July 30, 2014

Employment- Second Circuit Rules That Entry-Level Accountants At KPMG Are Exempt From FLSA Overtime Requirements

In Pippins v KPMG LLP, Docket No. 13-889-cv (2nd Cir. 2014), the plaintiffs had sued KPMG LLP ("KPMG") for unpaid overtime wages under the Fair Labor Standards Act ("the FLSA"), 29 U.S.C. §§ 201‐219. The district court granted KPMG's motion for summary judgment on the ground that plaintiffs, employed as entry‐level accountants doing auditing work, were learned professionals exempt from the FLSA's overtime provisions under 29 U.S.C. § 213(a)(1).

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that the record reveals that plaintiffs were employed in a field of science and learning, that they relied on knowledge customarily acquired by prolonged specialized instruction, and that their work involved consistent exercise of professional judgment, see 29 C.F.R. § 541.301. The Court concluded, therefore, that the plaintiffs were learned professionals. Accordingly, the Court affirmed the district court's judgment.

July 29, 2014

ERISA-Eighth Circuit Holds That Insurer's Interpretation Of Plan's Pre-Existing Condition Is Reasonable, And Therefore Upheld The Insurer's Denial Of Long-Term Disability Benefits

In Kutten v. Sun Life Assurance Company of Canada, No. 13-2559 (8th Cir. 2014), the plaintiff, Marc Kutten ("Kutten") sued Sun Life Assurance Company of Canada ("Sun Life"), alleging that SunLife improperly denied him long-term disability ("LTD") benefits under a disability plan governed by ERISA. The district court granted Kutten's motion for summary judgment, and Sun Life appeals.

In this case, in 1994,Kutten was diagnosed with retinitis pigmentosa, a progressive eye disease that can eventually lead to blindness. Effective June 1, 2010, his company purchased a new disability policy with SunLife (the "Plan"). The Plan included an exclusion for "pre-existing conditions", defined in the Plan as a condition for which, during the 3 months prior to the Plan's effective date, the employee received medical treatment, care or services, including diagnostic measures, or took prescribed drugs or medicines for the disabling condition. On September 21, 2010, Kutten's eye condition forced him to stop working. He applied for LTD benefits under the Plan on October 6, 2010. After initially denying Kutten's claim, Sun Life concluded on appeal that Kutten was "Totally Disabled." Nevertheless, Sun Life determined that Kutten was not entitled to LTD benefits under the Plan, due to his use of vitamin A supplements at his doctor's direction being a "medical treatment" which invoked the pre-existing condition exclusion. Kutten then filed this suit, seeking the LTD benefits.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") noted that, due to Sun Life's discretionary authority to construe the Plan's terms, the Court will review Sun Life's decision to deny the LTD benefits for abuse of discretion. It then said that this case turns on a narrow question: Was it reasonable for Sun Life to conclude that Kutten's vitamin A supplements constituted a "medical treatment"? The Court said that Sun Life offered a reasonable interpretation of the Plan, based on the purpose of the pre-existing condition exclusion and the normal understanding of what constitutes "medical treatment". As such Sun Life's conclusion as to the applicability of the pre-existing condition exclusion is reasonable. Therefore, the Court reversed the district court's summary judgment, and remanded the case for the district court to enter summary judgment in favor of Sun Life.

July 22, 2014

ERISA-Sixth Circuit Rules That Plaintiffs Are Entitled To Pension Benefits Under The Plan's Change In Control Provisions

In Adams v. Anheuser-Busch Companies, Inc., No. 13-3149 (6th Cir. 2014), the plaintiffs had brought suit against defendants Anheuser-Busch Companies, Inc. and others (collectively, "Anheuser-Busch"), in which they seek benefits under the terms of an employee benefits plan sponsored by Anheuser-Busch. They now appeal the district court's decision upholding the plan administrator's denial of their claims for benefits provided under Section 19.11(f) of the plan. That Section authorized enhanced pension benefits for plan participants whose employment with an Anheuser-Busch company is involuntarily terminated within three (3) years after a Change in Control. The district court held that the plaintiffs had not been involuntarily terminated within the meaning of Section 19.11(f), because they secured employment with a successor corporation. In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") concluded that the district court's reading of Section 19.11(f) of the plan was flawed, and it reversed the district court's holding.

