July 30, 2015

ERISA-Third Circuit Rules That Plaintiff Must Show Individual Harm To Have Standing To Seek Equitable Relief Under Section 502(a)(3) of ERISA

In Perelman v. Perelman, Nos. 14-1663 and 14-2742 (Third Circuit 2015), the Third Circuit Court of Appeals (the "Court") faced a matter arising under section 502(a)(3) of ERISA, which authorizes suits by, among others, a pension plan beneficiary to enjoin any act or practice that violates ERISA, "to obtain other appropriate equitable relief . . . to redress such violations," or to enforce any provision of ERISA or the terms of a pension plan.

In this case, the plaintiff, Jeffrey Perelman, is a participant in the defined employee pension benefit plan (the "Plan") of the defendant, General Refractories Company ("GRC"). Jeffrey alleges that his father, Raymond Perelman, as trustee of the Plan, breached his fiduciary duties by covertly investing Plan assets in the corporate bonds of struggling companies owned and controlled by Jeffrey's brother, defendant Ronald Perelman. Jeffrey contends that these transactions were not properly reported; depleted Plan assets; and increased the risk of default, such that his own defined benefits are in jeopardy. The district court dismissed several of Jeffrey's claims for lack of constitutional standing, later granted summary judgment against him on all remaining claims, and denied his application for attorneys' fees and costs. Jeffrey appealed, but the Court affirmed the district court's rulings.

Jeffrey raised two issues pertaining to section 502(a)(3) on appeal. First, he contends that he has standing to seek monetary equitable relief such as disgorgement or restitution under section 502(a)(3), since he did in fact suffer individual harm, in the form of an increased risk of Plan default with respect to his defined benefits. The Court rejected this contention, saying that Jeffrey has not suffered individual harm, since at this point the Plan-a defined benefit plan- remains adequately funded and able to pay Jeffery's benefit, and any risk of nonpayment is too speculative.

Jeffrey's second issue is whether, insofar as Jeffrey seeks relief on behalf of the Plan under section 502(a)(3), no showing of individual harm is necessary to obtain monetary equitable remedies. As to this issue, the Court said that its own case law provides no support for this theory, and other federal appellate courts have unanimously rejected it. As such, the Court concludes that -since Jeffrey did not show individual harm-he lacks standing to sue under section 502(a)(3) even purely as a Plan representative, insofar as he seeks monetary equitable relief.

July 29, 2015

Employee Benefits-IRS Announces That It Will No Longer Permit Use Of Lump Sums To Replace Life Income From A Defined Benefit Plan

In Notice 2015-49, the Internal Revenue Service (the "IRS") announced that the Treasury Department and the IRS intend to amend the required minimum distribution regulations under § 401(a)(9) of the Internal Revenue Code to address the use of lump sum payments to replace annuity payments being paid by a qualified defined benefit pension plan. The IRS said the the regulations, as amended, will provide that qualified defined benefit plans generally are not permitted to replace any joint and survivor, single life, or other annuity currently being paid with a lump sum payment or other accelerated form of distribution. The Treasury Department and the IRS intend that these amendments to the regulations will apply as of July 9, 2015, except with respect to certain accelerations of annuity payments described in the Notice.

July 28, 2015

ERISA-Eleventh Circuit Rules Against Imposition Of Statutory Penalty Under ERISA For Failure To Furnish Documents

In Smiley v. Hartford Life and Accident Insurance Company, No. 15-10056 (11th Cir. 2015) (Unpublished Opinion), the Eleventh Circuit Court of Appeals (the "Court") reviewed the issue of whether a statutory penalty should be imposed under ERISA for the failure to furnish plan documents. The district court decided that the penalty should not be imposed, and the Court must review this decision for abuse of discretion.

The Court noted that ERISA authorizes district courts to impose a daily penalty upon any plan administrator that "fails or refuses to comply with a request for information which such administrator is required . . . to supply to a participant or a beneficiary." 29 U.S.C. § 1332(c)(1). Specifically, ERISA requires a plan administrator to furnish the following upon request: "the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established and operated." 29 U.S.C. § 1024(b)(4). A plan administrator is either "the person specifically so designated by the terms of the instrument under which the plan is operated," 29 U.S.C. § 1002(16)(A)(i), or a company acting as a plan administrator.

