JOHN T

JOHN T. CHEEK, CPA

Update on Benefit Plans- September 2002

09/06/02

Serious Consideration Standard Applies. Good news: multiemployer plans do not face a lower threshold for disclosure of benefit improvements that are under consideration. A plan administrator breaches his fiduciary duty if he responds to a participant’s inquiry by representing he is not considering a change (i.e., improvement, such as a benefit increase, early retirement options, etc.) to a pension plan when, in fact, he is giving "serious consideration" to a change. In Mushalla v. Teamsters Local 863 Pension Fund, several retirees argued that the serious consideration standard is needed in a single employer plan, to "strike a balance between an employee’s right to information and an employer’s right to operate the business", but that a lower standard should apply to multiemployer plans because the tension between benefits and profits does not exist here. The Third Circuit decision (download pdf) rejects a different standard for multiemployer plans, explores differences between single and multiemployer plans, and discusses what constitutes serious consideration.

The Sarbanes-Oxley Act prohibits an issuer from making or arranging personal loans to executives. Result: the NY Times reports that billions of dollars in split-dollar life insurance policies are in jeopardy, because the company payment of premiums, which are eventually reimbursed, could be considered an interest-free loan. Unless and until Congress or the SEC acts to exempt these policies from the SOA loan ban, lawyers are advising clients to withhold further premium payments. Also stopped cold by SOA: cashless exercise of stock options, and there’s a possibility that loans from the Company’s 401(k) plan would violate the new law. The best advice, for now, is do nothing, and wait for further guidance.

HIPAA Privacy Rules Amendment: Eliminates requirement for patient’s formal consent for provider to use or disclose health information for treatment, payment, or health care operations. Instead, provider must present patient with notice of privacy practices, and make reasonable attempt to obtain patient’s acknowledgment of receipt. Clarifies that incidental disclosures, such as two doctors discussing a case in the hallway, would not necessarily violate HIPAA. Streamlines procedures to authorize research use of health information. Defines a new concept- "limited data sets," which can be used for certain purposes. And, establishes a transition period for bringing contracts into compliance with HIPAA business associate rules: until 4/14/04 or, if earlier, date of renewal after 4/14/03.

Recent DOL Advisory Opinions at cpaSpan.com

2002-07A: rejects attempt by two related single employer plans to become a multiemployer plan, based on the substantial business purpose test and the four factors described at § 2510.3-37.

2002-08A: Can service provider contracts include indemnification and hold-harmless provisions, or would those provisions violate ERISA’s fiduciary responsibilities?

To audit ERISA benefit plans, extensive experience and training are absolutely necessary.

As a fiduciary, you should not accept anything less.

I have 25 years experience with ERISA audits.

To talk about your 5500 audit, call me at 585-226-2621.

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