April 18, 2014

Employment-Eleventh Circuit Rules That An Employee Must Be Eligible To Take FMLA Leave To Be Able To Bring A Claim Of FMLA Violation

In Hurley v. Kent of Naples, Inc., No. 13-10298 (11th Cir. 2014), the plaintiff, Patrick Hurley ("Hurley"), sued the defendants for violating the Family Medical Leave Act (the "FMLA").

In this case, Hurley, who suffers from depression, contends that the defendants wrongfully denied his request for eleven weeks of vacation time and terminated his employment. Following a jury trial, the district court entered, in favor of Hurley, a judgment for $200,000 in actual damages for backpay, $200,000 in liquidated damages, and $353,901.85 in damages for front pay. The defendants contend on appeal that Hurley's request did not qualify for FMLA protection, so that no damages should be awarded. The Eleventh Circuit Court of Appeals (the "Court") agreed with the defendants that Hurley did not qualify for the leave, and overturned the judgments entered by the district court.

In analyzing the case, the Court ruled that an employee must actually qualify for FMLA to state a claim of FMLA violation including a claim or interference with or retaliation for asserting FMLA rights. Here, Hurley did not so qualify, despite a chronic health condition, because he did not experience any period of incapacity or treatment for such incapacity due to a chronic serious health condition. The Court implicity accepted that neither he nor anyone else, such as a family member, met any other health condition that would qualify him for FMLA leave.

April 17, 2014

Employment -Ninth Circuit Rules That Plaintiff's Claim Of Interference With FMLA Rights Fails, Since She Declined FMLA Leave

In Escriba v. Foster Poultry Farms, Inc., Nos. 11-17608, 12-15320 (9th Cir. 2014), the plaintiff, Maria Escriba ("Escriba"), had worked in the Foster Poultry Farms, Inc. ("Foster Farms") processing plant in Turlock, California for 18 years. She was terminated in 2007 for failing to comply with the company's "three day no-show, no-call rule" after the end of a previously approved period of leave, which she took to care for her ailing father in Guatemala. Escriba subsequently filed suit under the Family and Medical Leave Act (the "FMLA") and its California equivalent. She claimed that her termination was an unlawful interference with her FMLA right. The district court denied Escriba's motion for summary judgment on the interference claim.The jury at the district court found in favor of Foster Farms on this claim, and Escriba appeals.

In analyzing the case, the Ninth Circuit Court of Appeal (the "Court") indicated that an employee can affirmatively decline to use FMLA leave, even if the underlying reasons for seeking the leave would have invoked FMLA protection, and such decline would cause a claim of interference with FMLA rights to fail. The Court said, as to the district court's denial of the summary judgment request, that whether the district court erred in entertaining Foster Farms's contention that Escriba did not intend to take FMLA leave is the dispositive issue in this case. The Court found that the district court did not err in denying Escriba's motion for summary judgment on the basis that Foster Farms's cited evidence demonstrates that Escriba was given the option and prompted to exercise her right to take FMLA leave, but that she unequivocally refused to exercise that right, the refusal voiding the interference claim.

The Court further found that substantial evidence supports the jury's verdict, so the verdict-based on a finding that Escriba declined FMLA leave- must be upheld. As such, since Escriba declined FMLA leave, the Court affirmed the holdings from the district court that Escriba's interference claim fails.

April 16, 2014

ERISA-Seventh Circuit Upholds District Court's Order Of Contempt Issued For Failure To Comply With Its Earlier Order Requiring Health Plan Participant And Her Attorney To Place Funds In Attorney's Trust Fund Account For The Plan's Subrogation Lien

In Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13‐2214 (7th Cir. 2014), the defendants were appealing an order of the district court holding them in contempt. In this case, defendant Beverly Lewis had been injured in an automobile accident in Georgia, and her health plan (the principal plaintiff in this case) paid about $180,000 for the cost of her medical treatment. Represented by the other defendant in the present suit, Georgia lawyer David T. Lashgari, Lewis brought a tort suit in Georgia state court against the driver of the car involved in the accident (her son-in-law), and obtained a $500,000 settlement, under a settlement agreement. The plan had--and Lashgari knew it had--a subrogation lien: that is, a right, secured by a lien, to offset the cost that the plan had incurred as a result of the accident against any money that Lewis obtained in a suit arising out of the accident.

