June 2010 Archives

June 30, 2010

ERISA-Seventh Circuit Provides Guidance On How To Avoid A Breach Of Fiduciary Duty

So many times, an employee of a company, or a representative of an insurer, answers a participant's questions about a pension plan or health care plan. When the company or the insurer is a fiduciary of that plan for ERISA purposes, what can it do to protect itself from a claim of breach of fiduciary duty, should that employee or representative give out wrong information to the participant? In Kenseth v. Dean Health Plan, Inc., No. 08-3219 (7th Cir. 2010), the Court provides some guidance on this point.

The Court said the following. The duty to disclose material information is the core of a fiduciary's responsibility. This duty requires the fiduciary to take reasonable steps to provide accurate and complete information to participants. The most important way to meet this duty is to provide to participants accurate and complete written explanations of the benefits available under the plan. To this end, the plan's summary plan description (the "SPD") must explain the terms of the plan in language that may be understood by the ordinary reader.

Further, anticipating that the plan's participants will have questions for company employees or insurer representatives about the plan, the fiduciary must exercise appropriate caution in hiring, training, and supervising the its employees and representatives whose job requires them to field questions from participants about their benefits. Thus, when the plan documents are clear and the fiduciary has exercised appropriate oversight over what its employees and representatives advise plan participants, the fiduciary will not be held liable for a breach of duty simply because the employee or representative has given incomplete or mistaken advice to a participant.

The lesson: This may be a good time for an employer or insurer to review its plan documents for accuracy, and to confirm that, where required by ERISA, the documents, such as the SPD, have been furnished to participants. An employer or insurer could also think about how it is training and supervising those employees or representatives that will interact with plan participants.

June 29, 2010

Employee Benefits-EBSA Issues Model Notices For The Patient Protection, No Lifetime Limits And Dependent Coverage Until Age 26 Requirements Under The Affordable Care Act


The recently enacted Affordable Care Act, and the interim final regulations just issued for this Act, have introduced a myriad new rules pertaining to health care. Among them are rules for patient protection, the elimination of lifetime limits on benefits and mandatory dependent coverage until age 26. Participants in an employer-sponsored health care plan (a "Plan") must be notified about these new rules, and the Employee Benefits Security Administration ("EBSA") has now issued model notices for this purpose. The model notices are here (patient protection), here (no limits) and here (coverage until age 26). The notice requirements are summarized below.

Patient Protection. A participant in a Plan now has the right to (1) choose a primary care provider or a pediatrician, when the Plan requires the participant to designate a primary care physician and (2) obtain obstetrical or gynecological care without prior authorization. Accordingly, the Plan must notify a participant about these rights. The notice must be provided whenever the Plan provides the participant with a summary plan description or other similar description of benefits under the Plan. Also, the notice must be furnished no later than the first day of the first plan year beginning on or after September 23,2010.

No Lifetime Limits. A Plan is required to give written notice that lifetime limits on benefits no longer apply, and that an individual to whom the limits had applied, if still covered, is once again eligible for benefits under the Plan. Further, if the individual is not enrolled in the Plan, or if an enrolled individual is eligible for, but not enrolled in, any benefit package under the Plan, then the Plan must also give this individual an opportunity to enroll that continues for at least 30 days (including written notice of the opportunity to enroll). The notice and enrollment opportunity must be provided beginning not later than the first day of the first plan year beginning on or after September 23,2010. For an individual who enrolls in the Plan under this opportunity, coverage must take effect not later than the first day of the first plan year beginning on or after September 23,2010.

Dependent Coverage Up To Age 26. The interim final regulations provide transitional relief for a child whose coverage under the Plan has ended, or who was denied coverage (or was not eligible for coverage) under the Plan because, under the Plan's terms, the availability of coverage ended before the attainment of age 26. The regulations require the Plan to give the child an opportunity to enroll that continues for at least 30 days (including written notice of the opportunity to enroll), regardless of whether the Plan has an open enrollment period and regardless of when any open enrollment period might otherwise occur. This enrollment opportunity (including the written notice) must be provided not later than the first day of the first plan year beginning on or after September 23,2010. The notice may be included with other enrollment materials that the Plan distributes, provided that the information on coverage until age 26 is prominent. Enrollment in the Plan must be effective as of the first day of the first plan year beginning on or after September 23,2010.

