August 2012 Archives

August 30, 2012

Employment-Seventh Circuit Upholds Employee's Claim Of Sexual Harassment

In Passananti v. Cook County, No. 11-1182 (7th Cir. 2012), the plaintiff, Kimberly Passananti ("Passananti"), was the deputy director of the Cook County Day Reporting Center ("DRC") from 2002 until 2007. For several years, her supervisor was DRC director John Sullivan. After losing her job in 2007, Passananti sued, claiming that Sullivan subjected her to sexual harassment and that she was fired because of her sex. A jury agreed with her and awarded her a total of $4.1 million in damages: $4 million in compensatory damages against Cook County and $70,000 in compensatory damages and $30,000 in punitive damages against Sullivan. However, despite the jury verdict, the district court granted the defendants' motion for judgment as a matter of law, and entered judgment for the defendants (so no monetary award for Passananti). Passananti appealed.

In analyzing the case, the Seventh Circuit Court of Appeals (the "Court") assumed: (1) that Sullivan repeatedly and angrily called Passananti a "bitch" to her face and in front of their co-workers; (2) that in 2005, he trumped up charges against her for violating a DRC policy against tampering with supervisees' urine samples; and (3) that he fabricated an accusation that she had had sexual relations with a supervisee. As a result of Sullivan's accusations, Passananti was temporarily transferred and ultimately sustained a five-day unpaid suspension. Sullivan left the DRC in July 2006. Passananti stayed on, but in 2007, she lost her job when her position as DRC deputy director was eliminated as part of county-wide budget cuts.

On Passananti's sexual harassment claim, the Court reversed the district court's ruling and reinstated the jury's verdict as to liability, which the Court concluded was $70,000 against Cook County. The Court said that the jury could reasonably treat the frequent and hostile use of the word "bitch" to be a gender-based epithet that contributed to a sexually hostile work environment. Passananti also presented sufficient evidence to allow the jury to find that the gender-based harassment she suffered was severe and pervasive, and that she did not unreasonably fail to take advantage of available corrective measures in her workplace. However, the Court affirmed the district court's decision to set aside the jury's verdict on Passananti's discriminatory termination claim, which simply lacked any evidentiary support.

August 29, 2012

Employment-New York Passes Law Which Prevents Employers From Requiring Employees To Disclose Their Social Security Number.

New York State has passed a new law, which prevents most persons from requiring others to disclose their Social Security Numbers ("SSNs"). The law may be found at new section 399-ddd to the General Business Law, and becomes effective on December 12, 2012. For this purpose, the SSN is the nine-digit number assigned by the Social Security Administration, and any number derived from it (other than a number which is encrypted). Thus, the first three digits, and the final four digits, by themselves would be treated as an SSN for this purpose.

Under the new law, an employer (other than New York State) cannot require an employee (or potential employee) to disclose his/her SSN, unless one of the following exceptions applies:

--the individual consents to the disclosure;

--the employer is expressly required to obtain the SSN by federal, state or local law or regulation;

--the SSN is to be used for tax compliance, internal verification, fraud investigation, or determining whether the individual has a criminal record; or

--the SSN is requested for employment purposes (such as to administer a claim, benefit or employment procedure; such procedure includes termination, retirement, work injury investigation or claim for unemployment compensation).

Employers should review and revise their forms, policies and procedures to comply with the new law. The law does not provide for a private right of action. It is enforced by New York's Attorney General , and carries a civil penalty of not more the $500 for the first offense, and of not more than $1,000 for the second and any further offense. It appears that a penalty will not be imposed if a violation of the law is not intentional and results from a bona fide error, notwithstanding the maintenance of procedures reasonably adopted to avoid such error.
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August 28, 2012

ERISA-Sixth Circuit Rules That Plaintiffs Have Stated A Valid Claim Under ERISA In A Stock Drop Case

