The U.S. Department of Labor (the “DOL”) made this announcement in a News Release. Here is what the News Release said:

The DOL has announced a two-month extension of the comment period on the Form 5500 Modernization Proposals. The department, the Internal Revenue Service and the Pension Benefit Guaranty Corporation published a Notice of Proposed Revision of Annual Information Return/Reports in the Federal Register on July 21, 2016. The department also published a separate, but related Notice of Proposed Rulemaking on the same day.

The forms revisions and regulatory amendments were proposed as part of a project to improve and modernize Form 5500 annual return/reports filed by employee benefit plans. The forms revisions and regulatory amendments generally are being coordinated with a recompete of the contract for the ERISA Filing Acceptance System II – the wholly electronic system, commonly known as EFAST2, that is operated by a private-sector contractor for the processing of Form 5500/5500-SF return/reports.

In Loeza v. JPMorgan Chase & Co., No. 16-222-cv (2nd Cir. 2016) (Unpublished), the plaintiffs were appealing a judgment of the district court dismissing their complaint (the “Complaint”). The plaintiffs had alleged that certain fiduciaries of the JPMorgan Chase & Co. 401(k) Savings Plan (the “Plan”) breached the duty of prudence owed to Plan participants under ERISA. They stated, in their Complaint, that the defendants, who are JPMorgan corporate insiders and named fiduciaries of the Plan, were imprudent in failing to prevent the Plan from purchasing JPMorgan stock at a price inflated by alleged securities fraud related to certain trading activities undertaken by the firm’s Chief Investment Office (the “CIO”). The district court’s dismissal was based on the conclusion that the plaintiff’s Complaint failed to satisfy the applicable pleading requirements articulated by the Supreme Court in Fifth Third Bancorp v. Dudenhoeffer and Amgen Inc. v. Harris.  

More specifically, the plaintiffs alleged in their Complaint that defendants Douglas Braunstein and James Wilmot knew that the CIO had taken risky trading positions and helped circumvent JP Morgan’s internal risk controls. Such facts allegedly should have been publicly disclosed under the federal securities laws. Their belated disclosure allegedly caused JPMorgan’s stock price to fall by approximately 16% in one day. Further, the plaintiffs alleged in their Complaint that Braunstein and Wilmot could have discharged their duty of prudence and prevented harm to the Plan either by freezing its purchases of JPMorgan stock or publicly disclosing the CIO-related securities fraud. The Complaint further alleges that these remedial measures would not have caused the Plan more harm than good because the longer a fraud goes on, the more painful the stock price correction would be, as experienced finance executives like Wilmot and Braunstein reasonably should have known, and the longer Wilmot and Braunstein allowed Plan participants to be harmed by JPMorgan’s fraud, the greater the harm to Plan participants they permitted.

The district court concluded that the Complaint failed to plausibly allege that a prudent fiduciary could not conclude that freezing purchases or disclosing the alleged securities fraud would cause the Plan “more harm than good,” as is required to be alleged by Fifth Third Bancorp and Amgen. It dismissed the Complaint on that ground. The plaintiffs appealed, arguing that the Complaint satisfies the “more harm than good” prong of Fifth Third Bancorp. Upon reviewing the case, the Second Circuit Court of Appeals (the “Court”) stated that it reviewed the Complaint’s allegations in the foregoing regard and concluded that they are wholly conclusory and materially indistinguishable from the allegations that the Supreme Court found insufficient in Amgen. Therefore, the Court ruled that the district court had properly dismissed the plaintiff’s complaint.

 

In Okuno v. Reliance Standard Life Ins. Co., 15-4043 (6th Cir. 2016), the petition of Patti Okuno (“Okuno”) for long-term disability benefits was denied by Reliance Standard Life Insurance Company (“Reliance”), the issuer and administrator of the disability benefits plan, on the basis that depression and anxiety contributed to Okuno’s disabling conditions. After exhausting her administrative appeals, Okuno brought suit against Reliance under ERISA. The district court found in favor of Reliance on cross motions for judgment on the administrative record.

On appeal, Okuno asserts that the district court erred by adopting Reliance’s improper interpretation of the plan’s limitation on coverage for disabilities “caused by or contributed to by” mental or nervous disorders. Because her physical ailments, including Crohn’s disease, narcolepsy, and Sjogren’s syndrome, are disabling when considered apart from any mental component, Okuno contends that she is entitled to recover long-term benefits.

Upon reviewing the case, the Sixth Circuit Court of Appeals (the “Court”) agreed with Okuno. Accordingly, the Court reversed the order of, and remanded the case back to, the district court.

