May 2012 Archives

May 31, 2012

Employee Benefits-IRS Requests Public Comments On Issues Associated With The Use Of Smartcards, Etc. To Provide Qualified Transportation Fringe Benefits

In Notice 2012-38, the Internal Revenue Service (the "IRS") is requesting public comments on issues associated with Revenue Ruling 2006-57. That Revenue Ruling provides guidance on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits under sections 132(a)(5) and (f) of the Internal Revenue Code (the "Code"). Those benefits are tax-free. The Revenue Ruling became effective on January 1, 2012. However, the IRS has become aware that changes in fare media and transit benefit administration-including changes in technology, the increase in the number of transit systems and third parties providing electronic media for transit use and the trend away from using paper media- may have created the need for additional guidance. Hence the request for comments in the Notice. See the Notice for details.

May 30, 2012

Executive Compensation-IRS Provides New Guidance On Income Inclusion Upon Section 83 Property Transfers

The Internal Revenue Service ("IRS") has provided new guidance, in the form of proposed regulations, on the timing of income inclusion under section 83 when property has been transferred in connection with the provision of services.

By way of background, in general under section 83(a), if property is transferred in connection with the provision of services, the fair market value of the property is included in the recipient's gross income on the first date on which either the recipient's rights in the property are transferable or are not subject to a substantial risk of forfeiture. Under section 83(c)(1), the rights of a person in property is subject to a substantial risk of forfeiture, if such person's rights to the full enjoyment of the property are conditioned on the future performance of substantial services by any individual. Treas. Reg. Sec. 1.83-3(c)(1) elaborates on this rule.

The IRS's proposed regulations would amend sec. 1.83-3(c)(1) to clarify whether a substantial risk of forfeiture exists. Under the proposed regulations:

--a substantial risk of forfeiture may be established only through a service condition or a condition related to the purpose of the transfer;

--in determining whether a substantial risk of forfeiture exists based on a condition related to the purpose of the transfer, both the likelihood that the forfeiture event will occur and the likelihood that the forfeiture will be enforced must be considered; and

--a restriction on transferring the property- including a restriction which carries the potential for forfeiture, disgorgement of some or all of the property or other penalties if the restriction is violated- does not create a substantial risk of forfeiture.

The change in the regulations is proposed to apply as of January 1, 2013, and will apply to property transferred after that date. However, taxpayers may rely on the change for property transferred on or after May 30, 2012.

May 23, 2012

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

On its website, the Employee Benefits Security Administration (the "EBSA") has provided additional guidance, in the form of questions and answers ("Q & As"), on the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the "Act"). The EBSA says that the Act generally requires employment-based group health plans, that provide group health coverage for mental health/substance use disorders, to maintain parity between such benefits and their medical/surgical benefits. More specifically, the Act and its implementing regulations generally:

• Provide that financial requirements (such as copays and deductibles), and quantitative treatment limitations (such as visit limits), applicable to mental health or substance use disorder benefits can generally be no more restrictive than the requirements or limitations applied to medical/surgical benefits.
• Include requirements to provide for parity for nonquantitative treatment limitations (such as medical management standards).
• Expand the parity requirements of an earlier law, the Mental Health Parity Act of 1996, such that plans may not impose a lifetime or annual dollar limit on mental health or substance use disorder benefits that is lower than the lifetime or annual dollar limit imposed on medical/surgical benefits.

The EBSA notes that more detailed information on the Act's requirements is available at The information provided by the Q & As includes the following:

--Interim, final regulations were issued on February 2, 2010 and are generally applicable for plan years beginning after June 30, 2010.

--A health plan may not define mental health coverage as consisting solely of inpatient care benefits. The regulations set forth six classifications of benefits: 1) inpatient, in-network; 2) inpatient, out-of-network; 3) outpatient, in-network; 4) outpatient, out-of-network; 5) emergency care; and 6) prescription drugs. If a plan covers mental health or substance use disorder benefits in one of the six classifications, the plan must provide coverage in all of the classifications in which medical/surgical benefits are available.

--A health plan may use a separate managed behavioral health organization to provide utilization review and other services with respect to mental health and/or substance abuse benefits (sometimes called a carve-out arrangement). The Act requires only that mental health and substance use disorder benefits be covered and managed in a manner that is no more stringent than medical/surgical benefits.