June 28, 2010

ERISA-Eighth Circuit Rules That Language In SPD Does Not Entitle Insurer To Deferential Review Of Its Claim Denial

In Ringwald v. Prudential Insurance Company, No. 09-1933 (8th Cir. 2010), the plaintiff, Eric Ringwald, had brought suit under ERISA against the defendant, Prudential Insurance Company ("Prudential"), for long-term disability benefits. The suit challenged Prudential's decision to deny plaintiff's claim for those benefits. The District Court had granted summary judgment against the plaintiff, and the plaintiff appealed.

The issue for the Eighth Circuit Court was whether Prudential's decision to deny the benefits should be reviewed under the abuse of discretion standard, as opposed to the de novo standard. The abuse of discretion standard applies when the plan gives the reviewing insurer the discretion to determine eligibility for benefits under the plan. In this case, the plan's summary plan description, or "SPD", granted this discretion to Prudential, while the plan itself said nothing on this matter. Following its recent decision in Jobe v. Medical Life Insurance Co., the Court said that a grant of discretion to the plan administrator (here Pruential), appearing only in an SPD, does not vest the administrator with discretion, where the plan provides a mechanism for amending the plan, and this mechanism does not allow the SPD to alter the plan. In this case, the insurance policy with Prudential served as the plan, and the policy had no mechanism for amendment at all. Therefore, the SPD could not be deemed to amend the plan to provide discretion to Prudential.

Based on the above, the Court ruled that Prudential's decision to deny the Plaintiff's long-term disability benefits should be reviewed under the novo standard. The Court remanded the case back to the District Court, overturning its grant of summary judgment.

June 24, 2010

Employment-DOL Clarifies FMLA Definition Of Son And Daughter

According to a News Release (dated 6/22/10), the Department of Labor ("DOL") has clarified the definition of "son and daughter" under the Family and Medical Leave Act (the "FMLA") to ensure that an employee who assumes the role of caring for a child (that is, who stands "in loco parentis" to a child) receives parental rights to family leave, regardless of the legal or biological relationship.

The News Release says that the FMLA allows a worker to take up to 12 weeks of unpaid leave during any 12-month period for the birth and care of a newborn child, to adopt or assume care for a foster child, to care for an immediate family member (spouse, child or parent) with a serious health condition or to take care of the worker's own serious health condition. An administrative interpretation (Administrator's Interpretation No. 2010-3), issued by the DOL's Wage and Hour Division, clarifies that these rights extend to the situation in which a worker stands "in loco parentis" to a child (that is, the worker has put himself in the situation of a lawful parent by assuming the obligations incident to the parental relation, without going through any legal formalities).

This interpretation thus extends the right to FMLA leave to various parenting relationships that exist in today's world. It applies to many non-traditional families, including families in the lesbian-gay-bisexual-transgender community, who often in the past have been denied leave to care for their loved ones. As the interpretation makes clear, an uncle who is caring for his young niece and nephew when their single parent has been called to active military duty may exercise his right to FMLA leave. Likewise, a grandmother who assumes responsibility for her sick grandchild when her own child is debilitated will be able to seek FMLA leave. Also, an employee who intends to share in the parenting of a child with his or her same sex partner will be able to exercise the right to FMLA leave to bond with that child.

June 23, 2010

Employee Benefits-Government Issues Guidance On New Protections Under The Affordable Care Act

According to a new government Fact Sheet, the Departments of Health and Human Services ("HHS"), Labor, and Treasury have now issued regulations to implement a new Patient's Bill of Rights under the recently enacted Affordable Care Act. These rights will help children (and eventually all Americans) with pre-existing conditions gain coverage and keep it, protect all Americans' choice of doctors and end lifetime limits on the health care an individual may receive. These new protections apply to nearly all health insurance plans.

The Fact Sheet says that the new regulations for the Patient's Bill of Rights detail a set of protections that apply to health coverage starting on or after September 23, 2010, six months after the enactment of the Affordable Care Act. These protections are:

--No Pre-Existing Condition Exclusions for Children Under Age 19. The new regulations will prohibit health care and insurance plans from denying coverage to children based on a pre-existing condition. This ban includes both benefit limitations (e.g., an insurer or employer health plan refusing to pay for chemotherapy for a child with cancer because the child had the cancer before getting insurance) and outright coverage denials (e.g., when the insurer refuses to offer a policy to the family for the child because of the child's pre-existing medical condition). These protections will apply to all types of insurance except for individual policies that are "grandfathered," and will be extended to Americans of all ages starting in 2014.

