Employees May Sue Plan Fiduciaries After Company Stock Tanks 

In February, the U.S. Supreme Court ruled in LaRue v. DeWolff, Boberg, & Associates, Inc. (U.S. Sup. Ct., No. 06–856) that 401(k) plan fiduciaries may be liable to employees for losses to their individual accounts that occur when the fiduciaries fail to execute employees' investment selections. A federal appeals court is relying on LaRue to allow employees to bring a class action lawsuit against 401(k) plan fiduciaries who chose company stock as one of the investment options. (Rogers v. Baxter International, Inc., 7th Cir., No. 06-3141, 2008)

Overvalued And They Knew It 

Employees could exercise some control over their 401(k) investments, though the plan and its trustees could limit the assets individual accounts could contain and when trading could occur. Crux of employees' case: Plan trustees, as fiduciaries, knew the company's stock was overvalued and yet permitted employees to continue to invest in it, thus making the investment a bad deal. Two incidents backed up the employees' claim. First, they alleged that the stock dropped from $43 to $32 a share after quarterly results fell short of the company's projections; then they alleged that the stock dropped $1.48 after earnings had to be restated due to a foreign subsidiary's fraud.

The appeals court, which had been waiting for the U.S. Supreme Court to rule in LaRue, issued its decision in response to the company's motion to dismiss the case. Court: Under LaRue, the case can't be dismissed. To prove their allegations, employees must establish that the plan fiduciaries knew about the two incidents that caused the stock to drop in value and that, as a result, they had a duty under ERISA to prevent employees from investing in the company's stock.

As the case proceeds, one key question, according to this appeals court, will be whether fiduciaries must allow or prevent investments for blocks of weeks or months at a time (when company stock or some other stock is "overpriced"), rather than making decisions based on long-run considerations.

ERISA Section 404(c) — Do Not Pass Go, Do Not Collect $200 

Most employers and plan fiduciaries probably think that as long as the 401(k) plan offers participants at least three diverse investment options, provides participants with investment materials, and allows them to change investments at least quarterly, ERISA Section 404(c) lets them off the hook. Nothing is further from the truth. ERISA Section 404(c) isn't a get-out-of-jail-free card; it allows fiduciaries to limit their liability for the investment choices participants make, but not for liability for the investment options available under the plan, or for selecting and monitoring outside service providers of those investment options. To show that fiduciaries acted prudently and in the sole interest of plan participants and beneficiaries, fiduciaries should take these actions.

• Document the processes used to choose investments and service providers, and how those decisions were made.
• Review contracts with service providers to determine which party is responsible if errors occur that impact participants' accounts. These contract clauses should be flagged for renegotiation when the current contract expires.
• If an error is attributable to a service provider, contact the provider and insist that the error be fixed expeditiously and at no cost to the plan.
• Treat employees who have terminated, but who haven't taken a distribution of their plan assets, the same as active participants. Provide them with all required notices, including summary annual reports, summaries of material modifications, and summary plan descriptions.

 New Law Clamps Down On Use Of Genetic Information 

Recently enacted legislation — the Genetic Information Nondiscrimination Act of 2008 (P.L. 110-233) — prohibits group-health plans from using employees' genetic information to make underwriting decisions. Warning: Congress intends that these prohibitions be interpreted broadly. GINA, as the law is known, will become effective for plan years beginning one year after May 21, 2008 (e.g., January 1, 2010, for calendar year plans). GINA also prohibits employers from discriminating against employees based on their genetic information.

Do's And Don'ts For Health Plans Now 

The Health Insurance Portability and Accountability Act (HIPAA) and ERISA prohibit group health plans from discriminating on the basis of genetic information. GINA beefs up these provisions by prohibiting group-health plans from requesting or requiring that employees or their family members undergo genetic tests prior to enrollment and in connection with enrollment. Plans can't collect or purchase genetic information for underwriting purposes. Plans that incidentally acquire genetic information won't violate the law, though.

Genetic information is defined broadly to include information about an employee's or a family member's genetic tests; information about the manifestation of a disease or disorder in a family member; an employee's or family member's request for, or receipt of, genetic services, or participation in clinical research that includes genetic services; and information about a fetus carried by a pregnant employee or family member or an embryo legally held by an employee or family member. Genetic tests include an analysis of human DNA, RNA, chromosomes, proteins, or metabolites that detects genotypes, mutations, or chromosomal changes.

Under HIPAA, employees must be grouped together to determine premiums and coverage. While HIPAA protects employees in a group from paying more or less for coverage than others in the same group, it doesn't protect the group as a whole. GINA clarifies that group-health plans are prohibited from adjusting premiums or contribution rates for a group on the basis of genetic information concerning an individual in the group. However, health plans can still increase group premiums based on a participant's actual illness or disease.

GINA applies to all group-health plans, even plans that have fewer than two participants who are current employees for any plan year. It also applies to retiree-only group-health plans. GINA supersedes contrary provisions of state laws. However, state laws that provide employees with more protection will continue to apply.

The maximum civil penalty is $100 a day, per violation, per employee. A $2,500 penalty applies if violations aren't corrected by the time the plan receives official notice of a violation. A maximum penalty of $15,000 applies for multiple violations that are more than de minimis. The IRS may also impose an excise tax. Penalties will not be assessed if plans don't know of violations and, exercising reasonable care, couldn't detect violations.

Employee remedies follow ERISA Section 502, which provides plan participants with a private right of action. The Secretary of Labor is also afforded a right of action against violating plans.

