In Field Assistance Bulletin No. 2017-02 (the “FAB”) , the U.S. Department of Labor (the “DOL”) announces a temporary enforcement policy related to the DOL final rule defining who is a “fiduciary” under ERISA, and the related prohibited transaction exemptions, including the Best Interest Contract Exemption (the “BIC Exemption”), the Class Exemption for Principal Transactions In Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (the “Principal Transactions Exemption”), and certain amended prohibited transaction exemptions (collectively the “PTEs”).  Here is what the FAB said.


Items Previously Issued.  The final rule, entitled “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule — Retirement Investment Advice,” was published in the Federal Register on April 8, 2016, became effective on June 7, 2016, and had an original applicability date of April 10, 2017.  The PTEs also had an original applicability date of April 10, 2017, with a phased implementation period ending on January 1, 2018, for the BIC Exemption and the Principal Transactions Exemption.  The President, by Memorandum to the Secretary of Labor dated February 3, 2017, directed the DOL to examine whether the fiduciary duty rule may adversely affect the ability of Americans to gain access to retirement information and financial advice and to prepare an updated economic and legal analysis concerning the likely impact of the rule as part of that examination.  On March 2, 2017, the DOL published a notice proposing a 60-day delay in the applicability date of the fiduciary duty rule and the related PTEs and seeking public comments on the questions raised in the Presidential Memorandum, and generally on questions of law and policy concerning the fiduciary duty rule and PTEs.

In Jones v. Aetna Life Insurance Company, No. 16-1714 (8th Cir. 2017), Lisa E. Jones submitted a claim for disability benefits. Her plan administrator denied it. She then sued under ERISA for denial of benefits and breach of fiduciary duty. The district court dismissed the fiduciary claim as “duplicative” of the denial-of-benefits claim. It then granted summary judgment against Jones on the denial-of-benefits claim. Upon reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the summary judgment in part, and reversed it in part, and remanded the case back to the district court.

In analyzing the case, the Court noted that two of ERISA’s theories of recovery are relevant here. First, under section 502(a)(1)(B) of ERISA, a plan participant or beneficiary may sue to recover benefits due to him under the terms of his plan. Second, under section 502(a)(3) of ERISA, a participant or beneficiary may sue to obtain other appropriate equitable relief  to enforce any provisions of ERISA- including those provisions that impose liability on fiduciaries that breach their statutory duty to exercise a prudent man standard of care (per sections 1104(a) and 1109(a) of ERISA).

The Court then asked whether a participant may sue for benefits under both sections? The Court said yes, after reviewing prior Eighth Circuit decisions, at least so long as the claims under each section assert different theories of liability (which is the situation in this case), and even if the relief sought is similar.

In a private letter ruling, the IRS reminds us that a Health FSA may not reimburse a participant’s health insurance premiums.  Here is what the letter says.

The IRS was asked about the rules on submitting Medicare premium expenses as claims under a health flexible spending arrangement (a “health FSA”).  The IRS was also asked why a participant was required to enroll in the Medicare program after experiencing renal failure.

The participant had submitted her Medicare premium expenses to her health FSA for reimbursement.  The administrator of her health FSA denied her claims, citing to an IRS regulation that prohibits the reimbursement of medical premiums.  See Prop.Treas. Reg. 1.125-5(k)(4).  As stated in the proposed regulation and IRS Publication 969, a health FSA cannot reimburse health insurance premium payments.  Medicare premiums are premiums for other health coverage and thus are not reimbursable expenses.  While health insurance premiums, including Medicare premiums, are medical expenses for purposes of the itemized deduction for medical expenses (see Publication 502), the rules for health FSAs do not allow them to be reimbursed by a health FSA.

