The latest wave of recent fiduciary liability settlement orders, judgments and prosecutions of business owners, executives, board members, and other business leaders of distressed companies over the past year document the potential personal businesses and their leaders may face if their health, 401(k) or other employee benefit programs are not appropriately funded and administered as required by the Employee Retirement Income Security Act of 1974, as amended (ERISA). 

While the U.S. Department of Labor Employee Benefit Security Administration (EBSA) long has aggressively pursued fiduciary responsibility enforcement actions against distressed or bankrupt companies and their officers, directors and other executives for their alleged involvement in the mishandling of their business’ medical, 401(k) or other pension and other employee benefit programs, the ongoing economic downturn has fueled a sharp increase in these EBSA enforcement activities.  

EBSA enforcement actions during 2009 continue to highlight the longstanding and ongoing policy of aggressive investigation and enforcement of alleged misconduct by companies, company officials, and service providers in connection with the maintenance; administration and funding of ERISA-regulated employee benefit plans. A review of the Labor Department’s enforcement record makes clear that where the Labor Department perceives that a plan sponsor or its management fails to take appropriate steps to protect plan participants, the Labor Department will aggressively pursue enforcement regardless of the size of the plan sponsor or its plan, or the business hardships that the plan sponsor may be facing.

EBSA reports enforcing $1.3 billion in recoveries related to pension, 401(k), health and other benefits during fiscal year 2009. EBSA has filed numerous lawsuits to compel distressed companies and/or members of their management to pay restitution or other damages for alleged breaches of ERISA fiduciary duties, to appoint independent fiduciaries, or both for plans sponsored by bankrupt or financially distressed companies.

Recent settlements and judgments obtained by the Labor Department and through private litigation document that officers and other members of management participating, or possessing authority to influence, the handling of heath, 401(k) and other pension, or other employee benefit plans regulated by ERISA may be exposed to personal liability if these benefit programs are not maintained and administered appropriately. This risk is particularly grave when the sponsoring company becomes financially distressed or goes bankrupt, as the handling of employee benefit and other responsibilities becomes particularly disrupted and the lack of company liquidity often leaves executives and service providers as the only or best source of recovery for government officials and private plaintiffs.

In the December 2, 2009 decision in Solis v. Struthers Industries Inc., for instance, a federal district judge ordered business leader Jomey B. Ethridge liable to pay $303,084.61 to restore assets belonging to the 401(k) plan of bankrupt Struthers Industries in an ERISA fiduciary responsibility action filed by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA). Filed by the EBSA in the U.S. District Court for the Southern District of Mississippi, the Struthers Industries lawsuit alleged that Ethridge and Struthers Industries allowed employee contributions to be used for purposes other than providing benefits resulting in losses of $310,084.57.  According to court documents, Struthers Industries designed and built heat transfer and pressure vessels at its Gulfport facility. In 2001, its 401(k) plan had 278 participants and assets totaling $8,279,083. The company filed for bankruptcy in 2003, and its assets were auctioned off in 2005. An independent fiduciary was appointed by the court in 2007 to manage the plan’s assets.  The ordered Ethridge personally to pay $303,084.61 in restitution to the plan for his involvement in the mishandling of the plan’s assets. The order also bars Ethridge from acting as a benefit plan fiduciary in the future.

The Struthers Industries decision comes on the heels of EBSA’s success in Solis v. T.E. Corcoran Co. Inc. last month in recovering more than $89,000 from business owners and operators found to have breached fiduciary duties to the participants of the T.E. Corcoran Co. Inc. Profit Sharing Plan by improperly loaning plan assets to he plan sponsor and an affiliated company. The Labor Department sued T.E. Corcoran Co. and its owners, John F. Corcoran and Thomas E. Corcoran Jr., alleging that the company and its owners caused the plan to lend money to the two companies at below market interest rates, without terms of payment and without documentation in violation of ERISA. The suit filed in the U.S. District Court for the District of Massachusetts, also named as a defendant Coran Development Co. Inc., a company co-owned by the Corcorans.  T.E. Corcoran Co. Inc. was the sponsor and administrator of the plan, while John and Thomas Corcoran were trustees of the plan, making all three fiduciaries and parties in interest with respect to the plan. ERISA specifically prohibits the use of employee benefit plan funds to benefit parties in interest.

The Corcoran judgment requires that the plan account balances of defendants John F. Corcoran and Thomas E. Corcoran Jr. be offset in the amount of $89,273 plus interest to be allocated to the accounts of the other plan participants. The offset will make whole all of the accounts of the non-trustee participants. In addition, the court order appoints an independent trustee to oversee the final distribution of the plan’s assets and the proper termination of the plan, requires the defendants to cooperate fully with the independent trustee in this process, and then prohibits them from serving as fiduciaries to any ERISA-covered plan for 10 years.

A complex maze of ERISA, tax and other rules make the establishment, administration and termination of employee benefit plans a complicated matter. When the company sponsoring a plan goes bankrupt or becomes distressed, the rules, as well as the circumstances can make the administration of these responsibilities a powder keg of liability for all involved. Companies and other individuals that in name or in function possess or exercise discretionary responsibility or authority over the maintenance, administration or funding of employee benefit plans regulated by ERISA frequently are found to be accountable for complying with the high standards required by ERISA for carrying out these duties based on their functional ability to exercise discretion over these matters, whether or not they have been named as fiduciaries formally.

Despite these well-document fiduciary exposures and a well-established pattern of enforcement by the Labor Department and private plaintiffs, many companies and their business leaders fail to appreciate the responsibilities and liabilities associated with the establishment and administration of employee benefit plans. Frequently, companies sponsoring their employee benefit plans and their executives mistakenly assume that they can rely upon vendors and advisors to ensure that their programs are appropriately established the establishment and maintenance of these arrangements with limited review or oversight by the sponsoring company or its management team.

In other instances, businesses and their leaders do not realize that the functional definition that ERISA uses to determine fiduciary status means that individuals participating in discretionary decisions relating to the employee benefit plan, as well as the plan sponsor, may bear liability under many commonly occurring situations if appropriate care is not exercised to protect participants or beneficiaries in these plans.

For this reason, businesses providing employee benefits to employees or dependents, as well as members of management participating in, or having responsibility to oversee or influence decisions concerning the establishment, maintenance, funding, and administration of their organization’s employee benefit programs need a clear understanding of their responsibilities with respect to such programs, the steps that they should take to demonstrate their fulfillment of these responsibilities, and their other options for preventing or mitigating their otherwise applicable fiduciary risks.

