November 2009 Archives

November 30, 2009

Employment-DOL Announces An Updated Version Of Its Employment Law Guide

In a News Release dated 11/30/09, the U.S. Department of Labor (the "DOL") announced the availability of an updated version of its popular Employment Law Guide, an online publication which describes the major employment laws administered by the DOL. According to the News Release, the Guide helps the public -- workers and employers -- understand many of the laws affecting the workplace.

Following a topical format and written in plain language, the Employment Law Guide is especially helpful for employers without a dedicated legal or human resources staff. The updated version addresses recent and important changes in employment laws, including the increase in the federal minimum wage and an expansion of the Family and Medical Leave Act that grants qualified relatives of veterans leave to care for ill or injured uniformed service members or to fulfill obligations that arise when a relative is called to active duty in the military.

The Employment Law Guide is a companion to the DOL's FirstStep overview advisor, an online system that allows employers to quickly and easily determine which federal employment laws apply to them by answering a few simple questions about relevant variables. Each chapter in the Employment Law Guide corresponds to the laws addressed in the FirstStep advisor, outlining coverage under the law, its basic requirements, employee rights, recordkeeping, reporting, notice and poster requirements, penalties and sanctions for non-compliance, the relation to state, local and other federal laws, and contact information for further assistance.

The updated Employment Law Guide and FirstStep overview advisor are available at or

November 25, 2009

Employment-Second Circuit Rules That An Underwriter Is Entitled To Overtime Pay

In Davis v. J.P. Morgan Chase & Co., No. 08-4092 (2nd Cir. 2009), the Court faced the issue of whether the plaintiff-underwriter, who was employed by J.P. Morgan Chase ("Chase") and whose job at Chase was to approve loans to individuals in accordance with detailed guidelines provided by Chase, is an administrative employee and therefore exempt from the overtime requirements of the Fair Labor Standards Act ("FLSA").

In analyzing the case, the Court said that the FLSA (at 29 U.S.C. § 213(a)(1)) states that employees who work in bona fide executive, administrative, or professional capacities are exempt from the FLSA overtime pay requirements. The regulations (at 29 C.F.R. § 541.2(a)) add that a worker is employed in a bona fide administrative capacity if he or she performs work directly related to management policies or general business operations and customarily and regularly exercises discretion and independent judgment. The regulations further explain (at 29 C.F.R. §541.205(a)) that work directly related to management policies or general business operations consists of those types of activities relating to the administrative operations of a business, as distinguished from production or sales work. As such, employment may be classified as belonging in the administrative category, which falls squarely within the administrative exception, or as production/sales work, which does not. In this particular case, the question comes down to whether the plaintiff-underwriters performed day-to-day sales activities or more substantial advisory duties.

As to this question, the Court said that the primary duty of the plaintiff-underwriter was to sell loan products under the detailed directions of the guidelines provided by his employer, Chase. There is no indication that the underwriter was expected to advise customers as to what loan products best met their needs and abilities. Underwriters were given a loan application and followed procedures specified in the employer's guidelines in order to produce a yes or no decision as to the approval of the application. This work is not related either to setting "management policies" or to "general business operations", but concerns the "production" of loans- the fundamental service provided by the bank. As such, the Court held that the plaintiff-underwriter was not employed in a bona fide administrative capacity, and therefore was not exempt from the FLSA overtime requirements.

November 25, 2009

Employee Benefits-IRS Announces The Temporary Closing of the Determination Letter Program for Adopters of Pre-Approved Defined Benefit Plans

According to Announcement 2009-85, on and after February 22, 2010, the IRS will no longer accept applications filed on Form 5307 for determination letters for pre-approved defined benefit plans. The IRS is taking this action, because these plans are required to be restated to comply with items identified for review in IRS Notice 2007-3. The restated plans may be submitted to the IRS for a determination letter (if needed), using Form 5307, during a period of approximately two years, which the IRS expects to announce
early in 2010. The temporary hiatus in accepting Form 5307 applications will allow the
IRS to prepare to receive the applications for the restated plans.

