LOSGS purpose exclusivelosgs.com/wp-content/uploads/2016/10/89933_LOSGS... · 11 Tibble v. Edison Int’l, No. CV 07-5359SVW(AGRX), 2010 WL 2757153, at *20 (C.D. Cal. July 8, 2010)

The Periodical For Taft-Hartley Trustees | SUMMER 2016

At Leonard O’Brien, we want our clients to be confident that they have the best legal advice – both now and in the future. To provide quality services for many years to come, we are training the next generation of employee benefits attorneys. We are proud to welcome two new associate attorneys to the employee benefits practice group; Paul Shapiro, and Jenny Zhang. Paul’s and Jenny’s practices will focus on assist-ing our group with compliance issues for employee benefit plans. Paul graduated in 2012 from Georgetown University Law Center. Jenny graduated with High Distinc-tion (Order of the Coif) from the University of Nebraska-Lincoln College of Law in 2015, where she served as Executive Editor of the Nebraska Law Review.

This year we will see many challenges facing multiemployer pension plans and their participants as we face the difficult economic reality of a volatile market and aging population. Health care plans likewise will need to be ready to implement and adopt clarifications to their plans. In this issue, we review the role that legal counsel plays in providing guidance to multiemployer plans, MPRA voting regulations, and utilizing a “total cost guarantee” to protect health plans from rising medical costs.

Please feel free to contact us for further information or for help with your benefit plan questions.

Pamela H. Nissen

100 South Fifth StreetSuite 2500Minneapolis, MN 55402

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consider whether a pru-dent trustee in similar cir-cumstances would have acted in reliance on counsel’s advice.4 Reliance is improper if there are significant reasons to doubt the course suggested by counsel.5 Thus, trustees cannot rely on the advice of un-qualified counsel.

ERISA and its associated bodies of law have become increasingly detailed and complex. New and complicated regulations provide the Department of Labor and class-ac-tion attorneys numerous “gotcha” opportunities. In this rapidly evolving and often ambiguous legal landscape, trustees have no choice but to rely on the advice of coun-sel. But, unless fund counsel specializes in ERISA com-pliance, the fund’s trustee may not enjoy the limitation on liability associated with proper reliance on counsel. Trustees should ensure that their counsel is experienced with ERISA and supported by attorneys who are expert in the many associated bodies of law, such as healthcare and investment law.

II. Provide your attorney with complete, accurate and up-to-date information.Advice of counsel can only be as good as the information on which it is based. Often a trustee may not know what information counsel needs to provide appropriate advice, and counsel may not know if vital information is missing. For instance, in one case, a court denied a reliance on ad-vice of counsel defense because the advice was based on an out-of-date version of the plan document.6 There was no evidence that the trustee intentionally withheld informa-

RELIANCE ON THE ADVICE OF COUNSEL: A Practical GuideBy Michael T. Joliat

ERISA fiduciaries are held to the highest standard of conduct under the law – the prudent expert standard. Under the pru-dent expert standard, an ERISA fiduciary’s decisions are judged against the decision of a prudent person who is familiar with making that type of decision. For instance, a fiduciary’s invest-ment decision is compared to the decision a career investment manager would make under the same circumstances. Similarly, a fiduciary’s decision with respect to a legal question is judged against that of a prudent attorney.

As ERISA fiduciaries, plan trustees are held to the prudent expert standard in investment management, law, actuarial sci-ence, business administration, and a myriad of other disciplines involved in guiding an ERISA plan. As a result, ERISA trustees must periodically rely upon the advice of experts. Whenever a trustee lacks the requisite legal expertise to make a fiduciary decision, the trustee should seek the advice of counsel.

By acting on an attorney’s advice, an ERISA trustee generally acts according to ERISA’s prudent expert standard – even when the advice ultimately proves to be wrong.1 Thus, reliance on the advice of counsel is an important aspect in discharging the trustee’s fiduciary duties. A trustee that properly relies on the advice of counsel has a strong defense against a claim for breach of fiduciary duty.2 The scope of reliance should not be overstat-ed – a trustee may only rely on the advice of counsel only when reasonably justified under the circumstances.3

Trustees should consider a few factors in selecting, and relying on the advice of counsel.

