September 2010 Archives

September 30, 2010

Employee Benefits-Small Business Jobs Act of 2010 Has Provisions Which Affect Employee Benefits

The Small Business Jobs Act of 2010 (H.R. 5297) (the "Act"), signed into law by President Obama on September 27, 2010 (the "Enactment Date"), contains the following provisions which affect employee benefits.

The Act allows a self-employed individual to take into account the individual's entire tax deduction for health insurance premiums when computing the individual's self-employment tax for his or her tax year starting in 2010.

The Act eliminates cell phones (and other similar telecommunications equipment) from the definition of "listed property" in Section 280F(d)(4)(A) of the Internal Revenue Code (the "Code"). This means that employer-provided cell phones (and similar communications equipment) will not have to satisfy heightened substantiation requirements and certain depreciation limitations in order for employees to avoid taxation when using these devices for business reasons, and for employers to be able to deduct the cost of acquiring and using these devises. This provision of the Act applies in tax years starting after 2009. According to the legislative history, the provision does not affect the IRS's authority to treat the value of an employer- provided cell phone (or similar device) as being a tax-free working condition fringe benefit under section 132(d) of the Code, or a tax-free de minimis fringe benefit under section 132(e) of the Code.

The Act allows, for tax years starting after 2010, participants in government section 457(b) plans to treat elective deferrals made under such plans as being Roth contributions.

The Act allows, any time after the Enactment Date, a participant in a 401(k) plan, 403(b) plan or government 457(b) plan, to which Roth contributions may be made, to convert amounts held under that plan, including but not limited to pre-tax elective deferrals, to Roth contributions. Any amount being so converted (other than after-tax contributions) must be included in gross income, but is not subject to the 10% penalty under Code section 72(t). As a transition rule, unless the participant elects otherwise, the taxable portion of any amount converted in 2010 will be included in gross income ratably over 2011 and 2012. The legislative history indicates that the plan must otherwise accept Roth contributions (i.e., it must allow the designation of elective deferrals as Roth contributions) for the conversion to be allowable. A plan, which does not allow Roth contributions, cannot establish a "Roth account" to accomplish the conversion. Also, the amount to be converted must otherwise be distributable under the terms of the plan (e.g., as an in-service distribution). A plan may be amended to permit distributions (otherwise allowed by the Code), so that a conversion may be made. A plan is not required to permit the conversions. If the plan does permit conversions, it must be amended to reflect this feature. It is expected that the IRS will provide employers with a remedial amendment period so that they may offer the conversion feature during 2010, and then have sufficient time to amend the plan to reflect this feature.

September 29, 2010

Employment- Ninth Circuit Rules That New Employer Is Not A Successor In Interest For Purposes Of FMLA

In Sullivan v. Dollar Tree Stores, Inc., No. 08-35413 (9th Cir. 2010), the Court faced the question of whether a new employer is a "successor in interest" to a former employer, for purposes of determining whether an employee has worked for a particular employer for at least 12 months and is thus entitled to the protections of the Family and Medical Leave Act of 1993 (the "FMLA").

In this case, the Plaintiff had been a store manager at Factory 2-U, a clothing store, selling clothes at a range of prices. Factory 2-U filed for Chapter 11bankruptcy. The bankruptcy court approved the sale of Factory 2-U's existing leasehold on the store at which plaintiff worked (the "Old Store") to Dollar Tree Stores, Inc. ("Dollar Tree"). Dollar Tree operates stores that sell a large variety of merchandise for $1 per item. Other than the leasehold, Dollar Tree purchased no inventory or any asset of Factory 2-U. The Old Store then closed its doors, and, after four weeks of substantial renovation, preparation and staff training, Dollar Tree opened a new store at the same location (the "New Store"). Dollar Tree hired the plaintiff as an assistant manager of the New Store. The plaintiff's employment at the Old Store and the New Store was continuous. Following a dispute about taking leave to care for her mother, and before completing 12 months of employment with Dollar Tree, the plaintiff was fired by Dollar Tree. She was later rehired by Dollar Tree, but then quit several months later. Plaintiff filed this suit in federal court under the FMLA seeking lost wages.

