September 2009 Archives

September 30, 2009

Employment-Ninth Circuit Rules That A Physical Capacity Evaluation Is A Medical Exam For ADA Purposes

In Indergard v. Georgia-Pacific Corporation, No. 08-35278 (9th Cir. 2009), the plaintiff, Kris Indergard, bought an action against her employer, defendant Georgia-Pacific Corporation ("Georgia-Pacific"), claiming that Georgia-Pacific had violated the Americans with Disabilities Act (the "ADA") by terminating her employment based on her failure to pass a physical capacity evaluation. The plaintiff had taken a medical leave to undergo knee surgery. Georgia-Pacific policy had required employees to take a physical capacity evaluation (a "PCE") before returning to work from medical leave. The plaintiff took, but failed, the PCE. She was subsequently terminated from employment. The case found its way to the Ninth Circuit.

In analyzing the plaintiff's claim, the Court said that under the ADA an employer may not require a current employee to undergo a medical examination, unless the examination is shown to be job-related and consistent with business necessity. This rule applies to all employees, whether or not they are disabled under the ADA. The implementing regulations impose the same restriction, but state that an employer may make inquiries as to the ability of an employee to perform job-related functions. The question here becomes whether the PCE was a medical examination under the ADA or simply an inquiry permitted by the regulations.

To answer this question, the Court reviewed the EEOC Enforcement Guidance (the "Guidance"). The Guidance defines a medical examination as a procedure or test that seeks information about an individual's physical or mental impairments or health. It provides the following seven factors which are to be used in determining whether a test is a medical examination: (1) whether the test is administered by a health care professional, (2) whether the test is interpreted by a health care professional, (3) whether the test is designed to reveal an impairment of physical or mental health, (4) whether the test is invasive, (5) whether the test measures an employee's performance of a task or measures his/her physiological responses to performing the task, (6) whether the test normally is given in a medical setting and (7) whether medical equipment is used. The Guidance also lists some tests which are considered to be medical examinations, including blood pressure screening, cholesterol testing and range-of-motion tests that measure muscle strength and motor function. The Guidance further states that certain employer-required tests are generally not medical examinations, including physical agility tests, which measure an employee's ability to perform actual or simulated job tasks, and physical fitness tests, which measure an employee's performance of physical tasks, such as running or lifting, as long as these tests do not include examinations that could be considered medical (e.g., measuring heart rate or blood pressure).

Applying the Guidance to the instant case, the Court ruled that the PCE was a medical exam. The PCE included range of motion and muscle strength tests, measurement of one's heart rate and breathing before and after a treadmill test, and measurement of one's aerobic fitness after the treadmill test. Each of these tests fall within the Guidance's description of tests that are considered medical exams. The seven-factor test further indicates that the PCE was a medical exam, since the PCE was administered and interpreted by a licensed occupational therapist, a health care professional, the PCE was capable of revealing impairments of one's health and the PCE went beyond collecting information necessary to determine whether one was physically capable of performing the task at issue. Thus, the Court concluded that the PCE was a medical exam. It remanded the case back to the lower court to determine whether the PCE, a medical exam, was job-related and consistent with business necessity.

September 29, 2009

ERISA-Sixth Circuit Uses De Novo Review To Overturn Plan Administrator's Denial Of Benefits

In Shelby County Health Care Corporation v. The Majestic Star Casino, LLC Group Health Benefit Plan, Nos. 08-6078 and 08-6419 (6th Cir. 2009), the plaintiff, Shelby County Health Care Corporation ("Med"), filed suit under ERISA to challenge the decision of Majestic Star Casino, LLC ("Majestic"), the plan administrator of defendant The Majestic Star Casino, LLC Group Health Benefit Plan (the "Plan"), to deny Med's claim for benefits. The Plan gave Majestic, as plan administrator, the sole responsibility for reviewing claims for benefits, and the discretionary authority to determine whether the benefits should be paid. Med had filed the suit pursuant to an assignment of benefits.The District Court ruled against Majestic, determining that Majestic erroneously denied benefits, and awarded the benefits to Med. Majestic appealed that ruling to the Sixth Circuit Court of Appeals.

In the case, Damon Weatherspoon, an employee of Majestic's subsidiary, was injured in a one-car accident. Weatherspoon was driving without a license or any car insurance. After the accident, Weatherspoon received treatment for his injuries, accumulating medical bills totaling over $400,000. Weatherspoon, a participant in the Plan, assigned his insurance benefits from the Plan to Med, authorizing Med to seek and recover all health insurance and hospitalization benefits available to Weatherspoon under the Plan. Benefit Administrative Systems, Ltd.("BAS") was the Plan's third party administrator. BAS had been hired solely to process claims and had no discretionary authority under the Plan with respect to benefit claims. BAS reviewed and investigated the case. It determined that the benefits should not be paid, on the grounds that driving without a license or car insurance was an illegal act. Majestic, as plan administrator, adopted this decision, without making its own review or investigation, and the benefits were not paid.

