February 2010 Archives

February 25, 2010

Employment-Second Circuit Rules That Statements Made In Applications For Disability Benefits Do Not Prevent Claim Under ADA

In De Rosa v. National Envelope Corporation, No. 08-2562 (2nd Circuit 2010), the plaintiff -who worked as a customer service representative-developed a medical condition in his right leg, and was subsequently terminated by his employer. The plaintiff sued the employer for wrongful termination, under the Americans with Disabilities Act (the "ADA"). The district court granted summary judgment for the employer, and the plaintiff appealed. At issue were certain statements that the plaintiff had made in applications for disability benefits, which could be seen as contradictory to an ADA claim.

In an application for Social Security disability benefits, the plaintiff had said "I became unable to work because of my disabling condition on October 13, 2004" and "I am still disabled." In a subsequent portion of this application, the plaintiff answered the question, "[h]ow do your illnesses, injuries or conditions limit your ability to work?" He replied "[c]an't write, type, sit, stand, walk & lift, reach, grab, bend." On a different form, issued by New York State, in a part dealing with social activities, the plaintiff indicated that he was "no longer able to speak on phone or work with computer [due] to pain."

The question faced by the Court was whether these statements, which indicated that the plaintiff was disabled, prevent the plaintiff from establishing one essential element of his ADA claim, namely, whether the plaintiff could perform the essential functions of the job with reasonable accommodation (here, such prevention from establishing this element would occur under the theory of "judicial estoppel"). In dealing with this question, the Court said that the mere fact that a plaintiff files for Social Security disability benefits-thereby representing that he is disabled-does not create a presumption that the plaintiff is not able to perform the essential functions of his job, and thus, is not able to prove an ADA claim. However, the statement made in the filing may require an explanation as to why the plaintiff can nevertheless perform his job. In this case, the Court concluded that the particular statements made were not necessarily inconsistent with the plaintiff still being able to do his job, for example, the Court felt that the statement the he was "no longer able to speak on phone or work with computer [due] to pain." related to his social interactions, not his capability to perform the essential functions of his job. The Court ruled that the statements on the applications did not bar the plaintiff's ADA claim, at least at the summary judgment stage (under the theory of "judicial estoppel" or otherwise). It overturned the district court's summary judgment and remanded the case for further proceedings.

February 24, 2010

ERISA-EBSA Announces Outreach And Compliance Assistance For 403(b) Plans

As a follow up to yesterday's blog, on February 22, 2010 (also my birthday), the Employee Benefits Security Administration (the "EBSA") issued a Press Release, announcing new outreach and compliance assistance efforts for 403(b) plans which are subject to ERISA.

According to the Press Release, the EBSA will be sending a letter to administrators of the approximately 16,000 403(b) plans subject to ERISA, to remind them that their 2009 Form 5500 annual reporting requirements have changed and to direct them to various EBSA resources for help in understanding and complying with the new requirements. The Press Relase reminds us that 403(b) plan administrators now must file basic financial and other compliance information annually with the government on a Form 5500 or Form 5500-SF. Large plans (generally those with 100 or more participants) must include a report of an independent qualified public accountant with their Form 5500. All Form 5500s beginning with the 2009 plan year must be filed electronically using the EBSA's new EFAST2 system.

The ESBA's outreach letter points out that the EBSA has also issued specific legal guidance and has several publications that are designed to explain the new annual reporting and electronic filing rules, such as Field Assistance Bulletin (FAB) 2010-01(see yesterday's blog) and a brochure entitled Getting Ready for Changes in Filing Your Plan's Annual Return/Report Form 5500. These materials are available on a newly created EBSA web site at www.dol.gov/ebsa/403b.html.

February 23, 2010

ERISA-EBSA Issues Guidance On Annual Reporting For 403(b) Plans

The Employee Benefits Security Administration has issued Field Assistance Bulletin ("FAB") 2010-01, which provides guidance on the annual reporting and ERISA Coverage requirements for 403(b) plans.