If your business needs assistance with distressed or bankruptcy company, defined benefit plan funding or other employee benefit, human resources, corporate ethics, and compliance practices, or other related concerns or in responding to restructuring and bankruptcy, employment or employee benefits related charges, audits, investigations or suits, please contact the author of this  article, attorney Cynthia Marcotte Stamer.

Ms. Stamer is experienced with assisting employers, fiduciaries, bankruptcy creditors and trustees, investors, purchasers and others about employee benefit, labor and employment, compensation and other services related concerns involved with distressed businesses or benefit plans, bankruptcy and restructuring transactions and other corporate or plan related events. Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization and Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group and a Joint Committee on Employee Benefit Council Member, Ms. Stamer has advised and represented these and other business clients on employee benefit, labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 22 years. Her experience includes significant experience representing and advising clients about the planning, implementation, risk management and defense of reductions in force and other labor and employment, employee benefits, compensation, insurance, compliance and other concerns affecting transactions involving bankrupt or distressed corporations. Ms. Stamer also speaks and writes extensively on these and other related matters. Among her many publications are her recent November, 2009 publication, Calculation of Minimum Contributions Required For Single Employer Pension Plans: The Final Rules for The Measurement of Assets and Liabilities For Pension Funding Purposes under Final Treasury Regulation Section 1.430(d)” and A Proactive Approach To Hr And Benefits Planning For Mergers, Acquisitions, Downsizing, Reengineering And Other Organizational Changes.” Persons interested in a copy of either of these publications may contact Ms. Stamer. For additional information about Ms. Stamer and her experience see CynthiaStamer.com.

We hope that this information is useful to you.  Solutions Law Press offers a variety of updates, publications, training and other resources to assist its businesses and their leaders meet their legal and operational challenges.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please register at SolutionsLawPress.com

©2009 Solutions Law Press.  All rights reserved.

Where a distressed business contemplates a plant closing or mass layoff, the business and its leaders should consider its potential responsibilities under the Worker Adjustment and Retraining Notification Act (WARN) and where applicable, make appropriate arrangements to comply or implement the restructuring to minimize or avoid triggering WARN obligations.   In addition to WARN, business contemplating or implementing a plan closing, mass layoff or other reductions in force also should evaluate and make appropriate arrangements to address potential obligations under state plant closing laws, the medical coverage continuation mandates of the Consolidated Omnibus Budget Reconciliation Act (COBRA),  retirement plan funding, notice and distribution, vesting or other obligations, for unionized environments, union notification, negotiation or other obligations, voluntary or contractually obligated termination pay or other severance obligations, unemployment, and other obligations. In this respect, particular attention generally is warranted to ensure that vesting and funding requirements for employee benefit plans are assessed and fulfilled, including any new or accelerated obligations to vesting if the reductions result in a partial or complete plan termination, cause underfunding of a defined benefit plans, special tax, securities or other obligations arising from the vesting of payment of deferred compensation under Internal Revenue Code § 409, golden parachute payments under Code §280G or other special compensation or benefits, as well as providing for appropriate application of employee benefit contributions withheld from pay., or otherwise.  Employers and members of management also will want to ensure that any employee contributions withheld from final pay are timely paid into trust or otherwise properly applied and that appropriate funding arrangements are put in place to meet employee benefit responsibilities, particularly since executives and others exercising discretion over these matters often become the targets of government or private plaintiff fiduciary liability claims when their distressed corporation fails to make appropriate arrangements.  Read more.

Noncompliance with  or mismanagement of these responsibilities not only can trigger expensive liabilities for businesses, they often expose commonly controlled or affiliated businesses, successors, officers, directors and management employees to risks.  For instance, various tax and benefit rules frequently provide that other related businesses, acquiring entities and other businesses may under certain situations become liable as successors, expose assets to liens, or face other risks.  Similarly, employment, employee benefit and tax laws under various circumstances may expose officers, directors or other leaders with discretion or control over certain decisions or activities to person liability when certain employee benefit, payroll or other responsibilities are not met.  To minimize these exposures, businesses and their business leaders concerned about a distressed business or anticipating the bankruptcy, merger, acquisition or sale of a business should seek the advise of competent counsel about these potential exposures and opportunities to mitigate these risks.

If your business needs assistance with distressed or bankruptcy company, defined benefit plan funding or other employee benefit, human resources, corporate ethics, and compliance practices, or other related concerns or in responding to restructuring and bankruptcy, employment or employee benefits related charges, audits, investigations or suits, please contact the author of this update, attorney Cynthia Marcotte Stamer here.

Ms. Stamer is experienced with assisting employers, fiduciaries, bankruptcy creditors and trustees, investors, purchasers and others about employee benefit, labor and employment, compensation and other services related concerns involved with distressed businesses or benefit plans, bankruptcy and restructuring transactions and other corporate or plan related events. Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization and Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group and a Joint Committee on Employee Benefit Council Member, Ms. Stamer has advised and represented these and other business clients on employee benefit, labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 22 years. Her experience includes significant experience representing and advising clients about the planning, implementation, risk management and defense of reductions in force and other labor and employment, employee benefits, compensation, insurance, compliance and other concerns affecting transactions involving bankrupt or distressed corporations. Ms. Stamer also speaks and writes extensively on these and other related matters. Among her many publications are her recent November, 2009 publication, Calculation of Minimum Contributions Required For Single Employer Pension Plans: The Final Rules for The Measurement of Assets and Liabilities For Pension Funding Purposes under Final Treasury Regulation Section 1.430(d)” and A Proactive Approach To Hr And Benefits Planning For Mergers, Acquisitions, Downsizing, Reengineering And Other Organizational Changes.” Persons interested in a copy of either of these publications may contact Ms. Stamer. For additional information about Ms. Stamer and her experience see CynthiaStamer.com.

We hope that this information is useful to you.  Solutions Law Press offers a variety of updates, publications, training and other resources to assist its businesses and their leaders meet their legal and operational challenges.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please register at Businesses leaders struggling to deal with economic setbacks frequently may be tempted to use employee benefit plan contributions or funds for added liquidity or otherwise fail to take appropriate steps to protect and timely deposit plan contributions or other plan assets.  A long and ever-mounting series of decisions demonstrates the risks that distressed businesses, their officers, directors and other employees fail to make appropriate arrangements for the proper fulfillment of employee benefit plan related obligations.

©2011 Solutions Law Press.  All rights reserved.

Employers, insurers and administrators again must move quickly to deal with newly enacted changes to the premium subsidy requirements temporarily applicable to the medical coverage continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).