In Griffin v. Flagstar Bancorp, Inc., No. 11-1497 (6th Cir. 2012) (Unpublished Opinion), the plaintiffs were a class of participants and beneficiaries of the Flagstar Bank 401(k) Plan (the "Plan"). They alleged that Flagstar Bancorp, Inc. ("Flagstar") and certain officials had breached their fiduciary duties under ERISA with respect to the Plan. The core of their complaint was that it was imprudent for the Plan to have offered, during a defined period (the "class period"), Flagstar stock as an investment option to Plan participants. During that period, Flagstar stock dropped from a price of $14.95 per share to $0.681 per share, due to low earnings, losses and certain related events. The district court dismissed the plaintiffs' claim, and the plaintiffs appealed.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") ruled that the presumption of prudence for fiduciary duty pertaining to investment in employer stock-the so called Moench presumption as applied by the Sixth Circuit- is evidentiary in nature, and does not apply at the pleading stage. That is where the case stood at the time of dismissal. Also, the Court said that the fiduciaries in this case are not protected by the section 404c safe harbor under ERISA (found at 29 U.S.C. § 1104(c); 29 C.F.R. § 2550.404c-1). That safe harbor insulates fiduciaries from liability for damages occasioned by plan participants' exercise of control over their individual accounts. However, that safe harbor does not exempt fiduciaries from their duty to use prudence when designating and monitoring the menu of different investment options that are offered under the plan, the duty at issue here.

Further, the Court concluded that the plaintiffs have pleaded sufficient facts to raise a plausible claim-under Supreme Court decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal- that the defendants breached their fiduciary duties under ERISA. In this case, the plaintiffs must aver a plausible claim that the defendants breached their fiduciary duty of prudence. More specifically, they must present a plausible claim that a prudent person would have discontinued offering Flagstar stock as an investment option at some point during the class period. After reviewing the factual allegations in the complaint--which go far beyond documenting a simple drop in stock price to recite announcements from Flagstar itself, statements by analysts and financial media publications, and actions taken by Flagstar suggesting a precarious financial situation--the Court concluded that the complaint raises a plausible claim for breach of fiduciary duty under ERISA.
Accordingly, the Court reversed the dismissal of the case by the district court, and remanded the case back to the district court for further proceedings.

August 27, 2012

Employee Benefits-Eleventh Circuit Holds That Wellness Program Does Not Violate The ADA

In Seff v. Broward County, Florida, No 11-12217 (11th Cir. 2012), the plaintiff, Bradley Seff ("Seff"), filed a class action lawsuit, alleging that the defendant, Broward County ("Broward"), had established an employee wellness program (the "Program") which violated the Americans with Disabilities Act of 1990 (the "ADA"). The district court granted Broward's motion for summary judgment, finding that the Program fell within the ADA's safe harbor provision for insurance plans. Seff appealed. The Eleventh Circuit Court of Appeals (the "Court") affirmed the district court's judgment.

In this case, the Program was sponsored by Broward's group health insurer,
Coventry Healthcare ("Coventry"). The Program consisted of two components: a biometric screening, which entailed a "finger stick for glucose and cholesterol," and an "online Health Risk Assessment questionnaire." Coventry used information gathered from the screening and questionnaire to identify Broward employees who had one of five diseases: asthma, hypertension, diabetes,congestive heart failure, or kidney disease. Employees suffering from any of these diseases received the opportunity to participate in a disease management coaching program, after which they became eligible to receive co-pay waivers for certain medications. Participation in the Program was not a condition for
enrollment in Broward's group health plan. To increase participation in the
Program, however, Broward imposed a $20 charge on each biweekly paycheck issued to employees who enrolled in the group health plan but refused to participate in the Program. Seff alleged that the Program violated the ADA's prohibition on non-voluntary medical examinations and disability-related inquiries.

In analyzing the case, the Court noted that, under the ADA, a covered entity (like Broward) is prohibited from requiring a medical examination and inquiring of an employee as to whether he or she has a disability or the nature or severity of the
disability, unless the examination or inquiry is job-related and consistent with business necessity (see 42 U.S.C. § 12112(d)(4)(A)). The Court further noted that the ADA contains a safe harbor provision that exempts certain insurance plans from the ADA's general prohibitions, including the prohibition on required medical examinations and disability-related inquiries (see 42 U.S.C.§ 12201(c)(2)). The safe harbor provision states that the ADA shall not be construed as prohibiting a covered entity from establishing, sponsoring,
observing or administering the terms of a bona fide benefit plan that are based on
underwriting risks, classifying risks, or administering such risks that are based on
or not inconsistent with State law. The Court found that the Program qualified for the safe harbor, since the Program qualified as a term of a bona fide benefit plan,
within the meaning of the safe harbor, as it constituted a term of Broward's group health plan.

