March 2010 Archives

March 30, 2010

Employee Benefits-IRS Announces Issuance of Opinion And Advisory Letters, And Opening Of The EGTRRA Determination Letter Program, For Pre-Approved Defined Benefit Plans

In Announcement 2010-20, the Internal Revenue Service, (the "IRS") said that it will soon issue opinion and advisory letters for pre-approved (i.e., master and prototype and volume submitter) defined benefit plans, that were filed with the IRS, and that were restated for the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") and other changes in plan qualification requirements listed in Notice 2007-3 ("the 2006 Cumulative List"). The IRS indicated that it expects to issue these letters on March 31, 2010, or as soon as possible thereafter. A plan that receives a favorable letter with respect to its restatement for EGTRRA and the 2006 Cumulative List is referred to as an "EGTRRA-approved plan." Employers using these pre-approved plan documents to restate a plan for EGTRRA and the 2006 Cumulative List will be required to adopt the EGTRRA-approved plan document by April 30, 2012. The IRS will accept applications for individual determination letters submitted by adopters of these pre-approved plans starting on May 1, 2010.

March 26, 2010

Employee Benefits-IRS Reminds Us That The Failure To Distribute Excess Deferrals May Lead To Plan Disqualification Or Double Taxation

In the Spring 2010 employee plans news, the Internal Revenue Service (the "IRS") noted that the failure to distribute a participant's excess deferrals from a plan may lead to the disqualification of that plan or to the participant being
taxed twice. Here is the IRS explanation:

An excess deferral is a plan participant's elective deferrals that exceed the annual elective deferral limit. For 2009 and 2010, the annual elective deferral limits are: $16,500 ($22,000 if a participant is age 50 or older) for 401(k) (non-SIMPLE) plans and 403(b) plans; and $11,500 ($14,000 if a participant is age 50 or older) for SIMPLE plans. When an employee's elective deferrals made to one employer's plan exceed the annual limit, the plan must distribute the excess plus earnings by April 15 following the year of excess to meet plan qualification requirements.

If an employee participates in two plans of unrelated employers and has excess deferrals, but does not exceed the limit in either plan, the employee can notify one of the plans of the excess deferrals and ask to have them distributed along with earnings by April 15. Although most plans accommodate such participant requests, they are not legally required to do so when there are no excess deferrals considering just that plan.

Excess deferrals are includible in the employee's gross income in the year deferred, while any gains or losses on the excess deferrals are reported in the year distributed. However, if the plan does not distribute the excess deferrals and earnings to the employee by April 15, the excess deferrals must be included in gross income both in the year of deferral and in the year they are actually distributed. In other words, the excess deferrals are taxed twice! If a plan fails to distribute excess deferrals when required, it can use the correction programs under the IRS's Employee Plans Compliance Resolution System to avoid plan disqualification.

March 24, 2010

Employee Benefits-IRS Provides Guidance On Rollovers To Roth IRAs

In the Spring, 2010 edition of employee plans news, the Internal Revenue Service (the "IRS") provides guidance on rollovers to Roth IRAs. The guidance covers (1) what can and cannot be rolled over to a Roth IRA, (2) specific types of distributions that may not be rolled over (including required minimum distributions), (3) rollovers from inherited IRAs and (4) treatment of the taxable and nontaxable portion of the rollover. The interesting part of this guidance is the treatment of taxable/nontaxable amounts being rolled over. Here is what the IRS said on this treatment:

After-tax money that you roll over (convert) from an IRA (other than a Roth IRA) or a qualified retirement plan to a Roth IRA is not included in your gross income. However, when you roll over a distribution from a non-Roth IRA or a qualified retirement plan that contains after-tax and pre-tax amounts to a Roth IRA, you must determine the after-tax and pre-tax amounts in the distribution. You must generally report the pre-tax amount as gross income for the year in which it is distributed from the IRA or plan, even if you roll it over to a Roth IRA. The 10% early distribution tax under Code section 72(t) does not apply to any amount rolled over to a Roth IRA (although it may apply if amounts rolled into the Roth IRA are distributed within 5 years).

