October 17, 2014

ERISA-Third Circuit Holds That Issuer of Group Annuity Contracts Is Not A Fiduciary

In Santomenno v. John Hancock Life Insurance Company, No. 13-3467 (3rd Cir. 2014), the plaintiffs had invested money in 401(k) benefit plans. They brought suit against John Hancock Life Insurance Company and its affiliates ("John Hancock"), alleging that John Hancock had charged excessive fees in violation of its fiduciary duty under ERISA on certain group annuity contracts held by their accounts under the plans. The district court granted John Hancock's motion to dismiss, ruling that John Hancock was not a fiduciary with respect to the alleged breaches.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") said that ERISA makes a person a fiduciary to a plan if the plan identifies them as such. See 29 U.S.C. § 1102(a). This was not the case here. It also provides, in 29 U.S.C. § 1002(21)(A), that a person can be a fiduciary by being a "functional" fiduciary, that is, the person acts in the capacity of manager, administrator or financial advisor to a plan. Further, a person will be a "functional" fiduciary to the extent the person so acts. To be liable for a breach of fiduciary duty, the person must have committed the breach with respect to the action complained of. The question in this case is whether John Hancock acted as a fiduciary to the plans in question with respect to the fees that it set. The Court concluded that John Hancock did not so act, and it affirmed the district court's decision.
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October 16, 2014

Employee Benefits-DOL Issues FAQ Providing Guidance On Reference Pricing And Annual Cost- Sharing Limit

In Affordable Care Act Implementation Frequently Asked Questions (FAQs Part XXI), the U.S. Department of Labor (the "DOL") provides guidance on reference pricing and the annual cost- sharing limit.

Background. Public Health Service ("PHS") Act section 2707(b), as added by the Affordable Care Act, provides that a non-grandfathered group health plan must ensure that any annual cost-sharing imposed under the plan does not exceed the limitations provided for under section 1302(c)(1) of the Affordable Care Act. Section 1302(c)(1) limits an enrollee's out-of-pocket costs. For plan years beginning in 2015, the annual limit on an individual's maximum out-of-pocket ("MOOP") costs in effect under Affordable Care Act section 1302(c)(1) is $6,600 for self-only coverage and $13,200 for coverage other than self-only coverage. The limit is adjusted for inflation for subsequent plan years.

Previous Guidance. Previous FAQs on MOOP clarified that if a plan includes a network of providers, the plan need not (but may if it wishes) count an individual's out-of-pocket spending for out-of-network items and services toward the annual limit on cost-sharing.

The previous FAQs also addressed reference-based pricing in non-grandfathered large group insurance market and self-insured group health plans ("Affected Plans"). Reference pricing means that the Affected Plan pays a fixed amount for a particular procedure (for example, a knee replacement), which certain providers will accept as payment in full.

The FAQs further stated that, until guidance was issued and effective, the DOL (and the other agencies which enforce the Affordable Care Act) will not treat an Affected Plan as failing to comply with the MOOP requirements, merely because the plan treats providers that accept the reference amount as the only in-network providers, as long as the plan uses a reasonable method to ensure that it offers adequate access to quality providers. That is, so long as the proviso is met, the providers who accept reference pricing may be treated as in-network, so the annual cost-sharing limit will apply to their services (and the agreed upon fee mitigates the limit from the plan's perspective). Consequently, any provider who does not accept the reference pricing is treated as out-of-network, and may (unless the plan chooses otherwise-not a likely event) provide services without any cost-sharing limit.

The Concern And This FAQ. Will the foregoing rule on establishing the in-network fail to provide adequate access to quality providers? This FAQ says the following on this concern:

Pending issuance of future guidance, for purposes of enforcing the requirements in PHS Act section 2707(b), the DOL (and the other agencies which enforce the Affordable Care Act) will consider all the facts and circumstances when evaluating whether a plan's reference-based pricing design (or similar network design) that treats providers that accept the reference-based price as the only in-network providers, and excludes or limits cost-sharing for services rendered by other providers, is using a reasonable method to ensure adequate access to quality providers at the reference price, including:

1. Type of service. Plans should have standards to ensure that the network is designed to enable the plan to offer benefits for services from high-quality providers at reduced costs, and does not function as a subterfuge for otherwise prohibited limitations on coverage. For this purpose:

a. In general, reference-based pricing that treats providers that accept the reference amount as the only in-network providers should apply only to those services for which the period between identification of the need for care and provision of the care is long enough for consumers to make an informed choice of provider.
b. Limiting or excluding cost-sharing from counting toward the MOOP with respect to providers who do not accept the reference-based price would not be considered reasonable with respect to emergency services. Furthermore, any provision in an Affected Plan that involves a more restrictive network cannot be applied to emergency services pursuant to PHS Act section 2719A (incorporated by reference into ERISA section 715 and Code section 9815) and its implementing regulations.