In reviewing the District Court's ruling, the Court said that a denial of benefits by a plan administrator is to be reviewed under a de novo standard, unless the plan document gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Nonetheless, when the decision to deny benefits is in fact made by a body, other than the one authorized by the plan to make such decisions, the courts review the decision de novo. Here, the District Court determined that, although the Plan gave Majestic the sole responsibility for reviewing benefit claims, Majestic was almost totally uninvolved in the decision to deny the benefits. It merely adopted the decision of BAS, a third party with no fiduciary authority, and did not engage in any independent fact-finding or analysis. Therefore, a de novo review is required. Using a de novo review, the Court found that the plan administrator's decision-an adoption of BAS's decision- to deny the benefits was erroneous, due to the lack of evidence that Weatherspoon's failure to have a license or car insurance contributed to the accident. Therefore, the Court affirmed the District Court's ruling that the benefits be paid to Med.


September 25, 2009

Employment-Third Circuit Permits Interference and Retaliation Claim Under The FMLA Even Though The Employee Had Not Taken Any Time Off

In Erdman v. Nationwide Insurance Company, No. 07-3796 (3rd Cir. 2009), the plaintiff, Brenda Erdman, was employed by the defendant, Nationwide Insurance Company ("Nationwide"). In April, 2003, Erdman submitted paperwork to Nationwide, requesting leave under the Family and Medical Leave Act ("FMLA leave") from July 7 to August 29. Nationwide fired Erdman in May, 2003, citing purported behavioral problems, such as using a profanity during a phone conversation. Erdman brought suit against Nationwide under, among other statutes, the FMLA claiming that she was actually fired for requesting FMLA leave, so that the firing constituted proscribed interference with, and retaliation for trying to use, her FMLA rights. The case found its way to the Third Circuit Court of Appeals.

One question that the Third Circuit Court addressed is whether an employee must actually begin to take FMLA leave to establish a case of interference or retaliation under the FMLA. The Court stated that "it would be patently absurd if an employer who wished to punish an employee for taking FMLA leave could avoid liability simply by firing the employee before the leave begins." The Court then reviewed the applicable statutory provisions. One such provision (29 U.S.C. Section 2615(a)), entitled "Interference with [FMLA] rights," states that "[i]t shall be unlawful for any employer to interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under this subchapter", and that "[i]t shall be unlawful for any employer to discharge or in any other manner discriminate against any individual for opposing any practice made unlawful by this subchapter. In addition, 29 C.F.R. § 825.220(c) prohibits employers from "discriminating against employees or prospective employees who have used FMLA leave." (emphasis added). The Court interpreted these provisions as applying when an employee begins to invoke his or her rights under the FMLA-such as when initially requesting FMLA leave-not when the leave actually starts. A such, the Court held that firing an employee for making a valid request for FMLA leave may constitute interference with the employee's FMLA rights, as well as retaliation against the employee under the FMLA. The Court remanded the case back to the District Court to determine if such interference or retaliation had actually occurred.

September 24, 2009

Employee Benefits-IRS Provides Guidance On Waiver Of 2009 Required Minimum Distributions, Including Sample Plan Amendments

In Notice 2009-82, the IRS provides guidance pertaining to the waiver of required minimum distributions ("RMDs") for 2009 provided by the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"). WRERA added Section 401(a)(9)(H) to the Internal Revenue Code (the "Code"). This Section provides that the minimum distribution requirements of Section 401(a)(9) do not apply to defined contribution plans and IRAs for 2009. In particular, the Notice:

• provides transition relief through November 30, 2009 for a plan that is not
operated in accordance with its terms with respect to waived RMDs and certain related payments;

• sets out rollover relief with respect to waived RMDs and certain related payments, including an extension of the 60-day rollover period to November 30, 2009 for certain of the distributions; and

•answers questions that have been raised regarding the waiver of 2009
RMDs under WRERA.

Under the transition relief, a plan will not be treated as failing to satisfy the requirement that it be operated in accordance with its terms merely because, during the period beginning on January 1, 2009, and ending on November 30, 2009: (1) distributions that equal, or are "Periodic Payments" which include, the 2009 RMDs were or were not paid, (2) plan participants and beneficiaries were not given the option of receiving or not receiving distributions that include 2009 RMDs, or (3) a direct rollover option was or was not offered for 2009 RMDs, or for Periodic Payments that include 2009 RMDs. For this purpose, "Periodic Payments" are payments in a series of substantially equal payments which are made at least annually, and which are expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancy) of the participant and the participant's designated beneficiary, or for a period of at
least 10 years.

Under the rollover relief, payments to a plan participant in 2009 will not be treated as ineligible for rollover on account of Section 402(c)(4)(A) of the Code (under which Periodic Payments are not eligible for rollover) if the payments equal, or are Periodic Payments which include, the 2009 RMDs. Accordingly, such payments can be rolled over, provided that the other rules of Section 402(c) are satisfied. To help plan participants complete rollovers, the Notice extends the 60-day rollover period, for any 2009 RMD and Periodic Payments that include a 2009 RMD, so that it ends no earlier than November 30, 2009. In the case of IRA owners who have already received 2009 RMDs in 2009, the Notice extends the 60-day rollover period for any such distribution, so that it ends no earlier than November 30, 2009. However, due to the one-rollover-per-year rule in the Code, no more than one distribution from an IRA in 2009 is eligible for this rollover relief.