As to a rollover from an IRA, you must calculate the after-tax and pre-tax amounts of any IRA distribution that you roll over to a Roth IRA, even if the roll over is a direct (trustee-to-trustee) rollover. If any of your IRAs (not including Roth IRAs) contain non-deductible (after-tax) contributions, you have to combine all your non-Roth IRAs to pro-rate a distribution between pre-tax amounts (deductible contributions and earnings) and after-tax amounts. The formulas to determine these amounts are:

--after-tax amount = after-tax amounts in all IRAs at year-end, divided by the value of all IRAs at year-end, multiplied by amount distributed

--pre-tax amount = amount distributed - after-tax amount

In applying this formula: (1) this calculation is done at year-end (on December 31 of the year of the distribution) and not on the distribution date, (2) "IRAs" include any traditional, SEP and SIMPLE IRAs, but not Roth IRAs and (3) you do not include any IRAs that your spouse may have.

As to a rollover from a qualified retirement plan, if you roll over a distribution from a designated Roth account under the plan to a Roth IRA, you do not include any amount rolled over in your gross income. The law treats the rollover as being from one Roth IRA to another, except the 5-year period for determining qualified distributions from a designated Roth account does not carry over to the Roth IRA.

A special rule applies if you made after-tax contributions to a qualified retirement plan before 1987, the plan separately accounted for them and the plan permitted withdrawals from this account. You can request that your qualified retirement plan roll over these pre-1987 after-tax contributions, without earnings, to a Roth IRA. If the amount rolled over consists of after-tax contributions only, then you do not have to include any portion of the rollover in your gross income.

If you roll over a qualified retirement plan distribution that consists of both after-tax and pre-tax amounts, then use the following formula to determine the after-tax and pre-tax amounts:

after-tax amount = after-tax contributions in your plan account(s), divided by the value of your plan account(s), multiplied by amount distributed

pre-tax amount = amount distributed - after-tax amount

In applying this formula: (1) do not include any designated Roth contributions, (2) "value" is the total of your plan account(s) at the time of the distribution but does not include the value of any of the plan's designated Roth account(s) and (3) "amount distributed" is the amount distributed to you and rolled over (directly or otherwise) to a Roth IRA.

If you receive an IRA or qualified plan distribution that consists of after-tax and pre-tax amounts, you would first use the applicable formula above to determine the pre-tax amount of the distribution. If you roll over only part of that distribution to a Roth IRA, the first dollars rolled over come from the pre-tax amount of the distribution. After all the pre-tax portion of the distribution has been rolled over, any remaining amount is after-tax, which may also be rolled over to a Roth IRA.

March 23, 2010

Employee Benefits-EBSA Updates Materials To Reflect Extension Of COBRA Premium Subsidy Under TEA

As previously said here, the recently enacted Temporary Extension Act of 2010 ("TEA") extended the eligibility for the COBRA premium reduction subsidy for one month. Thus, an individual whose COBRA qualifying event is an involuntary termination of employment occurring on or prior to March 31, 2010 (as opposed to February 28, 2010) may qualify for the subsidy. TEA also expanded eligibility for the subsidy to individuals whose COBRA qualifying event is a reduction of hours, occurring at any time from September 1, 2008 through March 31, 2010, which is followed by an involuntary termination of employment occurring on or after March 2, 2010 through March 31, 2010. If a private employer's health plan determines that an individual is not entitled to a premium reduction subsidy, the individual can request an expedited review of the denial from the the Department of Labor (the "DOL").