The Court said the following. Section 19.11(f) of the Anheuser-Busch plan states that, in the event of a "change in control," the retirement benefits of a plan participant "whose employment with the Controlled Group is involuntarily terminated within three (3) years after the Change in Control shall be determined by taking into account an additional five (5) years of Credited Service and . . . an additional five (5) years of age." In this case, the administrator concluded that "Section 19.11(f) was intended to provide an enhanced benefit to participants who suffer an actual termination or loss of employment." The district court concluded both that the language of Section 19.11(f) was ambiguous and that the administrator's interpretation was reasonable.

The Court continued by saying that the scope of the parties' disagreement is narrow: they dispute only the meaning of the phrase "involuntarily terminated." The defendants argue that the common understanding of the phrase "involuntarily terminated" requires an actual job loss, and that the plaintiffs' jobs were not "involuntarily terminated" because they continued to work uninterrupted in the same positions with the company's purchaser. The plaintiffs, on the other hand, contend that their employment with Anheuser-Busch's Controlled Group was involuntarily terminated on October 1, 2009, because, although still employed by someone, their employment with the Controlled Group was terminated, and the termination was "involuntary" because they did not choose it.

The Court concluded that a careful reading of the plan language demonstrates that the plaintiffs' interpretation of Section 19.11(f) is the only plausible interpretation. As such, the Court ruled that the district court erred in upholding the plan administrator's interpretation of Anheuser-Busch's pension-benefit plan provision at issue in this case. Accordingly, the Court reversed the judgment of the district court and remanded the case for entry of judgment in favor of the plaintiffs.

July 21, 2014

ERISA-Fifth Circuit Holds That A Wealth Accumulation Plan Is A "Pension Plan" Within The Meaning Of ERISA

In Tolbert v. RBC Capital Markets Corporation, No. 13-20213 (5th Cir. 2014), the plaintiffs in this case are former employees of the defendant ("RBC") who participated in a wealth accumulation plan ("WAP") during their periods of employment. Giving rise to this lawsuit, portions of the plaintiffs' WAP accounts were forfeited when the plaintiffs left their jobs at RBC. The plaintiffs allege that the forfeitures amounted to violations of ERISA. The district court granted RBC's motion for summary judgment, concluding that the WAP is not subject to ERISA because it is not an "employee pension benefit plan."

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") said the following. If the WAP is a "pension plan," ERISA applies, and the plaintiffs may proceed with their lawsuit. To be a "pension plan", by its express terms or as a result of surrounding circumstances, the WAP must either (1) provide retirement income to employees or (2) result in a deferral of income by employees for periods extending to the termination of covered employment or beyond." See 29 U.S.C.§ 1002(2)(A)(i)-(ii).

As to clause (1), the record reflects that the WAP was not designed to provide retirement income, considering, for example: the WAP's statement of purpose at the beginning of the document (announcing the goal of allowing "employees to share in [RBC's] growth and profitability" and the de facto distribution date immediately upon vesting. To fall within clause (2), the arrangement must allow the employees to defer the income to the end of their employment or beyond. The WAP satisfies clause (2) and therefore is a pension plan. The WAP's "express terms" reveal themselves at the outset of the document. The first section of the WAP, the statement of purpose, refers to the WAP as a "deferred compensation plan" and explains that, by design, employees have the option "to defer receipt of a portion of their compensation to be earned with respect to the upcoming Plan Year." The WAP provides for several categories of compensation which is deferred. A deferral of income thus ensues from (or, "arises as an effect of") the express terms of the WAP to termination of employment or beyond. As such, the Court reversed the district court's grant of summary judgment.

July 17, 2014

ERISA-Fifth Circuit Upholds The Insurer's/Plan Administrator's Denial Of Life Insurance Benefits Due Intoxication Exclusion

Green v. Life Insurance Company of North America, No. 13-60049 (5th Cir. 2014), the Fifth Circuit Court of Appeals (the "Court") faced the following situation. Lindsey Green and Brenda Green (collectively "Plaintiffs") were appealing the district court's grant of summary judgment in favor of the defendant, Life Insurance of North America ("LINA"), upholding LINA's denial of life insurance benefits to Plaintiffs, the beneficiaries of the two policies at issue.

