Compliance July 7, 2023

DOL Proposes Limiting Short-Term ‘Junk’ Health Plans

The proposal would limit to four months use of short-term plans that Trump officials had allowed to be used for one year.

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The Departments of Labor, Treasury and Health and Human Services issued a proposal Friday that would limit the amount of time employers can use short-term health coverage and indemnity plans to no more than four months, instead of the 12 months set by the administration of former President Donald Trump.

In a fact sheet issued Friday, the administration of President Joe Biden said the proposal would crack down on “junk insurance” it claims leaves consumers exposed to high medical fees when transitioning between plans.

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“New proposed rules would close loopholes that the previous administration took advantage of that allow companies to offer misleading insurance products that can discriminate based on pre-existing conditions and trick consumers into buying products that provide little or no coverage when they need it most,” the administration release stated. “These plans leave families surprised by thousands of dollars in medical expenses when they actually use health care services like a surgery.”

These short-term health plans are intended to be transitional and provide coverage for an employee moving from one longer-term plan to another, says Roberta Casper Watson, a partner in the Wagner Law Group and head of its health and welfare practice group. The plans are not required to follow every provision of the Affordable Care Act, including covering of pre-existing conditions.

Watson says the agencies believe employers are using “workarounds” to avoid complying with the Affordable Care Act and adds, “and they’re right.” This proposal has been expected for a long time, and if it passes, it will “make a dent” in this practice.

Indemnity plans pay a fixed amount of money for health expenses, regardless of what expenses were actually incurred. Watson explains that these plans often pay a predetermined sum per day of missed work, such as $100, and are mainly intended to compensate for income lost due to a health event.

If finalized, the Biden administration said the rule would “establish a clear disclosure for consumers of the limits of these plans.”

The rule will be open to a 60-day public comment period after its publication in the Federal Register, listed for July 10. If enacted, the rule will be enforced for insurance sold 75 days after the date of publication of the final rule, according to the proposal.

Benefits July 7, 2023

DOL Sues SIMPLE IRA Plan Sponsor for Pocketing Retirement Deferrals

A Minnesota HVAC company is alleged by the Department of Labor to have misappropriated the retirement contributions of its’ employees, according to the lawsuit.   

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A heating and air conditioning company’s retirement plan fiduciaries were full of hot air, the Department of Labor alleged in a July 6 lawsuit brought against the SIMPLE IRA plan for employees, claiming the company—Dierkes Heating & Air LLC—misappropriated withheld retirement contributions to pay business expenses. 

The DOL, in the name of Acting Secretary of Labor Julie Su, sued Dierkes Heating & Air, the Dierkes Heating & Air SIMPLE IRA Plan and company owner and manager Todd Dierkes in U.S. District Court for the District of Minnesota, alleging the retirement plan fiduciaries improperly retained employee salary deferral contributions in the company’s corporate account—for up to 354 days—and used employee salary deferral contributions to pay the general operating expenses for Dierkes Heating, rather than transfer the retained employee contributions to the plan.

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“As a direct and proximate result of defendants Dierkes Heating and T. Dierkes’ fiduciary breaches, the plan suffered injury and losses for which they are personally liable and subject to appropriate equitable relief,” the complaint states.

Waite Park, Minnesota-based Dierkes Heating and Air provides residential and commercial heating, ventilation and air conditioning services.

The DOL alleged two counts against defendants—for failure to remit employee contributions to the IRA plan and for failure to remit employee contributions in a timely manner—under the Employee Retirement Income Security Act.

“Defendants Dierkes Heating and Dierkes failed to hold all assets of an employee benefit plan in trust … permitted the plan’s assets to inure to the benefit of the employer and failed to hold them for the exclusive purpose of providing benefits to the plan participants and their beneficiaries and defraying reasonable expenses of plan administration in violation of ERISA … [and] failed to act solely in the interest of the participants and beneficiaries of the plan and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of plan administration,” the complaint alleges.

Requests for comment to Dierkes Heating & Air and Todd Dierkes were not returned.  

Dierkes Heating established the SIMPLE IRA plan on January 1, 2020, to provide retirement benefits to its employees, the complaint states. 

A SIMPLE [Savings Incentive Match Plan for Employees] IRA plan follows the same investment and distribution as traditional IRAs but is regulated under ERISA as an employee benefit plan, according to FAQs posted on the IRS website. The arrangement can provide small businesses with a “simplified method to contribute toward their employees and their own retirement savings,” according to the IRS.

The DOL complaint alleges misappropriation by Dierkes and the company during a time a period of at least January 10, 2020, through July 31, 2022.

Between January 1, 2020, and August 5, 2022, Dierkes Heating withheld a total of $35,352.95 from its employees’ pay as salary deferral contributions intended for the plan. From at least January 1, 2020, through the present, Dierkes had signature authority on Dierkes Heating’s bank accounts, according to the complaint.

The plan’s governing documents said plan participants could make pre-tax salary deferral contributions to the plan through payroll deductions. Employee Benefit Security Administration regulations mandate that plan fiduciaries handling “participant contributions are to be remitted to the plan” not later than the 30th calendar day following the month in which the participant contribution amounts would otherwise have been payable to the participant in cash, the complaint explains.

“From at least July 23, 2021, through at least July 31, 2022, defendant T. Dierkes had authority and control over whether Dierkes Heating remitted withheld employee salary deferral contributions to the Plan, and exercised such authority and control,” the complaint says. “From at least July 23, 2021 through at least July 31, 2022, defendant T. Dierkes caused Dierkes Heating to retain $13,372.95 in employee salary deferral contributions in its corporate bank account and used those assets to pay Dierkes Heating’s general operating expenses, rather than remit such contributions to the plan.”

The DOL alleges on the first count that because of Dierkes Heating and Dierkes’ fiduciary breaches, “the plan suffered injury and losses for which they are personally liable and subject to appropriate equitable relief.” On the second count, the DOL alleges substantially similar claims, that Dierkes Heating is responsible for “Failure to Remit Employee Contributions to the Plan in a Timely Manner.”

“Dierkes Heating failed to remit $21,309.80 from its employees’ pay as salary deferral contributions intended for the Plan in a timely manner and retained those amounts in its bank account for up to 354 days until they were finally remitted to the Plan,” the complaint states.

The DOL is seeking a judgement holding Dierkes and Dierkes Heating & Air LLC liable for violating the fiduciary duty to protect the interests of participants and their beneficiaries in employee benefit plans; permanently barring both Dierkes Heating and Dierkes from serving or acting as fiduciaries or service providers to any ERISA-covered employee benefit plan; and ordering them to restore all plan losses resulting from their breaches.

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