September 2, 2015

ERISA-Second Circuits Holds That Certain ERISA And Parity Act Claims May Proceed

In N.Y. State Psychiatric Association v. UnitedHealth Group, Docket No. 14-20-cv (2nd Cir. 2015), plaintiffs New York State Psychiatric Association, Inc. ("NYSPA"), Jonathan Denbo, and Dr. Shelly Menolascino sued UnitedHealth Group, UHC Insurance Company, United Healthcare Insurance Company of New York, and United Behavioral Health (collectively, "United").

Relying on §§ 502(a)(1)(B) and 502(a)(3) of ERISA, the plaintiffs claimed that United had violated its fiduciary duties under ERISA, the terms of ERISA-governed health insurance plans administered by United, and the Mental Health Parity and Addiction Equity Act of 2008 (the "Parity Act"), which requires group health plans and health insurance issuers to ensure that the financial requirements (deductibles, copays, etc.) and treatment limitations applied to mental health benefits be no more restrictive than the predominant financial requirements and treatment limitations applied to substantially all medical and surgical benefits covered by the plan or insurance, see 29 U.S.C. § 1185a(a)(3)(A). NYSPA also brought three additional counts under New York State law.

United moved to dismiss the amended complaint, arguing that NYSPA did not have associational standing to sue on behalf of its members, that United could not be sued under § 502(a)(3) for alleged violations of the Parity Act or under § 502(a)(1)(B), and that in any event it would not be "appropriate" for the plaintiffs to obtain relief under § 502(a)(3) if § 502(a)(1)(B) offered an adequate remedy. The district court granted United's motion to dismiss. Upon review, the Second Circuit Court of Appeals (the "Court") concluded that NYSPA has standing at this stage of the litigation and that Denbo's claims, but not Dr. Menolascino's claims, should be permitted to proceed. As a result, the Court affirmed the district court's decision in part, vacated the district court's decision in part, and remanded the case back to the district court.

August 31, 2015

ERISA-Third Circuit Dismissed Appeal From District Court's Decision For Lack Of Jurisdiction

In Stevens v. Santander Holdings USA Inc. Self Insured Short Term Disability Plan, No. 14-1481 (3d Cir. 2015), plaintiff Joseph Stevens ("Stevens"), a former employee of a subsidiary of defendant Santander Holdings USA Inc. ("Santander"), brought suit against Santander seeking to recover benefits from two disability benefit plans that Santander provided for its eligible employees. As an employee of a Santander subsidiary, Sovereign Bank, Stevens participated in these plans, a short-term disability plan ("STD") and a long-term disability plan ("LTD"). In October 2010, Stevens sought STD benefits through the administrator of Santander's plans, defendant Liberty Life Assurance Company of Boston, doing business as Liberty Mutual ("Liberty Mutual").

After it initially awarded STD benefits to Stevens, Liberty Mutual determined that Stevens no longer suffered from a qualifying disability, a determination that led it to terminate his STD benefits. Stevens then brought this suit under ERISA, seeking reinstatement of the payment of benefits. The district court found that Liberty Mutual's decision to terminate Stevens's STD benefits was arbitrary and capricious and remanded the case to the plan administrator with instructions to reinstate Stevens's STD benefit payments retroactively, and to determine his eligibility for LTD benefit payments.

Santander and Liberty Mutual appealed the district court's decision to the Third Circuit Court of Appeals (the "Court"). However, Stevens moved to dismiss the appeal for lack of jurisdiction, arguing that the district court's remand order to the plan administrator was not a "final decision" appealable pursuant to 28 U.S.C. § 1291 at that time. Upon review, the Court held that the district court has retained jurisdiction over the case, and that the order from which the defendants have appealed is not yet appealable. Therefore, the Court dismissed the appeal for lack of jurisdiction.

