In Prime Healthcare Services-Landmark LLC, No. 16-1161(1st 2017), the First Circuit Court of Appeals (the “Court”) had to decide whether a dispute between employees and their successor employer- relating to an alleged violation of the applicable collective bargaining agreement by changing the terms of, and ceasing contributions to, a defined benefit plan- should be resolved in arbitration or in the courts. The parties agreed to arbitrate this dispute. The district court, however, refused to compel arbitration; it found that ERISA preempted arbitration of this dispute, and reasoned that this, in turn, presented an issue of arbitrability properly decided by a judge, not an arbitrator. The Court found that the issue of ERISA preemption in this case is not an issue of arbitrability, but rather one that is squarely for the arbitrator to decide, and therefore reversed the district court’s ruling.

In Prince v. Sears Holdings Corporation, No. 16-1075 (4th Cir. 2017), alleging that his employer improperly administered life insurance benefits, an employee brought suit for misrepresentation, constructive fraud, and infliction of emotional distress. The district court dismissed the employee’s case, and the employee appealed.  The Fourth Circuit Court of Appeals (the “Court”) ruled that, because, ERISA completely preempts these state law claims, the Court affirms the district court’s dismissal of the complaint.

In this case, in November 2010, Billy E. Prince (“Prince”) submitted an application to his employer for $150,000 in life insurance coverage for his wife, Judith Prince. The employer, Sears, sponsored and administered the life insurance program through The Prudential Insurance Company of America. In May 2011, Sears sent an acknowledgment letter to Prince and began withholding premiums from his pay shortly thereafter. Later in 2011, Mrs. Prince learned she had Stage IV liver cancer. Almost a year after Mrs. Prince’s initial diagnosis, Prince checked his online benefits summary, which confirmed his election to purchase life insurance coverage for his wife in the amount of $150,000. Another year passed, and Sears sent Prince a letter advising him that Mrs. Prince’s coverage had never become effective because no “evidence of insurability questionnaire” had been submitted. Sears explained that Prudential had sent a notice to Prince in January 2011 advising that unless a completed insurability questionnaire was submitted, Prudential would terminate his application for the life insurance coverage. Prince claims that he has no record of receipt of that notice but does not dispute that Prudential sent it to him.

On May 26, 2014, Mrs. Prince died. Because Prince did not receive the $150,000 in life insurance, he filed a complaint against Sears in the Circuit Court of Marion County, West Virginia. The complaint asserted one count of “constructive fraud/negligent misrepresentation” and one count of “intentional/reckless infliction of emotional distress,” based on Sears’s alleged misrepresentations regarding the life insurance policy and the harm thereby inflicted on Mr. and Mrs. Prince. Sears removed the case to federal district court, which dismissed the case on the basis of complete ERISA preemption.

Further to my blog of January 13, the DOL has now issued an additional set of FAQs discussing the “Conflict of Interest” rules.  These rules basically apply more stringent ERISA requirements to those who provide investment advice to retirement plans and IRAs.  Here is the DOL’s introduction to the new FAQs:

Set out below are a number of Frequently Asked Questions (FAQs) regarding implementation of the conflict of interest (COI) final rule (Rule) on fiduciary investment advice. Since the publication of the Rule last April, the Department has held many meetings with stakeholders to assist in their compliance efforts. Many of the questions they raised related to the various Rule provisions that draw lines between fiduciary and non-fiduciary communications. Like the FAQs the Department issued on October 27, 2016, on the Prohibited Transaction Exemptions, these FAQs focus particularly on specific technical questions raised by financial service providers. These FAQs are generally limited to investment advice concerning ERISA-covered plans, IRAs, and other plans covered by section 4975(e)(1) of the Internal Revenue Code (Code).

There are now three sets of FAQs on the Conflict of Interest rules:

The appeal in Vendura v. Boxer, No. 15-2387 (1st Cir. 2017), involves a suit for pension benefits that George Vendura (“Vendura”) brings against Northrop Grumman Corp. (“Northrop”) and a number of related entities and individuals (all, the “Defendants”).  The key point of contention concerns the number of “Years of Benefit Service” that should be credited to Vendura in calculating his pension benefits under his pension plan.

In this case, Vendura was hired by TRW Inc. (“TRW”) in 1993 and became a participant in the TRW Salaried Pension Plan (“TRW Plan”).  In 2002, Northrop acquired TRW and renamed the company Northrup Grumman Space and Mission Systems Corp. (“NGSMSC”), and the pension plan became the NGSMSC Plan.  Soon thereafter, NGSMSC attempted to terminate Vendura’s employment.  Vendura, however, challenged the attempt to lay him off, and, in 2003, Vendura and NGSMSC signed a settlement agreement that kept Vendura on board at NGSMSC, subject to certain conditions.

In April of 2013, Vendura filed a claim for pension benefits with the “Administrative Committee” for the NGSMSC Plan.  In making his pension benefits claim to the Administrative Committee, Vendura argued that he is entitled to twenty years of benefit service.  However, the Administrative Committee determined that Vendura was entitled to only 12 years of benefit service when calculating the pension benefits.  Eventually, Vendura filed this suit.  The district court granted summary judgment for the Defendants, and he appeals.

The case of Pharmaceutical Care Management Association v. Gerhart, No.15-3292 (8th Cir. Jan. 11, 2017) involves the question of whether ERISA expressly preempts section 510B.8 of the Iowa Code.  The district court determined that it did not and dismissed Pharmaceutical Care Management Association’s (“PCMA’s”) complaint seeking a declaration of preemption.  Upon review, the Eighth Circuit Court of Appeals (the “Court”) reversed the district court’s decision and remanded the case with direction that judgment be entered for PCMA.

Why did the Court rule that ERISA preempts the part of the Iowa Code in question?