Announcement 2009-85 does not affect the ability of adopting employers to apply for
determination letters on Form 5307 for pre-approved defined contribution plans (see
Announcement 2008-23). It also does not affect the ability of adopting employers of pre-approved plans, whether defined benefit or defined contribution, to apply on Form 5307 for a determination letter for plan amendments related to a voluntary correction program (VCP) submission, or as required to make a correction under the audit program (Audit CAP), under Revenue Procedure 2008-50.

November 24, 2009

Employee Benefits-New York's Highest Court Rules In Favor Of Same-Sex Benefits

In Godfrey v. Spano, Case No. 147 and Lewis v. Department of Civil Service, Case No. 148 (New York Court of Appeals. 11/19/09) (both cases decided together), the plaintiff- taxpayers had challenged two directives by executive and county officials- namely, a Policy Memorandum issued by the Commissioner of the New York State Department of Civil Service and an Executive Order issued by the Westchester County Executive-which recognized out-of-state same-sex marriages for purposes of providing public employee health insurance coverage and other benefits (the "Coverage"). The Court dismissed these challenges, thereby upholding the provision of Coverage to partners in such marriages.

As to the challenge to the Westchester County Executive Order, the Court noted that the plaintiffs' claim is that the Executive Order illegally legislated in the areas of marriage and domestic relations, contrary to General Municipal Law § 51. However, the Court said that to succeed on this claim in the absence of fraud-as here-the plaintiffs must state a claim for illegal dissipation of municipal funds. The complaint does not specify any circumstance where taxpayer funds were expended as a result of the order. The Court ruled that this causes the plaintiffs' challenge to the Executive Order to fail. Note that Westchester County had been providing Coverage for domestic partners for many years.

As to the challenge to the New York State Commissioner's Policy Memorandum, the Court first noted that the Department of Civil Service has offered Coverage to domestic partners since the mid-1990s. Next, the Court said that this challenge is based on State Finance Law § 123-b and the separation of powers doctrine. Similar to the above, to bring this claim based on §123-b, there must be some specific threat of an imminent expenditure. As none is alleged, the Court concluded that a claim based on that section fails here.

The Court said that the claim based on the separation of powers doctrine boils down to the claim that the defendants acted inconsistently with the Legislature's pronouncements on spousal health care benefits, acting in violation of Civil Service Law § 164. However, under § 164 and the legislative history behind it, the Commissioner has broad discretion to define who will qualify for Coverage. As such, there is no conflict between the Civil Service Law and the challenged Policy Memorandum. The practical effect of the upholding the Policy Memorandum is to give an out-of-state document, which formalizes a same-sex relationship, the same weight as the affidavit that an employee must furnish to receive Coverage for a domestic partner. This is a narrow accommodation to state employees in an area where the Legislature has specifically accorded broad discretion to the Commissioner. Therefore, the Court ruled that the claim based on the separation of powers doctrine, and the challenge to the Policy Memorandum, fails.

November 23, 2009

Employee Benefits-Reminder: November 30 Deadline Approaches For Using IRS Relief For 2009 Required Minimum Distributions

Under the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"), participants in qualified defined contribution plans and IRA owners need not take required minimum distributions ("RMDs") for 2009. A number of issues arose concerning this waiver of 2009 RMDs. In September, the IRS issued Notice 2009-82 to provide guidance on these issues. The Notice included some transitional relief.

Under the Notice, a qualified defined contribution plan will not be treated as failing to satisfy the qualification requirement that it be operated in accordance with its terms merely because, during the period which begins on January 1, 2009, and which ends November 30, 2009:

-- distributions that equal the 2009 RMDs, and additional amounts which qualify for rollover treatment and with which the 2009 RMDs are included (the "Eligible Rollover Amounts"), were paid or not paid;

-- participants were not given the option of receiving or not receiving distributions that include 2009 RMDs; or

-- a direct rollover option was or was not offered for 2009 RMDs and any Eligible Rollover Amounts .