--The Act and its implementing regulations impose mathematical tests for determining whether a financial requirement or quantitative treatment limitation (such as a copay or visit limit) on mental health/substance use disorder benefits is permitted. Nonquantitative treatment limitations, or "NQTLs" (such as medical management standards) are not analyzed the same way. For NQTLs, the regulations provide that under the terms of the plan as written and in practice, any processes, strategies, evidentiary standards, or other factors used by a plan in applying an NQTL to mental health or substance use disorder benefits must be comparable to, and applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in applying the limitation to medical/surgical benefits, unless recognized clinically appropriate standards of care may permit a difference. For more information and guidance regarding NQTLs, see the interim final regulations, as well as the FAQs available at:

--The Act does not apply to employers who have fewer than 51 employees, or to retiree-only plans. There is also an increased cost exemption available to plans whose costs increase by more than a specified amount and who follow guidance issued by the government.

May 22, 2012

Employment-Second Circuit Adopts The Rule That the Faragher/Ellerth Defense is Unavailable When The Supervisor In Question Is The Employer's Proxy Or Alter Ego

In Townsend v. Benjamin Enterprises, Inc., Nos. 09-0197-cv(L), 09-4509-cv (XAP) (2nd Cir. 2012), the subject of yesterday's (5/21) blog, the Second Circuit Court of Appeals (the "Court") faced another issue, namely, whether an employer is liable under Title VII for sexual harassment committed by a senior executive, who is a proxy or alter ego for the employer, despite the possible existence of the Faragher/Ellerth defense. Again, this was an issue of first impression for the Second Circuit. In this case, one of the plaintiffs, Martha Diane Townsend ("Townsend"), was employed by defendant Benjamin Enterprises, Inc. ("BEI"). She alleged that she was sexually harassed by defendant Hugh Benjamin, who was the husband of BEI President Michelle Benjamin, and the sole corporate Vice President of BEI, as well as a shareholder of BEI.

The proxy/alter ego doctrine treats an upper level employee or officer of a company such as Hugh Benjamin, and any action he or she takes, as if he or she is the company, so that the company itself is taking that action and liable for the consequences thereof. The Faragher/Ellerth defense is an affirmative defense to an employer's vicarious liability for a hostile work environment created by a supervisor of the plaintiff employee. To raise such a defense successfully, the employer must not have taken a tangible employment action against the plaintiff and must demonstrate: (1) that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (2) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise.

The Court noted that the district court had concluded that the doctrine of proxy/alter ego liability applies, notwithstanding the availablity of the Faragher / Ellerth defense. The Court said that every court of appeals to have considered this issue has held that the Faragher/Ellerth affirmative defense is unavailable when the supervisor in question is the employer's proxy or alter ego. The Court adopted this holding for the Second Circuit. Thus, the Court ruled that the employer-BEI-could be liable for the sexual harrassment committed by Hugh Benjamin, a senior executive, if he is found to be a proxy or alter ego of BEI.

May 21, 2012

My Article On New Department of Labor ERISA Regulations

My article "The New Service Provider and Participant Fee Disclosure Rules-What They Are, When They Apply and How to Prepare for Them" appears in today's BNA Pension & Benefits Daily. More on this topic and article to come shortly.

May 21, 2012

Employment-Second Circuit Rules That Title VII's Anti-Retaliation Provision Does Not Apply To Internal Employer Investigations Conducted Prior To Any EEOC Proceeding

In Townsend v. Benjamin Enterprises, Inc., Nos. 09-0197-cv (L), 09-4509-cv (XAP) (2nd Cir. 2012), the Second Circuit Court of Appeals (the "Court") faced (among other questions) the issue of whether participation in an internal employer investigation, prior to the start of any proceeding before the Equal Employment Opportunity Commission (the "EEOC"), may be protected under the anti-retaliation rule of Title VII. This was an issue of first impression for the Second Circuit.

In this case, one plaintiff, Martha Diane Townsend ("Townsend"), was employed by defendant, Benjamin Enterprises, Inc. ("BEI"). She alleged that she was sexually harassed by defendant Hugh Benjamin, BEI's Vice President, by directing sexually offensive comments at her, propositioning her, touching her sexually, and sexually assaulting her. Another plaintiff, Karlean Victoria Grey-Allen ("Grey-Allen"), the Human Resources Director of BEI, began to conduct an internal investigation of the allegations. However, before completing the investigation, and before the start of any proceeding by the EEOC, Grey-Allen was fired by defendant Michelle Benjamin, BEI's President. Grey-Allen alleged that her termination was in retaliation for her participation in the internal investigation. This lawsuit ensued.

In analyzing the case, the Court said that Section 704(a) of Title VII, the anti-retaliation provision, contains both an opposition clause and a participation clause, making it unlawful for an employer to retaliate against an individual because he has (i) opposed any practice made an unlawful employment practice by Title VII, or (ii) made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under subchapter VI of Chapter 21 of Title 42. It is conceded that prong (i)-the opposition clause- does not apply here. As to prong (ii)-the participation clause-the Court noted that every federal court of appeals to have considered this prong squarely has held that participation in an internal employer investigation not connected with a formal EEOC proceeding does not qualify as protected activity under the participation clause. The Court agreed with these cases, and ruled that the Title VII anti-retaliation provision does not apply to Grey-Allen.