August 27, 2015

ERISA-Eighth Circuit Holds That A Subrogation Provision, Contained In The SPD, Is Enforceable

The case of National Elevator Inc. Health Benefit Plan v. Moore, No.14-4048 (6th Cir. Aug. 25, 2015) involved a subrogation claim, which arose from a dispute involving the Health Benefits Plan (the "Plan") established by the Board of Trustees of the National Elevator Industry (the "NEI Board") under ERISA. The NEI Board, acting as the fiduciary and administrator of the Plan, sued Kyle Moore and the law firm Goodson & Company, Ltd. (collectively, "Moore"), seeking reimbursement for medical expenses that the Plan paid on Moore's behalf, following Moore's successful settlement of a negligence action filed against the entities responsible for injuries he suffered in an accident. In response, Moore contended that the terms of the Plan did not provide for reimbursement and filed a counterclaim alleging that the Board had violated its fiduciary duty by misrepresenting the terms of the Plan. The district court granted summary judgment against Moore, and Moore appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that the district court correctly decided that the summary plan description (the "SPD") containing the subrogation provision set out the binding terms of the Plan and that the plain language of the provision required reimbursement. Thus, the Court affirmed the district court's decision.
In so affirming the decision, the Court's findings included the following about the subrogation provision and its inclusion in the SPD. First, the Court found that the SPD-the only document in the record containing a subrogation provision--is a binding plan document that sets out enforceable terms. The SPD itself constitutes a welfare benefits plan, which is provided for in a governing trust agreement. There is no other plan document (aside from the trust agreement). The Supreme Court's decision in Amara does not change this result.

Second, the Court noted that the subrogation provision states:

"Amounts that have been recovered by a covered person from another party are assets of the Plan by virtue of the Plan's subrogation interest and are not distributable to any person or entity . . . . However, amounts recovered by such covered person from another party in excess of benefits paid by the Plan are the separate property of such covered person (emphasis added)."

The Court said that the reimbursement of amounts recovered by Moore, sought by the Plan, are not amounts in excess of benefits paid by the Plan, and therefore are assets of the Plan. Finally, the subrogation provision may be applied, even though (as here) the settling third-party has not actually been determined, either through judicial finding or admission, to be liable for the participant's injuries.

August 25, 2015

ERISA-Second Circuit Holds That A Company Was Not Engaged In A Trade Or Business, And Therefore Could Not Be Held Responsible For A Related Company's Withdrawal Liability.

In UFCW Local One Pension Fund v. Enivel Properties, LLC, No. 14-2487 (2nd Cir. 2015), the Second Circuit Court of Appeals (the "Court") faced the issue of whether a separate business organization can be held responsible for the liabilities of another commonly controlled entity under ERISA.

In this case, Steven Levine was the sole shareholder of Empire Beef Co., Inc. ("Empire"), a food-processing company. Empire was party to a collective bargaining agreement that required it to contribute to the United Food and Commercial Workers Local OnePension Fund (the "Fund") for retirement and related benefits for its employees. In November 2007, Empire effected a "complete withdrawal" from the Fund pursuant to 29 U.S.C. § 1383(a) and incurred a withdrawal liability assessment to the Fund of $1,235,644.00. The Fund sued Empire under ERISA for the assessment, as well as liquidated damages, interest, costs, and attorneys' fees, and secured a judgment against Empire for $1,790,343.90. Empire has not paid any portion of the judgment.

In addition to Empire, Steven and his wife, Lori, owned an investment company, Enivel Properties, LLC ("Enivel"). Steven held forty percent of Enivel's stock; Lori owned the remainder and was solely responsible for Enivel's business operations. The Fund sued Enivel to recover on its judgment against Empire, alleging that Enivel is a trade or business under common control with Empire such that it is jointly and severally liable for Empire's withdrawal liability.

In analyzing the issue, the Court said that, in order to impose withdrawal liability on an organization other than the one obligated to the pension fund, two conditions must be satisfied: the second organization must be (1) under common control with the obligated entity; and (2) a "trade or business." See 29 U.S.C. § 1301(b)(1). Enivel does not dispute that Steven Levine controlled both Empire and Enivel. The only question in this appeal is whether Enivel is a "trade or business."