The notice also provides two sample plan amendments which an employer or prototype plan sponsor can adopt or use in drafting individualized or prototype plan amendments. Both amendments give plan participants a choice as to whether to take an RMD which may be waived under WRERA, and apply the direct rollover rules to any distributions so taken. Either plan amendment may be chosen by the employer or prototype plan sponsor, regardless of current plan language, although the sample amendment may have to be modified to conform to the plan's terms and administrative procedures. The amendment must be adopted no later than by the last day of the first plan year beginning after 2010 (2011for governmental plans), and (except as otherwise provided in the Notice), must reflect the operation of the plan to either cease or continue 2009 RMDs, and any election given participants in this regard. The timely adoption of the amendment must be evidenced by a written document that is signed and dated by the employer (including an adopting employer of a prototype plan) or prototype plan sponsor.

September 23, 2009

Employee Benefits-IRS Provides Guidance On Contribution Limits For 401(k)/Defined Contribution Plans

The IRS has just issued its Fall 2009 edition of employee plans news. Among the helpful guidance provided in this edition is a discussion of the numerous limits imposed by the Internal Revenue Code on the amount of the contributions which may be made under a 401(k) plan, or another qualified defined contribution retirement plan, and how these limits interact.

According to the discussion, some of these limits are:

• Annual additions to a participant's account under §415(c);
• Elective deferrals under §401(a)(30) (referencing §402(g));
• Catch-up contributions under §414(v);
• Annual compensation under §401(a)(17); and
• Deductible contributions by the employer under §404(a)(3).

The discussion notes that some of these limits are subject to annual cost-of-living adjustments. For 2009, the maximum amount of annual additions which may be made to a participant's account under §415(c) is the lesser of 100% of the participant's compensation or $49,000. This limit applies to:

• Employer contributions (matching and nonelective);
• Employee contributions (pre-tax elective deferrals and designated Roth contributions, other than catch-up contributions, and after-tax); and
• Forfeitures.

Other dollar limits for 2009 are (1) $16,500 under §402(g) for pre-tax elective deferrals and designated Roth contributions, (2) $5,500 under §414(v) for "catch-up" elective deferral contributions made by participants who are age 50 or older by the end of the year and (3) $245,000 under §401(a)(17) on the amount of a participant's annual compensation that may be taken into account by the plan.

The IRS discusses how some of these limits interact. Under §404(a)(3), an employer may deduct employer contributions up to 25% of the total compensation, as limited by §401(a)(17), paid to all benefitting plan participants. Salary reduction contributions can be deducted on top of this 25% limit. The amount of compensation, as limited by §401(a)(17), which is used to calculate the 25% of compensation limit includes salary reduction contributions and certain other employee benefits. For SIMPLE 401(k) plans, the deductible amount is the required §401(k)(11) contribution. Employers can only deduct amounts up to the §415(c) limit described above.

Further, if the plan allows a participant to make catch-up contributions, then the §402(g) limit is increased for that participant by the amount of the allowed catch-up contribution under §414(v), but cannot exceed 100% of the employee's compensation. Catch-up contributions, if permitted by the plan, would allow a maximum contribution of $54,500 ($49,000 plus $5,500 catch-up contributions) to be made to an eligible participant's account for 2009, limited only by the participant's compensation and the employer's deductible limit as discussed below.

The IRS indicates that confusion may arise on how to reconcile the limits under §401(a)(17), §415(c) and §402(g) when an employee's annual compensation exceeds the current §401(a)(17) limit. For example, can a 40-year-old employee earning $30,000 per month (annual compensation of $360,000) who elects to defer a flat dollar amount of $1,375 per month ($16,500 for the year) in 2009 to his or her 401(k) plan continue to make elective deferrals after September, at which time his or her year to-date compensation exceeds $245,000? The answer is yes, because the plan is not required to determine the limit to a participant's compensation under §401(a)(17) based on the earliest payments of compensation during a year. Unless the plan's terms provide otherwise, the $16,500 §402(g) elective deferral limit is applied uniformly to the $245,000 §401(a)(17) limit on the compensation that the employee receives throughout the year, regardless of whether deferrals are expressed as a dollar amount or a percentage of compensation in the employee's salary reduction agreement.
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The employer's tax deduction, as limited by §404(a)(3), is also limited by the §401(a)(17) limit on compensation and the §415(c) limit on annual additions. As such, the maximum deduction allowed, other than for SIMPLE 401(k) plans, is the lesser of:

• 25% of the total compensation, as limited by §401(a)(17), of all benefitting plan participants; or
• the maximum combined §415(c) dollar limit for all benefitting plan participants.

The IRS points out that failing to comply with any of the above mentioned limits, except the §404(a)(3) limit, can lead to plan disqualification. Information on correcting plan errors may be found on the IRS's Employee Plans Compliance Resolution System (EPCRS) Web page.