The extension and other changes to the COBRA premium subsidy requirements became immediately effective yesterday (March 2, 2010) when President Obama signed the Temporary Extension Act of 2010 (H.R. 4691). H.R. 4691 both extends unemployment benefits through April 5, 2010 and extends and expands the availability of the COBRA subsidy program originally established under the American Recovery and Reinvestment Act (ARRA).

Over the past several days, H.R. 4691 has drawn great media attention when its enactment was delayed by a filibuster by Kentucky Senator Jim Bunning.  As media coverage of the Bunning filibuster focused almost exclusively on its unemployment benefit extension provisions, many U.S. employers and others are unaware of its provisions extending and expanding the COBRA premium subsidy mandates and authorizing higher pay for Medicare doctors and funding for federal highway programs. President Obama signed H.R. 4691 into law just hours after Senator Bunning ended his filibuster.

COBRA Premium Subsidy Extended & New Penalties Added

Group health plans and their sponsoring employers face added responsibilities under the COBRA subsidy amendments adopted under H.R. 4691.

The COBRA subsidy rules originally were added to COBRA’s medical coverage continuation requirements by the American Recovery and Reinvestment Act of 2009 (“AARA”) last February.  Originally, an employee or dependent was required, among other things, to have experienced a loss of coverage as a result of an involuntary termination occurring between September 1, 2008 and December 31, 2009 to qualify for coverage under the COBRA premium subsidy rules as “assistance eligible individual for up to 9 months.  In subsequently enacted legislation, however, Congress extended the involuntary termination period through February 28, 2010 and lengthened the maximum premium COBRA subsidy period to 15 months.  For more details, see here. H.R. 4691 now further extends and expands these COBRA premium subsidy rules.

H.R. 4691’s COBRA provisions both extend the period that an involuntary termination can qualify an employee or dependent for the COBRA premium subsidy, the employment losses that can qualify as an eligible involuntary termination, and the potential liability that can result from noncompliance.  Specifically, H.R. 4691 among other things:

• Extends through March 31, 2010 the period within which an involuntary employment loss resulting in a loss of health coverage can qualify an employee or his dependent for the 15-month 65 percent COBRA premium subsidy. Before H.R. 4691, the involuntary termination period was scheduled to end February 28, 2010.  Now, the involuntary termination period runs from September 1, 2009 through March 31, 2010;
• Amends the COBRA subsidy program to clarify that an employee that first experiences a loss of group health plan coverage due to a reduction in hours before subsequently being terminated qualifies as an employee  involuntarily terminated for purposes of determining his eligibility for the COBRA premium subsidy;
• Details rules and procedures that group health plans and employers or others charged with administration of the COBRA premium subsidy rules must follow to notify affected individuals about and administer the new or expanded COBRA premium subsidy rights added by H.R. 4691;

In addition to these extensions to the COBRA premium subsidy requirements, H.R. 4691 also expands the exposures that plan sponsors and health insurers violating these requirements can face.  H.R. 4691 provides that in addition to civil actions that already authorized for violations of COBRA:

• “[T]he appropriate Secretary” or an affected individual can bring a civil suit for declaratory or other appropriate relief; and
• The appropriate Secretary” can assess a penalty against a plan sponsor or health insurance issuer of up to $110 per day for each failure to comply with a determination of the Secretary within 10 days after receipt of the determination.

To minimize their COBRA rights under the amended COBRA premium subsidy rules, group health plans, their employer or union sponsors, administrators, insurers and service providers will need to act quickly to prepare and provider required updated notifications to assistance eligible individuals of these extended eligibility periods and their resulting rights, and otherwise update their plan documents, procedures, and COBRA notifications in light of these new rules. 

Other Health Plan Updates Also Required

The COBRA premium subsidy changes in H.R. 4691 are only part of the ever-growing list of federal mandates that group health plan sponsors, fiduciaries, insurers, administrators and service providers need to be concerned about.  Health plans, their sponsors, administrators, fiduciaries, insurers, business associates and other service providers face a host of other new federal health plan and privacy mandates that have taken effect over the past year, will become subject to additional mandates in upcoming months and face expanded penalty and other liability exposures.  Consequently, beyond the COBRA premium subsidy updates required by yesterday’s amendments, health plans, their employer or other sponsors, insurers, fiduciaries, administrators and service providers also should not overlook the need to review and update their health plans in response to a host of other changes in federal health plan mandates.

In addition to otherwise applicable civil damage awards and civil penalty exposures that can result from violations of these requirements, new Internal Revenue Service regulations that took effect January 1, 2010 also require that employers, health plans or others self-report violations of certain of these requirements and self assess and pay resulting excise taxes arising under the Internal Revenue Code.  See, e.g., COBRA, HIPAA, GINA, Mental Health Parity or Other Group Health Plan Rule Violations Trigger New Excise Tax Self-Assessment & Reporting Obligations. 

The highly volatile health plan regulatory environment makes it likely that many health plans are not appropriately updated to comply with these and other federal requirements. In recent months, health plans, their employer or other sponsors, administrators and others also have become obligated to comply with a host of other expanded federal health plan rules and requirements. See e.g., New Mental Health Parity Regulations Require Health Plan Review & Updates; New Labor Department Rule Allows Employers 7 Days To Deliver Employee Contributions To Employee Benefit Plans; Newly Extended COBRA Subsidy Rules Require Employers, Administrators Send Required Notices & Update Health Plan Documents & Procedures Quickly;  Employer & Other Health Plans & Other HIPAA-Covered Entities & Their Business Associates Must Comply With New HHS Health Information Data Breach Rules By September 23.

These and other developments make it imperative that health plans, their sponsors, administrators, insurers, fiduciaries and service providers get serious about complying with these and other federal health plan mandates, to tighten their credentialing, selection, oversight and contracts with administrators and vendors, and take other prudent steps to manage health plan related risks.

For Added Information or Assistance

If you need assistance dealing with these new COBRA or unemployment responsibilities, or addressing other employment, employee benefits, compensation or related concerns, please consider contacting the author of this update, attorney Cynthia Marcotte Stamer at (469) 767-8872.

Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, Ms. Stamer has extensive experience advising and representing management about these and other labor and employment, employee benefits, compensation and other related management matters.  The current Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group, a council member of the ABA Joint Committee on Employee Benefits  and the former Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer works extensively with employer and other health plan sponsors and fiduciaries, insurers, third party administrators and others to design, document, administer and defend group and other health plan designs in light of COBRA and other federal and state regulations.  A nationally recognized author and lecturer, Ms. Stamer is the author of the “Health Plan Eligibility Toolkit” and many other highly regarded publications and workshops on COBRA and other health plan mandates.  She speaks and writes extensively on these and other related matters.