The Court continued by saying that the courts employ the Supreme Court's reasoning in a tax case, Groetzinger, for guidance in determining the types of conduct that constitute engaging in a "trade or business." Based on that case, for an activity to be a "trade or business" under section 1301(b)(1), a person or entity must engage in the activity: (1) for the primary purpose of income or profit; and (2) with continuity and regularity. The district court had found that, based on the facts of the case, Enivel's primary purpose in any leasing and sales activity it undertook was "personal" for the owners, and that profit was only a secondary purpose. Any activity was not continuous or regular, because it was likely that any time spent managing, leasing, and trying to sell the properties Enivel held was negligible. The Levines did not fragment their business operations over several entities. Rather, Enivel's mission was primarily personal and any profit it derived was incidental. As such, the Court concluded that Enivel did not engage in any trade or business, and therefore could not be held responsible for Empire's withdrawal liability.

August 24, 2015

ERISA-District Court Discusses Whether A Business Owner Is An Employee Under ERISA

In Silverman v. Unum Group, No. 14-CV-6439 (DLI) (SMG) (E.D.NY 2015), Neil Silverman (the "Plaintiff") had brought suit against various insurance companies (collectively the "Defendants"). The Defendants had provided disability insurance coverage (all such coverage referred to below as the "Plan") to the Plaintiff during his employment at Chip-Tech Ltd. The Plaintiff seeks long-term disability benefits from the Defendants, and alleges that his claim for benefits was calculated improperly and then terminated early. The Defendants move to dismiss the complaint, arguing among others that the Plaintiff's claims are preempted by ERISA. Plaintiff counters by, among others, contending that ERISA does not apply to the case, as he is not considered an employee under ERISA.

On the issue as to whether the Plaintiff is an employee for purposes of ERISA, the Court said the following. Plaintiff was part owner and employee of Chip-Tech Ltd. He owned fifteen percent of Chip-Tech Ltd. and his siblings, Robert Silverman and Ivy Raffe, owned seventy and fifteen percent of Chip-Tech Ltd., respectively. The Plan covered only the three owners. The Court said further that it cannot consider the owner of a corporation an "employee" where the corporation is wholly owned by the individual or by the individual and his or her spouse. 29 C.F.R. § 2510.3-3.

The Court noted that the Second Circuit has not addressed whether a plan is governed by ERISA where the only participants are shareholder co-owners of a corporation who are not spouses. However, the Supreme Court has stated that Congress intended working owners to qualify as plan participants. Relying on the explicit language in ERISA regulation 29 C.F.R. § 2510.3-3, the Supreme Court held, in Raymond B. Yates, M.D., P.C. Profit Sharing Plan v Heldon, that:

--plans that cover only sole owners or partners and their spouses fall outside of ERISA's domain; while

--plans covering working owners and their nonowner employees, on the other hand, fall entirely within ERISA's compass.

Relying on the Yates decision, the Fifth Circuit held, in Provident Life & Acc. Ins. Co. v. Sharpless, that shareholder co-owners were considered employees under ERISA and that their plans, therefore, were ERISA plans because the definition of an employee in ERISA excludes owners of corporations only held by one individual and his or her spouse, not multiple shareholder co-owners of a corporation. The Court then said that the facts in the present case are closely analogous to those considered by the Fifth Circuit in Provident Life. Here, three shareholders owned Chip-Tech Ltd. and the Plan was available exclusively to them. Therefore, the Court concludes that the Plaintiff is considered an employee under ERISA, and that the Plan is subject to ERISA. Additionally, the facts show that the Plaintiff was paid a salary and hired by the corporation, further supporting his treatment as an employee for ERISA purposes.

August 20, 2015

Employee Benefits-IRS Summarizes How the Health Care Law Affects Aggregated Companies

In IRS Health Care Tax Tip 2015-50, August 18, 2015, the Internal Revenue Service (the "IRS") summarizes how the health care law affects aggregated companies. Here is what the IRS said.

The Affordable Care Act applies an approach to common ownership that also applies for other tax and employee benefit purposes. This longstanding rule generally treats companies that have a common owner or similar relationship as a single employer. These are aggregated companies. The law combines these companies to determine whether they employ at least 50 full-time employees including full-time equivalents.

If the combined employee total meets the threshold, then each separate company is an applicable large employer. Each company - even those that do not individually meet the threshold - is subject to the employer shared responsibility provisions.

These rules for combining related employers do not determine whether a particular company owes an employer shared responsibility payment or the amount of any payment. The IRS will determine payments separately for each company.

