Compliance March 21, 2014

Retirement Plans Need Access to Death Master File

March 21, 2014 (PLANSPONSOR.com) – A group of retirement industry representatives recently sent a comment letter to the National Technical Information Service (NTIS) emphasizing the need for uninterrupted access to the Social Security Administration’s Death Master File (DMF).
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The NTIS, a federal agency under the Department of Commerce, recently released a request for information (RFI) about the establishment of a certification program by the agency to ensure DMF information is requested by appropriate parties for valid reasons during the three-calendar-year period following a person’s death. Investigating the establishment of such a certification program was prompted by the passing of the Bipartisan Budget Act of 2013, which prohibits the disclosure of DMF information during the three-calendar-year period following death unless the requesting party is certified under a program established by the Department of Commerce.

The law, specifically Section 203, discusses some of the valid reasons for requesting DMF information such as: having a legitimate interest in fraud prevention; or a business purpose that is pursuant to a law, regulation or fiduciary duty. The law also asks that those requesting the information have safeguards in place to protect it.

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In response to the RFI, a group consisting of The SPARK Institute, Plan Sponsor Council of America, the ERISA Industry Committee, American Society of Pension Professionals and Actuaries, and the American Benefits Council, as well as several other stakeholder organizations, explain, “It is essential that any guidance reflect Congress’ clear desire to permit continued access for legitimate users of the DMF, including retirement plans and service providers acting on their behalf during the development of the certification program as well as during the application process.”

The letter adds, “Simple and inexpensive access to the DMF information is critical to the efficient functioning of all types of retirement plans, including pension plans and defined contribution plans (such as 401(k) plans). When plan benefits are paid in the form of life or joint life annuities, incorrect payments can be made to the deceased participant (sometimes through direct deposit) rather than the beneficiary without access to information from the DMF. Other plans need DMF information for other purposes, such as determining when a plan beneficiary becomes eligible for benefits (and takes over investment direction in a participant-directed plan).”

The authors of the letter remind the NTIS that retirement plan fiduciaries are subject to the fiduciary requirements found in the Employee Retirement Income Security Act (ERISA). These fiduciary duties include paying benefits to the appropriate party under the terms of the plan, with that party changing upon the death of the participant. Access to DMF information helps to carry out such duties. It is also important that plan sponsors and service providers be able to share DMF information with each other in order to execute their respective duties to the plan, according to the letter.

The RFI asked for comments about several questions for the certification, including but not limited to:

  • Do you think you have a legitimate fraud prevention interest in accessing DMF information?
  • Do you have the systems, facilities and procedures in place to safeguard DMF and experience in maintaining the confidentiality, security and appropriate use of such information?
  • Would the imposition of a single, presumably larger, fee at the time of certification be preferable to the charge of multiple, presumably smaller, fees such as annual ones?

The NTIS RFI document can be downloaded here. The group comment letter can be downloaded here.

Compliance March 21, 2014

Judge Rejects Immediate Appeal for Church Plan Lawsuit

March 21, 2014 (PLANSPONSOR.com) – A federal court judge has denied a motion for immediate review by an appellate panel of one of the ongoing “church plan” cases.
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Judge Thelton E. Henderson of the U.S. District Court for the Northern District of California previously ruled that Dignity Health’s retirement plan was not a “church plan” as defined by the Employee Retirement Income Security Act (ERISA) (see “Court Weighs in on Church Plan Issue”). Dignity’s proposed interlocutory appeal challenges the court’s interpretation of the portions of the ERISA statute governing the church plan exemption.

Henderson noted in his opinion that U.S. Code Section 1292(b) permits a district court to certify an order for interlocutory review where the order involves: (1) a “controlling question of law”; (2) “as to which there is substantial ground for difference of opinion”; and (3) where an immediate appeal may “materially advance the ultimate termination of the litigation.”

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He first considered whether the issue Dignity seeks to appeal presents a “controlling question of law.” He noted that although there is no explicit definition for what constitutes a “controlling question of law,” examples include who are proper parties, whether a court has jurisdiction, and whether state or federal law should apply. For an issue to be considered “controlling,” its reversal need not terminate the litigation, but its resolution should “materially affect the outcome of litigation in the district court.

Henderson agreed with Dignity that an interlocutory appeal could significantly alter the course the litigation would take. However, he concluded that the issue proposed for appeal would not so materially affect the entire nature of the litigation, or its outcome, to justify interlocutory review.

Dignity asserts that the next step in this litigation would be to consider Dignity’s compliance with ERISA, and if the 9th Circuit were to later hold that Dignity is exempt from ERISA, that entire evaluation of Dignity’s ERISA compliance would have been unnecessary. Henderson said Dignity’s argument simplifies the myriad paths the litigation could take. He speculated if the 9th Circuit were to reverse, either on interlocutory appeal or in the regular course, on remand the court would be charged with applying the 9th Circuit’s interpretation of the statute to Dignity’s plan and again determining if Dignity’s plan is exempt. If Dignity’s plan were not exempt, the court would still have to consider Dignity’s ERISA compliance. If the Dignity plan was held to be exempt, the court would then have to consider the plaintiff’s claim regarding the constitutionality of such an exemption. 

Citing a prior 9th Circuit case, Henderson said in his view, the issue Dignity raises “involves nothing as fundamental as the determination of . . . whether state or federal law should be applied.” According to Henderson, a difference in ruling on which law to apply could require a complete repeat of the litigation and a resulting duplication of efforts and waste of resources. Similarly, a different ruling as to whether a court has jurisdiction, could invalidate an entire district court proceeding. He said the matter at issue in the Dignity case is not of such high stakes.

Henderson concluded that at most, if this issue were presented on interlocutory appeal and was reversed, some time could be saved at the district court. He noted that the 9th Circuit has squarely rejected construing a question as controlling merely because “it is one the resolution of which may appreciably shorten the time, effort, or expense of conducting a lawsuit.” 

He also concluded that given that the appeal could still be followed by further, more complicated litigation, there is no evidence an interlocutory appeal would even “materially advance the termination of the litigation”–§ 1292(b)’s third prong. 

Dignity also argued that the issue is a controlling question of law because interlocutory review could also benefit other pending cases involving the same statutory provision (see “Church Plan Lawsuits Could Reverse 30 Years of Precedent”). Henderson rejected this argument “because those other cases Dignity refers to are outside this Circuit and the 9th Circuit’s ruling would not be controlling in those cases.” 

The latest decision in Rollins v. Dignity Health is here.

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