June 30, 2015

Employee Benefits-IRS Provides Penalty Relief Program for Form 5500-EZ Late Filers

In Employee Plans News, Issue No. 2015-7, June 23, 2015, the IRS discusses the new penalty relief for Form 5500-EZ Late Filers. Here is what the IRS said.

Retirement plan sponsors who missed filing required annual reports may be eligible for penalty relief under Revenue Procedure 2015-32.

Plans eligible

• One-participant plans covering a 100% owner or a partnership, and their spouses (no other participants). Non-ERISA plans only.

• Foreign plans subject to IRS annual reporting that are maintained outside the U.S. primarily for non-resident aliens.

Plans subject to Title I of ERISA aren't eligible. Instead, use the Department of Labor's Delinquent Filer Voluntary Compliance Program.

Forms covered

• Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan.

• Form 5500, Annual Return/Report of Employee Benefit Plan, if you filed this return because your non-ERISA plan didn't meet the filing requirements for Form 5500-EZ for plan years before 2009.

If you've received a delinquency notice for the overdue form, you can't use this penalty relief program for that year's return. The delinquency notice is CP 283, Penalty Charged on Your Form 5500 Return.

How to apply

1. Each plan must be submitted separately. All delinquent returns for a single plan may be submitted together.

2. Prepare delinquent returns. Prepare a paper Form 5500-EZ for each delinquent year, including any required schedules and attachments.

• 1990-current delinquent Form 5500-EZ- use the correct Form 5500-EZ for that year.

• Pre-1990 delinquent Form 5500-EZ- use the current year Form 5500-EZ.

• Form 5500 required for the delinquent year - use the current year Form 5500-EZ, filled out with the beginning and ending dates for the plan year for which the return was delinquent.

3. Write in red at the top of each paper return: "Delinquent Return Filed under Rev. Proc. 2015-32, Eligible for Penalty Relief."

4. Complete Form 14704. Attach this Transmittal Schedule to the top of your submission (including all delinquent returns).

5. Pay the required fee. The fee is $500 per delinquent return, up to $1,500 per plan. Make your check payable to "United States Treasury."

6. Mail your returns. Electronically filed delinquent returns are not eligible for penalty relief.

First class mail

Internal Revenue Service
1973 North Rulon White Blvd.
Ogden, UT 84404-0020

Private delivery services

Internal Revenue Submission Processing Center
1973 North Rulon White Blvd.
Ogden, UT 84404

Penalties that otherwise apply

Without the program, a plan sponsor faces many potential late filing penalties, including:

• $25 per day, up to $15,000 for each late Form 5500 or 5500-EZ, plus interest (IRC Section 6652(e)).

• $1,000 for each late actuarial report (IRC Section 6692)

Reasonable cause for late filing

As an alternative to submitting late returns under this delinquent filer program, you may instead request relief by attaching a statement to your delinquent return, signed by a person in authority, stating your reasonable cause for the untimely return. However, if the request is denied, you will receive a penalty notice (CP 283) and the return will no longer be eligible for this delinquent filer program.

June 29, 2015

ERISA-Eleventh Circuit Holds That Plaintiff Did Not Timely File Her Claim For Long Term Disability Benefits And Is Not Entitled To Toll The Applicable Limitations Period

In Wilson v. The Standard Insurance Company, No. 14-10825 (11th Cir. 2015) (Unpublished Opinion), Harriet Wilson appeals the district court's grant of summary judgment in favor of Standard Insurance Company on her ERISA claim for long term disability benefits.

In this case, the grant of judgment against Wilson was based on her failure to file her lawsuit within the three-year period prescribed in the governing disability policy. She filed thirty-four months after that period expired. She contends that the running of the three-year contractual limitations period should be equitably tolled for the thirty-four months that her lawsuit was late, because Standard's letter denying her claim did not give her notice that the policy imposed a three-year limitations period instead of the six-year period for contract actions that would otherwise have been borrowed from state law. She argues that the contractual limitations period should be equitably tolled until the date she filed her lawsuit because Standard violated an ERISA regulation that required it to provide in the claim denial letter notice of the time limit for filing a lawsuit.

In analyzing this case, the Eleventh Circuit Court of Appeals (the "Court") noted that ERISA does not provide a statute of limitations for suits, such as this one, brought under § 502(a)(1)(B) of ERISA to recover benefits. Thus, a court borrows the most closely analogous state limitations period, unless the parties have contractually agreed to a different one in the ERISA plan. In case of such agreement, the court will follow the plan's limitations provision, unless it determines either that the period is unreasonably short, or that a controlling statute prevents he limitations provision from taking effect. The Court ruled that neither of the two exceptions apply here.