--No Arbitrary Rescissions of Insurance Coverage. Under the new regulations, insurers and plans will be prohibited from rescinding coverage - for individuals or groups of people - except in cases involving fraud or an intentional misrepresentation of material facts. Insurers and plans seeking to rescind coverage must provide at least 30 days advance notice to give people time to appeal. There are no exceptions to this policy.

--No Lifetime Limits on Coverage. The new regulations prohibit the use of lifetime limits in all health plans and insurance policies issued or renewed on or after September 23, 2010.

--Restricted Annual Dollar Limits on Coverage. The new regulations will phase out the use of annual dollar limits over the next three years until 2014 when the Affordable Care Act bans them for most plans. Plans issued or renewed beginning September 23, 2010, will be allowed to set annual limits no lower than $750,000. This minimum limit will be raised to $1.25 million beginning September 23, 2011, and to $2 million beginning on September 23, 2012. These limits apply to all employer plans and all new individual market plans. For plans issued or renewed beginning January 1, 2014, all annual dollar limits on coverage of essential health benefits will be prohibited. Employers and insurers that want to delay complying with these rules will have to win permission from the Federal government by demonstrating that their current annual limits are necessary to prevent a significant loss of coverage or increase in premiums. Limited benefit insurance plans - which are often used by employers to provide benefits to part-time workers -- are examples of insurers that might seek this kind of delay. These restricted annual dollar limits apply to all insurance plans except for individual market plans that are grandfathered.

--Protecting Your Choice of Doctors. Under the new regulations, it is clear that health plan members are free to designate any available participating primary care provider as their provider. Parents may choose any available participating pediatrician to be their children's primary care provider. And, the new regulations prohibit insurers and employer plans from requiring a referral for obstetrical or gynecological (OB-GYN) care. The new rules apply to all individual market and group health insurance plans except those that are grandfathered.

--Removing Insurance Company Barriers to Emergency Department Services. Health plans and insurers will not be able to charge higher cost-sharing (copayments or coinsurance) for emergency services that are obtained out of a plan's network. The new regulations also set requirements on how health plans should reimburse out-of-network providers. These rules apply to all individual market and group health plans except those that are grandfathered.

June 21, 2010

Employee Benefits-IRS Extends Deadline For Restating Pre-Approved Defined Contribution Plans In A Federal Disaster Area

In Notice 2010-48, the Internal Revenue Service (the "IRS") extends to July 30, 2010, the April 30, 2010 deadline for restating (and if applicable for submitting to the IRS a determination letter request for) a pre-approved defined contribution plan with a tie to a federal disaster area identified in the Notice. In the case of an employer, the restatement consists of adopting a new adoption agreement for the plan.

The disasters in question are the storms and flooding, which occurred in March through May of this year, in the states of New Jersey, Connecticut, Tennessee, Alabama, Mississippi, Massachusetts, Rhode Island and West VIrginia. A plan will have a tie to a federal disaster area if one of the following was located in the disaster area at the time of the disaster: the employer's principal place of business, or the office of the plan administrator, the primary recordkeeper, or any other advisor involved in the restatement of the plan.

June 17, 2010

ERISA-Department Of Labor Proposes To Amend Class Exemption For Transactions Involving In-House Asset Managers

According to a News Release (dated June 16, 2010), the U.S Department of Labor's Employee Benefits Security Administration is proposing to amend Prohibited Transaction Exemption ("PTE") 96-23. PTE 96-23 is a class exemption that allows in-house managers of large employee benefit plans to engage in a wide range of transactions with related parties.

The News Release says that the proposed amendment, if adopted, would remove numerous administrative burdens that have been cited by practitioners, and would expand relief under the class exemption to include certain transactions not currently permitted. It would also address practitioner uncertainty that exists regarding certain provisions contained in the class exemption. Among other things, the proposed amendment clarifies the department's views and expectations regarding the class exemption's annual audit and written report requirements. The application of these requirements will further enhance the participant protections embodied in the class exemption.

The proposed amendment to PTE 96-23 is here.

June 16, 2010

Employee Benefits-Government Issues Guidance On What Constitutes A Grandfathered Plan Under New Health Care Rules

The recent health care legislation has significantly overhauled the requirements pertaining to health care plans. However, some of the more important requirements do not apply to a "grandfathered" health care plan. Among these nonapplicable requirements are:

--no discrimination in favor of highly-paid employees;

--preventive care services must be offered with no deductibles or cost sharing;

--guaranteed access to OB-GYNs and pediatricians must be provided; and

--an appeals process must be available, which includes external review of denied claims.