The DOL's Employee Benefits Security Administration (the "EBSA") has now posted on the COBRA webpage the following updates to reflect TEA:

--COBRA Premium Reduction FAQs; and

--Application for Expedited Review of Denial of COBRA Premium Reduction

March 23, 2010

Employment-Third Circuit Holds That An Employee Seeking FMLA Leave May Prove Her More Than Three Days Of Incapacity Through A Combination Of Expert Medical And Lay Testimony

In Schaar v. Lehigh Valley Health Services, Inc., No. 09-1635 (3rd Circuit 2010), the district court held that the employee/plaintiff did not qualify for leave under the Family and Medical Leave Act (the "FMLA"), because she did not present evidence of a serious health condition. The question on appeal was whether a combination of expert and lay testimony can establish that an employee was incapacitated for more than three days, as required by the FMLA regulations in order for the employee to be treated as having a serious health condition. The plaintiff had been fired, and had brought suit in federal court against her employer, claiming interference and discrimination in violation of the FMLA. The district court granted summary judgment in favor of the employer, and plaintiff appealed.

In analyzing the case, the Court said that to prevail on her appeal, the employee had to be entitled to take FMLA leave. To be so entitled, among other things, the employee had to be suffering from a serious health condition. As relevant to this case, the FMLA defines "serious health condition" as an illness, injury, impairment, or physical or mental condition that involves continuing treatment by a health care provider. In turn, the FMLA regulations at (29 C.F.R. section 825.114(a)) defines "continuing treatment by a health care provider" as a period of incapacity of more than three consecutive calendar days that also involves treatment by a health care provider on at least one occasion which results in a regimen of continuing treatment under the supervision of the health care provider. That regulation defines "incapacity" as the inability to work, attend school or perform other regular daily activities due to the serious health condition, treatment therefore, or recovery therefrom.

The Court then said that the issue in dispute in this case is whether the employee has presented evidence that she was incapacitated for more than three days. Here, the employee's only medical evidence of the incapacity was a doctor's note, which established incapacity for just two days. The employee has to rely on her own testimony to establish incapacity for the remaining days. The Court noted that the courts (including district courts in the Third Circuit) have adopted three approaches for determining whether the more than three days of incapacity requirement is met: (1) the evidence of incapacity must come exclusively from a medical professional; (2) lay testimony, on its own, is sufficient; or (3) lay testimony can supplement medical professional testimony or other medical evidence. Based on its reading of the statute and the regulations, the Court took another approach, holding that an employee may satisfy her burden of proving three days of incapacity through a combination of expert medical and lay testimony.

In this case, the employee's own testimony raised a material question of fact as to whether she was incapacitated for the additional days, so that she had a serious health condition. The Court overturned the district court's grant of summary judgment for the employer, and remanded the case back to the district court to answer this question.

March 22, 2010

ERISA-Fifth Circuit Upholds Summary Judgment For Plaintiff's Claim For Disability Benefits, Based On Insurer's Failure To Consider Social Security Administration's Determination That Plaintiff Is Disabled

In Schexnayder v. Hartford Life and Accident Insurance Company, No. 08-30538 (5th Cir. 2010), the plaintiff, Kelvin Schexnayder, sued Hartford Life and Accident Insurance Company ("Hartford") under ERISA for long terms disability benefits. The district court granted summary judgment to the plaintiff, holding that Hartford abused its discretion in denying the benefits.

The plaintiff had been a participant in his employer's long term disability plan, which was funded by an insurance policy for which Hartford became responsible. Hartford had sole discretionary authority to determine eligibility for benefits under the plan, and to interpret its terms and provisions. After the plaintiff became disabled, he received long term disability benefits under the plan for two years. However, after this two year period, under the terms of the plan, the plaintiff would be entitled to disability benefits only if he was unable to engage in any occupation for which he was or became qualified. The Social Security Administration (the "SSA") had determined that the plaintiff was totally disabled, meaning that he could not perform any work, and the SSA authorized him to receive disability benefits from Social Security. Nevertheless, Hartford notified the plaintiff that the information it had received from plaintiff's doctors did not support a finding that he was unable to work in any occupation, so that the disability benefits from the plan would end after being paid for two years. After unsuccessfully appealing Hartford's determination under its internal procedures, the plaintiff filed this case in federal court.