2. Reasonable access and quality. Plans should have procedures to ensure that an adequate number of providers that accept the reference price are available to participants and beneficiaries and meet reasonable quality standards.

3. Exceptions process. Plans should have an easily accessible exceptions process, allowing services rendered by providers that do not accept the reference price to be treated as if the services were provided by a provider that accepts the reference price if:
a. Access to a provider that accepts the reference price is unavailable (for example, the service cannot be obtained within a reasonable wait time or travel distance).
b. The quality of services with respect to a particular individual could be compromised with the reference price provider (for example, if co-morbidities present complications or patient safety issues).

4. Disclosure. Plans should provide the following disclosures regarding reference-based pricing (or similar network design) to plan participants free of charge.

a. Automatically. Plans should provide information automatically (e.g., in the SPD) regarding the pricing structure, including a list of services to which the pricing structure applies and the exceptions process.

b. Upon Request. Plans should provide upon request:
i. A list of providers that will accept the reference price for each service;
ii. A list of providers that will accept a negotiated price above the reference price for each service; and
iii. Information on the process and underlying data used to ensure that an adequate number of providers accepting the reference price meet reasonable quality standards.

October 15, 2014

Employment-Eighth Circuit Rules That Federal And State Claims Fail Because The Plaintiff Was An Independent Contractor

In Alexander v. Avera St. Luke's Hospital, No. 13-2592, (8th Cir. 2014), pathologist Larry Alexander ("Alexander") suffered a heart attack in March 2008, underwent a heart transplant in May 2009, and was hospitalized for bipolar disorder in October 2010. In August 2011, Avera St. Luke's, a non-profit corporation operating St.Luke's Hospital in Aberdeen, South Dakota ("Avera"), terminated its December 2008 Pathology Services Agreement with Dr. Alexander, invoking the provision that either party may terminate the Agreement with or without cause on ninety days prior written notice. Alexander brought this action against Avera, alleging violations of the Americans with Disabilities Act ("ADA"), the Age Discrimination in Employment Act ("ADEA"), the Family and Medical Leave Act ("FMLA"), and the South Dakota Human Relations Act ("SDHRA"). The district court granted Avera's motion for summary judgment, concluding that each of these statutory claims failed because undisputed material facts demonstrated that Alexander was an independent contractor rather than an Avera employee. Alexander appeals.

After analyzing the case, the Eighth Circuit Court of Appeals (the "Court") agreed that Alexander was an independent contractor when performing under the Pathology Services Agreement, and affirmed the district court's holding. Why? The Court said that Alexander appeals the dismissal of his statutory claims that Avera violated his rights under the ADA, ADEA, FMLA, and SDHRA. Each of these statutes limits its protections to "employees." Independent contractors are not covered. Although the analysis differs somewhat under each statute, based generally on the test in Nationwide Mut. Ins. v. Darden (Supreme Court 1992), the Court concluded that Alexander is an independent contractor, because:

-- Avera had no right to control the specific manner in which Alexander rendered pathology services;

-- Avera did not provide Alexander with benefits or malpractice insurance;

--Avera did not withhold income and FICA taxes from Alexander's monthly compensation and reported his income on a Form 1099, and Alexander reported his compensation as the income of a self-employed independent contractor; and

-- Alexander had the contractual right to hire substitute pathologists and assistants at his own expense (including his wife), had no weekly hours requirement, was never assigned duties not specified in his contract, held other medical employment during much of his time at Avera, and was never bound by a non-compete agreement.

