January 2012 Archives

January 31, 2012

Employment-DOL Proposes To Amend FMLA Regulations To Expand Rules On Military Family Leave

According to a News Release (dated 1/30/12), the U.S. Department of Labor (the "DOL") has proposed amendments to the regulations under the Family and Medical Leave Act (the "FMLA") which will expand military family leave provisions and incorporate a special eligibility provision for airline flight crew employees. The News Release says the following.

The FMLA, enacted in 1993, entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. The proposed rules would extend the entitlement of military caregiver leave to family members of veterans for up to five years after leaving the military. At this time, the law only covers family members of "currently serving" service members. Additionally, the proposed rules would expand the military family leave provisions of the FMLA by extending qualifying exigency leave to employees whose family members serve in the regular armed forces. Currently, the law only covers families of National Guard members and reservists.

For airline flight crew employees, the proposed rules make the benefits of the FMLA more accessible. It would add a special hours of service eligibility requirement for them and specific provisions for calculating the amount of FMLA leave used that better take into account the unique -- and often difficult to track -- hours worked by crew members.

Additional information on the FMLA, including information and fact sheets on the proposed rules, is here.

January 30, 2012

ERISA-Ninth Circuit Rules That, Since The Plaintiff Has A Colorable Claim To Benefits, A District Court Has Subject Matter Jurisdiction Over The Suit And May Hear The Case

In Leeson v. Transamerica Disability Income Plan, No. 10-35380 (9th Cir. 2012), the plaintiff, Jack Leeson ("Leeson"), filed this case against the defendant, Transamerica Corporation ("Transamerica"), under ERISA to challenge the termination of his long-term disability ("LTD" ) benefits. The district court held that Leeson was not a plan participant, within the meaning of the plan in question due to a leave of absence from employment at the applicable time. Therefore, Leeson did not have standing to bring the suit, and the district court did not have subject matter jurisdiction over the case. As such, the district court dismissed the case. Leeson appealed.

In this appeal, Leeson argues that, because he alleged a colorable claim for benefits, the district court had subject matter jurisdiction, and it was error to dismiss the case. The Ninth Circuit Court of Appeals (the "Court") agreed with Leeson. It concluded that an individual need not assert anything other than he or she has a colorable claim to benefits in order for the district court to have subject matter jurisdiction over the case. The individual need not be a "participant", as defined in the plan or in ERISA (see 29 U.S.C. section 1002(7) for the ERISA definition), for the court to have such jurisdiction. The issue of whether the individual is actually a participant goes to the merits of the claim, not to the court's jurisdiction. As such, the Court vacated the district court's decision and remanded the case back to the district court.

January 26, 2012

Executive Compensation-A Reminder: Form 3921s and Form 3922s For 2011 Are Due Next Tuesday

Under section 6039 of the Internal Revenue Code (the "Code") and IRS rules, a corporation is required to provide a report to an employee of: (1) any transfer it makes to the employee, during the 2011 calendar year, of a share of stock pursuant to the employee's exercise of an "incentive stock option" ( within the meaning of section 422(b) of the Code), or (2) any record the corporation (or its agent) makes, during the 2011 calendar year, of a transfer of the legal title of a share of stock acquired by the employee, under an employee stock purchase plan, pursuant to his or her exercise of an option described in section 423(c) of the Code (that is, an option for which the exercise price is either less than 100% of the stock's value on the option grant date, or is not fixed or determinable on such date).

The report to the employee is provided on Form 3921 for a transfer described in (1) above, and on Form 3922 for a record described in (2) above. One Form 3921 or Form 3922, as applicable, is required for each separate transfer of stock or title. The due date for furnishing these Forms to employees is January 31, 2012. The corporation must file the Forms with the IRS at a later date (generally, unless extended, by April 2, 2012 if filed electronically (check rules to see when electronic filing is required or permitted), or by February 28, 2012 if filed on paper).