Further, under the Notice, payments to a plan participant in 2009 will not be treated as ineligible for rollover, on account of being RMDs, if the payments equal the 2009 RMDs and any Eligible Rollover Amounts, provided the other rules of the Code for rollover treatment are satisfied. Any 2009 RMD and Eligible Rollover Amounts may be rolled over by a participant by the later of November 30, 2009 or the 60th day after receipt.

November 20, 2009

ERISA-DOL Now Withdraws Investment Advice Rules

Right on the heels of delaying the effective date of its investment advice rules (see my blog of November 18), the Department of Labor (the "DOL") announced, in a press release, that it has withdrawn these rules. These rules would have implemented a statutory prohibited transaction exemption under ERISA and the Internal Revenue Code, and also would have provided an additional administrative class exemption, pertaining to the provision of investment advice to certain defined contribution plan participants and beneficiaries, as well as to IRA owners.

According to the news release, the DOL decided to withdraw the rules based on public comments that raised sufficient doubts as to whether the conditions of the rules and the class exemption could adequately protect the interests of plan participants and beneficiaries. The DOL intends to publish separately a proposed rule that conforms to the statutory exemption.

November 18, 2009

ERISA-DOL Again Delays The Effective Date Of The Investment Advice Rules

Back on January 21, 2009, the Department of Labor ("DOL") published final rules on the provisions of ERISA and the Internal Revenue Code (the "Code") which permit investment advice to be given to participants and beneficiaries in participant-directed individual account plans, such as 401(k) plans, and to beneficiaries of IRAs and similar arrangements. The rules implement a statutory prohibited transaction exemption under Sections 408(b)(14) and 408(g) of ERISA, and under Section 4975 of the Code, and also contain an administrative class exemption granting additional relief. The effective date of these rules had been deferred until November 18, 2009. Now, the DOL has published a notice which further postpones the effective date of these rules until May 17, 2010, to give the DOL additional time to consider the questions of law and policy that have arisen about the rules.

November 13, 2009

Employment-OSHA Provides Information On H1N1 Influenza Precaution and Protection For The Workplace

According to a News Release dated 11/09/09, the Occupational Safety and Health Administration of the U.S. Department of Labor ("OSHA") has issued commonsense fact sheets that employers and workers can use to promote safety during the current H1N1 influenza outbreak. The fact sheets inform employers and workers about ways to reduce the risk of exposure to the 2009 H1N1 virus at work. Separate fact sheets for health care workers, who carry out tasks and activities that require close contact with 2009 H1N1 patients, contain additional precautions.

These facts sheets are available on OSHA's "Workplace Safety and H1N1" web site. The News Release says that, as new information about the 2009 H1N1 virus becomes available, the fact sheets will be updated, and invites employers and workers to visit the web site often to ensure that they have the most up-to-date information.

November 13, 2009

ERISA-Seventh Circuit Holds That A Plan Amendment Does Not Violate ERISA's Anti-Cutback Rule

In Wetzler v. Illinois CPA Society & Foundation Retirement Income Plan, No. 08-2923 (7th Cir. 2009), the plaintiff, Thomas Wetzler, wanted a lump-sum payment of his entire retirement benefit from the Illinois CPA Society & Foundation Retirement Income Plan (the "Plan"). The Plan is a tax-qualified defined benefit pension plan. The plaintiff was a highly compensated employee. The Plan had always allowed lump-sum payments. However, prior to the plaintiff's retirement, the Plan had been amended to reflect certain provisions of the Internal Revenue Code (the "Code") and the underlying Treasury regulations, under which the Plan could not make a lump- sum payment to certain highly compensated employees, such as the plaintiff, when the Plan is not sufficiently funded (the "Amendment"). At the time of the plaintiff's request for a lump-sum payment, there were not enough assets in the Plan to cover this payment. Therefore, honoring the plaintiff's request would have caused the Plan to use all of its assets and violate the Code and the underlying Treasury regulations, and to also violate the Plan itself due to the Amendment. Explaining this to the plaintiff, the plan administrator for the Plan (the "Plan Administrator") refused his request. The plaintiff filed suit in district court, alleging that the Amendment violated the anti-cutback rules of ERISA (found in 29 U.S.C. § 1054(g)) by eliminating a previously available benefit, and that the Plan Administrator acted arbitrarily and capriciously in denying his demands for a lump-sum payment. The district court granted summary judgment in favor of the defendant, and the plaintiff appealed.