In determining whether the plaintiff is entitled to FMLA protection, the Court said that the FMLA entitles an eligible employee to take family or medical leave for several enumerated reasons, including to care for a close relative. The term "eligible employee" means an employee who has been employed for at least 12 months by the employer with respect to whom leave is requested. Under the statute, the term "employer" specifically includes any successor in interest of an
employer. The plaintiff worked for Dollar Tree for less than 12 months. The question here is whether Dollar Tree is a successor in interest to Factory 2-U, so that the plaintiff's employment with Factory 2-U will count towards the 12-month employment requirement for FMLA entitlements.

Under Department of Labor ("DOL") regulations, the determination of whether an employer is a "successor in interest" for FMLA purposes is based on the factors used under Title VII of the Civil Rights Act and the Vietnam Era Veterans' Adjustment Act. These factors include: (1) substantial continuity of the same business operations; (2) use of the same plant; (3) continuity of the work force; (4) similarity of jobs and working conditions; (5) similarity of supervisory personnel;
(6) similarity in machinery, equipment, and production methods; (7) similarity of products or services; and (8) the ability of the predecessor to provide relief. The totality of the circumstances is considered.

In this case, Dollar Tree's business is substantially different from Factory 2-U's business. Dollar Tree had purchased a lease on the building for the New Store, but nothing else from Factory 2-U. Dollar Tree did not acquire any of Factory 2-U's merchandise. Dollar Tree sells a wide variety of merchandise whereas Factory 2-U sold clothing only. Dollar Tree sells items for $1 only, whereas Factory 2-U sold clothing at many different prices. There was a break in operations, as Old Store was closed to the public for almost a month for preparation and staff training. There was no similarity of supervisory personnel or continuity of workforce, since the New Store had a new store manager, and only the plaintiff and one other individual, from a large pool of Old Store employees, had worked at both the Old Store and the New Store. The predecessor, Factory 2-U, is not in any position to provide any relief to the plaintiff. Based on the application of the factors in the DOL regulations, the Court concluded that Dollar Store is not a successor in interest to Factory 2-U, so that the plaintiff does not meet the 12-month employment requirement as to Dollar Tree, and therefore is not entitled to any protection under the FMLA.

September 28, 2010

Employee Benefits-EBSA Provides FAQs On GINA

The Employee Benefits Security Administration (the "EBSA") has issued guidance, in the form of FAQs, on the Genetic Information Nondiscrimination Act ("GINA"). The following are some of the more interesting points.

GINA applies generally to group health plans. Unlike Title I of HIPAA, there is no exception for very small health plans, e.g., those with less than two participants. The statutory provisions of GINA are effective for plan years beginning on or after May 21, 2009, and regulations on GINA, issued on October 7, 2009, apply to plan years beginning on or after December 7, 2009. Therefore, for calendar year plans, the statute and regulations apply as of January 1, 2010.

GINA contains the following specific protections:

--GINA provides that group health plans cannot determine or adjust a participant's premiums or contributions based on any participant's genetic information. However, premiums or contributions may be increased for participants based on the manifestation of a disease of any participant.

--GINA generally prohibits group health plans from requesting or requiring an individual to undergo a genetic test. However, a health care professional providing health care services to an individual ( such as a physician, nurse, physician's assistant, or technician) is permitted to request a genetic test. The plan may request the results of a genetic test to determine whether a claim for benefits should be paid, but only the minimum amount of information needed to make this determination.