 Final HSA Regs Wrap Up Two Outstanding Issues 

Employers that contribute into employees' health savings accounts (HSAs) must ensure that those contributions are comparable. Final regulations detail how employers can make comparable contributions into employees' HSAs if employees haven't established their HSAs by the end of a calendar year. The regs also allow employers to accelerate contributions for employees who incur medical expenses that exceed the amount of employer contributions currently available to them. The final regs apply to employer contributions for calendar years beginning January 1, 2009, but you may rely on them beginning April 17, 2008.

Employer HSA Contributions Recap 

Under existing HSA law and regs, employers must group similar employees and their high-deductible health plan coverage together. There are three acceptable groups: full-time employees, part-time employees (i.e., those working fewer than 30 hours a week), and former employees. There are two categories of coverage for high-deductible health plans — self-only and family coverage. Family coverage may be broken down into self plus one, self plus two, and self plus three or more.

Also under existed law, once employees and their health plan choices have been sorted, employers can decide whether or how much to contribute into each employee's HSA. The general rule regarding comparability can be summed up as follows: If an employer contributes into the HSA of any eligible employee, it must contribute a comparable cash amount or percentage of the high-deductible health plan's deductible into the HSAs of all comparable participating employees who comprise, as of the first day of each month, a group.

Late Contributions 

Employees who don't establish HSAs by the end of a calendar year, or those who establish HSAs but don't tell their employers, make a mess of the comparability rules, since they should have been included in a group, but weren't. Under these final regs, employers must notify all HSA-eligible employees who haven't established HSAs of their ability to receive comparable contributions. Notice must be provided no earlier than 90 days before the first employer contribution and no later than January 15 of the next year. To be eligible for a comparable contribution, employees must respond by the last day of February of the next year. Notice provided to all employees annually satisfies this requirement. Notice may be provided electronically.

For every employee who responds by the last day of February, comparable contributions, plus reasonable interest, must be made into their HSAs by April 15. Employers must take into account each month employees were eligible to participate in an HSA. Upshot: Contributions may have to cover the months before employees actually opened their HSAs.

Accelerated Contributions 

The final regs also allow employers to accelerate part or all of their contributions to help employees who have incurred medical expenses that exceed amounts that are currently available to them. Same catch: If contributions are accelerated for one employee, accelerated contributions must be available on an equal and uniform basis to all eligible employees in the same group throughout the year. In addition, you must establish a reasonable, uniform method and standards for accelerating contributions and determining medical expenses.

The final regs also contain a sample notice you can use to fulfill your notification duties. Click here to read the final regs.

 Open Enrollment Is Coming...Have You Done Your Homework Yet? 

Are your health benefits up to snuff? Now is a good time to answer that question, before you plunge headlong into open enrollment. Here's a look at trends in employer health benefits.

What's Hot 

Wellness programs. Wellness programs give employees incentives to lead healthier lifestyles by quitting smoking, losing weight, taking age-appropriate diagnostic tests, and managing chronic conditions/diseases. The newest tool offered by wellness programs are health coaches, whom employees can access in person or on the web. Wellness-program incentives usually include cash, reduced health insurance premiums, gym memberships, and free drugs for specific conditions/diseases. But there are negative incentives, too, and these are beginning to catch on. The most common negative incentive is charging smokers a surcharge on their health benefits. Watch out: Charging smokers a surcharge must be accompanied by some sort of quit-smoking program to pass muster under the Health Insurance Portability and Accountability Act.

HSAs and CDHPs. The promise of consumer-driven health plans, or CDHPs, which are paired with health savings accounts (HSAs), is a reduction in employers' health benefits costs. CDHPs/HSAs require employees to assume more of the risk associated with health claims by requiring them to pay more for deductibles and out-of-pocket costs. However, unless CDHPs/HSAs are substituted for employees' current indemnity plan, preferred provider organization (PPO), or other health plan option, other employers' experiences with CDHPs/HSAs show that employees won't sign on because they're unwilling to buy into the risk shifting involved with these plans. Therefore, a good plan design is essential, if CDHPs/HSAs will be offered as an option to employees. Good plan designs have these features.

• HSAs are marketed to employees as a way to save for future health expenses, including retiree health expenses.
• Employers should contribute into employees' HSAs.
• Out-of-pocket maximums are generally in the same ballpark for indemnity/PPO and CDHP/HSA plans, but employees contribute significantly less if they pick CDHPs/HSAs.
• Employees who complete health questionnaires can have their CDHP/HSA contributions waived for a month.
• The CDHP picks up 100% of the cost of annual physicals (including routine vaccinations and flu shots), OBGYN care, and age-appropriate diagnostic tests.

Drug benefits. Rising prescription drug costs is a major factor behind the increase in benefits costs. Carving out your drug benefit from your health plan and sending it to a pharmacy benefit management (PBM) company can save money in three ways — PBMs offer volume discounts; you won't be paying for drugs most employees never use; and employees are more likely to switch to generic drugs. Other cost-saving opportunities include a mail-order option; co-insurance; and a three-tiered co-pay structure with generic drugs the cheapest, formulary drugs in the middle tier, and non-formulary, brand-name drugs the most expensive.

More (better) communication tools. When few changes were made to the benefits offered, open enrollment was a snap for employees. Not anymore. Employers have been punching up their online tools to help employees during the open enrollment season and throughout the year. Tools also help employees choose benefits that are age- and lifestyle-appropriate.

 Ask The Experts    

Q. In relation to the new rules for wellness programs, must we also subsidize healthy employees' gym memberships?

A. You're referring to the final regulations under the Health Insurance Portability and Accountability Act. If you're planning on offering employees a wellness program that rewards them just for participating, such as subsidizing gym memberships, it would seem that you must open the program to all who want to participate, current gym-goers or not. The company's bottom line is the same — healthy employees mean lower premiums.