May 18, 2012

Employment-New York Court Of Appeals Holds That A Compliance Officer Of A Hedge Fund Is An At-Will Employee Who May Be Dismissed At Any Time

In Sullivan v. Harnisch, 2012 NY Slip Op 03574 (NY Court of Appeals May 8, 2012), the Court stated that New York common law does not recognize a cause of action for the wrongful discharge of an at-will employee. In this case, it would not make an exception to that rule for the compliance officer of a hedge fund.

The plaintiff, Joseph Sullivan ("Sullivan"), was a 15% partner in two affiliated firms, defendants Peconic Partners LLC and Peconic Asset Managers LLC (collectively called "Peconic", and colloquially referred to as a hedge fund). He was also Peconic's Executive Vice President, Treasurer, Secretary, Chief Operating Officer and Chief Compliance Officer. Defendant William Harnisch ("Harnisch") was the majority owner, Chief Executive Officer and President of Peconic.

Sullivan was fired from Peconic after a dispute with Harnisch . The dispute started when Sullivan complained about certain improper trades by Harnisch, which consisted of sales of stock by Harnisch for his personal account and the accounts of members of his family, and which allowed Harnisch to take advantage of opportunities from which the hedge fund clients were excluded. This suit ensued, with Sullivan claiming wrongful discharge.

In analyzing the case, the Court said that, absent a violation of a constitutional requirement, statute or contract, in New York, an employer's right at any time to terminate an employment at will remains unimpaired. Sullivan's claim for wrongful discharge is barred, unless something in this case justifies an exception to the foregoing rule. The courts do recognize one exception: wrongful discharge will result when an attorney is discharged from employment at a law firm because he complained of professional misconduct. However, this exception is based on the unique circumstances of the legal profession, in that compliance with ethics is the center of the relationship of the attorney to the law firm. A compliance officer of a hedge fund is not in the same position as an attorney. Thus, no exception to the at-will rule applies to Sullivan, and his claim for wrongful discharge fails.

May 17, 2012

ERISA-Eleventh Circuit Adopts The Moench Presumption, And Uses It To Reject The Plaintiffs' Claim That The Fiduciaries' Failure To Divest Employer Stock Was Imprudent

In Lanfear v. Home Depot, Inc., No. 10-13002 (11th Cir. 2012), the plaintiffs had been participating in a retirement plan (the "Plan") which contained an "eligible individual account plan" (an "EIAP").The Plan was maintained by their employer, the Home Depot, Inc. ("Home Depot"). Participants were allowed to direct the investment of their accounts under the EIAP into a "Company Stock Fund", which held shares of Home Depot stock. One of the plaintiffs' claims was that the fiduciaries of the Plan, who are the defendants in this case, breached their fiduciary responsibilities under ERISA because they continued to purchase and failed to sell Home Depot stock held in the Company Stock Fund, even though they knew based on nonpublic information that the stock price probably was inflated (the "Prudence Claim"). The nonpublic information pertained to illegal chargebacks of merchandise to vendors and backdating of stock options by Home Depot.

As to the plaintiff's Prudence Claim, the Court noted that the issue is whether the plaintiff's allegations were sufficient to rebut the Moench Presumption, under which an ERISA fiduciary's decision to increase and retain a plan's investment in employer stock-when the fiduciary is not absolutely required to keep the plan invested in employer stock- is entitled to a presumption of prudence. In applying the Moench Presumtion, the Court: (1) adopted the Moench Presumption for the Eleventh Circuit; (2) held that the Moench Presumption is overcome when a fiduciary acts in compliance with the terms of the plan and the fiduciary could not have reasonably believed that the persons creating the plan (the "settlors") would have intended for him to so act under the circumstances; and (3) held that the Moench Presumption may be applied at the motion to dismiss stage of litigation.

The Court then reviewed the plaintiffs' complaint in view of the Moench Presumption. It said that the plaintiffs base their allegation that Home Depot stock was an imprudent investment on the change in its market price after the company released the earnings report reflecting the effect of the chargebacks. On February 18, 2005, the day before it released the report, Home Depot stock traded at $42.02 per share. By April 28, 2005, it had fallen by about 16.5% to $35.09. By July 22, 2005, however, the price had risen to $43.47, an increase of nearly 3.5% over the price of the stock before the report had been released. The Court termed these price changes as "mere stock fluctuations", which are not sufficient to overcome the Moench Presumption. As such, the Court ruled that the plaintiffs' Prudence Claim fails.