Due to the exemption from the above requirements, it becomes important to identify a "grandfathered" plan. The Internal Revenue Service ("IRS"), Department of Labor ("DOL") and the Department of Health and Human Services ("HHS") has provided guidance for making this identification, in the form of a Fact Sheet, FAQs and proposed and interim regulations. Under this guidance, a group health care plan is a "grandfathered" plan with respect to any individual who is enrolled in the plan on March 23, 2010. A plan does not cease to be a "grandfathered" plan merely because one or more (or even all) of the individuals enrolled on March 23, 2010 cease to be covered by the plan. If family members of an individual, who is enrolled in the grandfathered plan as of March 23, 2010, enroll in the plan after that date, the plan is also a "grandfathered" plan with respect to those family members. A group health plan, which provided coverage on March 23, 2010, is a "grandfathered" plan with respect to new employees (whether newly hired or newly enrolled) and their families who enroll after that date. The plan must provide certain information to participants, and maintain records, pertaining to its grandfathered status (the regs have model language for this purpose).

According to the Fact Sheet, a "grandfathered" plan, as in effect on March 23, 2010, cannot make any of the following changes, or it will lose its status as such:

--it cannot significantly cut or reduce benefits (e.g., stop covering diabetes, cystic fibrosis or HIV/AIDS);

--it cannot raise co-insurance charges (e.g., if the plan imposes a fixed percentage of a charge for a medical service, such as 20% of a hospital bill, this percentage cannot be increased);

--it cannot significantly raise co-payment charges or deductibles;

--it cannot significantly lower employer contributions (that is, it cannot decrease the percent of premiums the employer pays by more than 5 percentage points);

--it cannot add or tighten an annual limit on what the insurer pays;

--it cannot change insurance companies; and

--it cannot be involved in a business restructuring intended to avoid the new health care requirements.

June 14, 2010

Employment-10th Circuit Finds No Vacant Position Available To Accommodate A Disabled Employee Under the ADA

In Duvall v. Georgia Pacific Consumer Products, L.P., No. 08-7096 (10th Cir. 2010), the Court faced the question of whether a position is "vacant" for purposes of the Americans with Disabilities Act ("ADA"), so that a disabled employee may request reassignment to that position as a reasonable accommodation.

In this case, the plaintiff, Travis Duvall, who suffers from cystic fybrosis, worked in the shipping department of a paper mill owned by defendant, Georgia Pacific ("GP"). When GP decided to outsource the running of its shipping department, Duvall transferred to another department but found that the paper dust in the air made it impossible for him to work there. As a reasonable accommodation, Duvall requested that he be put back in his old shipping position, which was then occupied by a temporary contract worker pending the permanent outsourcing of the department, or in a position in the mill's storeroom, which was also in flux at the time, being staffed with a number of temporary workers filling some of the storeroom positions. GP refused Duvall's requests for reassignment, and Duvall sued under the ADA. The District Court granted summary judgment in favor of GP, and Duvall appealed.

The 10th Circuit Court held that the shipping department and storeroom positions, which had been filled by temporary workers, were not "vacant" within the meaning of the ADA, and consequently affirmed the District Court's decision. In doing so, the Circuit Court said that an employer's duty under the ADA to reassign a disabled employee to a vacant position is mandatory (unless the reassignment would be unreasonable). The question here is whether the employer had a vacant position. For ADA purposes, when a disabled employee requests reassignment to a new position as a reasonable accommodation, that position is "vacant" if it is available to similarly-situated nondisabled employees to apply for and obtain. Here, the positions in question-already occupied by temporary workers and unavailable to GP employees-were not vacant.

June 11, 2010

ERISA-U.S. Department of Labor Issues Final Rule On Pension Distributions Under Qualified Domestic Relations Orders

According to a Press Release (June 10, 2010), the U.S. Department of Labor has issued a final rule regarding certain requirements for qualified domestic relations orders ("QDROs") under ERISA. The rule is being issued under the Pension Protection Act of 2006, which requires the Labor Department to issue regulations clarifying that a domestic relations order, which otherwise meets ERISA's QDRO requirements, would not fail to be treated as a QDRO solely because of when it is issued or because it is issued after, or revises, another domestic relations order. The rule includes examples to address various circumstances involving the timing of a domestic relations order.