As to Wilson's equitable tolling argument, the Court said that, in this case, the policy's contractual limitations period is enforceable, unless Wilson can establish that she is entitled to equitable tolling, by showing both extraordinary circumstances and diligence in pursuing her rights. In this case, Wilson did not show the required diligence, since she failed to either investigate basic issues that are relevant to her claim or proceed with the claim in a reasonably prompt fashion. Wilson could have requested a copy of the policy, which was central to her claim, and one of whose terms was the contractual limitations period. Her lawsuit easily could have been timely filed if she had exercised even minimal diligence in discovering the terms of the policy. As such, the Court affirmed the district court's summary judgment.

June 26, 2015

Employee Benefits-Supreme Court Rules That Code Section 36B Tax Credits (That Is, The Health Care Subsidies) Are Available When Health Insurance Is Purchased On A Federal Exchange

In King v. Burwell, No. 14-114 (Supreme Court 2015), the Court faced a key question arising under the Affordable Care Act.

The Background: The Affordable Care Act contains a number of reforms, including:

-- the requirement that individuals either purchase health insurance coverage or pay a penalty to the IRS (unless the cost of purchasing insurance would exceed eight percent of that individual's income);

--making insurance more affordable by giving refundable tax credits, under section 36B of the Internal Revenue Code, to individuals with household incomes between 100 percent and 400 percent of the federal poverty line; and

--requiring the creation of an "Exchange" in each State--basically, a marketplace that allows people to compare and purchase health insurance plans.

The Exchanges, Tax Credits And The Issue: The Affordable Care Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish "such Exchange" if the State does not. Relatedly, the Act provides that tax credits "shall be allowed" for any "applicable taxpayer," but only if the taxpayer has enrolled in an insurance plan through an Exchange established by the State. Section 36B(a) -(c). The Issue becomes whether the tax credits are available when the individual has enrolled in (that is, purchases) health insurance offered under an Exchange established by the Federal Government. An IRS regulations indicates that the tax credits are so available.

Holding By The Court: Section 36B's tax credits are available to individuals in States that have a Federal Exchange, and who purchase health insurance through that Federal Exchange.

June 25, 2015

ERISA-Sixth Circuit Rules That Equitable Relief Is Available When Plan And SPD Conflict

In Pearce v. Chrysler Group, L.L.C. Pension Plan, No. 13-2374 (6th Cir. 2015) (Unpublished Opinion), the plaintiff, Randy Pearce ("Pearce"), was appealing, among other matters, the district court's finding that the applicable summary plan description (the "SPD") did not materially conflict with the applicable retirement pension plan (the "Pension Plan"), and therefore any motion to amend the complaint to seek equitable relief under ERISA § 502(a)(3) would be futile. Upon review, the Sixth Circuit Court of Appeals (the "Court") reversed the district court's finding.

The Court said that, under ERISA § 502(a)(3), a material conflict between the SPD and the Pension Plan can give rise to a claim for equitable relief. In this case, the Plan requires a participant to be employed at retirement to be eligible for the type of pension benefit Pearce is claiming. The SPD does not contain this requirement. As such, the Pension Plan and SPD are in material conflict, and the district court abused its discretion when it denied Pearce's motion to add equitable claims under ERISA § 502(a)(3). The Court did not express an opinion on the merits of Pearce's ERISA § 502(a)(3) claims, other than to state that they are not futile.

June 24, 2015

ERISA-Eighth Circuit Holds That Plaintiff's Law Suit Was Not Timely Filed

In Munro-Kienstra v. Carpenters' Health and Welfare Trust Fund of St. Louis, No. 14-1655 (8th Cir. 2015), Debra Munro-Kienstra had alleged, under ERISA, wrongful denial of health care benefits by the Carpenters' Health and Welfare Trust Fund of St. Louis' Employee Welfare Benefit Plan (the "Plan"). The Plan stated that any ERISA action for denial of benefits must be brought within two years of the date of denial. Munro-Kienstra learned that she had been denied coverage in July 2009, and she filed this action over two years later in January 2012. The district court concluded that Munro-Kienstra's claim was time barred and granted summary judgment for Carpenters. Munro-Kienstra appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the "Court"), affirmed the district court's decision. The Court noted that ERISA contains no statute of limitations for actions to recover plan benefits. It said that parties may fill this gap by agreeing to a reasonable limitations period in their contract, i.e., a plan covered by ERISA. In the absence of a contractual limitations period, or if the parties have expressly agreed to incorporate a state law limitations period into a plan, a Court will apply the most analogous state statute of limitations. Here, the Plan provided a two year filing period, and it is undisputed that Munro-Kienstra failed to file her claim within this two year period.

