June 2011 Archives

June 30, 2011

ERISA-District Court Rules ThatThe ERISA Anti-alienation Rule Does Not Protect Monthly Pension From Asset Freeze

The case of United States Securities & Exchange Commission v. Moskop, Case No. 10 C 7462 (N.D. Ill. 2011) involves an attempted application of ERISA's anti-alienation rule, found in section 206(d)(1) of ERISA (29 U.S.C. § 1056(d)(1)), and under which pension plan benefits may not be assigned or alienated. In this case, the United States Securities and Exchange Commission had alleged that the defendants, Edward Moskop ("Moskop") and Financial Services Moskop & Associates (together, the "Defendants"), had engaged in investment fraud for more than 20 years. On November 27, 2010, an Order was entered freezing all of the Defendants' accounts and assets. The Defendants then moved to exempt the monthly pension payments that Moskop receives from Prudential from this asset freeze. Moskop receives this pension for his work at Prudential from January 1970 through April 1981. Every month, Moskop receives a $337.95 payment from this pension, which is deposited directly into a frozen bank account.

The question for the Court was whether the ERISA anti-alienation rule requires that the pension payments be exempt from the asset/account freeze. The Court said that it did not. All but one circuit (the 4th Circuit) which has considered this issue has held the ERISA anti-alienation rule applies to retirement benefits when they are held by the plan administrator, not when they reach the beneficiary. A district court in this circuit (the 7th circuit) has adopted the majority rule. The problem in this case is that Moskop does not currently have access to the funds once they are deposited into his bank account, as the account is frozen. Thus, these funds do not reach him. However, if the funds are removed from the frozen account, they would enter into Moskop's possession, at which time the ERISA's anti-alienation rule would cease to apply. The Court concluded that the pension payments are not protected from the asset freeze by the ERISA anti-alienation rule, and it denied the Defendants motion to exempt them from the freeze.

June 29, 2011

ERISA-Ninth Circuit Rules That Aetna's Denial Of A Claim For Disability Benefits Was An Abuse Of Discretion

In Letvinuck v. Aetna Life Insurance Company, No. 10-55018 (9th Cir. 2011) (an unpublished opinion), the plaintiff had brought suit under ERISA when the plan of her employer (the "Plan") denied her claim for short-term and long-term disability benefits. Defendant Aetna Life Insurance Company ("Aetna") was the plan administrator and insurer under the employer's plan. Consequently, it was Aetna who decided to deny the plaintiff's claim on the plan's behalf.

In reviewing Aetna's decision to deny the claim, the Court applied a deferential review, since the Plan gave Aetna discretion to decide benefit claims. However, the Court found that, in deciding to deny the plaintiff's claim for disability benefits, Aetna had abused its discretion. The Court cited the following reasons for this finding:

(1) Aetna gave no weight to the Social Security Administration's decision that the plaintiff was disabled, nor did it provide an explanation as to why it gave no weight.

(2) Aetna failed to adequately explain to the plaintiff what additional material or information was needed to perfect her claim, and to do so in a manner calculated to be understood by her. Aetna based its denial of the plaintiff's claim on the absence of specific medical evidence -- evidence that Aetna did not tell the plaintiff she should obtain and send to Aetna to perfect her claim.

Finding that Aetna abused its discretion, the Court overturned Aetna's denial of the plaintiff's claim for disability benefits, as well as the district court's decision which had upheld the denial. The Court remanded the case back to the district court with instructions to award the plaintiff her benefits.


June 23, 2011

ERISA-District Court Rules That Injunctive Relief To Correct Bad Faith Handling Practices For Disability Claims Is Not Available Under Sections 502(a)(2) and (3) of ERISA

Sometimes, in the course of pursuing a claim for insured disability benefits, the plaintiff may feel that the insurance company has instituted a practice in which it deliberately fails to afford fair and reasonable treatment of the claims submitted, that is, it is using a "bad faith claims handling practice". But can the plaintiff do anything about this, such as force the company to change its claims review practice? The district court faced this question in Davis v. Unum Group, Civil Action No. 03-940 (E.D. PA 2011).