January 25, 2012

ERISA-District Court Rules That, Due Prohibition On Discretionary Clauses Under Illinois Law, The Administrator's Decision To Terminate Long-Term Disability Benefits Must Be Reviewed De Novo

In Curtis v. Hartford Life and Accident Insurance Company, No. 11 C 24489 (N.D. Illinois, Eastern Division, January 18, 2012), the plaintiff, Cindy Curtis ("Curtis"), had brought suit under ERISA to recover long-term disability ("LTD") benefits. She had been a participant in her employer's Long-Term Disability Benefits Plan (the "Plan"), which is administered by the defendant, Hartford Life and Accident Insurance Company ("Hartford"). Curtis had become disabled, and began to receive LTD benefits from the Plan. However, Hartford later determined that Curtis was not disabled, and terminated the benefits. This suit ensued.

The issue before the Court is the standard of review applicable to Hartford's decision to terminate Curtis's LTD benefits. Curtis argued that Hartford's decision to cut-off her benefits is subject to de novo review under ERISA and, consequently, that she is entitled to take wide-ranging discovery concerning whether Hartford's decision is correct. Hartford contends, on the other hand, that its decision is subject to review under the more limited arbitrary and capricious standard, so that Curtis only is entitled to narrow discovery concerning Hartford's decision.

In analyzing this issue, the Court said that the standard of review depends on whether the Plan grants Hartford, the plan administrator, discretionary authority to make decisions, and that the standard is the arbitrary and capricious standard if the Plan makes such a grant, and de novo otherwise. In this case, the Plan specifically provides that Hartford has "full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the [Plan]." This provision is normally sufficient to result in the use of the arbitrary and capricious standard. However, Curtis challenges this conclusion, based on a regulation promulgated by the Illinois Department of Insurance which bans discretionary clauses in insurance contracts offered or issued in Illinois (the "Illinois Regulation"). Does the Illinois Regulation nullify the Plan provision granting discretion, so that de novo standard of review applies? The Court looked at the particular language of the Illinois Regulation, concluding that it applies to the Plan. The Court also determined that the Illinois Regulation is not displaced by a Delaware choice of law provision. Finally, the Court determined that the Illinois Regulation is not preempted by ERISA, since the Illinois Regulation purports to regulate insurance, and, under its "Savings Clause", ERISA does not preempt insurance regulation. As such, the Court concluded that the Illinois Regulation nullifies the Plan's grant of discretion to Hartford, so that the de novo standard of review applies.


January 24, 2012

ERISA-Fourth Circuit Rules That Insurer/Administrator Properly Calculated Predisability Earnings When Determining That No Disability Benefits Are Payable

In Fortier v. Principal Life Insurance Company, No. 10-1441 (4th Cir. 2012), the plaintiff, Dr. Kenneth Fortier ("Dr. Fortier"), became disabled, and applied for short- and long-term disability benefits from the defendant, Principal Life Insurance Company ("Principal"), under policies which Principal had issued to Dr. Fortier's medical practice (the "Policies"). The Policies are subject to ERISA. The Policies provide that a disabled insured is entitled to receive 60% of his predisability earnings, capped at $1,500 per week for short-term benefits and $6,000 per month for long-term benefits. This benefit, however, is reduced by the amount that all disability benefits (from the Policies and any other policies) exceed the insured's predisability earnings. Principal determined that Dr. Fortier was disabled within the meaning of the Policies. However, since Dr. Fortier was receiving $15,470 per month in disability benefits on individual disability policies issued by another company, and his predisability earnings are $9,916, he was not entitled to any further benefits under the Policies.

This suit ensued under ERISA. Dr. Fortier claimed that Principal had misconstrued the Policies by calculating his predisability earnings to be $9,916 and that, with a proper calculation, his predisability earnings were far greater, entitling him to the maximum benefits from the Policies, even though he was receiving $15,470 on his individual disability policies. More particularly, he contended that Principal, when calculating his predisability earnings, erroneously deducted from his gross predisability earnings extraordinary and one-time business expenses incurred by him in 2003-04 in starting up his practice and in pursuing litigation with partners in his former medical practice. Without the reductions resulting from these extraordinary, one-time business expenses (the "Extraordinary Expenses"), Fortier's predisability earnings were sufficiently large (being about $48,913) to entitle him to the maximum disability benefits from the Policies. The question for the Fourth Circuit Court of Appeals: was Principal's calculation of Dr. Fortier's predisability earnings correct?