September 22, 2009

Employment-Eighth Circuit Finds That Plaintiff's Evidence Of An ADEA Violation Is Sufficient To Overturn Summary Judgment Against Her Granted By Lower Court

In Baker v. Silver Oak Senior Living Management Co., No. 08-1036 (8th Cir. 2009), the plaintiff, Kathy Baker, was terminated, at age 53, from her position as director of an assisted living center operated by defendants, Silver Oak Senior Living Management Company, L.C. and Equi-Management Services, Ltd. (collectively, "Silver Oak"). She brought this suit, alleging that she was terminated because of her age, and because she opposed age discrimination, in violation of the Age Discrimination in Employment Act ("ADEA") and the corresponding non-discrimination requirements of Missouri law. The lower court had granted summary judgment against the plaintiff and dismissed her claims.

In analyzing the case, the Court reviewed whether the plaintiff had presented sufficient evidence to raise a genuine issue for trial on the question of age discrimination. The Court concluded that the plaintiff had done so, thereby presenting a submissible case of age discrimination under ADEA. In so concluding, the Court noted that the plaintiff had presented evidence of statements by superiors at Silver Oak, who had participated in the decision to terminate her, evincing a preference for the employment of younger workers over persons in the class protected by ADEA. One such statement was that Silver Oak was "missing the boat by not hiring more younger, vibrant people," and that employees "should start looking over applications better and try to consider hiring younger people". Another such statement was a direction to the plaintiff to fire certain workers in their 50s and 60s, so that Silver Oak could hire "younger workers" who would be "better workers, have more energy, be more enthusiastic and stimulate the residents." A reasonable jury could take these statements to reflect a discriminatory attitude, biased against older workers, by those who participated in the plaintiff's termination. The plaintiff offered other evidence to support to her age discrimination claim. For example, after refusing directions from a superior to discipline older workers, the superior placed her on probation for questionable reasons. There was also evidence that Silver Oak gave changing and questionable explanations as to why the plaintiff had been terminated.

The Court likewise concluded that the plaintiff had presented a submissible case of age discrimination under Missouri law. The Court overturned the summary judgment granted against the plaintiff by the district court, and remanded the case back to the district court for further proceedings.

September 21, 2009

Employment-EEOC Approves Proposed ADA Regulations for Public Comment

In a press release dated September 16, 2009, the Equal Employment Opportunity Commission (the "EEOC") announced that it has approved a notice of proposed rulemaking (an "NPRM"), which revises its regulations to reflect the changes which Congress made to the Americans with Disabilities Act (the "ADA") last year in the ADA Amendments Act of 2008 (the "2008 Amendments"). The NPRM has a 60-day period for public comment. This period will officially start upon the publication of the NPRM in the Federal Register, which is expected to be during the week of September 21, 2009. The NPRM will also be available on the EEOC's website, www.eeoc.gov, along with a question-and-answer guide about the proposal and instructions for submitting public comments.

According to the press release, the NPRM makes several significant changes to the definition of the term "disability", which are necessitated by the 2008 Amendments. It reported a statement by acting EEOC Vice Chair Christine M. Griffin that "Congress recognized that the intent of the ADA was being misread, that its goals were being compromised, and that action had to be taken. These regulations will shift the focus of the courts away from further narrowing the definition of disability, and put it back where Congress intended when the ADA was enacted in 1990."

The press release further states that, consistent with the 2008 Amendments, the NPRM indicates that:

-- the definition of "disability"- an impairment that poses a substantial limitation in a major life activity - must be construed in favor of broad coverage of individuals, to the maximum extent permitted by the provisions of the ADA, and should not require extensive analysis;

--major life activities include "major bodily functions";

--mitigating measures, such as medications and devices that people use to reduce or eliminate the effects of an impairment, are not to be considered when determining whether someone has a disability; and

--impairments which are episodic or in remission, such as epilepsy, cancer, and many kinds of psychiatric impairments, are disabilities if they would "substantially limit" major life activities when active.

The proposed regulations also provide a more straightforward way of demonstrating a substantial limitation in the major life activity of working, and implement the 2008 Amendment's new standard for determining whether someone is "regarded as" having a disability.

September 18, 2009

Employee Benefits-IRS Introduces Retirement Plans Navigator

In the Special Edition September 2009 employee plans news, the IRS announced that it has launched the Retirement Plans Navigator, a new site which will encourage small-business owners to establish retirement plans for their employees. According to the IRS, the new site will help employers choose the right plan for their business and has information and resources on maintaining plans and correcting plan errors.

September 17, 2009

Executive Compensation-IRS Says That Salary Advances Could Be Subject to Constructive Receipt, But If Not Could Result In A Violation Of Section 409A

In Chief Counsel Advice Memorandum 200935029 (8/28/2009), the IRS was reviewing a "salary advance program." Under this program, an employee would receive a salary advance, apparently as a loan. However, the employee was permitted to apply the amount otherwise due him or her, under a nonqualified deferred compensation plan (the "Plan") upon termination of employment, to offset and eliminate the loan balance.

The IRS said that the doctrine of constructive receipt applies to the "salary advances" to employees. Accordingly, an employee would be required to include the amount available as a salary advance in gross income in the earliest open tax year in which the advance was available (even if not taken), and this amount would be subject to income tax withholding at such time as a constructive payment.

The IRS continued by saying that, even if there was no constructive receipt, salary advances which an employee is expected to earn through future services are taxed as compensation, and are therefore included in gross income, at the time of receipt. The IRS conceded that an (unspecified) employment tax exception would apply to an employee, so that any advance would not be subject to employment tax. Further, if there is no constructive receipt, the salary advance program causes the Plan to violate IRC Section 409A, due to the permitted off-set feature described above. Apparently, the IRS felt that this offset, which is a pre-employment termination use of amounts deferred under the Plan, causes an acceleration of the payment of deferred compensation by the Plan, and this acceleration violates Section 409A.

September 17, 2009

ERISA-Ninth Circuit Upholds One-Year Limit On Bringing Suit Contained In The Summary Plan Description

In Scharff v. Raytheon Company Short Term Disability Plan, No. 07-55951 (9th Cir. 2009), the plaintiff, Donna Scharff, had worked for the Raytheon Company, and had participated in the Raytheon Company Short Term Disability Plan ("Short Term Plan") and the Raytheon Company Long Term Disability Plan ("Long Term Plan"). The summary plan description ("SPD") for the Plans contained a one-year statute of limitations for bring suit. After the plan administrator denied the plaintiff's claim for benefits under the Short Term Plan, the plaintiff brought suit for benefits from both Plans, but she filed the action twenty days after the Plans' one-year statute of limitations had lapsed.

The Court upheld the one-year limit, ruling that this contractual statute of limitations meets applicable legal and disclosure requirements, including the requirements of ERISA and any requirement of "reasonable expectations" pertaining to the Plans. Thus, the plaintiff's suit was time barred.

September 16, 2009

ERISA-Third Circuit Rules That Retiree Health Benefits Vest Even Though Summary Plan Descriptions Contain Reservation of Rights Clauses

In In Re: Unisys Corporation Retiree Medical Benefits ERISA Litigation, Nos. 07-3369, 08-3025 and 08-3545 (3rd Cir. 2009), the plaintiffs were fourteen individuals who retired from employment with the Unisys Corporation ("Unisys") between 1987 and 1989. Unisys had been providing retiree medical coverage, at no cost to retirees aged 65 and older, under its retiree medical benefits plans. The summary plan descriptions ("SPDs") for those plans contained a "reservation of rights clause", under which Unisys retained the right to amend or terminate the plans and the underlying benefits at any time. In 1992, after the plaintiffs had retired, Unisys announced the elimination of those retiree medical benefits plans and the implementation of a new medical benefits plan, effective January 1, 1993. Under the new plan, retirees had to pay an increasing portion of the cost of their coverage until January 1, 1996, at which time they had to pay the entire such cost. In reaction to the change, the plaintiffs filed this lawsuit, alleging that Unisys had breached its fiduciary duty to the plaintiffs under ERISA since, when counseling the plaintiffs as to whether they should retire, Unisys had (1) incorrectly told the plaintiffs that that their retiree medical benefits were vested and could not change, despite the reservation of rights clauses and (2) failed to adequately advise the plaintiffs about the reservation of rights clauses.

The specific ERISA fiduciary duty in question is that the fiduciary may not materially mislead plan participants. To establish a claim against a defendant based on a breach of this duty, the plan participants, as plaintiffs, must show that: (1) the defendant was acting in a fiduciary capacity, (2) the defendant made affirmative misrepresentations, or failed to adequately disclose information, to the plaintiffs, (3) the misrepresentation or failure to disclose was material and (4) the plaintiffs detrimentally relied on the misrepresentation or failure to disclose.

In focusing on the second element, the Court noted that Unisys had told the plaintiffs that, when they reached age 65, the plaintiffs would not have to pay any portion of the premiums for the retiree medical coverage. This statement is a misrepresentation, because it created the impression that the retirees would have the retiree medical coverage for the remainder of their lives, without the possibility of change, by failing to mention the reservation of rights clauses. The SPDs for the retiree medical plans disclose the existence of the reservation of rights clauses, but under Unisys policy, the SPD is delivered to a retiree only after he or she actually enrolls in the plans. Since the deliveries of the SPDs occurred after the misrepresentation was made in the instant case, the SPDs do not help Unisys.

After dealing with the other elements needed to establish the claim, the Court held that twelve of the fourteen plaintiffs had established that Unisys breached its fiduciary duty to them under ERISA, so that the plaintiffs' retiree medical benefits were vested and could not be changed.

September 15, 2009

Employment-Second Circuit Holds That Employer Can Be Liable Under ADEA For Actions Of Independent Contractor

In Halpert v. Manhattan Apartments, Inc., No. 07-4074-cv (2nd Circuit 2009), the Court ruled that the employer may be held liable, under the Age Discrimination in Employment Act ("ADEA"), for discrimination by a third party, such as an independent contractor, who the employer authorizes to make its hiring decisions.

