November 2011 Archives

November 30, 2011

ERISA-New York Court Rules That Claims Of Breach Of Contract, Fraud, And Promissory Estoppel Are Preempted by ERISA

In Runfola v. Siegel, Kelleher & Kahn, 2011 NY Slip Op 08410 (Appellate Div. of the Supreme Court of New York, Fourth Department, November 18, 2011), the plaintiff had brought suit against the defendant, Siegel, Kelleher & Kahn ("SKK"), in which the plaintiff was a former partner. He alleged, among other matters, breach of contract, fraud, and promissory estoppel against SKK.

In 1992, SKK had purchased a group long-term disability insurance policy for the benefit of the firm's partners. An internal letter circulated in the law firm announced the existence of the disability policy and outlined the coverage provisions. Over the next several years, the plaintiff suffered several physical and medical ailments and, although he continued to work, his ability to practice law was impaired. In December 1997, the group disability policy lapsed based on the nonpayment of premiums. According to the plaintiff, he was not notified when the policy was allowed to lapse, nor did he learn that the policy had been cancelled until a few years thereafter, when he was inquiring about the coverage. The plaintiff continued working at SKK until May 2001 and thereafter commenced this action. The case made its way to the Appellative Division of the New York Supreme Court (the "Court").

The Court ruled that the plaintiff's case must be dismissed, since his claims are preempted by ERISA. The Court noted that ERISA states that it shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan (29 USC § 1144(a)). For this purpose, a law relates to an employee benefit plan if it has a connection with or reference to the plan. The Court found that, in this case, the plaintiff's claims have the proscribed relation to a plan, and are therefore preempted by ERISA.

November 29, 2011

ERISA-District Court Rules That An Employer Did Not Fire Plaintiff In Order To Interfere With Her Attainment Of An Employee Benefit

In Dinsmore v. Covenant Healthcare, Case No. 10-13451-BC (E.D. Michigan 2011), the Plaintiff, Debra Dinsmore ("Dinsmore"), filed a complaint against her former employer, Covenant Healthcare ("Covenant"), and her former supervisor, Kathy Buchanon ("Buchanon"). She alleged that (among other things) the defendants had fired her in order to interfere with her attainment of an ERISA-protected benefit, in violation of section 510 of ERISA.

In this case, Dinsmore had worked at Covenant as an R.N. for over twenty-five years. At that point, Buchanon approved Dinsmore for an "occasional status" position, which required her to work on an intermittent scheduled or unscheduled basis. Dinsmore alleges that she took the occasional status position-as opposed to a job elsewhere- in order to remain an "employee" so that she could complete her qualification for participation in the retiree health plan. However, since she was not willing to work enough hours to justify her occasional status position, and after giving her the opportunity to find an alternative position at Covenant, which she could not do, Dinsmore's employment at Covenant was terminated. This suit ensued.

In analyzing the case, the Court said that, to establish a prima facie case and avoid summary judgment on an ERISA claim of interference with the attainment of an ERISA-protected benefit, a plaintiff must show the existence of a genuine issue of material fact that there was: (1) prohibited employer conduct; (2) taken for the purpose of interfering; (3) with the attainment of any right to which the employee may become entitled. Further, to establish the prima facie case, a plaintiff must show that an employer had a specific intent to violate ERISA. The Court concluded that Dinsmore could not establish a prima facie case. It said that Dinsmore offered no evidence, circumstantial or otherwise, that the defendants' actions were taken for the purpose of interfering with an ERISA- protected benefit. Dinsmore had offered subjective suspicions about the defendants' reasons for firing her, had claimed that Buchanon knew Dinsmore's desire to keep her occasional status position in order to qualify for the retiree health benefits, and had noted that Covenant would be the payor of her retiree health benefits. However, the Court found that those offerings were insufficient to establish a prima facie case of purposeful interference. The Court said that Dinsmore is required to prove more than the fact that her termination precluded her from vesting in the retiree health benefits, in order to establish purposeful interference. Dinsmore's evidence is to the contrary, since she admits that: (a) she was not willing to work some of the shifts which were offered to her and which she initially accepted and (b) that she was given an opportunity to apply for an alternative position with Covenant to maintain the possibility of obtaining the retiree health benefits. Since Dinsmore was unable to establish the prima facie case, the Court granted summary judgment in favor of the defendants.