In analyzing the case, the Court dealt with several matters. The first issue was whether the Plan Administrator's refusal to pay the lump-sum should be reviewed de novo or under the arbitrary and capricious standard. Since the Plan documents gave the Plan Administrator discretionary authority to construe the Plan's terms, the Court found that the arbitrary and capricious standard applies.

The next issue was whether a lump-sum payment would have been available from the Plan in the absence of the Amendment. Resolving this issue involves a review of the Plan Administrator's interpretation of the Plan, using the arbitrary and capricious standard. The Plan Administrator had interpreted the Plan so that the lump-sum would not have been available, even in the absence of the Amendment, reasoning as follows. The Plan is intended to have tax-qualified status, and therefore must be read so that it complies with Section 401(a) of the Code. In order to so comply, the Plan must not discriminate significantly in favor of highly compensated employees, such as the plaintiff. According to Treasury Regulation Section 1.401(a)(4)-5(b)(3), significant discrimination occurs if payments to a highly compensated employee exceed the payments that would be made under a straight life annuity to which the employee is entitled under the Plan, for example, if the employee receives a lump-sum payment. The Treasury Regulations contain exceptions to this rule, for example, lump-sum payments are allowed if the Plan is sufficiently funded, but those exceptions do not apply here. Thus, the Plan Administrator concluded that the lump-sum payment requested by the plaintiff would have violated the Code and the underlying Treasury Regulations, and thus could not be made by the Plan. As such, the Plan Administrator's interpretation of the Plan, under which a lump-sum payment would not have been available to the plaintiff even in the absence of the Amendment, is well-reasoned and not arbitrary and capricious.

The remaining issue is whether, in view of the foregoing, the Amendment violated ERISA's anti-cutback rule. Under this rule, among other things, a plan amendment may not eliminate a participant's entitlement to take his pension benefit as a lump-sum payment at normal retirement age. Here, however, due to the funding status of the Plan, the plaintiff would not have been able to receive a lump-sum payment, even in the absence of the Amendment, so there cannot be any cutback. The Amendment merely brought the Plan into compliance with the Code and the underlying Treasury Regulations. It did not violate ERISA's anti-cutback rule. Based on the above, the Court affirmed the district court's summary judgment against the plaintiff.

November 12, 2009

ERISA-Tenth Circuit Rules That Plaintiff Is Not Entitled To Benefits Because She Was Not On The Company's Payroll

In Scruggs v. ExxonMobil Pension Plan, No. 08-6145 (10th Cir. 2009), the plaintiff, Barbara Scruggs, performed secretarial services for ExxonMobil for twenty-two years until her office in Oklahoma was closed in 2005. During the entire time she worked for ExxonMobil, the plaintiff was never on ExxonMobil's payroll. Instead, she was paid for her services by a third-party contractor, or was paid directly by ExxonMobil as an independent contractor. After the Oklahoma office closed, the plaintiff filed this action under ERISA, seeking retroactive pension benefits allegedly owed to her under the ExxonMobil Pension Plan ("the Plan"). Since the plaintiff was never on ExxonMobil's payroll, the plan administrator of the Plan (the "Plan Administrator") denied her claim for benefits. The Plan Administrator determined that the plaintiff was not a "covered employee", or even an "employee", within the meaning of the Plan, so that she was ineligible for the benefits being claimed. The district court granted summary judgment for the Plan. The case found its way to the Tenth Circuit.