Section 510B.8 of the Iowa Code regulates how pharmacy benefits managers (“PBMs”) establish generic drug pricing, and requires that certain disclosures on their drug pricing methodology be made to their network pharmacies as well as to Iowa’s insurance commissioner.  Shortly after the statute went into effect, PCMA brought this action against Iowa’s insurance commissioner and its attorney general (collectively, “the State”), seeking a declaration that the statute places restrictions and requirements on PBMs that impermissibly reference or are connected with ERISA plans, thus making the statute expressly preempted by ERISA.

I just got this note from the Department of Labor about the new FAQs on the “Conflict of Interest” rules, which basically apply more stringent ERISA requirements to those who provide investment advice to retirement plans and IRAs.  Here is what the note says:

Good Morning,

You have been following the Labor Department’s Conflict of Interest project on retirement investment advice for some time – perhaps even since the original proposal in October of 2010.  The new consumer protections start to go into effect this April and we want to be sure that consumers have the information they need to make use of those new protections.  We also want to answer as many questions as possible about the new rules.  To that end, we are releasing a set of frequently asked questions meant especially for workers and retirement investors.

In Coburn v. Evercore, No.16-7029 (D.C. Cir. Dec. 30, 2016), Donna M. Coburn (“Coburn”), on behalf of herself and all others similarly situated, appeals the district court’s dismissal of her complaint against Evercore Trust Company, N.A. (“Evercore”) under ERISA.  Coburn, a former J.C. Penney employee and investor in a J.C. Penney employee stock ownership plan (ESOP) managed by Evercore, claims that Evercore breached its fiduciary duties of prudence and loyalty when it failed to take preventative action as the value of J.C. Penney common stock tumbled between 2012 and 2013, thereby causing significant losses.

Despite clear factual similarities, Coburn argues, on appeal, that the pleading requirements outlined by the U.S. Supreme Court in Fifth Third Bancorp v. Dudenhoeffer are inapplicable to her allegations because she challenges Evercore’s failure to appreciate the riskiness of J.C. Penney stock rather than Evercore’s valuation of its price.  The D.C. Circuit Court of Appeals said that it disagrees with Coburn’s arguments, therefore it affirms the district court’s judgment.

Continuing the discussion of my previous blogs on FAQs Part 35, one topic covered in these FAQs is a discussion of the new Qualified Small Employer Health Reimbursement Arrangements.  Here is what the FAQs say on this topic:

Background and Prior Guidance.  On September 13, 2013, the U.S. Department of Labor (the “DOL”) published Technical Release 2013-03 addressing the application of the Affordable Care Act market reforms to health reimbursement arrangements (“HRAs”) and employer payment plans (“EPPs”).  The Treasury Department and the Internal Revenue Service (the “IRS”) contemporaneously published parallel guidance in Notice 2013-54.  The U.S. Department of Health and Human Services (the “HHS”) issued guidance stating that it concurred in the application of the laws under its jurisdiction as set forth in the guidance issued by DOL, Treasury, and IRS (the DOL, Treasury, IRS and HHS being referred to below as the “Departments”).  Subsequent guidance reiterated and clarified the application of the market reforms to HRAs and EPPs.

EPPs and HRAs typically consist of an arrangement under which an employer reimburses medical expenses (whether in the form of direct payments or reimbursements for premiums or other medical costs) up to a certain amount.  As explained in Technical Release 2013-03 and Notice 2013-54, EPPs and HRAs are group health plans that are subject to the group market reform provisions of the Affordable Care Act, including the prohibition on annual dollar limits under PHS Act section 2711 and the requirement to provide certain preventive services without cost sharing under PHS Act section 2713.  The 2013 guidance generally provides that EPPs and HRAs will fail to comply with these group market reform requirements because these arrangements, by their definitions, reimburse or pay medical expenses on the employee’s behalf only up to a certain dollar amount each year.

The U.S. Department of Labor (the “DOL”), in conjunction with the U.S. Department of Health and Human Services (the “HHS”) and the Treasury (collectively, the “Departments”), have jointly issued Frequently Asked Questions (“FAQs”) Part 35, regarding implementation of the Affordable Care Act and other matters.  One topic covered in these FAQs is coverage of preventive services under the Affordable Care Act.  Here is what the FAQs say on this topic:

Background.  PHS Act section 2713 and its implementing regulations require non-grandfathered group health plans to cover, without the imposition of any cost-sharing requirements, the following recommended preventive services:

  • evidence-based items or services that have in effect a rating of “A” or “B” in the current recommendations of the United States Preventive Services Task Force (the “USPSTF”) with respect to the individual involved, except for the recommendations of the USPSTF regarding breast cancer screening, mammography, and prevention issued in or around November 2009, which are not considered in effect for this purpose;

The U.S. Department of Labor (the “DOL”), in conjunction with the U.S. Department of Health and Human Services (the “HHS”) and the Treasury (collectively, the “Departments”), have jointly issued Frequently Asked Questions (“FAQs”) Part 35, regarding implementation of the Affordable Care Act and other matters.  One topic covered in these FAQs is special enrollment for group health plans under HIPAA.  Here is what the FAQs say on this topic:

Background.  Group health plans are required to provide special enrollment periods to current employees and dependents, during which otherwise eligible individuals who previously declined health coverage have the option to enroll under the terms of the plan (regardless of any open enrollment period).  Generally, a special enrollment period must be offered for circumstances in which an employee or dependents lose eligibility for any group health plan coverage, or health insurance coverage, in which the employee or their dependents were previously enrolled, and upon certain life events such as when a person becomes a dependent of an eligible employee by birth, marriage, or adoption.

Under these rules, special enrollment periods are available in several circumstances set forth in the Departments’ regulations, including: