September 2011 Archives

September 28, 2011

Employment-Fifth Circuit Rules That An ADEA Claim May Be Brought Based On A Hostile Work Environment

In Dediol v. Best Chevrolet, Incorporated, No. 10-30767 (Fifth Cir. 2011), the plaintiff, Milan Dediol ("Dediol"), was appealing the district court's grant of summary judgment for his former employer, defendant Best Chevrolet, Incorporated ("Best Chevrolet").

Dediol was employed at Best Chevrolet from June 1, 2007, until August 30, 2007. During his tenure, he worked directly under Donald Clay ("Clay"), Best Chevrolet's Used Car Sales Manager. Dediol was 65 years old during his employment with Best Chevrolet. Dediol alleges that, on July 3, 2007, friction surfaced between him and Clay when he requested permission to take off from work for the next morning--July 4, 2007--to volunteer at a church event. Dediol received permission from Clay's assistant manager, Tommy Melady ("Melady"), but Clay overruled Melady using derogatory words, laced with explatives. Dediol claims that, after July 4, Clay referred to Dediol using derogatory names (e.g., "Old Man" and "Pops"), made comments related to Dediol's religion and threated, intimidated and provoked fights with Dediol, in the presence of Melady and other employees. Dediol stopped coming to work after August 30, 2007, and was terminated for abandoning his job. He eventually brought this suit.

One claim Dediol made was age discrimination, under the Age Discrimination in Employment Act (the "ADEA"), based on the hostile work environment at Best Chevrolet. The Court adopted the rule, for the Fifth Circuit, that such a claim is viable. It stated that a plaintiff may make out a prima facie claim of age discrimination under the ADEA by establishing that: (1) he was over the age of 40; (2) he was subjected to harassment, either through words or actions, based on age; (3) the nature of the harassment was such that it created an objectively intimidating, hostile, or offensive work environment; and (4) there exists some basis for liability on the part of the employer. As to prong (3), a plaintiff must demonstrate that the harassment was objectively unreasonable. A workplace environment is hostile when it is permeated with discriminatory intimidation, ridicule, and insult, that is sufficiently pervasive to alter the conditions of the victim's employment. This environment must appear hostile or abusive to a reasonable person. The Court ruled that Dediol had established a prima facie case of an ADEA violation under the 4 prong test, and overturned the district court's grant of summary judgment against him on this point.

September 27, 2011

ERISA-Seventh Circuit Finds That Surviving Spouse's Consent ToThe Waiver Of A QPSA Was Valid, Despite No Witness

In Burns v. Orthotek, Inc. Employees' Pension Plan and Trust, No. 10-1521 (7th Cir. 2011), the Seventh Circuit Court of Appeals (the "Court") was asked to determine the beneficiary of a deceased plan participant. In this case, the participant, Dr. Richard Burns, had designated his three sons as the beneficiaries under a retirement plan subject to ERISA (the "Plan"). However, under ERISA those designations are effective only if his widow, Cheryl Burns, consented to her husband's waiver of a qualified pre-retirement survivor annuity (a "QPSA") (of which she would be the beneficiary). She did sign a written consent form for the waiver. However, after her husband died, she claimed her consent was invalid because it was not witnessed, as required by ERISA. The Plan found her consent valid and denied her claim for benefits as the payee of a QPSA under the Plan. The district court upheld that decision, invoking the substantial-compliance doctrine and finding that the consent form Mrs. Burns signed substantially complied with ERISA.

The Court ruled that the substantial-compliance doctrine does not apply. This obtains because ERISA expressly requires that the widow's consent be witnessed, and substantial compliance cannot replace this specific requirement.

Still, the Court found that the Plan was within its discretion to deny Mrs. Burns's claim for the QPSA. Under the facts of this case, Dr. Burns, the plan representative, is deemed to have witnessed his wife's written consent to the QPSA waiver, meeting the ERISA witness requirement. Dr. Burns was not present when his wife's signed the consent form. But he was the only plan representative for the Plan (being the plan administrator, named fiduciary and primary participant of the Plan, as well as the principal shareholder, officer and sole director of the employer maintaining the Plan). He gave his wife the form to sign. Dr. Burns obviously knew from his own personal knowledge that the "Cheryl Burns" who signed and returned the form to him was his wife, whose consent was required to complete the necessary paperwork to effectuate the QPSA waiver and designate his sons as his beneficiaries. The Plan was entitled to conclude that the foregoing satisfies the ERISA witness requirement. Therefore, Mrs. Burns's consent to the waiver was valid, and she is not entitled to a QPSA from the Plan. As such, the Court affirmed the district court's decision to uphold of the Plan's denial of the Mrs. Burns's claim for the QPSA.