November 28, 2011

ERISA-Tenth Circuit Upholds Decision To Deny Health Care Coverage For Residential Treatment

In Eugene v. Horizon Blue Cross Blue Shield of New Jersey, No. 10-4225 (10th Cir. 2011), the plaintiff, Eugene S. ("Eugene"), was appealing the district court's grant of summary judgment to the defendant, Horizon Blue Cross Blue Shield of New Jersey ("Horizon"). In this case, Eugene had sought health care coverage for his son's residential treatment costs from his employer's benefits insurer, Horizon, under a plan subject to ERISA. Horizon's delegated third-party plan administrator, Magellan Behavioral Health of New Jersey, LLC ("Magellan"), denied the claim for health care coverage of these costs for periods after November 2, 2006. Horizon-as plan administrator as well as insurer-adopted this decision. This suit ensued under ERISA for the denied coverage. The questions for the Tenth Circuit Court of Appeals (the "Court"): Is Horizon's decision to deny Eugene's claim for health care coverage entitled to an "arbitrary and capricious" review, and if so, does the decision pass this review?

In analyzing the case, the Court said that when, as here, a plan is subject to ERISA, a decision to deny coverage is to be reviewed under a de novo standard, unless the plan gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. In this case, the plan's summary plan description, or "SPD", is the governing plan document. This obtains because the SPD proclaims itself to be a part of the Plan. Nothing in the recent Supreme Court Amara case changes this result. The Court found that, in several instances, the SPD's language was sufficient to grant Horizon discretion in reviewing benefits claims. Therefore, Horizon 's decision to deny Eugene's claim for health care coverage is entitled to an arbitrary and capricious review. The Court noted that the deference to be accorded Horizon's decision would not be reduced due to a conflict of interest under the Supreme Court's Glenn case. The conflict could obtain here because Horizon both pays benefits and determines benefit claims. However, the Court found that Horizon's delegation of authority to review claims to Magellan-a third party administrator-mitigates any conflict of interest.

As to Horizon's decision to deny Eugene the coverage he claimed for his son, the Court said that Horizon's decision will not be treated as arbitrary and capricious, and will therefore be upheld, if it is reasonable and made in good faith, and supported by substantial evidence. Here, there was no reported information that Eugene's son could not care for himself due to a psychiatric disorder, nor that he required round-the-clock supervision to develop basic living skills. The information showed that Eugene's son went home on a pass and did well with his parents. Thus, the information supports the conclusion that the son's remaining in residential treatment was not necessary and therefore was not covered by the plan. Further, Horizon's decision was not arbitrary and capricious, merely because it failed to defer to the son's treating physicians. A court is not required to provide such deference. The Court concluded that Horizon's decision was not arbitrary and capricious, so that its decision to deny coverage must be upheld. As such, the Court affirmed the district court's summary judgment in Horizon's favor.


November 22, 2011

Employee Benefits-EBSA Provides Guidance On The Mental Health Parity and Addiction Equity Act

The Employee Benefits Security Administration (the "EBSA") has issued FAQs, which provide guidance on the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the "Mental Health Parity Act" or "MHPA"), as applicable to group health plans (among others).

According to the FAQs, the MHPA specifies that the financial requirements and treatment limitations imposed by a group health plan on mental health and substance use disorder benefits cannot be more restrictive than the predominant financial requirements and treatment limitations that apply to substantially all medical and surgical benefits. The MHPA also prohibits the plan from imposing financial requirements or treatment limitations that are applicable only to mental health or substance use disorder benefits.

Under regulations issued under the MHPA, a group health plan generally cannot impose a financial requirement (such as a copayment or coinsurance) or a quantitative treatment limitation (such as a limit on the number of outpatient visits or inpatient days covered) on mental health or substance use disorder benefits in any of 6 classifications that is more restrictive than the financial requirements or quantitative treatment limitations that apply to at least 2/3 of medical/surgical benefits in the same classification. Thus, if the plan generally applies a $25 copayment to at least 2/3 of outpatient, in-network, medical/surgical benefits, a higher copayment could not be imposed on outpatient, in-network mental health or substance use disorder benefits.

Further, group health plans often impose nonquantitative treatment limitations, such as:

--medical management standards limiting or excluding benefits based on medical necessity or medical appropriateness, or based on whether a treatment is experimental or investigative;

--standards for provider admission to participate in a network, including reimbursement rates; and

--methods used to determine usual, customary, and reasonable fee charges.

The MHPA regulations provide that, under the terms of the plan as written and in practice, any processes, strategies, evidentiary standards, or other factors used in applying the nonquantitative treatment limitation with respect to mental health or substance use disorder benefits must be comparable to, and applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in applying the limitation with respect to medical/surgical benefits. However, differences are permitted when there are recognized clinically appropriate standards of care.

The FAQs then apply the above rules to situations involving prior authorizations for benefits and other matters. For example, the FAQs clarify that the plan cannot require prior authorization as to the medical necessity of receiving mental health and substance abuse disorder benefits, if it does not require such prior authorization for medical/surgical benefits.

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November 21, 2011

Employee Benefits-EBSA Postpones The Effective Date For The Rules Requiring Health Plans To Provide A Summary Of Benefits and Coverage

The Employee Benefits Security Administration (the "EBSA") has issued FAQs, which announce that the effective date for the rules requiring group health plans to furnish the Summary of Benefits and Coverage (the "SBC") and the related Uniform Glossary (the "Glossary") has been postponed. The effective date had been March 23, 2012.

According to the FAQs, on August 22, 2011, the government had issued proposed regulations and proposed templates in connection with implementation of the SBC and Glossary requirements of PHS Act § 2715(introduced by the recent health care legislation). Rather than requiring group health plan sponsors to comply with the proposed rules, and then make changes when the final rules are issued, the EBSA says that, until final regulations are issued and effective, plans and issuers are not required to comply with the SBC and Glossary requirements of PHS Act section 2715. The EBSA anticipates that the final regulations, once issued, will include an effective date that gives group health care plans sufficient time to comply.

November 17, 2011

Executive Compensation-IRS Says That Bonuses Can Meet The "Fact Of Liability Requirement" Of Code Section 461 For A Tax Year, Even Though The Employer Does Not Know The Amount Or Recipient Of Any Particular Bonus Until After The Year Ends

In Rev. Rul. 2011-29, the Internal Revenue Service (the "IRS") reviewed the question of whether certain bonuses, which are payable by an accrual basis taxpayer for a tax year, can meet the "fact of liability" requirement for that year, even though the amount or recipient of any particular bonus is unknown until the next year. The "fact of liability" requirement is found in Treas. Reg. Sec. 1.461-1(a)(2)(i), promulgated under section 461 of the Internal Revenue Code (the "Code"). In addition to the fact of liability requirement, that Treas. Reg. Sec. also contains an "amount of liability requirement" and an "economic performance requirement". The Revenue Ruling does not consider the latter two requirements.

The bonuses at issue work as follows. The employer pays bonuses to a group of employees, for services rendered during a taxable year, pursuant to a program that defines the terms and conditions under which the bonuses are paid for that year. The employer communicates the general terms of the bonus program to employees when they become eligible to participate. The total amount of bonuses payable under the program to all employees as a group is determinable either (1) through a formula that is fixed prior to the end of the taxable year, or (2) through other corporate action, such as a resolution of the employer's board of directors or compensation committee, made before the end of the taxable year, that fixes the bonuses payable to the employees as a group. To be eligible for a bonus, an employee must perform services during the taxable year and be employed on the date that the bonus is actually paid. Under the program, bonuses are paid after the end of the taxable year in which the employee performed the services, but before the 15th day of the 3rd calendar month after the close of that year. Any bonus amount allocable to an employee who is not employed on the date on which bonuses are actually paid is reallocated among other eligible employees.

According to the Revenue Ruling, the "fact of liability" is established when: (a) the event fixing the liability, whether that be the required performance or other event, occurs, or (b) payment is unconditionally due. Here, the employer's liability to pay a total amount of bonuses to the group of eligible employees is fixed at the end of the tax year in which the services are rendered. Any bonus allocable to an employee, who is not employed on the date on which bonuses are actually paid, is reallocated to other eligible employees. Thus, the total amount of bonuses the employer pays to its group of eligible employees is not reduced by the departure of an employee before actual payment. As such, the "fact of liability" for the total amount of bonuses is established by the end of the tax year in which the services are rendered. This obtains, even though the identity of the ultimate recipients and the amount, if any, each employee will receive cannot be determined prior to the end of that year.

November 16, 2011

ERISA-Fifth Circuit Rules That State Law Claims Of Quantum Meruit And Unjust Enrichment Are Preempted By ERISA, While Those Of Promissory Estoppel, Negligent Misrepresentation And Similar Matters Are Not

In Access Mediquip L.L.C. v. UnitedHealthcare Insurance Company, No. 10-20868 (5th Cir. 2011), the plaintiff, Access Mediquip ("Access"), was appealing a summary judgment in favor of the defendant UnitedHealthcare Insurance Company ("United"). Access had brought suit against United, based on United's refusal to pay some or all of Access's claims for reimbursement for its services in procuring medical-devices, and finding the financing for those devices, for the health care providers of over 2,000 patients insured under ERISA plans administered by United. The issue for the Fifth Circuit Court of Appeals (the "Court"): are Access's state-law claims of promissory estoppel, quantum meruit, unjust enrichment, negligent misrepresentation, and violations of certain provisions of the Texas Insurance Code preempted ERISA.In analyzing the case, the Court noted that, with certain nonapplicable exceptions, section 514(a) of ERISA states that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ."

The Court concluded that Access's promissory estoppel, negligent misrepresentation, and Texas Insurance Code claims are not preempted by ERISA. Those claims are premised on allegations and evidence that Access provided its services in reliance on United's representations that it would pay reasonable charges for Access's services. The state law underlying those claims does not purport to regulate what benefits United provides to the participants and beneficiaries of its ERISA plans. Rather, whether those claims succeed depend on what representations United makes to third parties about the extent to which it will pay for their services. To prevail on these claims, Access need not show that United breached the duties and standard of conduct for an ERISA plan administrator, since Access's alleged right to reimbursement does not depend on the terms of the ERISA plans. Moreover, a one-time recovery for Access on these claims will not affect the on-going administration or obligations of the ERISA plans that United administers, since the recovery in no way expands the rights of the patient to receive benefits under the terms of a health care plan.

However, Access's quantum meruit and unjust enrichment claims are preempted by ERISA. Those claims depend on Access's assertion that, without its services, the patients' ERISA plans would have obliged United to reimburse a different provider for the same services. Access could recover under those claims only to the extent that the patients' ERISA plans confer on their participants and beneficiaries a right to coverage for the services provided.

November 15, 2011

ERISA-More On Novella: Second Circuit Says That Statute of Limitations On An ERISA Claim To Correct A Miscalculation Of Pension Benefits Begins When The Plaintiff Has Enough Information To Assure That He Knows (Or Reasonably Should Know) Of The Miscalcul

When does the statute of limitations begin to run on a claim brought under ERISA? The Second Circuit Court of Appeals faced this question in Novella v. Westchester County, No.s 09-4061-cv(L), 09-3826-cv(XAP) (2nd Cir. 2011). In that case, the plaintiff, Carlo Novella ("Novella"), brought suit under ERISA on behalf of himself and a class of individuals whose pensions were allegedly miscalculated. Novella's own situation-since he had two separate periods of service- was that his disability pension was calculated using a 1995 rate for his service from 1987 through 1995, and a lower 1981 rate for his service from 1962 through 1981, when only the (higher)1995 rate should have been applied to both periods of service. The other class members supposedly had the same or similar miscalculations.

As to when the statute of limitations begins to run, on a claim under ERISA to correct a miscalculation of pension benefits, the Court reviewed a number of possibilities, e.g., the running could start when claimant receives her first pension payment, or when the plan first rejects the claim to correct payments. The Court finally concluded that the statute of limitations begins to run on this type of claim when there is enough information available to the claimant to assure that he knows or reasonably should know of the miscalculation. The Court found that Novella's own claim was timely. However, the Court remanded the case back to the district court, to determine when the statute of limitations had begun to run for each class member. Interestingly, the Court accepted that the statute of limitations, once it begins to run, is 6 years long.

November 14, 2011

ERISA-Second Circuit Rules That Plaintiff's Disability Pension Was Not Calculated Correctly, And That Plaintiff Is Entitled To Prejudgment Interest

In Novella v. Westchester County, No.s 09-4061-cv(L), 09-3826-cv(XAP) (2nd Cir. 2011), the plaintiff, Carlo Novella ("Novella"), brought suit under ERISA, claiming that his disability pension had not been calculated correctly.

Novella's work career spanned three decades. During that period, his employers were obligated, under collective bargaining agreements, to pay amounts into a pension fund (the "Fund") on his behalf. There was one period- from 1982 to 1986 -during which Novella did not perform any work for which his employer was required to make such a contribution. In 1995, when Novella was nearing his sixty-second birthday, he became disabled as a result of injuries sustained while he was on the job. He applied for, and received, a pension (the "Disability Pension") from the Fund. However, he was disappointed to learn that his benefits were not calculated using the pension rate in effect in 1995, but rather using two different rates for Novella's two periods of service. The rate applicable in 1995 was applied to benefits for work performed between 1987 and 1995, and the lower rate in effect in 1981 was applied to benefits for work performed between 1962 and 1981. The use of the 1981 rate for the earlier period resulted in a lower aggregate monthly pension payment.

Novella sought administrative correction from the Fund, claiming that only the 1995 higher rate should have been used to calculate the Disability Pension. The Fund denied his claim, and Novella filed this suit. The district court agreed with Novella. It ruled that only the higher 1995 rate should have been used, and that Novella should receive prejudgment interest from the date on which the Fund denied his claim for the Disability Pension calculated using only the 1995 rate . The defendants appealed these rulings. The question for the Second Court of Appeals (the "Court"): are these rulings correct? The Court reviewed the Fund's controlling documents--the Summary Plan Description and the Rules of the Pension Plan. The Court concluded that the use of two rates in calculating Novella's Disability Pensions had no support in those documents. It further concluded that Novella was entitled to the prejudgment interest awarded by the district court. Thus, the Court affirmed the district court's rulings.

November 10, 2011

ERISA-Second Circuit Rules That Letter Denying Claim For Short Term Disability Benefits Complies With ERISA Claims Procedure

In Tortora v. SBC Communications, Inc., No. 10-3478-cv (2nd Cir. 2011) (Summary Order), the plaintiff, Susan Tortora ("Tortora"), had been a participant in an employer-sponsored health care plan (the "Plan"). The Plan provided disability benefits. Claims for disability benefits under the Plan were administered by defendant Sedgwick Claims Management Services, Inc. ("Sedgwick"). Segwick had denied Tortora's claim under the Plan for a short-term disability benefit. In denying the benefit, Sedgwich had relied on the medical reports of several of its own physicians. Tortora later filed this suit for the benefit under ERISA. The district court granted summary judgment against her. The questions in this case for the Second Circuit Court of Appeals (the "Court"): (1) Did Sedgwick's denial letter satisfy ERISA's notice requirements, by giving sufficient notice of how Tortora may perfect her claim, and (2) did Sedgwick give adequate consideration to the medical views of Tortora's treating physicians?

As to question (1), the Court reviewed the letter in which Sedgwick denied Tortora's claim for disability benefits. The letter contained various information, including: (a) a reference to the Plan's definition of "disability"; (b) a statement that the claim denial was not based on missing or incomplete medical information, but rather, that the medical evidence from Sedgwick's own doctor's report did not support the existence of a disability; (c) that Tortora could provide additional medical information supporting an inability to work; (d) a description of the plan's review procedures; and (e) a concluding statement that "[c]linical information does not document a severity of your condition(s) that supports your inability to perform your occupation."

The Court concluded that the letter sufficiently informed Tortora of how she could perfect her claim. This was apparent, said the Court, based on her subsequent appeals in which she submitted additional documentation for a medical diagnosis. Further, even prior to the issuance of that denial letter, Tortora had numerous opportunity (12 chances in fact) to perfect her claim. At the least, Sedgwick had substantially complied with ERISA's notice requirements, whose purpose is to "provide claimants with enough information to prepare adequately for further administrative review or an appeal to the federal courts." Thus, there was no ERISA violation with respect to the denial letter.

As to question (2), the Court noted that where, as here, the written plan documents for the Plan gave Sedgwick discretionary authority to determine eligibility for benefits, Sedgwick's denial of Tortora's claim for benefits will not be overturned by the Court unless it is arbitrary and capricious. The Court said that ERISA does not require a claims administrator to automatically accord special weight to the opinions of a claimant's physician. Also, courts may not impose on claims administrators a discrete burden of explanation when they credit reliable evidence that conflicts with a treating physician's evaluation. As such, particularly since it had obtained reliable medical reports from several of its own physicians, the Court concluded that Sedgwick's denial of Tortora's claim for disability benefits was neither arbitrary nor capricious.

Answering questions (1) and (2) in the above manner, the Court affirmed the district court's summary judgment against Tortora.

November 9, 2011

ERISA-District Court Rules That A Beneficiary And Recipient Of Life Insurance Proceeds Under A Plan Must Turn Over The Proceeds To The Participant's Estate Due To Waiver Under An Order Of Separate Maintenance

The case of Union Security Insurance Co. v. Alexander, Case No. 11-10858 (E.D. Michigan 2011) arises out of the death of Faron Alexander ("Alexander"), and concerns which party is ultimately entitled to his life insurance proceeds. The candidates are: (1) his spouse, the named beneficiary of the proceeds who waived her rights in the policy in a judgment of separate maintenance entered one month before Alexander's death, and (2) his estate. The life insurance proceeds are payable under a plan subject to ERISA.

In analyzing the case, the court noted that, under the Supreme Court's decision in Kennedy v. Plan Adm'r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 300 (2009), ERISA requires plan administrators to act in accordance with the documents and instruments governing the plan. In this case, the parties agree that the spouse is the named beneficiary under the plan, and that the plan must pay the life insurance proceeds to the spouse . The disagreement arises over whether the spouse must then relinquish the proceeds to the estate, in accordance with the judgment of separate maintenance.

The court said that ERISA does not preempt state law claims that challenge a plan beneficiary's right to retain funds paid out by an ERISA plan. Rather, whether a named beneficiary, who waives her right to life insurance proceeds pursuant to a judgment of separate maintenance or divorce, may retain the funds is an issue governed by state law. Here, under state law, the spouse waived her rights to the proceeds in a judgment of separation, and state law upholds this waiver and judgment. Thus, the court ruled that the life insurance proceeds must be turned over the decedent's estate.

November 7, 2011

ERISA-Supreme Court Of Nevada Court Rules That State Law Claim Of Failing To Ensure The Quality Of Healthcare Is Preempted By ERISA

In Cervantes v. Health Plan of Nevada, Inc., 127 Nev. Adv. Op. 70, No. 56166 (Supreme Court of Nevada 2011), the facts were as follows. The plaintiff, Margerita Cervantes ("Cervantes"), allegedly contracted hepatitis C as a result of treatments she received at the Endoscopy Center of Southern Nevada ("ECSN"). She obtained treatment at ECSN as part of the health care benefits she received through her union, the Hotel Employees and Restaurant Employees International (the "Culinary Union"). The Culinary Union operated a self-funded health care plan (which was subject to ERISA) (the "Plan"), and retained defendants Health Plan of Nevada, Inc. and others (collectively, "HPN") as its agents to assist in establishing a network of the plan's chosen medical providers. Cervantes filed a lawsuit alleging that HPN, as a managed care organization (an "MCO"), is responsible for her injuries, because it failed to ensure the quality of care provided by ECSN, as required by Nevada state law (NRS Chapter 695G), and referred her to a blatantly unsafe medical provider.

The question for the Supreme Court of Nevada (the "Court"): are Cervantes' claims preempted by ERISA section 514? The district court had granted summary judgment against Cervantes, on the ground of ERISA preemption.