In this case, the Court continued, the district court correctly concluded that defendant Hartford Life and Accident Insurance Company(" Hartford"), a third-party claims administrator, was not the plan administrator and therefore not subject to statutory penalties under § 1132(c)(1). The applicable plan expressly identified defendant Smile Brands, Inc. ("Smile Brands"), the employer, as the plan administrator. Further, Hartford was not the de facto administrator. The record demonstrates that Smile Brands retained the authority under the plan to make final decisions on appeal from the claims administrator, Hartford. Thus, Hartford was not the plan administrator, either in name or in fact, and was not liable for failing to furnish any plan documents.

Further, the Court continued, the district court did not abuse its discretion in refusing to impose statutory penalties on Smile Brands. The disclosure penalty provision of § 1132(c) "is meant to be in the nature of punitive damages, designed more for the purpose of punishing the violator than compensating the participant or beneficiary." As the district court concluded, the facts of this case do not warrant punishing Smile Brands because it did not refuse or fail to provide the plaintiff with any documents. There is no evidence that Smile Brands refused or failed to provide the plaintiff with the relevant documents, which were already in her possession. Given these facts, the Court could not say that the district court abused its discretion in denying disclosure penalties.

July 27, 2015

ERISA-DOL Provides Guidance ON Selection And Monitoring Under The Annuity Selection Safe Harbor Regulation For Defined Contribution Plans

In Field Assistance Bulletin No. 2015-02 (the "FAB"), the U.S. Department of Labor (the "DOL") discusses the application of the Annuity Selection Safe Harbor Regulations for Defined Contribution Plans. Here is what the FAB says.

The Issue. A regulation issued by the Department in 2008 at 29 CFR 2550.404a-4 regarding the selection of annuity providers under defined contribution plans (the "Safe Harbor Rule") provides plan fiduciaries with safe harbor conditions for the selection and monitoring of annuity providers and annuity contracts for benefit distributions. However, questions continue to be raised about how to reconcile the "time of selection" standard in the Safe Harbor Rule -- which embodies the general principle that the prudence of a fiduciary decision is evaluated under ERISA based on the information available at the time the decision was made -- with ERISA's duty to monitor and review certain fiduciary decisions.

Background. The current Safe Harbor Rule describes actions that defined contribution plan fiduciaries can take to satisfy their ERISA fiduciary responsibilities in selecting an annuity provider for benefit distributions. Similar to selecting plan investments, choosing an annuity provider for this purpose is a fiduciary function, subject to ERISA's standards of prudence and loyalty. The Safe Harbor Rule requirements are satisfied if the plan's fiduciary:

• Engages in an objective, thorough and analytical search for the purpose of identifying and selecting providers from which to purchase annuities. This process must avoid self-dealing, conflicts of interest or other improper influence and should, to the extent possible, involve consideration of competing annuity providers;
• Appropriately considers information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract;
• Appropriately considers the cost (including fees and commissions) of the annuity contract in relation to the benefits and administrative services to be provided under such contract;
• Appropriately concludes that, at the time of the selection [emphasis added], the annuity provider is financially able to make all future payments under the annuity contract and the cost of the annuity contract is reasonable in relation to the benefits and services to be provided under the contract; and
• If necessary, consults with an appropriate expert or experts for purposes of compliance with these provisions.

For this purpose the Safe Harbor Rule provides that "the time of selection" means:
1. the time that the annuity provider and contract are selected for distribution of benefits to a specific participant or beneficiary; or
2. the time that the annuity provider is selected to provide annuities as a distribution option for participants or beneficiaries to choose at future dates.

The Safe Harbor Rule also provides that when an annuity provider is selected to offer annuities that participants may later choose as a distribution option, the fiduciary must periodically review the continuing appropriateness of the conclusion that the annuity provider is financially able to make all future payments under the annuity contract, as well as the reasonableness of the cost of the contract in relation to the benefits and services to be provided. The fiduciary is not, however, required to review the appropriateness of its conclusions with respect to an annuity contract purchased for any specific participant or beneficiary.

The Discussion

ERISA's Prudence Standard Applied to the Selection and Monitoring of Annuities. Section 404(a)(1)(B) of ERISA provides that a fiduciary must discharge his duties with respect to a plan with the care, skill, prudence, and diligence under the circumstances then prevailing [emphasis added] that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

Consistent with this statutory language, the prudence of a fiduciary decision is evaluated with respect to the information available at the time the decision was made - and not based on facts that come to light only with the benefit of hindsight. The conditions of the Safe Harbor Rule embody this general principle of fiduciary prudence. A fiduciary's selection and monitoring of an annuity provider is judged based on the information available at the time of the selection, and at each periodic review, and not in light of subsequent events.