--GINA prohibits a group health plan from collecting genetic information (including family medical history) from an employee prior to or in connection with his or her enrollment in the plan, or at any time for underwriting purposes. A "collection" includes any request, requirement, or purchase. Under GINA, "underwriting purposes" includes rules for determining eligibility for benefits and the computation of premium and contribution amounts. Thus, under GINA, the plan is generally prohibited from offering rewards in return for the provision of genetic information. GINA includes an exception for incidental collection of genetic information, provided the information is not used for underwriting purposes. However, this exception is not available if it is reasonable for the plan to anticipate that health information will be received in response to the collection, unless the collection explicitly states that genetic information should not be provided.

For these purposes, "genetic information" generally means information about: (1) an individual's genetic tests, (2) the individual's family members' genetic tests, (3) the manifestation of a disease or disorder in the individual's family members, or (4) any genetic services (including those provided during clinical research), rendered to the individual or his or her family members. In the case of a pregnant woman (or a family member of the woman), genetic information includes genetic information about the fetus and, with respect to an individual using assisted reproductive technology, genetic information about the embryo. Genetic information does not include information about the sex or age of any individual.

A "genetic service" is a genetic test, genetic counseling, or genetic education. A "genetic test" is an analysis of human DNA, RNA, chromosomes, proteins, or metabolites, if the analysis detects genotypes, mutations, or chromosomal changes. A genetic test does not include an analysis of proteins or metabolites directly related to a manifested disease, disorder, or pathological condition. A "manifested disease" is a disease, disorder, or pathological condition for which an individual has been or could reasonably be diagnosed by a health care professional. A disease is not manifested if a diagnosis is based principally on genetic information.

A point about mamograms-if the plan normally covers mammograms for participants starting at age 40, but covers them at age 30 for individuals with a high risk of breast cancer, the plan may require an individual under 40 to submit genetic test results or family medical history as evidence of high risk of breast cancer (limited to the minimum amount of information needed), in order to have a claim for a mammogram paid.

September 27, 2010

Employee Benefits-IRS Requests Comments On New Nondiscrimination Requirements For Health Plans

In Notice 2010-63 (the "Notice"), the Internal Revenue Service (the "IRS") discusses the new non discrimination requirements that apply to (nongrandfathered) insured health care plans, and requests comments on the application of these requirements.

By way of background, the Affordable Care Act provides that a covered, insured group health plan must satisfy the nondiscrimination requirements of Section 105(h)(2) of the Internal Revenue Code (the "Code"). These requirements apply in plan years starting after September 23, 2010. For this purpose, rules similar to the rules of Code section105(h)(3) (nondiscriminatory eligibility classification), Code section 105(h)(4) (nondiscriminatory benefits), and Code section 105(h)(8) (certain controlled groups) will apply, and the term "highly compensated individual" ("HCI") has the meaning given by Code section 105(h)(5).

According to the Notice, the Affordable Care Act incorporates the substantive nondiscrimination requirements of Code section 105(h) (but not the taxes on highly compensated individuals in section 105(h)(1)), and applies them to covered insured group health plans. If the plan fails to comply with these requirements, it will be subject to: (1) the taxes, remedies, and penalties that generally apply to a plan that does not comply with the requirements of chapter 100 of the Code (generally, an excise tax of $100 per day per individual discriminated against for each day the plan does not comply with the requirements), (2) the civil remedies of part 7 of ERISA (a civil action to enjoin a noncompliant act or practice, e.g., an action to require the plan to provide a nondiscriminatory benefit, or for appropriate equitable relief), and (3) the civil penalties under title XXVII of the Public Health Service Act (civil money penalties of $100 per day per individual discriminated against for each day the plan does not comply with the requirements).

In the Notice, the IRS requests comments on what new guidance relating to the application of Code section 105(h)(2) to insured plans would be helpful.