For more information about how the employer shared responsibility provisions may affect your company, see our Questions and Answers on For details about how to determine if you are an applicable large employer, including the aggregation rules, see Determining If You Are an Applicable Large Employer.

August 19, 2015

Employee Benefits-IRS Summarizes What Employers Need to Know about the Affordable Care Act

In IRS Health Care Tax Tip 2015-46, August 4, 2015, the Internal Revenue Service (the "IRS") summarizes what employers need to know about the Affordable Care Act (the "ACA"). Here is what the IRS said.

The health care law contains tax provisions that affect employers. The size and structure of a workforce - small or large - helps determine which parts of the law apply to which employers. Calculating the number of employees is especially important for employers that have close to 50 employees or whose work force fluctuates during the year.

The number of employees an employer has during the current year determines whether it is an applicable large employer for the following year. Applicable large employers are generally those with 50 or more full-time employees or full-time equivalent employees. Under the employer shared responsibility provision, ALEs are required to offer their full-time employees and dependents affordable coverage that provides minimum value. Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.

The Tax Tip then sets forth a chart which summarizes ACA requirements for employers, and says that, to find more information on these and other ACA tax provisions, visit

August 18, 2015

ERISA-Eighth Circuit Holds That Claims Against Insurers For Restitution, And The Imposition Of An Equitable Lien And Constructive Trust, Are Legal And May Not Be Brought Under Section 502(a)(3) of ERISA

The case of Central States, South East and South West Areas Health & Welfare Fund v. Student Assurance Services, Inc., 2015 U.S. App. LEXIS 13941 (8th Cir. 2015) involved the following situation. Central States, a multi-employer trust fund governed by ERISA, provides health and welfare benefits to participants in the teamster industry and their dependents. Columbian Life and Security Life are insurance companies that sell, among other things, medical insurance for accidents suffered by students. Student Assurance Services processed claims for policies issued by Columbian Life and Security Life. For convenience, these three entities are referred to collectively as "Student Assurance."

Central States's complaint identifies thirteen junior high, high school, and college student-athletes who were covered dependents under its plan. These students also were covered under policies issued by Student Assurance. After the students sustained athletic injuries, Central States paid the students' medical expenses and sought reimbursement from Student Assurance. Student Assurance refused to pay. In total, Central States paid $137,204.88 in benefits. Central States alleges that according to the coordination of benefits provision of its plan, the student accident policies supply primary coverage for the students' covered medical expenses. Student Assurance insists, however, that the student accident policies are excess policies, and that they are not obligated to pay until Central States has reached the maximum contribution under its plan. Central States sued, invoking federal common law and section 502(a)(3) of ERISA. The complaint includes claims for declaratory relief, restitution, and the imposition of an equitable lien and constructive trust to secure reimbursement for the benefits paid on behalf of the common insureds. Student Assurance moved to dismiss on the ground that Central States's claims, while ostensibly seeking equitable remedies, were actually for legal relief that is unavailable under section 502(a)(3). The district court granted the motion and dismissed the complaint. Central States appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") concluded that Central States was seeking legal relief, not equitable relief. The fund seeks compensation out of the general assets of the non-ERISA insurers, and does not assert the right to particular property in the possession of the insurers. Since it is not seeking equitable relief, the Court held that Central States cannot bring its claim under section 502(a)(3). As such, the Court affirmed the district court's decision.

August 17, 2015

ERISA-Eighth Circuit Comments On Successor Liability For Delinquent Contributions and ERISA Violations

In Nutt v. Kees, No. 14-3364 (8th Cir. 2015), Kevin and Lisa Nutt had successfully sued their former employers under ERISA for two claims: delinquent contributions and breach of the fiduciary duty of care. The district court found that the Nutts' former employers could not provide adequate relief and thus relied on a theory of successor liability to hold Osceola Therapy & Living Center, Inc. ("OTLC") liable. OTLC appeals. The Eighth Circuit Court of Appeals (the "Court") reversed.

As to the successor liability theory, the Court said that the doctrine of successor liability provides an equitable exception to the general rule that a buyer takes the assets of his predecessor free and clear of all liabilities other than valid liens and security interests. However, even assuming that that successor liability applies in the ERISA context, the Court concluded that the district court clearly erred, and abused its discretion, in its factual findings and improperly weighed the equities when it held OTLC liable as the successor of the Osceola defendants.