The Court further said that where, as here, the Plan contains its own limitations period, the analogous state statute of limitations-here the 10 year filing period allowed by Missouri- will not apply, unless either (1) the Plan's period is unreasonably short, or (2) a controlling state statute prevents the limitations provision from taking effect. The Court found that neither (1) or (2) applies in this case. As to (2), the Court noted that State law does not apply of its own force to a suit based on federal law, especially a suit under ERISA, with its comprehensive preemption provision. Applying the Missouri statute here would negate an ERISA plan provision, negatively impact the administration of ERISA plans, and create inconsistencies with other ERISA provisions. As such, the Court concluded that the 10 year filing period under Missouri law could not apply, as it would violate ERISA's comprehensive preemption provision. The Court also noted that the ERISA "savings clause", under which ERISA does not preempt state insurance law or laws that apply to multiple employer arrangements, did not apply here, since the Plan is self-insured and a collectively bargained plan.

June 17, 2015

ERISA-Fourth Circuit Holds That Plaintiffs Have Standing To Pursue Claim For Disgorgement Of Profits

In Pender v. Bank of America Corp., No. 14-1011 (4th Cir. June 8, 2015), an employer was deemed to have wrongly transferred assets from a pension plan that enjoyed a separate account feature (i.e., a 401(k) plan) to a pension plan that lacked one (i.e., a defined benefit plan). Although the transfers were voluntary and the employer guaranteed that the value of the transferred assets would not fall below the pre-transfer amount, an Internal Revenue Service audit resulted in a determination that the transfers nonetheless violated the law (specifically, the anti-cutback rule of Code section 411(d)(6) and ERISA section 204(g)(1)) which protects the separate account feature). The plaintiffs, who held such separate accounts and agreed to the transfers, brought suit under ERISA and sought disgorgement of, i.e., an accounting for profits as to, any gains the employer retained from the transaction. The district court dismissed their case, holding that they lacked statutory and Article III standing. The plaintiffs appeal.

In analyzing the case, the Fourth Circuit Court of Appeals (the "Court"), reversed the district court's decision, finding that the plaintiffs have both statutory and Article III standing to pursue their claim for disgorgement. The Court said that, to show statutory standing, the plaintiffs must identify the provision of ERISA that entitles them to bring the claim for the relief they seek. In this case, the Court found that the plaintiffs may bring this suit under section 502(a)(3) of ERISA, since the suit is for "appropriate equitable relief" for the violation of the ERISA anti-cutback rule. Consequently, the plaintiffs have statutory standing.

As to the Article III standing, the Court said that there exist three "irreducible minimum requirements" for Article III: (1) an injury in fact (i.e., a concrete and particularized invasion of a legally protected interest); (2) causation (i.e., a fairly traceable connection between the alleged injury in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is likely and not merely speculative that the plaintiff's injury will be remedied by the relief plaintiff seeks in bringing suit). The Court found that the plaintiffs met these minimum requirements, due to the employer's retention of profits at the plaintiff's expense (satisfying the injury and cause requirements) and since the court could grant effective relief (satisfying the redressability requirement).

June 16, 2015

Employee Benefits-IRS Issues New Listing of Required Modifications (LRMs)

In Employee Plans News, Issue No. 2015-6, June 10, 2015, the Internal Revenue Service (the "IRS") issues an extensive, new Listing of Required Modifications (LRMs). The new listing is here. The IRS call the new listing a collection of information packages designed to assist sponsors who are drafting or re-drafting plans to conform with applicable law and regulations. The new listing includes LRMs for cash balance plans, ESOPS, 403(b) plans, defined benefit plans, defined contribution plans and CODAs.

June 15, 2015

Employee Benefits-IRS Announces That Its Pre-Approved Plan Program Is Expanded to Include Cash Balance Plans and ESOPs

In Employee Plans News, Issue No. 2015-6, June 10, 2015, the Internal Revenue Service (the "IRS") announces that its pre-approved plan program is expanded to include cash balance plans and ESOPS. Here is what the IRS said.

