In Headline News, Belinda S. Morgan discussed the delayed effective date for the application of the Code § 105(h) non-discrimination rules to insured medical plans as well as the status of various legal challenges to the Patient Protection and Affordable Care Act (PPACA). Following are the key points:

Prior to the enactment of PPACA, the Code § 105(h) non- Q

discrimination rules applied only to self-funded medical plans. PPACA extended the non-discrimination rules of Code § 105(h) to insured medical plans.Notice 2011-1 delays PPACA’s application of non-discrimination rules Q

to insured plans until formal guidance is issued. Until such guidance is provided, no sanctions will be imposed on insured medical plans that fail to comply with the non-discrimination rules of Code § 105(h). In addition, any guidance issued will apply prospectively. Employers concerned about the application of the Code § 105(h) rules to insured medical plans may submit comments until March 11, 2011.Numerous lawsuits have been brought challenging the Q

constitutionality of PPACA. One aspect of PPACA that has received particular attention in these suits is the so-called “individual mandate” component. The individual mandate requires nearly all Americans to obtain a minimum level of health care insurance by January 1, 2014 or face penalties. Among other arguments, plaintiffs claim that the individual mandate seeks to regulate “inactivity” (i.e., the failure to obtain the required insurance coverage), and thereby exceeds Congress’ authority to regulate commerce under the Constitution.

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The courts that have reviewed these Commerce Clause claims Q

have split on the issue of whether the regulation of inactivity in this context is permissible. Further, it is unclear whether the individual mandate can be severed from the rest of PPACA if it is found to be unconstitutional. In the end, the U.S. Supreme Court will likely be called upon to resolve these issues. Until that time, however, employers should consider the extent to which their own PPACA implementation plans may be affected.

Katherine L. Aizawa’s Cram Session discussed new reporting requirements for Form 5500 Schedule C. Highlights include the following:

Schedule C requires plan sponsors to report any direct or indirect Q

compensation in excess of $5,000 paid to a service provider.Indirect compensation means amounts paid (from sources other Q

than plan assets) to a service provider for services rendered or due to the service provider’s position with the plan. This will include nonmonetary compensation, such as amounts paid for business meals, entertainment, and educational conferences, and also can include amounts provided by service providers to plan fiduciaries; limited exceptions apply.Plan sponsors are required to identify on the Schedule C any Q

service provider that fails to provide — in a timely manner — the information necessary to complete the Schedule C.

In Fiduciary Fundamentals, Christopher S. Berry discussed a new DOL proposed regulation that would revise the definition of fiduciary. The highlights include:

Proposed DOL Regulation 2510.3-21 would include more persons Q

Foley is pleased to provide you with a brief summary of the February 22, 2011 installment of the Employee Benefits Broadcast Web Conference Series.

Employee Benefits Broadcast

within the definition of fiduciary by expanding what constitutes “rendering investment advice for a fee.” The new definition:

Eliminates requirement that investment advice be given on a Q

regular basis.Makes it no longer necessary that parties have a mutual Q

understanding that advice will serve as the primary basis for plan investment decisions. Now, it will be sufficient if the advice will be considered in connection with making a decision relating to plan assets.Includes as fiduciaries those persons who render relevant, Q

individualized advice to participants or beneficiaries.Includes persons providing appraisals and fairness opinions on Q

privately held stock (e.g., ESOP valuations) or illiquid assets (e.g., real estate).Includes persons providing advice regarding selection of fund Q

managers or voting proxies.There is some concern that the revised definition of fiduciary may Q

lead to higher fees for plans due to the increased liability exposure for service providers. A public hearing will begin on March 1, 2011. The regulation will Q

not be effective until 180 days after the regulation is finalized and published in the Federal Register.

For the In the Spotlight segment, Galen R. Mason discussed recent regulations regarding plan and service provider fee disclosure obligations. We expect a great deal of communication between plan

administrators and service providers throughout 2011 in order to comply with these new rules in 2012. The key points are as follows:

Final Regulation 2550.404a-5 (effective for plan years Q

on or after November 1, 2011) requires that plan administrators of employee benefit plans that provide participants with investment discretion must make certain disclosures to participants:

A plan administrator must disclose certain information Q

relating to the plan and each designated investment alternative on or before the date the participants can direct investment and annually thereafter, updating disclosures as needed to reflect changed information and, in certain cases, actual expenses.A plan administrator must disclose additional information Q

subsequent to a participant’s investment or upon the participant’s request.

Interim Final Regulation 2550.408b-2 (applies Q

to arrangements in effect on or after January 1, 2012) creates disclosure obligations for covered service providers (CSP) that enter into contracts or arrangements with certain defined contribution and defined benefit plans whereby the CSP reasonably expects to receive $1,000 or more in direct or indirect compensation. The new disclosure rules are embodied

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Katherine A. Aizawa is the Foley attorney responsible for the content of this program. She can be reached at kaizawa@foley.com or by mail at 555 California Street, Suite 1700, San Francisco, CA 94104-1520.The general advice and guidance provided in this document should not be considered as legal advice and should only be implemented after talking to your own professional advisor.

©2011 Foley & Lardner LLP • Attorney Advertisement • Prior results do not guarantee a similar outcome • Models used are not actual clients but are representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500 • 11.7482

in an exemption from ERISA’s prohibited transaction rules. Specifically, the rules define which CSP disclosures are required for compensation to be considered reasonable.

A person is a CSP if the person: (1) serves as fiduciary Q

or registered investment adviser, (2) performs certain recordkeeping or brokerage services, or (3) reasonably expects to receive indirect compensation. The type of CSP can dictate the extent of the required disclosures. Generally, a CSP is required to disclose certain information Q

(e.g., status as CSP, description of compensation and services, and so forth) in advance of entering into contract or within 30 days of becoming a CSP. A CSP must update information as necessary and disclose information to the applicable plan administratorupon request. Failure to comply with these rules will result in the creation of Q

a non-exempt prohibited transaction and the excise taxes and penalties associated therewith. While plan administrators are protected from the excise Q

tax if they “reasonably believed” that the CSP disclosed all necessary information, they do have a duty to inquire with the CSP if they have concerns. If the CSP fails to supply information or refuses to do so, the plan administrator must notify the DOL in order to be exempted from the prohibited transaction penalties.

AuthorErik D. Vogt AssociateChicago, Illinois312.832.4903evogt@foley.com

About the Employee Benefits BroadcastThe Employee Benefits Broadcast provides participants with needed information in the most efficient manner possible — only a telephone line and Internet access are required to participate — allowing employee benefits professionals to stay up-to-date with timely information from anywhere in the nation.

For more information, please visit Foley.com/EBB or contact Elie Harris at eharris@foley.com.