September 25, 2010

Employee Benefits-EBSA Issues FAQs On The Affordable Care Act

The Employee Benefits Security Administration (the "EBSA") has put on its website 16 questions and answers, or "FAQs," pertaining to the recently enacted Affordable Care Act. Here are some of the more interesting points made:

The FAQs state that the governing departments (Department of Labor, Treasury Department and Health and Human Services) (the "Departments") will not (until regulations are issued which provide otherwise) treat a grandfathered insured group health plan as having lost its grandfathered status, based on a change in the employer contribution rate, if the employer and insurer take the following steps:

• Upon renewal of the underlying insurance policy, the insurer requires the employer to make a representation regarding its contribution rate for the plan year covered by the renewal, as well as its contribution rate on March 23, 2010 (if the insurer does not already have it); and
• The insurance policy discloses, in a prominent and effective manner, that the employer is required to notify the insurer if the contribution rate changes at any point during the plan year.

For a policy renewed prior to January 1, 2011, the employer and insurer should take these steps no later than by January 1, 2011. However, this relief will cease as of the first day on which the insurer knows that there has been at least a 5-percentage-point reduction in the employer's contribution rate. This relief will help to create certainty as to when a change in the employer contribution rate causes a loss of grandfather status.

Technical Release 2010-01 contains an enforcement safe harbor, which a covered (i.e., nongrandfathered) self-insured group health plan may use to comply with the new external claims review requirement during a transitional period . If the plan does not meet this safe harbor, compliance with the external claims review requirement will be determined on a case-by-case basis under a facts and circumstances analysis, and the plan may, in some cases, be considered to be in compliance with the requirement. For example, one element of the safe harbor requires the plan to contract with at least three independent review organizations ("IROs") to conduct the external review, and to rotate claims assignments among them (or to incorporate other independent, unbiased methods for selection of IROs, such as random selection). However, the plan's failure to contract with at least three IROs does not mean that the plan has automatically violated the external claims review requirement. The plan may take other steps to ensure that its external review process is independent and without bias.

Further, according to the FAQs, the Technical Release does not require a plan to contract directly with any IRO. If the plan contracts with a TPA that, in turn, contracts with an IRO, the Release's safe harbor can be met, as if the plan had contracted directly with the IRO itself. The safe harbor does not require the IRO to be in the same State as the plan.

The FAQs clarify that a group health plan will not fail the requirement in the Affordable Care Act that children be offered coverage until age 26, merely because it conditions health coverage on support, residency, or other dependency factors for individuals who are under age 26, and who are not described in section 152(f)(1) of the Internal Revenue Code (the "Code"). That section defines children to include only sons, daughters, stepchildren, adopted children (including children place for adoption), and foster children. Grandchildren and nieces or nephews are not included in that definition, so that, even if under age 26, their coverage by the plan may be subject to one or more dependency conditions.

September 24, 2010

Employee Benefits-DOL Announces Grace Period For Complying With New Rules For Internal Claims and Appeals Under The Affordable Care Act

Employee Benefits-DOL Announces Grace Period For Complying With New Rules For Internal Claims and Appeals Under The Affordable Care Act In Technical Release No. 2010-02, the Department of Labor (the "DOL") has provided a grace period for complying with the new rules, applicable to (nongrandfathered) group health plans, for internal claims and appeals under the recently enacted Affordable Care Act.

By way of background, the Affordable Care Act sets forth standards for covered group health plans regarding both internal claims and appeals and external review of those claims. The governing departments (Health and Human Services, Department of Labor and the Treasury Department) previously published interim final regulations (75 FR 43330, published July 23, 2010) implementing the new standards. The DOL also issued Technical Release 2010-01 (on August 23, 2010), providing interim procedures for self-insured plans with respect to the Federal external review process.

According to Technical Release No. 2010-02, the new standards generally require that covered group health plans have an effective internal claims and appeals process. This process must contain the procedures of 29 CFR 2560.503-1 (the DOL claims procedure regulation), and must also reflect the following:

1. An adverse benefit determination includes a decision that may lead to a rescission of coverage.

2. The plan must notify a claimant of a benefit determination (whether adverse or not) for a claim involving urgent care as soon as possible, but not later than 24 hours after the plan receives the claim.

