February 2012 Archives

February 29, 2012

Employee Benefits-IRS Provides Guidance On Interest Charged On Plan Loans

In Retirement News for Employers (Winter 2012), the Internal Revenue Service
(the "IRS") provided guidance on interest charged on plan loans. Here is what the IRS said.

What is a Reasonable Interest Rate? When a retirement plan allows loans to plan participants, that loan is an investment of plan assets and must bear a reasonable rate of interest. According to the Department of Labor ("DOL"), a plan's loan interest rate is reasonable if it is equal to commercial lending interest rates under similar circumstances (DOL Regulations section 2550.408b-1(e)). To determine if a participant loan interest rate is "reasonable," ask these questions:

-- What current rates are local banks charging for similar loans (amount and duration) to individuals with similar creditworthiness and collateral?

--Is the plan rate consistent with the local rates?

Three examples are offered.

What are the consequences of not using a reasonable loan interest rate? Unless a reasonable rate of interest is assessed, participant loans may result in a prohibited transaction (see DOL Regulation section 2550.408b-1(a) and Internal Revenue Code section 4975(c)(1)(B)). As a result, the loans would not:

--meet the requirements of ERISA section 408(b)(1)(D);

--be covered by the relief provided by ERISA section 408(b)(1); and

--meet the prohibited transaction exemption for participant loans in IRC section 4975(d)(1).

February 28, 2012

Employee Benefits-IRS Provides Guidance On Matching Contributions To A SIMPLE IRA

In Retirement News for Employers (Winter 2012), the Internal Revenue Service posited the following situation about an employer that maintains a SIMPLE IRA for its employees. Some of its employees started or stopped contributing to the SIMPLE IRA in the middle of the year. The question: Is the employer required to make its 3% match based on the employees' compensation for the entire calendar year, or only the compensation earned during the period they actually contributed to the plan?

The answer: The employer must base its SIMPLE IRA matching contribution on an employee's entire calendar-year compensation, regardless of when the employee starts or stops contributing during the year. The IRS offered 3 examples in support of its point. Also the IRS stated that an employer can make matching contributions to its SIMPLE IRA:

-- on a per-pay-period basis, or

-- by the due date of the employer's tax return (including extensions).

February 27, 2012

Employment-Second Circuit Rules That Plaintiff's Retaliation Claim Fails

In Kim v. Columbia University, No. 10-3076-cv (2nd Cir. 2012) (Summary Order), the plaintiff, John Y. Kim ("Kim"), was appealing from an award of summary judgment in favor of the defendant, Columbia University ("Columbia"), on Kim's claim of Columbia's retaliation against him for filing suit against Columbia alleging violations of Title VII, the ADA and ERISA.

On appeal, Kim had argued that the temporal proximity between Columbia's May 2007 closure of his retirement account-and the resultant forfeiture of unvested retirement benefits (the adverse employer action)- and the April 2007 settlement proceedings in his then-pending discrimination case (the protected activity) was sufficient to permit an inference of retaliation. As to this argument, the Court said that, although temporal proximity between protected activity and adverse action may be sufficient to satisfy the causality element of a prima facie retaliation claim, this period is measured from the date of the employer's knowledge of the protected activity. This court has not identified an outer limit beyond which a temporal relationship is too attenuated to support a finding of causality. Instead, the Court said that it will exercise its judgment about the permissible inferences that can be drawn from temporal proximity in the context of particular cases.

Here, Kim filed his discrimination claim in federal court in June 2006, and Columbia closed his retirement account approximately eleven months later in May 2007. Kim acknowledges, however, that he initially filed a discrimination complaint against Columbia with the Equal Employment Opportunity Commission in July 1992, and admits that Columbia had ample knowledge for at least the past fifteen (15) years of his protected activities. The Court said that this lapse in time, coupled with the undisputed evidence that Kim's retirement account was closed pursuant to Columbia's forfeiture of approximately 2,000 other putatively unvested accounts, is sufficient to eliminate any genuine issue of material fact regarding causation. As such, the Court concluded that Kim did not make out a prima facie case of retaliation, and the Court affirmed the district court's summary judgment against him.