In this case, Robert Brooks had interviewed plaintiff Halpert, and allegedly told Halpert that he was "too old" for a position showing rental apartments for defendant Manhattan Apartments, Inc. ("MAI"). Brooks was an independent contractor, and not an employee, of MAI. Nevertheless, the Court ruled that MAI could be liable for the statement made by Brooks in an action brought under ADEA, so long as Brooks had been authorized by MAI to interview job applicants and make hiring decisions on MAI's behalf. The Court remanded the case back to the lower court to determine if Brooks was so authorized.

September 14, 2009

Employee Benefits-IRS Says That Unused Paid Time Off May Be Contributed To A Qualified Plan

On September 5, 2009, the IRS issued Revenue Ruling 2009-31 and Revenue Ruling 2009-32 which hold, generally, that an employee's unused paid time off may be contributed, on the employee's behalf, to a qualified retirement plan. In both Rulings, the paid time off was available under a bona fide sick and vacation leave plan, which is not subject to Internal Revenue Code ("IRC") Section 409A, and under which an employee may take paid leave without regard to whether the leave is due to illness or incapacity.

More specifically, after examining certain fact patterns, the Rulings concluded that an amendment made to a qualified profit sharing plan, which requires or permits certain contributions of the dollar equivalent of an employee's unused paid time off to be made to the plan on the employee's behalf (whether the employee is active or terminated), does not cause the plan to fail to meet the qualification requirements of IRC Section 401(a). However, these contributions must satisfy the applicable requirements of IRC Sections 401(a)(4) and 415(c). Also, if the amendment allows the employee to elect to have the contributions representing unused paid time off made to the plan, the election must be made under a qualified cash or deferred arrangement contained in the plan, and the contributions cannot exceed the limits of IRC Sections 401(k) and 401(a)(30).

The Rulings added that, assuming that the foregoing IRC requirements and limits are satisfied, the employee does not include the amounts contributed to the plan in gross income, until the amounts are distributed from the plan to the employee. Further, the employee does not include in gross income any amounts representing his or her unused paid time off that is not contributed to the plan, unless and until those amounts are paid to the employee by the employer.

September 13, 2009

Employment-New York Employers Must Provide New Employees With Written Notice of Rate of Pay And Overtime Rate

New York labor law (Section 195.1) has been amended so that an employer must inform a new employee, in writing at the time of hire, of the rate of his or her pay, the employer's regular pay day and, if the employee is eligible for overtime, the regular hourly wage rate and the rate of overtime. Further, the employer must obtain a written acknowledgment from the employee that this information has been provided.

This change to the law applies to employees hired on and after October 26, 2009. Currently, an employer must inform a new employee, at the time of hire, of the rate of his or her pay and the regular pay day. This information need not be in writing, and an acknowledgment is not required.

September 11, 2009

Employment-IRS Provides Information On Making Work Pay Tax Credit

As the IRS points out in IRS Special Edition Tax Tip 2009-07, working taxpayers may be eligible for the Making Work Pay tax credit, which is a significant tax provision of the American Recovery and Reinvestment Act of 2009. This tax credit means more take-home pay for millions of American workers. As such, in this Tax Tip, the IRS presents the 5 following facts about the Making Work Pay tax credit:

1. This credit -- available for tax years 2009 and 2010 -- equals 6.2 percent of a taxpayer's earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers. Most wage earners have been enjoying a boost in their paychecks from this credit since April.

2. Eligible self-employed taxpayers can also benefit from the credit by evaluating their expected income tax liability. If eligible, self-employed taxpayers can make the appropriate adjustments to the amounts of their upcoming estimated tax payments in September and January.

3. Taxpayers who fall into any of the following groups should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:

• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Pensioners
• Social Security recipients who also work
• Workers without valid Social Security numbers
Having too little tax withheld could result in potentially smaller refunds or - in limited instances -small balance due rather than an expected refund.

4. The Making Work Pay tax credit is either phased out or unavailable for higher-income taxpayers. The phase out begins at $75,000 for single taxpayers and $150,000 for couples filing a joint return.

5. For those who believe their current withholding is not right for their personal situation, a quick withholding check using the IRS withholding calculator on IRS.gov may be helpful. Taxpayers can also do this by using the worksheets in IRS Publication 919, How Do I Adjust My Withholding? Adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.

For more information on this and other key tax provisions of the Recovery Act, visit the official IRS Website at IRS.gov/Recovery.

September 11, 2009

Employee Benefits-IRS Provides Guidance And Sample Amendments For Automatic Contribution Arrangements

On September 5, 2009, the IRS issued guidance on automatic contribution arrangements ("ACAs"), and also issued sample amendments which an employer may use to add an ACA to its plan. An ACA is generally an arrangement, under which an employee will automatically be treated as if he or she has elected to make contributions to an employer retirement plan. In the Special Edition, September 2009, employee benefits plans, the IRS says the following about this guidance and the sample amendments.