In this case, the plaintiffs brought suit against disability insurer and administrator Unum Group and its predecessors and subsidiaries ("Unum"). The plaintiffs alleged, among other things, that in deciding to terminate disability benefits, Unum had engaged in a scheme by which it implemented bad faith claims handling practices resulting in the improper denial or termination of disability benefit claims. Based on this allegation, the plaintiffs had sought injunctive relief under sections 502(a)(2) and (3) of ERISA. Specifically, they asked the Court to appoint a Special Master to supervise the establishment by Union of an independent and fair procedure to review and evaluate all long-term disability claims.

However, the Court ruled that this relief is not available to the plaintiffs under those sections. First, given that no class has been certified, the plaintiffs cannot seek redress for the injuries of others. Second, they cannot seek this relief on their own behalf. Of the two plaintiffs, one has been paid his disability benefits in full by his employer, and therefore has no standing to seek any additional relief under ERISA. The second plaintiff has an adequate legal remedy for the termination of her disability benefit under section 502(a)(1)(B) of ERISA (which generally allows a participant to sue for benefits). Under case law, this precludes relief under section 502(a)(3) (which generally permits a participant to seek injunctive and other equitable relief). Further, since, according to the Court, the plaintiffs offered no evidence that Unum's procedures did not comply with ERISA, the Court felt that there was no meaningful relief to be gained by granting the plaintiffs' request. As to section 502(a)(2) of ERISA (which generally allows a plan participant to sue for breach of fiduciary duty), under case law, that section allows an action on behalf of the plan, and does not provide for individual relief. Since the plaintiff is seeking individual relief, section 502(a)(2) is not available. Based on the foregoing, the Court denied the plaintiffs request for injunctive relief which would require Unum to change its disability claims review practices.

June 22, 2011

Employee Benefits-IRS Extends Filing Due Date For New Form 8955-SSA

According to an Employee Plans Bulletin issued by the IRS on June 21, the filing due date for the 2009 and 2010 Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, has been extended. The Bulletin states that the new due date will be the later of: (1) January 17, 2012 and (2) the due date that would have applied, without this extension, for filing the Form 8955-SSA for 2010. That due date is the final day of the close of the seventh month after the end of the plan year in question, plus extensions granted by using Form 5558. No Form 5558 extensions will be given for the January 17, 2012 due date.

The Bulletin reminds us that Form 8955-SSA replaces Schedule SSA of Form 5500 beginning with the 2009 plan year. The form is used to report information about participants with deferred vested benefits. The 2009 form and instructions are now available, and the 2010 form is expected to be released shortly. Plan administrators must file Form 8955-SSA with the IRS and not through the EFAST2 filing system.

June 20, 2011

Employee Benefits-6/30 Deadline For Amending Flexible Spending Arrangements To Comply With New Drug Rules Is Approaching

According to the Internal Revenue Service (the "IRS"), under the recent health care legislation , the cost of an over-the-counter ("OTC") medicine or drug cannot be reimbursed from a flexible spending arrangement (an "FSA") (or some similar arrangements), unless a prescription is obtained. This new rule does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This change applies only to purchases of medicines or drugs made on or after January 1, 2011. Thus, claims for medicines or drugs bought without a prescription in 2010 can still be reimbursed in 2011.

An FSA may need to be amended to reflect the new rules for OTC medicines and drugs. Under IRS Notice 2010-59, an amendment to conform to the new rules (as applied in that Notice) may be made by June 30, 2011, retroactive to any costs for medicines or drugs incurred after December 31, 2010. The FSA must have been operated in a manner which is consistent with the amendment, since the day on which the amendment became effective.

June 19, 2011

ERISA-Third Circuit Rules That Withdrawal Liability, To The Extent Attributable To The Period Of Time After a Bankruptcy Petition Has Been Filed, Is An Administrative Expense and Entitled To Priority Under The Bankruptcy Code

In In Re Marcals Paper Mills, Inc., No. 09-4574 (3rd Cir. 2011), the Third Circuit Court of Appeals (the "Court") faced the issue of whether, under ERISA, an employer's withdrawal liability under a multiemployer pension plan, to the extent it is attributable to the period of time after the employer has filed a petition in bankruptcy, constitutes an administrative expense that is entitled to priority under the Bankruptcy Code (as opposed to being a general unsecured claim).

