March 2012 Archives

March 29, 2012

Employment-Fourth Circuit Rules That The Discriminatory Denial Of An Employment Benefit (Whether Or Not The Employer Is Obligated To Provide The Benefit) Constitutes Adverse Employment Action Under Title VII

In Gerner v. County of Chesterfield, No. 11-1218 (4th Circuit 2012), the plaintiff, Karla Gerner ("Gerner"), brought this suit against her former employer, Chesterfield County, Virginia (the "County"). Gerner claimed that the County unlawfully discriminated against her, in violation of Title VII, by offering her a less favorable severance package than that offered male employees holding similar positions. The district court dismissed Gerner's complaint, on the ground that she failed to allege a Title VII claim because the County's assertedly discriminatory denial of severance benefits did not constitute an adverse employment action. One question for the Fourth Circuit Court of Appeals (the "Court"): was the district court correct in holding that such denial is not an adverse employment action for purposes of Title VII?

In this case, after more than twenty-five years of employment by the County, the County informed Gerner that her position was being eliminated due to a re-organization. The County asked Gerner to sign an agreement, which offered her three months pay and health benefits in exchange for her voluntary resignation and waiver of any cause of action against the County. Gerner considered the offer for a few days and ultimately declined. The County then terminated her employment, without any severance pay or benefits. This suit followed, on the grounds that similarly situated male employees were offered more favorable severance packages.

An adverse employment action is an essential element of a Title VII claim. In analyzing the case, the Court said that an employment benefit-such as an offered severance package-need not be a contractual right (that is, a benefit which the employer is contractually required to provide) in order for its discriminatory denial (i.e., the denial of the same benefit as provided to males) to constitute an adverse employment action for purposes of establishing aTitle VII claim. As such, the Court ruled that the district court erred by dismissing the case on the grounds that a discriminatory denial of severance benefits did not constitute an adverse employment action.

March 28, 2012

ERISA-Sixth Circuit Rules That A Union's Agreement To Indemnify An Employer For Its Withdrawal Liability Is Enforceable

In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, No. 11-5450 (6th Circuit 2012), the plaintiff, Shelter Distribution, Inc. ("Shelter"), had filed suit against a union, General Drivers, Warehousemen & Helpers Local Union No. 89 (the "Union"), to enforce a provision of the collective bargaining agreement between them (the "CBA"). The provision in question (the "Provision") obligates the Union to indemnify Shelter for any contingent liability Shelter may incur as a result of its participation in the Union's multiemployer pension plan (the "Plan"). Shelter claims that, under the Provision, the Union is obligated to indemnify Shelter for any "withdrawal liability," imposed upon Shelter with respect to the Plan by ERISA (specifically 29 U.S.C. § 1399(b)). The Union argues that the Provision is unenforceable-at least in so far as it requires indemnification for withdrawal liability-as a matter of public policy. The question for the Sixth Circuit Court of Appeals (the "Court"): is the Provision enforceable in this case?

In this case, the CBA between Shelter and the Union was scheduled to expire in November 2001. Pursuant to the CBA, the Union notified Shelter that it intended to re-negotiate the agreement. During negotiations, and prior to agreeing to a new contract, the Union disclaimed its representation of Shelter's employees and terminated the collective bargaining process with Shelter. As a result, Shelter withdrew from the Plan. It was then assessed a withdrawal liability of $57,291.50. Shelter demanded that the Union indemnify Shelter for this amount pursuant to the Provision. When the Union refused, Shelter filed this suit.

The Court reviewed the provisions of ERISA, which relate to multiemployer plans and withdrawal liability, as well as prior case law. It noted that, factually, Shelter is the party that is primarily liable for the withdrawal liability, and the Union has merely agreed to indemnify Shelter for any such liability it incurs. Based on its review and the foregoing facts, the Court concluded that the Provision does not violate public policy. Therefore, the Court ruled that the Provision is enforceable by Shelter against the Union, so that the Union must indemnify Shelter for its withdrawal liability.

March 27, 2012

Employee Benefits-Ninth Circuit Rules That A Roth IRA Cannot Be A Shareholder Of An S Corporation.