In answering this question, since the Policies gave Principal complete discretion to interpret the policies, Principal's interpretation of the Policies is entitled to a deferential review. The Court concluded that Principal's interpretation of the Policies' provisions dealing with the calculation of predisability earnings was reasonable and must be upheld. Principal had concluded that, because Dr. Fortier claimed the Extraordinary Expenses as deductions on his federal income tax returns, he thereby represented that they were "ordinary and necessary" business expenses, consistent with the Internal Revenue Code provision-section 162(a)-permitting the deduction. Thus, those same expenses were also, in the language of the Policies, "usual and customary," "incurred on a regular basis," and "essential to the established business operation." Therefore, they should be taken into account and subtracted from gross income, as Principal did, in calculating Dr. Fortier's predisability earnings. As such, the Court ruled that Principal's calculation of the predisability earnings, and its ultimate determination that no disability benefits are payable under the Policies, are correct.


January 23, 2012

Employee Benefits-EBSA Releases 2011 Annual Report Form For MEWAs

According to a News Release (dated January 12, 2012), the Employee Benefits Security Administration (the "EBSA") has released the 2011 Form M-1 annual report for multiple employer welfare arrangements ("MEWAs"). MEWA administrators may use the EBSA's online filing system to expedite processing of the form. The online filing system is available on the EBSA's website at http://www.askebsa.dol.gov/mewa.

According to the News Release, a MEWA is an arrangement that offers welfare benefits (such as medical, accident, or disability benefits) to the employees of two or more employers or to their beneficiaries. MEWAs that offer medical benefits are required to file the Form M-1. The filing deadline for the 2011 Form M-1 is March 1, 2012. However, MEWA administrators can request an automatic 60-day extension until May 1, 2012. The 2011 form is very similar to the previous year's form, with a few changes to reflect new laws that became effective in 2011.

January 19, 2012

Employee Benefits-IRS Revises The Rules For Reporting Group Health Care Costs On Form W-2

The Internal Revenue Service ("IRS") has issued Notice 2012-9. This notice revises and restates the rules for reporting the cost of group health care plan coverage on Form W-2. These rules first apply to the 2012 Form W-2s (those which report information for the 2012 calendar year and are generally issued to employees in January, 2013).

The reporting requirement does not apply to an employer which issued under 250 Form W-2s for the previous calendar year (counting those issued by a section 3504 agent). It applies to everyone else (with very limited exception). All affected employers should make sure that their accounting systems are tracking the health care costs that must be reported, and become familiar with the reporting requirement. I have an article on the reporting requirement. If you would like a copy, please call me (516-307-1550) or contact me using the contact feature on the right-hand side of the blog.

January 17, 2012

ERISA- Minnesota Court Rules That A Domestic Relations Order Does Not Qualify

Under a qualified domestic relations order, or a "QDRO", a plan participant's benefit may be assigned to his spouse or other family member. But when does the domestic relations order "qualify"? The Court faced that question in Langston v. Wilson McShane Corporation, as Administrator for the Twin Cities Carpenters and Joiners Pension Fund, Nos. A10-2219, A11-683, A11-684 (Court of Appeals of Minnesota, 1/9/12)

In this case, Patricia Langston had obtained a 2005 domestic relations order (a "DRO") from a state court to enforce her rights to a portion of the retirement benefits of her ex-husband, Gary, based on a 1993 judgment dissolving their marriage. Gary had remarried in 2001. In 2004, he retired, and began receiving benefit payments in the form of a joint and 50% survivor annuity with his extant spouse, Shelley, as the surviving beneficiary. Wilson McShane Corporation, the administrator of the plan at issue, determined that the DRO was not "qualified" under ERISA. Gary soon died and Shelley began receiving the 50% survivor's annuity. Patricia sought a declaratory judgment against McShane, requiring it to treat the DRO as qualified and to pay benefits to her under it. A state court held that the DRO was qualified, and it awarded summary judgment to Patricia. The question for the Court of Appeals of Minnesota (the "Court"): was the state court correct in concluding that the DRO was "qualified"?