In this case the bankruptcy petitioner, Marcal Paper Mills, Inc. and its successor ("Marcal"), had manufactured paper products, and had operated a fleet of trucks driven by union members. Pursuant to a series of collective bargaining agreements with the union, Marcal had been making contributions to the Trucking Employees of North Jersey Welfare/Pension Fund (the "Fund"). The Fund is a multiemployer defined benefit pension plan. On November 30, 2006, Marcal filed a Chapter 11 bankruptcy petition. However, it continued to make contributions to the Fund, until May 30, 2008. At that time, Marcal's assets were sold and it ceased to have union employees. This cessation resulted in a complete withdrawal from the Fund under ERISA and a corresponding withdrawal liability. The Fund then filed a claim in Marcal's bankruptcy proceeding, asking that a portion of the withdrawal liability, which is attributable to the period of time after Marcal had filed its bankruptcy petition, be classified as an administrative expense and therefore be given priority in payment against other claims against Marcal.

In analyzing this case, the Court noted that, under Title 11 U.S.C. § 507(a)(2) of the Bankruptcy Code, administrative expenses allowed under § 503(b) are entitled to priority over the claims of general unsecured creditors. The Court said that, in order to be classified as an administrative expense under that section, the expense must arise from a post-petition transaction with the debtor-in-possession, and the expense must be beneficial to the debtor-in-possession in the operation of its business. Withdrawal liability is imposed on an employer in order to keep a multiemployer pension plan, such as the Fund, funded and able to pay retirement benefits to the union employees, even after the employer withdraws from the plan and would not otherwise be required to make further contributions. Those union employees were required to perform work post-petition in order to keep Marcal in operation, unquestionably conferring a benefit to Marcal's bankruptcy estate. Pursuant to the collective bargaining agreements and the terms of the Fund, Marcal promised to provide pension benefits in exchange for that post-petition work. As such, the Court concluded that the requirements of 11 U.S.C. §§ 503(b) & 507(a)(2) of the Bankruptcy Code are satisfied. It held that the portion of the withdrawal liability attributable to the post-bankruptcy petition period is an administrative expense and therefore entitled to priority in payment over general unsecured claims against Marcal. The remainder of the withdrawal liability is treated as a general unsecured claim.

June 16, 2011

ERISA-Third Circuit Rules That Administrator's Decision To Deny Life Insurance Benefits Is Not Entitled To A Deferential Review; It Also Offers "Safe Harbor" Language For Providing Discretion To An Administrator

Viera v. Life Insurance Company of North America, No. 10-2281 (3rd Cir. 2011), arose out of the 2008 death of Frederick Viera ("Viera") in a head-on motorcycle accident. At the time of his death, Viera was covered under an employer-provided accidental death and dismemberment policy ("Policy"), which was issued and administered by Life Insurance Company of America, and which was subject to ERISA. Viera's wife and the executrix of his estate, Hetty Viera (the "Plaintiff"), submitted a claim for death benefits under the Policy following his death. LINA denied Plaintiff's claim, both initially and on appeal. Subsequently, Plaintiff filed suit, but the district court granted summary judgment to LINA. In granting this judgment, the district court had concluded that the Policy gave LINA discretionary authority to determine eligibility, and had reviewed LINA's decision to deny the Plaintiff's claim for a death benefit under a deferential standard. The Third Circuit Court of Appeals (the "Court") ruled that deferential review was not appropriate, given the language of the Policy. The Court overturned the district court's decision, and remanded the case for further proceedings.

In reviewing the Plaintiff's claim for the death benefit, LINA concluded that a certain medicine which Viera was taking-namely Coumadin-was a contributing factor to his death, so that the claim must be denied based on the terms of the Policy. The Court said that this conclusion must be reviewed de novo, unless the Policy gives LINA, as administrator, discretionary authority to determine eligibility for benefits or to construe the terms of the plan. The relevant language at issue in the Policy is the "Proof of Loss" provision, which provides: "Written or authorized electronic proof of loss satisfactory to Us must be given to Us at Our office, within 90 days of the loss for which claim is made (emphasis added)." The Court concluded that this language is ambiguous, and therefore does not confer discretion on LINA. It said that, to be entitled to a deferential review, a plan must communicate the idea that the administrator not only has broad-ranging authority to assess compliance with pre-existing criteria, but also has the power to interpret the rules, to implement the rules, and even to change them entirely. A phrase such as "satisfactory to us" is not likely to convey enough information to permit a plan participant to determine whether the plan confers discretion on the administrator.

