Neal Schelberg
Neal Schelberg (NYLJ/Rick Kopstein)

Proskauer Rose partner Neal Schelberg describes himself as “an ERISA nuts and bolts man.”

He has spent most of his professional life opining on the requirements of the Employee Retirement Income Security Act (ERISA), a complicated and still evolving structure adopted in 1974 to regulate pension and healthcare plans.

Schelberg, 60, graduated from Brooklyn College and received his J.D. degree from Hofstra University. He also has an LL.M. degree from Georgetown University Law Center and has written about the impact of same-sex marriage on employee benefits.

Early in his career, he worked in the counsel’s office of the Pension Benefit Guaranty Corp. (PBGC), an agency assigned under ERISA to protect the legal impact of same-sex marriage on employee benefits. “It was interesting to be in on the ground floor, ” he said.

At Proskauer, Schelberg serves as legal counsel to the boards of trustees of more than 50 pension and welfare benefit plans. He regularly advises on the employee benefit aspects of mergers, purchases and sales and other forms of business acquisition.

He has provided advice to the National Hockey League, the National Basketball Association, Major League Baseball and the National Football League on benefits affecting professional athletes and personnel such as general managers, coaches, scouts and trainers.

As if his day-to-day legal chores weren’t time consuming enough, Schelberg is in the third and last year of serving on the U.S. Labor Department’s ERISA Advisory Council. He is chairman of the 15-member body this year.

Council members will hear witnesses in Washington from June 17 through 19 on the issues it has chosen to study this year.

“I think we’re helpful,” Schelberg said.

Q: What are ERISA’s major provisions?

A: The Employee Retirement Income Security Act of 1974 (ERISA), is a federal law that comprehensively regulates employee benefit plans in the private sector and the plan fiduciaries who administer these plans and control the plans’ assets. Some of the key provisions of the law include the minimum participation, vesting, benefit accrual and funding rules. Other central provisions of the law include the reporting and disclosure, fiduciary and prohibited transaction requirements and the preemption and civil enforcement provisions. In addition, ERISA established the Pension Benefit Guaranty Corporation (PBGC), a U.S. government agency that insures the pension benefits of terminated defined benefit pension plans, and it provides rules for the enrollment of actuaries.

Q: Why was it passed? Has it been successful?

A: ERISA is remedial legislation that was enacted in response to, among other things, pension funding shortfalls such as what had occurred when the Studebaker Corporation shut down its plant in 1963 in South Bend, Indiana. When the facility closed, thousands of Studebaker employees were laid off and applied for their pensions. However, the Studebaker collectively-bargained pension plan that covered the laid-off employees had insufficient assets to provide the pension benefits promised to all of these individuals. As a result, while some of these employees received full benefits, others received only a fraction of the promised pension and some received nothing. This seminal event served as a catalyst to the reform activities that had already begun and which culminated in the passage of ERISA.

Q: How complex is the statute?

A: The U.S. Supreme Court has recognized that ERISA is “a comprehensive and reticulated statute.” Nachman Corp. v. PBGC, 446 U.S. 359, 361 (1980). Various factors add to the complexity of the law. First, ERISA covers a lot of ground. It is comprised of four distinct titles, codifying both labor and tax law provisions as well as establishing a new governmental agency, the Pension Benefit Guaranty Corporation. Next, the statute parcels out jurisdiction over varying provisions of the law to several federal agencies, principally, the U.S. Department of Labor, the Internal Revenue Service and the PBGC. In addition, with the enactment of recent laws affecting welfare benefit plans, the Health and Human Services has increasing regulatory authority. Other agencies such as the EEOC and the SEC also have indirect influence over employee benefit plans and their sponsors and/or plan fiduciaries. Each of these agencies has issued copious amounts of regulatory and sub-regulatory guidance to interpret the provisions of the law. Further, as comprehensive as the law is, many believe that there are large gaps in the statute. The courts have filled in these legislative gaps with the federal common law of ERISA. So, in addition to a comprehensive statute, and complex regulations and other guidance issued by many different federal agencies with overlapping jurisdiction, there exists an abundant amount of case law construing and interpreting the ERISA’s provisions.

Q: Are there any major unresolved issues that are now working their way through the courts?

A: Significant social, political and economic issues that are wending their way through the courts, such as same gender marriage and health care reform, are directly impacting the employee benefits area. For example, the Supreme Court’s decision declaring as unconstitutional Section 3 of the Defense of Marriage Act (DOMA) has had a profound impact on the administration of ERISA pension and benefit plans because it broadened the definition of “spouse” under these plans to include same-gender spouses. However, whether state laws prohibiting same-gender marriage are ultimately held to be unconstitutional remains to be seen. There are a number of states that do not recognize same-gender marriage and this fact complicates the administration of health plans, particularly those that operate in multiple states where some recognize same-gender spouses and others do not. It is likely that within the next two years (if not sooner), one or more of these cases will reach the Supreme Court.

