ERISA Lawyer Blog

In a private letter ruling (an "LTR"), the Internal Revenue Service (the "IRS") waived the 60- day deadline for rolling over amounts into an individual retirement account (an "IRA").

In LTR 201319034, the taxpayer initiated a transfer of Amount 1 from IRA A, maintained at Bank X, to Bank Y. However, even though the taxpayer intended to transfer Amount 1 to an IRA, Bank Y mistakenly deposited Amount 1 into a non-IRA account. The mistake was not discovered until more than 60 days after the transfer to Bank Y was initiated. Amount 1 was subsequently deposited into an IRA at Bank Y. The taxpayer then requested that the IRS waive the 60-day IRA rollover deadline.

If an amount is distributed from an IRA, including a transfer initiated by the IRA owner, the amount is generally taxable, unless the amount is rolled over into an IRA within 60 days of the distribution. IRC section 408(d)(1) and (3). Under section 408(d)(3)(L), the IRS may waive the 60-day deadline, when the failure to waive would be against equity or good conscience, including the happening of a casualty, disaster, or other event beyond the reasonable control of the distribution recipient. Rev. Proc. 2003-16 discusses how the IRS will handle a waiver request. In this case, the IRS concluded that the failure to meet the 60-day deadline was due to a mistake by Bank Y. Therefore, the IRS granted the waiver of the 60-day deadline for the distribution (i.e., transfer) of Amount 1.

The New York City Council has voted to require private-sector NYC employers with at least 20 employees to provide up to 40 hours of paid sick leave per year. The Council has sufficient votes to overcome a threatened veto by Mayor Bloomberg. The paid sick leave requirement will start to apply on April 1, 2014, provided that, on December 16, 2013, the NYC economy is performing at least as well as it was in January, 2012 (otherwise the requirement will not apply until after the NYC economy meets this threshold). The 20 employee threshold is decreased to 15 employees after the new law has been in effect for 18 months (that is, by October 1, 2015, if the April 1, 2014 effective date applies).

An employee who works in NYC for more than 80 hours in a calendar year is eligible for the paid sick leave. The employee would be entitled to one hour of paid sick leave, up to 40 hours in a calendar year, for every 30 hours worked. Leave first becomes available four months following the later of the effective date of the new law or the date of hire. Employees may carry over accrued but unpaid leave to future years, subject to the 40 hour cap per year, but the employer is not required to pay for any unused time at termination of employment. The employee may generally take paid sick leave for any mental or physical illness, injury or health condition. The employee may also take the leave to care, in certain instances, for family members.

The new law does not apply to certain manufacturers. Special rules apply with respect to domestic workers and union employees. Employers with less than 20 (or 15) employees must still provide them with up to 40 hours per year of unpaid sick leave, once the law goes into effect.

In Hannington v. Sun Life and Health Insurance Company, No. 12-1085 (1st Cir. 2013), the plaintiff ("Hannington") had filed suit under ERISA against the defendant, Sun Life and Health Insurance Company ("Sun"). The suit challenged Sun's reduction of Hannington's disability payments under an ERISA-covered plan (the "Plan") due to his receipt of disability compensation under the Veterans' Benefits Act. The district court entered judgment for Hannington, and Sun appealed.

Hannington was receiving disability benefits from the Plan. The Plan provides a disabled participant with sixty percent of his pre-disability salary. However, the Plan reduces this benefit by amounts received as "Other Income." Under the Plan, one type of "Other Income" is "any amount of disability or retirement benefits under: a) the United States Social Security Act . . .; b) the Railroad Retirement Act; or c) any other similar act or law provided in any jurisdiction." The Plan grants Sun-the claims fiduciary-the sole and exclusive discretion and power to construe any and all issues relating to eligibility for benefits. Sun had treated the disability compensation under the Veteran's Benefits Act as "Other Income" and reduced Hannington disability payments from the Plan accordingly. The question for the First Circuit Court of Appeals (the "Court"): was Sun correct in reducing the disability benefits being paid by the Plan?