February 24, 2012

ERISA-Eighth Circuit Rules That The Plan Administrator Did Not Abuse Its Discretion In Stopping Long-Term Disability Benefits

In Carrow v. Standard Insurance Company, No. 10-3206 (8th Cir. 2012), the plaintiff, Don Carrow ("Carrow"), was appealing the district court's grant of summary judgment to the defendant, Standard Insurance Company ("Standard"), in his claim for disability benefits under ERISA.

In this case, Carrow had been covered under his employer's long-term disability plan (the "Plan"). Standard was the insurer and plan administrator of the Plan. The Plan defines "disability" as being disabled from the claimant's "own occupation" (for the first twenty-four months of benefits) and thereafter, being disabled from "any occupation" for which the claimant is "reasonably fitted by education, training, and experience." The Plan gives Standard full discretion to construe terms and make eligibility determinations. Due to various medical problems, primarily with his hip, knees and spine, Carrow was awarded long-term disability ("LTD") benefits under the Plan. Carrow was also awarded disability benefits by the Social Security Administration (the "SSA"). After twenty-four months of disability, Standard terminated the LTD benefits, on the grounds that Carrow did not meet the Plan's "any occupation" disability definition. This suit ensued. The question for the Eighth Circuit Court of Appeals (the "Court"): did Standard abuse its discretion in stopping the benefits?

In answering this question, the Court noted that, since the Plan gives Standard full discretion to construe terms and make eligibility determinations, Standard's decision to terminate the LTD benefits is reviewed for an abuse of discretion. Also, since a conflict of interest exists, because Standard is both the decision-maker on benefit claims and the insurer, the Court must take that conflict into account and give it some weight in the abuse-of- discretion analysis. In reviewing the case, the Court concluded that Standard did not abuse its discretion. In deciding to terminate the benefits, Standard relied on the reports of consulting, non-examining physicians over the reports of treating physicians, and made comparisons and credibility assessments among the reports of treating physicians. This reliance, and these comparisons and assessments, do not result in an abuse of discretion. Several of the treating physicians-whose reports Standard considered-had no financial tie to Standard, ameliorating the effect of the conflict of interest in this case. The reports of the consulting and treating physicians constitute substantial evidence supporting the Plan administrator's decision. Further, while the SSA found that Carrow was disabled, a plan administrator is not bound by the SSA findings.
Since it concluded that Standard did not abuse its discretion in deciding to terminate Carrow's LTD benefits from the Plan, the Court upheld the district court's summary judgment in favor of Standard.

February 22, 2012

ERISA-First Circuit Reviews Plan Administrator's Decision To Deny Life Insurance Benefits De Novo, And Concludes That The Estate Is Entitled To Those Benefits Due To Decedent's Disability

In Scibelli v. Prudential Insurance Company of America, No. 11-1372 (1st Cir. 2012), the plan administrator, Prudential Life Insurance Company of America ("Prudential"), did not reserve to itself discretion as to the interpretation and administration of its policy (the "Group Policy"). The Group Policy constituted the employee benefits plan in this case. The benefits at issue are life insurance proceeds from the Group Policy, in the sum of $300,000. These benefits were claimed by the estate of Walter Jajuga ("Jajuga"), who died on December 31, 2008. Whether the estate gets those benefits turns on whether Jajuga was "totally disabled" on May 6, 1997, when he stopped working for Mercedes-Benz USA. If he was so disabled on that date, then-under the terms of the Group Policy, and in particular a premium waiver due to the total disability- the estate would be entitled to the $300,000. Prudential had determined that Jajuga was not totally disabled on that date, and this suit ensued. Since it did not reserve discretion for itself in the Group Policy to interpret and administer the policy, the Court reviewed Prudential's determination de novo.

In analyzing the case, the Court said that, under de novo review, its task-as an appellate court-is to independently weigh the facts and opinions in the administrative record to determine whether the claimant has met his burden of showing that he is disabled within the meaning of the Group Policy. No deference is accorded to the administrators' (or district court's) opinions or conclusions. After reviewing the administrative record, the Court concluded that the plaintiffs-the claimant here - have carried their burden of showing that, when Jajuga stopped working on May 6, 1997, he was "totally disabled" under the terms of the Group Policy. That is, the plaintiffs have sufficiently demonstrated that, in the words of the Group Policy, Jajuga was "not able to perform for wage or profit, the material and substantial duties of any job for which [he was] reasonably fitted by [his] education, training or experience." In this case, reports of a treating physician, a board certified neurologist, attested to Jajuga's total disability at the time he stopped working. This physician's assessment was based on objective evidence, including an MRI. Prudential did not have any credible evidence to the contrary. Further, Prudential itself concluded that Jajuga was "totally disabled" with respect to an individual policy that Prudential had with Jajuga.