3. The plan is required to provide the claimant (free of charge) with new or additional evidence considered, relied upon, or generated by the plan in connection with the claim, as well as any new or additional rationale for a denial at the internal appeals stage, and a reasonable opportunity for the claimant to respond to this evidence or rationale.

4. The plan must have safeguards against conflicts of interest, so that a claims adjudicator or medical expert (or an individual in a similar position) must not be retained based upon the likelihood that the individual will support the denial of benefits.

5. Notices must be provided in a culturally and linguistically appropriate manner.

6. In the case of an initial or final adverse benefit determination, the plan must provide a notice which includes or discloses: (1) information sufficient to identify the claim involved, such as the date of service and health care provider, (2) the reasons for the decision, including, in the case of a final adverse benefit determination, a discussion of the decision, (3) a description of available internal appeals and external review processes (including information on how to initiate an appeal) and (4) the availability of, and contact information for, a state or local official who can assist the claimant.

7. If the plan fails to strictly adhere to all requirements pertaining to internal claims procedures, the claimant is deemed to have exhausted the plan's internal claims and appeals process, and the claimant may initiate any available external review process or remedies available under ERISA or State law.

To provide a plan with time to comply with the foregoing, Technical Release 2010-02 establishes an enforcement grace period until July 1, 2011, with respect to requirements #2, #5, #6 and #7 above, during which the DOL and the Internal Revenue Service ("IRS") will not take any enforcement action against a group health plan that is working in good faith to implement such those requirements but does not yet have them in place.

September 22, 2010

ERISA-Fifth Circuit Rules That Federal Law Allows United States To Garnish Employee's Contributions To/Benefits Under A State Pension Fund, Despite The Code's Antialienation Rule

In U.S. v. CAY, No. 09-30218 (5th Cir. 2010), Kerry DeCay, Stanford Barre, and the Louisiana Sheriffs Pension and Relief Fund ("LSPRF") had appealled the district court's order granting the United States garnishment of DeCay's contributions to and Barre's monthly benefits from state pension funds held by the LSPRF. The Fifth Circuit held that the United States may garnish DeCay's and Barre's retirement benefits to satisfy a criminal restitution order, but that the United States is limited to garnishing twenty-five percent of Barre's monthly pension benefit.

Kerry DeCay and Stanford Barre had pled guilty to one count each of mail fraud, conspiracy to commit mail fraud, and obstruction of justice for their roles in a scheme to defraud the City of New Orleans ("the City"). At sentencing, the district court determined that the City had suffered an injury compensable under the Mandatory Victims Restitution Act ("MVRA"). The MVRA makes restitution mandatory for certain crimes, including any offense committed by fraud or deceit. (18 U.S.C . § 3663A). It authorizes the United States to enforce a restitution order, notwithstanding any other federal law, against all property or rights to property of the person fined. (§ 3613(a)), with several nonapplicable exceptions.

The LSPRF had argued that the defendants' pension benefits are exempt from garnishment because § 401(a)(13)(A) of the Internal Revenue Code (the "Code") prohibits the assignment or alienation of retirement benefits. Section 401(a)(13)(A) states that a trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated (Section 206(d) of ERISA has the same provision). However, based on the "notwithstanding any other federal law" language in § 3613(a) of the MVRA , and several other factors, the Court ruled that the MVRA overrides § 401(a)(13) of the Code (and, implicitly, if it applied to the plan in question, Section 206(d) of ERISA). Similarly, arguments that the Tenth Amendment and state law prevented the garnishment failed. However, due to certain provisions of the Consumer Credit Protection Act and the MVRA, in Barre's case, the garnishment is limited to 25% of his monthly benefit.