Based on the foregoing, the Court concluded that a de novo review of LINA's decision to deny the Plaintiff's claim for a death benefit is required. Therefore, it overturned the district court's summary judgment in LINA's favor, and remanded the case back to the district court to determine whether LINA had properly denied the Plaintiff's claim. The Court added that, if an administrator wishes to insulate its decision to deny benefits from de novo review, the plan should contain the following "safe harbor" language: "Benefits under this plan will be paid only if the plan administrator decides in its discretion that the applicant is entitled to them."

June 15, 2011

Employment-EEOC Has A Hearing Concerning Use Of Leave Of Absence To Provide Reasonable Accommodation

According to a Press Release (6/8/11), the U.S. Equal Employment Opportunity Commission (the "EEOC") held a hearing, which produced a range of views from a diverse panel of experts concerning the use of leave to provide reasonable accommodations under the Americans with Disabilities Act (the "ADA"). The Press Release stated that, although the speakers differed as to some employer and employee obligations, they agreed on the need for clear and uniform guidance from the EEOC on the use of such leave.

The ADA requires reasonable accommodations when necessary so that people with disabilities can perform the essential functions of their jobs, unless doing so would constitute an undue hardship to the employer. A leave of absence--including those beyond an employer's permitted number of days off--can constitute a reasonable accommodation. The EEOC website offers a video of the hearing.

June 14, 2011

ERISA-DOL Advises That Ability Of Party In Interest To Negotiate A Wrap Contract For A Stable Value Fund Does Not Make The QPAM Exemption Inapplicable

In Advisory Opinion 2011-07A, the Department of Labor ("DOL") faced a question pertaining to Prohibited Transaction Exemption 84-14 (the "QPAM Exemption"). The QPAM Exemption provides relief from ERISA's prohibited transactions rules for dealings between an investment fund, which is managed by a qualified professional asset manager (a "QPAM"), and a party in interest with respect to employee benefit plans invested in that fund. Section I(a) of the QPAM Exemption provides, as a condition to receiving this relief, that the party in interest dealing with the fund may not have the authority to appoint or terminate, or to negotiate the investment management agreement of, the QPAM as a manager of the plan assets involved in the dealings.

The Advisory Opinion involves a stable value program, under which fixed income assets are managed by a QPAM. As a part of this program, a stable value manager (an "SVM") is responsible for negotiating stable value wrap contracts with various banks or insurance companies (the "Wrappers"). These negotiations relate to the parameters for investing the assets. The SVM may, or may not, also act as the QPAM. The issue is whether these negotiations between the Wrapper and the SVM will violate Section I(a) of the QPAM Exemption-by reason of the Wrapper and SVM, as parties in interest, having authority to negotiate the management agreement of the QPAM -thereby causing the QPAM to be unable to enter into subsequent dealings with the Wrapper and the SVM (where the SVM is separate from the fixed income manager) for the program.

Subject to various assumptions and representations, the DOL concluded that neither the Wrapper's nor the SVM's negotiation of the investment parameters gives them the authority to negotiate, on behalf of any plan, the terms of the QPAM's investment management agreement. The Wrapper is not negotiating on behalf of any plan. Instead the Wrapper is negotiating the terms of the investment parameters to reduce its own exposure under the wrap contract. While the SVM is negotiating on behalf of a plan, in the DOL's opinion, negotiating the investment parameters does not amount to negotiating the terms of the QPAM's investment management agreement. The plans investing in the program and the QPAM retain broad authority to negotiate these terms. Thus, Section I(a) of the QPAM Exemption is not violated, and the QPAM Exemption remains applicable to the program.

