Compliance December 22, 2023

DOL Proposes to Rescind 2018 Association Health Plan Rule

The original rule, had it not been vacated by a federal court, would have significantly relaxed the parameters for creating an association health plan.

Reported by

The Department of Labor on Tuesday proposed to formally rescind a rule finalized in 2018 that was intended to make it easier to form and join association health plans. The 2018 rule was vacated by the U.S. District Court for the District of Columbia in 2019.

The DOL press release explained that the 2018 rule made it easier for small and individual plans to be treated as large group plans in order to evade some of the requirements and protections of the Affordable Care Act.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

“A lot of it has to do with getting around the Affordable Care Act rules,” says Roberta Casper Watson, a partner with the Wagner Law Group. The district court decision also remarked that the rule was “clearly an end-run around the ACA.”

Watson explains that the Employee Retirement Income Security Act includes the concept of employer associations in its definition of employer. Under ERISA, an association can be considered an employer for the purposes of creating a health plan, but “there were several rules that are hard to comply with” in order to be classified as one prior to the 2018 rule.

According to Watson, an association must exist for a legitimate business purpose and not merely to create a health plan; there must be a “commonality of interest” among the members, such as belonging to the same industry; and member employers must “exercise control over the plan in form and substance.”

The 2018 rule made it easier to become an association health plan by liberalizing these standards. It permitted associations to be created for the purpose of making a plan; expanded the commonality requirement to include geographic proximity; and added the concept of a working owner, meaning a small business owner with no employees.

In 2019, a federal court determined that this rule violated ERISA because it effectively permitted associations that did not resemble an employer relationship to act as if they had such a relationship with their members.

Assistant Secretary of Labor Lisa Gomez, in an interview with PLANSPONSOR, explains that the 2018 rule “provided guidance on under what circumstances employers or associations of different entities could set up what are called association health plans and by doing so, they would be treated as a large group coverage rather than individual or small group health coverage.”

She adds that “we have been working on what the response to that court case should be and so we issued this proposal earlier this week, which is a proposal to formally rescind that rule and to get comments from the public about where we should be moving forward.”

A comment period will remain open until February 20, 2024.

Compliance December 21, 2023

Empower Calls on DOL to Withdraw Fiduciary Proposal

According to the recordkeeping giant, the proposal would reduce plan and participant access to sales conversations and recordkeeping services.

Reported by

Empower, the country’s second largest retirement recordkeeper by assets, filed a letter with the Department of Labor on Thursday, calling for the full withdrawal of the department’s retirement security proposal, sometimes called the fiduciary adviser proposal.

Empower, a Great-West Life Inc. company, manages plans totaling $1.4 trillion in assets for 18 million investors, according to the letter.

Get more!  Sign up for PLANSPONSOR newsletters.

The DOL proposal would extend fiduciary status under the Employee Retirement Income Security Act to various one-time recommendations, including rollovers, annuity sales and the sale of investment menu lineups to plans.

The letter, signed by Edmund F. Murphy III, Empower’s president and CEO, explains that the proposal would create obstacles to plan creation and could effectively ban many sales conversations between providers and plans or individuals.

Empower argues that the proposal would cover routine sales conversations that have not traditionally been considered a fiduciary function, particularly sales of rollovers and investment lineups to new plans.

“Many recordkeepers offer thousands of fund options for evaluation,” the letter states. To winnow down these options into a proper menu, “plan fiduciaries and advisers not only need assistance from product providers and recordkeepers, they expect it.”

The letter continues, “If product providers and recordkeepers determine that this rule is too difficult to apply to everyday conversations, these conversations will be eliminated. This will hurt the plan sponsor and ultimately participants.”

Many sponsors also solicit recordkeepers and managers to respond to a request for proposal. These RFPs can permit sponsors to shop recordkeeping services if they are unsatisfied with their current provider or to update the services provided by their current provider. Empower’s letter argues that these prolonged sales conversations “are tailored to meet client needs” and would likely fall under the DOL proposal.

Empower is the first major recordkeeper to submit a comment letter before the January 2 deadline. The SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, an advocacy organization for the retirement plan industry, also called on the DOL to withdraw the rule during oral testimony at a hearing on December 12.

Adam McMahon, a partner in the Davis & Harman law firm, spoke on behalf of SPARK at the hearing. McMahon emphasized that the proposal would likely apply to a wide range of educational materials and services, such as those intended to track portfolio diversification, account balances or financial habits.

For example, a feature provided by a recordkeeper which walks a participant through the process of deciding between a hardship withdrawal and a loan “might recommend or suggest that a participant take a loan, instead of a hardship withdrawal, in order to minimize tax penalties or preserve savings for retirement. Under the current five-part test, these tools, which make no reference to specific investments, are not fiduciary investment advice. Under the proposal, however, they would be treated as fiduciary advice.”

McMahon added that the proposal would turn ordinary plan sales conversations with potential sponsors into fiduciary advice: “[Non-fiduciary] treatment is appropriate, as we do not believe that plan sponsors, even small plan sponsors, expect that a sales representative marketing its own firm’s plan is providing fiduciary-level investment advice.”

McMahon argued that such an expansion of fiduciary status would reduce access to these services or severely increase their cost and called upon the DOL to withdraw the proposed rule.

Concerns about initial sales conversations and educational materials arose on both days of the hearings. Tim Hauser, the deputy assistant secretary for program operations at the DOL, asserted that the proposal is only intended to regulate recommendations or a “call to action” and not educational materials and “hire me” conversations. Hauser invited stakeholders to comment on how the DOL could clarify this in the final rule.

The recordkeeping industry joins the insurance industry in its opposition to the proposal. So far, most actors in the advice industry and consumer advocacy have voiced support for the proposal.

«