And just when I announced my article praising the Roth IRAs, this happens:

In Taproot Administrative Services, Inc., No 10-70892 (9th Cir. 2012), the Ninth Circuit Court of Appeals (the "Court") ruled that a Roth IRA cannot be a shareholder of a Sub S corporation. Why Not?

In this case, the Roth IRA was the corporation's sole shareholder. According to the Court, the Internal Revenue Code (the "Code") limits the types of shareholders of a Sub S corporation to domestic individuals, estates qualified plans' tax-exempt trusts , and other certain trusts. Sections 1361(b)(1)(B), (c)(2), and (c)(6) of the Code. The eligible, other certain trusts are generally: (1) those which are treated as owned by an individual (sections 1361(c)(2)(A) and (d) of the Code), that is, grantor trusts, or (2) those which are qualified subchapter S trusts (sections 1361(c)(2)(A) and (d) of the Code).The Court ruled that the Roth IRA is not one of the types of shareholders that a Sub S corporation could have under those Code provisions. In making this determination, it rejected the arguments that the relevant owner is the individual who established and owned the Roth IRA, and that the Roth IRA should be treated as a grantor trust or a qualified subchapter S trust.

The result of the Court's ruling is that the corporation in question must be treated as a C corporation, rather than as a Sub S corporation.

March 26, 2012

Employee Benefits- Article on Roth IRAs

Hi! Tax season is here again. Given the impressive tax advantages of a Roth IRA, I have written an article, which appears in the February edition of the Nassau Lawyer, on how and why you should put your money in a Roth IRA. If you would like a copy of the article, please give me a call (516-307-1550), send me an email ( or use the Contact feature on the right. Stanley

March 19, 2012

Employee Benefits-Seventh Circuit Rules That Children's Benefits From Social Security Due To Parent's Disability May Be Applied To Reduce Disabilty Benefits Payable To The Parent By An Employer's Plan

In Schultz v. Aviall, Incorporated Long Term Disability Plan, No. 11-2889 (7th Cir. 2012), the plaintiffs, Kathleen Schultz and Mary Kelly (the "Plaintiffs"), brought a class action under ERISA, to recover benefits under the long-term disability benefit plans (the "Plans") maintained by their former employers and issued by the Prudential Insurance Company of America ("Prudential"). The Plans provide for a reduction of the disability benefits if the disabled employee also receives federal disability benefits under the Social Security Act, as both the Plaintiffs do. The issue in the case: How should the reduction be calculated?

The Seventh Circuit Court of Appeals (the "Court") noted that, when calculating the amount of the reduction of the Plans' benefits based on the Social Security disability benefits, Prudential had counted both the amounts payable to each plaintiff under 42 U.S.C. § 423 (primary disability insurance benefits) and amounts payable on behalf of their dependent children under 42 U.S.C. § 402(d) (child's benefits based on parent's disability). The Plaintiffs contended that the Plans do not authorize Prudential to include the children's benefits in the amount of the reduction. Both Plans require offsets for "loss of time disability" benefits. The Plaintiffs argued that a child's Social Security disability benefit based on a parent's disability is not a "loss of time disability" benefit, and therefore should not be taken into account when calculating the reduction. In the alternative, the Plaintiffs argued that the plan language is ambiguous and should be construed against Prudential. The Court said that, based on the relevant plan language, the district court held that the children's benefits counted as "loss of time disability" benefits, and dismissed the Plaintiffs' case for failure to state a claim.

In analyzing the case, the Court said that the Plans' language on this point is not ambiguous. The only reasonable interpretation of this language-based on the language itself and bolstered by case law- is that, when a disabled employee's dependent children receive Social Security payments by reason of the parent employee's disability, those benefits are disability benefits based on the employee's "loss of time" and are taken into account when determining the reduction in the disability benefit payable by the Plans. As such, the Court upheld the district court's dismissal of the case.