The lien was thus a secured claim against the proceeds of the settlement. But when Lashgari received the settlement proceeds in June 2011, instead of giving $180,000 of the $500,000 to the plan he split the proceeds between himself and his client. Lashgari's refusal to honor the subrogation lien precipitated the present suit, filed in July 2011, a suit under ERISA to enforce the lien, under Section 502(a)(3) of ERISA. The defendants argued in the district court that because the settlement funds have been dissipated, this really is a suit for damages--that is, a suit at law rather than in equity--and therefore not authorized by Section 502(a)(3). But, according to the Seventh Circuit Court of Appeals (the "Court"), the defendants are wrong. The plan wasn't required to trace the settlement proceeds. Its equitable lien automatically gave rise to a constructive trust of the defendant's assets.

In February 2012, the district court granted a preliminary injunction against the defendants' disposing of the settlement proceeds, until the health plan received its $180,000 share. The district judge also ordered the defendants to place at least $180,000 in Lashgari's client trust fund account pending final judgment in the case. The defendants complied with neither order. They said they couldn't pay $180,000, but offered no evidence of their inability to do so. As a result, the district court issued an order holding them in contempt. Does the order stand? Yes, said the Seventh Circuit Court, since the defendants willfully ignored the plan's subrogation lien and offered no evidence as to why. Further, the Seventh Circuit Court issued an order to the defendants to show cause why they should not be sanctioned under Rule 38 for filing a frivolous appeal, and it remanded the case, directing the district court to determine whether defendants should be jailed, until they comply with the order to deposit the settlement proceeds in a trust account.

April 15, 2014

ERISA-Eighth Circuit Upholds The Plan Administrator' Decision To Deny Long Term Disability Benefits, As The Decision Was Entitled To A Deferential Review, And The Decision Was Not An Abuse Of Discretion

In Prezioso v. The Prudential Insurance Company of America, No. 13-1641 (8th Cir. 2014), the plaintiff, Michael Prezioso ("Prezioso"), brought suit under Section 502(a)(1)(B) of ERISA, claiming that the Prudential Insurance Company of America ("Prudential") wrongly denied him long term disability ("LTD") benefits-for disability due to a back injury at work- under a group policy sponsored by his former employer (the "Plan"). Prezioso appeals the district court's grant of summary judgment dismissing this claim. He argues that the court erred in applying the abuse of discretion standard of judicial review and, alternatively, that Prudential abused its discretion in denying LTD benefits.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that a denial of benefits challenged under ERISA is to be reviewed under a de novo standard, unless the benefit plan gives the administrator discretionary authority to determine eligibility for benefits, in which case a deferential standard applies. In this case, the Court found that the Plan has sufficient language to provide Prudential-the plan administrator- with such discretionary authority. For instance, the policy expressly provides that, in considering a claim for LTD benefits, Prudential may request proof of continuing disability, satisfactory to Prudential. Another provision states that benefits, if granted, will cease on the date you fail to submit proof of continuing disability satisfactory to Prudential. Further, the Plan's summary plan description ("SPD") clearly explains to plan participants that Prudential has the sole discretion to interpret the terms of the Group Contract, to make factual findings, and to determine eligibility for benefits, and that Prudential's decisions as claims administrator shall not be overturned unless arbitrary and capricious. The SPD-which clearly grants discretionary authority to Prudential-may be relied on as a clarification of the Plan. As such, the Court ruled that Prudential has the requisite discretionary authority, so that its decision to deny LTD benefits is entitled to a deferential review.

As to the question of whether Prudential abused its discretion in deciding to deny the LTD benefits, the Court said that the record demonstrates that Prudential provided Prezioso a required full and fair review before denying his first appeal from the initial denial of LTD benefits. It considered all comments, medical records, and other information submitted by Prezioso; did not afford deference to the initial decision; referred the appeal to a different decision maker; consulted a neutral health care professional with appropriate training and experience in lower back disabilities; and obtained advice from a qualified vocational expert regarding the demands of Prezioso's regular occupation. See 29 C.F.R. § 2560.503-1(h)(2) and (3). Prudential did not abuse its discretion by according more weight to the opinions of its own experts than to the opinions of Prezioso's treating physicians and other experts. Based on this record, the Court held that Prudential did not abuse its discretion in denying Prezioso's first appeal from the adverse initial decision. Similarly, the Court held that subsequent medical evidence submitted by Prezioso for a voluntary, second appeal he took did not render Prudential's denial of his mandatory first appeal an abuse of discretion As such, the Court concluded that Prudential did not abuse it discretion in deciding to deny the LTD benefits, and affirmed the district court's summary judgment in Prudential's favor.