May 16, 2012

ERISA-Second Circuit Applies Moench Presumption To Deny Claim That Plan Fiduciaries Imprudently Allowed Participants To Purchase And Hold Employer Stock In Their Accounts

In Fisher v. JP Morgan Chase & Co., No. 10-1303-cv (2nd Cir. 2012) (Summary Order), the plaintiffs were appealing an order from the district court granting defendants' motion for judgment on the pleadings. The plaintiffs were participants in a 401(k) plan (the "Plan"), which was maintained by their employer, JP Morgan Chase & Co. ("JP Morgan"), and whose individual accounts in the Plan held shares of JP Morgan common stock between April 1, 1999 and January 2, 2003 (the "Class Period"). The plaintiffs' complaint asserts, among other things, the following two claims: (1) that the defendants negligently permitted Plan participants to purchase and hold shares of JP Morgan common stock when it was imprudent to do so (the "Prudence Claim") and (2) that the defendants failed to disclose and negligently misrepresented material facts to Plan participants (the "Communications Claim").

The Second Circuit Court of Appeals (the "Court") noted that, in October 2011 (in In re Citigroup ERISA Litig., 662 F. 3d 128 (2nd Cir. 2011) and Gearren v. McGraw-Hill Cos., 660 F. 3d 605 (2nd Cir. 2011)), it had adopted the "Moench Presumption" for the Second Circuit. This presumption requires that courts apply a presumption of prudence when reviewing ERISA fiduciaries' decisions to not divest a plan of employer stock, or to not impose restrictions on participants' investment in employer stock. The Court also held that ERISA fiduciaries have no duty to provide Plan participants with non-public information that could pertain to the expected performance of Plan investment options.

The Court said that, in accordance with the Moench Presumption, since the investment in JP Morgan stock was in accordance with the Plan's terms, the Court will review the plaintiffs' Prudence Claim for an abuse of discretion. It further said that ERISA fiduciaries are required to divest an individual account plan-such as the Plan-of employer stock only when they know or should know that the employer is in a dire situation. Mere stock fluctuations, even those that trend downward significantly, are insufficient to establish the requisite imprudence to rebut the presumption. Here, the plaintiffs have not sufficiently alleged that the defendants knew or should have known that JP Morgan was in a dire situation. JP Morgan's stock price fell approximately 55% over the course of the Class Period. However, even when the stock was at its lowest price -- $15 per share -- it still retained significant value and by the end of the Class Period, the stock had rebounded to $25 per share. Moreover, throughout the Class Period, JP Morgan remained a viable company. As such, the Court concluded that the plaintiffs' Prudence Claim fails.

As to the plaintiffs' Communications Claim, the Court said that, per its October 2011 decisions, ERISA fiduciaries have no duty to provide Plan participants with non-public information that could pertain to the expected performance of Plan investment options. Further, the only false or misleading statements identified by the plaintiffs are in SEC filings that the plaintiffs contend were incorporated into the Plan's summary plan description. ERISA, however, holds fiduciaries liable solely to the extent that they were acting as a fiduciary when taking the action complained of. In this case, the defendants were acting in a corporate, not a fiduciary, capacity when making these statements, and thus those statements cannot give rise to a breach of duty under ERISA. As such, the Court concluded that the plaintiffs' Communications Claim fails.

Based on the above, the Court affirmed the district court's decision.

May 14, 2012

ERISA-Fourth Circuit Finds That An Amendment Eliminating An Early Retirement Supplement Violated ERISA's Anti-Cutback Rule

In Savini v. Washington Safety Management Solutions, LLC, No. 11-1206 (4th Cir. 2012) (Unpublished Opinion), the plaintiff, Noorali Savini ("Savini"), brought suit under ERISA, claiming that the termination of an early retirement pension supplement by defendant, Washington Safety Management Solutions, LLC ("WSMS"), violated ERISA's anti-cutback provisions. The district court granted summary judgment to WSMS, and Savini appeals.

The retirement plan offered by WSMS (the "Plan") had stated that "Accrued Benefit" means the normal retirement Pension computed under Section 4.01(b), less the WSRC Plan offset as described in Section 4.13, plus any applicable supplements as described in Section 4.12. On December 28, 2004, the Plan's benefits committee amended the Plan to eliminate Section 4.12(a), which granted a $700 monthly benefit to Plan members electing to take early retirement on or after January 1, 2005. This amendment was not communicated to participants for nearly 7 months. Savini retired from WSMS on or about April 30, 2005, believing that he would be entitled to the $700 per month supplement. On June 8, 2006, Savini received a letter from WSMS stating that he had incorrectly received the $700 monthly benefit for thirteen months and requesting reimbursement of $9,100. Eventually, this suit ensued.