October 14, 2014

ERISA-Ninth Circuit Discusses Standard For Arbitrary and Capricious Review Of A Fiduciary's Decision

In Pacific Shores Hospital v. United Behavioral Health, No. 12-55210 (9th Cir. 2014), an employee of Wells Fargo, referred to as Jane Jones or "Jones", was covered under the Wells Fargo & Company Health Plan (the "Plan"). United Behavioral Health ("UBH") is a third-party claims administrator of the Plan. Jones was admitted to Pacific Shores Hospital ("PSH") for acute inpatient treatment for severe anorexia nervosa. UBH refused to pay for more than three weeks of inpatient hospital treatment. UBH based its refusal in substantial part on mischaracterizations of Jones's medical history and condition. PSH continued to provide inpatient treatment to Jones after UBH refused to pay. Jones assigned to PSH her rights to payment under the Plan. PSH sued the Plan and UBH, seeking payment for the additional days of inpatient treatment. The district court upheld UBH's decision to pay for no more than three weeks of treatment, and Jones appealed.

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court") concluded that UBH abused its discretion in deciding to pay for these days of treatment, and therefore reversed the district court's holding. Why this conclusion?

The Court determined that UBH's decision to deny the payment is entitled to review under the arbitrary and capricious standard, and therefore should be overturned by a court only upon a finding of abuse of discretion. Further, it said that, in reviewing for abuse of discretion, we consider all of the relevant circumstances in evaluating the decision of the claims administrator. The claims administrator abuses its discretion if it renders a decision without any explanation, construes provisions of the plan in a way that conflicts with the plain language of the plan, or fails to develop facts necessary to its determination. The court must be left with a definite and firm conviction that a mistake has been committed.

The Court continued by saying that, as claims administrator, UBH owed a fiduciary duty to Jones under ERISA, to act in Jones' best interest and for the purpose of providing benefits to her, and to act as a prudent man. Here, UBH fell far short of fulfilling its fiduciary duty to Jones. Dr. Zucker, UBH's primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH's final decisionmaker, stated that he arrived at his decision to deny benefits "after fully investigating the substance of the appeal." He then rubberstamped Dr. Center's conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors we have described. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted.

October 9, 2014

Employee Benefits-IRS Says It's Not Too Late for a Tax Break - Start a SEP Retirement Plan for 2013

In Retirement News for Employers, October 2, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that, if you own a business, you still have time to set up a Simplified Employee Pension ("SEP") plan for 2013. Here is what the IRS says.

If you set up and fund your SEP by the due date of your 2013 business return (including extensions), you can still take a deduction for 2013. If your business uses the calendar year for its tax year, the deadline to set up and contribute to a SEP plan for 2013 depends on the type of your business organization:

• If your business is a corporation, filing Form 1120 or 1120S, you have until
March 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a partnership, filing Form 1065, you have until April 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a sole proprietorship, reported on Schedule C of Form 1040,
you have until April 15, 2014 (October 15, 2014, if you file for an extension).

You can set up a SEP plan for little or no cost at a bank, investment firm or insurance company.

SEP plans offer high contribution and deduction limits, minimal paperwork and no
annual Form 5500 filing. You can contribute to a SEP plan even if you participate in an unrelated employer's plan (for example, a 401(k) plan). Contributions to a SEP plan are subject to the SEP contribution limits.

Other kinds of business-sponsored retirement plans must have been established before the end of 2013 in order for the business to get a deduction for 2013.

October 8, 2014

Employee Benefits-IRS Discussed Retirement Plans Startup Costs Tax Credit

In Retirement News for Employers, October 2, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the startup costs tax credit for retirement plans. Here is what the IRS said.

You may be able to claim a tax credit for some of the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan. A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

If you qualify, you may claim the credit using Form 8881, Credit for Small Employer Pension Plan Startup Costs.

Eligible employers

You qualify to claim this credit if:

• You had 100 or fewer employees who received at least $5,000 in compensation
from you for the preceding year;

• You had at least one plan participant who was a non-highly compensated
employee; and

• In the 3 tax years before the first year you're eligible for the credit, your
employees weren't substantially the same employees who received
contributions or accrued benefits in another plan sponsored by you, a member
of a controlled group that includes you, or a predecessor of either.

Amount of the credit

The credit is 50% of your ordinary and necessary eligible startup costs up to a
maximum of $500 per year.
Eligible startup costs

You may claim the credit for ordinary and necessary costs to:

• Set up and administer the plan, and

• Educate your employees about the plan.