August 20, 2012

ERISA-Eighth Circuit Rules That Employer May Unilaterally Modify Retiree Health Care Benefits

In Maytag Corporation v. International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, No. 11-2931 (8th Cir. 2012), the plaintiffs, the United Automobile, Aerospace, and Agricultural Implement Workers International Union and Local 997 (collectively, the "Union"), were appealing the district court's judgment that the defendant, Whirlpool Corporation ("Whirlpool"), may unilaterally modify the health benefits it provides to certain retired hourly workers. One issue for the Eighth Circuit Court of Appeals (the "Court"): do the retirees have a vested right to health benefits under ERISA? If so, the unilateral modification is not valid.

In analyzing the case, the Court noted that, unless an employer has contractually agreed to provide vested retiree health benefits, it may unilaterally modify or terminate the benefits at any time. In this case, beginning in 1961, the Union and Maytag (Whirlpool's predecessor-in-interest) negotiated a series of provisions (the special insurance provisions or "SIAs") in their collective bargaining agreements providing medical benefits to active and retired hourly employees. The SIAs are treated as ERISA governed medical plans. Consistent with the SIA term clause, the parties terminated each SIA at expiration and negotiated a new SIA. The SIA at issue is the SIA governing in 2004. A summary plan description (an "SPD"), which described the 2004 SIA, stated that:

"The benefits described in this booklet are not vested benefits, and Maytag reserves the right to modify, suspend or terminate the plan or any component or successor plan, in whole or in part, at any time and for any reason, except to the extent that the federal labor laws require it to bargain any such changes with the Union."

The Court stated that an SPD may not strip collectively bargained rights from the ERISA plan it summarizes, but an unchallenged SPD may clarify that plan benefits are not vested. The Court found that this SPD reflects Maytag's intent not to vest retiree medical benefits. It further found that the SIA does not contain any express vesting language, or any unambiguous language indicating an intent to vest. There was language in the SIA that that an employee eligible for retirement pension benefits "shall continue" to receive the medical and drug benefits "for himself and eligible dependents during his life" , but this is not the unambiguous language required to create vested rights. As such, the Court concluded that the retirees in question do not have a vested right to health benefits, so that Maytag may unilaterally modify the benefits. The Court affirmed the district court's ju

August 17, 2012

ERISA-Fifth Circuit Rules That The Plan Administrator Properly Denied Death Benefits To Stepchildren

In Herring v. Campbell, No. 11-40953 (5th Cir. 2012), the following transpired. John Wayne Hunter passed away in October 2005. Hunter had retired from employment with Marathon Oil Company and was a participant in the Marathon Oil Company Thrift Plan (the "Plan"). The Plan allowed Hunter to designate a primary and second beneficiary. In 1990 and again in 2001, Hunter designated as his primary beneficiary his wife, Joyce Mae Hunter, and no secondary beneficiary. After Joyce Mae's death in 2004, Hunter did not designate a new Plan beneficiary.

Under the Plan, when a Plan participant dies without designating a valid beneficiary, the Plan provides for the distribution of the Participant's benefits to one of five classes in the following order of priority: (1) the surviving spouse; (2) the surviving children; (3) the surviving parents; (4) the surviving brothers and sisters; and (5) the executor or administrator of the participant's estate. After Hunter passed away, the Plan Administrator of the Plan considered, and rejected, the possibility that Hunter's stepsons, Stephen and Michael Herring (the "Herrings"), might be entitled to Hunter's benefits, determining that they were not "children" within the Plan's meaning. Because Hunter's spouse had predeceased him and he had no surviving parents and no biological or legally adopted children, the Plan Administrator distributed the benefits, which totaled more than $300,000, to Hunter's six siblings. The Herrings then filed this suit against the Plan Administrator to challenge the distribution. The district court found for the Herrings, and the Plan Administrator appealed.

In analyzing the case, the Court ruled that the Plan Administrator's decision to deny the Herrings the benefits was legally correct. The Plan Administrator found that the Plan had not previously determined whether the term "children" as used in the Plan included stepchildren who had not been legally adopted. She concluded that the term "children" meant biological or legally adopted children based on: (1) the need for a uniform standard for determining who were "children" under the Plan; (2) the administrative need for a practical and objective mechanism to avoid potentially burdensome and expensive investigations into a claimant's status; and (3) her conclusion that the exclusion of stepchildren from the definition was most likely to align with the expectations of the majority of Plan participants. The Plan Administrator considered that including "equitably adopted" individuals under State law-as the Herrings claimed to be- under the Plan's definition of "children" would create substantial uncertainties and additional expenses for the Plan by giving rise to disputes about whether individuals had actually been "equitably adopted".