April 14, 2014

Employment-Eleventh Circuit Rules That Plaintiff Waived Her Rights Under The FMLA By Signing A Severance Agreement, Despite DOL Proscription Against Prospective FMLA Waivers

In Paylor v. Hartford Fire Insurance Company, No. 13-12696 (11th Cir. 2014), the plaintiff, Blanche Paylor ("Paylor"), appeals the district court's grant of summary judgment for her former employer, Hartford Fire Insurance Company ("Hartford"), on her claims of interference and retaliation under the Family Medical Leave Act of 1993 (the "FMLA"). In this case, although Paylor signed a Severance Agreement with Hartford ostensibly waiving her FMLA claims, she argues that those claims were "prospective" and therefore not waivable under Department of Labor ("DOL") regulations. See 29 C.F.R. § 825.220(d) (2009). In the alternative, Paylor argues that her signing of the Severance Agreement was not knowing and voluntary, and that the Severance Agreement is void as contrary to public policy.

In analyzing the case, the Eleventh Circuit Court of Appeals (the "Court") said that the only issue is the validity of the Severance Agreement that Paylor signed, since if the agreement is valid, then Paylor waived her FMLA rights. Paylor's principal argument for invalidity is that the district court erred in concluding that she waived her FMLA claims when she signed the Severance Agreement. Paylor says this waiver cannot be enforceable against her because the FMLA does not permit employees to waive "prospective rights" without Department of Labor ("DOL") or court approval, and her rights in this case were "prospective" in the sense that she had--at the time she signed the agreement--an outstanding request for FMLA leave.

The Court noted a DOL regulation, which says "Employees cannot waive, nor may employers induce employees to waive, their prospective rights under FMLA." 29 C.F.R. § 825.220(d) (2009). According to the Court, it is well-settled that an employee may not waive "prospective" rights under the FMLA, but an employee can release FMLA claims that concern past employer behavior. But what are "prospective rights"? The Court said that such rights, under the FMLA, are those allowing an employee to invoke FMLA protections at some unspecified time in the future, so that an employee may not waive FMLA rights, in advance, for violations of the statute that have yet to occur. The Severance Agreement Paylor signed did not ask her to assent to a general exception to the FMLA, but rather to a release of the specific claims she might have based on past interference or retaliation. Hence, Paylor did not waive prospective rights.

The Court disposed of Paylor's remaining arguments based on a review of the record, finding she voluntarily signed the Severance Agreement based on a totality of the circumstances, and that the public policy argument was not presented to the district court and therefore cannot be addressed on appeal. As such, the Court concluded that the Severance Agreement-and the waiver of the FMLA rights- is valid, and the Court affirmed the district court's summary judgment in favor of Hartford.

April 11, 2014

Employee Benefits-Multiemployer Pension Plans May Have to Be Amended To Comply With IRS Guidance On The Treatment of Same- Sex Marriage By Retirement Plans THE IRS GUIDANCE

In Notice 2014-19 (the "Notice") and accompanying Frequently Asked Questions posted on its website (the FAQs), the Internal Revenue Service (the "IRS") provides guidance on the application of the Supreme Court's decision in United States v. Windsor ("Windsor") and the holdings of Rev. Rul. 2013-17 to the treatment of same-sex marriages by a multiemployer pension plan (and any other tax-qualified retirement plan).

BACKGROUND ON SAME-SEX MARRIAGE ISSUE

Prior to Windsor , section 3 of the Defense of Marriage Act ("DOMA") prohibited the recognition of same-sex spouses for purposes of Federal tax law. Windsor ruled that section 3 is unconstitutional. Based on this decision, Rev. Rul. 2013-17 held the following:

(1) For Federal tax purposes, the terms "spouse," "husband and wife," "husband," "wife" : (a) include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term "marriage" includes such a marriage between individuals of the same sex and (b) do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term "marriage" does not include such formal relationships.

(2) For Federal tax purposes, the IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex, even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

These holdings apply to a multiemployer pension plan, prospectively as of September 16, 2013.