To seek the assistance of Ms. Stamer with these or other matters or to make arrangements for her to present a workshop or other training, contact Ms. Stamer directly.   For additional information about the experience and services of Ms. Stamer see here or contact Ms. Stamer directly. 

Other Information & Resources

We hope that this information is useful to you. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here  or registering to receive these updates using the register link for this update.  For important information concerning this communication read the Terms of Use & Privacy Policy.

©2010 Solutions Law Press.  All rights reserved.

Founded in 1975, SouthWest Benefits is a regional, non-profit association designed to foster relationships and support the educational growth of professionals in employee benefits through an annual schedule of professional educational conferences and workshops. As part of these activities, the SWBA is scheduled to host its 35th Annual Conference on May 12th-14th at the Westin Riverwalk in San Antonio.  For information about these and other SWBA, see here.

For Added Information or Assistance

If you need assistance dealing with these new COBRA or unemployment responsibilities, or addressing other employment, employee benefits, compensation or related concerns, please consider contacting the author of this update, attorney Cynthia Marcotte Stamer at (469) 767-8872.

Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, Ms. Stamer has extensive experience advising and representing management about these and other labor and employment, employee benefits, compensation and other related management matters.  The current Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group, a council member of the ABA Joint Committee on Employee Benefits  and the former Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer works extensively with employer and other health plan sponsors and fiduciaries, insurers, third party administrators and others to design, document, administer and defend group and other health plan designs in light of COBRA and other federal and state regulations.  A nationally recognized author and lecturer, Ms. Stamer is the author of the “Health Plan Eligibility Toolkit” and many other highly regarded publications and workshops on COBRA and other health plan mandates.  She speaks and writes extensively on these and other related matters.

To seek the assistance of Ms. Stamer with these or other matters or to make arrangements for her to present a workshop or other training, contact Ms. Stamer directly.   For additional information about the experience and services of Ms. Stamer see here or contact Ms. Stamer directly. 

Other Information & Resources

We hope that this information is useful to you. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here  or registering to receive these updates using the register link for this update.  For important information concerning this communication read the Terms of Use & Privacy Policy.

©2010 Solutions Law Press.  All rights reserved

Today (February 17, 2010), employer and other health plans and health insurers (“covered entities”) and service providers performing functions on behalf of these entities (“business associates”) must begin complying with tighter federal requirements for the use, access, protection and disclosure of protected health information under Privacy & Security Standards of the Health Insurance Portability & Accountability Act (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH Act). The implementation of these HIPAA Privacy Rule changes come as health plans, their sponsors, administrators, fiduciaries, insurers, business associates and other service providers face a host of other new federal privacy and other mandates affecting group health plans and their sponsors, fiduciaries and administrators.   Coupled with continuing health benefit costs, these and other expanding federal regulations affecting employment-based health plans, their sponsors, fiduciaries and administrators are making appropriate health plan cost and compliance management a key priority for U.S. businesses.

HIPAA Privacy Rule Changes Require Prompt Attention

The HIPAA Privacy Rule changes scheduled to take effect February 17, 2010 are likely to require that health plans and their business associates update their written policies, operational procedures, privacy notices and business associate agreements in several respects.

While the HITECH Act gave covered entities and business associates a year to complete the necessary arrangements to comply with these impending HITECH Act changes, many health plans and business associates have not completed the necessary arrangements despite expanding liability exposures that can result from noncompliance. To mitigate these exposures, covered entities and their business associates should act quickly both to update their services agreements, plans and policies, practices, and procedures, and to implement the training, oversight, and other management procedures necessary to comply with the HITECH Act changes and to mitigate other HIPAA risks.

The risks of noncompliance for health plans, business associates and others mishandling protected health information are real and growing.  In addition to exposures to civil and criminal sanctions, health plans or business associates violating HIPAA also can face HIPAA civil suits brought by state attorneys general and must provide breach notification under new mandates imposed by the HITECH Act.  State courts also increasingly are permitting individuals harmed by HIPAA violations to use HIPAA as the foundation of state law duties used to maintain state negligence, invasion of privacy, retaliation or other claims for damages. Read more here. 

Other Health Plan Updates Also Required

While focusing on HIPAA compliance, health plans, their employer or other sponsors, insurers, fiduciaries, administrators and service providers also should not overlook the need to review and update their health plans in response to a host of other changes in federal health plan mandates.

In addition to otherwise applicable civil damage awards and civil penalty exposures that can result from violations of these requirements, new Internal Revenue Service regulations that took effect January 1, 2010 also require that employers, health plans or others self-report violations of certain of these requirements and self assess and pay resulting excise taxes arising under the Internal Revenue Code.  See, e.g., COBRA, HIPAA, GINA, Mental Health Parity or Other Group Health Plan Rule Violations Trigger New Excise Tax Self-Assessment & Reporting Obligations. 

The highly volatile health plan regulatory environment makes it likely that many health plans are not appropriately updated to comply with these and other federal requirements. In recent months, health plans, their employer or other sponsors, administrators and others also have become obligated to comply with a host of other expanded federal health plan rules and requirements. See e.g., New Mental Health Parity Regulations Require Health Plan Review & Updates; New Labor Department Rule Allows Employers 7 Days To Deliver Employee Contributions To Employee Benefit Plans; Newly Extended COBRA Subsidy Rules Require Employers, Administrators Send Required Notices & Update Health Plan Documents & Procedures Quickly;  Employer & Other Health Plans & Other HIPAA-Covered Entities & Their Business Associates Must Comply With New HHS Health Information Data Breach Rules By September 23.

These and other developments make it imperative that health plans, their sponsors, administrators, insurers, fiduciaries and service providers get serious about complying with these and other federal health plan mandates, to tighten their credentialing, selection, oversight and contracts with administrators and vendors, and take other prudent steps to manage health plan related risks.

If your organization need advice or assistance in reviewing, updating, administering or defending its HIPAA or other health plan policies or practices or other assistance with auditing, updating or defending its employee benefits, human resources, corporate ethics, and compliance practices, or responding to employment related or other charges or suits, please contact the author of this update, attorney Cynthia Marcotte Stamer.

A widely published author and speaker on HIPAA and other employee benefit and human resources related matters, Ms. Stamer has extensive experience advising health plans, their employer and other sponsors, health insurers, TPAs and other business associates and others about HIPAA and other health plan and privacy matters. Currently serving as both Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and as an ABA Joint Committee on Employee Benefits Council representative and Former Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer has more than 23 years experience assisting employers, insurers, plan administrators and fiduciaries and others to design, implement, draft and administer health and other employee benefit plans and to defend audits, litigation or other disputes by private parties, the IRS, Department of Labor, Office of Civil Rights, Medicare, state insurance regulators and other federal and state regulators. A nationally recognized author and lecturer, Ms. Stamer also speaks and writes extensively on these and other related matters. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly via e-mail to cstamer@solutionslawyer.net. 