The Court noted that, for the DRO to "qualify", it cannot, among other things, require the plan to provide benefits not available, or to provide increased benefits (citing 29 U.S.C. § 1056(d)(3)(D), a provision of ERISA). In this case, the benefits subject to the DRO, issued in 2005, had already irrevocably vested in Shelley upon Gary's retirement in 2004, and were in pay status prior to the end of 2004. As such, the DRO would require the plan to provide a benefit no longer available, and to pay increased benefits because the Plan would have to both pay Shelly her 50% survivor's annuity and pay Patricia the benefits awarded under the DRO. This would violate the ERISA rules in section 1056(d)(3)(D). Thus, the Court concluded that the DRO does not qualify and is not a QDRO, and it reversed the state court's judgment.

January 13, 2012

Employee Benefits-IRS Provides Guidance On Notice To Be Provided To Terminated Employees With Deferred Vested Benefits

The Internal Revenue Service (the "IRS") has updated its FAQs on new Form 8955-SSA to provide guidance on the notice that must be given to a separated employee with deferred vested benefits under a retirement plan. Here is what the IRS said.

Question 8 on Form 8955-SSA asks whether the plan administrator has provided an individual statement to each participant who is required to receive one (that is, each separated participant with unpaid vested benefits under the plan). The instructions to the Form add that the plan administrator must, before the expiration of the time for the filing of the Form, furnish to each affected participant a statement setting forth the information required to be contained in the Form (note that the 2009 and 2010 Forms-and thus the associated notices- are due by January 17, 2012 for calendar year plans, or if later by the last day of the seventh month after the close of the plan year plus extensions for others). When can question 8 be answered "yes"?

Question 8 may be answered "yes" if:

-- the required information was timely furnished to participants in other documentation such as benefit statements or distribution forms. A separate statement designed specifically to satisfy this requirement is not needed; and

--the statements or other documentation issued to the participants include the following information-

Name of the plan,
Name and address of the plan administrator,
Name of the participant, and
Nature, amount, and form of the deferred vested benefit to which such participant is entitled.

Thus, for purposes of completing Form 8955-SSA, the plan administrator's notice to the plan participant does not need to include the participant's social security number, the codes on page 2 of the Form 8955-SSA used to identify previously reported participants, or any information regarding any benefits which are forfeitable if the participant dies before a certain date.



January 12, 2012

Employee Benefits-IRS Provides Some Thoughts On Leased Employees

In Employee Plan News (December 20, 2011), the Internal Revenue Service (the "IRS") provided some thoughts on leased employees. Here is what the IRS said.

EPCU Project on Leased Employees. The Employee Plans Compliance Unit (the "EPCU") has completed a project to determine if plan sponsors properly considered leased employees for qualified plan purposes. When leased employees aren't considered, they may be improperly excluded from the plan, the plan's testing and limitations may be incorrect, and the plan may discriminate in favor of highly compensated employees. In general, the results of the project were that :

-- approximately 65% of the employers surveyed did not actually have any leased employees , and didn't fully understand what it means to be a leased employee for purposes of the qualified plan rules; and

-- approximately 25% of the employers surveyed correctly applied the leased employee rules, or used the Employee Plans Compliance Resolution System (the "EPCRS") to correct plan errors that occurred when they didn't properly apply the rules (it is not clear what happened to the final 10% of surveyed employers).

Overview of Leased Employee Rules. Generally, a leased employee is defined by the Internal Revenue Code, Treasury Regulations and other IRS guidance as an individual whose services are purchased from a leasing organization and provided to a recipient company. For retirement plan purposes, the recipient company must treat a leased employee the same as a common law employee. This means that if a leased employee meets the age and service requirements of the plan, he or she must be allowed to participate in the plan. However, a sponsor may specifically exclude leased employees from participating in the plan, but must still consider them when performing the plan's coverage and nondiscrimination testing.

Who is a Leased Employee?

To be considered a leased employee, an individual must meet four requirements:

1. Agreement - The leased employee's services must be detailed in an agreement between the recipient company and the leasing organization. The agreement requires the recipient company to pay a fee to the leasing organization for the leased employee's services.

2. Service - The leased employee's services to the recipient company must be on a substantially full-time basis, for at least one year. The leased employee meets this requirement if, during the year, he or she is credited with the lesser of 1,500 hours of service or 75% of the hours of service (not less than 500) that are customarily performed by an employee of the recipient in the same position. If the leased employee works for a company that's related to the recipient company sponsoring the plan, then work with the related company is considered for both the one year and the1,500 hour requirements. If an individual was previously a common law employee of the recipient company before becoming a leased employee, that service is also considered for the one year and the1,500 hour tests.

3. Direction or Control - The recipient company must have primary direction or control over the services performed by the leased employee. Several factors are considered when determining primary direction and control:

• when, where and how the leased employee is to perform the service;
• whether the service must be performed by a particular person;
• whether the recipient company supervises the leased employee's service; and
• whether the employee must perform service in the order set by the recipient company.

It is irrelevant whether the recipient company has the right to fire the leased employee or that the leased employee works for other companies.

4. Common Law Employer - Based on facts and circumstances, the leasing company must be the common law employer of the leased employee.

Plan Requirements. When a recipient company maintains a qualified plan, their leased employees are required to be treated as common law employees for the following plan purposes:

• Eligibility - IRC section 410(a)
• Coverage - IRC section 410(b)
• Nondiscrimination - IRC section 401(a)(4)
• Vesting - IRC section 411
• Contributions and Benefits - IRC section 415
• Compensation - IRC section 401(a)(17)
• Top-Heavy Rules - IRC section 416



January 11, 2012

Employment-DOL Issues Fact Sheet On Protection Under The FLSA Against Retaliation

Similar to yesterday's blog, the U.S. Department of Labor (the "DOL") has issued Fact Sheet # 77A, which provides general information concerning the prohibition of the Fair Labor Standards Act (the "FLSA") on retaliating against any employee who has filed a complaint or cooperated in an investigation of a matter arising under the FLSA. The DOL's Wage and Hour Division administers and enforces the FLSA. The Division investigates FLSA violations through its complaint-based and directed investigation programs.

Prohibitions. Section 15(a)(3) of the FLSA states that it is a violation for any person to "discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the FLSA], or has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee." Employees are protected regardless of whether the complaint is made orally or in writing. Complaints made to the Wage and Hour Division are protected, and most courts have ruled that internal complaints to an employer are also protected.

Coverage. Because section 15(a)(3) prohibits "any person" from retaliating against "any employee", the protection applies to all employees of an employer even in those instances in which the employee's work and the employer are not covered by the FLSA. Fact Sheet 14 provides additional information on FLSA coverage. Section 15(a)(3) also applies in situations where there is no current employment relationship between the parties; for example, it protects an employee from retaliation by a former employer.

Enforcement. Any employee who is "discharged or in any other manner discriminated against" because, for instance, he or she has filed a complaint or cooperated in an investigation, may file a retaliation complaint with the Wage and Hour Division or may file a private cause of action seeking appropriate remedies including, but not limited to, employment, reinstatement, lost wages and an additional equal amount as liquidated damages.