By way of background, in July of 2009, the EBSA issued FAB 2009-02, which addressed the application of certain Form 5500 and Form 5500-SF annual reporting and auditing requirements for 403(b) plans. Specifically, FAB 2009-02, provided transitional relief from those requirements for annuity contracts and custodial accounts entered into or established prior to 2009. The FAB stated that, for purposes of the 403(b) plan's annual reporting and related audit requirements, an annuity contract or custodial account does not need to be treated as part of the plan, or as plan assets, if it meets the following conditions: (1) the contract or account was issued to a current or former employee before 2009; (2) the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions, to the contract or account before 2009; (3) all of the rights and benefits under the contract or account are legally enforceable against the issuer or custodian by the individual owner of the contract or account without any involvement of the employer; and (4) the individual owner of the contract or account is fully vested (the "Transitional Relief").

The EBSA issued FAB 2010-01 to answer some of the questions it received on FAB 2009-02, and on the "safe harbor rule" at 29 CFR 2510.3-2(f), which excludes qualifying 403(b) plans from ERISA (the "safe harbor"). Here are some of the more interesting points made in the FAB:

--An annuity contract or custodial account may qualify for the Transitional Relief even if it is known to the plan administrator, and even if the employer provides information to the issuer or custodian about the employee who ownes the contract or account, e.g., his or her employment status;

--The Transitional Relief is not available if the employer forwards, through salary reduction, an employee's loan repayments for deposit in the annuity contract or custodial account, but the relief would be available if the employee made the repayments directly to the issuer or custodian;

--The Transitional Relief does not apply to any annuity contract or custodial account of a new issuer or custodian receive in an exchange after 2009 for an existing contract or account.

--A final contribution made in 2009 to an annuity contract or custodial account for the year 2008 would not cause the contact or account to be ineligible for the Transitional Rule.

--The Transitional Relief applies for purposes of ascertaining the number of a 403(b) plan's participants for reporting purposes, including the determination of whether or not the 403(b) plan is a large plan, and is therefore required to have its financial statements audited. An employee whose only assets in the 403(b) plan are contracts or accounts that meet the Transitional Rule, and who is not otherwise eligible to make salary reduction contributions under the 403(b) plan, need not be counted as a participant for purposes of this determination .

--It is the responsibility of the plan administrator to determine whether any annuity contract or custodial account qualifies for the Transitional Relief.

--The Transitional Relief does not apply to any annuity contract or custodial account exchanged , in accordance with Treasury regulations and IRS requirements, for another contract or account with a new issuer or custodian after 2009.

--The safe harbor under DOL regulation 29 CFR 2510.3-2(f) can be available, even if the 403(b) plan has-optional features- such as participant loans- so long as the 403(b) plan's provider (i.e., contract issuer or custodian), as opposed to the employer or a third party administrator, makes the discretionary determinations about those features.

--The safe harbor would not be available if the employer may change 403(b) providers and unilaterally move employee funds from one provider to contracts or accounts of another provider.

February 22, 2010

Employee Benefits-EBSA Posts An Updated Application For Expedited Review Of Denial Of COBRA Premium Reduction

The Employee Benefits Security Administration (the "EBSA") has posted on its website an Application for Expedited Review of Denial of COBRA Premium Reduction, updated for the changes made to COBRA by the Department of Defense Appropriations Act, 2010 ("DODA 2010").

By way of background, the American Recovery and Reinvestment Act of 2009 ("ARRA") provides for a reduction in the premiums that must be paid for COBRA health care coverage. Under ARRA, eligible individuals pay only 35 percent of their COBRA premiums, and the remaining 65 percent is reimbursed to the employer or insurer through a tax credit (the "Subsidy"). This Subsidy was available for 9 months, and to qualify for the Subsidy, an individual had to experience an involuntary termination of employment during the period of September 1, 2008 through December 31, 2009. DODA 2010 amended ARRA and COBRA to make the Subsidy available for 15 months, and to extend the period during which the involuntary termination of employment must occur until February 28, 2010.