I. Investigate the attorney’s qualifications.In determining whether a trustee acted prudently, courts will

1 Clark v. Feder Semo & Bard, P.C., 739 F.3d 28, 33 (D.C. Cir. 2014).2 Note that failure to act according to the prudent person standard, while perhaps the most common theory of fiduciary liability under ERISA, is not the only such theory.

Advice of counsel may not be a defense to some theories of breach. 3 Id.4 Id.5 Id.6 Leckey v. Stefano, 501 F.3d 212, 225 (3d Cir. 2007), as amended (Dec. 21, 2007).

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7 Of course, advice of counsel comes at a cost. Heavily involved counsel is apt to cost more than case by case advice. And trustees must ensure that an ERISA plan’s administrative ex-penses, including legal fees, are reasonable in relation to the plan’s assets. For some small plans, the duty to ensure that expenses are reasonable may conflict with the duty to secure legal advice. Trustees of these plans should keep their plans simple and strictly adhere to well-established principles and practices.

8 Teamsters Local No. 145 v. Kuba, 631 F. Supp. 1063, 1071-72 (D. Conn. 1986).9 Chesemore v. Alliance Holdings, Inc., 886 F. Supp. 2d 1007, 1045 (W.D. Wis. 2012).10 Donovan v. Mazzola, 716 F.2d 1226, 1234 (9th Cir. 1983); United States v. Mason Tenders Dist. Council of Greater New York, 909 F. Supp. 882, 888 (S.D.N.Y.) judgment entered, 909 F.

Supp. 891 (S.D.N.Y. 1995).11 Tibble v. Edison Int’l, No. CV 07-5359SVW(AGRX), 2010 WL 2757153, at *20 (C.D. Cal. July 8, 2010) aff’d, 711 F.3d 1061 (9th Cir. 2013) and aff’d, 729 F.3d 1110 (9th Cir. 2013).

One unfortunate group of trustees learned first-hand that inferences based on advice of counsel do not af-ford the same protection as direct advice of counsel.9 In that case, the trustees were advised by their attorney that hiring an investment consultant as an independent fiduciary to assess a proposed investment transaction would assist the trustees in discharging their own fidu-ciary duties. From this advice, the trustees inferred that the independent fiduciary had authority to approve the transaction. Under the plan document, however, only the plan’s named fiduciary – who was neither the trust-ees nor the independent fiduciary – had authority to en-ter the transaction. The named fiduciary never expressly approved the transaction. A court therefore found that the trustees exceeded their authority and breached their fiduciary duty when, without the approval of the named fiduciary they completed the investment transaction. The court rejected their reliance on counsel defense, because their counsel’s advice regarding hiring an inde-pendent fiduciary never expressly stated that they could approve the transaction on the direction of the indepen-dent fiduciary.

V. Think Critically About Your Attorney’s Advice“Reliance on counsel’s advice, without more, cannot be a complete defense to an imprudence charge.” 10 Ultimate-ly, a trustee has a duty to exercise his or her judgment in light of the information and advice from counsel.11 If a matter presents both legal and non-legal issues, trustees should independently review the non-legal issues, and consider whether it is necessary to consult appropriate experts on the non-legal issues.

tion from counsel; nevertheless, the trustee was not entitled to rely on counsel’s advice.

III. Involve your attorney in all trustee- level actionsTrustees should keep fund counsel apprised of all trustee-lev-el actions regarding their funds – even if an action does not appear to require input from counsel.7 Keeping counsel ap-prised of trustee-level action reduces the likelihood of unin-tentionally failing to consult counsel when necessary. In one case, trustees adopted a slight change to their fund’s trust agreement without review by counsel.8 The amendment al-tered the trustee appointment provisions of their fund’s trust agreement from “trustees continue to serve until… removal” to “trustees continue to serve until… removal for proper and just cause only.” The court found the trustees’ failure to consult counsel with respect to the amendment to be a breach of fi-duciary duty. And, naturally, the trustees could not assert an advice of counsel defense, precisely because they had failed to consult counsel.