January 10, 2012

Employment-DOL Issues Fact Sheet On Protection Under The FMLA Against Retaliation

The U.S. Department of Labor (the "DOL") has issued Fact Sheet # 77B, which is intended to provide general information concerning the prohibition of the Family and Medical Leave Act (the "FMLA") on retaliating against an individual for exercising his or her rights or participating in matters protected under the FMLA. The Fact Sheet states the following:

Prohibitions. Section 105 of the FMLA and section 825.220 of the FMLA regulations prohibit the following actions:

• An employer is prohibited from interfering with, restraining, or denying the exercise of, or the attempt to exercise, any FMLA right.
• An employer is prohibited from discriminating or retaliating against an employee or prospective employee for having exercised or attempted to exercise any FMLA right.
• An employer is prohibited from discharging or in any other way discriminating against any person, whether or not an employee, for opposing or complaining about any unlawful practice under the FMLA.
• All persons, whether or not employers, are prohibited from discharging or in any other way discriminating against any person, whether or not an employee, because that person has --
--Filed any charge, has instituted, or caused to be instituted, any proceeding under or related to the FMLA;
--Given, or is about to give, any information in connection with an inquiry or proceeding relating to any right under the FMLA; or
--Testified, or is about to testify, in any inquiry or proceeding relating to a right under the FMLA.

Examples of prohibited conduct include:
• Refusing to authorize FMLA leave for an eligible employee,
• Discouraging an employee from using FMLA leave,
• Manipulating an employee's work hours to avoid responsibilities under the FMLA,
• Using an employee's request for or use of FMLA leave as a negative factor in employment actions, such as hiring, promotions, or disciplinary actions, or,
• Counting FMLA leave under "no fault" attendance policies.

Any violations of the FMLA or the Department's regulations constitute interfering with, restraining, or denying the exercise of rights provided by the FMLA.

Employer Coverage. FMLA applies to all public agencies, including state, local and federal employers, local education agencies (schools), and private-sector employers who employed 50 or more employees in 20 or more workweeks in the current or preceding calendar year, including joint employers and successors of covered employers.

Enforcement. The DOL's Wage and Hour Division administers and enforces the FMLA for all private, state and local government employees, and some federal employees. The Wage and Hour Division investigates complaints. If violations cannot be satisfactorily resolved, the DOL may bring action in court to compel compliance. An employee may also be able to bring a private civil action against an employer for violations. In general, any allegation must be raised within two years from the date of violation.

January 9, 2012

ERISA-Ninth Circuit Upholds The Plan Board's Calculation Of Withdrawal Liability

In Plan Board of Sunkist Retirement Plan v. Harding & Leggett, Inc., No. 10-55745 (9th Cir. 2011) (Unpublished Opinion), the Court faced the question of whether it should uphold the determination by the plaintiff, Plan Board of Sunkist Retirement Plan (the "Plan Board"), of the liability of the defendant, Harding & Leggett, Inc. (" H&L"), for its withdrawal from a multiple-employer pension plan (the "Plan"). H&L argued that the Plan Board abused its discretion in calculating the withdrawal liability amount. The Court concluded that the Plan Board's determination should be upheld. In doing so, the Court dealt with three issues.

First, H& L had argued that the interest rate assumption utilized to calculate its withdrawal liability was unreasonably low and selected for the purpose of exaggerating its liability. The Court did not agree. It said that the record supports a finding made by the district court that, in this case, the combination of the Pension Benefit Guaranty Corporation's ("PBGC") interest rate assumptions with its mortality rate assumptions approximates insurance annuity market pricing. Thus, the Court upheld the Plan Board's chosen interest rate assumptions.

Second, H&L had contended that-due to the provisions of the Plan- the Plan Board improperly included a job elimination benefit in its calculation. Again, the Court did not agree. It said that testimony at trial established that the omission of the job elimination benefit from the plan document was simply a clerical error, and that the benefit was received by at least one H&L employee during the time the language was missing from the document. Further, the district court had made a factual finding that the benefit was added to the Plan through an amendment in 1997, and was included in the Plan at the time of H&L's withdrawal.

Finally, H & L argued that the Plan Board erroneously included missing and deceased participants in its withdrawal liability calculation. Disagreeing again, the Court said that the ERISA regulations require that, "[i]n the absence of proof of death, individuals not located are presumed living." (citing 29 C.F.R. § 4050.2 (definition of "missing participant")). This refutes H&L's assertion that certain missing participants should be presumed dead and not included in the withdrawal liability calculation. Moreover, the Plan Board regularly conducted mortality audits and utilized a commercial locator service to search for missing participants, as required by the ERISA regulations (citing 29 C.F.R. § 4050.4(b)(3)).

