Client Alert from the Employee Benefits & Executive Compensation Practice

February 19, 2009

DOL and PBGC Issue Guidance Regarding Madoff-Related Losses

The U.S. Department of Labor (DOL) has issued guidance on steps retirement plan fiduciaries should take in connection with potential exposure to losses resulting from investments with Bernard L. Madoff Investment Securities, LLC.  Generally, the DOL directs fiduciaries to: (1) request disclosures from investment managers, fund managers, and other investment intermediaries regarding the plan’s potential exposure to Madoff-related losses; (2) seek advice regarding the likelihood of losses due to investments that may be at risk; (3) make appropriate disclosures to other plan fiduciaries and plan participants and beneficiaries; and (4) consider whether the plan has claims that are reasonably likely to lead to recovery of Madoff-related losses that should be asserted against responsible fiduciaries or the Madoff bankruptcy estate.

The Pension Benefits Guaranty Corporation (PBGC) has issued separate guidance for PBGC-insured single- and multiemployer defined benefit plans that may have significant investment losses as a result of Madoff-related investments.  The PBGC notes that single-employer plans are required to notify the PBGC within 30 days of knowing that losses are sufficient to render the plan unable to pay benefits when due.  Multiemployer plans do not have this obligation, but may need to take other steps.  Plan sponsors should consider making appropriate inquiries regarding its plan investments.

You can view a copy of the DOL notice here and the PBGC guidance here.

Investment Advice Regulation Update

As reported in our last Benefits Alert, the DOL recently issued final regulations under the new prohibited transaction exemption for certain investment advice arrangements.  The final regulations were published in the Federal Register on January 21, 2009 and were not without controversy.  On account of the memorandum issued by President Obama’s Chief of Staff on January 20, 2009, the DOL has now proposed to extend for an additional 60 days the effective date of the regulations and to reopen the regulations for comments.  The new proposed effective date is May 22, 2009.  However, with the reopening of the door for public comment, additional changes (and further delay) may be forthcoming.

Information about the delayed effective date can be viewed here

Reauthorization of SCHIP Program Impacts Health Plans

The new Children’s Health Insurance Program Reauthorization Act of 2009 funds and expands the State Children’s Health Insurance Program (SCHIP).  Beginning April 1, 2009, this new law will impact group health plans as follows:

  • Employer-sponsored coverage for qualified dependents will be partially subsidized by the state with payment through either the employer or directly to the eligible employee
  • Two new “HIPAA Special Enrollment” events have been added.  The first event is termination of Medicaid or SCHIP coverage due to ineligibility.  The second is becoming eligible for premium assistance in the employer’s group health plan under a Medicaid or SCHIP program. Both of these events come with a 60-day notification period.

In addition, the new law adds corresponding notice and disclosure obligations.  However, employers are not required to distribute any notices until the DOL issues model notices, which are due within a year.  Employers will need to amend their health plans and cafeteria plans to incorporate the new enrollment rights by April 1, 2009.

PBGC Issues New Regulations on Disclosure of Termination Information

Plan sponsors and administrators faced with distress terminations of their pension plans must now provide greater disclosure of termination information, including confidential information, to participants, beneficiaries and the PBGC.  Under the PBGC’s new final regulations, plan administrators must provide a copy of the PBGC Form 600 and any additional information submitted to the PBGC within 15 days following receipt of a written request for termination information.  In addition, the PBGC will provide a copy of its administrative record within 15 days of a written request.  While the final regulation provides some protection of confidential information by limiting disclosure of such information to certain authorized representatives, confidential information (such as trade secrets) may only be withheld entirely pursuant to a court order.

You can view a copy of the final regulations here.

DOL Issues Guidance On Trust Company’s Investment in Banking Affiliates

The DOL has concluded that a trust company’s investment of cash of certain bank collective investment funds for which it acted as trustee in specially designed deposit accounts offered by a banking affiliate was exempt from certain prohibited transaction rules in the Internal Revenue Code and under ERISA. The DOL appeared to base its opinion on the representation that: (1) neither the bank nor any of its affiliates received, or will receive, fees or any other compensation as a result of the funds’ investments in the specially designed deposit accounts and (2) the only benefit to the bank as a result of the funds’ investments was the bank’s ability to reduce its borrowing needs, and therefore its interest expenses, as a result of having greater access to capital to meet the bank’s reserve requirements under Federal banking law. The DOL expressed no opinion on whether the deposits were consistent with the trust company’s fiduciary duties as trustee. To read the DOL Opinion Letter, please click here.