In analyzing the case, the Court noted that, since the Plan gave Sun-the claims fiduciary- discretionary power to make benefit determinations, Sun's decision to reduce Hannington's benefit is entitled to a deferential review. However, to the extent that Sun is required, in the course of determining the meaning of the plan language, to interpret the law or other material outside the plan, the Court's review of the law or other material is de novo. Here, Sun's interpretation of the "Other Income" definition of the Plan depends wholly upon its interpretation of external, non-plan material: the Veterans' Benefits Act, the Social Security Act and the Railroad Retirement Act. The Court determined-under a de novo review- that the Veterans' Benefits Act is not similar to the Social Security Act or the Railroad Retirement Act, so that disability benefits paid under the Veterans' Benefits Act is not "Other Income" under the Plan. As such, the Court concluded that Sun's decision to offset Hannington" Plan disability benefits by the disability compensation paid under the Veterans' Benefits Act was incorrect, and it affirmed the district court's decision.

As a reminder, as of May 7, 2013, employers must use the newly revised Form I-9, to meet federal requirements to document verification of the identity and employment authorization of each new employee. The revised Form I-9 and instructions are here.

Generally, the revised Form I-9 would not be completed for an employee who was hired before May 7 and for whom a Form I-9 is already on file, unless there is a particular need to reverify that employee (e.g., she is rehired or her work authorization expires).

In Technical Release No. 2013-02, the U.S. Department of Labor (the "DOL") provided guidance on the requirement in the Affordable Care Act that a notice must be provided to employees about the Health Insurance Marketplace (the "Marketplace") that will be available in 2014. The DOL has also made available a model notice to help employers meet this requirement, and a revised COBRA election notice to reflect Marketplace options. Here is what the Technical Release says.

Background. Section 18B of the Fair Labor Standard Act (the "FLSA"), as added by section 1512 of the Affordable Care Act, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, an employer subject to the FLSA must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice:
1. informing the employee of the existence of the Marketplace, including a description of the services provided by the Marketplace, and the manner in which the employee may contact the Marketplace to request assistance;
2. if the employer plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the "Code') if the employee purchases a qualified health plan through the Marketplace; and
3. if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

On January 24, 2013, the DOL postponed the March 1, 2013 deadline. The reqired written notice is referred to below as the "Notice of Coverage Options" or the "NCO".

Effect of the Guidance under the Technical Release. The DOL will consider an employer that follows the Technical Release as being in compliance with FLSA section 18B. The guidance provided by the Technical Release will remain in effect until the DOL promulgates regulations or other subsequent guidance.

Providing the NCO to Employees. Employers must provide the NCO to each employee, regardless of plan enrollment status (if applicable) or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the employer's health care plan but who are not employees.

Form and Content of the NCO. The NCO must include items 1, 2 and 3 above in "Background".

Timing and Delivery of NCO. Employers are required to provide the NCO to each new employee at the time of hiring beginning October 1, 2013. For 2014, the DOL will consider an NCO to be provided at the time of hiring if the notice is provided within 14 days of an employee's start date. As to employees who are current employees before October 1, 2013, employers are required to provide the NCO not later than October 1, 2013. The NCO is required to be provided automatically, free of charge. The NCO must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the DOL's electronic disclosure safe harbor at 29 CFR 2520.104b-1(c) are met.

Model NCO. Model language for the NCO is available at www.dol.gov/ebsa/healthreform. There is one model for employers who do not offer a health plan and another model for employers who offer a health plan for some or all employees. Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.

COBRA Election Notice. Some COBRA beneficiaries may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the Marketplace. COBRA beneficiaries may also be eligible for a premium tax credit (a tax credit to help pay for some or all of the cost of coverage in plans offered through the Marketplace). The DOL has revised its model COBRA election notice to reflect these concerns. The revised model notice is found at www.dol.gov/ebsa/cobra.html. A clean copy is available, as is a redline from the prior model notice to help employers identify the changes.

In Fama v. Design Assistance Corporation, Nos. 12-2414, 12-2474 (3rd Cir. 2013), the district court had granted the request of the plaintiff, Sarah Fama ("Fama"), for the imposition of a penalty on her former employer, Design Assistance Corporation ("DAC"), for failing to notify Fama of her COBRA rights under in a timely manner. However, Fama challenges the district court's decision to impose a penalty of only $10 per day.

In this case, Fama began to work for DAC in April 2008, as an administrative and personnel assistant. As a regular, full-time employee, she was entitled to group health insurance benefits under DAC's health insurance policy (the "Plan"). Fama resigned from employment with DAC, effective on September 30, 2008. COBRA requires that the employer inform the health care plan's administrator of a covered employee's termination of employment within thirty days, and then the administrator has fourteen days to notify the employee of the right to continued coverage under COBRA.