Another open issue involves the Affordable Care Act (ACA). Although in 2012, the Supreme Court upheld the constitutionality of the law, federal courts are now considering whether premium tax credits available under state exchanges are also available under federally facilitated exchanges. The outcome of this issue could impact one of the key pillars of ACA.

Q: What issues and/or threats do you see emerging in the future?

A: There has been a sea change in retirement policy in the U.S., with defined benefit (DB) plans being replaced by 401(k) and other defined contribution-type (DC) plans where a participant assumes responsibility for investing the assets held in his account. The decline of DB plans may have profound implications on such issues as the adequacy of retirement savings and retirement readiness. Other implications include the proliferation of de-risking strategies undertaken by plan sponsors of DB plans. Last year, the council examined risk transfer activities—such as pension freezes, annuitizations or lump sum payments—undertaken by employers to reduce or eliminate the plan sponsor’s risks for their current or future pension liabilities. Will plan sponsors address workers’ retirement security concerns by adopting certain DB elements into their DC plans to make them more of a retirement program than a deferred savings vehicle? Or is the administration’s proposal for “myRA” retirement accounts a clear indication of how relying on DC plans is the direction that private sector employers should be headed? On the health plan front, will the long-term impact of ACA on employer-based health coverage—particularly when the so-called “Cadillac tax” becomes effective in 2018—be to push employers to modify plans or drop plans in favor of the public or private exchanges? With a viable ACA, what is the future of health care delivery through employer based plans?

Q: Why were you attracted to this area of the law?

A: In 1979, when I graduated from law school, ERISA was in its infancy. I worked in the Office of the General Counsel of the PBGC. The agency had just been established and I saw the opportunity to get in on the ground floor of a nascent area of the law. The law has evolved in remarkable ways that I could never have imagined over the 35 years that I have practiced in this area.

Q: What kinds of clients do you represent? What services do you provide?

A: The core of my practice is the representation of labor-management trust funds providing pension and health and welfare benefits to employees covered by collective bargaining agreements in numerous industries such as professional sports, newspaper, supermarket, wholesale and retail food, construction, industrial, private sanitation and trucking and warehousing. Essentially, I serve as general outside counsel to these funds, advising the plan’s fiduciaries on the full spectrum of regulatory, compliance, fiduciary, investment and other legal issues that they confront on a daily basis.

Q: How did you obtain a spot on the Department of Labor’s ERISA Advisory Council? Did someone nominate you or did you apply?

A: I was nominated by several of my clients that I have worked with over the years who are the principals of large employers and employer associations that sponsor employee benefit plans. I was also nominated by U.S. Rep. Steve Israel, D-N.Y. I was fortunate to be chosen from among many qualified candidates.

Section 512 of ERISA establishes the ERISA Advisory Council as a standing council that advises and submits recommendations to the Secretary of Labor. There are 15 members appointed by the secretary representing various constituencies in the employee benefits area. I am one of the three members of the council representing employers.

Q: How much time do you spend on council matters? What are your normal working hours?

A: I am in my third and final year on the council. In each of these years, the council has studied three important and challenging issues related to employee benefits. The council holds hearings at the Department of Labor’s offices in Washington, D.C. Our recommendations are incorporated into reports that are delivered to the secretary. The secretary, the assistant secretary of the Employee Benefit Security Administration (EBSA) and its staff review the council’s recommendations and provide feedback. Given the extensive work that goes into producing the reports to the secretary, it necessarily requires an enormous amount of time. My working hours are as long as is necessary to meet the demands of my position as the chair of the council and the needs of my clients.

Q: Is the council work rewarding?

A: Council work is extremely rewarding. Each year, the council’s members endeavor to select topics to study that can be actionable by EBSA. The opportunity to provide recommendations to the Secretary that could lead EBSA to issue regulatory or sub-regulatory guidance that can assist plan sponsors, plan administrators and/or plan participants is extremely satisfying.

Q: What subjects is the council studying?

A: This year the three topics are:

1. Plan sponsors’ out-sourcing of employee benefit services.

2. Pharmacy benefit managers (PBM) fees and disclosures.

3. Facilitating lifetime plan participation.

Q: Does the Department of Labor pay attention to what the council recommends?

A: Under ERISA, the council is an advisory organization that is charged with making recommendations to the secretary. With input from EBSA, each year, the council selects employee benefit topics to study that are important to the administration of ERISA. The secretary reviews the council’s recommendations with EBSA. These recommendations assist EBSA in developing its views on an issue. In some instances, as noted above, the council’s recommendations lead EBSA to issue regulatory or sub-regulatory guidance or take some other action regarding the issue.

Q: How do you think your service on the council will benefit your practice?

A: My council service has broadened my knowledge and experiences in the employee benefit area. I have also had the opportunity to meet and work with a wide network of employee benefit practitioners in the private sector, government and academia. These experiences and the new colleagues whom I have met during my years on the council will no doubt assist me in my own practice.