March 16, 2012

ERISA-First Circuit Upholds Plan Administrator's Denial Of A Claim For A Retirement Plan Benefits

In Kingsbury v. Marsh &McLennan Companies, Inc., No. 11-1253 (1st Cir. 2012) (Unpublished Opinion), the plaintiff, Joan Kingsbury ("Kingsbury"), was appealing the district court's grant of summary judgment affirming the denial by a plan administrator of a claim for retirement benefits purportedly owed to Kingsbury's deceased sister, Lorna Hutcheon ("Hutcheon"), under ERISA. The district court's judgment was based on the grounds that Kingsbury's claim was barred by the statute of limitations, and that the decision of the plan administrator to deny the claim was not arbitrary and capricious.

In analyzing the case, the First Circuit Court of Appeals (the "Court") said that, with respect to a plan administrator's decision, where an ERISA plan gives the administrator discretion to determine benefit eligibility or to construe the terms of the plan, and the plan administrator makes a benefit determination under the plan, a court will reverse the administrator's decision only when it is arbitrary, capricious, or an abuse of discretion.

Here, the plan administrator based its decision on its finding that the employer's records did not contain any evidence that Hutcheon, alleged to be an employee from 1956 to 1977, had any entitlement to the retirement benefits in question. The Court found that the plan administrator's decision to deny Kingsbury's claim was measured and well considered, since the plan had exerted substantial effort researching the claim and searching for evidence of Hutcheon's purported entitlement to the retirement benefits, and it received and considered evidence from the Kingsbury supporting Hutcheon's entitlement. The Court could not conclude that the plan administrator's denial of the claim was arbitrary, capricious, or an abuse of discretion. Accordingly, the Court affirmed the district court's summary judgment against Kingsbury, and did not need to reach the statute of limitations issue.

March 13, 2012

Employment-Fourth Circuit Rules That Inability To Work Overtime Is Not A Disability Under The ADA

In Boitnott v. Corning Incorporated, No. 10-1769 (4th Cir. 2012), the plaintiff, Michael R. Boitnott ("Boitnott"), filed suit against his employer, Corning Incorporated ("Corning"), under the Americans with Disabilities Act (the "ADA"). Boitnott asserted that his inability to work more than eight hours per day and rotate day/night shifts as a result of physical impairments rendered him disabled under the ADA. He further asserted that Corning had violated the ADA by failing to provide him a "reasonable accommodation" for his disability. Corning responded that, since Boitnott was physically able to work a normal forty hour work week and had not demonstrated that his impairments significantly restricted the class of jobs or a broad range of jobs available to him, he could not establish that he had a "substantial" limitation upon which to base a claim of disability under the ADA. The District Court granted summary judgment to Corning.

In analyzing the case, the Fourth Circuit Court of Appeals (the "Court") said that the ADA prohibits any covered employer from discriminating against a qualified individual with a disability. For this purpose, a "qualified individual with a disability" is an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position. Further a "disability" is a physical or mental impairment that substantially limits one or more major life activities of such individual. When, as here, the supposed major life activity is the ability to work, a plaintiff must show-under the ADA regulations (specifically those at 29 C.F.R. § 1630.2(j)(3))- that the impairment significantly restricted his 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, and the inability to perform a single, particular job does not constitute a substantial limitation in the major life activity of working.

The Court said that a number of other circuits have concluded that, under the ADA an employee is not substantially limited in one or more major life activities, if the employee is capable of working a normal forty hour work week but is not able to work overtime because of a physical or mental impairment. They have further concluded that -in their particular cases-the inability to work overtime does not significantly restrict an employee's ability to perform a class of jobs or a broad range of jobs in various classes. In this case, Boitnott cannot resume work at Corning because he cannot work overtime. The Court decided to join the other Circuits, and held that an inability to work overtime does not constitute a substantial limitation on a major life activity under the ADA.

The Court then reviewed the record to determine if there was evidence demonstrating that Boitnott's inability to work overtime significantly restricted his 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. This inquiry acknowledges that Boitnott's particular impairments and/or the labor market in his area could, under certain circumstances, make his inability to work overtime a substantial restriction for this purpose. However, the Court found no evidence of any such restriction. Based on its holding and this finding, the Court upheld the district court's summary judgment.

