On August 30, 2010, the U.S. Department of Labor’s Employee Benefits Security Administration (”EBSA”) published a proposed rule in the Federal Register that would update and clarify exemption procedures for ERISA’s prohibited transactions provisions.

ERISA generally prohibits plan fiduciaries from causing their plans to engage in certain transactions that could potentially lead to conflicts of interest or self-dealing. However, Congress has provided certain limited exceptions to ensure that this prohibition does not prevent plans from engaging in harmless customary business practices, including loans to plan participants, payment of reasonable compensation for services necessary for the operation of the plan, loans to employee stock ownership plans, and routine deposits of plan funds in certain financial institutions.

Additionally, the current rules provide that the Secretary of Labor may grant administrative exemptions on an individual or class basis if the Secretary or her delegate finds that such an exemption is administratively practical and would benefit the plan and protect the interests of its participants and beneficiaries. The recently proposed rule would streamline and modernize the process for granting such administrative exemptions, by consolidating the procedures for exemptive relief in a single, comprehensive final regulation, and clarifying the types of information and documentation generally required for an exemption filing. It further aims to improve transparency for plan participants and other interested parties, while removing outdated disclosure requirements.

The proposed rule also accounts for technological developments which have arisen since the establishment of the original procedures in 1990. This includes providing for electronic filing and the use of email for certain required submissions.

The deadline for public comments is October 14.

On July 15, 2010, the Employee Benefits Security Administration (”EBSA”) of the U.S. Department of Labor announced an interim final rule governing disclosure of conflicts of interest and fees to 401(k) and retirement plan fiduciaries. The rule will assist fiduciaries in determining both the reasonableness of compensation paid to plan service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement.

The interim final rule implements ERISA, Section 408(b)(2) and requires disclosure of direct and indirect compensation received by 401(k) and pension plan service providers receiving or expecting to receive $1,000 or more for fiduciary and investment services. The interim final rule applies to service providers receiving such compensation in connection with investment advisory services for specified 401(k) and pension plans, brokerage or recordkeeping services related to such plans, and indirect compensation received in providing other related services. Additionally, the interim final rules include a class exemption from ERISA’s prohibited transaction provisions for plan fiduciaries entering into service contracts without knowledge of non-compliance by service providers.

The interim final rule is a result of collaboration between House and Senate legislators, who highlighted the risks of nondisclosure and offered improvements, and the Department of Labor.

The interim final rule was published in the Federal Register on July 16, 2010 at 29 C.F.R. Part 2550 and the final rule will be effective within one year of publication. The Department of Labor is accepting public comments through August 30, 2010.

On February 26, 2010, the Department of Labor published a final rule that will allow the Employee Benefit Security Administration (EBSA) to impose a civil penalty of up to $1,100 per day on multiemployer plans in endangered or critical funding status that fail to adopt funding improvement plans. The rule takes effect on March 29, 2010 for plan years beginning on or after January 1, 2008. No changes were made from the proposed rule.

In assessing a penalty, DOL will consider the willfulness and severity of the violation. The department will notify the multiemployer plan sponsor of the penalty and give the reasons for the penalty. The department may then waive the penalty, if the plan is able to demonstrate compliance or mitigating circumstances to explain noncompliance. The plan sponsor may also request an administrative hearing to contest the penalty. The rule clarifies that liability is joint and several among the trustees, regardless of their role in the violation.

On December 7, 2009, the Department of Labor’s Employee Benefits Security Administration (”EBSA”) published its semi-annual regulatory agenda for regulations selected to be reviewed or developed over the next twelve months. Included in the agenda are the following significant regulatory items in the final rule and proposed rule stages. While EBSA has published a schedule for these items, the published dates are tentative and subject to change.

Regulations in Final Rule Stage

In December 2009, EBSA intends to issue a final rule clarifying the prohibited transaction exemption created by the Pension Protection Act of 2006. EBSA previously sought written comments and suggestions concerning this rule. The exemption would allow investment advice provided under an “eligible investment advice arrangement” to be provided to participants or beneficiaries of certain individual account plans. As defined in section 408(g)(2) of the Employee Retirement Income Security Act (ERISA), an “eligible investment advice arrangement” covers arrangements under which advisor fees do not vary with the selection of differing investment options, or under which investment options are selected on the basis of statutorily-compliant computer models. The final rule would provide additional guidance as to what types of computer models are satisfactory and would require the Secretary of Labor to create a model fee-disclosure form. EBSA also indicated in its semi-annual regulatory agenda that it plans on issuing a notice of proposed rulemaking in February 2010, which would narrow the scope of the prohibited transaction exemption as initially proposed by the Bush Administration.