In analyzing the case, the Court noted that the Plan documents explicitly state that the Plan Administrator is vested with full and final discretionary authority to determine eligibility for benefits, and to construe and interpret the terms of the Plan as they apply to any participant or beneficiary. Due to this language in the Plan documents, the Court must review the Plan Administrator's decision to deny benefits under the deferential arbitrary-and-capricious standard, as opposed to the de-novo standard.

In reviewing the Plan Administrator's decision to deny the benefits, the key issue is the meaning of the term "covered employee", as used by the Plan. The Court determined that this term means a full-time employee of ExxonMobil, who is compensated in U.S. dollars and is regularly stationed in the United States or Canada. However, the term "employee" itself is not specifically defined in the Plan. The question then becomes the reasonableness of the Plan Administrator's determination that the plaintiff is not an employee. Here, the Plan Administrator had interpreted the term "employee" to be limited to individuals on ExxonMobil's payroll, a category that does not include all persons who might be considered employees under ERISA. This limit does not violate ERISA. Given the evidence presented-generally the set up of the company's payroll and accounts payable systems and employee communications- the Court determined that this interpretation was not arbitrary or capricious. Therefore, the Court ruled that the Plan Administrator's denial of benefits, on the ground that the plaintiff was not a "covered employee", was not arbitrary and capricious, and upheld the summary judgment for the Plan granted by the district court.

November 11, 2009

ERISA-Mass. High Court Rules That ERISA Preempts A Claim Based On Unjust Enrichment

In Hitachi High Technologies America, Inc. v. Bowler, SJC-10386 (Supreme Judicial Court of Massachusetts 2009), the Court faced the question of whether ERISA preempts a State law action brought by a retirement plan fiduciary to recover money mistakenly paid to a plan participant. In this case, the plaintiff, Hitachi High Technologies America, Inc. (Hitachi), filed an action for unjust enrichment in the Mass. Superior Court against its former employee, the defendant Kevin Bowler, for his alleged failure to reimburse $29,315.75, with interest, in retirement benefits that Hitachi had overpaid to Bowler due to an accounting error. The lower court dismissed the case on the grounds that it lacked subject matter jurisdiction.

In analyzing the case, the Court noted that ERISA preemption is very broad. Under the statute (in 29 U.S.C. § 1144(a)), ERISA supersedes any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. The United States Supreme Court has said that a law "relates to" an employee benefit plan if it has a connection with or reference to the plan, but has acknowledged that some state law may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law "relates to" the plan. The question, then, in the instant case, is whether the plaintiff's claim for unjust enrichment relates to the retirement plan from which in the benefits in question were paid. The Court further noted that the basic intention of the preemption clause is to promote a nationally uniform administration of employee benefit plans, and this intention is difficult to achieve if a plan is subject to the separate requirements of each State. To allow a State law claim of unjust enrichment would present a threat of conflicting and inconsistent regulation that would frustrate the basic intention of ERISA. As such, the Court concluded that Hitachi's action is preempted by ERISA.

The Court noted a second reason for concluding that Hitachi's claim is preempted by ERISA. In enacting ERISA, Congress intended to provide a comprehensive remedial scheme that would serve as the exclusive enforcement mechanism for ERISA disputes. This scheme provides strong evidence that Congress did not intend to authorize the remedies that it simply did not incorporate in the statute. A remedy based on a claim of unjust enrichment-as opposed to certain claims for restitution- is not one of the remedies included in the statute.

Having concluded that ERISA preempts Hitachi's claims for two reasons, the Court affirmed the lower court's dismissal of the case.

November 10, 2009

Employment-NY Issues New Forms For Notifying New Hires of Rates of Pay/Overtime

Section 195.1 of New York State Labor Law requires that a New York employer must provide any employee, who is hired on or after October 26, 2009, with information as to the employee's:
1) regular rate of pay;
2) rate of pay for overtime (if he/she is eligible for overtime); and
3) pay date.

