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16th National Forum on ERISA Litigation

DOL Regulations Affecting ERISA Litigation and Insights on the Future of ERISA in the Trump Era

November 15th – 16th, 2018

José M. Jara Partner and ERISA Practice Group Leader CKR Law, LLP

Catalina J. Vergara Partner O’Melveny & Meyers LLP

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Agenda

General Landscape • DOL activity and priorities

Rules, Rules, Rules! • Disability Claims Procedure Rule • Association Health Plans Rule • Fiduciary Rule

On the Horizon…

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DOL PrioritiesStatement of R. Alexander AcostaBefore the House Committee on Education and the Workforce November 15, 2017

“President Trump and I are committed to rolling back regulations that unnecessarily eliminate jobs, inhibit job creation, are unnecessary, or impose costs that exceed benefits. The Department is actively engaged in carrying out the directives in President Trump’s regulatory reform Executive Orders.”

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DOL Priorities

Reglatory Updates • Most of the energy of the political appointees has been focused in this area

• Consumed by AHP rule, then retirement version • Spent a long time dealing with fiduciary rule

Enforcement • This has been left to career employees

• No clear signals re: enforcement priorities • Lost participants, abandoned plans, ESOPs remain a focus

• Pace of investigations remains relatively strong

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EBSA Enforcement Stats

Total Amount Recovered

Amount Recovered from Enforcement Actions

Amount Recovered from Informal Complaint Resolution

2017 $1.1B $682.3M $418.7M

2016 $777.5M $352M $394.2M

2015 $696.3M $265.3M $402.9M

2014 $599.7M $204.9M $365.2M

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EBSA Enforcement Stats

Civil Investigations Closed

Cases Referred for Litigation

Civil Suits Filed

2017 1,707 134 50

2016 2,002 144 62

2015 2,441 136 89

2014 3,928 161 107

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Lack of GuidanceLost Participants • July 25, 2018 Letter from ERISA

Industry Committee to Assistant Secretary of Labor Preston Rutledge

• “Employers engage in a multitude of search practices to locate so-called ‘missing’ participants without official guidance from federal agencies on the exact processes they should utilize”

• Request: “Official guidance is needed in providing greater certainty to employers in the operation of their retirement plan and in supporting their ability to locate former employees”

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Lack of GuidanceESOP Enforcement • October 1, 2018 Letter from 27

members of Congress to the President • DOL “has released very little guidance

on substantive issues including, for example, valuation” – resulting in “regulation through litigation”

• “The Department has also employed counter-productive enforcement tactics, including taking inconsistent positions on legal issues”

• Request: Collaborate with ESOP Community “to develop clear guidance with respect to valuation and other important issues”

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Disability Claims Procedure Deemed Exhaustive Rule

• Failure to establish or follow claims procedure = exhaustion of administrative remedies and go straight to court

• Claim is deemed denied without exercise of discretion by fiduciary

• Exception: de minimis violations • Not causing or likely to cause prejudice to claimant; • Violation occurred for good cause or matters beyond control of

plan; and • Ongoing good faith exchange of information bet. Plan and P.

• Exception to the exception: Pattern or practice of violations • Request a Written Explanation

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AHP Rule

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AHP Rule

• President Trump Executive Order 13813 “Promoting Healthcare Choice and Competition Across the United States”

• High quality care @ affordable prices • Expand commonalty of interest requirements

• AHP – ERISA covered group health plan sponsored by a group or association of employers. It’s a group health plan and a multiple employer welfare arrangement (MEWA).

• DOL test: • AHP is a bona fide organization with business/organizational

purposes • Employers share a commonality and genuinely organizational

relationship • Seeking some form employment-based relationship

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AHP Rule

• Definition of Employer under Section 3(5) of ERISA – Association Health Plan, 83 Fed. Reg. 28912 (June 21, 2018)

• Expansive as to who? Small business owners, employees of small businesses, family members of working owners and employees, sole proprietors.

• GEOGRAPHIC TEST: common state, city, county, or metropolitan area across State lines.

• Potential Benefits • More coverage options • Affordable pricing • Enhance ability to self-insure • Reduced administrative costs

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AHP Rule

• Safeguards • Same consumer and anti-discrimination protections that apply to large

ERs • Can’t charge increased premiums or deny coverage due to pre-

exisiting conditions • Can’t cancel coverage because employee gets ill • Can’t cherry pick or discriminate based on health or prior conditions • Can’t charge different premiums to employee based on health status • Can’t charge ERs different rates based on health status of employees

• Impact • 15M workers for small businesses and sole proprietors • 4M Americans (400,000 who otherwise would lack insurance) will join

an AHP by 2023

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AHP Rule

• EFFECTIVE DATES • All AHPs fully insured – 9/1/2018 • Existing self-insured AHPs – 1/1/2019 • New self-funded AHPs – 4/1/2019

• ENFORCEMENT – EBSA joint enforcement with the States

• ERISA Welfare Provisions • Reporting/Disclosure, Benefit Claims Administration, COBRA, Part 7,

Fiduciary, Exemptions, VFCP • Special MEWA Enforcement

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AHP Rule

• State of New York, et al. v. US Dept of Labor, et al., D.D.C. (July 2018)

• Circumvent ACA protections • Increase risk of fraud • Jeopardizes States’ efforts for stronger regs • Violates Administrative Procedure Act – contrary to law and arbitrary &

capricious

• Chamber of Commerce, amicus brief in support of DOL’s MTD, or in the alternative cross-motion for SJ and opposition to Plaintiff’s MSJ

• ACA regs drive price of insurance too high small business can’t afford • Small business can now enjoy same benefits as large employers

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Fiduciary Rule

Background • Expanded ERISA’s definition of “investment advice fiduciary” to

cover anyone compensated in connection with a “recommendation as to the advisability of” buying, selling, or managing “investment property.”

• Created a “Best Interest Contract Exemption” to PTs Brief History • Promulgated in April 2016 and put on a fast track for approval • February 2017 – Pres. requested review and delay to June 2017 • Further delays of implementation to July 2019 • March 2018 – Fifth Circuit struck down the rule as exceeding DOL

authority in 2-1 decision

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Fiduciary Rule

Next Steps? "I don't think it's any secret that we're going to make a big effort to try to bring clarity and harmony to the investment adviser, broker-dealer standard of conduct regulation – something that's important to me. It's something that the market needs. I think it's something that regulators need."

-- SEC Chairman Jay Clayton Comments at PLI's “SEC Speaks” in February 2018

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On the Horizon

Items on EBSA Regulatory Agenda Include: • Proposed rule on the definition of “employer” for Association Retirement Plans (retirement counterpart to AHP)

• Interim final rule on the adoption of an amended and restated Voluntary Fiduciary Correction Program (VFCP)

• Continuation of the final rule stage of the fiduciary rule and PT exemptions

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On the Horizon

• President Trump Executive Order “Strengthening Retirement Security in America”

• Noted that in 2017 – 89% larger employers offered retirement plans vs. 53% smaller employers (less than 100 employees)

• Expand criteria from multiple employer plans (MEPs) or Association of Retirement Plans (ARPs) – where different private sector employers can participate in a single retirement plan

• DOL has 6 months to make proposal. Oct 22, 2018 issued proposal.

• PT employees, sole proprietors, etc.

• IRS – min distributions rules – must withdraw at age 70 ½ or get hit penalties and taxes. Consider expanding age to 75.

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José M. Jara CKR Law, LLP New York(212) 259-7338jjara@ckrlaw.com

Catalina J. Vergara O’Melveny & Myers, LLP Los Angeles (213) 430-7828cvergara@omm.com

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