September 22, 2011

Employment-IRS Announces New Voluntary Worker Classification Settlement Program

In IR-2011-95 (9/21/11) (the "Announcement"), the Internal Revenue Service (the "IRS") announced that it has begun a new program, called the Voluntary Classification Settlement Program (the "VCSP"). The VCSP will enable many employers to resolve past worker classification issues-primarily incorrectly classifying workers as independent contractors (or other nonemployees) instead of employees- and become compliant with the law by paying a small amount to cover past payroll tax obligations.

According to the Announcement, to be eligible for the VCSP, an employer must:
• have consistently treated the workers as nonemployees,
• have filed all required Forms 1099 for the workers for the previous three years, and
• not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers.

An eligible employer may apply for the VCSP by filing Form 8952 (Application for Voluntary Classification Settlement Program), at least 60 days before it wants to begin treating the workers as employees. Employers accepted into the VCSP will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the VCSP, be subject to a special six-year statute of limitations for their payroll taxes, rather than the usual three years.

The Announcement says that full details about the VCSP, including FAQs, will be available on the Employment Tax pages of, and in Announcement 2011-64.

September 21, 2011

ERISA-DOL Will Re-Propose Its New Rule On Definition Of Fiduciary

According to a News Release (9/19/11), the Department of Labor (the "DOL") will re-propose its new rule on the definition of a fiduciary for purposes of ERISA. The DOL had published a proposed rule on October 22, 2010, to change the definition to reflect the current market place. That rule would have significantly expanded the definition of fiduciary, and met with a lot of resistance. It appears, from the News Release, that the DOL wants more input from the public and other rule makers (e.g., the Securities and Exchange Commission and the Commodities Futures Trading Commission) and more time to review and consider a revised definition.

The News Release says that the DOL anticipates revising the definition of fiduciary so as to, among other things, clarify that fiduciary advice is limited to individualized advice directed to specific parties, respond to concerns about the application of the definition to routine appraisals and clarify the limits of the definition's application to arm's length commercial transactions, such as swap transactions. Also anticipated are the issuance of exemptions (presumably prohibited transaction class exemptions) addressing concerns about the impact of the new definition on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. The re-proposal is expected to be issued in early 2012.

September 20, 2011

Employment-DOL And IRS To Act Together And Increase Efforts On Preventing The Misclassification Of Employees As Independent Contractors

According to a News Release (9/1/9/11), the Department of Labor (the "DOL") and the Internal Revenue Service (the "IRS") have signed a memorandum of understanding that will improve joint departmental efforts to end the business practice of misclassifying employees as independent contractors in order to avoid providing employment protections and employee benefits. In addition, seven states signed memorandums of understanding-having the same goal of preventing employee misclassification- with the DOL's Wage and Hour Division and, in some cases, other DOL divisions. The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington. Also, Hawaii, Illinois, Montana and New York are expected to enter into similar memorandums with the DOL. These memorandums will enable the DOL to share information and coordinate law enforcement with the IRS and signing states.

The News Release states that business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws -- for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. These memorandums of understanding among the DOL, the IRS and the states arose as part of the DOL's Misclassification Initiative. This initiative was launched under the auspices of Vice President Biden's Middle Class Task Force, with the goal of preventing, detecting and remedying employee misclassification.

September 19, 2011

Employee Benefits-IRS Provides Guidance On Tax Treatment Of Employer Provided Cell Phones

In Notice 2011-72 (the "Notice"), the Internal Revenue Service (the "IRS") has provided guidance on the tax treatment of cellular telephones or other similar telecommunications equipment ("cell phones") that employers provide to their employees. Here is what the Notice said.

The value of the business use of an employer-provided cell phone, which was provided to the employee primarily for a noncompensatory business purpose, is excludable from the employee's income as a working condition fringe under section 132(a)(3) of the Internal Revenue Code (the "Code"), to the extent that, if the employee paid for the use of the cell phone himself or herself, such payment would be allowable as a deduction for the employee under section 162 of the Code.