Under ARRA, as amended by DODA 2010, individuals who are denied the Subsidy may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review. The request for review is made on the Application for Expedited Review of Denial of COBRA Premium Reduction, which the EBSA has now updated to reflect DODA 2010. The updated Application is here.

February 18, 2010

Employee Benefits-Eighth Circuit Denies Deduction For Company Cash Payments Used To Redeem ESOP Stock and Pay Out Participants.

In Nestlé Purina Petcare Co. v. Commissioner of Internal Revenue, No. 09-1381 (8th Cir. 2010), the Nestlé Purina Petcare Company, known as "Ralston" during the relevant years, had established an employee stock ownership plan (an "ESOP"). A trust held the ESOP's assets, which consisted primarily of Ralston preferred stock. When a participant left Ralston, the participant was required to direct the ESOP to convert the value of the preferred stock allocated to his or her ESOP account into cash, shares of Ralston common stock, or a combination of both. If a participant elected to receive cash, the trust could require that Ralston purchase Ralston preferred stock from it, paying the trust a cash dividend (a "redemptive dividend") in exchange for the stock. From the redemptive dividend, the Trust could distribute to the participant a "cash distribution redemptive dividend" , as all or part of the total cash to be paid to the participant. The question for the Court was whether Ralston could deduct the cash distributed redemption dividend. The Tax Court had ruled that it could not.

In answering this question, the Court revisited its earlier decision in General Mills, Inc. v. United States, 554 F.3d 727 (8th Cir. 2009), in which it had concluded that section 162(k)(1) of the Internal Revenue Code (the "Code")-which says that no deduction is allowed for any amount paid by a corporation in connection with the redemption of its stock - bars the deduction otherwise allowed by section 404(k)(1) of the Code for amounts paid by an employer to an ESOP's trust in order to redeem shares of the employer's stock. Ralston had argued that the exception in section 162(k)(2)(A)(iii) applies. Under that exception, section 162(k)(1) does not apply to-and will not bar a deduction for-dividends paid within the meaning of section 561 of the Code. However, the Court said that the exception in section 162(k)(2)(A)(iii) applies only when the Code has authorized the taxpayer to take a "deduction for dividends paid" within the meaning of section 561. Section 404(k) does not authorize such a deduction. Therefore, the exception in section 162(k)(2)(A)(iii) is not available here. The Court therefore concluded that Ralston may not deduct the cash distribution redemptive dividends, and affirmed the Tax Court's decision.

February 15, 2010

ERISA-Sixth Circuit Rules That Equitable Lien Does Not Attach To Social Security Benefits

This is an interesting case, because it helps protect the Social Security benefits of a plan participant who, through no fault of his or her own, receives an overpayment of benefits from an employer-sponsored employee benefits plan.

In Hall v. Liberty Life Assurance Company, No.s 08-4738/4739 (6th Cir. 2010), the plaintiff, . Sonya Hall, had received long-term disability benefits (the "LTD Benefits) for nearly five years through the National City Corporation Welfare Benefits Plan (the "Plan"). Liberty Life Assurance Company of Boston ("Liberty Life"), the third-party claims administrator, terminated the LTD Benefits when it determined that Hall was no longer totally disabled. The Plan then sought reimbursement for overpayment of the LTD Benefits, caused by retroactive Social Security benefits being awarded to Hall. Hall responded by filing suit against the Plan.

Concluding that the termination of her LTD Benefits was not arbitrary and capricious, the district court denied Hall's claim for reinstatement of the benefits. The district court further found that the Plan was entitled to partial reimbursement, and imposed an equitable lien on Hall's Social Security benefits to allow the Plan to recover the overpayments. Hall then appealed those decisions.