Continuing, the Court said that several considerations guide its review of the district court's decision to impose successor liability. However, the ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy. Before imposing financial liability for a predecessor's past misdeed, courts look for two factors to ensure that liability is proper--notice and the direct transfer of assets from the predecessor. Here, OTLC did not purchase, and thus did not receive a direct transfer of, assets, nor did it receive timely notice of the potential liability. Thus, the district court abused its discretion in imposing successor liability.

August 14, 2015

Employment-US Department of Labor Signs Agreement With Alaska Department Of Labor And Workforce Development To Protect Workers From Misclassification

Memorandum: According to a U.S. Department of Labor News Brief (8/13/2015), officials from the U.S. Department of Labor and the Alaska Department of Labor and Workforce Development have signed a three-year Memorandum of Understanding (the "MOU" ) intended to protect employees' rights by preventing their misclassification as independent contractors or other non-employee statuses. Under the agreement, both agencies may share information and coordinate law enforcement.

Background: The MOU represents a new, combined federal and state effort to work together to protect the employees' rights and level the playing field for responsible employers by reducing the practice of misclassification. Alaska is the 25th state agency to join this effort with the U.S. Labor Department. Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Idaho, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Washington, Wisconsin and Wyoming agencies have signed similar agreements.

More information on misclassification and the effort are available at

August 13, 2015

ERISA-Ninth Circuit Holds That Employers' Unpaid Contributions To Employee Benefit Funds Are Not Plan Assets, Even If the Plan Documents Label Future (Unpaid) Contributions As Such, So That The Failure By The Employer To Pay Is Not An ERISA Fiduciary Viol

In Bos v. Board of Trustees, No. 13-15604 (9th Cir. 2015), the Ninth Circuit Court of Appeals (the "Court") was asked to decide whether an employer's contractual requirement to contribute to an employee benefits trust fund makes it a fiduciary of unpaid contributions under ERISA.

In this case, beginning in 2007, Gregory Bos was owner and president of Bos Enterprises, Inc. ("BEI"). BEI was a member of the Modular Installers Association, an employer association. As president of BEI, Bos agreed that BEI would be bound by the Carpenters' Master Agreement, and several trust agreements. The Carpenters' Master Agreement required each employer--including BEI--to contribute monthly payments based on hours of work to the trust funds (the "Funds") for the purpose of providing employee benefits. Each trust agreement defined its respective fund as including "all contributions required by the [Carpenters' Master Agreement]. . . to be made for the establishment and maintenance of the [respective plan], and all interest, income and other returns of any kind."

Bos personally had full control over BEI's finances, as well as authority to make payments on behalf of BEI, whether to the Funds or to other creditors. Thus, Bos was personally responsible for making the required contributions to the Funds on behalf of BEI. However, he failed to make certain required contributions. In an action by the Funds to collect the unpaid contributions, the issue arose as to whether, because the trust agreements defined the Funds as including contributions "required . . . to be made" to the Funds, the unpaid contributions were plan assets, so that Bos-who had control over BEI's funds-had liability as an ERISA fiduciary for the nonpayment of the contributions.

In analyzing the case, the Court held that an employer's unpaid contributions to employee benefit funds are not plan assets, even if the plan document expressly defines the fund to include future payments. This result applies, and is in accord with decisions in the Sixth and Tenth Circuits, even though the Second and Eleventh Circuits have held for or at least recognized a contrary result. Under the Court's holding, Bos did not control plan assets, and thus had no fiduciary duty under ERISA to remit any of BEI's assets to the Funds. The case was decided in the context of Bos's filing for bankruptcy, and has implications for bankruptcy situations as well as ERISA cases.

August 12, 2015

Employee Benefits-The Penalties For Failure To File Or Provide An ACA Information Return Or Statement Has At Least Doubled

The recently enacted Trade Preferences Extension Act of 2015 (the "Act") doubles the penalties for the failure to file or provide ACA information returns and statements.