However, after Fama ceased to work at DAC, the company mistakenly continued Fama's health care coverage under the Plan for several months. Only in March 2009 did DAC realize its mistake, and it then cancelled Fama's coverage retroactively, effective January 1, 2009. But in June 2009, for reasons not entirely clear, DAC retroactively reinstated Fama's benefits effective January 1, 2009 to eliminate any gap in Fama's coverage. Finally, on September 3, 2009, almost a year after her resignation, Fama received notice of her eligibility for COBRA continuation coverage (the "Notice"). In the time between her resignation (September 30, 2008) and September 3, 2009, Fama paid for medical expenses that otherwise would have been covered by the Plan.

Under COBRA, Fama was eligible to receive a statutory penalty from DAC of up to $110 for each day that the notice of her eligibility for COBRA coverage was late. A court has discretion in determining the amount of the penalty to be imposed. The Third Circuit Court of Appeals (the "Court") found that Fama's resignation of September 30, 2008 constitutes a "qualifying event", notwithstanding that Fama's coverage under the Plan was erroneously allowed to continue. Thus, the period for providing the COBRA notice began to run on September 30, 2008, with the result that the Notice was provided late. The Court further found that-on the facts in the case record such as the Notice being furnished late but an absence of bad faith or malicious intent by the administrator- the district court did not abuse its discretion in imposing a penalty of $10 day.

In Pension Benefit Guaranty Corporation v. Morgan Stanley Investment Management, Inc., Docket No. 10-4497-cv (2nd Cir. 2013), the Court considered the degree of factual detail needed in a complaint in order to establish a claim that a pension plan administrator purchased and continued to hold certain mortgage-backed securities imprudently and in violation of its fiduciary duties under ERISA.

In analyzing the case, the Court said that a claim of imprudence may be established if the complaint alleges facts that, if proved, would show that an adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident. In this case, however, the Court concluded that the plaintiff's complaint failed to allege facts supporting the plausible inference that the defendant knew, or should have known, that the mortgage-backed securities in question were imprudent investments.

The Court said that, in particular, the complaint relies on the decline in the market price of mortgage-backed securities generally, without specifying the securities at issue or presenting any facts to suggest that a reasonable investor would have viewed those particular securities as imprudent investments. A decline in market price of a type of security-even a precipitous one-does not, by itself, give rise to a reasonable inference that it was imprudent to purchase or hold that type of security. The complaint referred to "warning signs" that the price would decline, such as information about financial losses suffered by the issuers of the securities. However, the Court felt that none of these warning signs gave rise to a plausible inference that the defendant knew, or should have known, that the securities in question were imprudent investments, or that the defendant had breached its fiduciary duty by not selling those investments.

Based on the foregoing, the Court found that the plaintiffs failed to establish a claim of imprudent investment in violation of ERISA's prudence requirement.

In Foster v. Nationwide Mutual Insurance, No. 12-3107 (6th Cir. 2013), the plaintiffs, who are or had been special investigators ("SIs") at Nationwide Mutual Insurance Company ("Nationwide") ,were appealing the district court's judgment against them in their claim that, among other matters, Nationwide had improperly classified the SIs as exempt from the overtime requirements of the Fair Labor Standards Act (the "FLSA").

In this case, Nationwide is an insurance company in the business of providing a wide range of insurance products. It employs the SIs to investigate nonmeritorious claims against insurance policies. The Sixth Circuit Court of Appeals (the "Court") noted that the FLSA exempts from its overtime requirements any employee employed in a bona fide executive, administrative, or professional capacity. The Court further noted that the administrative exemption is the potentially applicable exemption here. Under the FLSA regulations, an administrative employee is one: (1) who is compensated at a rate of not less than $455 per week, (2) whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers and (3) whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. The Court said that condition (1) is met and not in issue here.

The Court concluded that condition (2) was satisfied, since an SI's work is office or non-manual. Also, claims adjusting is ancillary to Nationwide's general business operations, and the SIs' investigative work drives the claims adjusting decisions with respect to suspicious claims, so that such work is directly related to assisting with the servicing of Nationwide's business. The Court concluded that condition (3) was satisfied, since the Court agreed with the district court's conclusion, based on its factual findings, that the SIs'primary duty was to conduct investigations of suspicious claims with the goal of determining if fraud had occurred, and this involves the exercise of discretion and independent judgment with respect to matters that are significant to Nationwide. As such, the Court found that the administrative exemption applies to the SIs, and it affirmed the district court's judgment against the plaintiffs.