In dealing with the case, the Sixth Circuit affirmed both the district court's denial of the reinstatement of the LTD Benefits, and the district court's ruling that the Plan was entitled to reimbursement for the overpayments. It then turned its attention to the imposition of the equitable lien. The Court noted that a plan fiduciary is permitted to bring a claim for equitable relief to enforce the terms of the plan, under Section 502(a)(3) of ERISA. For reimbursement of plan overpayments to be considered equitable relief, the reimbursement must involve the imposition of a constructive trust or equitable lien on particular funds or property in the insured's possession. However, under 42 U.S.C. § 407(a) (generally prohibiting alienation or attachment of future Social Security payments), courts are not permitted to place a lien directly on Social Security benefits themselves. The equitable lien in this case must therefore be limited to a specifically identifiable fund (the overpayments themselves) within Hall's general assets. The Plan cannot have a claim to Hall's Social Security benefits prior to the point at which they are in her possession. Thus, the Court concluded that the lien in question, imposed directly on Hall's Social Security benefits, is not permitted.

February 10, 2010

ERISA-Third Circuit Rules That An Amendment To A Welfare Plan Violates ERISA's Anti-Cutback Rule

In Battoni v. IBEW Local Union No 102 Employee Pension Plan, Nos. 08-3743, 09-2030 and 08-3924 (3rd Cir. 2010), the Court considered the scope of ERISA's anti-cutback rule (found at 29 U.S.C. section 1054(g)(1), with a parallel rule in Section 411(d)(6) of the Internal Revenue Code) (the "Anti-Cutback Rule"). At issue was an amendment to a welfare plan (the "Disputed Amendment"), which conditioned receipt of health care benefits from the welfare plan on the non-receipt of a lump sum payment from a pension plan. The plaintiffs challenged the Disputed Amendment as a cutback of their accrued benefits under the pension plan, in violation of the Anti-Cutback Rule.

According to the Court, the Anti-Cutback rule states: "The accrued benefit of a participant under a [pension] plan may not be decreased by an amendment of the plan". To violate the Anti-Cutback rule, a pension plan must be amended, and the amendment must decrease an accrued benefit.

The lump sum payment lost due to the Disputed Amendment is an accrued benefit. The Disputed Amendment amended a welfare benefit plan, which is not subject to the Anti-Cutback Rule. However, the Disputed Amendment constructively amended the pension plan. This obtains because the Disputed Amendment added a condition to the receipt of an accrued benefit under the pension plan. Under this condition, if a participant elects to receive the lump sum payment under the pension plan, he or she loses health care benefits under the welfare plan. Further, said the Court, the Disputed Amendment decreased an accrued benefit under the pension plan, since it imposed a condition on the receipt of the lump sum payment, rendering that form of payment less valuable. Based on the foregoing, the Court concluded that the Disputed Amendment violated the Anti-Cutback Rule.

Comment: This case cautions an employer to be careful with an amendment to one employee benefit plan which could have an effect-proscribed by ERISA or the Internal Revenue Code-on another employee benefit plan.

February 9, 2010

ERISA-EBSA Announces That It Has Published A Model Notice To Use Regarding Eligibility For Medical Assistance Under Medicaid Or The Children's Health Insurance Program

The Employee Benefits Security Administration (the "EBSA") has announced the publication of a model notice which can be used to meet the notice requirements of the Children's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA").

An employer could be maintaining a group health plan in a State which provides medical assistance, either under a State Medicaid plan under the Social Security Act (the "SSA"), or under a child health insurance program (a "CHIP") under the SSA. This assistance takes the form of money to pay for coverage of employees and their dependents under a group health plan. Under ERISA, as amended by CHIPRA, an employer, which maintains a group health plan in such a State-like New York, New Jersey and Pennsylvania- is required to provide to its employees, each year, a notice which describes the opportunity available in the employee's State of residence to receive this medical assistance. This notice is referred to as the "Employer CHIP Notice". ERISA requires the EBSA to provide employers with a model Employer CHIP Notice by February 4, 2010. In turn, the employer must provide the initial annual Employer Chip Notices to employees by the later of (1) the first day of the first plan year of its group health plan that begins after the date on which the model notice is published (February 4, 2010) or (2) May 1, 2010.