September 14, 2010

Employee Benefits-IRS Obsoletes Revenue Ruling Permitting Tax-Free Reimbursement of Over-The-Counter Drugs

As a follow up to yesterday's blog, in Rev. Rul. 2010-23, the Internal Revenue Service (the "IRS") obsoleted Rev. Rul. 2003-102. That Ruling had held that reimbursements by the employer of amounts expended for medicines or drugs available without a prescription are excludable from gross income under Section 105(b) of the Internal Revenue Code (the "Code"). Section 9003 of the Affordable Care Act, enacted March 23, 2010, changed the Code, so that a medicine or a drug may be treated as a medical expense, and eligible for tax-free reimbursement, only if it is prescribed. Due to this change, to avoid confusion, the IRS said that Rev. Rul. 2003-102 is not longer determinative, and is declared obsolete as of the effective date of Section 9003 of the Affordable Care Act (generally for medicines and drugs purchased after 2010).

September 13, 2010

Employee Benefits-IRS Provides Guidance On Treatment Of Over-The-Counter Drugs Under The Affordable Care Act

In Notice 2010-59, the Internal Revenue Service (the "IRS") provides guidance on the treatment of over-the-counter-drugs under Section 9003 of the Patient Protection and Affordable Care Act (the "Affordable Care Act"), enacted March 23, 2010. Section 9003, and the rules described below, generally apply for medicines and drugs purchased after 2010.

According to the Notice, Section 106 of the Internal Revenue Code (the "Code") provides that the gross income of an employee does not include employer-provided coverage under an accident or health plan. Section 105(b) of the Code generally provides that the gross income of an employee does not include amounts paid as reimbursements for medical care under an employer- provided accident or health plan. Section 106(f) was added to the Code by Section 9003 of the Affordable Care Act. Under Section 106(f), for purposes of Sections106 and 105 of the Code, expenses incurred by an employee for medicines or drugs may be paid or reimbursed tax-free by an employer-provided plan, only if the medicine or drug (1) requires a prescription, (2) is available without a prescription (an over-the-counter medicine or drug) and the individual obtains a prescription, or (3) is insulin. The foregoing applies to payments or reimbursements made by a health flexible spending account (an "FSA") or an employer-sponsored health reimbursement arrangement (an "HRA").

The Notice further says that Section 9003 of the Affordable Care Act also amends Section 223(d)(2)(A) of the Code, with respect to health savings accounts "(HSAs"). Under revised Section 223(d)(2)(A), a distribution from an HSA for a medicine or drug is a tax-free qualified medical expense only if the medicine or drug meets (1), (2) or (3) above. If amounts are distributed from an HSA for any medicine or drug which does not satisfy one of these requirements, the amounts will be treated as a distribution for nonqualified medical expenses, and will therefore be includable in gross income and generally subject to a 20% additional tax. The new rules do not affect HSA distributions for medicines or drugs made before 2011, or distributions made after 2010 for medicines or drugs purchased before 2011.

For these purposes, a "prescription " is a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medicine or drug is purchased, and which is issued by an individual who is legally authorized to issue a prescription in that state. The foregoing rules do not apply to items that are not medicines or drugs, such as equipment (e.g., crutches), supplies (e.g., bandages), and diagnostic devices (e.g., blood sugar test kits). Such items may qualify as medical care if the requirements of Section 213(d)(1) of the Code are met. The Notice contains some special rules for using FSA and HRA debit cards to purchase over-the-counter medicines and drugs. Cafeteria plans may need to be amended to conform to the new over-the-counter drug requirements. Pursuant to Prop. Treas. Reg. § 1.125-1(c), cafeteria plan amendments may be effective only prospectively. However, under the Notice, an amendment to conform a cafeteria plan to the requirements included in the Notice, which is adopted no later than June 30, 2011, may be made effective retroactively for medicine or drug purchases made after 2010.