PLAN PROVISIONS AFFECTED

Very briefly, the Windsor outcome will affect any plan provision that considers a participant's marital status, such as those pertaining to qualified joint and survivor annuities ("QJSAs"), qualified preretirement survivor annuities ("QPSAs"), beneficiary designations, loans, section 415 limits, incidental death benefit requirements, minimum required distributions, rollovers, safe harbor hardship withdrawals, qualified domestic relations orders ("QDROs") and stock ownership attribution rules.

RULES UNDER THE NOTICE

The Notice establishes the following rules for a multiemployer pension plan:

Uniform Treatment. Any retirement plan qualification rule, under section 401(a) of the Internal Revenue Code (the "Code"), that applies because a participant is married must be applied with respect to a participant who is married to an individual of the same sex. For example, a participant in a plan subject to the rules of section 401(a)(11) of the Code who is married to a same-sex spouse cannot waive a QJSA without obtaining spousal consent pursuant to section 417 of the Code.

Mandatory Effective Date. Plan operations must reflect the outcome of Windsor as of June 26, 2013. A plan will not be treated as failing to meet the requirements of section 401(a) of the Code merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013.

Amendment Prior To Mandatory Effective Date. A plan will not lose its qualified status due to an amendment to reflect the outcome of Windsor for some or all purposes of the plan and the Code as of a date prior to June 26, 2013, if the amendment complies with applicable qualification requirements (such as those in section 401(a)(4)). For example, for the period before June 26, 2013, a plan sponsor may choose to amend its plan to reflect the outcome of Windsor solely with respect to the QJSA and QPSA requirements of section 401(a)(11) and, for those purposes, solely with respect to participants with annuity starting dates or dates of death on or after a specified date.

Transition Rule. A plan will not be treated as failing to meet the requirements of section 401(a) merely because the plan, prior to September 16, 2013, recognized the same-sex spouse of a participant only if the participant was domiciled in a state that recognized same-sex marriages.

SPECIFIC APPLICATION UNDER THE FAQs

The FAQs provide guidance on specific applications of the Windsor decision, Rev. Rul. 2013-17 and the Notice (together, the "Notice Requirements") to a multiemployer pension plan:

Particular Rule For Beneficiary Designations. In a profit-sharing or stock bonus plan, to the extent the section 401(a) qualification rules require a married participant's spouse to be the participant's beneficiary with respect to all or part of the participant's benefits (unless the spouse consents to the participant's designation of another beneficiary), the plan must treat a participant who is lawfully married on the date of death to an individual of the same sex as married for purposes of applying those qualification rules with respect to a participant who dies on or after June 26, 2013. This applies regardless of any conflicting plan terms and regardless of any prior beneficiary or other designation to which the participant's spouse has not consented that specifies an individual other than the participant's spouse to receive those benefits (except as provided in a QDRO).

State Law Not Applicable. If a plan's terms designate a particular state's laws as applying to the plan, and that state does not recognize same-sex marriage for purposes of applying state law, it is not permissible , on and after June 26, 2013, for the plan to be operated in a manner that does not recognize a participant's same-sex spouse with respect to the section 401(a) qualification requirements which apply to married participants. Thus, if-on or after June 26, 2013- a plan administrator does not recognize the participant's same-sex spouse for purposes of the plan provisions that are required under section 401(a) because a plan administrator interprets the terms of the plan by applying a designated state's laws (such as under a plan's choice of law provision) to identify a participant's marital status, then the plan would violate the qualification requirements of section 401(a).

Retroactive Application of Amendments. A plan that is retroactively amended to be consistent with the Notice Requirements will not fail to retain its qualified status if the retroactive amendment is implemented using principles similar to those in the Employee Plans Compliance Resolution System (the "EPCRS"), as set forth in Rev. Proc. 2013-12. For example, if the plan is retroactively amended to apply the spousal consent rules under sections 401(a)(11) and 417 consistently with the Notice Requirements, the plan may obtain spousal consent to remedy a prior lack of spousal consent under the principles described in section 6.04(1) of Rev. Proc. 2013-12.

New Rights. In light of the Windsor decision, a plan sponsor may wish to amend a plan to provide new rights or benefits with respect to participants with same-sex spouses - such as an amendment that provides those participants with a new opportunity to elect a QJSA - to make up for benefits that were not previously available to those participants. Such an amendment must comply with the applicable qualification requirements (such as section 401(a)(4)).

