Client Alert from the Employee Benefits & Executive Compensation Practice

February 4, 2009

Supreme Court Upholds Distribution to Former Spouse Despite Divorce Decree

The United States Supreme Court, in Kennedy v. Plan Administrator for the DuPont Savings and Investment Plan, has ruled that a plan administrator properly distributed 401(k) plan benefits to a decedent participant’s former spouse who had waived her right to receive benefits under the plan because the participant had not changed his written designation of her as the beneficiary.  (In a divorce decree that was not a qualified domestic relations order, the former spouse had waived her interest in the plan benefits.)  This case helps to resolve different conclusions reached by various federal and state courts.  The Supreme Court suggested that a different conclusion might apply to a former spouse’s waiver of ERISA welfare plan benefits.

ERISA requires all pension and 401(k) plans to have written qualified domestic relations order procedures.  Plan sponsors may wish to amend their qualified domestic relations order procedures to explicitly set forth the rule promulgated by the U.S. Supreme Court in this case, and may wish to amend their plan documents as well.  To read a copy of the decision, please click here.

House Passes COBRA Expansion as Part of Economic Stimulus Legislation

The House has approved broad economic stimulus legislation (H.R. 598) that includes an expansion of COBRA coverage in a way that could increase the administrative responsibilities of employers.  The new COBRA measures would:

  • create a taxpayer-funded subsidy paying for 65% of COBRA costs for people who are involuntarily terminated between September 1, 2008, and December 31, 2009, for 12 months or until the former worker is offered new employer coverage; and
  • mandate that employers extend employee-paid COBRA coverage for COBRA-eligible former workers who lose coverage due to termination (or reduction in hours) and have attained age 55 or have 10 years of service until they are eligible for Medicare or secure alternative employer coverage.

For more information click here.

New York State Insurance Department Issues Guidance on Same-Sex Marriage

The New York State Insurance Department has issued Circular Letter No. 27, which advises that insurers licensed to do business in New York must amend their New York policies to recognize same-sex marriages legally performed in other jurisdictions (e.g., Massachusetts, Canada).  New York does not permit same-sex marriages, but other states and some countries do permit such marriages.  The Insurance Department issued Circular Letter No. 27 following earlier decisions by New York courts holding that a same-sex marriage legally performed outside of New York must be recognized as a valid marriage.  Generally, this means that New York employers who offer group health insurance coverage to employees and their spouses under an insured plan must offer the same coverage to the same-sex spouses of eligible employees.

You can view a copy of Circular Letter No. 27 here.

DOL Issues Investment Advice Regulations – Controversy Lurks

The U.S. Department of Labor has recently issued final regulations under ERISA, relating to the provision of investment advice by a fiduciary adviser to participants and beneficiaries in participant directed individual account plans.  The Pension Protection Act of 2006 added a new statutory exemption for these investment advice arrangements and the regulations provide much needed guidance on the application of the exemption.  Published in the Federal Register with an effective date of March 23, 2009, the regulations are not without controversy.  The regulations were finalized on January 16, 2009, but were not published in the Federal Register until January 21, 2009.  On January 20, President Obama issued a memorandum suspending the effective date of any unpublished regulation.  Further, two U.S. congressmen have threatened to block the guidance.  Accordingly, we expect additional information regarding the effective date of the regulations to be coming soon.

In the meantime, the regulations can be found here.

Funding Relief in Sight for Defined Benefit Plan Sponsors

In one of its final acts of 2008, Congress passed the Worker, Retiree and Employer Recovery Act of 2008 (Act) to lessen the pain of declining asset values in defined benefit plans faced with the target funding mandates of the Pension Protection Act of 2006.  Pursuant to section 121 of the Act, plan sponsors will be able to take advantage of “asset smoothing” to lessen the impact of the 2008 market volatility on their 2009 funding requirements.  Also, under section 202 of the Act, plan sponsors who fail to meet the Pension Protection Act’s funding target may be able to avoid the Pension Protection Act’s increased contribution requirements.

You may view a copy of the Act here