Yesterday’s blog summarized the changes to the DOL’s overtime payment rules. The primary change is the increase in the salary dollar threshold for being treated as exempt from the overtime rules. Apparently, a large number of states and other organizations don’t like these changes, and have filed suit to block them. The the U.S Secretary of Labor has issued the following News Release, containing the DOL’s response to these suits:

WASHINGTONU.S. Secretary of Labor Thomas E. Perez issued the following statement on the filing of lawsuits by a group of states, the U.S. Chamber of Commerce and other organizations in the Eastern District of Texas challenging the update to the Fair Labor Standards Act’s overtime rules for white-collar, salaried workers:

 “We are confident in the legality of all aspects of our final overtime rule. It is the result of a comprehensive, inclusive rule-making process. Despite the sound legal and policy footing on which the rule is constructed, the same interests that have stood in the way of middle-class Americans getting paid when they work extra are continuing their obstructionist tactics. Partisan lawsuits filed today by 21 states and the U.S. Chamber of Commerce seek to prevent the Obama administration from making sure a long day’s work is rewarded with fair pay. The overtime rule is designed to restore the intent of the Fair Labor Standards Act, the crown jewel of worker protections in the United States. The crown jewel has lost its luster over the years: in 1975, 62 percent of full time salaried workers had overtime protections based on their pay; today, just 7 percent have those protections – meaning that too few people are getting the overtime that the Fair Labor Standards Act intended. I look forward to vigorously defending our efforts to give more hardworking people a meaningful chance to get by.”

The U.S. Department of Labor (the “DOL”) has issued a “Final Rule”, which revises its overtime pay regulations. The DOL has also issued FAQs which discusses the Final Rule. Highlights of the FAQs include the following:

The Final Rule.  The Final Rule updates the regulations for determining whether white collar salaried employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime pay protections. They are exempt if they are employed in a bona fide executive, administrative or professional capacity, as those terms are defined in the Department of Labor’s regulations at 29 part 541.

Qualifying For The Exemptions.  To qualify for exemption, a white collar employee generally must:

In O’Shea v. UPS Retirement Plan, No. 15-1923 (1st Cir. 2016), plaintiff Brian O’Shea (“O’Shea”) worked for defendant United Parcel Service of America, Inc. (“UPS”) for 37 years. As an employee of UPS, he participated in the UPS Retirement Plan (the “Plan”). Unfortunately, in 2008, O’Shea was diagnosed with cancer. He became eligible for retirement in 2009, and decided to retire at the end of that year. Upon the advice of UPS human resources, who was not aware of his condition, O’Shea decided to maximize his time on payroll by taking his seven weeks of accrued vacation and personal time and, thus, delay his official retirement date.

As such, he submitted his retirement application on January 7, 2010, his last day of work, and indicated that his annuity starting date for his benefit under the Plan would be March 1, 2010, the day after his official retirement date of February 28, 2010. He chose the “Single Life Annuity with 120-Month Guarantee” as the payment form, and named his four children as the beneficiaries. Nowhere in the retirement benefits application, and at no point during his consultation with UPS human resources, was it made explicit that surviving to the annuity starting date (i.e., March 1, 2010, the day after his official retirement date) was a prerequisite to the ten-year payment guarantee.

O’Shea passed away on February 21, 2010, one week before his official retirement date, and eight days before his annuity starting date. The Plan refused to pay the pension benefit, i.e., the 120 month of payments, since O’Shea failed to survive to the annuity starting date, offering only a qualified pre-retirement survivor annuity to O’Shea’s spouse, if he had one. The four O’Shea children, the named beneficiaries of the 120 months of payment, brought this suit against the Plan claiming that the pension benefit should be paid to them. The district court decided in favor of the Plan, concluding that denial of the pension benefit was a construction of the Plan terms which was plausible and correct in light of the plain language of the Plan’s terms. The First Circuit Court of Appeals (the “Court”) agreed with the district court and confirmed its decision.

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.