In Central States, Southeast and Southwest Areas Pension Fund v. Nagy, No. 11-3055 (7th Cir. 2013), Nagy Ready Mix ("Ready Mix") employed Teamsters labor and participated in the Central States, Southeast and Southwest Areas Pension Fund, a multi-employer pension plan (the "Plan") . In 2007, Ready Mix ceased employing covered workers and thus incurred $3.6 million in "withdrawal liability" to the Plan. Ready Mix was unable to pay the full $3.6 million amount. The question in this case is whether Charles F. Nagy ("Nagy"), its sole owner, is liable for the shortfall under ERISA. The answer turns on whether Nagy is engaged in an unincorporated "trade or business". If yes, he is engaged in a trade or business under common control with Ready Mix and is therefore personally liable for the withdrawal liability.

In analyzing the case, the Seventh Circuit Court of Appeals (the "Court") noted two possibilities. First, Nagy owns the property on which Ready Mix conducts its operations and leases the property back to Ready Mix. This rental activity could qualify as a trade or business. Second, Nagy provided management services to a country-club venture. He may have done so as an independent contractor, which likewise would qualify as a trade or business.

The Court said that Nagy's leasing activity is categorically a trade or business for these purposes. As to the management services, the Court said that, if these services were rendered as an independent contractor, Nagy would be engaged in a trade or business; if these services were rendered as an employee, then the services are not a trade or business. Distinguishing between an employee and an independent contractor depends on an analysis of the following factors: (1) the extent of the employer's control and supervision over the worker, including directions on scheduling and performance of work; (2) the kind of occupation and the nature of the skills required, including whether skills are obtained in the workplace; (3) responsibility for the costs of operation, such as equipment, supplies, fees, licenses, workplace, and maintenance of operations; (4) the method and form of payment and benefits; and (5) the length of job commitment and/orexpectations. Based on these factors, Nagy is an independent contractor. This was particularly so, since the country-club reported Nagy's compensation on Form 1099. Nagy did not receive salary through a payroll system, as one would expect for an employee. Rather, the country-club paid Nagy an hourly rate and did not withhold taxes or provide fringe benefits. On his personal tax returns, Nagy reported his Wells Venture income on Schedule C, which covers "Profit or Loss from Business (Sole Proprietorship)."

As such, since Nagy was engaged in at least one-here two-unincorporated trades or businesses, the Court concluded that he is personally liable for Ready Mix's withdrawal liability.

As discussed in yesterday's blog, in Notice 2013-17, the Internal Revenue Service (the "IRS") provides relief from the anti-cutback requirements of section 411(d)(6) of the Internal Revenue Code (the "Code") for plan amendments that eliminate a distribution option, described in section 401(a)(28)(B)(ii)(I) of the Code, from an employee stock ownership plan or "ESOP" which becomes subject to the investment diversification requirements of section 401(a)(35) of the Code.

There is one more issue to be covered. An ESOP which satisfies the diversification requirements of section 401(a)(28)(B) of the Code, by distributing a portion of the participant's account in accordance with section 401(a)(28)(B)(ii)(I), is not prevented from making the distribution by the rules under section 401(a) or section 401(k)(2)(B) and Treas. Reg. Sec. 1.401(k)-1(d) that restrict the distribution of plan benefits.

However, an ESOP that becomes subject to section 401(a)(35), and that therefore ceases to be subject to section 401(a)(28)(B), must comply with the restrictions on distributions that apply before termination of employment (in the case of a pension plan), before the occurrence of certain other events (in the case of a profit-sharing or stock bonus plan), or before one of the events specified in section 401(k)(2)(B)(i) (in the case of amounts attributable to elective contributions and certain other amounts under a qualified cash or deferred arrangement). For such an ESOP, a plan provision allowing any of the foregoing distributions before the applicable event becomes a "disqualifying provision".

To provide relief, Notice 2013-17 says that, under section 401(b) of the Code and the Notice, any such disqualifying provision will not cause a plan to be disqualified, provided that a remedial amendment- which eliminates the provision- is adopted and put into effect under the plan generally by the last day of the first plan year beginning after 2012 (or if later by the deadline for adopting an "interim amendment" to the plan to satisfy section 401(a)(35)).