January 6, 2012

Employee Benefits-IRS Provides Guidance On Whether Contributions To A Retirement Plan May Be Based On S Corp Distributions

In Employee Plans News (December 20, 2011), the Internal Revenue Service (the "IRS") provided guidance on whether contributions to a tax-qualified, defined contribution retirement plan may be based on S Corp distributions made to an individual who is both a shareholder and employee. Here is what the IRS said.

Contributions to the plan can be made only from compensation, which, in the case of a self-employed individual, is earned income. Distributions received as a shareholder of an S corporation do not constitute earned income for these purposes (see IRC sections 401(c)(2) and 1402(a)(2)).

If an individual is a common law employee of the S corp, as well as a shareholder:

• the individual can make salary deferral contributions to the 401(k) plan based on his or her Form W-2 compensation from the S corp; and
the S corp can make matching or nonelective contributions to the plan based on that Form W-2 compensation.

An individual cannot make contributions to a self-employed tax qualified, defined contribution retirement plan from his or her S corp distributions. Although, as an S corp shareholder, the individual receives distributions similar to distributions that a partner receives from a partnership, those shareholder distributions are not earned income for these purposes (see IRC section 1402(a)(2)). Therefore, an individual cannot establish such a plan for himself or herself based solely on being an S corp shareholder.


January 5, 2012

ERISA-Seventh Circuit Determines That Solvent Companies Are Responsible For The Withdrawal Liability Of An Insolvent Affiliate

In Central States, Southeast and Southwest Areas Pension Fund v. SCOFBP, LLC, No. 10-3633 (7th Cir. 2011), the issue raised was whether two solvent business entities can be held responsible under ERISA for the withdrawal liability of an insolvent affiliate. The insolvent employer is defendant SCOFBP, LLC ("SCOFBP"), which incurred withdrawal liability when it stopped operating and paying into a union's pension fund, the plaintiff Central States, Southeast and Southwest Areas Pension Fund (the "Fund"). The solvent affiliates are defendants MCRI/Illinois, LLC ("MCRI") and MCOF/Missouri, LLC ("MCOF"). They and SCOFBP were part of a group of entities under the control of Michael Cappy, a businessman who went through personal bankruptcy.

Under ERISA, for purposes of computing withdrawal liability, all "trades or businesses" under "common control" are treated as constituting a single employer. Each such trade or business is jointly and severally liable for any withdrawal liability of any other. The district court held here that the solvent MCRI and MCOF were both trades or businesses that were under common control with insolvent SCOFBP at the relevant times, so that both MCRI and MCOF are liable for SCOFBP's withdrawal liability. The defendants appealed. The Seventh Circuit Court of Appeals (the "Court") faced two arguments from the defendants: (1) MCRI and MCOF were only passive investment vehicles, rather than trades or businesses, and (2) that Cappy's personal bankruptcy disrupted what had been common control of the three entities. The Court rejected both arguments, and upheld the district court's decision.

As to argument (1), the Court said that MCRI and MCOF are each a "trade or business". MCOF owned the lumberyard in O'Fallon, Missouri that was used and leased by SCOFBP. MCRI held and continues to hold parcels of land in Rock Island, Illinois, which it leases to a third-party company. Both MCRI and MCOF are for-profit limited liability companies. Each has an operating agreement detailing the type of business the company intends to conduct, initially "to hold real estate and investments approved by the Manager." Payments on triple-net leases held by MCRI and MCOF were paid into their bank accounts and mortgage payments on properties they owned were withdrawn from them. Both applied for and were issued federal employer identification numbers. Both maintained offices, elected officers, and kept formal records of activities and expenditures. Both employed professionals to provide legal, management, and accounting services on a contract basis, although neither admitted to having any permanent employees. To constitute a"trade or business," an entity must be engaged in an activity with continuity and regularity, and for the primary purpose of income or profit. This test is intended to distinguish a trade or business from a passive investment. Under the facts here and this test, both MCRI and MCOF constitute a trade or business. MCOF leased property directly to SCOFBP, the withdrawing employer. MCRI, also a formal business organization, engaged in regular and continuous activity for the purpose of generating income or profit.