In this case, Joshua Green ("Green"), husband of Lindsey Green and son of Brenda Green, died while operating a boat on July 16, 2010. Around 8:20 p.m, he called his wife to say he was on his way home. When he did not arrive, she called the police. The Coast Guard found Green in his boat the next morning. He had died because of a head injury sustained when his boat struck the support legs of a landing light at Keesler Air Force Base. The police report and radio log on the incident noted that Green had a blood alcohol content of .243, there were empty beer bottles and cans in the boat, he had not been using his running lights and when he had spoken to his wife he sounded intoxicated.

Plaintiffs sought to recover life insurance benefits on two Accidental Death and Dismemberment ("AD&D") policies Green held with LINA through his employer, Northrop Grumman Corporation. LINA is the issuer, insurer, claims administrator, and plan administrator of the two policies. However, the policies excluded recoveries for death occurring when operating a vehicle while intoxicated. LINA therefore denied Plaintiffs' claim on the basis of this exclusion and related matters. In analyzing the case, the Court said, first, it was assuming that a de novo review applies to LINA's decision to deny the benefits. The Court said, next, that-even using a de novo review- LINA properly applied the exclusion for intoxication in the policies. As such, the Court affirmed the district court's summary judgment in LINA's favor.

July 15, 2014

ERISA-Eighth Circuit Rules That Retiree Health Benefits Are Not Vested And Therefore May Be Unilaterally Changed By The Employer

In Windstream Corporation v. Lee, No. 13-1723 (8th Cir. 2014), the Eighth Circuit Court of Appeals (the "Court") faced the following situation. In 2009, Windstream Communications (the "Windstream") modified the premium subsidy it paid to former employees enrolled in its medical benefits plan for retirees. Windstream filed this action in November 2009, against retirees, and subsequently their union, who challenged Windstream's authority to modify retiree benefits unilaterally, seeking a declaratory judgment that it has the authority to modify retiree benefit premium contributions without violating either the applicable collective bargaining agreement (the "CBA") or ERISA. The district court granted summary judgment to Windstream. The retirees and the union appealed.

In analyzing the case, the Court said that, under ERISA, an employer may unilaterally modify or terminate retiree health and other welfare benefits unless they have been vested. Retiree health and welfare benefits are not vested unless the employer has contracted an agreement to the contrary. The burden is on the retiree or union to prove vesting languages exists in the plan documents. Vesting promises may be found in a collective bargaining agreement if they are incorporated into the formal written ERISA plan.

Here, the Court continued, because the summary plan description for the plan containing the retiree health benefits say that the plan is maintained pursuant to the CBA, the Court must determine if the CBA contains a contractual promise to provide vested retiree health benefits. The Court concluded that the CBA language does not contain any such contractual promise. It said that the CBA is not
"reasonably susceptible of the meaning" that the retiree health benefits were permanently vested. As such, the Court affirmed the district court's summary judgment in Windstream's favor.

July 10, 2014

Employment-Seventh Circuit Rules That Employee Does Not Forfeit FMLA Rights By Failing To Tell Employer How Much Leave She Will Take

Gienapp v. Harbor Crest, No. 14-1053 (7th Cir. 2014) involved the following situation. Suzan Gienapp worked at Harbor Crest, a residential nursing care facility in Fulton, Illinois. In January 2011 she told Myra Chattic, its top manager, that she needed time off to care for her daughter, who was undergoing treatment for thyroid cancer. Chattic granted leave under the Family and Medical Leave Act (the "FMLA"). Employees are entitled to as much as 12 weeks' unpaid leave annually to care for children with serious health conditions. 29 U.S.C. section 2612(a)(1). Harbor Crest acknowledges that Gienapp's daughter had a serious health condition, a term defined in §2611(11). While on leave, Gienapp mailed in an FMLA form, leaving blank a question about the leave's expected duration.