June 13, 2011

ERISA-Second Circuit Rules That A Plan Is Not Entitled To Recover Losses Due To Madoff Fraud Under Its ERISA Compliance Bond

In Schupak Group, Incorporated v. Travelers Casualty and Surety Company of America, No. 10-1873-cv (2nd Cir. 2011), the Court dealt with the aftermath of the Bernard Madoff schemes. In this case the plaintiff, Schupak Group, Incorporated ("Schupak"), is a sponsor of an ERISA plan, which the complaint alleges was victimized by Madoff's fraud. The defendant, Travelers Casualty and Surety Company of America ("Travelers"), had provided the ERISA compliance bond (the "Bond"), as required by 29 U.S.C. § 1112(a), which insured Schupak's plan against fraud and other dishonest acts committed by any "employee." The insurance policy underlying the bond defined the term "employee" as a trustee, an officer, employee, administrator or manager, except an administrator or manager who is an independent contractor, of the plan covered by the policy.

After Madoff's arrest, Schupak filed a claim with Travelers seeking to recover the value of the plan's investment losses due to Madoff's schemes. In the "Proof of Loss" form, Schupak stated that Madoff was "Custodian and Investment Trustee," as "delegated by the Plan Trustee." The question for the Court: Is Madoff an "employee" of the plan within the meaning of the insurance policy?

The Court ruled that Madoff was not a plan "employee", as so defined. It said that Schupak's complaint, read liberally, contains no factual allegations giving rise to a reasonable inference that Madoff was a "trustee" for the purposes of the Bond. The complaint was utterly conclusory with respect to Madoff's status under the Bond. Moreover, the complaint asserts, on its face, that the funds in question were placed in Madoff's control after passing through a third party intermediary, FGLS, LLC, thereby negating the plausibility of any assertion that Madoff was affiliated with Shupak's plan. As Madoff was not an employee of Shupak's plan, the Court found that the plan was not entitled to any recovery under the Bond.

June 9, 2011

ERISA-Ninth Circuit Upholds A Plan's Denial Of Health Benefits Despite Procedural Errors In Reviewing the Benefit Claim

In Lafferty v. Providence Health Plans, No. 10-35688 (9th Cir. 2011) (unpublished memorandum), the plaintiff, Joan Lafferty ("Lafferty"), had filed suit under ERISA against the defendant, Providence Health Plans ("Providence"), after Providence refused to pay for the treatment of Lafferty's rare, malignant brain tumor. Lafferty had requested preauthorization for Interarterial chemotherapy with blood brain barrier disruption ("BBBD"). Providence denied coverage because the sought BBBD treatment was "experimental/investigational." The district court granted judgment in favor of Lafferty, and Providence appealed. The Ninth Circuit Court of Appeals (the "Court") reversed the district court's judgment.

In analyzing the case, the Court found that the district court had erred by reviewing de novo Providence's decision to deny the coverage. A deferential review was required (presumably, the plan's decision maker had authority which entitled it to a deferential review). The exception to deferential review for procedural irregularities by the plan administrator does not apply in this case. The Court noted some troubling aspects to Providence's review of Lafferty's initial complaint and subsequent appeals. However, those irregularities did not amount to the "wholesale and flagrant disregard of ERISA procedural requirements" that the Ninth Circuit has identified as warranting de novo review.

Applying the deferential review, the Court found that Providence did not abuse its discretion in refusing to pay for Lafferty's treatment. The Court said that-when deferential review applies- it may not disturb a plan administrator's decision if it is reasonable. In testing for reasonableness, a court must consider whether the decision was: (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record. A higher degree of skepticism of the plan administrator's decision is appropriate when the administrator has a conflict of interest. In this case, the Court did not find Providence's decision to be implausible or illogical. Providence's conclusion that Lafferty's treatment was experimental, and therefore not covered, is supported by facts in the record. As such, the Court concluded that, even factoring in the irregularities in Providence's review process, its decision to deny coverage was not unreasonable, and the district court's judgment must be reversed.


June 8, 2011

ERISA-Fifth Circuit Holds That An Arrangement Which Provides A Discount Or Reimbursement Of The Cost Of Telephone Service To Employees And Retirees Is Not A Pension Plan

In Boos v. AT&T, Incorporated, No. 10-50353 (5th Cir. 2011), the Fifth Circuit Court of Appeals (the "Court") faced the issue of whether the Defendants' practice of offering discounted telephone services, or reimbursement for part of the costs of telephone services, to employees and retirees (the "Concession") is a pension plan. The district court had granted summary judgment to Defendants, ruling that the Concession is not a pension plan, in whole or in part. The Plaintiffs appealed this decision. The Court affirmed the district court's judgment.