The Court said that, in view of the foregoing, the Plan Administrator properly focused on providing a uniform interpretation of the Plan, gave the Plan a fair reading and considered that the definition urged by the Herrings would result in unanticipated costs. As such, the Court concluded that the Plan Administrator's decision to deny the Herrings the benefits was legally correct. Therefore, the Court reversed the district court's finding for the Herrings.

August 16, 2012

Employee Benefits-DOL Says That SBCs Need Not Be Provided For Medicare Advantage Plans

In FAQ Part X on the Affordable Care Act, the Department of Labor (the "DOL") says that, if one of the benefit packages in a group health plan is a Medicare Advantage plan, the employer is not required to provide a summary of benefits and coverage (an "SBC") for that package.

The general rule is that a group health plan must provide a separate SBC for each benefit package it offers. But that rule does not apply to a benefits package which is a Medicare Advantage plan. The FAQ explains that Medicare Advantage benefits are Medicare benefits (financed by the Medicare Trust fund and equivalent to Medicare A and B benefits, which are set by Congress and regulated by the Centers for Medicare & Medicaid Services (CMS)). They are, therefore, not health insurance coverage and Medicare Advantage organizations are not required to provide an SBC with respect to such benefits.

August 15, 2012

Employment-First Circuit Holds That Employer Did Not Retaliate Against Former Employee In Violation of FMLA

In Henry v. United Bank, No. 11-1666 (1st Circuit 2012), the plaintiff, Kathy Henry ("Henry"), was appealing an award of summary judgment in favor of the defendant, United Bank, on her claim of retaliation in violation of the Family and Medical Leave Act (the "FMLA"). Henry's claims arose from United Bank's decision to terminate her employment after she had exhausted 12 weeks of medical leave.

In this case, Henry began working for United Bank in 2006 as a commercial loan administrative assistant and in the following year was promoted to the position of commercial credit analyst. As a credit analyst, her tasks included evaluating the credit-worthiness of commercial borrowers and making lending recommendations. In January 2008, Henry began experiencing neck pain, blurred vision, and dizziness. During 2008, Henry was absent from work on various occasions due to her medical condition. Eventually, United Bank told Henry that her employment was terminated, since the Bank cannot continue to hold her position open indefinitely, and that she had already been given a full 12-week period of FMLA leave commencing July 1, 2008.

In analyzing the case, the First Circuit Court of Appeals (the "Court") said that the FMLA entitles eligible private sector employees to take, for medical reasons, reasonable leave up to a maximum of twelve weeks, and then to return to the same or an alternative position with some equivalency. The FMLA also prohibits employers from retaliating against employees for exercising their statutory rights. Thus, an employer cannot regard the taking of FMLA leave as a negative factor in deciding to terminate an employee. The employee may nevertheless can be discharged for independent reasons.

The Court continued by saying that the issue here is whether the bank's proffered business decision for terminating Henry-- that it could not hold Henry's position open indefinitely -- is supported by evidence, or is merely a pretext for impermissible retaliation for taking FMLA leave. United Bank offered testimony that the credit analysis department was critical to the bank's business, that the department's workload was expected to increase for a number of reasons, and that, without Henry, the remaining credit analysts were overworked. The testimony also indicated that no other employee in the bank was available to temporarily fill Henry's analyst position, and that hiring a temporary employee was not a wise business practice, due to the confidential nature of the client information to which the credit analysts have access and the particularized training involved in preparing an employee to competently perform the job. The Court concluded that testimony showed that United Bank's decision to terminate Henry was supported by legitimate, nonretaliatory business reasons. As such, the Court concluded that Henry's claim of retaliation in violation of the FMLA fails, and the Court affirmed the district court's summary judgment in favor of United Bank.

August 14, 2012

ERISA-Seventh Circuit Rules That Insurer's Decision To Stop Disability Benefits-Actually Made By Its Administrator-Is Entitled To Review Under The Arbitrary Or Capricious Standard

In Aschermann v. Aetna Life Insurance Company, No. 12-1230 (7th Cir. 2012)-discussed in yesterday's blog- the plaintiff, Carol Aschermann ("Aschermann"), was contesting the decision of the insurer to stop her disability benefits. The district court granted summary judgment to the defendants, on the grounds that the insurer's decision must be upheld, unless it was arbitrary or capricious. One issue was whether-in this case-the insurer was entitled to court review of its decision using the arbitrary or capricious standard (as opposed to de novo review). Here is what happened, and what the Seventh Circuit Court of Appeals (the "Court") said on this issue.

