coverage and an election on how to pay for such coverage.

In practice, virtually all employees (and frankly, many employers) forget there is a distinction between electing coverage and electing how to pay for it. It is usually automatically assumed that when an employee elects medical coverage, they will pay for that coverage pre-tax under a Section 125 cafeteria plan. Indeed, IRS guidance and proposed regulations permit the employer to default an employee into paying for medical coverage pre-tax under a cafeteria plan. But if an employee makes this election (either affirmatively or by default), they may come to regret it, as demonstrated in the IRS Chief Counsel letter issued May 8, 2019.

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Come together, right now . . . and join a MEP?

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by Beth Nedrow

In late July, the Department of Labor released a rule allowing small businesses to more easily band together in a joint retirement plan. The idea is that a larger plan will have more leverage to obtain better pricing and better service from vendors. Equally important is the ability of employers to offload some or all of the responsibility for maintaining retirement plans.

The final rule alters the definition of “employer” in ERISA for purposes of who may establish and maintain an individual account defined contribution retirement plan. Under the new rule, a group or association, or a PEO (professional employer organization) can sponsor what the DOL refers to as a “MEP” – a “multiple employer plan.” The regulation is limited to “bona fide” groups, associations and PEOs – which means they must have a business purpose or other common connection, and not merely have the purpose of providing the retirement plan. In this way, the new rule mirrors the DOL’s regulations intended to expand the availability of association health plans (“AHPs”), which is currently stalled due to litigation.

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