In analyzing this case, the Court noted that a pension plan, for purposes of ERISA, is any plan, fund or program established or maintained by an employer to the extent that by its express terms or as a result of surrounding circumstances such plan, fund or program: (1) provides retirement income to employees, or (2) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond. 29 U.S.C. section 1002(2)(A).

One important concern in determining if an arrangement is a pension plan is whether the arrangement provides income, within the meaning of the Internal Revenue Code (the "Code"). If the arrangement does not provide income, it is not a pension plan. For those retirees receiving the discount, the Concession is not income. Rather, it is a "no additional cost" service under Section 132(a)(1) of the Code and Treas. Reg. section 1.132-2(a)(2). As such, that part of the Concession is not a pension plan.

For those retirees receiving the reimbursement, this part of the Concession is likewise not a pension plan, since: (1) the entire Concession is a single plan, as the employer intended it to be such, (2) the "to the extent" language in 29 U.S.C. section 1002(2)(A) does not require a court to split up a single benefit to establish a pension plan, (3) the Concession does not provide retirement income, since, although the reimbursements are income under the Code, most Concession recipients receive the discount, not the reimbursement, so that the income is incidental to the primary benefit of the Concession and (4) there is no deferral of income, since there is no showing the Concession recipients ever forewent income at some point in exchange for receiving income at a later date.

Based on the foregoing, the Court concluded that the Concession is not a pension plan, in whole or in part, for purposes of ERISA.

June 7, 2011

Employment -Second Circuit Rules That An Employer Did Not Violate USERRA When It Fired A Returning Serviceman

In Hart v. Family Dental Group PC, No. 10-1008-cv (Second Circuit 2011), the plaintiff, Dr. Evan Hart ("Hart"), had brought suit against the defendants, Family Dental Group, PC and its president, Kenneth Epstein (together, "FDG"). Hart's claim was that FDG, his employer, had fired him in violation of § 4312(a) of the Uniformed Services Employment and Reemployment Rights Act ("USERRA"). The district court ruled in favor of FDG, and Hart appealed. The Second Circuit Court of Appeals (the "Court") affirmed the district court's decision.

FDG had hired Hart in 2001 to work as a dentist. Prior to joining the practice, Hart enlisted in the United States Army Reserves. Hart's employment with FDG was governed by a signed employment agreement. This document provided that Hart could be terminated without cause so long as he was given 30-days notice. In July 2004, Hart was called to duty with the Army Reserves, and was stationed in Iraq from September 2004 until December 2004. In December 2004, Hart contacted FDG to inform it of his plan to return to FDG upon the completion of his Army service. He began working at FDG again on January 17, 2005. Hart was afforded the same title, salary, benefits, and other conditions of employment that he received before he left for Iraq. On January 20, however, FDG gave Hart a letter stating that his employment would be terminated in 60 days, shortened to 30 days in accordance with Hart's employment agreement. Hart sought Department of Labor intervention, and as a result his employment with FDG was extended until July 20, 2005 (§ 4316(c)(2) of USERRA required FDG to employ Hart for 180 days following his return from active duty, which it did with this extension). Still not satisfied, Hart filed this suit.

The question for the Court is whether the FDG January 20 letter providing Hart with 60-days notice (later changed to 30-days and thereafter again changed to 180-days), and Hart's subsequent termination in accordance with that letter, violated § 4312(a) of USERRA. The Court ruled that there was no violation of this provision. § 4312 of USERRA creates an entitlement to reemployment following military service. However, § 4312 entitles a service person only to immediate reemployment, and does not prevent the employer from terminating him the next day or even later the same day. Hart was re-employed on his return from his leave for military service, with the same seniority and other rights and benefits (e.g., the same title, salary, benefits, and other conditions of employment) that he had before he left. That is all § 4312 requires. §§ 4311 and 4316(c)(2) of USERRA provide additional protections for returning serviceman. However, Hart did not appeal any claims arising under § 4311 and § 4316, so the Court would not express an opinion on whether those provisions were violated here.