In analyzing the case, the Fourth Circuit Court of Appeals (the "Court") said that Savini alleges that the committee's deletion of Section 4.12(a) from the Plan violated ERISA's anti-cutback requirements, so that the amended Plan's elimination of the $700 early retirement benefit should not be enforceable against him. The issue here is whether the $700 benefit was included in the "accrued benefit" as defined by ERISA and the Plan. ERISA's anti-cutback rule provides that the accrued benefit of a participant under a plan may not be decreased by an amendment of the plan (29 U.S.C. § 1054(g)(1)). To determine whether WSMS violated this provision, a court must determine what benefits may be accrued. ERISA defines "accrued benefit" as the employee's accrued benefit determined under the plan and expressed in the form of an annual benefit commencing at normal retirement age (26 U.S.C. § 411(a)(7)(A)(i)). This definition requires a court to look at the terms of the plan at issue.

The Plan's definition of "Accrued Benefit"-which defines the plan's accrued benefit within ERISA's meaning- includes any Section 4.12 supplements, including the $700 supplement in question, notwithstanding the word "applicable". That is, the plain, unambiguous language of the Plan contemplates inclusion of the Section 4.12(a) supplements in its definition of "Accrued Benefit." As such, the supplement is protected under ERISA's anti-cutback rule, and may not be amended away. Accordingly, the Court reversed the district court's ruling, and remanded the case back to district court for further proceedings consistent with its decision.

May 10, 2012

ERISA-Second Circuit Holds That Bona Fide Sale Exemption To Withdrawal Liability Did Not Apply When Purchaser Was Not Obligated To Maintain Substantially The Same Number Of Contribution Base Units As The Seller

HOP Energy, L.L.C. v. Local 553 Pension Fund, No. 10-3889-cv (2nd Cir. 2012), involved a determination of whether the "bona fide sale exemption" (found in 29 U.S.C. § 1384(a)(1)) prevented the imposition of withdrawal liability under ERISA.

In this case, the plaintiff, HOP Energy, L.L.C. ("HOP"), was in the business of delivering fuel oil and providing heating services. Prior to May 12, 2007, it serviced New York City customers through its Madison Oil operating division ("Madison") . Madison was a "union shop" and had signed the Teamsters Local 553 2004-07 Master Collective Bargaining Agreement (the "2004-07 Master CBA"). On May 12, 2007, HOP sold 100% of Madison's operating assets to Approved Oil Company ("Approved"), also a signatory to the 2004-07 Master CBA. Teamsters Local 553 has a multi-employer pension fund (the "Fund"). The 2004-07 Master CBA required employers to contribute to the Fund, based on a certain number of contribution base units determined by the number of hours their employees worked.

To effectuate Madison's sale, HOP and Approved entered into an Asset Purchase Agreement ("APA"), which provided that:

Approved shall make contributions to the Fund for substantially the same number of contribution base units for which HOP had an obligation to contribute with respect to the operations covered by the Fund. Notwithstanding the previous sentence ..., nothing in this Section shall impair or limit the Purchaser's right to discharge, lay off, or hire employees or otherwise to manage the operations of the Business, including the right to amend, revise or terminate any collective bargaining agreement currently in effect and, as a consequence, reduce to any extent the number of contribution base units with respect to which Approved has an obligation to contribute to any plan.

Following the sale of Madison's assets, HOP ceased operations in New York City and also ceased contributing to the Fund. The Fund's sponsor assessed HOP withdrawal liability for $1,204,007. HOP asked the Fund to reconsider the assessment, claiming that the Madison sale was exempt from withdrawal liability because it constituted a bona fide asset sale. The
Fund upheld its assessment, and the case found its way to the Second Circuit Court of Appeals (the Court). The issue for the Court: did Approve have a post-sale obligation to contribute substantially the same number of contribution base units to the Fund as HOP (as required by 29 U.S.C. § 1384(a)(1)(A))? If so, the exemption from withdrawal liability would apply, since all other conditions for the exemption had been met.

The Court said that, since under the terms of the APA Approved could reduce the number of employees or take other steps that would result in a decrease in its contribution base units and thus the amount of its contributions to the Fund, Approved had no obligation to maintain substantially the same number of contribution base units that HOP was responsible for. Nothing in the 2004-07 Master CBA, any other agreement or any law placed any such obligation on Approved. Therefore, the Court ruled that the bona fide sale exemption was not available to block the imposition of the withdrawal liability on HOP.