The Fifth Circuit reviewed Hartford's decision to end the plaintiff's disability benefits, using the abuse of discretion standard. In doing so, the Court noted that it would apply the Supreme Court's holding in Metro. Life Ins. Co. v. Glenn by giving increased weight to the conflict of interest present in the case due to Hartford's being both the payer and determiner of benefits. In so applying Glenn, the Court felt that Hartford's decision to stop the disability benefits suggests procedural unreasonableness. Further, the Court noted that Hartford had failed to even acknowledge the determination of disability made by the SSA, in its benefit denial letters or anywhere else. This led the Court to believe that Hartford's decision to end the benefits was procedurally unreasonable, and suggests that Harford failed to consider all relevant evidence. The Court said that, although substantial evidence supported Hartford's decision to end the benefits, the method by which it made the decision was unreasonable, and the conflict of interest present here acts as a tiebreaker for the Court to conclude that Hartford abused its discretion. Accordingly, the Court upheld the District Court's summary judgment for the plaintiff.

March 19, 2010

Employment/Tax-Congress Provides Two New Tax Benefits To Aid Employers Who Hire And Retain Unemployed Workers

In a News Release (IR-2010-33, March 18), the Internal Revenue Service ("IRS") announced that two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law on Thursday, March 18.

According to the New Release, employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This incentive will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee's shares of Medicare taxes would also still apply to the wages of these workers. In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

Further, the News Release says that, to be eligible for these tax breaks, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax incentive for eligible newly-hired employees. Household employers cannot claim this new tax benefit. Employers claim the payroll tax incentive on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive for retaining workers on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on IRS.gov during the next few weeks.


March 19, 2010

Employee Benefits-IRS Issues 2010 List of Tax Scams, Including Those Involving Retirement Plans

The Internal Revenue Service ("IRS") has just issued its 2010 "dirty dozen" list of tax scams. Here is what the IRS had to say on the tax scams involving retirement plans:

The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.

March 18, 2010

Employee Benefits-DOL Issues Model COBRA Notices Reflecting Extension Of COBRA Subsidy

The recently enacted Temporary Extension Act of 2010 ("TEA") extended the eligibility for the COBRA premium reduction subsidy for one month. Thus, an individual whose COBRA qualifying event is an involuntary termination of employment occurring on or prior to March 31, 2010 (as opposed to February 28, 2010) may qualify for the subsidy. TEA also expanded eligibility for the subsidy to individuals whose COBRA qualifying event is a reduction of hours, occurring at any time from September 1, 2008 through March 31, 2010, which is followed by an involuntary termination of employment occurring on or after March 2, 2010 through March 31, 2010. This expansion also includes a second election opportunity for these individuals who had a reduction of hours qualifying event followed by an involuntary termination, if they did not elect COBRA continuation coverage when it was first offered, or elected but subsequently discontinued COBRA coverage.

The COBRA rules, as amended by TEA, require that group health plans notify certain current and former participants and beneficiaries about the premium reduction subsidy. The Department of Labor (the "DOL") has updated its existing models and created several additional models to help plans meet these requirements. Each model notice is designed for a particular group of individuals and contains information to help satisfy COBRA's notice provisions, including those added by TEA. The model notices and accompanying instructions are here.

March 13, 2010

Employee Benefits-EBSA Provides Guidance On The COBRA Subsidy, As Recently Extended

The Employee Benefits Security Administration (the "EBSA") has posted on its COBRA web page an updated COBRA Premium Reduction Fact Sheet, which reflects the extension of the COBRA subsidy and related rules under the Temporary Extension Act of 2010 (the "Act"). Here are the highlights:

--The COBRA subsidy allows eligible individuals to pay only 35 percent of their COBRA premiums; the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The subsidy is available for periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

--To qualify for the COBRA subsidy, an individual must experience a COBRA qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must generally occur during the period that began September 1, 2008 and ends on March 31, 2010. The Act provides that an involuntary termination of employment is a qualifying event for these purposes if it:
• occurs on or after March 2, 2010 and no later than March 31, 2010; and
• follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through March 31, 2010.