Other Information & Resources

We hope that this information is useful to you. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here.

For important information concerning this communication read the Terms & Conditions and Privacy Policy.

©2010  Solutions Law Press.  All rights reserved.

Today (February 17, 2010), employer and other health plans and health insurers (“covered entities”) and service providers performing functions on behalf of these entities (“business associates”) must begin complying  meet tighter federal requirements for the use, access, protection and disclosure of protected health information under Privacy & Security Standards of the Health Insurance Portability & Accountability Act (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH Act). The implementation of these HIPAA Privacy Rule changes come as health plans, their sponsors, administrators, fiduciaries, insurers, business associates and other service providers face a host of other new federal health plan and privacy mandates. 

HIPAA Privacy Rule Changes Require Prompt Attention

The HIPAA Privacy Rule changes scheduled to take effect February 17, 2010 are likely to require that health plans and their business associates update their written policies, operational procedures, privacy notices and business associate agreements in several respects.

While the HITECH Act gave covered entities and business associates a year to complete the necessary arrangements to comply with these impending HITECH Act changes, many health plans and business associates have not completed the necessary arrangements despite expanding liability exposures that can result from noncompliance. To mitigate these exposures, covered entities and their business associates should act quickly both to update their services agreements, plans and policies, practices, and procedures, and to implement the training, oversight, and other management procedures necessary to comply with the HITECH Act changes and to mitigate other HIPAA risks.

The risks of noncompliance for health plans, business associates and others mishandling protected health information are real and growing.  In addition to exposures to civil and criminal sanctions, health plans or business associates violating HIPAA also can face HIPAA civil suits brought by state attorneys general and must provide breach notification under new mandates imposed by the HITECH Act.  State courts also increasingly are permitting individuals harmed by HIPAA violations to use HIPAA as the foundation of state law duties used to maintain state negligence, invasion of privacy, retaliation or other claims for damages. Read more here. 

Other Health Plan Updates Also Required

While focusing on HIPAA compliance, health plans, their employer or other sponsors, insurers, fiduciaries, administrators and service providers also should not overlook the need to review and update their health plans in response to a host of other changes in federal health plan mandates.

In addition to otherwise applicable civil damage awards and civil penalty exposures that can result from violations of these requirements, new Internal Revenue Service regulations that took effect January 1, 2010 also require that employers, health plans or others self-report violations of certain of these requirements and self assess and pay resulting excise taxes arising under the Internal Revenue Code.  See, e.g., COBRA, HIPAA, GINA, Mental Health Parity or Other Group Health Plan Rule Violations Trigger New Excise Tax Self-Assessment & Reporting Obligations. 

The highly volatile health plan regulatory environment makes it likely that many health plans are not appropriately updated to comply with these and other federal requirements. In recent months, health plans, their employer or other sponsors, administrators and others also have become obligated to comply with a host of other expanded federal health plan rules and requirements. See e.g., New Mental Health Parity Regulations Require Health Plan Review & Updates; New Labor Department Rule Allows Employers 7 Days To Deliver Employee Contributions To Employee Benefit Plans; Newly Extended COBRA Subsidy Rules Require Employers, Administrators Send Required Notices & Update Health Plan Documents & Procedures Quickly;  Employer & Other Health Plans & Other HIPAA-Covered Entities & Their Business Associates Must Comply With New HHS Health Information Data Breach Rules By September 23.

These and other developments make it imperative that health plans, their sponsors, administrators, insurers, fiduciaries and service providers get serious about complying with these and other federal health plan mandates, to tighten their credentialing, selection, oversight and contracts with administrators and vendors, and take other prudent steps to manage health plan related risks.

If your organization need advice or assistance in reviewing, updating, administering or defending its HIPAA or other health plan policies or practices or other assistance with auditing, updating or defending its employee benefits, human resources, corporate ethics, and compliance practices, or responding to employment related or other charges or suits, please contact attorney Cynthia Marcotte Stamer at cstamer@solutionslawyer.net.

A widely published author and speaker on HIPAA and other employee benefit and human resources related matters, Ms. Stamer has extensive experience advising health plans, their employer and other sponsors, health insurers, TPAs and other business associates and others about HIPAA and other health plan and privacy matters. Currently serving as both Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and as an ABA Joint Committee on Employee Benefits Council representative and Former Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer has more than 23 years experience assisting employers, insurers, plan administrators and fiduciaries and others to design, implement, draft and administer health and other employee benefit plans and to defend audits, litigation or other disputes by private parties, the IRS, Department of Labor, Office of Civil Rights, Medicare, state insurance regulators and other federal and state regulators. A nationally recognized author and lecturer, Ms. Stamer also speaks and writes extensively on these and other related matters. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly.   

Other Information & Resources

We hope that this information is useful to you. Solutions Law Press offers a variety of publications, training and other resources to assist businesses and their leaders manage legal and operational risks.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile at SolutionsLawPress.com. For important information concerning this communication read the Terms & Conditions & Privacy Policy.

©2010  Solutions Law Press.  All rights reserved.

The COBRA Subsidy Rules originally were added to the group health plan medical coverage continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) by the American Recovery and Reinvestment Act of 2009 (“AARA”) last February.

H.R. 3326 extended the period that employer and union-sponsored group health plans must allow employees and members of their family that lose group health plan coverage due to an involuntary employment loss to continue their group medical coverage under the reduced premium and other temporary ARRA COBRA Subsidy Rules and lengthened the period during which an involuntary employment loss can qualify an otherwise COBRA-eligible employee or dependent as an assistance eligible individual.  Health plan administrators must provide notifications to assistance eligible individuals and restore COBRA eligibility and coverage at reduced premiums for certain assistance eligible individuals who allowed their coverage to lapse before the extension. 

Original COBRA Subsidy Rules

The COBRA Subsidy and other medical coverage continuation rules of the Consolidated Omnibus Budget Reconciliation Act of 1985 as amended (COBRA”) generally impact employee health plans maintained by businesses that alone, or with other commonly controlled or affiliated businesses had more than 19 employees during the current or preceding year, including those in bankruptcy.  Since COBRA’s successor liability rules sometimes impose successor liability on commonly controlled or affiliated businesses as well as businesses that purchase the stock or substantially all of the assets of a business with a COBRA-covered health plan, businesses that acquiring all of the stock or substantially all of the assets of a business that provided group health plan coverage before the acquisition also should evaluate whether they or their group health plan owes any COBRA responsibilities to former employees of the seller and their dependents under the COBRA Subsidy or other COBRA rules in addition to confirming their own COBRA compliance.

