2022 promises to be a significant year for employee benefits. 2021 set the stage for some major developments in the year ahead. Here are some things to watch out for and to hope for in 2022.
1. The Supreme Court Could Limit 401(k) and 403(b) Fee Litigation.
The Supreme Court has heard oral argument in the Hughes V. Northwestern University case, which concerns the minimum a plaintiff must plead to pursue an ERISA fiduciary breach claim. This may sound like a dry topic mostly of interest to litigators, but nothing could be further from the truth. ERISA litigation has caused fiduciary liability insurance premiums to skyrocket and taken up a great deal of court and plan sponsor time, even when plaintiffs end up losing.
Many of these ERISA suits are based on conclusory allegations such as the mere fact that a plan’s fees might be higher than a benchmark or alternative investment arbitrarily selected by plaintiff’s counsel. Some cases have been dismissed because the benchmarks weren’t shown to be relevant, and another line of defense by defendants has been that the plan offers a broad range of investments with different fees, and plaintiffs have low fee choices to select in the mix. If the court says that merely alleging that a different investment would have been better or cheaper isn’t enough, we are likely to find fewer of these cases being filed.
2. More About Surprise Billing and Health Care .
Despite the uncertain fate of the Build Back Better Act, expect health care to remain a hot topic in 2022. There has been a blizzard of new regulations in the last days of 2021 for affected parties to analyze, and fee transparency and surprise billing will top many compliance lists in 2022.
The No Surprises Act protects consumers from unexpected bills from out-of-network providers. Its provisions for resolving disputes were set out in interim final regulations issued in 2021 and just a few days ago, additional regulations were issued regarding payment amounts. The No Surprises Act regulations have been criticized by providers for favoring insurance companies. It will be interesting to see if the regulations are modified in response to negative comments and whether there will be court challenges to the arbitration rules. We may also get further guidance on use of telemedicine.
3. Amendments and More Amendments to Pension Plans.
The SECURE Act and CARES Acts made extensive changes to employee benefits, and each has a delayed general amendment deadline of the last day of the 2022 plan year. In addition, adopting employers with pre-approved defined contribution plans must adopt new Third Cycle adoption agreements by July, 2022. It will be a busy year for plan restatements and a good chance for sponsors to review their documents for overall compliance even with older requirements. Hopefully, new regulations will come out early enough to meet this deadline and any new legislation will have a delayed amendment deadline that pushes written compliance beyond 2022.
4. New Legislation.
Even more changes have been introduced in Congress, including SECURE 2.0 and the Retirement Improvement and Savings Enhancement (RISE) Act (H.R. 5891), which could be merged into one piece of legislation. There appears to be bipartisan support for further pension reform, but given the current political climate, it is anyone’s guess whether anything will be enacted. The changes in these bills would be substantial, including making plan self-correction rules more flexible, allowing more types of annuity payouts, taking long-term part-time employees into plans faster, and permitting 403(b) plan sponsors to adopt pooled employer plans (PEPs).
5. Changes to Trump Administration Investment Guidance.
The Department of Labor has already replaced Trump administration guidance deterring ESG investment and proxy voting with new regulations removing perceived restrictions and confirming that fiduciaries could be obligated to take ESG considerations into account. Just last week, EBSA walked back earlier information letter guidance that seemed to green light making private equity investments available to defined contribution plan participants, for example, as part of target date funds. New rollover rules come into effect in January, but we can expect a revision of the fiduciary rule as well.
6. Clarification of Arbitration Rules?
Even before two recent Supreme Court decisions supporting mandatory arbitration in the employment context, some employers attempted to avoid ERISA class actions by requiring mandatory individual arbitration of ERISA fiduciary breach claims. Lower federal courts have issued inconsistent decisions as they grapple with the extent to which ERISA permits arbitration and class action waivers of fiduciary breach claims. There are some earlier federal decisions upholding mandatory arbitration in the ERISA context, but the Supreme Court has never ruled on the arbitrability of ERISA claims. Hopefully, we will get a decision that makes its way to the Supreme Court and the Supreme Court will ultimately clear it all up for us.
7. Cryptocurrency as a Plan Investment.
Participants want to invest their 401(k) accounts in Bitcoin and other cryptocurrencies, but the unregulated state of the market raises serious concerns for plan fiduciaries considering permitting such investments. If the SEC approves cryptocurrency ETF funds, that may give these proposals a boost, but so far the SEC is not rushing to do so. Department of Labor officials have suggested that there will be some guidance or statement from the Department of Labor about the appropriateness of cryptocurrency as a plan investment and related fiduciary obligations. This guidance is sorely needed.
8. Cybersecurity Will Continue to Take Center Stage.
Several lawsuits have been filed against plan fiduciaries and recordkeepers by participants whose accounts were stolen by hackers, and recently, a lawsuit was filed against Transamerica by a participant who claimed that a data breach allowed criminals to use his personal information to make fraudulent purchases. The Department of Labor took an important first step in issuing best practices for recordkeepers and plan sponsors in 2021, and is inquiring about cybersecurity in audits. Despite the prevalence of cybersecurity threats, though, we have no case law or formal guidance setting out the parameters of ERISA’s fiduciary responsibilities or the extent to which state law requirements can apply. The benefits community can hope for further official guidance in 2022. In the meantime, plan fiduciaries and recordkeepers ignore cybersecurity at their peril.
As in every year, there will undoubtedly be surprises none of us foresaw, but the items listed here should be on every benefit professional’s radar.