Having concluded that Jajuga was totally disabled on May 6, 1997, the Court ruled that his estate was entitled to the $300,000 life insurance proceeds under the Group Policy.

February 16, 2012

ERISA-Second Circuit Rules That New York's Borrowing Statute, Combined With Pennsylvania's 4-Year Limitations Period, Cause Plaintiff's Suit For Benefits To Be Time-Barred

In Muto v. CBS Corporation, No. 10-3038-cv (2nd Cir. 2012), the plaintiffs were appealing the judgment of the district court dismissing as time-barred their class action claim under ERISA for pension benefits. The plaintiffs agree that since ERISA contains no express limitations period for bringing benefit claims under 29 U.S.C. § 1132, the district court correctly looked to analogous New York law-the law of the forum state- to determine the applicable period. They argue on appeal that the district court erred, however, when it looked past the six-year New York limitations period for contract actions, the seeming analogous rule; applied part of the New York regime known as the "borrowing statute," which directed it to Pennsylvania law; and ruled that Pennsylvania's four-year limitations period barred plaintiffs' claims.

In this case, the plaintiffs are residents of Pennsylvania, who had worked for Westinghouse Electric Corp. ("Westinghouse") in Pittsburgh in the 1990s. During that time, Westinghouse offered its employees a pension plan (the " Plan"). The Plan provided a pension benefit, in which a participant vests after completing 5 years of service. The plaintiffs did not have 5 years of service, and therefore were not vested in their benefit under the Plan, when their employment with Westinghouse ended. The plaintiffs' terminations occurred during a series of layoffs and business divestitures implemented by Westinghouse from 1994 through 2000. They claim that the layoffs resulted in a partial termination of the Plan, under which they would become vested in, and thus entitled to receive, their benefits under the Plan. The defendants deny that a partial termination occurred, and thus refuse to have the Plan pay the benefits.

This suit was initially filed in 2000. The court rejected the plaintiffs' claims, in 2001, on the grounds that they had not exhausted their administrative remedies. The plaintiffs next sought to pursue their administrative remedies, in 2003, by sending correspondence of their claims to the defendants. In April 2009, more than a decade after Westinghouse terminated their employment and more than five years after they sent their 2003 letters, the plaintiffs filed this class action in the U.S. District Court for the Southern District of New York, seeking to recover benefits under the Plan on the partial termination theory. As indicated above, the district court dismissed the claim as being untimely. Was it correct?

In analyzing the case, the Second Circuit Court of Appeals (the "Court") noted that, in determining whether a suit is timely brought under ERISA, courts should refer to the statute of limitations of the forum state, including any "borrowing statute" of the forum. In its borrowing statute, § 202, New York law provides that "when a nonresident plaintiff sues upon a cause of action that arose outside of New York, the court must apply the shorter limitations period. . . of either: (1) New York; or (2) the state where the cause of action accrued." Here the plaintiffs reside, and the cause of action arose (that is, the place of injury is), in Pennsylvania. Consequently, the Pennsylvania 4-year statute of limitations on breach of contract actions applies. As such, due to the more than 5 year gap between sending the correspondence (in 2003) and filing this suit (in 2009), the Court concluded that the plaintiffs' suit was not timely, and it affirmed the district court's judgment.


February 15, 2012

ERISA-Second Circuit Rules That Plaintiff Is Not Entitled To Reinstatement Of Long-Term Disability Benefits

In Baird v. The Prudential Insurance Company of America, No. 10-4179-cv (2nd Cir. 2012) (Summary Order), the plaintiff, Mona Baird ("Baird"), was appealing from a grant of summary judgment against her by the district court, which denied her claim under ERISA for reinstatement of long-term disability ("LTD") benefits for her bilateral Carpal Tunnel Syndrome. The defendant, Prudential Insurance Company of America ("Prudential"), was the claims administrator of the plan which had paid the LTD benefits. Prudential had decided to terminate the LTD benefits, on the grounds that Baird was no longer "disabled" within the meaning of the plan.