Harbor Crest did not ask her to fill in the blank on the form, nor did it pose written questions as the 12-week period progressed. A physician's statement on the form said that the daughter's recovery was uncertain, and that if she did recover she would require assistance at least through July 2011. Chattic inferred from this that Gienapp would not return by April 1, her leave's outer limit, and in mid February Chattic hired someone else in her stead. When Gienapp reported for work on March 29, Chattic told her that she no longer had a job. After the exhaustion of administrative remedies, this litigation followed, with Gienapp alleging a violation of her rights under the FMLA. The district court granted defendants' motion for summary judgment, ruling that Gienapp had forfeited her rights under the FMLA by not telling Harbor Crest exactly how much leave she would take. Gienapp appeals.

In analyzing the case, the Seventh Circuit Court of Appeals (the "Court") said that the statute requires notice to the employer of the need for leave. Gienapp gave notice; Chattic granted leave; Harbor Crest knew that it was governed by the FMLA. What Gienapp did not do was provide a date when she expected to return to work, though the form called for that information
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The Court said further that Gienapp's application is covered by the FMLA regulation at §825.303, which deals with unforeseeable leave, the type of leave at issue here. And §825.303 does not require employees to tell employers how much leave they need, if they do not know yet themselves. Instead of requiring notice at the outset, §825.303(c) tells workers to comply with employers' policies. Harbor Crest told Gienapp to call in monthly, and it is conceded that she did so. If Harbor Crest asked for any extra information during those calls, the record does not reflect undisputed details; we assume therefore that Gienapp complied with Harbor Crest's policies. The Court concluded that Harbor Crest is not entitled to summary judgment on a theory that Gienapp failed to provide essential information. Rather, the Court ruled that Gienapp is entitled to summary judgment in her favor. It reversed the judgment of the district court, and remanded the case with instructions for the district court to craft an appropriate remedy.

July 9, 2014

ERISA-D.C. Circuit Rules That Plaintiff Class, Seeking Enforcement Of Their Substantive Rights Under ERISA, Did Not Have To Exhaust Internal Plan Remedies Before Bringing Suit.

In Stephens v. Pension Benefit Guaranty Corporation, No. 13-5129 (D.C. Cir. 2014), the Court faced the following situation. When a group of U.S. Airways pilots hung up their wings over a decade ago, they expected prompt payment of their retirement benefits. When payment was delayed 45 days, the group filed a class action on behalf of themselves and similarly situated pilots seeking interest for the period of delay. But did the class members have to exhaust internal plan remedies before filing suit under ERISA? The Court ruled that the class members were not required to exhaust internal remedies, because they seek enforcement of ERISA's substantive guarantees rather than contractual rights.

In so ruling, the Court said that, although ERISA itself does not require a plan beneficiary to exhaust internal plan remedies before bringing suit, courts have universally applied the requirement as a matter of judicial discretion. However, despite the universal acceptance of the general exhaustion rule, the courts of appeal are split on the question of whether beneficiaries of an ERISA plan must exhaust internal plan remedies before suing plan fiduciaries on the basis of an alleged violation of duties imposed by the statute, an issue now facing the D.C. Circuit for the first time.

The Court noted that the Third, Fourth, Fifth, Ninth, and Tenth Circuits have held exhaustion is not required when plaintiffs seek to enforce statutory ERISA rights rather than contractual rights created by the terms of a benefit plan. The Seventh and Eleventh Circuits, on the other hand, have held the exhaustion requirement applies even where plaintiffs assert statutory rights. The Court said that it agreed with the courts of appeal ruling that exhaustion is not required. A balancing of interests compels the Court to require claimants to exhaust internal remedies when they assert rights granted by a benefit plan. But it logically suggests direct resort to the federal courts where claimants assert statutory rights--a practice that better promotes Congress's intent to create minimum terms and conditions for pension plans. And in this case, the Court said, the proposed class was asserting statutory rights, since the class relied on a right granted them by ERISA's regulations--the right to receive a lump sum payment without unreasonable delay. In other words, the class asserts a statutory claim because the district court on remand will have to evaluate the plan's administration under a reasonableness standard created and defined by federal law.