May 9, 2012

ERISA-Fifth Circuit Rules That Plaintiff Is Not Entitled To LTD Benefits For A Neck Injury

In Jurasin v. GHS Property & Casualty Insurance Company, No. 11-50500 (5th Cir. 2012) (Unpublished Opinion), the plaintiff, John Jurasin ("Jurasin"), was seeking long-term disability ("LTD") benefits for a neck condition he claims resulted from an accident during work. His employer provides an Occupational Injury Benefit plan (the "Plan"), which is subject to ERISA, and which provides LTD benefits. The Plan is administered by Caprock Claims Management ("Caprock") and funded with an insurance policy issued by GHS Property & Casualty ("GHS"). Caprock informed Jurasin that his neck condition was not compensable under the Plan, since the work accident did not cause or excacerbate the neck injury. A review board also denied his claim. Jurasin brought suit, as a claim for benefits under ERISA (specifically under 29 U.S.C. § 1132(a)(1)(B)). However, the district court granted summary judgment to the defendants.

In analyzing the case, the Court said that when, as here, the administrator of an ERISA plan has discretion to determine eligibility and interpret plan terms, the administrator's denial of a claim for benefits is reviewed for an abuse of discretion. The Court noted that it did not find any conflict of interest between the plan administrator, Caprock, and the Plan's benefit payor, GHS, that could result in an abuse of discretion.

Jurasin had asserted that the district court erred by striking out supportive portions of his and his doctor's affidavits. However, the Court responded by stating that evidence is irrelevant to the validity of the decision regarding plan coverage unless it is in the administrative record, relates to how the administrator has interpreted the plan in the past, or would assist the court in understanding medical terms and procedures. The Court found that the district court followed this rule carefully when striking those portions of the affidavits and admitting others. Further, the admitted evidence has indications that the neck injury was unrelated to the accident at work, and thus is not compensable by the Plan. There was admitted evidence to the contrary, but the plan administrator did not have to accept it in the face of other medical evidence. As such, the Court found that Caprock did not abuse its discretion in determining that Jurasin's neck injury was not compensable by the Plan. Therefore, the Court affirmed the district court's ruling.

May 8, 2012

ERISA-Second Circuit Rules That Claim For Death Benefit Cannot Be Denied Under the Plan's Exclusion For Intentionally Inflicted Injuries

In Martin v. Hartford Life and Accident Life Insurance Company, No. 11-1310-cv (2nd Cir. 2012) (Summary Order), the plaintiff, Amanda Martin ("Martin"), was appealing a ruling from the district court granting summary judgment to the defendant, Hartford Life and Accident Life Insurance Company ("Hartford"), on her claim for death benefits. The death benefits were payable with respect to Martin's decedent husband, under an employee welfare benefits plan subject to ERISA (the Plan"). Hartford was the plan administrator and insurer of the Plan. It denied the claim in that capacity, after an administrative review, relying on the Plan's exclusion for intentionally self-inflicted injury.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") noted that the Plan grants Hartford full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions. Therefore, the Court's review of Hartford's claim denial is limited to abuse of discretion. But since Hartford both evaluates claims for benefits and pays benefits claims, Hartford has a conflict of interest which must be weighed as a factor in determining whether there is an abuse of discretion.

In this case, Martin's husband had negligently electrocuted himself to death, during some autoerotic activity. The Court said that Hartford's interpretation of the Plan, which would deny Martin's claim due to an intentionally self-inflicted injury, would exclude injuries resulting from merely negligent acts, even if the insured did not intend to inflict injury upon himself. Interpreting an exclusion for intentionally self-inflicted injury to exclude negligently self-inflicted injury is an abuse of discretion. To the extent that Hartford now attempts to offer a different rationale for its denial of Martin's claim after the completion of the claim's administrative review, Hartford failed to provide Martin with the adequate notice setting forth the specific reasons for such denial and the full and fair review to which she is entitled under ERISA. As such, the Court vacated the district court's decision, and remanded the case back to the district court, with instructions to return the case to Hartford for reconsideration in light of this decision.

May 7, 2012

ERISA-Fourth Circuit Holds That Plaintiff Did Not Timely File Suit For LTD Benefits

In Belrose v. The Hartford Life & Accident Insurance Company, No. 10-2405 (4th Cir. 2012) (Unpublished), the plaintiff, Benjamin Belrose ("Belrose"), was appealing the district court's order granting the motion by the defendant, Hartford Life & Accident Insurance Company ("Hartford"), to dismiss Belrose's action challenging the termination of his long-term disability ("LTD") benefits.

In this case, Belrose became a full-time employee of the Camber Corporation ("Camber") on August 1, 2002, and became eligible for disability benefits under the Camber Group Benefit Plan (the "Plan"). Hartford both administered claims for and insured the Plan. On September 10, 2002, In December 2002, due to various heart conditions, Belrose applied for and began receiving LTD benefits under the Plan. The benefits continued until October 5, 2005, when Hartford terminated the benefits. Belrose appealed the termination. The decision to terminate Belrose's LTD benefits was affirmed on administrative appeal, and Hartford issued a final denial letter to Belrose on June 14, 2006. He filed this suit on July 9, 2010 . The question for the Fourth Circuit Court of Appeals (the "Court"): was the district court correct in dismissing Belrose's case?