In the appeal, Baird had argued that the district court's grant of summary judgment was erroneous, because Prudential's conclusion that she was no longer "disabled" was not supported by substantial evidence, and was the result of Prudential's failure to consider the duties of her regular occupation in a meaningful way. However, the Second Circuit Court of Appeals (the "Court") said that Baird's arguments amount to nothing more than a disagreement about how Prudential should have evaluated the medical evidence. Where, as here, the terms of an employee benefit plan grants the claims administrator discretion to determine eligibility for benefits, such arguments do not provide a basis for overturning a benefit determination. Rather, the Court said that it will not disturb the administrator's ultimate conclusion, unless it was arbitrary and capricious (which it was not here). As such, the Court affirmed the district court's grant of summary judgment against Baird.

February 14, 2012

Employment-Fourth Circuit Rules That Adverse Employment Action In Response To An Internal Complaint Can Lead To A Claim Of Retaliation Under The FLSA

In Minor v. Bostwick Laboratories, Incorporated, No. 10-1258 (4th Cir. 2012), the plaintiff, Kathy Minor ("Minor"), was appealing the district court's dismissal of her claim of retaliation under the Fair Labor Standards Act (the "FLSA") against her employer, Bostwick Laboratories, Incorporated ("Bostwick"). The issue for the Fourth Circuit Court of Appeals (the "Court"): Did Minor state a claim for retaliation under the FLSA, when she alleged that her employer terminated her in retaliation for reporting FLSA violations internally to the employer (as opposed to filing a complaint alleging the violations with a court or the government)?

In this case, on May 6, 2008, Minor and several other members of her department met with Bostwick's chief operating officer, Bill Miller. The purpose of the meeting was to call to Miller's attention the fact that Minor believed her supervisor, Dawn Webber, had willfully violated the FLSA. Specifically, Minor informed Miller that Webber routinely altered employees' time sheets to reflect that they had not worked overtime when they had. At the conclusion of the meeting, Miller told the group that he would look into the allegations. The following Monday, May 12, 2008, Bostwick terminated Minor's employment. This suit ensued.

In analyzing the case, the Court said that the FLSA's anti-retaliation provision, found in section 215(a)(3) of the FLSA, makes it unlawful for a covered employer to "discharge or in any 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 this chapter, or has testified or is about to testify in any such proceeding." Did Minor "file any complaint" and thus become entitled to the protection of this provision? The Court reviewed the language in section 215(a)(3) of the FLSA and prior caselaw, including the Supreme Court's holding in Kasten v. Saint-Gobain Performance Plastics Corporation (holding that oral complaints to an employer qualifies as protected activity under the FLSA's anti-retaliation provision). The Court concluded that Minor's reporting FLSA violations internally to the employer constitutes "filing a complaint", so that Minor was entitled to the protection of the FLSA's anti-retaliation provision. As such, the Court reversed the district court's summary judgment.

February 13, 2012

Employee Benefits - HHS Says That Health Reform Requires Insurers To Use Plain Language in Describing Health Plan Benefits And Coverage

Its back! The effective date of the rule in the 2012 Affordable Care Act, which requires that (among others) participants in group health care plans must be provided with a clear, understandable description of their health care benefits and coverage, had been postponed, pending the issuance of final regulations. But now those final regulations have been issued, and the rule has been given a September 23 effective date. Here is what the Department of Health and Human Services ("HHS") said in a News Release:

Under the rule announced today, health insurers must provide consumers with clear, consistent and comparable summary information about their health plan benefits and coverage. The new explanations, which will be available beginning, or soon after, September 23, 2012 will be a critical resource for the roughly 150 million Americans with private health insurance today. Specifically, these rules will ensure consumers have access to two key documents that will help them understand and evaluate their health insurance choices:

• A short, easy-to-understand Summary of Benefits and Coverage ( or "SBC"); and

• A uniform glossary of terms commonly used in health insurance coverage, such as "deductible" and "co-payment."

All health plans and insurers will provide an SBC to shoppers and enrollees at important points in the enrollment process, such as upon application and at renewal.