July 8, 2014

Employee Benefits-IRS Issues Final Regulations On Use Of Qualified Longevity Annuity Contracts

The Internal Revenue Service (the "IRS") has issued final regulations which will allow participants in a qualified defined contribution plan (e.g., profit sharing or 401(k))to purchase and hold qualified longevity annuity contracts ("QLACs") in their accounts. A QLAC will pay lifetime benefits starting as late as age 85. It will thus will help the participant to defer funds and begin to receive a stream of income at a late age, and hopefully to not outlive his or her retirement income. The final regulations also provide rules for holding QLACs in traditional IRAs, 403(b) plans, and eligible government 457(b), although those rules are beyond the scope of today's blog. The rules for QLACs do NOT apply to defined benefit plans. For a qualified defined contribution plan, the rules are as follows:

In General. A QLAC is an annuity contract which is purchased from an insurance company for a participant, and which meets the requirements set forth below:

Limitation On Premiums. The amount of the premiums paid for the QLAC under the plan on a given date cannot exceed the lesser of $125,000 or 25% of the employee's account balance on the payment date.

Required Commencement Date. Distributions must begin by not later than the first day of the month next following the participant's 85th birthday.

After Distributions Begin. After distributions begin, they must satisfy the requirements of Internal Revenue Code section 401(a)(9)(other than the requirement that annuity payments commence on or before the participant's required beginning date) which apply to annuity contracts, such as the limitation on increasing payments.

No Cash-Out. The QLAC does not make available any commutation benefit, cash surrender right, or other similar feature, except it may allow a premium refund to a beneficiary.

Limited Death Benefits. No benefits are provided by the QLAC after the participant's death, except benefits specifically permitted under the regulations, such as a life annuity payable to a beneficiary.

Statement Of QLAC Status. When the QLAC is issued, the QLAC contract (or a rider or endorsement) states that the contract is intended to be a QLAC.

Prohibited Features. The QLAC is not a variable contract under section 817 of the Internal Revenue Code, an indexed contract, or a similar contract, except as permitted by the IRS.

RMD Calculation. While not technically a requirement for being a QLAC, in determining the amount of a minimum required distribution from the plan, the participant's account balance does not include the value of any LAC purchased on or after July 2, 2014 (the effective date of the regulations).

July 7, 2014

Employment-Tenth Circuit Holds That Sick Leave Exceeding Six Months Is Not A Reasonable Accommodation

In Hwang v. Kansas State University, No. 13-307 (10th Cir 2014), the Court faced the issue of whether an employer could face liability under the Rehabilitation Act (the Public School equivalent of the Americans With Disabilities Act (or, the "ADA")) for denying an employee sick leave exceeding 6 months.

In this case, Grace Hwang, an assistant professor at Kansas State University, signed a written one-year contract to teach classes over three academic terms (fall, spring, and summer). But before the fall term began, Ms. Hwang received news that she had cancer and needed treatment. She sought and the University gave her a six-month (paid) leave of absence. As that period drew to a close and the spring term approached Ms. Hwang's doctor advised her to seek more time off. She asked the University to extend her leave through the end of spring semester, promising to return in time for the summer term. But according to Ms. Hwang's complaint, the University refused, explaining that it had an inflexible policy allowing no more than six months' sick leave. The University did arrange for long-term disability benefits, but Ms. Hwang alleges it effectively terminated her employment. In response, she filed this lawsuit contending that by denying her more than six months' sick leave the University violated the Rehabilitation Act. Failing to see how this much followed, the district court dismissed her complaint. Ms. Hwang appeals the dismissal.

In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") noted that the Rehabilitation Act prohibits recipients of federal funding, like Kansas State, from discriminating on the basis of disability. One way a disabled plaintiff can establish a claim for discrimination in the workplace is by showing that she is qualified for her job; that she can perform the job's essential functions with a reasonable accommodation for her disability; and that her employer failed to provide a reasonable accommodation despite her request for one. Once a plaintiff can show all these things, an employer generally may avoid liability only if it can prove the accommodation in question imposes an undue hardship on its business. In this case, Ms. Hwang was not able to perform the essential functions of her job, even with a reasonable accommodation. By her own admission, she couldn't work at any point or in any manner for a period spanning more than six months. The Court said that an employee who is not capable of working for so long is not an employee capable of performing a job's essential functions -- and that requiring an employer to keep a job open for so long does not qualify as a reasonable accommodation. A six month leave is too long to be considered a reasonable accommodation. Accordingly, the Court concluded that Ms. Hwang did not state a claim of discrimination, and it affirmed the district court's decision.