The issue in the case was whether Belrose filed the suit before the statute of limitations expired. In analyzing this issue, the Court explained that ERISA does not specify a statute of limitations for a plan participant suing for benefits. ERISA allows a plan to set its own limitations period. However, if the plan does not do so, the courts may impose the applicable state statute of limitations. Further, an ERISA claim, and therefore the statute, does not accrue or begin to run until a claim of benefits has been made and formally denied.

Here, the Plan contained a three-year limitations period, which the Plan stated commenced on the date Hartford required the beneficiary to furnish proof of loss. However, in granting Hartford's motion to dismiss, the district court reasoned that because the limitations period for an ERISA claim does not begin to run until the insurer issues a formal denial--despite the terms of claims accrual which may be contained within the Plan--Hartford's three-year limitations period was not unreasonable or contrary to public policy. The Court agreed with this reasoning. Therefore, the statute of limitations began to run on June 14, 2006, the date on which the final denial letter was issued. Belrose had until June 14, 2009 to file this suit. He did not meet the deadline, since he did not file until July 9, 2010 . Accordingly, the Court affirmed the district court's ruling.

May 4, 2012

Employee Benefits-IRS Provides Help For Employers Who Missed The April 30 Deadline For Adopting Compliant Pre-Approved Document For Their Defined Benefit Plans

The Internal Revenue Service (the "IRS") has provided help on it's website for any employer who missed the April 30, 2012 deadline for adopting a compliant pre-approved document for its defined benefit plan. By way of background, the IRS says that, if an employer uses a pre-approved plan document for its defined benefit pension plan (purchased from a bank, insurance company or a similar provider), the employer should have adopted an updated version of its plan by April 30, 2012 (adoption requires a signing and generally any action required by the employer to approve the signing, such as a board resolution).

The plan's provider should have sent the employer an amended plan document, approved by the IRS complying with changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), for the employer to adopt. Even if the employer signed an EGTRRA amendment (sometimes referred to as "EGTRRA good-faith amendments") to its plan, the employer is still required to adopt an EGTRRA plan document. The failure to adopt by the April 30 deadline means that the employer's plan no longer complies with the tax law and certain tax benefits are no longer available.

So what happens if the employer missed the April 30 deadline? The IRS says that you should correct the failure by filing an application with the IRS's Voluntary Correction Program (the "VCP"). The IRS website provides the details on this application.

May 3, 2012

ERISA-Third Circuit Rules That A Former Trustee Is Liable For Over $4 million For Breach Of Fiduciary Duty

In Chaaban v. Criscito, No. 11-2096 (3rd Cir. 2012) (Non Precedential Opinion), the plaintiffs, the current Trustees (the "Trustees") of the Diagnostics & Clinical Cardiology, P.A. Profit Sharing Plan (the "Plan"), filed suit alleging that the defendant, Dr. Mario Criscito ("Criscito"), the trustee of the Plan until 2007, violated the fiduciary duties he owed to the Plan participants under ERISA. The district court granted the Trustees' motion for summary judgment and awarded them $4,117,464.65. Criscito appealed.

The suit relates to a sale of stock by Criscito in January of 2000, when he was the Plan's trustee. At that time, the Plan had two accounts holding plan assets. One account was the "Morgan Stanley Account", a single account with commingled assets, in which each Plan participant had a share. Criscito sold all of the stock in the Morgan Stanley Account near the peak of the "tech bubble" in January of 2000. The assets in this Account were worth $12,952,936.42 at the end of 1999, but Criscito reported to the third-party administrator, American Pension Corporation ("APC"), that the balance of the account was $4,017,942.57. This report greatly understated the value of each participant's portion of the Morgan Stanley Account. Later, the Morgan Stanley Account was divided up, and each participant's interest therein was transferred to an individual account for that participant. Due to Criscito's report, each participant received smaller transfers into their individual accounts than would have otherwise been the case.