A key feature of the SBC is a new, standardized plan comparison tool called "coverage examples," similar to the Nutrition Facts label required for packaged foods. The coverage examples will illustrate sample medical situations and describe how much coverage the plan would provide in an event such as having a baby (normal delivery) or managing Type II diabetes (routine maintenance, well-controlled). These examples will help consumers understand and compare what they would have to pay under each plan they are considering.

The template for the Summary of Benefits and Coverage and the glossary are here. The final regulations are here. For more information on the final regulations, visit here.

February 10, 2012

Employee Benefits-IRS Issues Proposed Regulations On Longevity Annuity Contracts

Pursuant to its initiative to encourage retirement plans to offer better lifetime income options (see my blog of last Tuesday), the Internal Revenue Service (the "IRS") has issued proposed regulations relating to the purchase of longevity annuity contracts by tax-qualified defined contribution plans under section 401(a) of the Internal Revenue Code (the "Code"), section 403(b) plans, IRAs under section 408 of the Code, and eligible governmental section 457 plans. What is a longevity annuity contract? It is a contract that allows a plan participant or IRA owner to apply a portion of his or her account balance under the plan or IRA to the acquisition of a life annuity under which payment starts at an advanced age, e.g., age 85 or older, should the participant or owner live to that age.

These proposed regulations are intended to provide guidance necessary in order for a longevity annuity contract to comply with the required minimum distribution ("MRD") rules under section 401(a)(9) of the Code. The proposed rules say that an annuity which costs no more than 25% of the participant or IRA owner's account balance (or $100,000, if less), and which will begin at age 85, is disregarded in calculating the annual MRD, until the annuity payment begins.To qualify for this treatment, the annuity must meet certain limits on cash-out options and death benefits in order to ensure that it is used only to protect the participant or IRA owner from outliving his/her assets and to make it as inexpensive as possible.

The regulations would affect individuals for whom a longevity annuity contract is purchased under these plans or IRAs (and their beneficiaries), sponsors and administrators of these plans, trustees and custodians of these IRAs, and insurance companies that issue longevity annuity contracts under these plans and IRAs. However, until the regulations are finalized, taxpayers may not rely on the rules set forth in the proposed regulations.

February 9, 2012

Employee Benefits-IRS Provides Guidance On Rollovers From A Qualified Defined Contribution Plan To A Qualified Defined Benefit Plan To Obtain An Annuity

Pursuant to its initiative to encourage retirement plans to offer better lifetime income options (see my blog of last Tuesday), in Revenue Ruling 2012-4, the Internal Revenue Service (the "IRS") has provided guidance on rollovers from a defined contribution plan toa defined benefit plan to obtain an annuity. The overall thought is that the defined benefit plan could buy an annuity at a better rate than the participant acting on his/her own.

The Revenue Ruling deals with a qualified defined benefit plan, which accepts a direct rollover from a qualified defined contribution plan maintained by the same employer. The Ruling asks whether the defined benefit plan satisfies §§ 411 and 415 of the Internal Revenue Code (the "Code"), when it provides an annuity determined by converting the amount rolled over into an actuarially equivalent immediate annuity using the applicable interest rate and the applicable mortality table under § 417(e). Subjects to facts which the Revenue Ruling presents, it concludes that §§ 411 and 415 are not violated.

The Revenue Ruling then asks how the result would change if different actuarial factors were used to compute the annuity. The focus is on § 411(c), which sets forth rules for determining the amount of a participant's accrued benefit. The Revenue Ruling says that if the defined benefit plan were to determine the annuity by using a less favorable actuarial basis than required under the rules of § 411(c) (so that the annuity is smaller than required under the rules of § 411(c)), then the plan would not satisfy the requirements of § 411(a)(1). On the other hand, if the defined benefit plan were to determine the annuity using a more favorable actuarial basis than required under the rules of § 411(c) (so that the annuity is larger than required under the rules of § 411(c)), then the portion of the annuity that exceeds the benefit determined under the rules of § 411(c)(2)(B) (the rules for determining the accrued benefit derived from participant contributions) would be: (1) subject to the non-forfeiture rules of § 411applicable to benefits derived from employer contributions, and (2) included in the annual benefit for purposes of the § 415(b) limit.
The Revenue Ruling does not apply with respect to rollovers made before January 1, 2013. However, employers may rely on the ruling with respect to any rollovers made prior to that date.