The Act provides a second election opportunity for an individual who had a reduction of hours qualifying event followed by an involuntary termination, if the individual did not elect COBRA continuation coverage when it was first offered OR elected but subsequently discontinued COBRA.

--A reduction of hours is treated as being a qualifying event for these purposes when the employee and his/her family lose coverage because the employee, though still employed, is no longer working enough hours to satisfy the group health plan's eligibility requirements.

--The maximum period of COBRA continuation coverage is generally 18 months, and is measured from the date of the original qualifying event, such as a reduction of hours. However, the 15 month period for which the COBRA subsidy is available begins on the first day of the first period of COBRA coverage for which an individual is eligible for the subsidy, meaning that the individual has to experience an involuntary termination to receive the subsidy.

--Plans notify certain current and former participants and beneficiaries about the COBRA subsidy. Due to the Act, the EBSA is updating its existing model notices and creating several additional model notices to help plans comply with these requirements. As soon as the model notices are complete, they will be available on EBSA's Web site at www.dol.gov/cobra.

--An individual who is denied eligibility for the COBRA subsidy, whether by his or her plan or employer, 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 Act has a new penalty provision, under which the EBSA may assess a penalty against a plan sponsor of up to $110 per day for each failure to comply with the Department's determination of eligibility for the COBRA subsidy within 10 days after the date of the plan sponsor's receipt of the determination.


March 10, 2010

Employee Benefits-IRS Offers Some Guidance On Catch-Up Contributions

In the Winter, 2010 edition of Retirement News For Employers, the Internal Revenue Service (the "IRS") provided some helpful guidance on catch-up contributions made under employer-sponsored retirement plans. Here is some of what the IRS had to say:

--An employee who is eligible to make salary deferrals under a 401(k) plan, SIMPLE IRA, 403(b), SARSEP or governmental 457(b) plan may make catch-up contributions under that plan for any calendar year, up to the catch-up contribution limit for that year, if (1) the plan allows catch-up contributions, (2) the employee is age 50 or older at any time during the calendar year and (3) the employee makes a valid salary deferral election that includes the amount of the catch-up contributions before the end of the calendar year.

--Notwithstanding condition (1) above, if an employee can make salary deferrals under plans of unrelated employers, he or she can contribute up to the annual salary deferral limit plus the amount of the catch-up contribution limit even if none of the plans allow catch-up contributions. However, the employee can not exceed the annual salary deferral limit in any one plan. For example, an employee (aged 50) participates in both a 401(k) plan and a 403(b) plan of unrelated employers. Both plans allow employees to contribute the annual maximum salary deferral limit ($16,500 for both 2009 and 2010) but neither plan allows catch-up contributions ($5,500 limit for 2009 and 2010). The employee could elect to contribute a combined total of $22,000 ($16,500 plus $5,500 catch-up contributions) via salary deferrals to both plans. However, because neither plan allows catch-up contributions, the employee can not contribute more than $16,500 to either plan.

--An employee can make a catch-up contribution for a calendar year only from income that, but for the deferral election, he or she would have received during that year. Therefore, an employee cannot make catch-up contributions with 2010 wages for 2009.

--A plan may not treat salary deferrals as catch-up contributions until they exceed the least of the following: (1) any statutory limit, such as the annual limit on salary deferrals ($16,500 for non-SIMPLE plans, $11,500 for SIMPLE 401(k) and SIMPLE IRA plans), (2) the plan's actual deferral percentage test limit, if applicable, or (3) the plan-imposed limit, if any.

--The maximum amount of catch-up contributions an employee can make for 2010 are: (1) $5,500 for 401(k) (not SIMPLE), 403(b), governmental 457(b) and SARSEP plans and (2) $2,500 for SIMPLE 401(k) and SIMPLE IRA plans.