The cell phone is considered to be provided primarily for a noncompensatory business purpose if there is a substantial reason relating to the employer's business, other than providing compensation to the employee, for giving the cell phone to the employee. An appropriate purpose might be: (1) the employer's need to contact the employee at all times for work-related emergencies; (2) the employer's requirement that the employee be available to speak with clients at times when the employee is away from the office; or (3) the employee's need to speak with clients located in other time zones at times outside of the employee's normal work day. On the other hand, none of the following is an appropriate purpose: (a) to promote the morale or good will of an employee; (b) to attract a prospective employee; or (c) as a means of furnishing additional compensation to an employee.

When the value of the business use of the cell phone is excludable from income as a working condition fringe, the substantiation requirement under section 132(d) is automatically satisfied. In addition, the IRS will treat the value of any personal use of a cell phone, provided by the employer primarily for a noncompensatory business purpose, as excludable from the employee's income as a
de minimis fringe benefit under section 132 (a)(4) of the Code. The Notice applies to any use of an employer-provided cell phone occurring after December 31, 2009, in any tax year ending after that date.

September 17, 2011

ERISA- EBSA Issues Interim e-Disclosure Policy Under The Participant Fee Disclosure Regulation

According to a Press Release (9/13/11), the Employee Benefits Security Administration (the "EBSA") has issued Technical Release 2011-03 (the "Technical Release"), which contains an interim policy regarding the use of electronic media to satisfy disclosure requirements under the ESBA's final participant-level fee disclosure regulation (the "Regulation") (found at 29 CFR 2550.404a-5).

The Press Release says the following. The Regulation requires employers to disclose more information about plan and investment costs to workers who direct their own investments in ERISA-covered 401(k) and other individual account retirement plans. Under the Regulation, plans generally have until at least May 31, 2012 to start giving better information on 401(k) and similar plan fees and expenses to an estimated 72 million participants.

The Technical Release allows plan administrators to electronically furnish information required under the Regulation. This includes the use of continuous access websites, if certain conditions and safeguards are met. The Technical Release states that the EBSA will not take enforcement action based solely on a plan administrator's use of electronic technologies to make the required disclosures under the Regulation, if the administrator complies with the conditions in the Technical Release. The relief in the Technical Release is specifically limited to the disclosures required under the Regulation .

September 15, 2011

ERISA-Ninth Circuit Rules That Insurer Abused Its Discretion In Terminating Long-Term Disability Benefits

In Dine v. Metropolitan Life Insurance Company, No. 09-56761 (9th Cir. 2011) (Unpublished Memorandum), the plaintiff, Kathy Dine ("Dine"), had brought an action under ERISA against the administrator and insurer of her employer's long-term disability ("LTD") plan, Metropolitan Life Insurance Company ("MetLife"). She alleged that MetLife had abused its discretion by terminating her LTD benefits under the plan. The question for the Ninth Circuit Court of Appeals (the "Court"): was Dine correct?

In analyzing the case, the Court said that, while MetLife's decision to terminate the benefits is reviewed for abuse of discretion ( a deferential review), MetLife has a structural conflict of interest because it both evaluates claims for benefits and pays benefit claims. When this structural conflict exists a court must consider numerous case-specific factors, including the administrator's conflict of interest, and reach a decision as to whether discretion has been abused by weighing and balancing those factors together. A higher degree of skepticism is appropriate where the administrator has a conflict of interest.

The Court found that, in this case, three factors lead to the conclusion that MetLife had abused its discretion. First, the record indicates MetLife notified Dine by letter that it was presently reviewing her claim to have the LTD benefits continue, and stated that if additional information is needed to complete the review, MetLife will notify her accordingly. Notwithstanding those statements, MetLife shortly thereafter denied Dine's claim, stating that she had submitted insufficient evidence. Second, MetLife's determination that Dine was not disabled contradicted the opinion of her treating physician. Third, MetLife ignored its own reviewing physician's advice to order an independent medical examination.

The Court decided to reverse the district court's decision against Dine. It remanded the case back to the district court, to enter judgment in favor of Dine and to order reinstatement of her LTD benefits until (if ever) MetLife properly applies the plan's provisions to reach a different result.

September 14, 2011

Employee Benefits-IRS Provides Guidance On 20% Withholding Requirement For Distributions For Qualified Retirement Plans

In the Summer 2011 edition of Retirement News for Employees, the Internal Revenue Service ("IRS") provides guidance on whether the 20% federal income tax withholding requirement applies to a distribution from a qualified retirement plan. The IRS said the following.