The periodic review requirement in the Safe Harbor Rule does not mean that a fiduciary must review the prudence of retaining an annuity provider each time a participant or beneficiary elects an annuity from the provider as a distribution option. The frequency of periodic reviews to comply with the Safe Harbor Rule depends on the facts and circumstances. For example, if a "red flag" about the provider or contract comes to the fiduciary's attention between reviews (e.g., a major insurance rating service downgrades the financial health rating of the provider or several annuitants submit complaints about a pattern of untimely payments under the contract), the fiduciary would need to examine the information to determine whether an immediate review is necessary, or, depending on the facts and circumstances, the fiduciary may need to conduct an immediate review.

The FAB continues with several examples on the above, and a discussion of ERISA
statute of limitations on fiduciary liability for the selection of annuity providers and annuity contracts.

July 24, 2015

Employee Benefits-IRS Discusses A Mid-Year Retirement Savings Check-Up For Workers

In IRS Retirement News for Employers, July 6, 2015 Edition, the Internal Revenue Service (the "IRS") advises workers to do a mid-year check up on their retirement savings. Here is what the IRS says.

Are you saving enough to afford the lifestyle you want when you retire? Now is a good time to check whether you're taking full advantage of all your retirement savings opportunities, while you still have the rest of the year to adjust your contribution levels.

Employer-sponsored retirement plans

Join the plan - If you haven't already, join your employer's retirement plan as soon as you can to increase your retirement savings. Many retirement plans have quarterly or semi-annual entry dates. Contact your employer to find out when you can start participating in the plan, and then join on the next entry date.

Make salary deferral contributions - If your employer's plan allows you to contribute, remember that you can decrease your taxable income by making pre-tax salary deferral contributions. You may also qualify for the Saver's Credit for contributing to your plan. Many plans allow salary deferral elections to be submitted at any time, so review your contribution rate to ensure you are contributing as much as the plan allows.
The maximum annual salary deferral contributions allowed for 2015 are:

• $18,000 to 401(k) or 403(b) plans
• $12,500 to SIMPLE plans

If you're age 50 or older by the end of the year, your plan may allow you to make additional catch-up contributions of:

• $6,000 to 401(k) or 403(b) plans
• $3,000 to SIMPLE plans

Your employer may match some of your salary deferral contributions. For example, your employer might contribute 50 cents for each dollar that you contribute to the plan from your salary up to a certain amount. Contact your plan administrator for details and adjust your salary deferrals to take full advantage of matching contributions.

Individual Retirement Arrangements (IRAs)

For 2015, the maximum total contributions you can make to all of your traditional and Roth IRAs is:

• $5,500 ($6,500 if you are age 50 or older), or
• your taxable compensation for the year, if your compensation was less than this dollar limit.

Some factors may limit or eliminate your ability to contribute to an Roth IRA or claim a deduction for your traditional IRA contribution (for example, your age, modified adjusted gross income, filing status and amount of compensation). See IRA Contribution Limits. The amount of traditional IRA contributions that you can deduct from your taxable income depends on whether you or your spouse were covered for any part of the year by an employer retirement plan if your income is above certain thresholds.

Remember, saving for retirement requires planning! That is why you should periodically review your retirement savings goals, savings options and annual contributions to maximize your retirement savings.

July 23, 2015

ERISA-Second Circuit Holds That Hospital's Severance Policy is A "Plan" For Purposes Of ERISA

In Okun v. Montefiore Medical Center, Docket No. 13-3928-cv (2nd Cir. 2015), one of the issues faced by the Second Circuit Court of Appeals (the "Court") was whether a severance policy maintained by Montefiore Medical Center ("Montefiore") was a "plan" for purposes of ERISA.

In this case, the Montefiore severance policy at issue, number II-17a (the "Policy"), provides that all full-time physicians employed before August 1, 1996 who are terminated for other than cause are entitled to either twelve months' notice or six months' severance pay. Eligible employees with more than fifteen years' service are also entitled to automatic review of the amount of severance pay by the President of the Medical Center. Montefiore has maintained a severance policy since 1987, and the Policy itself has been in place, without revision, since 1996. The Policy explicitly notes that it may be changed, modified or discontinued at any time by the Medical Center's Senior Vice President of Human Resources, or designee, with or without notice.