 

In Allen v. GreatBanc Trust Co., No. 15-3569 (7th Cir. 2016),  GreatBanc Trust Co. (“GreatBanc”) is the fiduciary for an employee stock ownership plan (“the Plan”) for employees of Personal-Touch, a home-health-care company. In that role, GreatBanc facilitated a transaction in which the Plan purchased a number of shares in the company with a loan from the company itself. Unfortunately, the shares turned out to be worth much less than the Plan paid, leaving the Plan with no valuable assets and heavily indebted to the company’s principal shareholders. The Plan’s participants, all employees of Personal Touch, wound up being on the hook for interest payments on the loan. Employees Lisa Allen and Misty Dalton brought this action under section 502 of ERISA, raising two theories of recovery: first, that GreatBanc engaged in transactions that section 406 of ERISA prohibits; and second, that GreatBanc breached its fiduciary duty under ERISA section 404 by failing to secure an appropriate valuation of the Personal-Touch stock. The district court dismissed the complaint, and the plaintiffs appealed.

Upon analyzing the case, the Seventh Circuit Court of Appeals (the “Court”) held that the plaintiffs plausibly alleged both a prohibited transaction and a breach of fiduciary duty. Therefore, the Court reversed the judgment of the district court and remanded the case for further proceedings.

As to the allegation of a prohibited transaction, the Court said that the complaint alleges a purchase of employer stock by the Plan and a loan by the employer to the Plan, both of which are indisputably prohibited transactions within the meaning of section 406 of ERISA. GreatBanc can prevail only if it can take advantage of one of the exemptions for prohibited transactions in section 408 of ERISA. It never raised any affirmative defense based on those exemptions. GreatBanc had the burden of both pleading and proving the applicability of a section 408 exemption, which it did not meet.  Thus, the allegation of a prohibited transaction is plausible.

In Demer v. IBM Corporation LTD Plan, No. 13-17196 (9th Cir. 2016), the district court had granted summary judgment to the defendants in an action under ERISA challenging the denial of a claim for long-term disability benefits. However, a panel of judges belonging to the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s decision.

The Panel first held that Metropolitan Life Insurance Company (“MetLife”), the ERISA plan’s claims administrator and insurer, had a conflict of interest such that the court’s abuse of-discretion review should be tempered by some skepticism because of the financial conflict of the independent physician consultants (“IPCs”) upon whom MetLife relied (the IPCs have done a substantial number of reviews for Metlife and received significant compensation from MetLife for their services).

The Panel then held that MetLife abused its discretion because it did not find that the plaintiff’s mental capacity was affected in any way by the medications he was taking for his physical pain, and improperly rejected the credibility of his complaints of fatigue and difficulty concentrating, based on the opinions of two IPCs who did not examine him and did not explain why they rejected his credibility. The Panel held that in light of the totality of the circumstances, including the financial conflict of interest of the IPCs and substantial evidence of the plaintiff’s physical limitations, MetLife abused its discretion in denying the plaintiff’s claim for benefits.

The IRS has issued Revenue Procedure 2016-47 (the “Rev. Proc.”), which provides guidance concerning waivers of the 60-day rollover requirement contained in sections 402(c)(3) and 408(d)(3) of the Internal Revenue Code (the “Code”). Specifically, the Rev. Proc. provides for a self-certification procedure (subject to verification on audit) that may be used by a taxpayer claiming eligibility for a waiver under Code section 402(c)(3)(B) or 408(d)(3)(I) with respect to a rollover into a plan or individual retirement arrangement (an “IRA”). It provides that a plan administrator, or an IRA trustee, custodian, or issuer, may rely on the certification in accepting and reporting receipt of a rollover contribution. It also modifies Rev. Proc. 2003-16 by providing that the IRS may grant a waiver during an examination of the taxpayer’s income tax return. An appendix in the Rev. Proc. contains a model letter that may be used for self-certification.

The IRS discussed the Rev. Proc. in IR-2016-113, August 24, 2016. There, the IRS says the following:

The IRS today provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or IRA. In the Rev. Proc., posted today on IRS.gov, the IRS explained how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the Rev. Proc. includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver. Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. In most cases, taxpayers who fail to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS. A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the Rev. Proc., apply to them. These circumstances include a distribution check that was misplaced and never cashed, the taxpayer’s home being severely damaged, the death of a family member, the serious illness of the taxpayer or a family member was seriously ill, the taxpayer was incarcerated or restrictions were imposed by a foreign country.

In Morris B. Silver M.D., Inc. v. Int’l Longshore & Warehouse Union, 2016 Cal. App. LEXIS 706 (Court of Appeal of California, Second Appellate District, Division Seven 2016), Morris B. Silver M.D., Inc. (“Silver”) sued the International Longshore and Warehouse Union-Pacific Maritime Association Welfare Plan (the “Plan”) to recover payment for health care services provided to Plan policyholders. His causes of action were breach of oral contract, quantum meruit, promissory estoppel and interference with contractual relations. Until September 2012 the Plan regularly paid Silver’s invoices for service rendered to Plan policyholders. Beginning that month, however, the Plan stopped paying Silver, sending it and its policyholders explanation-of-benefits (EOB) forms indicating that the billed procedures were not covered and that neither the Plan nor the patient had any obligation to make payment to Silver. Silver’s action was dismissed by the lower trial court on the ground all of his state law causes of action were preempted by ERISA. The California Court of Appeal (the “Court”) reversed the order dismissing the lawsuit and remanded the case for further proceedings as set forth in it’s opinion.

