As employees get closer to retirement they will often compare retirement decisions and compare account balances. So what happens if two individuals find that they had made similar contributions to their accounts, but have dramatically different account balances? One might say, “Too bad, you lose; you didn’t make good investment choices”.
But what if they sue their employer for breach of fiduciary duty because they feel that employer had chosen higher priced funds to offer in the plan or even did not provide proper guidance to the employees to choose the right funds?
That is exactly what happened in a suit against Edison International. In this critical case (Tibble et al vs. Edison International et al) the Supreme Court ruled unanimously vacating a rule by the 9th US Circuit Court of Appeal in Pasadena which had sided with the employer.
The Supreme Court stated employers have a “continuing duty to monitor trust investments and remove imprudent ones” even though federal law sets a six-year time limit for lawsuits alleging breaches of fiduciary duty. So in this case, even though the employer had removed their high priced funds years ago, they were responsible and the SCOTUS ruled in favor of the plaintiff.
Many employer groups have some sort of retirement plan, typically a 40lk plan. Fiduciary Responsibility for Employers with 401K plans is increasingly becoming an issue. In the past an employer might have used the defense that they relied on their investment advisor. But this isn’t going to do it.
Employers must be systematic about reviewing their plans and practices. We have two vendors that will actually accept full fiduciary responsibility for the plans they place. That is a key factor in our recommendations, since most employers are simply not “savvy” in this area. Many employers are relieved to be rid of the risk of fiduciary responsibility to their employees!
If an employer can have a well-priced plan, with low cost investments and avoid or “outsource” the fiduciary responsibility, which is one less risk tor concern for the employer.
As the year is ending this is a good time to ask these questions or get an outside review of your plan from a qualified benefits consultant.
Mid-size market Group Health Plan changes may be in the wings.
On October 1, Congress approved a bill repealing the Affordable Care Act (ACA) provision expanding the small group employer definition. It was scheduled to change from 1-50 to 1-100 employees on January 1, 2016. With the ACA Mid-Market groups 51-99 would be treated as small groups. President Obama is expected to sign the bill into law.
The repeal legislation, the Protecting Affordable Coverage for Employers (PACE) Act, maintains the current 1-50 employee definition of a small employer and gives states flexibility to expand the small employer definition up to 100 employees if they determine market conditions necessitate the change.
California, along with CO, MD, NY, VA and VT – have enacted laws or issued regulatory guidance changing their small group definition to the 1-100 employee definition in 2016. With the repeal of this ACA provision, these states may revise their laws/regulatory actions to, once again, conform to the federal definition of small employer. However we are told CA is not likely to go to the Federal standard. But, who knows?
The ACA expanded the small group definition and subjects non-grandfathered insured plans of employers with 51-100 employees to the ACA community-rating standards and requires them to cover all Essential Health Benefits. This means those plans, rather than having a four rate structure would be rated like small groups.
A four rate structure would look something like this:
Employee only: $300
Employee plus spouse: $600
Employee plus child(ren) $450
Family $750.
In small group, each individual is rated based on their specific age, including dependents to a maximum of 3 children. Adult children are rated as adults. So those with adult children are really hit the hardest. Plus, it is more difficult for employers to administer so many different rates.
There are positive effects of being treated as small group may be in underwriting. Small groups are “guaranteed issue” and subject one rate chart. Absent this provision, Mid-market groups are subject to underwriting and may be turned down for coverage or given a very high rating based on their claims experience.
We have a few groups with a large younger population that are coming off “Grandmothered” plans that are seeing rate increases in the 30-50% range due to this new rating structure. And any individual who has adult children on the plan is really getting “sticker shock” when they see their dependent costs. Some are taking those adult children off and putting them on individual plans with higher deductibles to offset that cost.