In this case, the plan at issue (the "Plan") provides disability benefits, for two years, to a participant who cannot do her job. After that, the question becomes whether the participant can perform any job in the economy as a whole. After paying disability benefits for a number of years, the Plan's insurer- Lumbermens Mutual Casualty Company ("Lumbermens")- stopped paying disability benefits to Aschermann based on the "any job" standard in the Plan, on the grounds that she could do sedentary work. The entity that actually made the decision to stop the benefit payments was Aetna Life Insurance Co ("Aetna"), which administered the Plan on Lumbermens' behalf, and therefore made the decision to stop the disability benefit payments to Aschermann on Lumbermens' behalf.

In analyzing the issue, the Court said that, when a plan confers discretion to interpret and implement its terms, deferential judicial review is appropriate. Here, the Plan bestows such discretion on its administrator, the AstraZeneca Administration Committee, plus any insurer that underwrites the benefits. The group policy underlying the Plan confers discretion on Lumbermens. Aschermann conceded that deferential review would be appropriate had Lumbermens itself actually made the decision in question. She observes, however, that neither the plan nor the group policy mentions Aetna, which acts as Lumbermens' agent. The Court found that-under ERISA and the applicable documents- Lumbermens could, and did, delegate the discretionary authority to interpret the Plan to Aetna. Thus, the decision to stop the disability benefit payments-actually made by Aetna on Lumbermens' behalf-should be reviewed using the arbitrary or capricious standard.

August 13, 2012

ERISA-Seventh Circuit Rules That Insurer's Decision To Stop Disability Benefits Was Not Arbitrary Or Capricious

In Aschermann v. Aetna Life Insurance Company, No. 12-1230 (7th Cir. 2012), the plaintiff, Carol Aschermann ("Aschermann"), had worked for AstraZeneca Pharmaceuticals as a sales representative. Back pain left her unable to perform her duties. Between 2003 and 2009 she received disability payments under AstraZeneca's disability plan (the "Plan"). For two years from the onset of a disability, the Plan provides benefits to a participant who can't do her old job. After that, the question becomes whether she can perform any job in the economy as a whole. The Plan's insurer, Lumbermens Mutual Casualty Company ("Lumbermens"), stopped paying disability benefits to Aschermann in fall 2009, concluding that she could do sedentary work. This suit ensued under ERISA. The district court granted summary judgment against Aschermann, upholding Lumbermen's decision to stop the benefits on the grounds that the decision was not arbitrary or capricious.

Aschermann does not deny that her education (she has a B.S. in psychology and a master's degree in social work) and experience suit her for many desk-bound positions, but she contends that the defendants erred in finding that she is able to perform any of them. Aschermann's physician, Dr. Arbuck, believes that she cannot work more than four hours a day. The defendants concede that, if that is so, Aschermann is entitled to disability benefits.

In analyzing the case, the Court said, first, that when-as here- the Plan confers on its claims reviewer discretion to interpret and implement its terms, deferential judicial review of the claims reviewer's decision is appropriate. Thus-as the district court concluded- Lumbermens' decision to stop benefits should be overturned only if it is arbitrary or capricious. The Court said next that, in this case, Dr. Arbuck and the physicians reviewing Aschermann's claim for Lumbermens disagreed on whether Aschermann could do any work. It is not arbitrary or capricious for the claims reviewer to resolve such a conflict in either direction. Finally, the Court noted that Aschermann argued that procedural errors were made, so that she is entitled to a do-over and may present additional evidence. The Court found that correspondence from the defendants gave Aschermann a reasonable opportunity to supplement the file as needed and to receive a full and fair review of her claim. As such, the Court concluded that Lumbermanns' decision to stop the benefits was not arbitrary or capricious, and it affirmed the district court's summary judgment.

August 10, 2012

Employee Benefits-Sixth Circuit Rules That Stop-Loss Insurer Was Not Liable For Plan Beneficiary's Health Care Expenses

In Clarcor, Inc. v. Madison National Life Insurance Company, Inc., No. 11-6177 (6th Cir. 2012) (Unpublished Ruling), the plaintiff, Clarcor, Inc. ("Clarcor"), had sued the defendant, Madison National Life Insurance Company ("Madison"), asserting that Madison had wrongfully denied Clarcor's claim for insurance coverage. The district court granted summary judgment for Madison, and Clarcor appealed.