In analyzing the issue, the Court said that the dispute here is whether the Policy is adequately alleged to constitute the kind of undertaking to pay severance benefits that can be described as a "any plan, fund, or program," as that phrase is used in the definition of "employee welfare benefit plan" found in section 3(3) of ERISA. The Court then noted that the term "employee welfare benefit plan" has been held to apply to most employer undertakings or obligations to pay severance benefits.

However, to constitute a plan, following the Supreme Court's decision in Fort Hallifax and James, the arrangement at issue must involve an "ongoing administrative program." The Court applies three non-exclusive factors to help determine whether the ongoing administrative program requirement is met: (1) whether the employer's undertaking or obligation requires managerial discretion in its administration; (2) whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits; and (3) whether the employer was required to analyze the circumstances of each employee's termination separately in light of certain criteria.

The Court concluded that, based on the facts alleged in the complaint, the Policy is a "plan" for ERISA purposes, as it involves the kind of undertaking that falls within the meaning of the phrase "any plan, fund, or program." The Policy represents a multi-decade commitment (since 1987) to provide severance benefits to a broad class of employees under a wide variety of circumstances and requires an individualized review whenever certain covered employees are terminated. This review requires discretion and individualized evaluation to administer. As a result, Montefiore assumed the responsibility to pay benefits on a regular basis, and thus faces periodic demands on its assets that require long-term coordination and control.

July 22, 2015

Employee Benefits-IRS Announces Revisions To The Employee Plans Determination Letter Program

In Announcement 2015-19, the Internal Revenue Service (the "IRS") describes important changes to the Employee Plans determination letter program for qualified retirement plans. Here is what the Announcement says.

Effective January 1, 2017, the IRS will eliminate the staggered 5-year determination letter remedial amendment cycles for individually designed plans. The IRS will limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination, and to certain other limited circumstances that will be determined by Treasury and the IRS.

As of January 1, 2017, the IRS will no longer accept determination letter applications based on the 5-year remedial amendment cycles. However, sponsors of Cycle A plans, described in section 9.03 of Rev. Proc. 2007-44, will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.

Section 5.03 of Rev. Proc. 2007-44 extends the remedial amendment period for disqualifying provisions described in section 5.03(1) and (2) to the end of a plan's applicable remedial amendment cycle. As a result of the elimination of the 5-year remedial amendment cycles, the extension of the remedial amendment period provided in section 5.03 will not be available after December 31, 2016, and the remedial amendment period definition in § 1.401(b)-1 will apply. However, the Commissioner intends to extend the remedial amendment period for individually designed plans to a date that is expected to end no earlier than December 31, 2017.

The IRS is requesting comments on specific issues relating to the implementation of these changes to the determination letter program, and as to the situations in which an application for a determination letter will be accepted. The foregoing changes will be reflected in an update to Rev. Proc. 2007-44, and in a successor to Rev. Proc. 2015-6.

In addition, the IRS will no longer accept determination letter applications that are submitted off-cycle, except in limited circumstances. In connection with the modifications to the determination letter program described in this Announcement, the Treasury Department and the IRS are considering ways to make it easier for plan sponsors to comply with the qualified plan document require

July 15, 2015

Employee Benefits-District Court Rules That Benefits Under A Retiree-Only Health Plan Are Not Subject To The Lifetime Limit Under The Affordable Care Act.

In King v. Blue Cross and Blue Shield of Illinois, Case No.: 3:13-CV-1254-CAB-JMA (S.D. Cal. 2015), the court held that the benefits payable under a self-insured health care plan, which covers only retirees, are not subject to the lifetime limit on essential health benefits under the Affordable Care Act. How did the district court reach this conclusion?