REQUIRED AMENDMENTS

The Notice requires that amendments be adopted by a multiemployer pension plan as follows:

(1) If the plan's terms with respect to the requirements of section 401(a) define a marital relationship by reference to section 3 of DOMA or are otherwise inconsistent with the outcome of Windsor or the guidance in Rev. Rul. 2013-17 or the Notice, then an amendment to the plan that reflects such outcome or guidance must be adopted.

(2) An amendment is required if a plan sponsor chooses to apply the rules with respect to married participants in a manner that reflects the outcome of Windsor for a period before June 26, 2013. The amendment must specify the date as of which, and the purposes for which, the rules are applied in this manner.

(3) An amendment is not required, if a plan's terms are not inconsistent with the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and the Notice (for example, the term "spouse," "legally married spouse" or "spouse under Federal law" is used in the plan without any distinction between a same-sex spouse and an opposite-sex spouse).

(4) The deadline to adopt an amendment required in (1) or (2) above is the latest of: (a) the last day of the tenth month following the close of the plan year in which June 26, 2013 falls or (b) December 31, 2014.

Note: For a multiemployer pension plan, an amendment required in (1) is not subject to the requirements of section 432 of the Code (generally prohibiting an amendment which increases liabilities through changes to benefits, benefit accruals, or vesting schedules for a plan in endangered or critical status), while an amendment required in (2) is subject to those requirements.

PLAN SPONSOR ACTION

A plan sponsor of a multiemployer pension plan (normally the Trustees) needs to review the plan to determine if an amendment is required under the Notice and FAQs. Further, since the plan must comply with the requirements of the Notice and FAQs in operation, the plan sponsor needs to review the plan procedures, summary plan descriptions, election forms and notices, and other participant communications to see if revisions to them are needed. New communications may be required in any event if any options change or new beneficiary designations must be made. Finally, the plan sponsor should review whether the plan has complied with the Windsor outcome on and after June 26, 2013 (except as otherwise allowed by the Transition Rule) (e.g., whether QJSAs and QPSAs were properly made available).


April 9, 2014

Employee Benefits-IRS Provides Guidance On Keeping Your SARSEP Compliant

Do you have a Salary Reduction Simplified Employee Pension ("SARSEP") plan? If so, you need to keep the SARSEP in compliance with technical requirements. To help, the Internal Revenue Service ("IRS") has provided a "SARSEP Checklist" and a "SARSEP Plan Fix-It Guide". Check them out.

April 8, 2014

ERISA-Sixth Circuit Rules That Plaintiff Is Entiled To Long-Term Disability Benefits, Despite A Determination To The Contrary By the Plan Administrator

In Javery v. Lucent Technologies, Inc. Long Term Disability Plan For Management or LBA Employees, No. 12-3834 (6th Cir. 2014), the plaintiff, Nilratan Javery ("Javery"), was appealing the judgment of the district court in favor of the defendant, Lucent Technologies, Inc. Long Term Disability Plan For Management or LBA Employees (the "Plan"), denying Javery's claim under ERISA for long-term disability ("LTD") benefits.

In this case, Javery contends that the Plan wrongfully denied his application for LTD benefits. In support of his claim, Javery submitted opinions and evaluations from several medical doctors and psychiatrists, the majority of whom assert that Javery was unable to perform his job as a result of his physical and mental illnesses. Javery also offered other evidence including his successful application for Social Security disability benefits to show that he was "disabled" as that term is defined in the Plan. The Plan argues that Javery has not established by a preponderance of the evidence that he was "disabled" at the relevant time. Additionally, the Plan contends that Javery should be judicially estopped from pursuing his ERISA claim because he failed to disclose the claim in his Chapter 13 personal bankruptcy action.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") first refused to apply the estoppel defense, since Javery's failure to disclose the claim in the Bankruptcy action was almost certainly due to carelessness or inadvertent error as opposed to intentional, strategic concealment or impermissible gamesmanship. The Court then considered whether the district court erred in denying Javery's claim for LTD benefits. In this case, the decision of the plan administrator to deny the claim on the Plan's behalf is not entitled to deference, since the plan administrator was not given discretionary authority to decide claims. The Court said that, to succeed in his claim for LTD benefits under ERISA, Javery must prove by a preponderance of the evidence that he was "disabled," as that term is defined in the Plan. The Plan defines the term "disabled" as being "prevented by reason of . . . disability . . . from engaging in [his] occupation or employment at the Company." Thus, the dispositive inquiry is whether Javery was unable to work for Lucent (his employer) as a software engineer due to his physical condition, his mental condition, or a combination of the two. Here, the Court concluded, after a "careful and comprehensive review of the full administrative record and supplemental administrative record" that Javery proved that he was so disabled.