Revenue Procedure 2015-36 updates existing guidance on master & prototype and volume submitter plan applications for opinion and advisory letters. Important changes in the new revenue procedure include:

• Extending the application deadline for pre-approved defined benefit plans from June 30 to October 30, 2015,
• Opening the pre-approved plan program to cash balance plans for submission by October 30, 2015, and
• Expanding the pre-approved plan program to employee stock ownership plans (ESOPs) during the defined contribution application period beginning February 1, 2017.

Concurrent with the new revenue procedure, the IRS has also released sample language - Listings of Required Modifications (LRMs) - for pre-approved cash balance plans and ESOPs.

Converting individually designed plans into pre-approved plans

Employers currently maintaining individually designed plans that intend to adopt pre-approved cash balance plans or ESOPs (when available) should complete Form 8905, Certification of Intent To Adopt a Pre-approved Plan, before the end of their plan's current 5-year remedial amendment cycle. This form serves as a record of the employer's intention to transition from an individually designed plan to a pre-approved plan. See the FAQs on Form 8905 and Revenue Procedure 2007-44, Part IV for further information.

If an employer doesn't know which particular pre-approved plan it will ultimately adopt the employer does not need to complete Part II or the information in Part III, line 4, of Form 8905 (requiring identifying information on the pre-approved plan and certification by the M&P sponsor or VS practitioner). Instead, attach a statement indicating that the employer intends to adopt a pre-approved cash balance plan or ESOP when the plan has received an opinion/advisory letter. The employer should keep a copy of the form and statement and attach them to any determination letter application (Form 5300, 5307 or 5310) they file.


June 11, 2015

Employee Benefits-Eighth Circuit Rules That Taxpayer Engaged In A Prohibited Transaction, When He Used An IRA To Fund A Business Which Paid Him Wages

In Ellis v. Commissioner of Internal Revenue, No. 14-1310 (8th Cir. 2015), the taxpayers were appealing from the decision of the tax court finding a deficiency in their income taxes and imposing related penalties. Upon reviewing the case, the Eighth Circuit Court of Appeals (the "Court") concluded that taxpayer Mr. Ellis engaged in a prohibited transaction with respect to his individual retirement account (the "IRA"), and affirmed the tax court's ruling.

In this case, an attorney for Mr. Ellis formed CST Investments, LLC ("CST"), to engage in the business of used automobile sales in Harrisonville, Missouri. The operating agreement for CST listed two members: (1) a self-directed IRA belonging to Mr. Ellis (owing 98% of the company,), and (2) Richard Brown, an unrelated person who worked fulltime for CST (owning the remainder of the company). Mr. Ellis was designated as the general manager for CST and given "full authority to act on behalf of" the company. The operating agreement also stated that "the General Manager shall be entitled to such Guaranteed Payment as is Approved by the Members."

Mr. Ellis's IRA did not exist at the time CST was formed. Rather, he established the IRA with First Trust Company of Onaga ("First Trust") in June 2005. On June 22, 2005, he received $254,206.44 from a 401(k) that he had established with his previous employer, and he deposited the amount in his IRA. He then directed First Trust as the custodian of the IRA to acquire 779,141 shares of CST at a cost of $254,000. On August 19, 2005, Mr. Ellis received an additional $67,138.81 from his 401(k), which he again deposited into the IRA. He directed First Trust to acquire an additional 200,859 shares of CST at a cost of $65,500. Mr. Ellis reported the transfers from his 401(k) to the IRA as non-taxable rollover contributions. To compensate him for his services as general manager, CST paid Mr. Ellis a salary of $9,754 in 2005 and $29,263 in 2006. While not clear if these were guaranteed payments per the operating agreement, Mr. Ellis had, at all times, the power to have CST make payments to him.

On March 28, 2011, the Commissioner of the Internal Revenue Service sent the taxpayers, the Ellises, a notice of deficiency and related penalties, based on a determination that Mr. Ellis engaged in prohibited transactions under 26 U.S.C. § 4975(c) by (1) directing his IRA to acquire a membership interest in CST with the expectation that the company would employ him, and (2) receiving wages from CST. The notice explained that, as a result of these transactions, the IRA lost its status as an individual retirement account and its entire fair market value was treated as taxable income. See 26 U.S.C. § 408(e)(2). The Ellises filed a timely petition in tax court to contest the notice of deficiency. The tax court upheld the Commissioner's determination, and the Ellises appealed.