In this case, Clarcor provided health insurance for its employees through the self-funded "Henderson Hourly Union Medical Plan" (the "Plan"). To insure against major employee health care expenses incurred under the Plan, Clarcor obtained from Madison an Excess Loss Insurance Policy (the "Policy"). The Policy covered health care expenses exceeding $250,000 per Plan beneficiary per year.

The dispute in this case arose because one of Clarcor's employees, I.K., incurred a considerable amount of health care expenses. The last day I.K. was "regularly scheduled" to work at Clarcor was October 20, 2007. At that time, I.K. was placed on FMLA leave, which continued until January 12, 2008. I.K. did not return to work after the expiration of her FMLA leave, and was not offered COBRA coverage, but was instead placed on short-term disability. While on short-term disability, Clarcor continued to take benefit deductions from I.K's compensation for health insurance coverage and continued to submit I.K.'s name to Madison as one of the beneficiaries of the Plan, for whom Madison would be liable for excess health expenses. I.K.'s employment (and the short-term disability leave) was terminated on June 23, 2008, and the next day, for the first time, she was offered COBRA coverage by Clarcor. She elected to receive to COBRA coverage. I.K.'s health care expenses during the relevant time period exceeded $250,000 and, in June 2009, Clarcor submitted a claim for this excess to Madison under the Policy. Madison refused to reimburse Calcor for any of I.K's expenses incurred after January 12, 2008, that is, after I.K. came off of FMLA leave and went onto short-term disability.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") found that, under the plain and unambiguous terms of the Plan, I.K. was not eligible for Plan coverage following the commencement of her short-term disability leave. This obtains because, while on such leave, she was not a full-time employee or covered by an applicable exception from the full-time requirement. I.K. did not regain this eligibility by electing COBRA coverage, since in her case she was not covered by the Plan on the date before the day of the applicable qualifying event, namely, the day of her termination of her employment. As such, under the terms of the Policy, Madison was not liable for any of I.K.'s health care expenses incurred after the short-term disability leave began, including those incurred while she was receiving COBRA coverage. Accordingly, the Court affirmed the district court's summary judgment in favor of Madison.

August 8, 2012

ERISA-Fourth Circuit Holds That A Defined Benefit/Cash Balance Plan's Definition Of Normal Retirement Age Does Not Violate ERISA

In McCorkle v. Bank of America Corporation NA, No. 11-1668 (4th Cir. 2012), the plaintiffs, David McCorkle and William Pender (the "Plaintiffs"), appealed the district court's order dismissing two of their claims against the defendant, Bank of America Corp. ("the Bank"), for alleged violations of ERISA. The gravamen of the Plaintiffs' two claims is that the Bank of America Pension Plan ("the Plan")-a defined benefit cash balance plan- employed a normal retirement age ("NRA") that violated ERISA in calculating lump sum distributions, and also caused the Plan to violate ERISA's prohibition of "backloading" in the calculation of benefit accrual. The Fourth Circuit Court of Appeals (the "Court") affirmed the district court's dismissal of the two claims.

In analyzing the case, the Court noted that ERISA defines NRA (in section 3(24)) as the earlier of: (1) the time a plan participant attains NRA, as defined under the plan, or (2) the later of (a) the time a plan participant turns age 65, or (b) the 5th anniversary of the time a plan participant commenced participation in the plan. For the years at issue here, the Plan defined NRA as the first day of the calendar month following the earlier of (i) the date the Participant attains age sixty-five (65) or (ii) the date the Participant completes sixty (60) months of Vesting Service. The Court further noted that, under section 204(b)(1) of ERISA -the backloading prohibition- a defined benefit plan must satisfy (as one alternative) the "133 1/3 percent" test, under which the amount a participant accrues in any given year is not more than 133 1/3 percent of the annual rate at which he accrued benefits the previous year. This prevents more rapid benefit accrual in the later years of employment. However, the backloading prohibition does not apply once a participant reaches NRA, defined for this purpose as the earlier of age 65 or the normal retirement age specified under the plan. In this case, the Plan provided that a participant who had reached NRA would receive an annual "Compensation Credit" equal to the product of his compensation for the pay period then ended multiplied by the applicable "Compensation Credit Percentage". The Plaintiffs alleged that this credit, coupled with the Plan's definition of NRA, violates ERISA's backloading prohibition.