March 9, 2010

ERISA-DOL Issues Advisory Opinion On Whether The Assets Held In The TIAA-CREF "Traditional Annuity" Are Plan Assets

In Advisory Opinion 2010-01A, the Department of Labor (the "DOL") answered a question, posed by the Teachers Insurance and Annuity Association of America and College Retirement Equities Fund the "TIAA-CREF"). This question is whether the TIAA-CREF "Traditional Annuity" is a fully allocated contract for annual reporting purposes within the meaning of the ERISA regulations at 29 C.F.R. § 2520.104-44(b)(2) and the Form 5500 Instructions. The answer to this question determines whether the assets held in the Traditional Annuity must be reported as plan assets on the Form 5500 and applicable schedules and attachments.

TIA-CREFF offers the Traditional Annuity as an investment option for participants in funding vehicles it makes available for 403(b) plans and 401(k) plans. Prior to payout, for each contribution or "premium" received, the Traditional Annuity provides a guarantee of principal, a guaranteed minimum interest rate (generally 3 percent but in some recent contracts between 1 percent and 3 percent), and the potential for additional interest which may be declared by TIAA-CREF in its discretion.

Section 29 C.F.R. § 2520.104-44(b)(2) provides a limited exemption for a plan from certain reporting requirements, including the need to have an accountant examine the plan's financial statements, when the plan's benefits are, generally, paid exclusively through allocated insurance contracts issued by an insurance company which guarantees the benefit payments. The 2008 Form 5500 Instructions further provide that this plan need not report the value of the allocated contracts on Part I of the Schedule H or I (i.e., as being plan assets). Those Instructions reiterate the DOL's longstanding view that "allocated" contracts include only those contracts under which an insurance company immediately assumes "fixed dollar obligations", and that the reporting exemption is premised on the fact that under these contracts the plan has effectively transferred the risk for the payment of benefits accrued to that date to the insurer.

After examining the Traditional Annuity, the ERISA regulations and Form 5500 Instructions, the Advisory Opinion concluded that the Traditional Annuity is not a fully allocated contract within the meaning of 29 C.F.R. § 2520.104-44(b)(2). This obtains because upon payment of each contribution or "premium" to the Traditional Annuity, TIAA-CREF does not unconditionally guarantee to provide a retirement benefit of a certain amount, or a "specific dollar benefit". Rather, the Traditional Annuity guarantees only a minimum rate of return, based on the contributions or premiums received and a minimum rate of interest. The value attributable to each contribution or premium payment can increase when additional interest is declared. Since the Traditional Annuity is not a fully allocated contract, any accumulations with respect to the contributions or premiums it receives must be reported as plan assets on Form 5500.


March 6, 2010

Employee Benefits-New Wrinkle To COBRA Subsidy

As I reported in my blog of Thursday, March 4, the Temporary Extensions Act of 2010 (the "Act") extended the eligibility period for the COBRA subsidy for one month. Therefore, an employee who is involuntarily terminated on or prior to March 31, 2010 (as opposed to February 28, 2010) may be eligible for the 15-month, 65% COBRA subsidy.

However, there is a new wrinkle. Prior to the Act, the employee's COBRA qualifying event had to be an involuntary termination of employment, in order for the employee to be eligible for the COBRA subsidy. Under the Act, an employee may be eligible for the COBRA subsidy if:
--his or her qualifying event is a reduction in work hours, which occurs on or prior to March 31, 2010 (but on or after September 1, 2008); and
--he or she is involuntarily terminated on or after March 2, 2010, and after the reduction in work hours.

To comply with the Act, an individual described above, who did not previously elect to receive COBRA coverage (or who let his or her coverage lapse), must be notified (during the 60-day period starting on the date of the termination) and given the opportunity to make the election. Similarly, an individual described above, who did elect to receive COBRA coverage upon the reduction in work hours, must be notified (during that 60-day period) of his or her eligibility for the COBRA subsidy. I understand that a bill has been introduced in Congress to further extend the COBRA subsidy, so stay tuned.