Criscito proceeded to use the balance of the Morgan Stanley Account-that is, the approximately $8.9 million in amounts not transferred to the individual accounts- for personal transactions, including making distributions from the Plan to himself. Criscito succeeded in concealing his actions. His activities were not discovered until he was removed as the Plan's trustee in 2007.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") ruled that the suit was timely filed. Since the case involves fraud or concealment- Criscito hid his nefarious actions until discovery in 2007-ERISA's six year statute of limitations applies (the statute is found in 29 U.S.C. § 1113), and the statute begins to run only when the fraud or concealment is discovered. The suit was filed well within 6 years of the discovery. Next, the Court reviewed the Trustees' claim for damages against Criscito under ERISA (brought under 29 U.S.C. § 1132(a)(2) and 29 U.S.C. § 1109(a)). The Court said that it is clear that, as the Plan's trustee, Criscito breached his ERISA-imposed duty and caused a loss to the Plan. He fraudulently reported an inaccurate account balance to APC, improperly distributed the Plan's assets to himself, and otherwise used the assets for his personal benefit. These fraudulent actions resulted in a loss when the Plan participants received an amount smaller than their proportionate shares in the Morgan Stanley Account. Thus, the Court found that the Trustees are entitled to their summary judgment. The Court also ruled that the district court's determination of the amount of the damages was correct. As such, the Court affirmed the district court's ruling.

May 2, 2012

Employment-More On The EEOC's Revised Enforcement Guidance On The Consideration of Arrest and Conviction Records in Employment Decisions

As discussed in my earlier blog (of April 26), the Equal Employment Opportunity Commission (the "EEOC") has issued a revised Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 (the "Enforcement Guidance") and a set of Questions & Answers (the "Q & As") to discuss the Enforcement Guidance. At a minimum, the following should be taken from these documents.

How is Title VII Relevant To The Use Of Criminal History Information? There are two ways in which an employer's use of criminal history information may violate Title VII. First, Title VII prohibits employers from treating job applicants with the same criminal records differently because of their race, color, religion, sex, or national origin ("disparate treatment discrimination"). Second, even where employers apply criminal record exclusions from employment uniformly, the exclusions may still operate to disproportionately and unjustifiably eliminate people of a particular race or national origin from job consideration ("disparate impact discrimination"). If the employer does not show that such an exclusion is "job related and consistent with business necessity" for the position in question, the exclusion is unlawful under Title VII.

Does Title VII Prohibit Employers From Obtaining Criminal Background Reports About Job Applicants Or Employees? No. Title VII does not regulate the acquisition of criminal history information. However, another federal law, the Fair Credit Reporting Act, does establish several procedures for employers to follow when they obtain criminal history information from third-party consumer reporting agencies. In addition, some state laws provide protections to individuals related to criminal history inquiries by employers.

What Are The EEOC's Fundamental Positions On Title VII And Criminal Record Exclusions? The EEOC's basic positions are-

--The fact of an arrest does not establish that criminal conduct has occurred. Arrest records are not probative of criminal conduct. However, an employer may act based on evidence of conduct that disqualifies an individual for a particular position.

--Convictions are considered reliable evidence that the underlying criminal conduct occurred.

--National data supports a finding that criminal record exclusions have a disparate impact based on race and national origin. The national data provides a basis for the EEOC to investigate Title VII disparate impact charges challenging criminal record exclusions.

--A policy or practice that excludes everyone with a criminal record from employment will not be job related and consistent with business necessity and therefore will violate Title VII, unless it is required by federal law.

What Are The Employer's Best Practices For The Use Of Arrest And Conviction Records?

In General:

--Eliminate policies or practices that exclude people from employment based on any criminal record.

--Train managers, hiring officials, and decision makers about Title VII and its prohibition on employment discrimination.

Developing a Policy:

--Develop a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct. The policy should-

--Identify essential job requirements and the actual circumstances under which the jobs are performed.

--Determine the specific criminal offenses that may demonstrate unfitness for performing such jobs, and identify the methods for determining whether the criminal offenses have been committed, based on all available evidence.

--Determine the duration of exclusions for criminal conduct (for example, the exclusion could be that an individual cannot be considered for employment within 5 years after committing a felony), based on all available evidence and an individualized assessment of the applicant or employee in question.

--Include a justification for the policy and procedures.

--Require that a record be kept of consultations and research considered in crafting the policy and procedure.

--Require the training of managers, hiring officials, and decision makers on how to implement the policy and procedure in a manner consistent with Title VII.

Questions About Criminal Records:

--When asking questions about criminal records, limit inquiries to records for which exclusion from employment would be job related for the position in question and consistent with business necessity.


--Keep information about applicants' and employees' criminal records confidential. Use it only for the purpose for which it was intended.

May 1, 2012

Employee Benefits-Thinking About Cafeteria Plans

Hi! Does your company need a cafeteria plan? Well, it probably does if your employees are allowed to pay for health care coverage on a before-tax basis. Consider my article "You Need A Cafeteria Plan? Think Safe Harbor or Simple", appearing in the March, 2012 edition of the Hauppauge Reporter. Please contact me for a copy (516-307-1550 or use the blog contact procedure). Stanley