In analyzing the case, the Court said that ERISA section 514 preempts all state laws that "relate to" any employee benefit plan. This means that when a plaintiff's claim is predicated on administrative decisions made in the course of administering an ERISA plan, the claim is necessarily preempted. However, when the conduct complained of is not performed in the capacity of the ERISA plan, plan administrator, or plan agent, the claim is not preempted, since the relationship with the ERISA plan is too tangential. Thus, a claim based on NRS Chapter 695GA may be preempted if the MCO acts merely as an administrator or agent of the ERISA plan. Otherwise-no preemption. In this case, the issue comes down to whether HPN merely facilitated the selection of medical providers for the Plan by the Culinary Union Plan (preemption), or if HPN leased out its existing network of medical providers (no preemption). Here, the Culinary Union selected the medical providers for the Plan, such as ECSN; this selection was an administrative decision made while administering an ERISA plan. Therefore, the Court concluded that HPN was a mere facilitator of the selection, so that Cervantes' claims must be preempted. As such, the Court affirmed the district court's summary judgment against her.


November 3, 2011

ERISA-EBSA Issues Regulation On Statutory Exemption Allowing Fiduciaries To Provide Investment Advice To Plan Participants And IRA Owners

The Employee Benefits Security Administration (the "EBSA") has now issued a regulation on the statutory exemption, found in sections 408(b)(14) and 408(g) of ERISA and sections 4975(d)(17) and 4975(f)(8) of the Internal Revenue Code (the "Code"), which allows fiduciaries to provide investment advice to plan participants. A Fact Sheet issued by the EBSA says the following on this regulation.

By way of Background

• ERISA and the Code generally prohibit fiduciary investment advisers from receiving compensation from the investment vehicles that they recommend to plan participants and IRA owners. This protects participants in 401(k) plans and IRAs from conflicts of interest, but sometimes can limit their access to quality professional investment advice.
• The Pension Protection Act of 2006 amended ERISA and the Code to create a new statutory exemption from the prohibited transaction rules to expand the availability of fiduciary investment advice to participants in 401(k)-type plans and IRAs. It allows fiduciary advisers to receive fees from investment providers whose products are recommended to participants, but subject to safeguards and conditions preventing investment advisers from slanting their advice for their own financial benefit.

Overview of the Final Investment Advice Regulation

The statutory exemption allows fiduciary investment advisers to receive compensation from investment vehicles they recommend if either: (1) the investment advice they provide is based on a computer model certified as unbiased and as applying generally accepted investment theories, or (2) the adviser is compensated on a "level-fee" basis (i.e., fees do not vary based on investments selected by the participant).The final regulation provides detailed guidance to advisers on compliance with these conditions.

The regulation also shows advisers how to comply with other conditions and safeguards in the statutory exemption, including:

--requiring that a plan fiduciary (independent of the investment adviser or its affiliates) authorize the advice arrangement.

--imposing recordkeeping requirements for investment advisers relying on the exemption.

--requiring that computer models must be certified in advance as unbiased and meeting the exemption's requirements by an independent expert.

--establishing qualifications and a selection process for the investment expert who must perform the above certification.

--clarifying that the level-fee requirement does not permit investment advisers (including their employees) to receive compensation from any party (including affiliates) that vary on the basis of the investments participants select.

--establishing an annual audit of both computer model and level-fee advice arrangements, including the requirement that the auditor be independent from the investment advice provider.

--requiring disclosures by advisers to plan participants.

The regulation does not affect the applicability of the EBSA's prior guidance on the application of the prohibited transaction rules and existing prohibited transaction exemptions to investment advice arrangements. For example, the guidance contained in Advisory Opinion Nos. 2011-08A, 2005-10A (Country Trust Bank), 2001-09A (SunAmerica Retirement Markets) and 1997-15A (Frost National Bank) continue to apply.

Effective and Applicability Dates

The regulation will become effective on December 27, 2011, and will be applicable to transactions occurring on or after that date.