As to argument (2), the Court found that, while the facts were complicated, MCRI, MCOF and SCOFBP were under common control at the relevant time, namely when SCOFBP withdrew from the Fund. At that time, the three entities formed a parent-subsidiary group, with Cappy's bankruptcy estate being the common parent with a 100% controlling interest in each of the three entities. Having rejected arguments (1) and (2), the Court upheld the district court's decision, and ruled that MCRI and MCOF were responsible for the withdrawal liability incurred by SCOFBP.


January 4, 2012

Employment-First Annual Notice To Employees Required By The Wage Theft Protection Act Is Due By February 1

New York State's Wage Theft Protection Act (the "Act") requires private employers to provide to each employee, who works in New York State, a notice at time of hire and once each year pertaining to the employee's pay and related matters. The Act applies to employees hired after April 8, 2011. The first annual notice must be provided during the period starting on January 1, 2012, and ending on February 1, 2012.

I have written an article on the annual notice requirement. Let me know if you would like a copy by giving me a call (516-307-1550) or using the CONTACT US feature on the website.

January 3, 2012

Employment-Second Circuit Clarifies When The 90-Day Limitations Period For Bringing An Employment Discrimination Suit Begins To Run

In Tiberio v. Allergy Asthma Immunology of Rochester, P.C., Docket No. 11-2576-cv (2nd Cir. 2011), the Court clarified that the 90-day limitations period for filing a suit for employment discrimination begins to run when a right-to-sue letter is first received either by the plaintiff or by the plaintiff's counsel. In this case the plaintiff, Lorrie A. Tiberio ("Tiberio"), was appealing the judgment of the district court dismissing her disability discrimination claim under the Americans with Disabilities Act (the "ADA") as untimely. Tiberio was fired from her position with the defendant, the Allergy Asthma Immunology of Rochester, P.C. ("AAIR"), on May 12, 2010, following accusations that she had unlawfully gained access to the medical charts of other employees and had "falsely order[ed] prescriptions." Tiberio thereafter filed a disability discrimination charge with the New York State Division of the Human Rights and the EEOC, and the latter issued a right-to-sue letter on November 24, 2010. The right-to-sue letter was mailed to Tiberio, with copies to AAIR and to Tiberio's counsel, Christina Agola. Tiberio commenced this action by filing a complaint in the district court on February 28, 2011, 96 days after the right-to-sue letter was issued.

In analyzing the case, the Court said that, in order to be timely, a claim under the ADA must be filed in federal district court within 90 days of the claimant's receipt of a right-to-sue letter from the EEOC. There is a presumption that a notice provided by a government agency was mailed on the date shown on the notice. There is a further presumption that a mailed document is received three days after its mailing. The initial presumption is not dispositive, however, if the plaintiff presents sworn testimony or other admissible evidence from which it could reasonably be inferred either that the notice was mailed later than its typewritten date or that it took longer than three days to reach her by mail. In this case, the plaintiff's complaint states that Tiberio actually received the right-to-sue-letter , but does not specify the date of receipt. In the absence of contrary evidence, the Court presumed that Tiberio received the notice on November 27, 2010, three days after the notice was mailed.

On appeal, Tiberio contended that her counsel received the right-to-sue letter on November 29, 2010, that the date on which her attorney received this letter should control the limitations inquiry, and as such (given that the 90th day from that date fell on the weekend) her February 28, 2011 filing was timely. However, the Court disagreed. It concluded that-based on the applicable statute and prior case law- the 90-day limitations period for bring the suit starts with the earlier of the day Tiberio received the letter or the day her counsel received the letter, here November 27, 2010. As such, her suit-filed 93 days later- was not filed timely, and the Court upheld the district court's conclusion.