Thus, for a calendar year group health plan, the first Employer CHIP Notices must be provided by January 1, 2011. For convenience, an employer may generally combine the Employer CHIP Notice with other plan materials, such as enrollment packets, open season materials, or the plan SPD, provided that (1)these materials are furnished by the date on which the Employer Chip Notice is due, (2) these materials are furnished to all employees entitled to receive the Employer CHIP Notice, and (3) the Employer CHIP Notice appears separately and in a manner which ensures that an employee could reasonably be expected to appreciate its significance.

The model Employer CHIP Notice was designed as a "template" that an employer may send to the residents of any State. States may wish to include additional information on their Web sites and in their own compliance assistance materials. The approach of the model Employer CHIP Notice is to provide a very brief description of the available medical assistance and rely on State contact information for State-specific program descriptions. An employer which nevertheless wants to provide more comprehensive State-specific information to its employees may modify the model Employer CHIP Notice to add this information, as long as the minimum relevant State contact information is retained.

The model Employer CHIP Notice is available here.

February 4, 2010

Employment-Tax Court Rules That Proceeds From A Settlement Agreement Are Not Taxable Under Section 104(a)

In Domeny v. Commissioner of Internal Revenue, T.C. Memo. 2010-9, the taxpayer had entered into a severance and claims release agreement (the "settlement agreement") with her former employer, to settle her claim that she had been illegally terminated from employment because of her medical condition (multiple sclerosis). The taxpayer received, among other amounts, $16,033 from this settlement. The Tax Court was faced with the question of whether this $16,933 amount is excludable from her gross income under section 104(a)of the Internal Revenue Code.

Section 104(a) provides, in pertinent part, that gross income does not include the amount of any damages received on account of personal physical injuries or physical sickness. For section 104(a) to apply in the case of a settlement agreement: (1)the taxpayer's claim being settled must be based on tort or tort rights-a matter not in dispute here-and (2)the amount of damages must be paid to compensate the taxpayer for physical injuries or physical sickness. As to prong (2), the Tax Court said that when amounts are paid under a settlement agreement, the Court first examines the agreement to see if it expressly states that the amounts were paid as compensation for personal physical injuries or physical sickness. If-as in this case- the agreement is ambiguous or lacks express language on this point, the Court then examines the intent of the payor.

Here, the $16,933 amount was paid by the former employer to the taxpayer, and the payment was not reduced by any tax withholding. The employer also issued a Form 1099-MISC to the taxpayer, indicating that the $16,933 amount was "nonemployee compensation". The Tax Court felt that the manner of making and reporting this payment, coupled with certain other factors (including how other payments made to the taxpayer under the settlement agreement were reported (or not reported)), shows that the former employer was aware that the $16,933 amount was paid due to the taxpayer's physical illness. The Tax Court concluded that the $16,933 amount was paid to compensate the taxpayer for her physical illness, and was therefore not taxable under section 104(a).

Comment: Even though the taxpayer prevailed here, to help ensure that a payment under a settlement agreement can qualify for the tax exclusion under section 104(a), the settlement agreement should expressly state that the payment is being made as compensation for physical injury or physical illness, as the case may be.

February 3, 2010

Employee Benefits-DOL Adds Fact Sheet On The Mental Health Parity and Addiction Equity Act of 2008 ("MHPAEA") To Its Website; Regulations Implementing MHPAEA Are Being Published

On January 29, 2010, the Department of Labor (the "DOL") added to its website a new Fact Sheet, which provides information on the Mental Health Parity and Addiction Equity Act of 2008 (the "MHPAEA") . According to the Fact Sheet, the MHPAEA is generally effective for plan years beginning on or after October 3, 2009 (January 1, 2010 for calendar year plans). An interim final rule, which implements the provisions of the MHPAEA, will be published in the Federal Register on February 2, 2010. The regulation is effective on April 5, 2010, and applicable to plan years beginning on or after July 1, 2010. (A News Release of January 29, 2010 also announces that this regulation will be published.)