Eligible tax years

You can claim the credit for each of the first 3 years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. The credit is part of the general business credit and you may carry it back or forward to other tax years if you can't use it in the current year. However, you can't carry it back to a tax year beginning before January 1, 2002.

No deduction allowed

You can't both deduct the startup costs and claim the credit for the same expenses. You aren't required to claim the allowable credit.

October 7, 2014

ERISA-District Court Rules That One Year Limit Contained In The Plan For Bringing Suit Is Extended By State Insurance Law

In Halpern v. Blue Cross/Blue Shield of Western New York, No. 12-CV-407S (W.D. New York 2014), the plaintiff, Burce J. Halpern ("Halpern"), brought this suit, under ERISA section 502 against defendant, Blue Cross/Blue Shield of Western New York ("Blue Cross"), following the denial by Blue Cross of reimbursement claims under an insured group health benefits plan (the "Plan").

One issue which the district court faced was whether Halpern's suit is timely. Blue Cross argues that Halpern 's suit is time-barred under the Plan's contractual limitations period because this period is one year, and Halpern filed his ERISA suit over one year from the last date for which he claimed benefits. The district court said that, since ERISA contains no statute of limitations for actions brought under section 502, such claims are subject to the most analogous state statute of limitations. In New York, courts typically apply the six-year limitations period for contract actions set forth in N.Y. Civil Practice Law and Rules. This limitations period may be shortened, where the parties memorialize such agreement in writing.

However, New York Insurance Law states that the limitations period in an insured arrangement cannot be less than two years following the time proof of loss is required by the arrangement. Since the Plan is insured, it is subject to this requirement, and ERISA preemption does not apply. Here, Halpern brought this suit on April 23, 2012, so that medical services from August 2010 to April 2011 for which he now seeks reimbursement fall within the applicable limitations period.

October 6, 2014

Employee Benefits-IRS Permits New Election Changes Under Cafeteria Plans For Health Coverage

In IRS Notice 2014-55, the Internal Revenue Service (the "IRS") permits election changes under a cafeteria plan, when a participant may wish to revoke, during a period of coverage (generally the plan year), the employee's election under the plan for employer-sponsored health coverage in order to purchase a health plan under an Affordable Care Act Health Insurance Exchange (a "Qualified Health Plan"). This Notice does not apply to a health care flexible spending account (a "health FSA") offered under the cafeteria plan.

The Notice provides that a cafeteria plan may allow an employee to prospectively revoke an election of coverage under a group health plan (again, other than an FSA), which provides minimum essential coverage (as defined in § 5000A(f)(1)), so long as the following conditions are met:

(1) the employee has been in an employment status under which the employee was reasonably expected to average at least 30 hours of service per week, and there is a change in that employee's status so that the employee will reasonably be expected to average less than 30 hours of service per week after the change,even if that reduction does not result in the employee ceasing to be eligible under the group health plan (that is, the employee switches from full-time to part-time status under the Affordable Care Act); and

(2) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee, and any related individuals who cease coverage due to the revocation, in another plan that provides minimum essential coverage (e.g., a Qualified Health Plan), with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.

For these purposes, a cafeteria plan may rely on the reasonable representation by the employee that condition (2) will be satisfied.

In addition, the cafeteria plan may allow a prospective revocation of an election of coverage under the group health plan (again, other than an FSA), so long as:

(a) the employee is eligible for a Health Insurance Exchange's special enrollment period to enroll in a Qualified Health Plan, or seeks to enroll in a Qualified Health Plan during the Health Insurance Exchange's annual open enrollment period; and

(b) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee and any related individuals who cease coverage due to the revocation in a Qualified Health Plan, for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

For these purposes, a cafeteria plan may rely on the reasonable representation by the employee that condition (b) will be satisfied.

The guidance in the Notice is effective on September 18, 2014. To allow the new permitted election changes under this Notice, a cafeteria plan must be amended to provide for such changes. The amendment must be adopted on or before the last day of the plan year in which the election changes are allowed, and may be effective retroactively to the first day of that plan year, so long as the cafeteria plan operates in accordance with the guidance under this Notice and the employer informs participants of the amendment. As a transition rule, the cafeteria plan may be amended to adopt the new permitted election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015. However, in no event may an election to revoke coverage on a retroactive basis be allowed.