Based on this finding, the Court overturned the district court's decision, and remanded the case back to the district court with instructions to enter judgment approving Javery's claim for the LTD benefits.

April 7, 2014

Employee Benefits- Treasury And IRS Issue Guidance Facilitating Tax-Free Rollovers To Employer-Sponsored Retirement Plans

According to a Press Release dated 4/3/14, the U.S. Department of the Treasury and the Internal Revenue Service ("IRS") have issued guidance-in the form of a Revenue Ruling- designed to help individuals accumulate and consolidate retirement savings by facilitating the transfer of savings from one retirement plan to another. This guidance will increase pension portability by making it easier for employees changing jobs to move assets to their new employers' retirement plans.

The Press Release says that the ruling simplifies the rollover process by introducing an easy way for a receiving plan to confirm the sending plan's tax-qualified status. The plan administrator for the receiving plan can now simply check a recent annual report filing for the sending plan on a database that is readily available to the public online. This eliminates the need for the two plans to communicate (with the individual as go-between), expedites the rollover process, and reduces associated paperwork.

The Revenue Ruling is here.

April 4, 2014

Employee Benefits-Department Of Health & Human Services Provides Guidance On Health Coverage Of Same-Sex Spouse

The Department of Health & Human Services (the "DHHS") has provided guidance on coverage of same-sex spouses by employee benefit plans. The guidance is here. It says the following:

Background. On February 27, 2013, the Centers for Medicare & Medicaid Services ("CMS") of the DHHS published final regulations implementing section 2702 of the Public Health Service Act (the "PHS Act"). Section 2702 of the PHS Act requires health insurance issuers offering non-grandfathered health insurance coverage in the group or individual markets (including qualified health plans offered through Affordable Insurance Exchanges) to guarantee the availability of health coverage unless one or more exceptions applies. The preamble to the final regulations (78 FR at 13417) indicates that discriminatory marketing practices or benefit designs represent a failure by health insurance issuers to comply with the guaranteed availability requirements, and the final regulations at 45 CFR 147.104(e) establish certain marketing and nondiscrimination standards in the regulation text.

New Guidance. The following serves to clarify the meaning of the terms used in 45 CFR 147.104(e) for the purposes of describing the requirements health insurance issuers must meet to ensure guaranteed availability of coverage.

1) If a health insurance issuer in the group or individual market offers coverage of an opposite-sex spouse, the issuer may not refuse to offer coverage of a same-sex spouse. Federal regulations at 45 CFR 147.104(e) provide that a health insurance issuer offering non-grandfathered group or individual health insurance coverage cannot employ marketing practices or benefit designs that discriminate on the basis of certain specified factors. One such factor is an individual's sexual orientation. As CMS has used the terms in this regulation, an issuer violates this requirement if-

-- the issuer offers coverage of an opposite-sex spouse; and

-- the issuer chooses not to offer, on the same terms and conditions as those offered to an opposite-sex spouse, coverage of a same-sex spouse based on a marriage that was validly entered into in a jurisdiction where the laws authorize the marriage of two individuals of the same sex, regardless of the jurisdiction in which the insurance policy is offered, sold, issued, renewed, in effect, or operated, or where the policyholder resides.

2) This regulation does not require a group health plan (or group health insurance coverage provided in connection with such plan) to provide coverage that is inconsistent with the terms of eligibility for coverage under the plan, or otherwise interfere with the ability of a plan sponsor to define a dependent spouse for purposes of eligibility for coverage under the plan. Instead, this regulation prohibits an issuer from choosing to decline to offer to a plan sponsor (or individual in the individual market) the option to cover same-sex spouses under the coverage on the same terms and conditions as opposite sex-spouses.

3) CMS expects issuers to come into full compliance with the regulations as clarified in this guidance no later than for plan or policy years beginning on or after January 1, 2015. It also expect States to begin enforcing the regulations in accordance with this clarification by the same time. CMS will not consider a State to be failing to substantially enforce PHS Act section 2702 in connection with this clarification for earlier policy years.