November 2, 2011

ERISA-First Circuit Rules That Suit Under ERISA For Disability Benefits Was Timely Filed, Based on Equitable Tolling

In Candelaria v. Orthobiologics LLC, No. 09-2305 (1st Cir. 2011), the plaintiff, Rolando Candelaria ("Candelaria"), suffered a disability while employed by Orthobiologics, LLC, a Puerto Rico-based subsidiary of Johnson & Johnson, Inc. He sought payment of benefits under the company's long-term disability plan (the "Plan") and was denied. Three years later, Candelaria filed suit under ERISA to obtain the long-term disability ("LTD") benefits from the Plan. The district court found the suit untimely and granted summary judgment in Orthobiologics's favor. The question for the First Circuit Court of Appeals (the "Court"): was Candelaria's suit timely filed?

In this case, Candelaria became disabled in 2002, and had filed a claim for LTD benefits from the Plan in 2003. On June 1, 2004, while Candelaria was in the midst of the Plan's internal appellate process, he requested a current copy of the Plan, which he received three weeks later. At that point, the Plan did not contain any limit on the period for filing suit to contest a claim denial. Only one week later, on July 1, 2004, the Plan was amended to establish a limitations period of one year. Candelaria did not receive any notice of this change. On January 26, 2005, Orthobiologics issued a final written rejection of Ortega's claim. The rejection contained no information about Ortega's judicial options or the reduced limitations period. Candelaria filed this suit on December 14, 2008.

The Court said that Candelaria's argument on appeal is based on the doctrine of equitable tolling. That doctrine is used to excuse a party's failure to take an action in a timely manner, where such failure was caused by circumstances that are out of his hands. Equitable tolling suspends the running of the limitations period, if the plaintiff, in the exercise of reasonable diligence, could not have discovered information essential to his claim. The tolling proponent must establish that extraordinary circumstances beyond his control prevented a timely filing or that he was materially misled into missing the deadline.

In this case, the Court found that Candelaria missed the critical one-year deadline because he was materially misled into doing so by Orthobiologics. Citing 29 C.F.R. § 2560.503-1(g)(1)(iv), the Court said that Orthobiologics was required by federal regulation to provide Candelaria with notice of his right to bring suit under ERISA, and the time frame for doing so, when it denied his request for benefits. Orthobiologics failed to provide this notice. This is the case, even though the Plan's summary plan description informed Candelaria of his right to sue; the information had to be included with the benefit denial. Without this information, Candelaria reasonably thought that he had 15 years to file the suit. The Court concluded that Candelaria was entitled to equitable tolling, so that his suit was not untimely filed. As such, the Court reversed the district court's summary judgment against Candelaria, and remanded the case back to the district court.

November 1, 2011

ERISA-DOL Seeks, And Receives, A No Action Letter From SEC Regarding New Participant Fee Disclosure Rules

The Department of Labor (the "DOL") has formally asked the Security Exchange Commission (the "SEC"), in a letter dated October 26, 2011, to issue a "no action" letter pertaining to a plan administrator's compliance with the new participant fee disclosure regulation.

The new regulation (29 CFR section 2550.404a-5) was issued on October 20, 2010. It requires the plan administrator of a participant-investment directed individual account plan to disclose plan and investment-related information to the participants. The DOL expects the disclosures to begin in June, 2012. The information to be disclosed includes specified performance, benchmarking and fee information.

The DOL is concerned with the disclosures required to be made under Rule 482 under the Securities Act of 1933. Rule 482 has certain advertising rules which are not found in the new regulation. For example, unlike the new regulation, Rule 482 requires a statement, as to any money market fund, that the fund is not insured by the Federal Deposit Insurance Corporation, or any other government agency, and requires disclosure of the fund's current yield. The DOL believes that, if applied to the disclosures required under the new regulation, Rule 482 would greatly complicate compliance with the regulation. In fact, the DOL indicated, in the preamble to the regulation, that the SEC would issue this no action letter. Hence, the DOL has now formally requested a no action letter, which assures that a plan administrator's compliance with the new regulation will not result in any action by the SEC related to Rule 482.

The SEC responded, issuing the no action letter on the same day (October 26). This letter states that " we [the SEC] agree to treat information provided by a Plan Administrator to Plan Participants...that is required by and complies with the disclosure requirements set forth in the DOL Rule [that is, the new regulation] as if it were a communication that satisfies the requirements of Rule 482 under the Securities Act".

The bottom line-a plan administrator complying with the new regulation pertaining to participant fee disclosure need not be concerned about Rule 482.