In Foster v. Sedgwick Claims Management Services, Inc., No. 15-7150  (DC Cir. 2016), the appeal before the District of Columbia Court of Appeals (the “Court”) involved two issues under ERISA, with respect to private benefit plans. The first issue concerns the definition of “payroll practices” that are exempt from ERISA. The second addresses whether terms of the ERISA plan at issue in this case gives discretion to the plan administrator sufficient to warrant deferential review of the administrator’s benefit determinations.

In this case, in July 2014, Plaintiff  Kelly Foster sued Sedgwick Claims Management Services, Inc. (“Sedgwick”) and Sun Trust Bank Short and Long Term Disability Plans (together “Defendants”) under ERISA, to enforce her rights to benefits under short-term and long-term disability benefit plans that had been adopted by her employer, Sun Trust Bank (“SunTrust”). The district court found that the short-term plan was a “payroll practice” exempted from ERISA’s ambit by a Department of Labor regulation. Plaintiff  initially conceded this point. Because Plaintiff’s sole cause of action with respect to the short-term plan rested on ERISA, the District Court rejected Plaintiff’s claim. The District Court additionally found that the long-term plan gave Sedgwick, the plan administrator, sole discretion to “evaluate” an employee’s medical evidence and “determine” if the employee’s condition meets the plan’s definition of disability. The district court accordingly applied a deferential standard of review to Sedgwick’s denial of long-term disability benefits sought by Plaintiff and concluded that the administrator had neither abused its discretion nor acted arbitrarily or capriciously in assessing Plaintiff’s claim for benefits. The district court granted summary judgment to Defendants and dismissed Plaintiff’s complaint.

Plaintiff then filed a motion for reconsideration. She admitted she had conceded that the short-term disability plan was exempt from ERISA during summary judgment, but argued that the district court’s embrace of this position constituted an error of law. The district court rejected Plaintiff’s attempt to raise a new legal theory in a motion for reconsideration when the same claim could have been asserted during summary judgment. The district court denied the motion for reconsideration.

In Notice 2016-70, the Internal Revenue Service (“IRS”) extended the due date for providing information returns required under the Affordable Care Act (the “ACA”).  More specifically, the Notice extends the due date, from January 31, 2017, to March 2, 2017, for furnishing to individuals:

–the 2016 Form 1095-B, Health Coverage, required to be furnished by providers of “minimum essential coverage” (such as employers and insurers) under section 6055 of the Internal Revenue Code (the “Code”), and

–the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, required to be furnished by “applicable large employers” under section 6056 of the Code.

In Central States, Southeast and Southwest Areas Health and Welfare Fund v. American International Group, Inc., No. 15-2237 (7th Cir. 2016), a self-funded ERISA plan had sued several independent health insurers seeking reimbursement for medical expenses it paid on behalf of beneficiaries who were covered under both the plan and the insurers’ policies. The Seventh Circuit Court of Appeals (the “Court”) was asked to decide whether a lawsuit like this one—a “coordination of benefits” dispute—seeks “appropriate equitable relief” under section 502(a)(3) of ERISA. Six circuits have held that section 502(a)(3) does not authorize suits of this type because the relief sought is legal, not equitable. The Court decided to join this consensus and affirm the dismissal of the ERISA plan’s suit.

In Armani v. Northwestern Mutual Life Insurance Company, No. 14-56866 (9th Cir. 2016), the Court’s panel vacated in part the district court’s judgment in favor of the defendant in part in plaintiff’s action under ERISA, challenging a denial of benefits under a long term disability insurance policy.

In this case, the administrative record showed that the plaintiff could not sit for more than four hours a day. The district court, reviewing de novo, nonetheless upheld the insurer’s determination that the plaintiff could perform sedentary work. The Court’s panel held that the district court erred by rejecting the plaintiff’s proposed definition of “sedentary” work on the basis that it was drawn from the Social Security context. Agreeing with other circuits, the panel held that an employee who cannot sit for more than four hours in an eight-hour workday cannot perform “sedentary” work that requires “sitting most of the time.”

The Court’s panel vacated the part of the district court’s judgment denying the plaintiff his long term disability benefits and remanded for further proceedings.

In Deschamps v. Bridgestone Americas, Inc. Salaried Employees Retirement Plan, No. 15-6112 (6th Cir. 2016) (Unpublished), the following occurred. After working for ten years at a Bridgestone plant in Canada, Andre Deschamps (“Deschamps”) transferred to a Bridgestone facility in the United States. Prior to accepting this position he expressed concern about losing pension credit for his ten years of employment in Canada. But upon receiving assurances from members of Bridgestone’s management team that he would keep his ten years of pension credit, Deschamps accepted the position. For over a decade, Deschamps received various written materials confirming that his first date of service for pension purposes would be August 8, 1983. He even turned down employment opportunities from a competitor at a higher salary because of the purportedly higher pension benefits he would receive at Bridgestone.

However, in 2010, Deschamps discovered that Bridgestone had changed his first service date to August 1, 1993, the date he began working at the American plant. After failed attempts to appeal this change through Bridgestone’s internal procedures, Deschamps brought a suit against Bridgestone to restore August 8, 1983 as his first service date for pension purposes, alleging claims of equitable estoppel, breach of fiduciary duty, and an anti-cutback violation of ERISA.  The district court granted summary judgment for Deschamps on these three claims.