In analyzing the case, the Court said that Code section 4975 limits the allowable transactions for certain retirement plans, including individual retirement accounts under § 408(a). It does so by imposing an excise tax on enumerated "prohibited transactions" between a plan and a "disqualified person." 26 U.S.C. § 4975(a). Prohibited transactions include any "direct or indirect . . . transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;" or "act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account." § 4975(c)(1)(D), (E). If a disqualified person engages in a prohibited transaction with an IRA, the plan loses its status as an individual retirement account under § 408(a), and its fair market value as of the first day of the taxable year is deemed distributed and included in the disqualified person's gross income. 26 U.S.C. § 408(e)(2).

The Court continued by noting that, here, it is undisputed that Mr. Ellis was a disqualified person under § 4975(e)(2)(A) because he was a fiduciary of his IRA (as he can direct asset investment). The parties also agree that CST was a disqualified person because Mr. Ellis was a beneficial owner of the IRA's membership in the company. See id. § 4975(e)(2)(G)(i) (including as a disqualified person a corporation in which 50 percent or more of the stock is owned by a fiduciary); id. § 4975(e)(4) (stating that ownership includes indirect ownership). Therefore, said the Court, the only issue on appeal is whether the payment of wages to Mr. Ellis was a prohibited transaction. The record establishes that Mr. Ellis caused his IRA to invest a substantial majority of its value in CST with the understanding that he would receive compensation for his services as general manager. By directing CST to pay him wages from funds that the company received almost exclusively from his IRA, Mr. Ellis engaged in the indirect transfer of the income and assets of the IRA for his own benefit and indirectly dealt with such income and assets for his own interest or his own account. This results in a prohibited transaction by Mr. Ellis with respect to his IRA, and the IRA's loss of its status as such with the corresponding deemed distribution to the Ellises in an amount equal to the former IRA's fair market value.

June 9, 2015

ERISA-Second Circuit Upholds Plan Administrator's Denial Of A Disability Pension, Based On The Plan Administrator's Discretion Granted By The Plan To Make Decisions

In Ocampo v. Building Service 32B-J Pension Fund, No. 14-0877 (2nd Cir. 2015), the plaintiff was appealing the district court's summary judgment against her, on the plaintiff's claim under an ERISA plan (the "Plan") for a pension based on her permanent disability. The plaintiff had alleged in district court that the denial of her claim by the plan administrator-here the Board of Trustees of the Plan- was arbitrary and capricious, because the plan administrator determined that her disability was not permanent on the sole basis that the Social Security Administration ("SSA"), in awarding her Social Security disability benefits, had stated that her eligibility for such benefits must be reviewed at least once every three years, rather than once every five years. The district court based its summary judgment against the plaintiff on the ground that the plan at issue conferred on plan administrator discretion to determine an applicant's eligibility for benefits and that defendants' reliance on SSA determinations, policies, and procedures in this matter was not arbitrary or capricious.

The Second Circuit Court of Appeals (the "Court") affirmed the summary judgment. It noted the plaintiff's argument on appeal that the plan administrator exercised no discretion of it's own, but instead essentially delegated to the SSA the determination of whether her disability was permanent, so that its decision should be reviewed de novo. However, the Court rejected this argument. It said that the Plan provides that the plan administrator with discretionary authority to make decisions. Consequently, the denial of benefits by the plan administrator in the exercise of its discretion is reviewable only under the arbitrary-and-capricious standard. Under the facts of the case, reviewed by the Court, the decision that the plaintiff is not eligible for a disability pension under the Plan was made by the plan administrator, rather than the SSA. Further, at least two factors considered by the plan administrator-the plaintiff's failure to demonstrate the permanence of her disability and her failure to show that she suffered a permanence of disability while working in covered employment-prove that the plan administrator's denial of the pension benefit was not arbitrary or capricious.

