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Posts Tagged ‘Department of Labor’

Don’t Get Bitten… Are You In Compliance With DOL’s COBRA Continuation Coverage Election Notice?

Posted on: August 21st, 2018

By: Pamela Everett

The United States District Court for the Middle District of Florida has certified a class action suit against Marriott International, Inc. for allegations that it failed to provide required notices of eligible terminated employees’ right to continued health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).  The law suit was filed by Alina Vazquez, individually and on behalf of all others similarly situated, who alleges violations of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by COBRA.  The Plaintiff asserted that after her termination as a covered employee and participant in Marriott’s health plan she was not provided with adequate notice of her rights to continued coverage under COBRA thus causing her to fail to enroll and incur excessive medical bills.

Marriott’s  plan provided medical benefits to employees and their beneficiaries, and is an employee welfare benefit plan within the meaning of 29 U.S.C. § 1002(1) and a group health plan within the meaning of 29 U.S.C. § 1167(1).  COBRA requires the plan sponsor of each group health plan normally employing more than 20 employees on a typical business day during the preceding year to provide each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event to elect, within the election period, continuation coverage under the plan.  This notice must be in accordance with the regulations prescribed by the Secretary of Labor. To facilitate compliance with these notice obligations, the Department of Labor (“DOL”) has issued a Model COBRA Continuation Coverage Election Notice which is included in the Appendix to 29 C.F.R. § 2590.606-4.

Plaintiff alleged that, “Marriott authored and disseminated a notice that was not appropriately completed, deviating from the model form in violation of COBRA’s requirements, which failed to provide Plaintiff notice of all required coverage information and hindered Plaintiff’s ability to obtain continuation coverage”.  The  Model Notice also requires that notice shall be written in a manner calculated to be understood by the average plan participant.   Specifically, in her suit the Plaintiff asserted that Marriott’s Notice violated the following requirements:

a. The Notice violates 29 C.F.R. § 2590.606-4(b)(4)(i) because it fails to provide the name, address and telephone number of the party responsible under the plan for the administration of continuation coverage benefits. Nowhere in the notice provided to Plaintiff is any party or entity clearly and unambiguously identified as the Plan Administrator.

b. The Notice violates 29 C.F.R. § 2590.606-4(b)(4)(iv) because it fails to provide all required explanatory information. There is no explanation that a legal guardian may elect continuation coverage on behalf of a minor child, or a minor child who may later become a qualified beneficiary.

c. The Notice violates 29 C.F.R. § 2590.606-4(b)(4)(vi) because it fails to provide an explanation of the consequences of failing to elect or waiving continuation coverage, including an explanation that a qualified beneficiary’s decision whether to elect continuation coverage will affect the future rights of qualified beneficiaries to portability of group health coverage, guaranteed access to individual health coverage, and special enrollment under part 7 of title I of the Act, with a reference to where a qualified beneficiary may obtain additional information about such rights; and a description of the plan’s procedures for revoking a waiver of the right to continuation coverage before the date by which the election must be made.”

In her certification of the class, U.S. District Judge Mary S. Scriven also rejected Marriott’s argument that Vazquez’s claims were not typical because Vazquez could not understand English, could not  have understood the notice once it had been translated and could not afford COBRA continuation coverage.  Currently there is no requirement that the Notice be provided in any language other than English.  Perhaps this suit will change that requirement in a manner similar to some of the provisions in the Affordable Care Act.

Most importantly, this case highlights the importance of ensuring that your company complies with DOL regulations, and to the extent practicable, utilizes the forms provided.

If you have any questions or would like more information, please contact Pamela Everett at [email protected].

Loss of SEC Commissioners Piwowar and Stein May Wreak Havoc on SEC’s Proposed Fiduciary Regulations

Posted on: June 1st, 2018

By: Ted Peters

On May 7, 2018, Republican SEC Commissioner Michael Piwowar announced that he will resign effective July 7, 2018.  Piwowar’s five-year term expires on June 5, but SEC commissioners are permitted to remain in office for up to 18 months following the end of their term.  Democratic Commissioner Kara Stein’s term expired in 2017 and she too is expected to leave the Commission this year.

Piwowar was admittedly a harsh critic of the U.S. Department of Labor’s fiduciary rule (calling it a “terrible, horrible, no good, very bad” rule), which has since been struck down by the Fifth Circuit Court of Appeal.  He also expressed significant misgivings with the Commission’s April 18, 2018 proposals which attempt to establish standards of conduct for financial advisors.  Despite such concerns, Piwowar wholeheartedly voted in favor of putting the proposals out for public comment lest anyone criticize the SEC for failing to take action.  Stein, however, voted against the proposals, finding them too weak and suggesting they be called “Regulation Status Quo.”