The plan administrator should only withhold 20% for federal income tax from eligible rollover distributions. A plan administrator doesn't have to apply withholding if expected distributions to an individual are less than $200 for the year. The 20% withholding generally only applies to any previously untaxed
amount of the eligible rollover distribution (not to any already taxed amount - cost). However, no withholding is required if the plan directly rolls over (in a trustee-to-trustee transfer) the amount to another qualified retirement plan or IRA.

Distributions that are not eligible rollover distributions are subject to different withholding rates depending on whether they are periodic or nonperiodic payments. Periodic payments are made at regular intervals for more than 1 year (for example, an annuity). Generally, the plan administrator must withhold at the rate for a married individual with 3 withholding exemptions. However, the plan administrator must notify the recipient of his or her right to elect no withholding, or elect to have a different amount withheld, by filing Form W-4P with the plan administrator. Either election may be changed at any time. The plan administrator must withhold 10% from any required minimum distributions and 20% from any excess amount distributed that is an eligible rollover distribution.

Nonperiodic payments are distributions that usually aren't made at regular intervals and are not eligible rollover distributions. Examples include distributions of: (1) excess annual additions, (2) excess contributions and excess aggregate contributions from most plans if made within 2 ½ months after the end of the plan year, (3) hardship distributions and (4) loans treated as distributions. The plan administrator must withhold 10% from these payments. However, the recipient may elect no withholding or have a different amount withheld by filing a Form W-4P with the plan administrator.

The IRS also discusses withholding in special situations. The IRS points out that a plan administrator may be subject to penalties for failing to properly withhold, deposit or report taxes, and to electronically deposit withheld taxes.

September 12, 2011

ERISA-Seventh Circuit Rules That Offering Retail Mutual Funds For Plan Investment Does Not Violate ERISA Fiduciary Duty

In Loomis v. Exelon Corporation, Nos. 09-4081, 10-1755 (7th Cir. 2011), the plaintiffs were participants in a self-directed defined contribution plan (the "Plan") maintained by their employer, the defendant Exelon Corporation ("Exelon"). The Plan offered 32 investment options, including 24 "retail mutual funds", that is, mutual funds open to investment by the public. The plaintiffs had brought suit against Exelon, alleging that the Plan's administrators violated their fiduciary duty under ERISA in two ways: (1) by offering the retail mutual funds, in which the participants get the same terms and thus bear the same expenses as the general public and (2) by requiring participants to bear the economic incidence of those expenses themselves, rather than having Exelon cover these costs. Their case was dismissed by the district court, and the plaintiffs appealed.

As to claim (1), the plaintiffs contended that Exelon should have arranged for access to "institutional mutual funds" as Plan investment options. In that type of fund, the plaintiffs said, the cost of investment and the expenses are negotiated by the fund and the Plan, and thus will be more favorable to participants than with the retail mutual funds. However, the Court rejected this argument and thus claim (1). Generally, building on its decision in Hecker v. Deer (7th Cir. 2009), the Court said that it found no evidence that institutional mutual funds provide a better investment for the Plan participants than the retail mutual funds. As to expenses in particular, the expenses borne by participants when they invest in retail mutual funds are set by market competition, as those funds are offered to the public. There is no guarantee that negotiations with the institutional mutual funds will produce lower expenses. To the contrary, the Court pointed to an amicus brief filed by the Investment Company Institute, which indicates that institutional mutual funds have higher expenses than any of the retail mutual funds offered for investment by the Plan. Further, the institutional mutual funds have the drawback of lower liquidity, meaning restrictions on exchanges out of the fund, while the retail mutual funds offer daily exchanges.

As to claim (2), the Court said that having participants, rather than Exelon, bear the investment expenses is a matter of plan design. It is not a fiduciary issue, and therefore cannot lead to a breach of fiduciary duty under ERISA. Nothing in ERISA requires the employer to pay any plan expenses. Thus, the Court rejected claim (2). Since it rejected both claim (1) and claim (2), the Court affirmed the district court's dismissal of the case.