IV. Consult Your Attorney When Circumstances Change Attorneys give specific advice on specific issues under specific cir-cumstances. Slightly different circum-stances or a slightly different issue may warrant different advice. Identifying differences that matter can be difficult. Trustees should not assume that advice on one issue, or un-der one set of circumstances, can be relied upon with respect to a different issue or different circumstances.


By: Jenny Zhang

TREASURY ISSUES NEW REGULATIONS FOR PENSION BENEFIT SUSPENSION VOTING PROCESS UNDER MPRA

Enacted in late 2014, the Multiemployer Pension Reform Act allows multiemployer pension plans in a “critical and declin-ing” financial status to suspend or reduce payments of pension benefits if necessary to avoid insolvency. Under the suspen-sion process, the plan must first submit an application to the Treasury Department; if approved, the plan participants and beneficiaries will then have the opportunity to vote on the proposed reduction.

The new regulations contemplate a three-step voting process:

1. Ballot Distribution• A package of ballot materials will be distributed to the

eligible voters by first class mail. Supplemental ballots are available by email. Each package will contain a bal-lot and, among other things, a unique identifier, a state-ment in support of the suspension by the plan sponsor, a statement in opposition of the suspension prepared in plain, easy-to-understand language by the Labor De-partment.

• To protect the anonymity of voters, the plan sponsor itself cannot distribute the ballot. Instead, no later than 7 days after approval, the plan sponsor must furnish a list of eligible voters, their contact information, and an estimate of each eligible voter’s individual reduction. The Treasury Department or a designated Service Pro-vider will then distribute the ballots, collect and tabu-late the votes on the plan sponsor’s behalf.

• The plan sponsor will pay all the costs associated with the balloting package.

• Furthermore, the plan sponsor must make reasonable efforts to locate eligible voters, including notifying those who receive their plan-related information via

email that their ballot will arrive through first class U.S. mail.

2. Voting• A vote must be administered within 30 days after ap-

proval of the suspension application.

• The voting period begins on the ballot distribution date, and must remain open for at least 21 days. The Treasury Department may extend the voting period if exigent circumstances arise.

• Eligible voters may cast their vote through an automat-ed voting system via a website or toll-free number. Pa-per ballots will not be counted.

3. Determination• Within 7 days after the close of the voting period, the

Treasury Department will determine whether the sus-pension application passed by majority vote.

• If the application passes, the Treasury Department will issue a final suspension authorization.

• Voters may have the opportunity to challenge the vote within this 7 day period, subject to future procedures to be established by the Treasury Department.

The most contentious aspect of the new regulations has been the decision to forgo paper ballots. Treasury raised concerns that paper balloting would be inconvenient for voters, make voting more unreliable, and processing more costly. Unlike in an automated system, paper ballots must be returned by mail, authenticated and counted by hand. Nevertheless, the response from the public has been mixed. Some prefer traditional paper balloting, while others raise concerns about protecting the anonymity of the voters.


OUR ATTORNEYS

PETER M. ROSENE serves as the lead attorney for the firm’s multiemployer benefit fund clients. Mr. Rosene specializes in all aspects of ERISA plan compliance and has 33 years of multiemployer benefit experience. Mr. Rosene is a fellow of the American College of Employee Benefits Counsel. He is on the Board of Directors of the Internation-al Foundation of Employee Benefit Plans (IFEBP), while also serving on its Professionals Committee. He is a frequent na-tional speaker on employee benefit and fiduciary law topics.

THOMAS R. HAUGRUD provides representation in a broad range of legal matters in such matters as real prop-erty, wills and trusts, estate planning and administration, guardianships and conservatorships, corporate, debtor-cred-itor, civil litigation, and employee benefits. He oversees the federal and state court litigation in which the firm seeks to recover delinquent fringe benefit contributions for the firms multiemployer trust clients.

PAMELA H. NISSEN has worked extensively with jointly-trusteed benefit plans in a broad spectrum of mat-ters and issues for 19 years, serving as plan counsel. Ms. Nissen is also actively involved in ERISA litigation matters including claims appeals, subrogation and collection of delinquent contributions.