March 5, 2010

Employment-Ninth Circuit Rules That Plaintiff May Receive Front Pay, And Possibly Liquidated Damages, For Termination In Violation Of The FMLA

What remedies and damages are available to an employee whose employment is terminated in violation of the Family and Medical Leave Act (the "FMLA")? This question was addressed by the Court in Traxler v. Multnomah County, No. 08-35641 (9th Cir. 2010).

Specifically, the case presented two issues concerning damages under the FMLA. The first issue is whether the court, rather than the jury, should determine the amount of the front pay awarded for a termination of employment in violation of the FMLA. Front pay is the amount awarded for lost compensation during the period between the Court's judgment and reinstatement at work (or in lieu of reinstatement). The Court noted that the FMLA does not explicitly grant plaintiffs the right to front pay, so that any award of front pay would be provided only under the section of the FMLA which grants prospective equitable relief (29 U.S.C. §2617(a)(1)(B), providing "for such equitable relief as may be appropriate, including employment, reinstatement and promotion"). The Court concluded that front pay is an equitable remedy to be determined by the court, both as to the availability of the remedy and the amount of the award.

The second issue is whether liquidated damages are available. The Court noted that 29 U.S.C. section 2617(a)(1)(A)(iii) subjects an employer, who violates the FMLA, to double damages, unless the employer can prove that the action in question was taken in good faith, and that the employer had reasonable grounds for believing that this action did not violate the FMLA. Here, the district court had denied the plaintiff's request for liquidated damages, without any explanation. The Court decided to remand the case back to the district court to reconsider the issue of whether liquidated damages are available and set forth the reasons for its decision.

March 4, 2010

Employee Benefits-Eligibility For COBRA Subsidy Is Extended For One Month

The President has just signed the Temporary Extension Act of 2010 (the "Act"). Under the Act, eligibility for the COBRA subsidy has been extended one month, meaning that an employee who has an involuntary termination of employment on or prior to March 31, 2010 (rather than on or by February 28, 2010) may be eligible for the subsidy. The Employee Benefits Security Administration (the "EBSA") has updated the introduction on the COBRA webpage at it website to reflect this extension and has added a link to the Act.

March 4, 2010

Employee Benefits-Eligibility For COBRA Subsidy Is Extended For One Month

The President has just signed the Temporary Extension Act of 2010 (the "Act"). Under the Act, eligibility for the COBRA subsidy has been extended one month, meaning that an employee who has an involuntary termination of employment on or prior to March 31, 2010 (rather than on or by February 28, 2010) may be eligible for the subsidy. The Employee Benefits Security Administration (the "EBSA") has updated the introduction on the COBRA webpage at it website to reflect this extension and has added a link to the Act.

March 3, 2010

Employment-Second Circuit Rules That Faragher/Ellerth Defense Does Not Automatically Apply Even Though Plaintiff May, But Fails To, Complain To Some One Other Than A Harassing Supervisor

In Gorzynski v. JetBlue Airways Corp., No. 07-4618 (2nd Cir. 2010) , the plaintiff was appealing the dismissal, on summary judgment, of her employment discrimination action based on claims, among others, that she suffered a hostile work environment due to sexual harassment (the "Claim"). The plaintiff had complained to her supervisor, who was also her harasser, regarding the allegedly hostile work environment. One issue faced by the Court was whether, since the employer's sexual harassment policy provided that the plaintiff could have complained to persons other than her supervisor, the employer is, as a matter of law, entitled to the Faragher/Ellerth affirmative defense. The Court ruled that the employer is not so entitled.

The Court said that when, as here, the alleged harasser is in a supervisory position over the plaintiff, the objectionable conduct giving rise to the Claim is automatically imputed to the employer. But, subject to proof by a preponderance of the evidence, the employer may raise the Faragher/Ellerth affirmative defense to liability or damages from the Claim . This defense will protect the employer if two elements are present: (1) the employer exercised reasonable care to prevent and promptly correct any discriminatory or harassing behavior, and (2) the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. In this case, element (1) was satisfied, since the employer maintained a formal, written sexual harassment policy that was contained in an employee handbook.