In deciding to reverse the lower court on the ERISA preemption matter, the Court said that there are two types of preemption: first, preemption under section 514 of ERISA, known as conflict or ordinary preemption, and, second, complete preemption under section 502(a) of ERISA. Conflict preemption is an affirmative defense to a plaintiff’s state law cause of action that entirely bars the claim; that is, the particular claim involved cannot be pursued in either state or federal court. Complete preemption, in contrast, is a doctrine that recognizes federal jurisdiction over what would otherwise be a state law claim, an issue that typically arises when the defendant has removed the plaintiff’s state court lawsuit to federal court. This case involves conflict preemption.

The Court continued by stating that Silver’s causes of action for breach of oral contract, quantum meruit and promissory estoppel do not address an area of exclusive federal concern and are not preempted. Silver is not seeking compensation for the Plan’s decisions to deny coverage under the terms of an ERISA plan; his alleged right to reimbursement does not depend on the Plan’s terms. Rather, the claims are predicated on a garden-variety failure to make payment as promised for services rendered. To be sure, the claims would not exist but for an ERISA plan and are predicated on somebody’s interpretation of the plan. But the fact an ERISA plan is an initial step in the causation chain, without more, is too remote of a relationship with the covered plan to support a finding of preemption.

Here is the IRS advice:

Employers that sponsor one-participant plans should take necessary steps to prevent a qualified retirement plan from becoming an orphan plan – a plan that no longer has a plan sponsor.

One of the most common reasons why a retirement plan becomes an orphan plan is because the plan sponsor no longer exists. For example, the individual employer/plan sponsor:

In  Rabinek v. United Bhd. Of Carpenters Pension Fund, No. 15-1717 (7th Cir. 2016), the situation was as follows. William Rabinak had worked full-time as a business representative for the Chicago Regional Council of Carpenters. By virtue of his position, he also served on the Council’s Executive Board. Rabinak received quarterly payments of $2,500 for his service on the Board. The Council made these quarterly payments in checks separate from those for Rabinak’s weekly salary.

When he retired, Rabinak qualified for a pension benefit from the United Brotherhood of Carpenters Pension Fund (the “Fund”). However, when he received the calculation of his pension benefit, he thought something was off. The annual salaries listed did not appear to take into account the $2,500 quarterly payments for serving on the Executive Board. Rabinak appealed and maintained that those payments should have been taken into account in the calculation. The Fund’s appeals committee denied his appeal.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) said the following. Controlled as we are by a standard of review that asks only whether the defendant’s decision was arbitrary and capricious, we affirm the denial by the Fund’s appeals committee. The Fund’s definition of compensation includes only “salary,” and the $2,500 quarterly payments for Board service were paid separately from Rabinak’s weekly salary payments and coded differently as well. The conclusion that the payments at issue were not salary payments under this particular Fund was not arbitrary and capricious.

In Alexandra H. v. Oxford Health Ins., No. 15-11513 (11th Cir. 2016), plaintiff Alexandra H. appeals from the district court’s grant of defendant Oxford Health Insurance, Inc.’s motion for summary judgment on Alexandra’s claim under ERISA. Alexandra sought benefits for continued partial hospital treatment for her anorexia, which were denied on the ground that the level of care she sought was not medically necessary. After her claim was initially denied through internal reviews by Oxford, she sought and obtained further review through an external process provided by the insurance contract between her employer and Oxford, of which she is a beneficiary. When the external review proved adverse to her claim, she initiated her ERISA suit in the district court.

Alexandra argues that the district court erred in holding that she is barred from litigating the issue of medical necessity in her ERISA case on the ground that the adverse external review of her medical necessity claim already and finally decided the issue against her. She challenges the district court’s decision on several grounds. First, she asserts that the record of the external review should be excluded from the ERISA proceedings. Second, she argues that the contract in suit must be interpreted pursuant to choice of law stated in the contract (New York), and that under New York law, the adverse external review decision is not binding on the medical necessity issue in her ERISA case. And third, she contends that if the record of the external review is properly in the record before the ERISA court, and if the result of the external review is deemed to bar her ERISA remedy, then the external review process is preempted by ERISA, with the effect of the preemption being that she may proceed with her ERISA case in district court as if the external review had not occurred.

Oxford counter argues that the record of the external review should be before the ERISA court, that the adverse decision of the external review should preclude further litigation of the medical necessity issue in the ERISA case, and that the external review process if thusly enforced in the district court is not preempted by ERISA.