Regardless of their personal views, the loss of Commissioners Piwowar and Stein will undoubtedly put further pressure on the SEC as the agency takes comments on the proposals. On the other hand, the SEC might have an easier go in reaching a compromise with the decision being left to just three commissioners.  In theory, the White House and Senate could quickly take action to replace Piwowar and Stein, as it is customary for the Senate to consider commissioners in pairs (Republican and Democrat).  In the meantime, between the departures of Piwowar and Stein, the SEC will operate with four commissioners including two Democrats, which could lead to deadlocked votes, something for which the SEC is well known.

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOJ Fails to Challenge 5th Circuit Ruling Striking Fiduciary Rule

Posted on: May 3rd, 2018

By: Theodore C. Peters

On March 15, 2018, the Fifth Circuit Court of Appeal stuck down the “fiduciary rule” proposed by the Department of Labor (DOL), which required brokers to act in the best interests of their clients in retirement accounts.  Subsequently, there was much speculation as to whether the Department of Justice (DOJ), acting on behalf of the DOL, would appeal that decision.  The April 30, 2018 deadline for the DOJ to appeal came and went, but …. nothing.  The Fifth Circuit’s ruling, therefore, is slotted to take effect on May 7, 2018.

In late April, AARP and several state attorneys general (including California, New York and Oregon) joined forces in seeking the court’s permission to intervene as defendants in the case, and also sought an en banc hearing before the entire 17-judge circuit. AARP contends that the court’s decision striking down the DOL rule puts Americans’ retirement security at substantial risk, resulting in an “issue of exceptional importance.”  The plaintiffs in the case, opponents of the DOL rule, formally opposed the motions to intervene on April 30.  Counsel for the plaintiffs charged that the “last-minute motions do not come close to justifying their unprecedented bid to intervene…”

On May 2, the Fifth Circuit denied the intervenors’ motions.  The court’s decision looks to be the final nail in the coffin holding the DOL’s fiduciary rule.  Despite this ruling, however, the DOL still has one more card it could play – it can file a petition by June 13 to have the Supreme Court hear the case. Even if the DOL stands quietly by and does nothing, the Supreme Court could conceivably take the case up on its own.

Ultimately, this legal brouhaha focuses attention on the SEC, which is currently taking public comment on newly proposed standards of conduct for brokers and advisors.

If you have questions or would like more information, please contact Ted Peters at [email protected].

SEC Fiduciary Rules Proceeds on Split Vote

Posted on: April 19th, 2018

By: Theodore C. Peters

The Securities and Exchange Commission (“SEC”) conducted a public hearing on April 18, 2018 to address a series of SEC proposals governing securities professionals.  Recall that the Department of Labor previously sought to promulgate a “fiduciary rule” which encountered numerous legal hurdles and ultimately was struck down by the Fifth Circuit.  Concurrently, over the last 11 months, the SEC has been working on its own set of rules to provide the securities industry with more clarity concerning advice standards.  After a two hour hearing, the SEC Commissioners split over whether to proceed with the next step in the rule making process.  Chairman Jay Clayton and Commissioners Michael S. Piwowar, Robert J. Jackson Jr. and Hester M. Peirce voted in favor of the proposals; Commissioner Kara M. Stein vociferously rejected the proposals.

At issue were three proposals: (1) a rule to establish a standard of conduct for broker-dealers and their associated persons when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer; (2) a rule requiring registered broker-dealers and registered investment advisers to provide a brief relationship summary to retail investors; and (3) a formal SEC interpretation of the standard of conduct applicable to investment advisers.  Various SEC staffers introduced each of the proposals with candid remarks, tacitly admitting that there was room for improvement with respect to each component of the proposal package.

The so-called “Regulation Best Interest” would mandate that broker-dealers and their registered representatives who make recommendations to a retail customer act in the best interest of the customer at the time the recommendation is made, without putting the financial or other interest of the broker-dealer ahead of the retail customer.  To comply with this obligation, a broker-dealer would need to do three things: (1) disclose key facts about the relationship (including material conflicts of interest); (2) exercise reasonable diligence/care/skill to i) understand the product, ii) have a reasonable basis to believe that the product is in the customer’s best interest, and iii) have a reasonable basis to believe that a series of transactions is in the customer’s best interest; and (3) establish/maintain/enforce policies and procedures designed to identify and disclose and then mitigate or eliminate material conflicts of interest.

The Form CRS (customer relationship summary) rule would require investment advisers and broker-dealers (and their associated persons) to provide retail investors with a short-form (4 pages maximum) disclosure summary that would identify key differences in the principal types of services offered, the legal standards of conduct that apply to each, applicable fees and conflicts of interest.

