Benefits Monthly Minute

New E-Disclosure Rules on the Horizon | Bit by the COBRA! Notice Defects Bring Painful Sting | Time's Up! Court Strictly Applies ERISA Claim Review Deadlines

New E-Disclosure Rules on the Horizon

On October 22, 2019, the Department of Labor issued proposed rules intended to relax the current (and, in many respects, outdated) electronic disclosure rules. The proposed rules offer additional e-disclosure options and have the potential to save ERISA plans significant time and money. Notably, the proposed rule includes a new, voluntary safe harbor which would allow employers to make retirement plan disclosures via website, subject to certain requirements such as participant notifications and specific website standards. The rule would permit default electronic delivery to valid email addresses, absent an affirmative opt-out. And, for those who still prefer paper access, they will have the right to request paper notices. While the proposed rules do not limit a plan administrator’s use of the existing safe harbor for electronic delivery (or distribution via hand delivery or mail), creating alternate avenues for electronic disclosures is a welcomed change. At this time, the proposed safe harbor does not apply to welfare benefit plans, but we will continue to monitor these new rules for any changes in scope or content.

Bit by the COBRA! Notice Defects Bring Painful Sting

This year, we have seen a string of COBRA class actions seeking monetary penalties on account of defective COBRA notices. Most recently, in Hicks v. Lockheed Martin, the spouse of a former employee alleged various technical defects in Lockheed’s COBRA notice. Although on its face it appeared to include a good deal of required information, the Lockheed notice allegedly failed to state the COBRA coverage termination date, failed to provide an address to which payment should be sent, and failed to sufficiently identify the plan administrator. And, without this information, the notice allegedly failed to be written in a manner calculated to be understood by the average plan participant, as required by regulations. As a result, Lockheed agreed to a $1.25 million settlement “solely to purchase peace.” And, earlier this year, defective COBRA notices also resulted in a $386,000 settlement to end a proposed class action against Firstfleet Inc. Although the DOL offers a model COBRA notice, many employers and COBRA administrators choose to tailor their notices. Whether you follow the model or create your own, be sure to review your plan’s COBRA notice and verify that all of the required regulatory content is included.

Time's Up! Court Strictly Applies ERISA Claim Review Deadlines

The Seventh Circuit recently issued a stern warning about the importance of strict compliance with ERISA claim review timeframes in holding that the “substantial compliance” standard “does not apply to blown deadlines.” In this case, Fessenden v. Reliance Standard Life Ins. Co. (7th Cir. 2019), the disability plan administrator issued a decision on review about eight days after the time prescribed by ERISA. In the short time period after the ERISA deadline expired and before the decision on review was rendered, the claimant filed suit as he was deemed to have exhausted his administrative remedies. Had the plan administrator’s decision been timely, the court would have applied a deferential standard of review. However, the court rejected the plan administrator’s argument that a deferential standard still applied in light of its “substantial compliance” with ERISA’s deadlines. Rather, the Seventh Circuit found that “[w]hen a plan administrator commits a procedural violation … it loses the benefit of deference and a de novo standard applies.” Although this holding is not universally adopted throughout the federal circuit courts, it is a stark reminder that a late final decision may affect more than the timing of a lawsuit, it may also impact the standard of review.

KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation.  Please consult with counsel of your choice regarding any specific questions you may have.

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