This information must be furnished in writing before the employee starts work. Further, the employer must obtain from the employee a written acknowledgement that the employee has received this information, and must keep each acknowledgement for six years. The New York State Department of Labor has issued a form, called "Notice and Acknowledgement of Wage Rate and Designated Payday Hourly Rate Plus Overtime", which the employer must use to provide this information and obtain the acknowldegement. The Department has also issued a form entitled "Notice of Pay Rate and Payday for New Hires", which an employer may give to an employee to explain why the information about pay is being provided. These forms are available here.

November 6, 2009

Executive Compensation-Deadline For Amending Bonus Plans Is Approaching

IRS Revenue Ruling 2008-13 changed one of the exceptions to the $1million limit under Section 162(m) of the Internal Revenue Code (the "Code") on the deductibility of bonus pay by public companies, and generally requires that bonus plans be amended before the start of 2010 to reflect this change.

By way of background, Section 162(m)(1) of the Code provides that, in the case of any publicly held corporation, no deduction is allowed for the compensation of any "covered employee" (generally, the chief executive officer or one of the 3 other highest paid executive officers other than the chief financial officer), to the extent that the employee's compensation for the year in question exceeds $1,000,000. However, Section 162(m)(4)(C) of the Code and Section 1.162-27(e)(1) of the Treasury regulations provide that this limit does not apply to qualified performance-based compensation. Under the Treasury regulations, to be qualified performance-based compensation, several requirements must be satisfied. One such requirement is found in Treasury regulation Section 1.162-27(e)(2)(i), under which qualified performance-based compensation must be paid solely on account of the attainment of one or more preestablished, objective performance goals. Treasury regulation Section 1.162-27(e)(2)(v) states that compensation is not performance-based if the facts and circumstances indicate that the employee would receive all or part of the compensation regardless of whether the performance goal is attained. It further states that compensation does not fail to be qualified performance-based compensation merely because the plan in question allows the compensation to be payable upon the employee's death, disability, or change of control, although compensation actually paid on account of one of those events, prior to the attainment of the performance goal, would not be qualified performance-based compensation.

In Revenue Ruling 2008-13, the IRS considered the case in which a plan, agreement or contract (a "Plan") of a public company, under which compensation is paid to a covered employee, provides that the compensation will be paid (1) upon attainment of a performance goal or (2) without regard to whether the performance goal is attained, if (a) the covered employee's employment is involuntarily terminated by the employer without cause, or (b) the covered employee resigns from employment for good reason, or retires. The IRS ruled that compensation paid under this Plan is not qualified performance-based compensation, since it could be paid even if the performance goals are not met. The Ruling affirmed the IRS's position taken in a 2008 private letter ruling, which reversed the IRS's position in some earlier private letter rulings. This Ruling requires that any Plan of a public company, such as a bonus plan, which contains the language in (2) (or similar language) must be amended to remove such language, otherwise all compensation payable under the Plan to covered employees will be subject to the $1 million dollar limit on deductions under Section 162(m).

Fortunately, the IRS gave employers a period of time to make this amendment. Revenue Ruling 2008-13 stated that the Ruling will not be applied to disallow a deduction for any compensation which otherwise satisfies the requirements for being qualified performance-based compensation, and which is paid under a Plan that has language similar to that in (2) above, if either:

--the performance period (i.e., the period of service to which the performance goal applicable
to such compensation relates) for the compensation begins on or before January 1, 2009; or

--the compensation is paid pursuant to the terms of an employment contract as in effect on February 21, 2008, unless that contract has been renewed or extended after that date.

Thus, except for the case of an employment contract referred to above, the final performance period to which the Ruling will not apply is the performance period starting on January 1, 2009. If an employer's Plan has a calendar year performance period, it may still avoid the adverse effect of Revenue Ruling 2008-13 by amending its Plan to remove the proscribed language prior to the end of 2009.