March 9, 2012

ERISA-Ninth Circuit Rules That Plaintiff Was Not Entitled To Employer-Paid Pre-Age 65 Medical Benefits

In Roschewski v. Raytheon Company, No. 10-56110 (9th Cir.2012) (Unpublished Opinion), the plaintiff, Verlyn Roschewski ("Roschewski") , was appealing from the district court's summary judgment against him, in his claim that the defendant and former employer, Raytheon Company, had improperly required him to pay medical insurance premiums for pre-age 65 health coverage in violation of ERISA.

In reviewing the case, the Ninth Circuit Court of Appeals (the "Court") found that the district court had properly granted summary judgment because Roschewski failed to raise a genuine dispute of material fact as to whether an "ERISA-governed benefit plan document" established his and his spouse's right to premium-free medical care until age 65. Generally, such a right can be established only by contract under the terms of such a document. Accordingly, the Court affirmed the district court's decision.

March 7, 2012

Employee Benefits-IRS Provides Guidance On Minimum Required Distributions From Defined Contribution Plans And IRAs

Just a note: In Retirement News for Employers (Winter 2012), the Internal Revenue Service (the "IRS") has provided guidance on minimum required distributions from defined contribution plans, such as 401(k), profit-sharing, and 403(b) plans, and from IRAs, including SEPs, SIMPLEs and SARSEPs, in the form of a chart. The chart is here.

March 6, 2012

Employee Benefits-IRS Discusses Fee Disclosure for Plan Fiduciaries

In Retirement News for Employers (Winter 2012), the Internal Revenue Service (the "IRS") talks about the new rules of the U.S. Department of Labor (the "DOL") for fee disclosures to plan fiduciaries. Here is what the IRS said.

On February 3, the DOL published a final rule that will provide employers who sponsor pension and 401(k) plans with information about the administrative and investment costs associated with providing such plans. This rule requires service providers to furnish information to enable fiduciaries to determine both the reasonableness of compensation paid to the service providers and any conflicts of interest that may impact a service provider's performance under a service contract or arrangement. It requires disclosures of direct and indirect compensation certain service providers receive in connection with the services they provide.

The rule applies to those service providers that expect to receive $1,000 or more in compensation and:

• provide certain fiduciary or registered investment advisory services,

• make available plan investment options in connection with brokerage or recordkeeping services, or

• otherwise receive indirect compensation for providing certain services to the plan.

The DOL also announced that in the near future it intends to publish for public comment a separate proposal that would require service providers, in addition to providing the required fee and investment expense information, to furnish a guide or similar tool to assist plan fiduciaries in identifying and locating the potentially complex information that must be disclosed and which may be located in multiple documents.

The DOL also announced a 3-month extension in the effective date of this rule, meaning that service providers must be in compliance by July 1, 2012, for new and existing contracts or arrangements between ERISA-covered plans and service providers. The 3-month extension of the effective date was provided to allow service providers sufficient time to prepare for compliance. Service providers not in compliance as of July 1 will be in violation of ERISA's prohibited transaction rules and subject to penalties under the Internal Revenue Code. The final rule includes a class exemption from the prohibited transaction provisions of ERISA for plan fiduciaries that enter into service contracts without knowing that the covered service provider has failed to comply with its disclosure obligations. The class exemption requires that fiduciaries notify the Department of the disclosure failure.

The effective date of this final rule works in conjunction with the compliance date of DOL's participant-level disclosure regulation, which requires plan administrators to give workers who direct their retirement accounts in 401(k)-type plans easy-to-understand information in order to compare the plan investment options available to them. Plan administrators for calendar year plans now must make the initial annual disclosure of plan and investment information (including associated fees and expenses) to participants no later than August 30, 2012, and the first quarterly statement (for fees incurred July through September) must be furnished no later than November 14, 2012.

March 5, 2012

Employee Benefits-IRS Reminds Us That It Is Not Too Late To Get A Saver's Credit For IRA Contributions

In Retirement News for Employers (Winter 2012), the Internal Revenue Service (the "IRS") says that you may qualify for the Saver's Credit of up to $1,000 ($2,000 if filing jointly) on your 2011 tax return for your 2011 IRA contributions. You have until April 17, 2012, to contribute to an IRA for 2011. The Saver's Credit reduces the amount of income tax you may owe dollar-for-dollar, but not less than zero.