IRS Notice 2009-66 provides guidance, in the form of questions and answers, on including an ACA in a SIMPLE IRA plan. Some of the issues addressed include:

• the plan may increase an employee's "default contribution percentage" (that is, the percentage of the employee's pay which is remitted to the plan as a contribution) based on the number of years or portions of years for which "default contributions" (that is, the automatic contributions) have been made for the employee;

• the employer must, in addition to satisfying the SIMPLE IRA plan notice requirements, provide certain additional information to an employee who is eligible to participate in the ACA; and

• the plan may provide that default contributions be made only for an employee who is first eligible to participate in the SIMPLE IRA plan on or after the ACA's effective date, and who does not make an affirmative election (including an affirmative election of zero) to have contributions made to the plan.

Revenue Ruling 2009-30 provides guidance on automatically increasing the level of default contributions under an ACA which is part of a 401(k) plan. The Ruling explains how a 401(k) plan may permit automatic increases in an employee's "default contribution percentage" (again, the percentage of the employee's pay which is remitted to the plan as a contribution), based on future increases in the employee's base pay. The Ruling provides two examples on how a 401(k) plan can structure these automatic increases. The Ruling also holds that a plan may increase an employee's default contribution percentage, on a date other than the first day of a plan year, without violating the "qualified percentage requirements" (including the uniformity and minimum percentage requirements) for qualified automatic contribution arrangements (which are sometimes called "QACAs", and which serve as an automatic enrollment nondiscrimination safe harbor) or the uniformity requirement for eligible automatic contribution arrangements (which are sometimes called " EACAs", and which permit withdrawals of default contributions).

IRS Notice 2009-65 provides two sample plan amendments for adding an ACA to a 401(k) plan. The first sample amendment may be used to add a basic ACA, and the second sample amendment may be used to add an EACA. An employer may modify a sample amendment to conform to the specific terms and administrative procedures of its own 401(k) plan. A sample amendment must be adopted by the employer by the later of the end of the plan year in which the amendment is effective or, if applicable, the last day of the first plan year beginning on or after January 1, 2009. A later deadline may apply to governmental plans. The timely adoption of the sample amendment should be evidenced by a written document which is signed and dated by the employer. Affected employees must receive notice about the features of the amended plan within a reasonable period before the amendment is effective.

IRS Notice 2009-67 contains a sample amendment that a prototype sponsor of a SIMPLE IRA plan (using a designated financial institution) may use to draft an amendment to add an ACA to its plan. The prototype sponsor may tailor the sample amendment to the terms and administrative procedures of its own plan. The prototype sponsor must furnish a copy of the amended prototype SIMPLE IRA plan document to each adopting employer, regardless of whether the employer will use an ACA. An employer that wishes to add an ACA to its plan must adopt the amendment, provided by the prototype sponsor, before the ACA's effective date. The timely adoption of this amendment should be evidenced by a written document signed and dated by the employer and the designated financial institution.

September 10, 2009

Employee Benefits-IRS Issues New 402(f) Safe Harbor Notices And Other Guidance On Rollovers

On September 5, 2009, the IRS issued Notice 2009-68, which contains long-awaited updated safe harbor notices that plan administrators may use to comply with the notice requirement of Section 402(f) of the Internal Revenue Code. That Section requires a plan administrator of an employer plan to provide a participant, who is about to receive an eligible rollover distribution from the plan, with a written explanation of the rollover and other tax treatment of the distribution. The IRS's previously issued safe harbor notices- contained in IRS Notice 2002-3- had become badly out of date, due to the many changes in the rollover and tax rules since those notices had been issued.

According to the IRS's Special Edition, September 2009, employee plans news, Notice 2009-68 contains two updated safe harbor model notices, which may be used to satisfy the Section 402(f) notice requirements. Plan administrators may use the first model notice for recipients of distributions which are not from a designated Roth account, and the second model for recipients of distributions from a designated Roth account. These updated model notices reflect changes in the law and simplify the presentation and description of a distribution recipient's options. They also explain rules that apply in special situations, such as when the distribution is made to a surviving spouse or other beneficiary. Plan administrators may tailor each model notice to the specific terms and administrative procedures of their plans. They may immediately use these model notices, or continue to use the prior Section 402(f) safe harbor notices contained in IRS Notice 2002-3, as appropriately modified for law changes, on a transition basis through the end of 2009.

On September 8, 2009, the IRS issued Notice 2009-75, which provides guidance on rollovers from employer plans to Roth IRAs. According to the IRS's Special Edition, September 2009, employee plans news, Notice 2009-75 describes the tax consequences of rolling over an eligible rollover distribution (an "ERD") from qualified plans (such as 401(k) or profit-sharing), 403(a) annuity plans, 403(b) plans or 457(b) governmental plans to a Roth IRA. An employer plan may have a designated Roth account, from which an ERD may be made. The Notice explains that an individual must include in his or her gross income amounts, other than after-tax contributions, that are part of the ERD rolled over to a Roth IRA. However, when an individual rolls over an ERD from a designated Roth account, regardless of whether it is a "qualified distribution" (a distribution which meets certain requirements of the Code and may be received tax-free), this rollover is not includible in his or her gross income. Prior to January 1, 2010, only an individual meeting the income and filing status eligibility requirements (the individual's modified AGI does not exceed $100,000 and he or she must file jointly if married) may roll over an ERD from an employer plan (other than from a designated Roth account in the plan) to a Roth IRA. Individuals who do not meet those eligibility requirements may roll over the ERD into a non-Roth IRA. The non-Roth IRA can then be converted to a Roth IRA in 2010, when the income and filing status eligibility requirements are eliminated.