COBRA generally mandates that group health plans offer continuation coverage in accordance with COBRA to an employee or dependent whose coverage ends because of a reduction in hours, employment termination or certain other events.  Historically, group health plans have been able to charge up to 102 percent of the cost to the business of this coverage.  As originally enacted last February, however, the ARRA COBRA Subsidy Rules limited the COBRA premium that a COBRA-covered group health plan could charge a COBRA-eligible employee or dependent whose group health plan eligibility ended due to an involuntary employment loss between September 1, 2008 and December 31, 2009 (“assistance eligible individual”) to 35% of the otherwise applicable COBRA premium (the “Reduced ARRA Premium”) for a period of up to 9 months (the “Subsidy Period”).  ARRA dictated that employers sponsoring these group health plans must pay the remaining 65% of the COBRA premium (the “COBRA Subsidy”) for the assistance eligible individual during the Subsidy Period, but allowed employers to seek reimbursement by claiming a payroll tax credit for these COBRA Subsidy payments by complying with applicable IRS procedures.  AARA also mandated that group health plans offering a choice of coverage options offer assistance eligible individuals the option to switch coverage options and required group health plans to notify assistance eligible individuals of the special COBRA Subsidy Rules.

New H.R. 3326 COBRA Subsidy Rules Extension

H.R. 3326 amended the original COBRA Subsidy Rules effective immediately.  It:

• Extends the period during which an involuntary employment loss can qualify an otherwise COBRA-eligible employee or dependent as an assistance eligible individual for an additional two months (from December 31, 2009 to February 28, 2010);
• Adds an additional 6 months (from 9 to 15 months) to the Subsidy Period during which an assistance eligible individual experiencing an involuntary loss of employment between September 1, 2008 and February 28, 2010 is entitled to pay the Reduced AARA Premium;
• Requires group health plans to notify assistance eligible individuals of the extension; and
• Requires group health plans to allow additional time for assistance eligible individuals who had exhausted their original 9-month Subsidy Period before H.R. 3326 extended the Subsidy Period to 15 months to pay the Reduced AARA Premium related to the extension.

Quick Action Required To Comply With Notification Mandates

Group health plans, their employer or union sponsors, administrators, insurers and service providers will need to act quickly to prepare and provider required updated notifications to assistance eligible individuals of these extended eligibility periods and their resulting rights,  and otherwise update their plan documents, procedures, and COBRA notifications in light of these new rules.  H.R. 3326 requires that group health plan administrators provide written notice about the changes made to the premium reduction provisions of ARRA individuals who have already been provided a COBRA election notice (unless the election notice included the updated premium reduction information).  H.R. 3326 mandates that required notices be provided no later than the following fast-approaching deadlines:

• Individuals who are “assistance eligible individuals” must be provided this notice by February 17, 2010;
• Individuals who experience a termination of employment on or after October 31, 2009 and lose health coverage must be provided this notice within the normal timeframes for providing continuation coverage notices; and
• Individuals who are in a “transition period” (a period that begins immediately after the end of the nine months of premium reduction in effect under ARRA before the amendments made by H.R. 3326, as long as those nine months ended before December 19, 2009 and the premium reduction provisions of H.R. 3326 would apply due to the extension from nine to 15 months) must be provided this notice within 60 days of the first day of the transition period.

While these are the maximum allowed periods for providing notice, employers and health plans generally will benefit by providing required notifications and making plan and procedural updates well before these notification deadlines to minimize the continued expansion of the number of assistance eligible individuals to whom special notification and retroactive correction procedures will be needed.  Additionally, delay in notification of these reinstated and expanded rights extends the period that assistance eligible individual has to elect to exercise these rights.  Accordingly, most employers, administrators and their service providers will want to act quickly to expedite the implementation of required amendments and distribution of required notifications.

If you have questions about or need assistance evaluating, commenting on or responding to these or other employment, health or other employee benefit, workplace health and safety, corporate ethics and compliance or other concerns or claims, please contact the author of this article, Cynthia Marcotte Stamer.  The author of the Health Plan Eligibility Toolkit, Ms. Stamer already has amended group health plans and provided assistance with helping employers, plan administrators, health plans, administrators and insurers to comply with the amendments made by H.R. 3326 as well as the original ARRA COBRA Premium Subsidy mandates and a wide range of other health plan eligibility and other mandates.  She is experienced with assisting employers, insurers, administrators, and others to design and administer group health plans cost-effectively in accordance with COBRA and other applicable federal regulations as well as well as advising and defending employers and others against tax, employment discrimination and other labor and employment, and other related audits, investigations and litigation, charges, audits, claims and investigations by the IRS, Department of Labor and other federal and state regulators.. Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group, a representative to the ABA Joint Committee on Employee Benefits Council, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group and Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, Ms. Stamer has advised and represented employers on these and other labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 22 years. Ms. Stamer also speaks and writes extensively on these and other related matters. For additional information about Ms. Stamer, her services and experience or to access other publications by Ms. Stamer see CynthiaStamer.com or contact Ms. Stamer directly.   For additional information about the experience and services of Ms. Stamer.

For Added Information or Assistance

If you need assistance dealing with these new COBRA or unemployment responsibilities, or addressing other employment, employee benefits, compensation or related concerns, please consider contacting the author of this update, attorney Cynthia Marcotte Stamer at (469) 767-8872.

Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, Ms. Stamer has extensive experience advising and representing management about these and other labor and employment, employee benefits, compensation and other related management matters.  The current Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group, a council member of the ABA Joint Committee on Employee Benefits  and the former Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer works extensively with employer and other health plan sponsors and fiduciaries, insurers, third party administrators and others to design, document, administer and defend group and other health plan designs in light of COBRA and other federal and state regulations.  A nationally recognized author and lecturer, Ms. Stamer is the author of the “Health Plan Eligibility Toolkit” and many other highly regarded publications and workshops on COBRA and other health plan mandates.  She speaks and writes extensively on these and other related matters.

To seek the assistance of Ms. Stamer with these or other matters or to make arrangements for her to present a workshop or other training, contact Ms. Stamer directly.   For additional information about the experience and services of Ms. Stamer see here or contact Ms. Stamer directly. 