April 3, 2014

ERISA-Second Circuit Case Discusses the Determination of An Award Of Attorney's Fees For A Plaintiff Who Prevails On An ERISA Claim

In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), the plaintiff ("Donachie") suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston ("Liberty"), the administrator of his employer's LTD plan. On the basis of it's own doctor's recommendation, Liberty denied Donachie's claim. Ultimately, this suit ensued.

The district court granted summary judgment to Donachie on his claim for the LTD benefits, and the Second Circuit Court of Appeals (the "Court") affirmed this decision. But what about Donachie's request for attorney's fees, which the district court denied? Here is what the Court said:

This Court reviews a district court's denial of an application for attorneys' fees under ERISA for abuse of discretion. ERISA's fee shifting statute provides that the court in its discretion may allow a reasonable attorney's fee and costs to either party. 29 U.S.C. § 1132(g)(1). The Supreme Court has said that a district court's discretion to award attorneys' fees under ERISA is not unlimited, inasmuch as it may only award attorneys' fees to a beneficiary who has obtained some degree of success on the merits. In addition to this standard, the Supreme Court said that a court may use a test, when deciding whether or not to grant attorney's fees, based on the 5 following factors, called the "Chambless Factors" in the Second Circuit:

(1) the degree of the opposing parties' culpability or bad faith;

(2) ability of opposing parties to satisfy an award of attorneys' fees;

(3) whether an award of attorneys' fees against the opposing parties would deter other persons acting under similar circumstances;

(4) whether the parties requesting attorneys' fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and

(5) the relative merits of the parties' positions.

The Court said that, in this case, there is no question that, as the prevailing party, Donachie was eligible for an award of attorneys' fees. Although the district court had discretion to consider whether the Chambles Factors provided a particular justification for denying Donachie attorneys' fees, it misapplied that framework. It originally denied attorneys' fees on the sole basis that Liberty had not acted in bad faith. But the Court has explained that a party need not prove that the offending party acted in bad faith in order to be entitled to attorneys' fees. The district court also did not address Liberty's degree of culpability or the relative merits of the party's positions. The Court has also explained that while the degree of culpability and the relative merits are not dispositive under the Chambless Factors, they do weigh heavily. By inadequately addressing these two important factors and, instead, treating the absence of bad faith as the most salient factor, the district court committed an error of law, and, therefore, abused its discretion.

The Court said that its review of the record reveals no particular justification for denying Donachie's request for attorneys' fees, and the Court is persuaded that awarding attorneys' fees in the circumstances presented furthers a policy interest of vindicating the rights secured by ERISA. Accordingly, the Court vacated the district court's denial of an award of attorneys' fees to Donachie, and remanded the case back to the district court with directions to award Donachie reasonable attorneys' fees in an amount to be calculated on remand.



April 2, 2014

ERISA-Second Circuit Affirms Summary Judgment Granting Long-Term Disability Benefits

In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), one issue on appeal is whether the district court erred by entering sua sponte summary judgment for plaintiff on his claim for long-term disability ("LTD") benefits pursuant to ERISA.

In this case, the plaintiff ("Donachie") suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston ("Liberty"), the administrator of his employer's LTD plan (the Plan"). On the basis of its own doctor's recommendation, Liberty denied Donachie's claim. Ultimately, this suit ensued.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that a sua sponte grant of summary judgment to the plaintiff is permissible only if the facts before the district court were fully developed so that the defendant suffered no procedural prejudice and the court is absolutely sure that no issue of material fact exists. Here, Liberty does not contend that it was denied the opportunity to place all relevant evidence in the record. Accordingly, the district court's grant of summary judgment was not procedurally deficient. Further, upon review of the record, the Court concluded that Liberty's denial of LTD benefits was arbitrary and capricious. Liberty ignored substantial evidence from Donachie's own treating physicians that he was incapable of performing his current occupation, while failing to offer any reliable evidence to the contrary. Accordingly, the Court affirmed the District Court's judgment under which it entered summary judgment for Donachie on his ERISA claim for LTD benefits.