Returns And Statements Required. The Affordable Care Act (the "ACA") added section 6056 to the Internal Revenue Code (the "Code"). Under that section, an "Applicable Large Employer" or "ALE" which maintains a group health plan is required to file an information return relating to the plan with the IRS. This return provides information on the health coverage provided under the plan. The ALE must generally use Form 1095-C, with transmittal Form 1094-C, as the return. The filing is due by the February 28 (March 31 if filing is electronic) following the year for which the return is made. In addition, the ALE is required to furnish each full-time employee with a statement that includes the same information provided to the IRS on the information return, by January 31 following the year to which the statement relates.

Further, the ACA added section 6055 to the Code. Under that section, the plan sponsor of a self-insured group health plan (including the trustees of a multiemployer health plan) is required to file an information return relating to the plan with the IRS. This return provides information on the "minimum essential coverage" provided under the plan. The plan sponsor must generally use Form 1095-B, with transmittal Form 1094-B, as the return. The filing is due by the February 28 (March 31 if filing is electronic) following the year for which the return is made. The plan sponsor is required to furnish, to each covered individual of the plan, a statement that includes the same information provided to the IRS on the information return, by January 31 following the year to which the statement relates.

If the plan sponsor which maintains a self-insured plan is also an ALE, then the plan sponsor must combine reporting under sections 6055 and 6056, by filing a single information return, Form 1095-C and transmittal, Form 1094-C. Then a single statement would be given to each full-time employee and other covered individuals.
The first returns and statements are for calendar year 2015, and are therefore due in 2016.

Information Reporting Penalties. An ALE, or plan sponsor maintaining a self-insured group health plan, which fails to comply with the information reporting requirements described above may be subject to the general reporting penalty provisions under section 6721 (failure to file correct information returns) and section 6722 (failure to furnish correct payee statement) of the Code. And the Act has at least doubled to the applicable penalties under those sections. As such, the penalties are as follows:

• For returns required to be filed after 2015, the penalty for failure to file an information return is increased from $100 to $250 for each return for which such failure occurs, with a total penalty for any calendar year capped at $3,000,000 (up from the $1,500,000 total for pre-2015 returns).

• For statements due after 2015, the penalty for failure to provide a correct statement to a full-time employee or other covered individual is increased from $100 to $250 for each statement for which such failure occurs, with the total penalty for a calendar year capped at $3,000,000 (up from the $1,500,000 total for pre-2015 statements).

• Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement.

Note that the waiver of penalty and special rules under section 6724 of the Code, and the applicable regulations, including abatement of information return penalties for reasonable cause, may apply to certain failures under section 6721 or 6722.

August 11, 2015

Employee Benefits-IRS Discusses The Tax Treatment Of Contributions Made To An HRA Established For Retirees

In Private Letter Ruling Number 201528004, the IRS faced the following situation, and came to the following conclusions:

The taxpayer currently provides health coverage to eligible retirees, their spouses, their registered domestic partners and their dependents through a choice of health plans. Upon retirement, eligible retirees generally pay premiums for the health coverage with their own after-tax funds. Some retirees are also eligible to have a portion of their accumulated unused sick leave at retirement mandatorily converted to a contribution from the employer to pay for the health insurance premiums. Contributions are uniform and based on hours of sick leave available for conversion and the class of retiree coverage (e.g., retiree-only coverage, retiree-plus-dependent, retiree-plus-family).

The taxpayer proposes to establish a new retiree medical benefit structure in the form of a health reimbursement arrangement for the benefit of eligible retirees, their spouses, their registered domestic partners and their dependents (the "retiree HRA"). Eligible employees hired before a certain date will make an election at retirement to participate in either: (1) existing health plans with premiums funded, in part, by mandatory sick leave conversion, or (2) the retiree HRA funded by mandatory conversion of accumulated unused sick leave at retirement. Retiree HRA contributions are uniform and based on hours of sick leave available for conversion, class of retiree coverage, and Medicare eligibility. The election to waive coverage under the existing health plans may not generally be changed. No other contributions, other than the sick leave conversion, are made to the retiree HRA. The taxpayer represents that amounts in the retiree HRA may be used only to reimburse health insurance premiums and medical expenses as defined in section 213 of the Code. The retiree HRA will not pay claims for registered domestic partner's medical expenses. Nor will the retiree HRA reimburse spouse's group health insurance that has been paid with pre-tax dollars. The taxpayer represents that under no circumstance may the eligible retiree or any beneficiary receive any conversion amounts at any time in cash or other benefits. Following the retiree's death, unused amounts continue for the benefit of the retiree's spouse, registered domestic partner and eligible dependents (children under 26).