September 11, 2010

ERISA-Tenth Circuit Rules That Discovery Pertaining To Scope And Impact Of An Administrator's Conflict of Interest (As Claims Decider And Payor) May Be Appropriate

In Murphy v. Deloitte & Touche Group Insurance Plan, No. 09-2028 (10th Cir. 2010), the plaintiff, Aileen Murphy, was a participant in the Deloitte & Touche Group Insurance Plan ("the Plan"). The Plan is subject to ERISA. Metropolitan Life Insurance Company ("MetLife") both insured and administered the Plan, so that it had an inherent conflict of interest with respect to the Plan. Ms. Murphy filed a claim under the Plan for long-term disability ("LTD") benefits, which MetLife ultimately denied. Ms. Murphy then brought suit for the LTD benefits under ERISA. All parties agreed to proceed before a magistrate judge. Soon after filing her suit, Ms. Murphy moved for discovery-beyond the administrative record- regarding MetLife's dual role/conflict of interest. The magistrate judge denied Ms. Murphy's discovery request, on the grounds that the conflict of interest was apparent on the face of the administrative record, rendering discovery on that issue unnecessary. The magistrate judge later granted summary judgment in favor of the Plan and MetLife. Ms. Murphy appealed, challenging the magistrate judge's denial of her discovery request and its grant of summary judgment against her.

In analyzing the case, the Tenth Circuit Court discussed the appropriate standard for permitting discovery pertaining to an administrator's dual role/ conflict of interest, and when, as here, the administrator's (here MedLife's) decision to deny benefits is subject to a deferential review (due to the discretionary authority given to the administrator by the Plan). Generally, when conducting this review, a district court usually may not consider facts existing outside of the administrative record. However, the district court must weigh the conflict of interest in the course of its review, and it must allocate the conflict more or less weight depending on its seriousness. Discovery may be needed to provide a claimant or administrator with access to the information necessary to establish or refute the seriousness of the conflict. Therefore, discovery related to the scope and impact of a dual role/ conflict of interest may, at times, be appropriate. In accordance with Federal Rule of Civil Procedure 26(b), discovery is permitted for relevant information, and the discovery must appear reasonably calculated to lead to the production of admissible evidence. Burdensome discovery requests, discovery of cumulative materials, and overly broad or costly discovery requests are not permitted. The party moving to supplement the administrative record or engage in extra-record discovery bears the burden of showing the propriety of a discovery request.

The Tenth Circuit Court of Appeals overturned the magistrate judge's denial of Ms. Murphy's discovery request, as well as the judge's grant of summary judgment against her, and remanded the case for further proceedings.

September 9, 2010

Employment/Tax-IRS Releases Draft Of Form To Be Used To Calculate The Small Business Health Care Tax Credit

In IR-2010-96, the Internal Revenue Service (the "IRS") announced that it has released a draft version of Form 8941, which small businesses and tax-exempt organizations will use to calculate the small business health care tax credit. The Form is posted on the IRS's website. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return. A tax-exempt organization will claim the credit on a Form 990-T which the IRS is revising. The final version of Form 8941 and its instructions will be available later this year.

The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years. The maximum credit goes to smaller employers -- those with 10 or fewer full-time equivalent ("FTE") employees -- paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

September 7, 2010

ERISA-Third Circuit Upholds Lower Court Decision Granting Benefits Under A Program Providing Separation Benefits

In Howley v. Mellon Financial Corporation, No., 08-1748 (3rd Circuit 2010), the plaintiff had been employed for many years by a subsidiary of Mellon Financial Corporation ("MFC") known as "Buck Consultants." He was therefore eligible for, and participated in, MFC's Displacement Program, a welfare benefit plan subject to ERISA. The Displacement Program provides benefits to an employee of MFC or its subsidiaries whose "employment ceases due to technological change or another business reason not related to individual performance." These benefits include, among others, continued eligibility, after employment has "ceased", to participate in and receive benefits under other MFC benefit plans, including MFC's pension plans. However, under the terms of the Displacement Program, generally, an employee cannot participant in the program if her/his employment with an MFC subsidiary is terminated due to MFC's sale of that subsidiary to a company that provides comparable employment, as defined in the program (the "Business Exception").