July 2, 2014

ERISA-Supreme Court Provides Guidance As To How ERISA Prudence Requirement Applies To ESOP Fiduciaries

In Fifth Third Bancorp v. Dudenhoeffer, No. 12-751, (S.Ct. 2014) the United States Supreme Court (the "Court") ruled that ESOP fiduciaries are NOT entitled to a presumption of prudence when they purchase and hold employer stock (see my blog of yesterday). In so ruling. The Court expressed its view on how the ERISA prudence requirement applies to ESOP fiduciaries. Here is what the Court said:

In our view, the law does not create a special presumption favoring ESOP fiduciaries. Rather, the same standard of prudence applies to all ERISA fiduciaries, including ESOP fiduciaries, except that an ESOP fiduciary is under no duty to diversify the ESOP's holdings.

Reviewing ERISA Section 1104, Section 1104(a)(1)(B) "imposes a `prudent person' standard by which to measure fiduciaries' investment decisions and disposition of assets." Massachusetts Mut. Life Ins. Co. v. Russell, 473 U. S. 134, 143, n. 10 (1985). ERISA Section 1104(a)(1)(C) requires ERISA fiduciaries to diversify plan assets. And §1104(a)(2) establishes the extent to which those duties are loosened in the ESOP context to ensure that employers are permitted and encouraged to offer ESOPs. Section 1104(a)(2) makes no reference to a special "presumption" in favor of ESOP fiduciaries. It does not require plaintiffs to allege that the employer was on the "brink of collapse," under "extraordinary circumstances," or the like. Instead, §1104(a)(2) simply modifies the duties imposed by §1104(a)(1) in a precisely delineated way: It provides that an ESOP fiduciary is exempt from §1104(a)(1)(C)'s diversification requirement and also from §1104(a)(1)(B)'s duty of prudence, but "only to the extent that it requires diversification." §1104(a)(2) (emphasis added).

In our view, where a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.

Respondents also claim that petitioners behaved imprudently by failing to act on the basis of nonpublic information that was available to them because they were FifthThird insiders. To state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. The following three points inform the requisite analysis:

1. In deciding whether the complaint states a claim upon which relief can be granted, courts must bear in mind that the duty of prudence, under ERISA as under the common law of trusts, does not require a fiduciary to break the law. As every Court of Appeals to address the question has held, ERISA's duty of prudence cannot require an ESOP fiduciary to perform an action--such as divesting the fund's holdings of the employer's stock on the basis of inside information--that would violate the securities laws.

2. Where a complaint faults fiduciaries for failing to decide, on the basis of the inside information, to refrain from making additional stock purchases or for failing to disclose that information to the public so that the stock would no longer be overvalued, additional considerations arise. The courts should consider the extent to which an ERISA-based obligation either to refrain on the basis of inside information from making a planned trade or to disclose inside information to the public could conflict with the complex insider trading and corporate disclosure requirements imposed by the federal securities laws or with the objectives of those laws.

3. Lower courts faced with such claims should also consider whether the complaint has plausibly alleged that a prudent fiduciary in the defendant's position could not have concluded that stopping purchases--which the market might take as a sign that insider fiduciaries viewed the employer's stock as a bad investment--or publicly disclosing negative information would do more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund.

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July 1, 2014

ERISA-Supreme Court Rules That Presumption Of Prudence Does NOT Apply To ESOP Fiduciaries

In Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (S. Ct. 2014), the U.S. Supreme Court (the "Court") considered whether, when an ESOP fiduciary's decision to buy or hold the employer's stock is challenged in court, the fiduciary is entitled to a defense-friendly standard called a "presumption of prudence." The Court noted that the Courts of Appeals that have considered the question have held that such a presumption does apply, with the presumption generally defined as a requirement that the plaintiff make a showing that would not be required in an ordinary duty-of-prudence case, such as that the employer was on the brink of collapse.