Upon review, the Sixth Circuit Court of Appeals (the “Court”) affirmed the district court’s grant of summary judgement in Deschamps’s favor on his equitable estoppel, breach of fiduciary duty, and anti-cutback claims, and remanded the case for further proceedings as may be appropriate. In particular, the Court concluded that the text of the Bridgestone plan (the Plan”) is at worst ambiguous, but at best, favors Deschamps’s argument that he was a covered employee in 1983 under the classification of “supervisor.” It is not untenable that Deschamps, in his capacity as a maintenance manager, was a supervisor under the language of the Plan. Further, it is undisputed that as a result of the change in the interpretation of this provision that excluded foreign employees from being classified as covered employees, Deschamps’s benefits were decreased. Therefore, Deschamps has established an anti-cutback violation and the district court did not err in granting summary judgment in his favor on this claim.

In Announcement 2016-32, in connection with the changes recently made to its determination letter program for qualified retirement plans, the IRS solicits comments on facilitating compliance with the requirements which apply to such plans. Here is what the IRS said:

This announcement requests comments on ways in which the Treasury Department and IRS can improve compliance with plan qualification requirements by making it easier for plan sponsors to satisfy requirements for qualified plan documents, particularly in light of the changes to the determination letter program described in Rev. Proc. 2016-37. That Rev. Proc. provides, in part, that the five-year staggered remedial amendment cycle system will be eliminated effective January 1, 2017. Rev. Proc. 2016-37 further provides that a sponsor of an individually designed plan will be permitted to submit a determination letter application only for initial qualification, for qualification upon plan termination, and in certain other circumstances to be determined by Treasury and the IRS.

In the Announcement, the IRS asks for comments on the following specific topics:

In Brown, III v. United of Omaha Life Insurance Company, No. 15-4293 (6th Cir. 2016) (Unpublished), plaintiff Lloyd Brown III (“Brown III”) alleged that defendants United of Omaha Life Insurance Company (“United”) and West Side Transport, Inc. (“West Side”) wrongfully denied him life insurance benefits. Brown III asserted contractual and equitable state law claims and, in the alternative, causes of action under ERISA §§ 502(a)(1) (claim for benefits) and  502(a)(3) (claim for equitable relief).

The district court concluded that Brown III’s state law claims against United and West Side were preempted by ERISA, granted summary judgment to Brown III on the merits of his ERISA § 502(a)(1) claim against United, and found that Brown III was not entitled to relief under ERISA § 502(a)(3) because § 502(a)(1)(B) fully provides a means for the relief sought. The district court then awarded Brown III $181,666.67 in damages for benefits due him under United’s life insurance policy, prejudgment interest, and $27,040.00 in attorneys’ fees. United appeals the judgment and remedies awarded.

Upon review, the Sixth Circuit Court of Appeals (the “Court”) affirmed the district court’s grant of summary judgment to Brown III on the merits of his § 502(a)(1) claim for benefits, since United’s reason for denying the benefits-failure to submit certain evidence of insurability-was arbitrary and capricious and could not be upheld. The Court also affirmed the district court’s awards of prejudgment interest and attorneys’ fees. However, the Court reversed the district court’s summary judgment to United on Brown III’s § 502(a)(3) claim. The Court said that, while a plaintiff cannot “repackage” a claim for benefits under 502(a)(1) into a claim for equitable relief under 502(a)(3) and  thus recover twice, here, the plaintiff can pursue the claim for equitable relief if it is based on an injury that is separate and distinct from the denial of benefits, or if the claim for benefits is inadequate to make the plaintiff whole. The Court then remanded the case back to the district court to determine whether equitable relief is available.

Following yesterday’s blog, here is what the IRS says on correcting common hardship distribution errors:

Sometimes, plan sponsors don’t follow the terms of their plan document when it comes to hardship distributions. Some of the most common errors are:

  1. making hardship distributions even though they aren’t permitted by the plan document,

Here is what the IRS says in this guidance:

Although not required, a retirement plan may allow participants to receive hardship distributions. A distribution from a participant’s elective deferral account can only be made if the distribution is both:

  • Due to an immediate and heavy financial need.

In Whitley v. BP, No.15-20282 (5th Cir., 2016), a stock drop suit, the question on appeal is whether the district court erred in holding that the plaintiff stockholders’ amended complaint stated a plausible claim under the pleading standards of the Supreme Court’s 2014 decision in Fifth-Third Bancorp v. Dudenhoffer. Upon reviewing the case, the Fifth Circuit Court of Appeals (the “Court”) determined that the district court did err, the Court reversed the holding and remanded the case.

In this case, BP, p.l.c. (“BP”) is a multinational oil and gas company headquartered in London, England. BP offered its employees a choice of investment and savings plans regulated by ERISA. These plans included the BP Stock Fund—an employee stock ownership plan (“ESOP”) comprised primarily of BP stock—as an investment option. On April 20, 2010, the BP-leased Deepwater Horizon offshore drilling rig exploded, causing a massive oil spill in the Gulf of Mexico and a subsequent decline in BP’s stock price. The BP Stock Fund lost significant value, and the affected investors filed this stock drop suit on June 24, 2010, alleging various breaches of fiduciary duty under ERISA. The District Court had ruled that an amended complaint of the plaintiffs stated a plausible claim of breach.

However, the Court concluded that, to state a plausible claim of breach under Fifth-Third Bancorp, the plaintiffs’ must-in the complaint- offer a proposed alternative to investing in and holding the BP Stock, and the proposed alternative must be one that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. But here, said the Court, the district court stated that it could not determine, on the basis of the pleadings alone, that no prudent fiduciary would have concluded that the alternatives would do more good than harm. This statement is not in accord with Fifth-Third Bancorp. Under the Fifth-Third Bancorp formulation, the plaintiffs bear the significant burden of proposing an alternative course of action so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it. They must offer facts to support the proposal. In this case, the plaintiff’s amended complaint fails to meet these requirements. Thus, the reversal by the Court.