Other Information & Resources

Solutions Law Press offers a wide range of training and other resources to assist businesses and their manage to manage human resources and compliance and operational risks.  We hope that this information is useful to you. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here  or registering to receive these updates using the register link for this update.  For important information concerning this communication read the Terms of Use & Privacy Policy.

©2010 Solutions Law Press.  All rights reserved.

Part of the Dallas CPA Society Member Appreciation CPE Series Meeting, Ms. Stamer’s presentation will be part of four hours of free CPE training to be provided at a program open to members only at the Hilton Lincoln Centre Hotel located at 5410 LBJ Freeway, Dallas TX  75240 from 1 p.m. to 4:50 p.m. Central Time.  (Parking at the facility costs $5.00).  To register or for additional information, see here.

Ms. Stamer has significant experience assisting businesses and business leaders to manage and defend privacy, data security, tax employee benefit, employment, health care, environmental, safety, securities and other compliance and risk management concerns.  She has more than 22 years experience helping businesses to use the law, process and technology to manage people and processes, and to manage technology, privacy and data security, employment and other legal and operational risks affecting their businesses.   Author of “Privacy & Securities Standards-A Brief Nutshell,” “Privacy Invasions of Medical Care-An Emerging Perspective,” and “E-Health Business and Transactional Law Other Liability-Tort and Regulatory;” published by The Bureau of National Affairs, Inc., Ms. Stamer has extensive experience advising a accounting firms, law firms, banks and financial services organizations, insurers, consultants, health plans, health care providers and others about HIPAA, FACTA, and other privacy, trade secret and other information security and data breach risk management and compliance concerns.  Ms Stamer also speaks, publishes and provides public policy input extensively on data security, technology and other internal controls and risk management matters.   Chair Elect of the American Bar Association RPTE Employee Benefits & Compensation Committee, an ABA Joint Committee on Employee Benefits  Council member, and Chair of the Curran Tomko Tarski Labor, Employment & Employee Benefits Practice, Ms. Stamer also is Board Certified in Labor & Employment law.  For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly.   

Resources & Other Information

We hope that this information is useful to you.  Solutions Law Press offers a variety of updates, publications, training and other resources to assist its businesses and their leaders meet their legal and operational challenges.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail- by creating or updating your profile at www.SolutionsLawPress.com.

©2010 Solutions Law Press.  All rights reserved

The Department of Defense Appropriations Act (H.R. 3326) signed into law by President Obama on December 19, 2009 extended the period that employer and union-sponsored group health plans must allow employees and members of their family that lose group health plan coverage due to an involuntary employment loss to continue their group medical coverage under the reduced premium and other temporary ARRA COBRA Subsidy Rules and lengthened the period during which an involuntary employment loss can qualify an otherwise COBRA-eligible employee or dependent as an assistance eligible individual.

Original COBRA Subsidy Rules

As originally enacted, the ARRA COBRA Subsidy Rules limited the COBRA premium that a COBRA-covered group health plan could charge a COBRA-eligible employee or dependent whose group health plan eligibility ended due to an involuntary employment loss between September 1, 2008 and December 31, 2009 (“assistance eligible individual”) to 35% of the otherwise applicable COBRA premium (the “Reduced ARRA Premium”) for a period of up to 9 months (the “Subsidy Period”).  ARRA dictated that employers sponsoring these group health plans must pay the remaining 65% of the COBRA premium (the “COBRA Subsidy”) for the assistance eligible individual during the Subsidy Period, but allowed employers to seek reimbursement by claiming a payroll tax credit for these COBRA Subsidy payments by complying with applicable IRS procedures.  AARA also mandated that group health plans offering a choice of coverage options offer assistance eligible individuals the option to switch coverage options and required group health plans to notify assistance eligible individuals of the special COBRA Subsidy Rules.

H.R. 3326 COBRA Subsidy Rules Extension

As signed into law on December 19, 2009, H.R. 3326:

• Extends the period during which an involuntary employment loss can qualify an otherwise COBRA-eligible employee or dependent as an assistance eligible individual for an additional two months (from December 31, 2009 to February 28, 2010);
• Adds an additional 6 months (from 9 to 15 months) to the the Subsidy Period during which an assistance eligible individual experiencing an involuntary loss of employment between September 1, 2008 and February 28, 2010 is entitled to pay the Reduced AARA Premium;
• Requires group health plans to notify assistance eligible individuals of the extension; and
• Requires group health plans to allow additional time for assistance eligible individuals who had exhausted their original 9-month Subsidy Period before H.R. 3326 extended the Subsidy Period to 15 months to pay the Reduced AARA Premium related to the extension.

Group health plans, their employer or union sponsors, administrators, insurers and service providers will need to act quickly to prepare and provider required updated notifications to assistance eligible individuals of these extended eligibility periods and their resulting rights,  and otherwise update their plan documents, procedures, and COBRA notifications in light of these new rules. 

The author of this article, attorney Cynthia Marcotte Stamer is experienced with assisting employers, insurers, administrators, and others to design and administer group health plans cost-effectively in accordance with COBRA and other applicable federal regulations.

The author of the “Health Plan Eligibility Toolkit,” Ms. Stamer has more than 22 years experience helping clients understand and respond to these and other employee benefit and human resources concerns. Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group, a representative to the ABA Joint Committee on Employee Benefits Council, past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group and Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, Ms. Stamer has advised and represented employers on these and other labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 22 years.  She also advises and defends employers, plans, insurers, fiduciaries, administrators and others against ERISA, tax, employment discrimination, wage and other and other labor and employment claims and other related audits, charges, audits, claims and investigations by the IRS, Department of Labor, CMS, HHS, DOJ, insurance regulators and other federal and state regulators.. Ms. Stamer also speaks and writes extensively on these and other related matters. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly at Cstamer@SolutionsLawyer.net.   

Other Helpful Resources & Other Information

We hope that this information is useful to you.  Solutions Law Press offers a variety of updates, publications, training and other resources to assist its businesses and their leaders meet their legal and operational challenges.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your Currant contact information – including your preferred e-mail- by creating or updating your profile at www.SolutionsLawPress.com For important information concerning this communication read the Terms & Conditions and Privacy Policy

©2009 Solutions Law Press.  All rights reserved.

ERISA generally requires that every employee benefit plan fiduciary, as well as every other person who handles funds or other property of a plan (a “plan official”), be bonded if they have some discretionary control over a plan or the assets of a related trust.  While some narrow exceptions are available to this bonding requirement, these exceptions are very narrow and apply only if certain narrow criteria are met.  

Plan sponsors and other plan fiduciaries should take steps to ensure that all of the bonding requirements applicable to their employee benefit plans are met at least annually.  This process should include adopting a written policy requiring bonding and verifying that appropriate bonds are in place for all internal personnel and outside service providers subject to the bonding requirements.  