April 1, 2014

ERISA-District Rules That Defendants, Who Own And Control An Employer, Are Liable For A Judgment Obtained Against The Employer For Failing To Make Required Contributions To Multiemployer Health And Welfare Funds

In The Construction Industry and Laborers Health and Welfare Trust v. Archie, No. 2:12-CV-225 JCM (VCF), (D.C. Nevada 2014), the following situation arose. The plaintiffs claim to be fiduciaries, for the purposes of ERISA, of certain multiemployer health and welfare funds (the "Funds"). According to the plaintiffs, the defendants were the officers, directors and/or owners of a corporation named Floppy Mop. This corporation and the Laborers International Union of North America, Local No. 872 signed a collective bargaining agreement (the "CBA"). The CBA required Floppy Mop to submit monthly remittance reports and to make timely contributions based on those reports to the plaintiffs, for deposit in the Funds, on behalf of each employee who performed work covered by the CBA.

In a prior lawsuit, the plaintiffs obtained a judgment against Floppy Mop in the amount of $535,158, based on its failure to make required contributions to the Funds. Plaintiffs have now filed the instant lawsuit against Sheryl Archie and James McKinney, the defendants, whom plaintiffs claim are personally liable for Floppy Mop's outstanding judgment by virtue of their ownership and control of Floppy Mop.

In analyzing the case, the district court said that, contrary to the defendants' assertion, the $535,158 judgment is valid. Further, the unpaid contributions to the Funds are considered to be "plan assets" under ERISA, since the Funds' governing documents identify unpaid employer contributions as plan assets. The documents provide that "all money owed to the [Funds], which money (whether paid, unpaid, segregated or otherwise traceable, or not) becomes a [Fund] asset on the Due Date" and have other, similar language creating plan asset status.

The district court continued, by stating that, since the unpaid contributions are plan assets, the plaintiffs must demonstrate that the defendants exercised authority or control over those assets, so that they become fiduciaries under ERISA, and are personally liable for the judgment. The court then concluded that the plaintiffs have provided ample evidence, taken from the defendants' own depositions,that demonstrate that the defendants did exercise control and authority over Floppy Mop's operations and financials, including over the corporation's payment of the contributions to the Funds, and therefore are ERISA fiduciaries. By virtue of their failure to direct Floppy Mop to make the contributions to the Funds, as required by the CBA, defendants Archie and McKinney are both individually and personally liable for the judgment against Floppy Mop.

March 31, 2014

Employee Benefits-Reminder: Tomorrow Is April 1: Don't Forget Your Required Minimum Distribution From Your Company Retirement Plan Or IRA

An Internal Revenue Service News Release reminds taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014. The Press Release offers some helpful points and may be found here.

March 28, 2014

Employee Benefits-Supreme Court Rules That Severance Payments Are Wages Subject FICA Tax

In United States v. Quality Stores, Inc., No. 12-1408 (S.Ct. 2014), Quality Stores, Inc. and its affiliates (collectively "Quality Stores") made severance payments to employees who were involuntarily terminated as part of Quality Stores' Chapter 11 bankruptcy. Payments-which were made pursuant to plans that did not tie payments to the receipt of state unemployment insurance-varied based on job seniority and time served. Quality Stores paid and withheld FICA taxes on the payments, treating the payments as wages. Later believing that this treatment, and payment and withholding of FICA taxes, was not correct, Quality Stores sought a refund from the Internal revenue Service (the "IRS") on behalf of itself and about 1,850 former employees. When the IRS did not allow or deny the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The District Court and Sixth Circuit affirmed, concluding that severance payments are not wages under FICA.

The Supreme Court reversed the decisions of the lower courts, holding that the severance payments are wages subject to FICA tax. The Supreme Court said that FICA defines "wages" broadly as "all remuneration for employment." IRC §3121(a). As a matter of plain meaning, severance payments fit this definition: They are a form of remuneration made only to employees in consideration for employment. "Employment" is "any service . . . performed . . . by an employee" for an employer. IRC §3121(b). By varying according to a terminated employee's function and seniority, the severance payments at issue confirm the principle that "service" "mea[ns] not only work actually done but the entire employer-employee relationship for which compensation is paid." Social Security Bd. v. Nierotko (S.Ct.) This broad definition is reinforced by the specificity of FICA's lengthy list of exemptions, none of which apply in the instant case.

The Supreme Court added that the Internal Revenue Code's provisions for income-tax withholding would similarly treat the severance payments at issue as wages. Consistent with the major principle of Rowan Cos. v. United States (S.Ct.), for simplicity of administration and consistency of statutory interpretation, the meaning of "wages" should be in general the same for income-tax withholding and for FICA calculations.