October 1, 2014

Employment-Seventh Circuit Rules That Plaintiff Is Covered By The FMLA

In Cuff v. Trans States Holdings, Inc., No. 13-1241 (7th Cir. 2014), the Seventh Circuit Court of Appeals (the "Court") was faced with the question of whether the plaintiff, Darren Cuff ("Cuff"), who was on the payroll of Trans States Airlines ("Trans States"), was covered by the Family and Medical Leave Act (the "FMLA").

The Court noted that, in this case, United Airlines contracts with other firms for regional air services under the "United Express" brand. Trans States Holdings ("Holdings") is one of United's suppliers. It owns two air carriers: Trans States and GoJet Airlines ("GoJet"). The FMLA applies only if the employer has at least 50 employees within 75 miles of a given worker's station. 29 U.S.C. §2611(2)(B)(ii). Cuff worked at O'Hare Airport in Chicago. The parties agree that in January 2010, when it fired Cuff after he took leave despite its denial of his request under the FMLA, Trans States had 33 employees at or within 75 miles of O'Hare, while GoJet had 343 and Holdings had none. Cuff contends that he worked for Trans States and Go-Jet jointly.

The Court also noted that the Department of Labor has issued a regulation, providing that workers are covered by the FMLA when they are jointly employed by multiple firms that collectively have 50 or more workers. 29 C.F.R. §825.106(a). A separate regulation adds that two or more firms may be treated as a single employer when they operate a joint business. 29 C.F.R. §825.104(c). Cuff invoked both of these provisions. The two lead factors identified by regulation §825.106(a), in determining whether there is joint employment, is whether "there is an arrangement between employers to share an employee's services" and whether "one employer acts directly or indirectly in the interest of the other employer in relation to the employee". The Court found that, in Cuff's case, both questions are answered "yes," and it concluded that Cuff was a joint employee of at least Trans States and GoJet, if not of Holdings too. Combining those entities allows Cuff to meet the 50 workers threshold, so that Cuff is covered by the FMLA.

September 29, 2014

ERISA-Ninth Circuit Holds That Decision To Prohibit Transfer Of Account Balances From One Plan To Another Did Not Violate Anti-Cutback Rule

In Andersen v. DHL Retirement Pension Plan, No. 12-36051 (9th Cir. 2014), the Ninth Circuit Court of Appeals (the "Court") dealt with the question of whether the Defendants' ("DHL") decision to eliminate Plaintiffs' right to transfer their account balances from DHL's defined contribution plan to its defined benefit plan violated the ERISA "anti-cutback" rule. This rule, found at 29 U.S.C. § 1054(g), prohibits any amendment of an employee benefits plan that would reduce a participant's "accrued benefit."

In this case, prior to the amendment challenged in this case, the Plaintiff's, who were participants in an individual account profit sharing plan at DHL (the "Profit Sharing Plan"), could transfer the funds from their Profit Sharing Plan accounts to the defined benefit retirement plan in which they also participated at DHL (the "Retirement Plan"). The Retirement Plan would offset a participant's benefit under that plan by his or her Profit Sharing Plan account balance. As a result, the transfer option, if exercised, provided increased funds for the participant under the Retirement Plan, but also reduced the Profit Sharing Account balance to zero, so that there was no offset. As such, the transfer could work to the participant's advantage. However, DHL amended the Retirement Plan to prohibit the transfers, and this suit ensued.

In analyzing the case, the Court concluded that the amendment to the Retirement Plan eliminating the transfer option did not violate the anti-cutback rule. There is no reduction is a participant's accrued benefit. The amount of the accrued benefit is determined by formula in Section 4.01 of the Retirement Plan. The amendment did not affect this formula. Under that formula, a participant's accrued benefit is, and always has been, calculated on the basis of a participant's final average compensation and years of service, with an offset for an attributed annuity amount based on the participant's account balance, if any, in the Profit Sharing Plan. The transfer option eliminated was in Section 7.11, and that Section was not part of a participant's accrued benefit. The Court noted that the anti-cutback rule prohibits the elimination of an optional form of benefit (29 U.S.C. § 1054(g)(2)). But the Court reasoned that the only plan feature eliminated was the Retirement Plan provision under which transfers were accepted, and IRS regulations under the anti-cutback rule permit elimination of this type of feature.