The Fact Sheet further indicates that, with respect to employers and their health plans:

• The MHPAEA requires group health plans to ensure that financial requirements (such as co-pays, deductibles) and treatment limitations (such as visit limits) applicable to mental health or substance use disorder ("MH/SUD") benefits are no more restrictive than the predominant requirements or limitations applied to substantially all medical/surgical benefits.
• The MHPAEA supplements prior provisions under the Mental Health Parity Act of 1996 (the "MHPA"), which required parity with respect to aggregate lifetime and annual dollar limits for mental health benefits (but not substance abuse benefits) . Regulations were issued under MHPA in 1997. The MHPAEA interim final rule amends and modifies certain provisions in the MHPA regulations.
• Although the MHPAEA provides significant new protections to participants in group health plans, it is important to note that MHPAEA does not mandate that a plan provide MH/SUD benefits. Rather, if a plan provides medical/surgical and MH/SUD benefits, it must comply with the MHPAEA's parity provisions.
• The MHPAEA applies to plans sponsored by private and public sector employers with more than 50 employees, including self-insured as well as fully insured arrangements.

The Fact Sheet notes that, under the new regulation:

• If a plan offers medical/surgical and MH/SUD benefits and imposes "financial requirements" (such as deductibles, copayments, coinsurance and out of pocket limitations), the financial requirements applicable to MH/SUD benefits can be no more restrictive than the "predominant" financial requirements applied to "substantially all" medical/surgical benefits.
• The "predominant/substantially all" test applies to six classifications of benefits on a classification-by-classification basis. The regulation also includes other rules and definitions that are necessary in order for plans to apply this general parity test.
• Similar protection is provided for treatment limitations. "Treatment limitations" mean limits on the frequency of treatment, number of visits, days of coverage, or other similar limits on the scope or duration of treatment.
• The regulation clarifies that there may be both quantitative and non-quantitative treatment limitations, and provides rules for each. Since they are similar to financial requirements, quantitative treatment limitations are subject to the same general test as the financial requirements discussed above.
• Because non-quantitative treatment limitations (such as medical management standards, formulary design, and determination of usual/customary/reasonable amounts) apply differently, the regulation includes a separate parity requirement for them.

February 2, 2010

Emloyment-3rd Circuit Rules That Helicopter Pilots Are Entitled To Overtime Pay

In Pignataro v. Port Authority of New York and New Jersey, Nos. 08-3605 / 08-3825 (3rd Circuit 2010), the Court faced the issue of whether helicopter pilots of the New York and New Jersey Port Authority are exempt, as "professional employees", from the overtime pay requirements of the Fair Labor Standards Act (the "FLSA").

In analyzing this issue, the Court noted that, because the alleged FLSA violation-the classification of the pilots as exempt employees- occurred prior to the Department of Labor's revision of the FLSA regulations in 2004, the Court would apply the pre-2004 version of the regulations. However, the Court indicated that it would likely reach the same results under the current regulations.

As to whether the helicopter pilots are exempt "professional employees", and thus not entitled to overtime pay, the Court said that this exemption applies to an employee who is determined to be a member of the "learned professions", as defined by the FLSA regulations (at 29 C.F.R. §§ 541.3 and 541.301). Under those regulations, this determination is based on, among other things, on the employee's duties. The employee's primary duties must consist of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study. This is distinguished from knowledge obtained from a general academic education, an apprenticeship, or training in the performance of routine mental, manual, or physical processes.

The Court found that the qualifications needed to be a helicopter pilot, at least at the New York and New Jersey Port Authority, did not involve the type of knowledge or instruction and study required by the regulations. The instruction for the helicopter pilots took place mostly in the air, and involved passing certain practical and written tests, and otherwise consisted of experience and supervised training. This instruction did not include any specialized intellectual study in the classroom or result in the receipt of an academic degree. The Court concluded that the helicopter pilots did not qualify as "learned professionals" (or "professional employees'), and were therefore entitled to overtime pay under the FLSA.

Comment: Apparently, sophisticated technical skills acquired through rigorous experience-such as the skills needed by a helicopter pilot -is not a substitute for classroom study when it comes to being treated as a member of the "learned professions" for purposes of the FLSA.