February 8, 2012

Employee Benefits-IRS Provides Guidance On Application of QJSA/QPSA Rules To Deferred Annuities Purchased By A Defined Contribution Plan

Pursuant to its initiative to encourage retirement plans to offer better lifetime income options (see yesterday's blog ), in Revenue Ruling 2012-3, the Internal Revenue Service (the "IRS") has provided guidance on the application of the QJSA/QPSA rules to the purchase by a defined contribution plan of a deferred annuity contract to provide retirement benefits. The Revenue Ruling posits situations involving a defined contribution 401(k) plan, which allows the participant to direct the investment of his/her contributions (e.g., elective deferrals and matching contributions thereon) into a separate account through which the contributions are immediately applied to purchase a deferred annuity contract from an insurer. The Ruling makes three important points.

Point One: The plan will not be subject to the QJSA/QPSA rules with respect to a participant, so long as the following conditions are met:

--the plan is neither a defined benefit plan nor a defined contribution plan that is subject to the funding standards of § 412 of the Internal Revenue Code (the "Code"), thus meeting the first two conditions in § 401(a)(11)(B) of the Code;

-- the participant's entire nonforfeitable benefit under the plan is payable in full, on the death of the participant prior to the annuity starting date, to the participant's surviving spouse (or, if there is no surviving spouse, the participant's designated beneficiary), thus meeting the condition in § 401(a)(11)(B)(iii)(I) of the Code;

--the plan is not a direct or indirect transferee of a plan that was subject to the QJSA and QPSA requirements with respect to the participant, thus meeting the condition of § 401(a)(11)(B)(iii)(III) of the Code; and

--the participant may not elect to have his/her benefit paid in the form of a life annuity, thus meeting the condition in § 401(a)(11)(B)(iii)(II) of the Code. This condition may be satisfied even if the deferred annuity contract pays a life annuity unless the participant elects otherwise by his/ her annuity starting date. However, the condition fails to be satisfied-and the deferred annuity contract (but not the entire plan) becomes subject to the QJSA/QPSA rules- if the participant makes no election by the annuity staring date, and thus will receive payment in annuity form.

Point Two: If the deferred annuity contract pays benefits only in an annuity form, the amounts payable under the contract will generally be subject to the QJSA/QPSA requirements. This obtains because the participant will be treated as having elected a life annuity, and thus failing to meet the condition for exception to the QJSA/QPSA requirements in § 401(a)(11)(B)(iii)(II) of the Code.

Point Three: If the deferred annuity contract pays a death benefit to the participant's surviving spouse in the form of a life annuity, based on 100% of the contributions used to purchase the contract, the deferred annuity contract feature of the plan satisfies the requirements in the Code and regulations for a QPSA (see § 1.401(a)-20, Q&A-20). Further, if the life annuity may not be waived in favor of another form of payment or a nonspouse beneficiary, since the deferred annuity contract fully subsidizes the costs of the QPSA (i.e., no charge is imposed for the coverage), the plan is not required to provide the written QPSA explanation or obtain any spousal consent (§ 417(a)(3) and (5) of the Code ) with respect to the deferred annuity contract.


February 7, 2012

Employee Benefits-IRS Announces Initiative To Help Americans Achieve Retirement Security By Expanding Lifetime Income Choices

The problem is that pension plan participants-particularly those in defined contribution plans- take their benefits in lump sum form, as opposed to a lifetime pension. Before long, the money is gone. One solution is to allow the plans to provide better lifetime pensions (i.e., a lifetime income choices). With this in mind, the Internal Revenue Service (the "IRS") has issued a Fact Sheet, announcing that-as a first step toward the lifetime income solution, it is releasing an initial package of proposed regulations and rulings intended to remove impediments and otherwise ease the offering of lifetime income choices.

The Fact Sheet says that, to summarize, the new package of proposed regulations and rulings makes it easier for pension plans to offer workers a wider range of choices as to how to receive their retirement benefits by:

--making it easier to offer combination options that avoid an "all-or-nothing" choice, such as the option to take a portion of an individual's plan benefit as a stream of regular monthly income payable for life, while perhaps taking the remainder in a single lump-sum cash payment;

--enabling employer plans and IRAs to offer an additional option in the form of "longevity annuities" - which permit employees to use a limited portion of their account balance to provide lifelong retirement income beginning at age 80 or 85, protecting those who live beyond average life expectancy from running out of savings;

--making clear that employees receiving lump-sum cash payouts from their employer's 401(k) plan can transfer some or all of those amounts to the employer's defined benefit pension plan (if the employer has one and is willing to allow this) in order to receive an annuity from that plan (giving employees access to the defined benefit plans' relatively low-cost annuity purchase rates); and

--resolving uncertainty as to how the 401(k) plan spousal protection rules apply when employees choose deferred annuities (including longevity annuities) from their plans.