September 26, 2014

Employee Benefits-DOL Requests Information On Brokerage Windows

According to Employee Plans News, Issue 2014-15, September 22, 2014, the Department of Labor's Employee Benefits Security Administration (DOL/EBSA) on, August 21, published a Request for Information on the use of brokerage windows, self-directed brokerage accounts and similar features in 401(k)-type plans.

Some 401(k)-type plans offer participants access to brokerage windows in addition to, or in place of, specific investment options chosen by the employer or another plan fiduciary. These "window" arrangements can enable or require individual participants to choose from a broad range of investments. DOL/EBSA received a number of questions about brokerage windows following the 2012 publication of a final regulation on participant-level fee disclosure.
The RFI asks questions concerning brokerage windows, including:

• the scope of investment options typically available through a window;• demographic and other information about participants who commonly use
brokerage windows;
• the process of selecting a brokerage window and provider for a plan;
• the costs of brokerage windows; and
• what kind of information about brokerage windows and underlying investment
options typically is available and disclosed to participants.

Comments are due by November 19, 2014. Comments can be submitted electronically by email to E-ORI@dol.gov or through the federal eRulemaking portal. Written comments may also be sent to:

U.S. Department of Labor
Office of Regulations and Interpretations
Employee Benefits Security Administration, N-5655
Attn: Brokerage Window RFI
200 Constitution Ave, NW,
Washington, DC 20210

September 24, 2014

Employee Benefits-IRS Talks About Missing Participants Or Beneficiaries

In Employee Plans News, Issue 2014-15, September 22, 2014, the IRS talks about missing participants or beneficiaries. It says the following:

Plan sponsors, administrators and qualified termination administrators (QTAs)
sometimes need to locate missing participants or beneficiaries. For example, correction of a plan failure under the Employee Plans Compliance Resolution System (EPCRS) may require payment of additional benefits to terminated participants. See Revenue Procedure 2013-12, Section 6.02(5)(d), for plan correction principles relating to lost participants.

Previously, the IRS provided letter-forwarding services to help locate missing plan
participants, but with the August 31, 2012, release of Revenue Procedure 2012-35, the IRS stopped this letter forwarding program. The IRS will no longer process requests to locate retirement plan participants or beneficiaries.

In the absence of IRS letter forwarding services, sponsors, administrators and QTAs may use a variety of other methods to locate missing participants and beneficiaries, including:

• commercial locator services;
• credit reporting agencies; and
• internet search tools.

The Department of Labor in Field Assistance Bulletin No. 2014-01 lists the following search methods as the minimum steps the fiduciary of a terminated defined contribution plan must take to locate a participant:

• Send a notice using certified mail;
• Check the records of the employer or any related plans of the employer;
• Send an inquiry to the designated beneficiary of the missing participant; and
• Use free electronic search tools.

Field Assistance Bulletin 2014-01 generally updates DOL/EBSA guidance on how fiduciaries of terminated defined contribution plans can fulfill their obligations under ERISA to locate missing participants and properly distribute the participants' account balances.

September 23, 2014

Employee Benefits-IRS Reminds Us That Errors by IRA Trustees, Issuers and Custodians On Form 5498 May CauseTax Trouble

In Employee Plans News, Issue 2014-15, September 22, 2014, the IRS says that incorrect information on Form 5498, IRA Contribution Information, may cause taxpayers to make IRA reporting errors on their tax returns. Common examples of incorrect information include:

• Reporting the IRA contribution for the wrong year;

•Failing to report the contribution as a conversion from a traditional IRA to a Roth IRA; and

• Issuing duplicate Forms 5498.

IRA trustees, issuers and custodians can avoid making these common errors by
checking the information on Form 5498 before submitting it to the IRS and providing a copy to the client.

September 19, 2014

Employment-Third Circuit Holds That Employee Has Established A Prima Facie Case of Interference and Retaliation Under The FMLA

In Budhun v. Reading Hospital and Medical Center, No. 11-4625 (3rd Cir. 2014), the plaintiff, Vanessa Budhun ("Budhun"), was appealing the district court's summary judgment in favor of her employer, the Reading Hospital and Medical Center ("Reading"), on her Family Medical Leave Act ("FMLA") interference and retaliation claims.