In WestRock RKT Company v. Pace Industry Union-Management Pension Fund, No. 16-16443 (11th Cir. 2017), WestRock is an employer which contributes to the Pace Industry Union-Management Pension Fund (the “Fund”), a multiemployer pension plan.  It is challenging an action taken by the Fund’s Board of Trustees, namely, an amendment the Board made to the Funds “rehabilitation plan” to include a provision requiring an employer that withdraws from the Fund to pay a portion of the Fund’s accumulated funding deficiency (the “Amendment”).  WestRock alleges it has a cause of action to challenge the Amendment under two sections of ERISA: section 1132(a)(10) (allowing an employer to sue to require the trustees to comply  with or update the rehabilitation plan in the manner required by section 1085 of ERISA (which applies when a multiemployer pension plan is in certain poor financial status)) and section 1451(a) (allowing an employer, who is adversely affected by the act or omission of any party,to bring an action for appropriate legal or equitable relief in connection with a multiemployer plan). The district court ruled that WestRock does not have a valid cause of action under ERISA.

Upon reviewing the case, the Eleventh Circuit Court of Appeals (the “Court”) affirmed the district court’s ruling.  As to section 1132(a)(10), the Court said that WestRock failed to allege properly that the Amendment violates section 1085 in any manner, procedurally or in substance. so the challenge to the Amendment under section 1132(a)(10) fails. As to the section 1451(a), the Court said that, to bring a challenge under that section, the employer must be challenging an act or omission under a certain part of ERISA (Subtitle E).  Here, the Board adopted the Amendment pursuant to its authority under section 1085(e)(3)(A)(ii), which is under Subtitle B, not Subtitle E. Since WestRock is not contesting the right type of act or omission, its challenge under section 1451(a) likewise fails.

ERISA-Ninth Circuit Rules That California Insurance Law Requires De Novo Review Of A Denial Of Benefits

In Orzechowski v. The  Boeing Company Non-Union  Long-Term Disability Plan, No. 14-55919 (9th Cir. 2017), a panel of the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s judgment, after a bench trial, in favor of the defendants in an ERISA action, which challenged a decision to terminate the plaintiff’s long-term disability benefits. The district court reviewed the benefits decision for an abuse of discretion, because the ERISA plan gave defendants discretionary authority.

The Panel held that de novo review was required in this case, under California Insurance Code § 10110.6, which voided the discretionary clause contained in the plan. The panel held that § 10110.6 is not preempted by ERISA because it falls within the savings clause set forth in 29 U.S.C. § 1144(b)(2)(A). Agreeing with the Seventh Circuit, the Panel concluded that § 10110.6 is directed toward entities engaged in insurance, and it substantially affects the risk-pooling arrangement between the insurer and the insured. The Panel held that § 10110.6 applied to the plaintiff’s claim because the relevant insurance policy renewed after the statute’s effective date. The Panel remanded the case to the district court.

In Spizman v. BCBSM, Inc., No. 16-1557 (8th Cir. 2017), Raleigh Spizman was hospitalized in November 2012 and returned home in February 2013, where a home health care provider and personal care assistants began providing 24-hour care. Blue Cross Blue Shield of Minnesota provided Raleigh’s health care insurance coverage under a group policy sponsored by her husband Robert’s employer. When Blue Cross denied the Spizmans “round-the-clock” in-home health care coverage, they brought this federal action, asserting claims for relief in six counts. The district court granted Blue Cross’s motion to dismiss four counts, the parties stipulated to dismiss the remaining two counts with prejudice, and the court entered final judgment in favor of Blue Cross. The Spizmans appeal the dismissal of Counts I, II, and VI, claims governed by ERISA.   Reviewing the grant of a motion to dismiss de novo, the Eighth Circuit Court of Appeals (the “Court” affirmed the district court’s decision.

In Counts I and II, the Spizmans sought a declaratory judgment that they are entitled to round-the-clock in-home nursing services. The Court rejected these Counts, based on its reading of the applicable insurance policy.

In Count VI, a claim for equitable estoppel, the Spizmans alleged that they were entitled to equitable relief under section 502(a)(3) of ERISA, which grants the home health care benefits Blue Cross’s agents promised would be paid under ambiguous policy terms. The district court dismissed Count VI because the applicable insurance policy plainly excluded the extended  hours skilled nursing care the Spizmans sought, and the Spizmans may not use an estoppel theory to enlarge benefits under a written plan. The Court agreed with this reasoning, concluding that Count VI must likewise be rejected.