To qualify for the Saver's Credit (more formally, the Retirement Savings Contributions Credit) for your eligible IRA contributions, your 2011 adjusted gross income can't be more than:

• $56,500 if your filing status is married filing jointly;

• $42,375 if your filing status is head of household; or

• $28,250 if your filing status is single, married filing separately or qualifying widow(er).

Additionally, you cannot be:

• younger than age 18,

• a full-time student, or

• claimed as a dependent on another's tax return.

The Saver's Credit can also be taken for your contributions to 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) and governmental 457(b) plans, and for your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.

March 2, 2012

Employee Benefits-IRS Provides Guidance On Minimum Required Distributions From A 401(k) Plan

In Retirement News for Employers (Winter 2012), the Internal Revenue Service posited the following question: When does a 401(k) plan have to pay the first required minimum distribution to a 72-year-old employee who will stop working for the employer on February 29, 2012, but is going to work for another company?

The answer: A retirement plan must pay required minimum distributions ("RMDs") to participants over the age of 70½ who have stopped working for the employer maintaining the plan. The 401(k) plan at issue must pay the first RMD to the 72-year-old plan participant no later than April 1, 2013.

Retirement plans must start paying RMDs to a plan participant by April 1 following the year:

• the individual turns age 70½, or,

• if later, the year in which the individual retires. However, this later date does not apply if the participant is a 5% owner of the company sponsoring the retirement plan. Also, some plans may require all participants, including non-5% owners, to start RMDs by April 1 following the year in which the participant turns 70½.

The first RMD - the payment required for the year the participant turns 70½ or retires, if applicable - can be paid as late as April 1 following the year the participant turns 70½ (or retires). For each subsequent year (including the year containing this April 1), the plan must pay the RMD by December 31 of the year. For example, if the retiring employee receives her first RMD in 2013 (no later than April 1), he or she must be paid her second RMD in the same year, by December 31, 2013.

A plan must pay RMDs to a participant over the age of 70½ who no longer works for the company sponsoring the plan, even if he or she continues to work elsewhere. If a plan fails to pay RMDs on time, it may be able to correct the error using the Employee Plans Compliance Resolution System.

March 1, 2012

Employee Benefits-IRS Provides Guidance On Taking Plan Loans

In Retirement News for Employers (Winter 2012), the Internal Revenue Service (the "IRS") provides guidance on taking loans from a retirement plan. The IRS said that, before you decide to take a loan from your retirement plan, there are a few rules you need to know.

Does your retirement plan allow loans? The law does not allow IRA-based plans, such as the following, to offer loans: SEP, SARSEP, and SIMPLE IRA. Other types of retirement plans, such as 401(k), profit-sharing and 403(b) plans, are permitted to offer loans, but if they do offer them, the plan document must say so. Check with your employer to find out if your plan allows loans.

What are the terms of the plan's loan program? If your plan allows loans, the plan must state:

-- who is eligible to borrow;

-- the maximum amount you can borrow (no more than $50,000);

--how to apply for the loan (some plans may require your spouse to consent to the loan);

--the number of years to pay back the loan (most loans can only be 5 years, longer if the loan is to purchase your principal residence);

--the loan repayment terms (for example, your monthly loan repayment is deducted from your paycheck); and

--what happens if you default.

What happens if you leave your job before you repay the loan? If you quit, retire or are terminated, your plan administrator may "accelerate" repayment of the loan. This means you would be required to repay the outstanding amount of the loan in full at that time or the amount may be deducted from your account balance.

What happens if you don't repay the loan? When you don't repay your loan according to its terms, your employer will report its balance as a taxable distribution to you on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., (instructions). You will have to include the balance in your gross income on your income tax return and, unless you meet an exception, you will also have to pay an additional 10% early distribution tax on it. Your loan's outstanding amount will be subtracted (offset) from your retirement plan account balance.