June 6, 2011

ERISA-Fourth Circuit Upholds Insurer's Termination of Disability Benefits Despite Its Conflict Of Interest

In Frankton v. Metropolitan Life Insurance Company, No. 09-2184 (4th Cir. 2011) (Unpublished Opinion), the plaintiff, Georgia Frankton ("Frankton"), had been covered by a long -term disability plan maintained by her employer (the "Plan"). She brought suit against Metropolitan Life Insurance Company ("MetLife"), the insurer and administrator of the Plan, for terminating her benefits under the Plan in violation of ERISA. MetLife had discretion and authority to make determinations of benefit entitlement under the Plan. The district court awarded summary judgment in favor of Metropolitan, and Frankton appealed. The Fourth Circuit Court of Appeals (the "Court") affirmed the district court's judgment.

In analyzing the case, the Fourth Circuit Court noted that, since MetLife had discretion and authority to determine benefit entitlement under the Plan, its decision to terminate the long-term disability benefits is subject to a deferential review. As such, the Court will not disturb its decision, so long as the decision is reasonable. To be reasonable, MetLife's decision must result from a deliberate, principled reasoning process and be supported by substantial evidence. The Court listed 8 factors to be used to test MetLife's reasonableness.

In this case, the Court found that MetLife was reasonable in deciding to terminate the long-term disability benefits. In particular, it found that:

--MetLife did not act unreasonably in failing to send certain updated medical records of Frankton's own physician to an independent physician consultant hired by MetLife to review the case. Those records were basically duplicative of other documents in Frankton's claim file. Therefore, the failure to send them resulted in only a minor procedural violation.

--MetLife did not consider an award of disability benefits to Frankton by Social Security. However, Frankton never gave MetLife the award letter from Social Security, and Social Security's definition of "disability" differs from the Plan's definition. Therefore, it was not unreasonable for MetLife to fail to consider this award.

--Frankton argued that MetLife failed to accord sufficient weight to the medical reports of Frankton's own examining physician. However, while MetLife may not arbitrarily ignore reliable evidence, ERISA does not require that administrators accord special deference to the opinions of a claimant's own treating physicians. Here, the reports of an independent medical examiner and an independent physician consultant hired by MetLife to review the case included substantial criticism of the reports of Frankton's own treating physician. Thus, MetLife acted reasonably in relying on the reports of the independent medical examiner and independent physician consultant, and in rejecting the opinion of Frankton's own treating physician.

What about MetLife's conflict of interest, since it was both the insurer and administrator of the Plan? Here is what the Court said about this conflict. The presence of a conflict of interest is one fact, among many, that a reviewing court may consider in evaluating the reasonableness of an administrator's decision. The record shows that MetLife attempted to make an accurate claim assessment by hiring an independent medical examiner and an independent physician consultant to review Frankton's entire claim file. Those physicians reached reasoned and principled conclusions. Both physicians prepared detailed reports and justified their conclusions in light of contrary reports from Frankton's own examining physician. Thus, the Court concluded that Frankton failed to show that MetLife's conflict of interest was sufficient to outweigh the evidence of MetLife's effort in assuring an accurate claim assessment.


June 3, 2011

ERISA-DOL Will Extend And Align Effective Dates For Retirement Plan Fee Disclosure Rules

According to a News Release (May 31, 2011) from the U.S. Department of Labor (the "DOL"), the DOL will publish a notice (presumably on June 1) (the "Notice") which proposes to extend and align the applicability dates for its retirement plan fee disclosure rules.

The News Release explained that, on July 16, 2010, the DOL had published an interim final regulation under section 408(b)(2) of ERISA. This regulation requires retirement plan service providers to disclose comprehensive information about their fees and potential conflicts of interest to plan fiduciaries. Although the regulation was scheduled to apply to plan contracts or arrangements for services in existence on or after July 16, 2011, the DOL earlier announced its intention to extend the effective date to Jan. 1, 2012. The proposal in the Notice, when finalized, would make the extension official.

The News Release continued by noting that the DOL also published a final participant-level regulation on Oct. 20, 2010. This regulation requires that employers disclose information about plan and investment costs to workers who direct their own investments in retirement plans. It applies for plan years beginning on or after Nov. 1, 2011, with a 60-day transition provision. The Notice proposes to amend the regulation's transitional rule, so that employers would have up to 120 days to furnish initial disclosures to workers.