On January 5, 2010, the comment period for the interim final rule implementing anti-genetic discrimination in covered group premiums under the Genetic Information Nondiscrimination Act (GINA) will end. The interim final rule was adopted in October 2009 and became effective on December 7, 2009. GINA prohibits group health plans and health insurers from denying coverage or charging higher premiums to an individual based on a genetic predisposition towards developing certain diseases and disorders. The rule provides, among other things, guidance regarding the prohibition on plans and issuers from requesting or requiring genetic testing, as well as the prohibition on the collection of genetic information. In addition to the formal prohibition of genetic-based discrimination, the rule establishes civil penalties under ERISA.

In January 2010, EBSA intends to issue final rules establishing a safe harbor period of seven days during which money withheld by employers or paid by participants for contribution to a plan would not be considered “plan assets” under Title I of ERISA or the related provisions of the Internal Revenue Code. Because plan assets are subject to fiduciary duties and other obligations, the amendment seeks to provide greater certainty to plan sponsors and fiduciaries, as well as plan participants, as to whether particular participant contributions held by an employer constitute plan assets. 

In April 2010, EBSA plans on issuing an interim final rule concerning the implementation of the Mental Health Parity and Addiction Act of 2008. That act requires that annual or lifetime dollar limits on mental health benefits be no lower than medical or surgical benefits offered under a group health plan. In response to an April 2008 Request for Information, EBSA received over 400 comments raising concerns over compliance with these parity provisions. Accordingly, EBSA anticipates issuing an interim final rule that will provide regulatory guidance regarding these provisions. 

In April 2010, EBSA plans to issue a final rule requiring that multiemployer plan administrators provide plan participants, beneficiaries, representatives, or contributing employers copies of written documents relating to the plan’s funding and financial condition within 30 days of receiving a written request. This final rule implements the new plan disclosure requirements set forth in the Pension Protection Act of 2006. EBSA intends to publish a separate regulation at a later date establishing civil penalties under section 502(c)(4) of ERISA for noncompliance with this provision.

In September 2010, EBSA plans to issue final rules implementing portions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and subsequent related legislation, including the Children’s Health Insurance Program Reauthorization Act of 2009.

In September 2010, EBSA plans to issue a final rule clarifying what information must be provided to plan participants and beneficiaries to allow them to make informed investment decisions. The rule may amend regulations governing ERISA section 404(c) plans. According to EBSA, the rule will specifically cover the disclosure of information concerning plan fees and expenses.

Regulations in Proposed Rule Stage

In June 2010, EBSA plans to issue a notice of proposed rulemaking intended to bring the definition of “fiduciary” in line with the current practices of plan managers, individual plan participants, and investment advisors. Under ERISA’s regulatory definition, a “fiduciary” administers plans by controlling plan operations, selecting service providers and managing plan assets. The rule would amend the definition of “fiduciary” at 29 C.F.R. § 2510.3-21(c) to include individuals rendering investment advice for a fee, as set forth under section 3(21) of ERISA. EBSA is issuing this rule in response to concerns that the current definition of “fiduciary” may inappropriately limit the types of investment advice that trigger fiduciary duties on the part of investment advisors.

In August 2010, EBSA intends to issue a notice of proposed rulemaking that would satisfy requirements of the Pension Protection Act of 2006 by requiring administrators of defined benefit plans to provide annual funding notices to pension plan beneficiaries and participants. Further, in September 2010, EBSA intends to issue a notice of proposed rulemaking that would satisfy requirements of the Pension Protection Act of 2006 by requiring ERISA-covered plans to provide individual pension benefit statements to plan participants and beneficiaries at designated intervals. Under the proposed rule, the designated intervals would differ with the type of account plan.  Individual account plans providing for individual direction would be required to provide quarterly statements, individual account plans not permitting individual direction would be required to provide annual statements, and defined benefits plans would be required to provide statements every three years.

By voice vote on July 10, 2009, the Senate approved the nomination of Phyllis C. Borzi to lead the Employee Benefits Security Administration (”EBSA”).  Borzi will serve as assistant secretary of labor for employee benefits security for the Department of Labor.

Borzi, who was of counsel with the Washington D.C. law firm O’Donoghue & O’Donoghue LLP, has extensive experience on ERISA and employee benefit matters. She previously worked as Pension and Employee Benefits Counsel for the Subcommittee on Labor-Management Relations of the Committee on Education and Labor in the U.S. House of Representatives and served on a number of health care and employee benefit-related advisory boards.

Her nomination was announced by President Obama on March 25, 2009.

On July 8, 2009, the Senate Health, Education, Labor, and Pension Committee, by voice vote, approved to nomination of Phyllis C. Borzi to head the Employee Benefits Security Administration (”EBSA”).  Her nomination now heads to the full Senate for final approval.