November 4, 2009

ERISA-Eighth Circuit Rules That A Participant In A Defined Benefit Plan Cannot Sue The Fiduciaries For Investment Losses And Excess Fees When The Plan Is Overfunded

In Mcullough v. Aegon USA, Inc., No. 08-1952 (8th Cir. 2009), the plaintiff, Randal McCullough, was a participant in a defined benefit pension plan (the "Plan") of the defendant, Aegon USA, Inc. ("Aegon"). He had brought suit against Aegon under Section 1132(a)(2) of ERISA, alleging that various fiduciaries of the Plan had breached their fiduciary duties to the Plan. The District Court granted summary judgment for Aegon.

One of the plaintiff's claims was that the fiduciaries had breached their duties to the Plan under ERISA by causing the Plan to invest in funds offered by Aegon's subsidiaries and affiliates, and to purchase products and services from those affiliates and subsidiaries, resulting in the payment of fees "that were higher than the norm." The parties agreed that, at all applicable times, the Plan was "substantially overfunded" , the Plan had never failed to pay benefits and Aegon had no intention of terminating the Plan.

Section 1132(a)(2) of ERISA allows a participant in a plan to bring an action for appropriate relief under Section 1109 of ERISA. Section 1109 generally makes a fiduciary of a plan personally liable to the plan for any losses resulting from his or her breach of fiduciary duty. Building on the earlier Eighth Circuit case of Harley v. Minnesota Mining & Manufacturing Co.,284 F.3d 901 (8th Cir. 2002), the Court ruled that the plaintiff could not bring the claims discussed above under Section 1132(a)(2). The Plan was a defined benefit plan, which promises the plaintiff only a benefit fixed by plan formula (and not dependent on the amount of the Plan's assets). Further, the Plan's surplus was sufficiently large so that any losses or excess fees resulting from the Plan's investment and transactions with Aegon's subsidiaries and affiliates did not cause actual injury to the plaintiff's interests in the Plan. As a result, the Court upheld the district court's summary judgment for Aegon.

November 3, 2009

ERISA-Tenth Circuit Rules That A Plan Administrator's Decision To Deny Benefits Must Be Reviewed De Novo Since It Was Not Made By The Plan's Deadline

In Rasenack v. AIG Life Insurance Company, No. 07-1521 (10th Cir. 2009), the plaintiff had requested accidental paralysis and rehabilitation benefits from AIG Life Insurance Company, the insurer, and AIG Claim Services, the plan administrator with discretionary authority to decide claims (collectively, "AIG"), under a plan which was maintained by the plaintiff's employer, and which was funded with an accidental death and dismemberment ("AD&D") policy issued by AIG (the "Plan"). AIG denied the plaintiff's initial request for these benefits, on the grounds that the plaintiff had not been paralyzed within the meaning of the insurance policy funding the Plan. The plaintiff submitted to AIG a timely administrative appeal of this denial. The Plan required AIG to render a decision on this appeal within 60 days, unless special circumstances require an additional 60 days. After this 120 day period expired, but before AIG rendered its decision on the appeal, the plaintiff filed in court this suit against AIG under ERISA. AIG did render its decision, again denying the benefits, after the suit was filed. The district court upheld AIG's denial of the benefits, and granted summary judgment in AIG's favor.

In reviewing the case, the Court noted that the Plan's time limit for AIG to render its decision on the appeal was in accordance with ERISA regulations. It said that, since AIG's decision was not made by the Plan's deadline, the plaintiff's claim was automatically deemed to be denied, and his administrative remedies automatically deemed to be exhausted, so that he could file a suit with a court. Further, since the Plan and the ERISA regulations place time limits on the plan administrator's discretion, and in this case the plan administrator failed to render a decision within those time limits, the plan administrator's "deemed denied" decision is by operation of law, rather than by the exercise of discretion. As a result, the Court may review the plan administrator's decision de novo, rather than according it a deferential review.

The Court ultimately reversed the District Court's summary judgment, and remanded the case back to the district court to review AIG's decision to deny the plaintiff's claim for benefits under a de novo standard.