In Notice 2013-17, the Internal Revenue Service (the "IRS") provides relief from the anti-cutback requirements of section 411(d)(6) of the Internal Revenue Code (the "Code") for plan amendments that eliminate a distribution option, described in section 401(a)(28)(B)(ii)(I) of the Code, from an employee stock ownership plan or "ESOP" which becomes subject to the investment diversification requirements of section 401(a)(35) of the Code.

By way of background, under section 401(a)(28)(B)(i), an ESOP must provide certain participants the opportunity to elect to direct the plan as to the investment of at least 25 percent of the participant's account. The election must be available to a participant during the 90-day period following the close of each plan year in the 6-plan-year period beginning with the first plan year in which the participant has both attained age 55 and completed 10 years of participation. Section 401(a)(28)(B)(ii)(I) allows an ESOP to satisfy the foregoing diversification requirements by distributing the portion of a participant's account that is covered by the election within 90 days after the period during which the election may be made. Section 401(a)(28)(B)(v) provides that the foregoing diversification requirements do not apply to plan which become subject to the diversification requirements, with respect to employer securities, of section 401(a)(35) of the Code.

Section 401(a)(35) was added to the Code by the Pension Protection Act of 2006. Unlike section 401(a)(28)(B), the section 401(a)(35) diversification requirements cannot be satisfied by distributing a portion of the participant's account. Section 401(a)(35) will apply to an ESOP if: (1) it holds employer securities that are readily tradable on an established securities market, and (2) either (i) it is not a separate plan for purposes of section 414(l) of the Code, but rather is a portion of a larger plan, or (ii) it holds contributions that are or were subject to section 401(k) or 401(m) of the Code. An ESOP described above must satisfy the diversification requirements of section 401(a)(35)) as of the section's effective date, that is, in plan years beginning after 2006 (or if later the first date on which section 401(a)(35) applies to the ESOP). If and when section 401(a)(35) becomes effective for and applies to an ESOP, the distribution option of section 401(a)(28)(B)(ii)(I) is no longer available. The issue becomes how to amend the ESOP to eliminate the option without violating the anti-cutback rules of section 411(d)(6). That is where Notice 2013-17 provides relief.

The Notice provides that the amendment to eliminate the section 401(a)(28)(B)(ii)(I) distribution option will not violate the anti-cutback rule, if: (1) the amendment is made effective no earlier than first day of the first plan year starting after 2006 (or if later the first date on which section 401(a)(35) applies to the ESOP), (2) the plan is operated as if the amendment was in effect as of the amendment's effective date and (3) the amendment is adopted by the last day of the first plan year beginning after 2012 (or if later by the deadline for adopting an "interim amendment" to reflect the requirements of section 401(a)(35)).

The U.S. Department of Labor, the Department of Health and Human Services and the Treasury Department (together, the "Departments") have released FAQs about the Affordable Care Act Implementation Part XIV. These FAQs discuss the implementation of the Affordable Care Act. Here are some of the things that the FAQs said on the Summary of Benefits and Coverage (the "SBC").

The Templates For The SBCs And Uniform Glossary After The First Year Of Applicability. An updated SBC template (and sample completed SBC) are now available at cciio.cms.gov and www.dol.gov/ebsa/healthreform. These documents are authorized for use, with respect to group health plans, for SBCs provided with respect to coverage beginning on or after January 1, 2014, and before January 1, 2015 (referred to as "the second year of applicability"). The only changes to the SBC template and sample completed SBC from the previous templates are: (1) the addition of statements of whether the plan provides minimum essential coverage or "MEC" (as defined under section 5000A(f) of the Internal Revenue Code 1986) and (2) whether the plan meets the minimum value requirements or "MV Requirements" (such requirements being that the plan's share of the total allowed costs of benefits provided under the plan is not less than 60 percent of such costs). On page 4 of the SBC template (and illustrated on page 6 of the sample completed SBC), a plan should indicate in the designated entry on the SBC template that the plan "does" or "does not" provide MEC and whether the plan "does" or "does not" meet applicable MV requirements.

The Uniform Glossary has not changed-the current template may still be used.