As to element (2), the employer was required to demonstrate that the plaintiff unreasonably failed to take advantage of the policy described in the handbook, when the plaintiff complained only to the harassing manager-who failed to address her complaints-while the policy allowed the plaintiff to file a complaint with some one other than the harassing supervisor. Here, the Court ruled that there is no requirement that a plaintiff must exhaust all possible avenues made available, so that an employer is not, as a matter of law, entitled to the Faragher/Ellerth affirmative defense merely because an employer's sexual harassment policy offers such avenues. Rather, the facts and circumstances of each case must be examined to determine whether, by not pursuing other avenues provided in the policy, the plaintiff unreasonably failed to take advantage of the employer's preventative measures, so that element (2) is met. According to the Court, this examination is for a jury, and the Court remanded the case back to the District Court for further proceedings.

March 2, 2010

ERISA-EBSA Issues Fact Sheet On Request For Information On Lifetime Income Options For Retirement Plans

The Employee Benefits Security Administration (the "EBSA") has made available on its website a Fact Sheet discussing the request for information (the "RFI") that the EBSA, along with the Treasury Department, has issued asking for ideas on providing lifetime income and similar annuity arrangements in defined contribution plans.

The problem, according to the Fact Sheet, is that an increasing number of employees are looking to their employer-sponsored defined contribution plan for their retirement security, but at the same time take their entire retirement benefit from that plan in the form of a lump sum distribution. This increases the risk of not having adequate retirement income. One possible solution is to facilitate access, under the defined contribution plan, to lifetime income or similar annuity options which provide a lifetime stream of income after retirement.

The RFI, issued on February 2, 2010, explores whether and how to enhance retirement security by making lifetime income and annuity options available in a defined contribution plan, and asks 39 specific questions to help the EBSA determine what, if anything, the next steps should be.

March 1, 2010

ERISA-EBSA Issues Fact Sheet On Proposed Regulation to Increase Workers' Access to High Quality Investment Advice

The Employee Benefits Security Administration (the "EBSA") has made available on its website a Fact Sheet which discusses the proposed regulation the Department of Labor is publishing to implement certain provisions of the Pension Protection Act of 2006 (the "PPA"). These provisions created a new statutory exemption from the prohibited transaction rules for giving investment advice to participants in 401(k)-type plans and individual retirement accounts (IRAs). An earlier final regulation, and a related class exemption, pertaining to these provisions were withdrawn in November, 2009 in response to concerns about the adequacy of the class exemption's conditions to mitigate the potential for investment adviser self-dealing.

The Fact Sheet says the following about the new proposed regulations:

• The proposed rules are limited to the implementation of the PPA statutory exemption relating to investment advice.
• The proposed regulation allows investment advice to be given under the statutory exemption in two ways. One is through the use of a computer model certified as unbiased. The other way is through an adviser compensated on a "level-fee" basis (i.e., fees do not vary based on investments selected by the participant).
• Several other requirements must also be satisfied, including disclosure of fees the adviser is to receive. The regulation contains some key safeguards and conditions, including:
o Requiring that a plan fiduciary (independent of the adviser or its affiliates) select the computer model or fee leveling investment advice arrangement.
o Imposing recordkeeping requirements for advisers relying on the exemption for computer model or fee leveling advice arrangements.
o Requiring that computer models must be certified in advance as unbiased and meeting the exemption's requirements by an independent expert.
o Establishing qualifications and a selection process for the expert who must perform the above certification.
o Clarifying that the fee-leveling requirements do not permit advisers (including its employees) to receive compensation from affiliates on the basis of their recommendations.
o Establishing an annual audit of investment advice arrangements, including the requirement that the auditor be independent from the adviser.
o Requiring disclosures by advisers to plan participants.

The proposed regulation may be found here, and is scheduled to be published in the Federal Register on March 2, 2010.