Steps should be taken to ensure that the required fiduciary bonds are secured in sufficient amounts and scope to meet ERISA’s requirements.  In addition to confirming the existence and amount of the fiduciary bonds, plan sponsors and fiduciaries should confirm that each employee plan for which bonding is required is listed in the bond and that the bond covers all individuals or organizations that ERISA requires to be bonded.  For this purpose, the review should verify the sufficiency and adequacy of bonding in effect for both internal personnel as well as outside service providers.  In the case of internal personnel, the adequacy of the bonds should be reviewed annually to ensure that bond amounts are appropriate.  Unless a service provider provides a legal opinion that adequately demonstrates that an ERISA bonding exemption applies, plan sponsors and fiduciaries also should require that third party service providers provide proof of appropriate bonding as well as to contract to be bonded in accordance with ERISA and other applicable laws, to provide proof of their bonded status or documentation of their exemption, and to provide notice of events that could impact on their bonded status.

When verifying the bonding requirements, it also is a good idea to conduct a criminal background check and other prudent investigation to reconfirm the credentials and suitability of individuals and organizations serving in fiduciary positions or otherwise acting in a capacity covered by ERISA’s bonding requirements.  ERISA generally prohibits individuals convicted of certain crimes from serving, and prohibits plan sponsors, fiduciaries or others from knowingly hiring, retaining, employing or otherwise allowing these convicted individuals during or for the 13-year period after the later of the conviction or the end of imprisonment, to serve as:

• An administrator, fiduciary, officer, trustee,   custodian, counsel, agent, employee, or representative in any   capacity of any employee benefit plan,    
• A consultant or adviser to an employee benefit plan,  including but not limited to any entity whose activities are in  whole or substantial part devoted to providing goods or services  to any employee benefit plan, or
• In any capacity that involves decision-making authority or custody or control of the moneys, funds, assets, or property of any employee benefit plan.

Knowing or intentional violation of this prohibition may expose violating party to fines of up to $10,000, imprisonment for not more than five years, or both.  Even where the violation is not knowing or willful, however, allowing disqualified persons to serve in fiduciary roles can have serious consequences such as exposure to Department of Labor penalties and personal liability for breach of fiduciary duty for damages resulting to the plan if it is established that the retention of services was an imprudent engagement of such an individual that caused the loss.  When conducting such a background check, care should be taken to comply with the applicable notice and consent requirements for conducting third party conducted background checks under the Fair Credit Reporting Act (FCRA) and otherwise applicable law.  As such background investigations generally would be conducted in such a manner as to qualify as a credit check for purposes of the FCRA, conducting background checks in a manner that violates the FCRA credit check requirements itself can be a source of significant liability.

Curran Tomko Tarski LLP Attorneys Can Help

If your organization needs assistance with monitoring, assessing, managing or defending these or other labor and employment, compensation or benefit practices, please contact the author of this article, Curran Tomko Tarski LLP Labor & Employment Practice Group Chair Cynthia Marcotte Stamer at cstamer@cttlegal.com, (214) 270-2402, or another Curran Tomko Tarski LLP attorney of your choice.

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization and Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group and a nationally recognized author and speaker, Ms. Stamer is experienced with advising and assisting employers with these and other labor and employment, employee benefit, compensation, risk management  and internal controls matters.  Ms. Stamer is experienced with assisting employers, fiduciaries, bankruptcy trustees, investors, purchasers and others about defined benefit plan and other employee benefit, labor and employment, compensation and other related concerns involved with distressed businesses or benefit plans, bankruptcy and restructuring transactions and other corporate or plan related events. Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization and Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group and a Joint Committee on Employee Benefit Council Member, Ms. Stamer has advised and represented these and other business clients on employee benefit, labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 20 years.  Her experience includes significant experience representing and advising employee benefit plan sponsors,  fiduciaries, and service providers and their affiliates; investors, creditors, bankruptcy trustees, and others about employee benefit, labor and employment and related services and compensation concerns affecting transactions involving bankrupt or distressed corporations.  Ms. Stamer also speaks and writes extensively on these and other related matters. 

Other Helpful Resources & Information

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here or e-mailing this information here or registering to participate in the distribution of these and other updates here.  You also may be interested in staying abreast of emerging internal controls and compliance challenges by reviewing and registering for our Corporate Compliance, Risk Management & Internal Controls or other updates.  Some recent updates that may be of interest include:

• Rising Defined Benefit Plan Underfunding & Changing Rules Create New Obligations & Risks For Business  
• Stericycle Inc.’s Acquisition Of Medserve Inc. Challenged As Anticompetitive
• House Passes Chemical Facility Anti-Terrorism Bill Requiring “Chemical Facilities” To Implement Complex New HR & Other Safety & Security Mandates
• New GINA Genetic Information Based Employment Discrimination & Confidentiality Mandates Require Updated Employment Poster, Policies & Procedures Now
• Employer H1N1 Risk Management Must Include Management of Employment Liabilities
• Human Resources Hangover Prevention For The 2009 Holiday Season
• OSHA Personal Protective Equipment Standards Changing October 9
• Sept 23 Deadline For Employer & Other Health Plans, Health Care Providers & Other HIPAA-Covered Entities & Business Associates To Comply With New HHS Health Information Data Breach Rules
• Don’t Be a “Rubber Stamp” – Information Concerning the Submission of the Toxic Release Inventory Form
• House Passes Chemical Facility Anti-Terrorism Bill Requiring “Chemical Facilities” To Implement Complex New HR & Other Safety & Security Mandates
• Sept 23 Deadline For Employer & Other Health Plans, Health Care Providers & Other HIPAA-Covered Entities & Business Associates To Comply With New HHS Health Information Data Breach Rules
• Don’t Be a “Rubber Stamp” – Information Concerning the Submission of the Toxic Release Inventory Form
• Tighten Employment, Ethics & Internal Controls Policies & Practices To Minimize DOJ & Other Antitrust Exposures
• $90 Million in Recovery Act Funds to Bolster Water Services in Indian Country and Create Jobs
• U.S. House of Representatives Narrowly Approves American Clean Energy and Securities Act
• IRS Says Home Affordable Modification Program Payments Not Taxable To Homeowners
• FTC, Other Agencies Issue Red Flag Rule FAQ Guidance

For important information concerning this communication click here.  If you do not wish to receive these updates in the future, send an e-mail with the word “Remove” in the Subject to here.

©2009 Curran Tomko Tarski LLP.  All rights reserved.