Relief If It Is Burdensome To Make The Above Changes To An SBC. To the extent a plan is unable to modify the SBC template for disclosures required to be provided with respect to the second year of applicability, the Departments will not take any enforcement action against a plan for using the previous template, provided that the SBC is furnished with a cover letter or similar disclosure stating whether the plan does or does not provide MEC and whether the plan's share of the total allowed costs of benefits provided under the plan does or does not meet the MV requirement under the Affordable Care Act. The language for these statements is as follows:

Does this Coverage Provide Minimum Essential Coverage?

The Affordable Care Act requires most people to have health care coverage that qualifies as "minimum essential coverage." This plan or policy [does/does not] provide minimum essential coverage.

Does this Coverage Meet the Minimum Value Standard?

In order for certain types of health coverage (for example, job-based coverage) to qualify as minimum essential coverage, the plan must pay, on average, at least 60 percent of allowed charges for covered services. This is called the "minimum value standard." This health coverage [does/does not] meet the minimum value standard for the benefits it provides.

Annual Limits On Essential Health Benefits. No changes were made to the templates for the SBC (and sample completed SBC) to reflect the prohibition on annual limits on essential health benefits that becomes effective under the Affordable Care Act in 2014. Rather, plans should continue to complete the SBC template consistent with the Instructions for Completing the SBC for the Important Questions chart that appears on page 1 of the SBC:
• In the Answers column, the plan should respond "No," where the template asks, "Is there an overall annual limit on what the plan pays?", as plans are generally prohibited from imposing annual limits on the dollar value of essential health benefits for plan years beginning on or after January 1, 2014.
• In the Why This Matters column, the plan must show the following language: "The chart starting on page 2 describes any limits on what the plan will pay for specific covered services, such as office visits."

Additionally, as applicable, plans should continue to include information regarding annual or lifetime dollar limits on specific covered benefits as required in the chart starting on page 2 of the SBC (in the Limitations & Exceptions column, as described in the Instructions for Completing the SBC). To the extent a plan wishes to modify the SBC template for disclosures required to be provided for the second year of applicability to remove this information, the Departments will not take any enforcement action against a plan for removing the entire row in the Important Questions chart on page 1 of the SBC (with the question: "Is there an overall annual limit on what the plan pays?").

Other Information:

--There are no changes in the required coverage examples in the SBC.

--The use of certain safe harbors and other enforcement relief pertaining to the SBC and Uniform Glossary have been extended.
--The "anti-duplication" rule for SBCs (i.e., the SBCs need not be provided by both the plan and its insurer) is extended to student health insurance coverage.

In Knutson v. Schwan's Home Service, Inc., No. 12-2240 (8th Cir. 2013), the plaintiff, Jeffrey D. Knutson ("Knutson"), had brought suit against the defendant , Schwan's Home Service, Inc.("Home Service"), alleging that Home Service had terminated his employment in violation of the Americans with Disabilities Act (the "ADA"). The district court had granted summary judgment to Home Service, and Knutson appealed.

In this case, Knutson had been manager at Home Service, who was sometimes required to drive a delivery truck. As to his truck driving responsibilities, Home Service's position description states that Knutson must meet the Federal Department of Transportation ("DOT") eligibility requirements, including obtaining an appropriate driver's license and a corresponding medical certification (an "MEC"). Knutson suffered a penetrating eye injury, and thereafter was unable to obtain an MEC or waiver thereof. Home Service later fired him. This suit ensued.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that, to establish a prima facie case under the ADA, Knutson was required to show that he was disabled within the meaning of the ADA, was qualified to perform the essential functions of his job, and suffered an adverse employment action because of his disability. The Court determined that Knutson was not qualified to perform his job's essential functions. No genuine issue of material fact exists that being DOT qualified to drive a delivery truck is an essential function of Knutson's position. The Home Service position description indicates that such qualification is an essential job function. Since he could not obtain an MEC after the eye injury - and therefore was not DOT qualified after the injury - he was not qualified to perform an essential job function. As such, the Court affirmed the district court's summary judgment in Home Service's favor

ERISA-Seventh Circuit Affirms Dismissal Of Stock Drop Case

In White v. Marshall & Ilsley Corporation, No.11-2660 (7th Cir. 2013), the Seventh Circuit Court of Appeals (the "Court") faced a "stock drop case", that is, a case in which the plaintiff alleged that the fiduciaries of an employee retirement savings plan acted imprudently-thereby violating ERISA's fiduciary requirements- by allowing participating employees to choose to buy and hold an employer's stock while it declined significantly in price.