Notice 2009-75 supplements the current IRS regulations under Section 408A of the Internal Revenue Code and the guidance provided in IRS Notice 2008-30. IRS Publication 590 has additional information on rollovers from employer plans to Roth IRAs.

September 9, 2009

ERISA-DOL Provides Guidance On Using A Mutual Fund's Summary Prospectus To Satisfy ERISA Section 404(c)

In Field Assistance Bulletin No. 2009-3, the Department of Labor (the "DOL") provides guidance on a plan fiduciary, of a participant-directed individual account plan, using a mutual fund's Summary Prospectus to meet the fiduciary's obligation to deliver a prospectus describing that mutual fund under the DOL's ERISA Section 404(c) regulations.

By way of background, Section 404(c) of ERISA provides that, in the case of a participant-directed individual account plan, the fiduciary is not liable under ERISA for any investment loss which results from participant direction as to the investment of his or her plan account. The regulations under Section 404(c) regulations require that, among other things, a participant be given sufficient information to make informed decisions with regard to investment options available under the plan. In the case of an investment option which is a mutual fund, the Section 404(c) regulations require the plan fiduciary to automatically provide the participant with a copy of most recent prospectus for the mutual fund that has been provided to the plan, either immediately before or immediately following the participant's initial direction to invest any portion of his or her plan account in the mutual fund. The Section 404(c) regulations also require the plan fiduciary to provide the participant, upon request and based on the latest information and materials available to the plan, with copies of the prospectus, financial statements, reports and any other financial materials relating to an investment option available under the plan, including a mutual fund.

On January 26, 2009, the Securities and Exchange Commission published rules for an enhanced disclosure framework for mutual funds, including a new Summary Prospectus rule (Rule 498 of the Securities Act). Under the new Summary Prospectus rule, a person may provide an investor with a Summary Prospectus as a means of complying with the prospectus delivery requirements of Section 5(b)(2) of the Securities Act, under which a statutory prospectus for a mutual fund must be provided to an investor upon the purchase of shares in that mutual fund. The Summary Prospectus is required to contain certain information about the mutual fund, e.g., the mutual fund's name, its investment objectives and strategies, risks and prior performance, fee and expense information, the mutual fund's investment advisers and sub-advisers and portfolio managers, and a toll-free telephone number where investors may obtain a full prospectus and other information free of charge.

In the Field Assistance Bulletin, the DOL indicates that the term "prospectus", where ever used in the Section 404(c) regulations, includes a Summary Prospectus, because the required contents of the Summary Prospectus provide key information about a mutual fund that will assist participants in making informed investment decisions. Therefore, the delivery of a Summary Prospectus, both automatically and upon request, to a participant by the plan fiduciary will satisfy the prospectus delivery requirements of the Section 404(c) regulations, so long as the Summary Prospectus is the most recent prospectus provided to or received by the plan.

September 1, 2009

ERISA-Seventh Circuit Discusses Role of Conflict of Interest In Review Of A Fiduciary's Decision To Deny Benefits

In Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008) , the Supreme Court said that a fiduciary's conflict of interest is a factor to be taken into account in determining whether the fiduciary has abused its discretion in determining that a plan participant is not eligible for benefits. This conflict of interest typically arises under a welfare benefits plan, when the insurer, or the employer in a self-insured plan, is the fiduciary, and both the person who pays the plan benefits and the person who decides whether a participant is eligible to receive plan benefits. A number of courts have expressed their view on exactly how the conflict of interest is to be considered in evaluating the fiduciary's decision to deny benefits. Marrs v. Motorola, No. 08-2451 (7th Cir. 2009) is one of the latest of these cases.

In Marrs, the Court said that there are two ways to treat a conflict of interest, based on the majority opinion in Glenn. One way is to treat the conflict of interest as one factor out of many in determining reasonableness. The Court rejected this treatment, calling it a "rudderless balancing test", and opted for the following treatment. If the circumstances indicate that the fiduciary's decision denying benefits was probably decisively influenced by the fiduciary's conflict of interest, that decision must be set aside. The likelihood that the conflict of interest influenced the fiduciary's decision is therefore the decisive consideration. It not the existence of a conflict of interest--which is a given in almost all ERISA cases--but the gravity of the conflict, as inferred from the circumstances, that is critical.

After stating the above, the Court noted that, as to the instant case, there were no indications that the fiduciary labored under a conflict of interest serious enough to influence his decision consciously or unconsciously--a decision that was otherwise entirely reasonable--decisively. Thus, the Court upheld the fiduciary's decision to deny benefits.