Based on the foregoing, the IRS concludes that:

(1) Taxpayer contributions made to the retiree HRA on behalf of eligible retirees, spouses, and eligible dependents, which are used exclusively to pay for eligible medical expenses, are excludable from the gross income of eligible retirees under section 106 of the Code;

(2) Taxpayer contributions described in (1) are not "wages" and are not subject to FICA taxes under section 3121(a), FUTA taxes under section 3306(b) or income tax withholding under section 3401(a); and

(3) Taxpayer contributions made to the retiree HRA that are used to provide medical coverage for registered domestic partners of eligible retirees (e.g., health insurance premiums) are included in the gross income of eligible retirees under section 61 of the Code.

August 10, 2015

ERISA-Seventh Circuit Rules That Defendant Could Be Liable For Withdrawal Liability As A Successor To Employer From Which It Purchased Assets, Since The Defendant Had Notice Of Potential Withdrawal Liability At The Time Of Purchase

In Tsareff v. ManWeb Services, Inc., No. 14-1618 (7th Cir. 2015), plaintiff Indiana Electrical Pension Benefit Plan (the "Plan"), through its trustee, James Tsareff, brings this action under ERISA to collect withdrawal liability from defendant ManWeb Services, Inc. ("ManWeb"). The Plan argues that ManWeb is responsible for the withdrawal liability incurred by Tiernan & Hoover, certain assets of which ManWeb acquired through an asset sale, under a theory of successor liability. The Plan appeals the district court's grant of judgment as a matter of law to ManWeb and denial of the Plan's motion for summary judgment. After reviewing the case, the Seventh Circuit Court of Appeals (the "Court") reversed the district court's decisions.

In doing so, the Court noted that the Supreme Court and this Circuit have imposed liability upon a business successor when: (1) the successor had notice of the liability before the acquisition and (2) there was substantial continuity in the operation of the business before and after the asset sale. As to the notice requirement in prong (1), the Court said that the district court had held that this requirement excludes pre-acquisition notice of contingent liabilities; thus, because the Plan did not assess the amount of Tiernan & Hoover's withdrawal liability until after the asset purchase, it was impossible for ManWeb to have notice of any existing withdrawal liability prior to acquisition. The Plan argued that, in the narrow context of multiemployer pension fund withdrawal liability, the successor liability notice element encompasses both existing and contingent liabilities. Accordingly, the Plan maintains that the notice requirement is satisfied because the record shows that ManWeb had notice of Tiernan & Hoover's potential withdrawal liability.

The Court agreed with the Plan on this issue, finding that ManWeb did-in fact-have such notice, since:

--prior to finalizing the purchase of Tiernan & Hoover's assets, ManWeb conducted pre-purchase negotiations and performed the due diligence necessary to evaluate the asset sale;

-- going into this process, ManWeb's key decision-makers were aware of Tiernan & Hoover's union obligations and shared concerns related to the Plan's unfunded pension plan liabilities; and
-- Tiernan & Hoover's contingent withdrawal liability was explicitly included in the Asset Purchase Agreement between Tiernan & Hoover and ManWeb.

However, after finding that prong (1) for imposing successor liability was satisfied, the Court said that prong (2) for imposing such liability, namely the "successor liability continuity requirement", was not considered by the district court. As such, after reversing the district court's decisions, the Court remanded the case back to the district court to determine if prong (2) was satisfied.

August 7, 2015

Executive Compensation-SEC Adopts Rule For Pay Ratio Disclosure

In Press Release 2015-160 (Washington D.C., Aug. 5, 2015), the Securities and Exchange Commission (the "SEC") says that it has adopted a final rule that requires a public company to disclose the ratio of the compensation of its chief executive officer (the "CEO") to the median compensation of its employees. According to the Press Release, the new rule, which is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides companies with flexibility in calculating this pay ratio, and helps inform shareholders when voting on "say on pay."

The Press Release includes a Fact Sheet, which explains the new rule.