The court said that the issue in this case involves an understanding of the interplay between the Public Health Service Act ("PHSA"), ERISA, and the Affordable Care Act. The court noted that, among its many other provisions, the Affordable Care Act amended the PHSA to ban lifetime limits on the dollar value of benefits for any group health participant or beneficiary. 42 U.S.C. § 300gg-11(a)(1). At the same time, the Affordable Care Act added a provision to ERISA stating that the requirements of the PHSA (as amended by the PPACA), which includes the lifetime limit ban, shall apply to group health plans. ERISA § 715(a)(1). However, Section 732 of ERISA, which pre-dates the Affordable Care Act, generally states that the requirements of this part (which includes § 715(a)(1)) does not apply to any group health plan for any plan year if, on the first day of such plan year, such plan has less than 2 participants who are current employees (the "Retiree Plan Exception").

The court reviewed and discussed the interaction among these and other provisions of the acts in question. The court concluded, and therefore ruled, that the Retiree Plan Exception exempts employer plans covering only retirees (and therefore fewer than two participants who are current employees) from the coverage mandates of the Affordable Care Act, including the amendments thereto by the Affordable Care Act such as the lifetime limit on essential health benefits.

July 9, 2015

Employee Benefits-District Court Rules That Employer Failed To Provide Former Employee With Sufficient Notice Of COBRA Rights

In Griffin v. Neptune Technology Group, Civil Action No. 2:14cv16-MHT (WO) (M.D. Alabama 2015), plaintiff Joshua Griffin sued his former employer, Neptune Technology Group, claiming, among other things, that Neptune illegally failed to provide appropriate notice that he could continue his health-insurance coverage under COBRA after his termination of employment at Neptune, and seeking statutory damages for this failure.

Griffin's primary complaint is that the contents of the notice Neptune uses were insufficient under the law to allow him to make an informed and intelligent decision whether to elect continued coverage under COBRA. The court noted that the regulations, at 29 C.F.R. § 2590.606-4, sets forth detailed requirements for the content of COBRA notices. It provides that the notice "shall be written in a manner calculated to be understood by the average plan participant and shall contain the following information," and then lists 14 different categories of information that must be included.

The court further noted that the notice actually given to Griffin tracks the requirements of § 2590.606-4 in several respects. The notice gave him the deadline for returning the notice, the premium amounts for himself and his spouse or dependents, and the date by which the premium needed to be paid. However, it does not contain most of the items required by the regulation. Out of the 14 categories in 29 C.F.R. § 2590.606-4, the notice completely omits nine. In addition, subsection (b)(v) requires inclusion of "[a]n explanation of the plan's procedures for electing continuation coverage, including an explanation of the time period during which the election must be made, and the date by which the election must be made." While Neptune's notice tells the reader that the election form must be returned within 60 days of the date of the letter and instructs the reader to "follow the instructions on the next page to complete the Enclosed Election form," the instruction page was not included. Accordingly, the court concluded that the notice fails to adequately explain the plan's procedures for electing coverage. As such, the court held that the Neptune notice fails to provide sufficient information of COBRA rights, and stated that an appropriate judgment will be entered against Neptune for this failure.

July 7, 2015

Employment-Third Circuit Holds That Employer Violated The FMLA Because It Did Not Give The Employee The Opportunity To Cure Deficiencies In Her Request For FMLA Leave

In Hansler v. Lehigh Valley Hospital Network, 14-1772 (3rd Cir. 2015), Deborah Hansler ("Hansler") had requested intermittent leave from her former employer, Lehigh Valley Health Network ("Lehigh Valley"), under the Family Medical Leave Act of 1993 (the "FMLA"). Specifically, Hansler had submitted a medical certification requesting leave for two days a week for approximately one month. As alleged in the complaint, the medical certification refers to the length of her requested leave but not the nature or duration of her condition. A few weeks later, after she took several days off work, Lehigh Valley terminated Hansler's employment without seeking any clarification about her medical certification, as required by law. Lehigh Valley cited excessive absences and informed her that the request for leave had been denied. Hansler sued Lehigh Valley for violations of the FMLA, but the district court dismissed the complaint on the basis that the medical certification supporting Hansler's request for leave was "invalid."

After reviewing the case, the Third Circuit Court of Appeals (the "Court") concluded that, in failing to afford Hansler a chance to cure any deficiencies in her medical certification, Lehigh Valley violated the FMLA. The Court said that when, as here, a medical certification submitted by an employee is "vague, ambiguous, or nonresponsive," the employer must, under 29 C.F.R. § 825.305(c), provide the employee an opportunity to cure the deficiency within seven days. Accordingly, the Court reversed the district court's dismissal of the case, and remanded the case for further proceedings.

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.