Borzi is currently of counsel with O’Donoghue & O’Donoghue LLP in Washington, D.C., where her practice focuses on ERISA and employee benefits. She previously worked as Pension and Employee Benefits Counsel for the Subcommittee on Labor-Management Relations of the Committee on Education and Labor in the U.S. House of Representatives and served on a number of health care and employee benefit-related advisory boards.

On March 25, 2009, President Obama nominated her to serve as assistant secretary of labor for employee benefits security in EBSA, a DOL subdivision.

On April 27, 2009, President Barack Obama nominated Phyllis C. Borzi as Assistant Secretary of Labor for the Employee Benefits Security Administration. EBSA is responsible for developing policies and regulations regarding pension, health, and other employee benefit plans as well as providing compliance assistance for these policies and regulations.

Borzi currently serves as a research professor in the Department of Health Policy, School of Public Health and Health Services, The George Washington Medical Center where she focuses on employee benefit plans, the uninsured, managed care, and legal barriers to developing health information technology. She also serves as of counsel with O’Donoghue & O’Donoghue where she specializes in ERISA and discrimination matters.

Prior to this role, Borzi served as pension and benefit counsel for the U.S. House of Representatives, Subcommittee on Labor-Management Relations of the Committee on Education and Labor for 16 years. Borzi has also served in numerous positions dealing with employee benefit plans, workers’ compensation, and insurance reform, including as a member on the Presidential Task Force on Health Care Reform in 1993.

President Obama first announced Borzi’s intended nomination on March 25, 2009.

On March 25, 2009, President Obama nominated Washington D.C. attorney Phyllis C. Borzi to serve as assistant secretary of labor for employee benefits security in the Employee Benefit Security Administration, a subdivision of the Department of Labor.

Borzi’s practice focuses on ERISA and employee benefits and is currently of counsel with the law firm of O’Donoghue & O’Donoghue LLP in Washington, D.C. She is also on the faculty of the Department of Health Policy in the George Washington University Medical Center’s School of Public Health and Health Services, conducting legal research and policy analysis in the area of employee benefits.

A graduate of Syracuse University and Catholic University Law School, Borzi worked as Pension and Employee Benefits Counsel from 1979 to 1995 for the Subcommittee on Labor-Management Relations of the Committee on Education and Labor in the U.S. House of Representatives. She has served on a number of health care and employee benefit-related advisory boards, including then-First Lady Hillary Rodham Clinton’s Presidential Task Force on Health Care Reform in 1993, and, in recent years, the Advisory Committee of the Pension Benefit Guaranty Corporation.

On January 2, 2009, the Employee Benefits Security Administration (EBSA) published a final rule which authorizes the Secretary of Labor to assess civil penalties of up to $1,000 per day for failures to disclose certain documents to participants, beneficiaries, and others as required by the Employee Retirement Income Security Act (ERISA), as amended by the Pension Protection Act (PPA) in 2006. The new rule, which becomes effective on March 3, 2009, will be codified at 29 C.F.R. § 2560. 

ERISA sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. Under ERISA, plans must provide participants with plan information including important information about plan features and funding.  The PPA set forth several new disclosure requirements, including: (1) plan administrators of single-employer defined benefit pension plans must provide written notice of limitations on benefits and benefit accruals to participants and beneficiaries within 30 days of a plan becoming subject to ERISA; (2) plan administrators of multiemployer pension plans must, upon written request, furnish certain documents to any plan participant, beneficiary, employee representative, or any employer that has an obligation to contribute to the plan; (3) a plan sponsor or plan administrator of multiemployer employee benefit plans must, upon written request, furnish to any employer with an obligation to contribute to such plan, notice of potential withdrawal liability; and (4) the plan administrator of a plan with an automatic contribution arrangement shall provide to each participant, to whom the arrangement applies, notice of the participant’s rights and obligations under such arrangement. The new civil damages provision will apply to any violation of these disclosure requirements.

On October 7, 2008, the Employee Benefits Security Administration (EBSA) released two final rules related to the selection of annuity providers.

The first rule limits the application of the “safest available” standard of Interpretive Bulletin 95-1 to defined benefit plans. Bulletin 95-1 states that plan fiduciaries must attempt to obtain the safest annuity available, unless it would be in the best interest of the participants and beneficiaries to do otherwise.  The Bulletin initially applied equally to both defined benefit plans and defined contribution plans. The final rule limits the scope of the bulletin to only defined benefit plans. 

The second rule establishes a safe harbor for the selection of annuity providers for benefit distributions from individual account plans. The proposed rule stated that fiduciaries should engage in an objective, thorough, and analytical search when identifying annuity providers, while avoiding self-dealing, conflicts of interest, or other improper influence.  The final rule clarified the proposed rule by noting (a) that the regulation does not establish a minimum requirement for satisfying the responsibilities of selecting an annuity provider; and (b) an independent expert is not required in all cases.