June 8, 2015

ERISA-Second Circuit Rules That Nunc Pro Tunc Orders Constitute QDROs, Even Though Issued After The Plan Participant's Death

In Yale-New Haven Hospital v. Nicholls, No. 13-4725 (2nd Cir. 2015), Yale‐New Haven Hospital brought this suit-an interpleader action under ERISA- to resolve competing claims by Barbara Nicholls and Claire Nicholls to certain funds of the late Harold Nicholls held in four retirement plans. In this case, Barbara Nicholls, the surviving spouse of Mr. Nicholls, argues that the funds are payable to her because she is the named beneficiary in the plan documents. Claire Nicholls, the former spouse of Mr. Nicholls, contends that a portion of those funds are instead payable to her. She argues that three state court orders--her divorce settlement agreement and two nunc pro tunc orders entered after Mr. Nicholls's death--constitute qualified domestic relations orders ("QDROs") within the meaning of ERISA and thus validly assign those funds to her. The district court granted summary judgment in favor of Claire Nicholls, on the ground that the divorce settlement constitutes a QDRO applicable to all four retirement plans, so that she is entitled to the portion of the funds she is claiming.

Upon reviewing the case, the Second Circuit Court of Appeals (the "Court") held that that the divorce settlement agreement does not constitute a QDRO, because the agreement fails to comply with the five requirements of 29 U.S.C. § 1056(d)(3)(C). The Court noted that three of the retirement plans were named in the nunc pro tunc orders, while the fourth retirement plan was not. The Court held, as to the three named retirement plans, that the nunc pro tunc orders-which comply with the requirements of § 1056(d), even though the orders were issued after Mr. Nicholl's death-constitute valid QDROs that assign funds to Claire Nicholls. As to the fourth, unnamed retirement plan, the Court held that the nunc pro tunc orders do not constitute valid QDROs, since the orders failed to name that plan. As such, the Court upheld the district court's summary judgment as to the three named retirement plans, granting Claire the funds claimed under those plans, but reversed the summary judgment as to the fourth, unnamed retirement plan, thereby denying Claire's claim.

June 4, 2015

ERISA-First Circuit Rules That Termination Of Long-Term Benefits Is Arbitrary and Capricious, And Upholds A Statutory Penalty For The Failure To Produce Documents

In McDonough v. Aetna Life Insurance Company, No. 14-1293 (1st Cir. 2015), the case was brought under ERISA and presented two issues. The first concerned the operation of an "own occupation" test within the definition of disability contained in a long-term disability ("LTD") plan (the "Plan"). The second concerned the operation of ERISA's penalty provision for late disclosure or non-disclosure of relevant plan documents. See 29 U.S.C. § 1132(c)(1)(B). Upon review, the First Circuit Court of Appeals (the "Court") vacated the district court's entry of summary judgment against the plaintiff, with respect to the termination of disability benefits, and remanded that issue for further consideration by the claims administrator, which was Aetna. At the same time, the Court affirmed the district court's imposition of a $5,000 penalty for the belated production of a plan document.

As to the "own occupation" test, to be considered disabled under the Plan, the individual must (among other things) be unable to perform the material duties of his own occupation solely because of disease or injury. The Court determined that the administrator, although entitled to a deferential review, was arbitrary and capricious in terminating the LTD benefits based on its determination that the plaintiff failed to meet this test. The Court found that the administrator's termination decision was not a reasoned one. The own occupation test depends on how the occupation is normally performed in the national economy, a fact which the administrator ignored. Since this is a close case-based on both voluminous and conflicting medical evidence-the remand to the administrator is warranted.

As to the $5,000 penalty, the district court imposed the penalty on Aetna for the late production of the applicable insurance policy. The policy was provided 1,157 days late, and amounted to about $4 per day. The Court upheld the amount of the penalty, finding that the district court had not abused its discretion in determining this amount. The district court had found that the lateness was attributable to inattentiveness, and not bad faith, and the plaintiff was not prejudiced by the late receipt of the policy.

June 3, 2015

Employment-Third Circuit Requires A Stay From One Day To The Next To Be Considered Inpatient Care Under The FMLA

In Bonkowski v. Oberg Industries, Inc., No. 14-1239 (3rd Cir. 2015), the plaintiff, whose employment had been terminated, was attempting to invoke the protections of the Family and Medical Leave Act (the "FMLA"). The district court had ruled that the plaintiff was NOT entitled to this protection, because he did not show that he had a "serious health condition" under 29 U.S.C. § 2611(11)(A), i.e., "an illness, injury, impairment, or physical condition that involves (A) inpatient care in a hospital, hospice, or residential medical care facility," and therefore was not entitled to leave (or protection) under the FMLA. The plaintiff appeals this ruling.