In Ariana M v. Humana Health Plan of Texas, Incorporated, No. 16-20174 (5th Cir. 2017), Plaintiff (Ariana M) challenges the denial by Defendant (Humana Health Plan of Texas) of coverage for continued partial hospitalization.  After reviewing the administrative record, the district court granted Defendant’s motion for summary judgment.  The Fifth Circuit Court of Appeals (the “Court”) affirmed the district court’s decision.

In this case, Plaintiff is a dependent eligible for benefits under the Eyesys Vision Inc. group health plan (the “Plan”), which is insured and administrated by Defendant.  The Plan’s benefits include coverage for partial hospitalization for mental health treatment.  However, benefits are payable only for treatments that are “medically necessary”, as defined in the Plan.  The Plaintiff has a long history of mental illness, eating disorders, and engaging in self-harm.  On April 15, 2013, Plaintiff was admitted to Avalon Hills’s intensive partial hospitalization program.

Defendant initially found the treatment medically necessary and approved partial hospitalization through April 19, 2013, ultimately extending authorization through June 4, 2013, for a total of 49 days.  On June 5, 2013, Defendant denied continued partial hospitalization treatment, finding that it was no longer medically necessary.

In Tatum v. RJR Pension Investment Committee, No. 16-1293 (4th Cir. 2017), the Fourth Circuit Court of Appeals (the “Court”) was facing this case, brought under ERISA, for the third time.

At this point, the beneficiaries of an ERISA retirement plan were appealing the judgment of the district court, issued after a full bench trial, that the defendant’s/fiduciary’s breach of its duty of procedural prudence, occurring when the plan sold non-employer stock funds, did not cause the substantial losses in the retirement plan.  The Court noted that it had previously remanded the case to the district court, so that it could apply the correct legal standard for determining loss causation, but the Court had expressed no opinion as to the proper outcome of the case.

On remand, applying the correct standard, the district court found that the fiduciary’s breach did not cause the losses because a prudent fiduciary would have made the same divestment decision at the same time and in the same manner.  Upon reviewing the case, the Court affirmed this decision.

In a Memorandum For Employees Plans (EP) Examination Employees , dated April 20, 2017, the Internal Revenue Service (the “IRS”) provides guidance on computation of maximum loan amounts for qualified retirement plans under IRC § 72(p)(2)(A).  Here is what the Memorandum says.

This memorandum directs EP Examinations staff to determine, as set forth below, the amount available for a loan where the participant has received multiple loans during the past year from a qualified plan, under § 72(p)(2) of the Internal Revenue Code (the “IRC”).  This memorandum is not a pronouncement of law and is not subject to use, citation, or reliance as such.


ERISA-DOL Discusses The Selection Of A Default Investment For A Participant-Directed Account Plan

In an Information Letter, the DOL responded to a request regarding the application of ERISA to TIAA’s “Income for Life Custom Portfolios” (the “ILCPs”).  TIAA had represented that the ILCP product meets all the conditions of a “qualified default investment alternative” (a “QDIA”) under ERISA section 404(c)(5) and 29 CFR 2550.404c-5, except that the ILCP contains certain liquidity and transferability restrictions attributable to an annuity component that fail the frequency of transfer requirement described in paragraph (c)(5)(i) of the regulation.  TIAA asked the DOL whether: (1) the ILCPs nonetheless should still be appropriate for a plan fiduciary to select as a default investment alternative, because the annuity component allows the ILCP to provide in-plan access to an investment with a guaranteed rate of return and guaranteed lifetime income at retirement and (2) whether Title I of ERISA prohibits a plan fiduciary from selecting the ILCP as a default investment alternative for a participant-directed individual account plan.

The DOL responded to these questions, by stating that since the ILCPs failed to meet the frequency of transfer requirement in the regulations, the ILCPs could not qualify as QDIAs. Nevertheless, the QDIA regulation, at 29 CFR 2550.404c-5(a)(2) and 2550.404c-5(f)(4), states that the QDIA standards are not intended to be the exclusive means by which a fiduciary might satisfy his or her responsibilities with respect to selection of a default investment for assets in the individual account of a participant or beneficiary.  In the DOL’s view, a fiduciary may be able to conclude, without regard to the fiduciary relief available under ERISA section 404(c)(5) and the regulation, that an investment product or portfolio is a prudent default investment for a plan.