September 8, 2011

ERISA-District Court Rules That A Deferred Compensation/Split Dollar Life Insurance Plan Is "Unfunded" For ERISA Purposes

When is a plan "unfunded" for purposes of ERISA? The answer to this question can have important implications. For example, a "top hat" plan, usually a plan established for upper level employees, is not subject to the participation, vesting, funding or fiduciary provisions of ERISA. However, a plan will not be treated as being a top hat plan unless it is "unfunded". A court had the opportunity to consider whether a plan is unfunded, and thus a top hat plan, in Precious Plate, Inc. v. Russell, No. 06-CV-546C (W.D. NY 2011).

This case involved a deferred compensation/split-dollar life insurance plan (the "Plan") entered into between the plaintiff (the employer) and defendant (the employee), and the Plan's underlying life insurance policy, agreements and assignments. In general, under the Plan, the life insurance policy insured the life of, and was owned by, the defendant. The plaintiff would pay the premiums on the policy. In consideration of these premium payments, the defendant assigned the policy to the plaintiff as collateral. Upon the defendant's death, the plaintiff would collect the policy proceeds, pay a portion of the proceeds to the defendant's beneficiary, and retain the remainder. If the defendant terminated employment, the entire policy would become the plaintiff's property. The defendant terminated employment, and the plaintiff brought this suit to enforce the Plan's termination provision. If the Plan was "unfunded", and thus a top hat plan, then the plaintiff would not be hindered in its efforts by ERISA's fiduciary requirements.

Examining the facts and the law, the Court said the following on the "unfunding" issue. The Court notes that neither the split-dollar agreements nor the assignments contain any specific language stating that the policy proceeds are general assets of the plaintiff, that the plaintiff's or defendant's rights in the policy are those of an unsecured creditor, or that the Plan is an unfunded top-hat plan. Nonetheless, considering the language of the assignments and the split-dollar agreements, the Court finds that the Plan is unfunded. The plaintiff has the sole right to collect the policy proceeds at death or maturity or to surrender the policy for its cash value. While the plaintiff is contractually obligated to pay the agreed upon death benefit to the defendant's beneficiary, the beneficiary may not look to a separate res for payment of the benefits. Once the plaintiff has collected the policy proceeds, those funds become part of the general assets of the plaintiff (a corporation). The defendant's beneficiary's claim to defendant's share of the policies is a claim against the plaintiff/corporation, not the insurance company that issued the policy. As such, the defendant has no rights greater than any unsecured creditor to a specific set of funds that finances the Plan. Accordingly, the Court finds that the Plan is an unfunded "top-hat" plan for purposes of ERISA.

September 7, 2011

Employee Benefits-IRS Provides Guidance On How A Partner's Compensation Is Determined For Qualified Retirement Plan Purposes

In the Summer 2011 edition of Retirement News for Employers, the Internal Revenue Service ("IRS") discusses how to define "compensation" for a partner for purposes of qualified retirement plans. Here is what the IRS said.

A partnership makes annual contributions to a partner's retirement plan account based on her net earned income. For a partner, net earned income is calculated in the same way as for most other self-employed plan participants, by starting
with the partner's earned income and then subtracting:

• plan contributions for the partner, and

• half of her self-employment tax.

Pub. 560 has tables and worksheets to calculate the deduction for contributions to a qualified retirement plan for a partner.

A partner's earned income is the income she receives for her services to materially help produce that income (see Code §§1402 and 401(c)(2).) A partner must separately calculate her earned income for each trade or business. Not every partner may have earned income (for example, a limited partner who does not provide services to the partnership and is merely an investor). Also, all of a partner's income from the partnership may not be earned income (for example, investment income that is passed through the partnership to the partners).

Each partner's earned income or loss is listed on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. The partnership must give a Schedule K-1 to each partner by the filing due date (including extensions) of the partnership's Form 1065, U.S. Return of Partnership Income.

September 6, 2011

Employee Benefits-EBSA Provides Another (And Maybe Last) Word On the COBRA Subsidy

The question has come up as to whether the COBRA subsidy-introduced by the American Recovery and Reinvestment Act and paying 65% of a COBRA premium- ends on August 31, 2011. The subsidy is available for 15 months, and an employee had to be fired by no later than May 31, 2010 to be eligible. August 31, 2011 is 15 months after May 31, 2010, so one might think that the subsidy no longer applies after August 31, 2011.