In this case, in accordance with applicable law, Reading provides its employees with up to twelve weeks of job-protected FMLA leave during any rolling twelve-month period. Reading requires employees to submit a leave certification from a healthcare professional prior to approving any FMLA leave. It also requires employees to submit a "fitness-for-duty" certification in the form of a return to work form that confirms that the employee can work "without restriction" before returning. If an employee does not contact Reading's human resources department at the end of his or her leave, Reading's policy states that it will consider the employee to have voluntarily resigned.

After taking FMLA leave due to a broken finger, and failing to inform Reading human resources at the end of the leave, Reading terminated Budhun. This suit ensued. In analyzing the case, the Third Circuit Court of Appeals (the "Court") noted that FMLA guarantees an employee the right to return to work, the right allegedly being interfered with. The Court said that, although we have never had occasion to address specifically what constitutes invocation of one's right to return to work, Budhun has adduced enough evidence such that a reasonable jury could find that she did so here, and that Reading interfered with her rights when they did not let her return.. She submitted a "fitness-for-duty" certification, which clearly stated that she could return to work with "no restrictions." Under the FMLA regulations, prior to permitting an employee to return to work, an employer, as Reading did here, may request that an employee provide such a certification. In it, an employee's healthcare provider must merely certify that the employee is able to resume work. Budhum met these requirements, establishing a prima facie case of interference under the FMLA.

Next, the Court dealt with Budhun's retaliation claim. Budhun argues that Reading retaliated against her for taking FMLA leave when it impermissibly replaced her with another employee after her FMLA-protected leave expired. Budhun's claim is based on circumstantial evidence. Thus, to succeed on her claim, it is her burden to establish that (1) she invoked her right to FMLA-qualifying leave, (2) she suffered an adverse employment decision, and (3) the adverse action was causally related to her invocation of rights. The record indicates that that Budhun made out these elements, meeting element (2) by alleging that she was replaced her with another employee and meeting element (3) by alleging that Reading had decided to replace her prior to the end of her FMLA leave, and actually replaced her just two days after the leave ended. This at least established a prima facie case of retaliation under the FMLA.
As such, the Court overturned the district court's grant of summary judgment, and remanded the case back to the district court.

September 17, 2014

ERISA-Sixth Circuit Upholds Grant Of Benefits, But Not Imposition Of Penalties, For Failure To Provide Benefits For Treatment For Alcohol Addiction

In Butler v. United Healthcare of Tennessee, Inc., No. 13-6446 (6th Cir. 2014), the following obtained. More than nine years ago, the plaintiff, Janie Butler ("Janie"), checked into a substance-abuse treatment facility to obtain inpatient rehabilitation for her alcohol addiction. She sought coverage for the treatment through her husband's employer-issued ERISA plan run by the defendant, United Healthcare of Tennessee, Inc. ("United"). United denied treatment, deeming it medically unnecessary. After seven years' worth of internal reviews, trips to the district court and remands to the plan for reconsideration, the district court decided that enough was enough. It held that United had acted arbitrarily and capriciously in continuing to deny the requested coverage. And it awarded John Butler (her then-husband and the assignee of Janie's plan benefits) the cost of the requested benefits plus prejudgment interest and statutory penalties. United objects to the decision to grant benefits and to the order to pay penalties.

Upon reviewing the case, the Court affirmed the grant of benefits, but reversed the penalty award. Why? As to the benefits, the Court said that Janie obviously qualified for rehabilitation benefits under United's residential-rehabilitation guideline, which grants residential-rehabilitation benefits to insured individuals with a "[h]istory of continued and severe substance abuse despite appropriate motivation and recent treatment in an intensive outpatient . . . program." The Court concluded that United's denial of these benefits is a clear abuse of discretion.

As to the penalties, the Court noted that the district court had awarded statutory penalties to John Butler, reasoning that ERISA allows penalties of "up to $100 a day" if the plan "administrator" "fails or refuses to comply with a request for any information" that the statute requires the administrator to provide. See 29 U.S.C. § 1132(c)(1)(B). However, since United is not the "administrator" of the plan, that was a mistake. The plan did not name an administrator, so under ERISA the employer is treated as being the "administrator". Further, John Butler did not allege a violation of section 1132 (the alleged violation being of section 1133), so that the $100/day penalty cannot apply.