Effective 11:59:59 p.m. on May 25, 2005, MFC sold Buck to Affiliated Computer Systems, Inc. ("ACS"). The contract of sale provided that ACS would continue the employment of approximately 3,700 Buck employees, including the plaintiff. However, the next morning, May 26, 2005, at approximately 10:00 a.m., ACS informed the plaintiff and certain others that it was terminating their employment effective June 2, 2005. The plaintiff filed a claim for benefits under the Displacement Program. However, his claim was denied by the Program Manager, and then on appeal by the Program Administrator, due to the Business Exception The plaintiff then brought suit in federal court under ERISA and state law, asserting, among others, claims for benefits under the Displacement Program. The District Court granted summary judgment in plaintiff's favor, and the defendants appealed.

The Third Circuit Court found that MFC-through the Program Manager and Program Administrator- abused its discretion in denying the Plaintiff's claim for benefits under the Displacement Program. The Business Exception to coverage under the Displacement Program has two primary requirements: (1) the contract of sale must provide for employment of the employee by another employer, and (2) MFC must determine that the position to be provided to the affected employee is comparable to the position the employee held before the sale, and in particular, that it "initially" provides base salary and incentive compensation opportunities which, in the aggregate, are reasonably similar to those that were provided by the MFC subsidiary. The Court found that the word "initially" means that the employee's new employment must continue for some amount of time in order for the Business Exception to apply. If as this case, there is only a de minimis amount of new employment (here about one week), the exception is not applicable. MFC's interpretation that the Business Exception applies is not reasonable. Accordingly, the Fifth Circuit Court affirmed the District Court's summary judgment in the plaintiff's favor.

September 4, 2010

ERISA-Fifth Circuit Rules That Surgery To Alleviate Obesity Is Not Covered By A Medical Plan

In Dupre v. Employee Benefit Services of Louisiana, Inc., No. 09-30990 (5th Cir. 2010), the plaintiff, Jennifer Dupre ("Dupre"), sought to have gastric bypass surgery, known as ROUX-En-Y, paid for by the self-funded ERISA plan offered by her husband's employer (the "Plan"). Dupre is classified as morbidly obese. At the time she requested the surgery, she suffered from numerous dysfunctions and diseases, such as gastroesophageal reflux disease ("GERD"), and hypertension. One defendant, the Employee Benefit Services of Louisiana, Inc. ("EBS"), is the Plan's third-party administrator. EBS refused to approve the Plan's payment for the gastric bypass surgery, on the grounds that a particular provision of the Plan disallows coverage for surgery in connection with obesity. Dupre brought suit under ERISA, seeking a declaration that the gastric bypass surgery is covered by the plan. The District Court granted summary judgment in Dupre's favor, and the defendants appealed.

In analyzing the case, the Fifth Circuit Court used a deferential review of EBS's decision to refuse to approve the Plan's payment for Dupre's surgery, because the Plan gave EBS discretion to construe the Plan's terms. Under this review, EBS's decision must be upheld if it is fair and reasonable and supported by substantial evidence. Here, the decision was based on a provision of the Plan which says that "[n]o benefits are provided under this plan for expenses incurred for or in connection with: . . . [o]besity, or in connection with obesity, weight reduction, or dietetic control." The plain language of the Plan, therefore, shows that EBS may deny benefits for a surgery connected to weight loss. EBS had evaluated the evidence submitted by Dupre pertaining to the surgery, including two letters from Dupre's physicians, and concluded that the surgery was not a last resort for treating GERD or some other disorder. Instead, it's purpose was to help Dupre lose weight. As such, EBS's decision must be upheld. The Fifth Circuit Court overturned the District Court's summary judgment in Dupre's favor, and entered judgment in the defendant's favor.