June 10, 2010

ERISA-Sixth Circuit Holds That Cap Limits Retiree Health Care Contributions

In Wood v. Detroit Diesel Corporation, No. 09-1252 (6th Cir. 2010), the defendant, Detroit Diesel Corporation ("Detroit Diesel"), and the union representing its workers entered into a series of agreements, starting in January 1993 (and outside of the collective bargaining agreements or "CBAs"), purporting to establish caps on Detroit Diesel's contributions to the workers' retiree health care benefits. These caps applied to workers who retired between 1993and 2004. Both Detroit Diesel and the union intended that these agreements would reduce Detroit Diesel's balance sheet liability after an accounting rule change in late 1992 required--for the first time--that Detroit Diesel account for retiree health care costs on an accrual basis. The agreements included duration clauses, under which a cap would remain at the specified amount until the expiration of the related CBA. Detroit Diesel and the union did not renew the agreements capping the retiree health care contributions for the 1993-2004 retirees in later bargaining cycles, instead implementing a new retiree health care program for post-2004 retirees.

The matter in dispute was whether the caps on retiree health care contributions in the agreements continue to apply to 1993-2004 retirees, even after the close of the years covered by the agreements, and after the related CBAs expire . The Court interpreted the agreements to provide for lifetime, capped health care contributions, saying that this interpretation:

--is the most sensible reading of those agreements, as the agreements specifically limited Detroit Diesel's contribution toward retiree health care benefits without providing for an expiration date for the limitation;

--is consistent with Detroit Diesel's accounting obligations; and

--is consistent with prior case law, under which the duration clauses appearing in the agreements, which fail to include a specific expiration date for the caps, support the conclusion that the caps continue even after the after the close of the years covered by the agreements, and after the related CBAs expire.

The Court concluded that the agreed caps on the retiree health care contributions therefore continue to apply to 1993-2004 retirees.

June 9, 2010

ERISA-Third Circuit Reveal Some Pitfalls In Disability Cases.

In Goletz v. Prudential Insurance Company of America, No. 08-4740 (3rd Cir. 2010), the Third Circuit reveals some pitfalls in disability cases. Here, the defendant, Prudential Insurance Company of America ("Prudential"), decided to deny the plaintiff's claim for long-term disability ("LTD") benefits. The plaintiff filed suit under ERISA to challenge this decision. The District Court granted summary judgment in Prudential's favor, and the plaintiff appealed.

At the Third Circuit, the plaintiff asked the Court to rule that Prudential's decision to deny the LTD benefits should be reviewed under the de novo standard, rather than the deferential arbitrary and capricious standard (the de novo standard being more favorable to the plaintiff). However, the plaintiff had raised this issue for the first time in the appeal. The Court stated that, absent exceptional circumstances (none present here), the Court would not entertain an issue not raised in the District Court. The plaintiff again tried for review under the de novo standard, based on the grounds that the District Court had admonished Prudential for making a mistake in the course of the proceedings. However, the Court pointed to the recent Supreme Court's decision in Conkright v. Frommert, under which the de novo standard does not become applicable merely because Prudential made an error.

Outside of the case, the plaintiff had been awarded disability benefits from Social Security. In the appeal, the plaintiff attempted to have the summary judgment stricken on the basis that Prudential failed to explain why it could deny the plaintiff's claim for disability, when she had received this award from Social Security. Here, the Court found that Social Security had based its decision on different evidence than Prudential, namely certain experts that Prudential had relied on. As a result of the above, the Court affirmed the summary judgment in Prudential's favor.

June 4, 2010

Employment/Tax-IRS Reminds Us That Recent Legislation Offers Special Tax Incentives for Small Businesses to Provide Health Care And Hire New Workers

In IR-2010-69, the Internal Revenue Service (the "IRS") encourages small businesses to take advantage of tax-saving opportunities included in recently enacted federal legislation. The Release says that a variety of business tax deductions and credits were created, extended and expanded by the American Recovery and Reinvestment Act of 2009, this year's Hiring Incentives to Restore Employment and the Affordable Care Act (the recent health care legislation). Because some of these changes are available only for this year, eligible businesses have only a few months to take action and save on their taxes.

The tax incentives include the following:

--the new tax credit for health care contributions;

--the new payroll tax exemption and tax credit for new hires;

--the work opportunity tax credit for hiring employees that belong to certain targeted groups (including individuals aged 18 to 39 and living in designated communities in 43 states and the District of Columbia, recipients of various types of public assistance, certain veterans, ex-felons and certain youth workers);

--the exclusion of gain on the sale of certain small business stock; and

--the 65% COBRA premium subsidy