The case involved a suit by former ESOP participants against the fiduciaries for investing in and holding employer stock, when the fiduciaries allegedly knew that the stock was overpriced and risky, and the stock subsequently declined in price by 74% when the stock market crashed. The Court held that no such presumption of prudence applies to ESOP fiduciaries. Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund's assets per ERISA §1104(a)(2).

The Court had a lot to say on how the prudence requirement is to apply to an ESOP fiduciary. More on that in a later blog.

June 26, 2014

ERISA-First Circuit Upholds Employer's/Administrator's Decision To Terminate Disability Benefits

In Rolando Ortega-Candelaria v. Johnson & Johnson, No. 13-1564 (1st Cir. 2014), plaintiff Ortega was appealing the district court's dismissal of his claims under ERISA. Before the district court, Ortega sought judicial review of the decision to terminate payment of disability benefits to him under the Johnson & Johnson Long-Term Disability Plan (the "Plan"). Ortega requested a judgment restoring his terminated benefits and ordering payment of past benefits. The district court dismissed Ortega's claims with prejudice.

On appeal, Ortega argued that his employer, Johnson & Johnson, and the Plan's administrator, Medical Card System,Inc. ("MCS") (collectively, the "Appellees"), arbitrarily and capriciously terminated his disability benefits. Ortega contends that the Appellees erroneously credited an examination by a physical therapist over the opinion of his treating physician. In analyzing the case, the First Circuit Court of Appeals (the "Court") said that, although a plan administrator may not arbitrarily refuse to credit a claimant's reliable evidence, including the opinions of a treating physician, we do not require administrators to automatically grant "special weight" to the opinion of a claimant's chosen provider. Further, Ortega was uncooperative during a functional capacity examination, failing to use his best efforts to complete required tasks, thereby invoking a Plan provision under which his benefits could be terminated on account of such failure. The Court concluded that, given the substantial record evidence supporting the Appellees' determination, the decision to terminate Ortega's benefits did not constitute an abuse of discretion and was neither arbitrary nor capricious. As such, the Court affirmed the district court's decision.

June 24, 2014

Employment-DOL Will Revise Definition Of Spouse Under FMLA To Comply With Windsor

An email from the U.S. Department of Labor (the "DOL") tells me that the DOl's Wage and Hour Division has announced a Notice of Proposed Rulemaking (an "NPRM") to revise the definition of spouse under the Family and Medical Leave Act of 1993 (the "FMLA") in light of the United States Supreme Court's decision in United States v. Windsor, which found section 3 of the Defense of Marriage Act ("DOMA") to be unconstitutional.

According to the email, the NPRM proposes to amend the definition of spouse so that eligible employees in legal same-sex marriages will be able to take FMLA leave to care for their spouse or family member, regardless of where they live. More information is available at the Wage and Hour Division's FMLA NPRM Website.

June 23, 2014

ERISA-Seventh Circuit Agrees With A Majority Of The Circuits And Holds That Funds In A Pension Plan Lose Anti-Assignment/Anti-Alienation Protection After Being Paid Out By The Plan

In National Labor Relations Board v. HH3 Trucking, Inc., Nos. 05-1362, 05-4075 (7th Cir. 2014), the issue arose as to whether money received from a pension plan covered by ERISA-which the money at issue was- is forever free of all legal claims by third parties.

In analyzing this issue, the Seventh Circuit Court of Appeals (the "Court") note that Section 206(d)(1) of ERISA provides that each pension plan shall provide that benefits provided under the plan may not be assigned or alienated. The Court further noted that in Guidry v. Sheet Metal Workers National Pension Fund, the Supreme Court held that a constructive trust on benefits, under which the pension plan must pay someone other than the plan's participant, violates this rule, even when the trust would be a remedy for the participant's violation of some other part of ERISA.

However, the Court continued, Section 206(d)(1), and the Supreme Court's decision in Guidry, concern assets in a plan's hands. The Tenth Circuit (from which Guidry originated) later concluded that §206(d)(1) does not prohibit the attachment or garnishment of funds after the plan had distributed them to the retiree. Five other circuit courts of appeals (1st, 2nd, 3rd ,6th, and 9th circuits) have agreed with the Tenth Circuit. The Court concluded that it agrees with the majority of the circuits, so that money loses its anti-alienation/ anti-assignment or protection after it leaves the plan.