MICHAEL T. JOLIAT focuses his practice on advising employee benefits plans regarding compliance with ER-ISA, the Affordable Care Act, HIPAA, and other federal law, with an eye toward minimizing cost, complexity, and disruption. He negotiates investment agreements, drafts plan documents, and provides other services to meet the general counsel needs of employee benefit plans and their fiduciaries.

THOMAS C. ATMORE focuses his practice on complex litigation, collection of delinquent employer contribu-tions, personal injury, and appellate practice, including

national and international arbitration and class actions. He has successfully handled cases in various state and federal courts throughout the United States, trying cases to ver-dict before judges and juries and to decision in innumera-ble arbitrations.

SCOTT S. PAYZANT began his career in 1991 doing primarily business litigation with a focus on employment related litigation. Mr. Payzant counsels businesses and individuals regarding executive compensation agreements, officer and director liability, shareholder rights, partnership rights, and other business matters. He works with employee benefit plans on employment issues, QDROs and business related matters.

STACEY L. DRENTLAW focuses her practice on protect-ing the subrogation interests of Health and Welfare Funds, complex commercial litigation, product liability and rail-road litigation, and regulatory compliance counseling. She has represented health and Welfare Funds, correspondent lenders and banks, railroads, rail equipment manufacturers and owners, and pharmaceutical companies in numerous state and federal courts throughout the United States.

PAUL M. SHAPIRO is an associate attorney at LOSGS and works primarily in the employee-benefits practice group. His practice involves counseling multiemployer plans and their trustees on compliance with a variety of federal laws, including ERISA, the Affordable Care Act, and the In-ternal Revenue Code. He graduated in 2012 from George-town University Law Center.

JENNY ZHANG is an associate in the Employee Benefits practice group. She counsels multi-employer pension and health care funds on compliance with federal law. She grad-uated with High Distinction (Order of the Coif) from the University of Nebraska-Lincoln College of Law, where she served as Executive Editor of the Nebraska Law Review.


THE TOTAL COST GUARANTEE:A Novel Approach to Network PerformanceBy: Michael T. Joliat; Paul M. Shapiro

Most self-insured health funds enter into network-access agreements, which al-low participants to receive discounted care from healthcare providers with-in the network. Network adminis-trators seeking to entice a fund to switch networks usually tout the savings a fund can achieve by switch-ing networks. But those savings can be an illusion. To hold a new network administrator accountable for the sav-ings it promises, network-access agree-ments often incorporate discount guarantees. However, discount guarantees have inherent limita-tions. To overcome those limitations, we recently devised and successfully implemented a novel performance guaran-tee called a “total cost guarantee”. We believe the total cost guarantee provides greater assurance than a discount guar-antee that a fund will realize the savings it has been sold.

Under a discount guarantee, a network administrator pays a penalty if the average discount for in-network care is below

a pre-determined minimum. A network administrator might, for example, guar-

antee a 40% average discount. If the actual average discount for in-net-work care is 35%, the network ad-ministrator pays a penalty, such as 10% of the network administrator’s total annual fee.

Discounts are not the only way to save money. A network may offer ro-

bust medical management and wellness services, which reduce costs by avoiding

unnecessary care and addressing preventable disease. If those services are successful, they eliminate

care events that would otherwise have occurred. Measur-ing the discount on care cannot gauge whether a plan saved money by preventing care events from occurring. For that, we must employ a more expansive measurement.

Additionally, a network administrator could manipulate its apparent discount. A fund’s actual costs are the product of a healthcare provider’s charges, less the discount. Network

NCCMP ANNUAL CONFERENCE October 2015

This year’s Seminar was attended by Peter M. Rosene and Pamela H. Nissen of Leonard, O’Brien, Spencer, Gale & Sayre, Ltd.

Mr. Rosene spoke about the New Tools for Retirement Security em-bodied in the Multiemployer Pension Plan Reform Act (MPRA) en-acted last December and those relating to new plan designs currently under debate in Congress. He also addressed questions, concerns and perspectives of those currently using new tools.


administrators negotiate both elements of cost, and both elements vary from network to network. A network ad-ministrator could manipulate its apparent discount by al-lowing providers to charge higher rates while applying a higher discount rate. Although we are not aware of any instance of discount manipulation, a performance guaran-tee based on a measurement that cannot be manipulated is clearly preferable to one that can be.