The crux of this case is an interpretation of the regulation at 29 C.F.R. § 825.114, which defines the terms "inpatient care"-for purposes of determining if a serious health condition exists- as "an overnight stay in a hospital, hospice, or residential medical facility, including any period of incapacity as defined in 29 C.F.R. § 825.113(b), or any subsequent treatment in connection with such inpatient care." The Third Circuit Court of Appeals (the "Court") concluded that "an overnight stay" under this regulation means a stay in a hospital, hospice, or residential medical care facility for a substantial period of time from one calendar day to the next calendar day as measured by the individual's time of admission and his or her time of discharge. The Court said that, since the plaintiff was admitted and discharged on the same calendar day, he did not have an overnight stay, and thus did not have a serious health condition. Accordingly, the Court affirmed the district court's ruling.

June 2, 2015

ERISA-Ninth Circuit Rules That An Appeal Of A Benefit Denial Is Timely When Filed On The Monday Following The Saturday On Which The 180-Day Period For Appealing Had Ended

In Legras v. Aetna Life Insurance Company, No. 12-56541 (9th Cir. 2015), a panel of judges in the Ninth Circuit Court of Appeal (the "Panel") reversed the district court's dismissal of an action challenging the denial of an application for continued long-term disability benefits under ERISA. The Panel held that the district court erred in dismissing the action for failure to exhaust administrative remedies. The plaintiff's internal appeal from the denial of his benefits application was denied as untimely under a 180-day appeal period. The Panel held that the plaintiffs' notice of internal appeal was timely because it was filed on the Monday after the Saturday on which the 180-day period ended. The Panel adopted this method of counting time as part of ERISA's federal common law.

May 29, 2015

Employee Benefits-Departments Restate Their Position On Provider Non-Discrimination Under the Affordable Care Act

In FAQs about Affordable Care Act Implementation (Part XXVII), the Departments of Labor ("DOL"), Health and Human Services ("HHS"), and the Treasury (collectively, the "Departments") provide guidance on non-discrimination against service providers under the Affordable Care Act. Here is what the FAQs say:

Background. PHS Act section 2706(a), as added by the Affordable Care Act, states that a group health plan must not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider's license or certification under applicable State law. PHS Act section 2706(a) does not require that a group health plan contract with any health care provider willing to abide by the plan's terms and conditions. Further, nothing in PHS Act section 2706(a) prevents a group health plan from establishing varying reimbursement rates based on quality or performance measures. Similar language is included in section 1852(b)(2) of the Social Security Act and HHS implementing regulations.

On April 29, 2013, the Departments issued FAQs (specifically, FAQs about Affordable Care Act Implementation Part XV) which addressed, among other issues, provider nondiscrimination requirements under PHS Act section 2706(a). Subsequently, the Senate Committee on Appropriations issued a report dated July 11, 2013 (to accompany S. 1284) raising questions about the Departments' FAQs addressing provider nondiscrimination. The Departments published a request for information (RFI) on March 12, 2014, seeking comment on all aspects of interpretation of PHS Act section 2706(a). The RFI specifically solicited comments on access, costs, other federal and state laws, and feasibility. The Departments received over 1,500 comments in response to the RFI. The House Committee on Appropriations subsequently issued an explanatory statement dated December 11, 2014 (to accompany 113 H.R. 83) directing the Centers for Medicare & Medicaid Services to provide a corrected FAQ or provide an explanation.

The Departments are now issuing the following FAQs in response to the December 11, 2014 explanatory statement.

What is the Departments' Approach to PHS Act section 2706(a)? In light of the breadth of issues identified in the comments to the RFI, the Departments are re-stating their current enforcement approach to PHS Act section 2706(a). Until further guidance is issued, the Departments will not take any enforcement action against a group health plan, with respect to implementing the requirements of PHS Act section 2706(a), as long as the plan or issuer is using a good faith, reasonable interpretation of the statutory provision, which states:

"A group health plan ...shall not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider's license or certification under applicable State law. This section shall not require that a group health plan contract with any health care provider willing to abide by the terms and conditions for participation established by the plan .... Nothing in this section shall be construed as preventing a group health plan ... from establishing varying reimbursement rates based on quality or performance measures."

Specifically, Q2 in FAQs about Affordable Care Act Implementation Part XV, which previously provided guidance from the Departments on PHS Act section 2706(a), is superseded by this FAQ. The Departments will continue to work together with employers, plans, issuers, states, providers, and other stakeholders to help them comply with the provider nondiscrimination provision and will work with families and individuals to help them understand the law and benefit from it as intended.