That is not necessarily the case, says the Employee Benefits Security Administration (the "EBSA") in a new set of FAQs. In Q1 of those FAQs, the EBSA says that some individuals will still be eligible to receive the subsidy beyond August 31, 2011. Individuals who qualified for the subsidy on or before May 31, 2010 may continue to pay reduced premiums for up to 15 months, as long as they are not eligible for another group health plan or Medicare, even if their COBRA coverage did not start until a later date due to the terms of a severance arrangement, or the use of banked hours or other similar provision that delayed the start of their COBRA coverage. For example if an individual was involuntarily terminated on May 31, 2010 and due to the terms of a severance agreement her COBRA coverage did not start until December 1, 2010, that individual would still be eligible for the full 15 months of subsidy through February 29, 2012 as long as she is not eligible for another group health plan or Medicare.

Q4 of the FAQs says that those individuals who qualified for the COBRA subsidy were required to pay only 35 percent of the COBRA premium otherwise due to the plan. The subsidy is available for up to 15 months. If an individual's COBRA continuation coverage lasts for more than 15 months, that individual will need to pay the full amount to continue the COBRA coverage. If an individual is unsure when his or her 15 months of subsidy ends or how much the new premium is, the individual should contact the plan right away so that the individual can make sure that he or she pays the correct amount for the correct time period. If the individual does not make the full payment within the correct time period, his or her COBRA coverage can be canceled.

September 1, 2011

ERISA-Ninth Circuit Rules That Suit For Disability Benefits Was Timely Filed

When is a suit for benefits under ERISA treated as being timely filed? This issue was discussed in Withrow v. Bache Halsey Stuart Shield, Inc. Salary Protection Plan (LTD), No. 09-55024 (9th Cir. 2011). In this case, the plaintiff, Valerie Withrow ("Withrow"), was appealing the district court's dismissal of her ERISA suit against the defendant, Bache Halsey Stuart Shield, Inc. Salary Protection Plan ("the Plan"), as not timely filed. The Ninth Circuit Court of Appeals (the "Court") held that the district court erred in dismissing the suit and reversed the district court's decision.

Withrow was a participant in the Plan. The Plan provided her with coverage for long-term disability ("LTD") benefits, and was administered and insured by Reliance Standard Life Insurance Company ("Reliance"). Withrow became totally disabled on December 6, 1986. Around January 15, 1987, she applied for LTD benefits under the Plan. Reliance granted the benefits. However, based on a conversation with Reliance, Withrow thought that the benefits were not high enough (she was receiving $3,950/month, but thought she was entitled to $5,000/month). Around 1990 and during periods thereafter, Withrow asked Reliance to increase her LTD benefits, but Reliance never did. Finally, on July 21, 2003, Withrow filed an appeal with Reliance, requesting a benefit increase. On January 14, 2004, Reliance left a message for her attorney, indicating that Reliance was denying her request. Reliance never issued a written decision for the request. On February 16, 2006, Withrow filed this suit, requesting the LTD benefit increase. The question for the Court: was the suit timely filed?

The Court noted that the Plan may contain its own period of limitations for filing suit. However, the Court ruled that, in this case, the Plan did not have an applicable period of limitations. Therefore, the issue becomes whether the suit is time-barred under ERISA.

Withrow's suit was filed under section 502(a)(1)(B) of ERISA, as a claim to recover benefits. The Court noted that ERISA does not provide its own statute of limitations for suits filed under this section. Therefore, a district court must apply the state statute of limitations that is most analogous to an ERISA benefits-recovery program. In this case, California's four-year statute of limitations for contract disputes applies. Further, the Court said that federal law governs the issue of when an ERISA cause of action accrues and thereby triggers the start of the limitation period. An ERISA cause of action accrues either: (1) at the time benefits are actually denied, or (2) when the participant has reason to know that the claim for benefits has been denied. As to prong (2), a participant has a "reason to know" when the plan communicates a clear and continuing repudiation the participant's rights under the plan, so that the participant could not have reasonably believed anything other than that his or her claim for benefits had been finally denied. The Court ruled that, in this case, the Plan never provided Withrow with any such communication, so that Withrow had no reason to know that her claim had been denied. Therefore, prong (2) does not apply. As to prong (1), the Court said that Withrow's benefits were "actually denied" on January 14, 2004, when her attorney was informed by phone that her appeal had been denied. As Withrow's claim accrued on that date, the Court ruled that her suit, which was filed on February 16, 2006, was timely under the applicable ERISA four-year statute of limitations.