In connection with the proposal regarding a Commission interpretation of the standard of conduct for investment advisers, the SEC seeks a Commission-sanctioned interpretation as to the duty owed by an investment adviser to his/her clients.  The proposed interpretation reaffirms, and in some cases clarifies, certain aspects of the fiduciary duty owed by an investment adviser.

Republican Commissioner Michael Piwowar candidly admitted that the failed DOL Fiduciary Rule was “terrible,” “horrible,” and “very bad.”  He expressed greater faith in the SEC proposals, though he said that the proposals could be improved in several respects.  He stated that the proposed Regulation Best Interest represented a “solid building block,” but noted that there was much room for improvement.  As for the proposed Form CRS template, Piwower suggested that it was “as comprehensible as Herman Melville’s Moby Dick.”  Despite having misgivings as to all three proposals, he voted in favor of them.

Democratic Commissioner Robert Jackson, who admitted being an advocate of the DOL Fiduciary Rule, also professed to have concerns over the proposals.  He stated that the standard set forth in Regulation Best Interest was too ambiguous and he feared that such ambiguity would be used by lawyers to defend transgressing brokers.  As for the proposal concerning mitigation of conflicts of interest, Jackson stated that “some conflicts should simply be banned outright.”  Despite his concerns, Jackson stated that he was “reluctantly voting to open the proposals for comment.”

Republican Commissioner Hester Peirce concurred with many of the prior comments concerning clarity (or the lack thereof) of the proposals.  She stated that “disclosure should be the centerpiece of reform,” and that she was in favor of requiring brokers to provide more details in connection with their disclosures of services offered and fees charged. Peirce believes that the proposed Regulation Best Interest was mislabeled, stating that it would be more accurate to call it a “suitability-plus” standard.  Lack of clarity in the proposal leads to increased cost of compliance, Peirce said, and suggests an “impossible standard” to satisfy which could lead to a decline in the number of registered broker-dealers. Commissioner Peirce stated that the proposals were an “excellent start toward reform,” and voted in favor of them.

Democratic Commissioner Kara Stein blasted the proposals as too weak.  She said the Commission had the opportunity to propose meaningful proposals, but failed to do so.  Critically, Stein said the Regulation Best Interest provided broker-dealers with a safe harbor and did nothing to require that they put customers’ interests first.  Noting that the proposed regulation lacked any definition of “best interest,” Stein said the proposal might mislead investors and might as well be called “Regulation Status Quo,” because it simply reaffirms that broker-dealers are required to meet their suitability obligations.  Not surprisingly, Commissioner Stein voted against the proposals.

Chairman Jay Clayton acknowledged his fellow Commissioners’ comments and stated that “much work” was still needed before the proposals could be adopted as final rules.  Calling for a vote, Commissioners Piwower, Jackson, Peirce and Clayton voted in favor; Commission Stein voted against.  With majority approval, the SEC’s rule package will now be submitted for a 90-day public comment period.

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOL To Rescind 2011 Tip-Pooling Regulations

Posted on: December 19th, 2017

By: Timothy J. Holdsworth

In 2011, the U.S. Department of Labor (“DOL”) revised its regulations to support its position that the Fair Labor Standards Act (“FLSA”) requires that tipped employees retain all their tips regardless of whether the employer takes the tip credit for those employees. These regulations have repeatedly been challenged in courts, and circuits have split over their legality. In addition, several states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have enacted legislation requiring employers to pay tipped employees the state minimum wage, effectively abolishing the federal tip credit.

As we predicted, in the wake of this litigation and legislation the DOL has issued a Notice of Proposed Rulemaking (“NPRM”) announcing its intent to reverse these 2011 regulations in part. The DOL now proposes to rescind the portion of the regulations that apply to employers that do not take a tip credit, but instead pay wages of at least the federal minimum wage.

One major effect of this change is that employers would now be able to create tip-pooling arrangements that include employees who do not regularly and customarily receive tips. For example, a restaurant could share tips among both servers and dishwashers. In its NPR, the DOL acknowledges that its proposed changes will allow employers and employees greater flexibility in determining their pay policies and allow employers to reduce wage disparities among all employees that contribute to customers’ experience.

The DOL will be accepting public comments on its proposed changes until February 5, 2018. We will update you once the DOL announces the finalized changes, but we do not expect the DOL to modify the changes significantly (if they decide to do so at all). Until the portions of the regulation are rescinded, employers need to be sure their tip policies comply with the current interpretation of the 2011 regulation in their circuit. Additionally, employers need to comply with any applicable state and local compensation laws and regulations regarding tips and tip-pooling, as they could face liability under those laws regardless of the proposed changes discussed in this blog.

If you have any questions about these changes or would like more information on navigating wage and hour laws, please contact Timothy J. Holdsworth at [email protected].