The Fact Sheet continues by discussing the above concepts in more detail.

February 6, 2012

ERISA-DOL Issues Final Regulations For Service Provider Disclosures Under Section 408(b)(2); Effective Date Delayed

The U.S. Department of Labor (the "DOL") has issued final regulations (at 29 CFR § 2550.408-2(c)) on service provider disclosures under section 408(b)(2) of ERISA. These final regulations supercede the interim regulations that were issued on July 16, 2010. In general, they require covered service providers to furnish the plan administrator of a covered plan with information about the providers' services and fees. The DOL discusses the final regulations in a Fact Sheet. Also, a list of the changes made in the final regulations to the interim regulations may be found here.

Importantly, the effective date of rules for service provider disclosures has been postponed from April 1, 2012 to July 1, 2012. Here is what the Fact Sheet says on the new effective date:

The final regulations are effective for both existing and new contracts or arrangements between covered plans and covered service providers as of July 1, 2012. Service providers not in compliance as of July 1, 2012, will be subject to the prohibited transaction rules of ERISA section 406 and Internal Revenue Code section 4975 penalties.

Plan administrators are reminded that the final regulations' new July 1 effective date also will impact when disclosures must first be furnished under DOL's participant-level disclosure regulation (29 CFR § 2550.404a-5). The transitional rule for the participant-level disclosure regulation was revised in July 2011 so that the first disclosures would follow the effective date of the 408(b)(2) regulation. Consequently, for calendar year plans, the initial annual disclosure of "plan-level" and "investment-level" information (including associated fees and expenses) must be furnished no later than August 30, 2012 (i.e., 60 days after the 408(b)(2) regulation's July 1 effective date). The first quarterly statement must then be furnished no later than November 14, 2012 (i.e., 45 days after the end of the third quarter (July through September), during which initial disclosures were first required). This quarterly statement need only reflect the fees and expenses actually deducted from the participant or beneficiary's account during the July through September quarter to which the statement relates.


February 3, 2012

Employment-Tenth Circuit Rules That Migraine Headaches Are Not An ADA Disability

After Congress expanded the American With Disabilities Act (the "ADA") in 2008, it has been thought that almost any medical problem of an employee would be treated as a disability under the ADA. But in Allen v. SouthCrest Hospital, No. 11-5016 (10th Cir. 2011), the Tenth Circuit Court of Appeals (the "Court") ruled that migraine headaches are not an ADA disability. Here is what happened.

In this case, the plaintiff, Alethia Allen ("Allen"), worked as a medical assistant for the defendant, SouthCrest Hospital ("SouthCrest"). Her duties involved working with patients. While employed at SouthCrest, Allen began to experience migraine headaches. The headaches occurred several times per week, but she did not suffer from them on a daily basis. The migraines varied in severity. At times she could keep working. At other times she could not. Allen was eventually fired. She subsequently filed this suit, which included an ADA claim for failure to accommodate and wrongful termination. The district court granted summary judgment against her, and she appealed. The question for the Court: was Allen disabled for ADA purposes?

In analyzing the case, the Court said that a person is "disabled" under the ADA if she suffers from "a physical or mental impairment that substantially limits one or more major life activities." ( citing 42 U.S.C. § 12102(1)(A)). To satisfy this definition, a plaintiff must (1) have a recognized impairment, (2) identify one or more appropriate major life activities, and (3) show the impairment substantially limits one or more of those activities. As to condition (2), Allen contended that her migraines substantially limit the major life activities of "working" and "caring for herself." The issue then becomes whether condition (3) is met- specifically, whether Allen's migraine headaches substantially limited her ability to perform the foregoing activities.