A total cost guarantee is a promise by the network admin-istrator that a fund will experience, based on an “apples to apples” actuarial comparison, a minimum reduction in its overall claims costs when compared with costs the fund incurred under its previous network. If the new network

fails to meet this cost-reduction target, it must refund a portion of its total fees.

A total cost guarantee is superior to a discount guarantee. First, it rewards the network administrator for the suc-cessful use of medical management and wellness initia-tives to reduce the severity and frequency of claims. And second, it eliminates any incentive for the network ad-ministrator to manipulate its discounts. All that matters is the bottom-line cost – discounts are irrelevant. The total cost guarantee thus better aligns the goals of the network with the goals of the fund, increasing the chances that the fund will enjoy the savings it was seeking in its search for a new network.

BOLO FOLLOW-UP: SUPREME COURT’S DECISION IN KING V. BURWELLTo encourage individuals to maintain health insurance, the Affordable Care Act provides refundable tax credits for households with incomes close to the poverty line. The plain text of the ACA limits tax credits to insurance plans purchased “through an Exchange established by the State” – leaving states with Federal Exchanges conspicuously uncovered. In King v. Burwell, the Supreme Court upheld a Treasury regulation that extended tax credits to both State and Federal Exchanges. Consequent-ly, ACA tax credits are available to residents in all states. The Congres-sional Budget Office estimates that ACA tax credits will cost the federal government about $40 billion for 2016.

IFEBP HEALTHCARE MANAGEMENT CONFERENCEApril 2016

Pamela H. Nissen was a featured speaker at the In-ternational Foundation of Employee Benefits Plans’ recent Healthcare Management Conference in Phoenix, Arizona. Her topics included an update on grandfathered status under the Affordable Care Act, and emerging issues for multiemployer health plans.

discountguarantee

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LOSGS Employee Benefit Plan Group Services


612.332.1030 P

612.332.2740 F

www.losgs.comW


We work with Taft-Hartley funds of all sizes on a variety of legal matters. Our services include: GENERAL COUNSEL

» Traditional defined benefit pensions » Money purchase pension plans » Profit sharing plans » 401(k) plans » Self-funded medical plans » Fully insured medical plans » Retiree health funding plans » Health reimbursement arrangements » Health savings accounts » Disability plans » Apprenticeship and Training funds » Vacation/Savings plans

OTHER SERVICES

» MPRA retiree representative counsel » Affordable Care Act compliance » IRS, PBGC, and DOL compliance » IRS, DOL, and HHS audits » Regulatory compliance audits » Fiduciary issues » IRS and DOL corrections » Plan document drafting and review » Plan communications » Contract review and negotiation » Withdrawal liability » Fringe benefit collections » Real property issues » QDROs » IRS determination letter applications

LOSGS Employee Benefit Plan Group Services


612.332.1030 P

612.332.2740 F

www.losgs.comW


We work with Taft-Hartley funds of all sizes on a variety of legal matters. Our services include: GENERAL COUNSEL

» Traditional defined benefit pensions » Money purchase pension plans » Profit sharing plans » 401(k) plans » Self-funded medical plans » Fully insured medical plans » Retiree health funding plans » Health reimbursement arrangements » Health savings accounts » Disability plans » Apprenticeship and Training funds » Vacation/Savings plans

OTHER SERVICES

» MPRA retiree representative counsel » Affordable Care Act compliance » IRS, PBGC, and DOL compliance » IRS, DOL, and HHS audits » Regulatory compliance audits » Fiduciary issues » IRS and DOL corrections » Plan document drafting and review » Plan communications » Contract review and negotiation » Withdrawal liability » Fringe benefit collections » Real property issues » QDROs » IRS determination letter applications

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Documents

LOSGS purpose exclusivelosgs.com/wp-content/uploads/2016/10/89933_LOSGS... · 11 Tibble v. Edison Int’l, No. CV 07-5359SVW(AGRX), 2010 WL 2757153, at *20 (C.D. Cal. July 8, 2010)