The Court said of such cases: In the absence of allegations of misrepresentations or other wrongful conduct not alleged here, plaintiffs in such cases under ERISA must try to hit a very small and perhaps non-existent target. The theory -- that the employer and plan fiduciaries violated their duty of prudence under ERISA by continuing to offer employer stock as an investment option -- would require the employer and plan fiduciaries, in this case and many similar cases, to violate the retirement plan's governing documents, which employers and plan fiduciaries are also required to follow under ERISA. The theory also seems to be based often on the untenable premise that employers and plan fiduciaries have a fiduciary duty either to outsmart the stock market, which is groundless, or to use insider information for the benefit of employees, which would violate federal securities laws.

In this particular case, defendant Marshall & Ilsley Corporation ("M&I") offered its employees participation in an individual account retirement savings plan (the "Plan"). The Plan allowed employees to choose how to distribute their savings among twenty two investment funds with different risk and reward profiles. With one exception, the investment funds offered by the Plan were selected by the Plan's fiduciaries. One of the investment options in the Plan was the M&I Stock Fund which consisted of M&I stock. The Plan required the fiduciaries to offer this fund to the participants for investment. The portion of the Plan holding the M&I Stock Fund constitutes an employee stock ownership plan or "ESOP". During the housing market collapse and subsequent market crash in 2008 and 2009, M&I's stock price dropped by approximately 54 percent, as did the value of employees' investments in the M&I Stock Fund. This suit followed. Applying a presumption that the fiduciaries acted prudently, the district court dismissed the case. The plaintiffs appealed.

In reviewing the case, the Court agreed that the presumption of prudence-the so-called "Moench presumption"- applies. Plaintiffs in a case involving an ESOP may overcome this presumption by showing that no reasonable fiduciaries would have thought they were obligated to continue offering company stock as a Plan investment. For example, the plaintiffs could show that the company was facing dire circumstances or was nearing collapse, or that, given all relevant circumstances, continuing to offer company stock as a Plan investment imposed excessive risk on the plaintiffs. The Court ruled, however, that in this case the plaintiffs did not offer sufficient evidence to overcome the Moench presumption. The 54 percent drop in M&I's stock is not significantly worse than drops in stock prices in cases where the courts have found, as a matter of law, no violation of the duty of prudence. Also, the Plan permitted employees to choose from among twenty two options and allowed them to change their investments at any time, mitigating any excessive risk.

The Court said, further, that it agreed with the Second, Third, and Eleventh Circuits that a claim against ESOP fiduciaries alleging a violation of the duty of prudence may be dismissed at the pleading stage-the current stage of this case-if the plaintiffs do not make allegations sufficient to overcome the Moench presumption . Accordingly, the Court affirmed the district court's dismissal of the case.
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In Reilly v. Lehigh Valley Hospital, No. 12-2078 (3rd Cir. 2013), the plaintiff, Robert Reilly ("Reilly"), was appealing the district court's grant of summary judgment in favor of the defendant, Lehigh Valley Hospital ("LVH"), on Reilly's disability discrimination claims under the Americans with Disabilities Act (the "ADA") and similar state law.

In this case, Reilly was employed by LVH as a part-time Security Officer from August 2006, until May 2, 2008. After receiving a conditional employment offer, Reilly completed and signed a six-page employee health information form (the "Employment Form") as part of LVH's hiring process. The final two questions on the Employment Form inquired as to whether Reilly had ever been recognized as having, or had ever been treated for, alcoholism or drug addiction. Reilly answered "no" to both questions. He signed the Employment Form, subject to the condition that falsifying of this information could result in withdrawal of the employment offer or if subsequently discovered termination of his employment.

Reilly subsequently disclosed to LVH that he has a history of narcotics use and is a recovering drug addict. On May 2, 2008, LVH terminated Reilly's employment, on the basis of his being untruthful about prior drug addiction on the Employment Form. Reilly subsequently brought this suit against LVH, alleging disability-based employment discrimination in violation of the ADA and similar state law. After reviewing the case, the Third Circuit Court of Appeals (the "Court") concluded LVH articulated a legitimate, nondiscriminatory reason for terminating Reilly - his dishonesty on the Employment Form - and Reilly failed to produce sufficient evidence to show that this reason was pretextual and a cover for discrimination. As such, the Court affirmed the district court's summary judgment in LTV's favor.