As to Allen's ability to care for herself, the Court said that, taken as a whole, the evidence showed that Allen's migraines, when active and treated with medication, did not permit her to perform activities to care for herself in the evenings and compelled her to go to sleep instead. But the Court further said that it was her burden to make more than a conclusory showing that she was substantially limited in the major life activity of caring for herself as compared to the average person in the general population. She failed to do this. Allen presented no evidence concerning such factors as how much earlier she went to bed than usual, which specific activities of caring for herself she was forced to forego as the result of going to bed early, how long she slept after taking her medication, what time she woke up the next day, whether it was possible for her to complete the activities of caring for herself the next morning that she had neglected the previous evening, or how her difficulties in caring for herself on days she had a migraine compared to her usual routine of evening self-care. In sum, Allen's claim of a substantial limitation in the major life activity of caring for herself was not sufficiently developed or supported by the evidence.

As to Allen's ability to work, Allen admitted that her condition affected her work only for one particular doctor at SouthCrest (there were others she could have worked for). Under case law, to be disabled in the major activity of working, an employee must be significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes as compared to the average person having comparable training, skills and abilities. Work for a single physician does not qualify as a class or broad range of jobs. This obtains even under the amendments made to the ADA in 2008 and the underlying regulations that became effective in 2011. Thus, Allen failed to show that her migraines substantially limited her major life activity of work.

Based on the above, the Court concluded that condition (3) was not met, and therefore Allen was not disabled for ADA purposes. Accordingly, the Court affirmed the district court's summary judgment against Allen. Thought: reading this case, the result might have been different if the complaint was more detailed, or if a different job setting was involved. The case should not lead one to dismiss the breadth and implications of the 2008 amendments to the ADA.

February 1, 2012

Employment -Eleventh Circuit Rules That Plaintiff Can Be Protected By The FMLA Even Before She Qualified For FMLA Leave

In Pereda v. Brookdale Senior Living Communities, Inc., No. 10-14723 (11th Cir. 2012), the plaintiff, Kathryn Pereda ("Pereda"), was appealing the district court's dismissal of her complaint against defendant, Brookdale Senior Living Communities, Inc. ("Brookdale"), alleging interference and retaliation under the Family and Medical Leave Act of 1993 (the "FMLA"). The district court held that because Pereda was not eligible for leave under the FMLA at the time she was terminated by Brookdale, she could not bring either claim under the FMLA. The question for the Eleventh Circuit Court of Appeals (the "Court"): does the FMLA protect a pre-FMLA eligibility request for post-FMLA eligibility leave?

In this case, Pereda began her employment with Brookdale on October 5, 2008. In June of 2009, Brookdale was advised that Pereda was pregnant and would be requesting FMLA leave after the birth of her child on or about November 30, 2009. Pereda alleges that, after learning about her pregnancy, Brookdale began harassing her, causing stress and other complications in her pregnancy, and that Brookdale's management began denigrating her job performance and placed her on a performance improvement plan with unattainable goals. Brookdale fired Pereda in September of 2009. This suit followed.

In analyzing the case, the Court said that, in order to receive FMLA protections, one must be both: (1) eligible for FMLA leave, meaning having worked the requisite hours and having been employed for the requisite period- that is, he or she has worked at least 1,250 hours in the past 12 months, and has been employed by the employer for a total of at least 12 months, and (2) entitled to FMLA leave, meaning an employee has experienced a triggering event, such as the birth of a child. Conditions (1) and (2) must both be met by the date the FMLA begins. Here, at the time she requested FMLA leave, she had not worked the requisite hours or been employed during the requisite period, and had not yet experienced the triggering event, the birth of her child. However, she would have met conditions (1) and (2) by the time she gave birth and began her requested leave.

As to Pereda's interference claim, the Court said that, because the FMLA requires notice in advance of future leave, employees are protected from interference prior to the occurrence of a triggering event, such as the birth of a child; otherwise, there is no protection upon providing the notice. As to Pereda's retaliation claim, the Court said that a pre-FMLA eligible request for post-FMLA eligible leave is protected activity, because the FMLA aims to support both employees in the process of exercising their FMLA rights and employers in planning for the absence of employees on FMLA leave. As such, the Court ruled that Pereda was entitled to FMLA protection at the time she requested the FMLA leave (in June, 2009), so that she could proceed with her interference and retaliation FMLA claims. Accordingly, the Court reversed the district court's decision.