The Court found (attributable in part to Plaintiffs' concessions) that the Plan states a valid NRA within the meaning of section 3(24) of ERISA, for purposes of calculating lump sum definitions. The Court found further (again, attributable in part to Plaintiffs' concessions) that the Plan's definition of NRA is valid under section 3(24) for purposes of satisfying ERISA's backloading requirements. Also, the Court ruled that ERISA's back-loading rules do not apply once a plan participant reaches NRA, so that the Compensation Credit could not cause the Plan to fail to meet those requirements. As such, the Court agreed with the district court that the Plaintiffs' two claims fail.

August 7, 2012

Employment-More On Justice Department's Guidance On The ADA And Individuals With HIV/AIDS

As discussed in yesterday's blog, the U.S. Department of Justice has issued guidance, in the form of Q&As, on the Americans with Disabilities Act (the "ADA") and individuals with HIV/AIDs. One important question raised in the Q &As is whether, under the ADA, an employer has an obligation to provide health insurance to employees with HIV or AIDS. The Q&As say the following:

The ADA prohibits employers from discriminating on the basis of disability in the provision of health insurance to their employees and/or from entering into contracts with health insurance companies that discriminate on the basis of disability. Insurance distinctions that are not based on disability, however, and that are applied equally to all insured employees, do not discriminate on the basis of disability and do not violate the ADA.

Thus, for example, blanket pre-existing condition clauses that exclude from the coverage of a health insurance plan the treatment of all physical conditions that predate an individual's eligibility for benefits are not distinctions based on disability and do not violate the ADA. A pre-existing condition clause that excluded only the treatment of HIV-related conditions, however, is a disability-based distinction and would likely violate the ADA.

Similarly, a health insurance plan that capped benefits for the treatment of all physical conditions at $50,000 per year does not make disability-based distinctions and does not violate the ADA. A plan that capped benefits for the treatment of all physical conditions, except HIV or AIDS, at $50,000 per year, and capped the treatment for AIDS-related conditions at $10,000 per year, does distinguish on the basis of disability and likely violates the ADA.

Blogger's Note: A pre-existing condition clause or a $50,000 cap on benefits could violate PPACA-but that is a different issue.


August 6, 2012

Employment-Justice Department Provides Guidance On The ADA And Individuals With HIV/AIDS

The U.S. Department of Justice has issued guidance, in the form of Q&As, on the Americans with Disabilities Act (the "ADA") and individuals with HIV/AIDs.

The Q&As say that HIV and Aids are "diseases" covered by the ADA, so that individuals living with HIV or AIDs are entitled to protection under the ADA. The Q &As continue by discussing how the ADA applies to individuals with HIV/AIDs. Among the matters raised:

A question-may an employer consider health and safety when deciding whether to hire an applicant or retain an employee who has HIV or AIDS? The Q&As say "yes", but only under limited circumstances. The ADA permits employers to establish qualification standards that will exclude individuals who pose a direct threat--i.e., a significant risk of substantial harm--to the health or safety of the individual him/herself or to the safety of others, if that risk cannot be eliminated or reduced below the level of a "direct threat" by reasonable accommodation. However, an employer may not simply assume that a threat exists; the employer must establish through objective, medically-supportable methods that there is a significant risk that substantial harm could occur in the workplace.

The Q&As say further that the transmission of HIV will rarely be a legitimate "direct threat" issue. It is medically established that HIV can only be transmitted by sexual contact with an infected individual, exposure to infected blood or blood products, or prenatally from an infected mother to infant during pregnancy, birth, or breast feeding. HIV cannot be transmitted by casual contact. Thus, there is little possibility that HIV could ever be transmitted in the workplace. For example:

--A restaurant owner may believe that there is a risk of employing an individual with HIV as a cook, waiter or waitress, or dishwasher, because the employee might transmit HIV through the handling of food. However, HIV and AIDS are specifically not included on the Centers for Disease Control and Prevention ("CDC") list of infectious and communicable diseases that are transmitted through the handling of food. Thus, no direct threat exists in this context.

--An employer may believe that an emergency medical technician ("EMT") with HIV may pose a risk to others when performing mouth-to-mouth resuscitation. However, the use of universal precautions among emergency responders means that the EMT will be using a barrier device while performing resuscitation.

Another question-when can an employer inquire into an applicant's or employee's HIV status? The Q&As say that an application for employment cannot seek information about health status or ask disability-related questions. Likewise, an employer may not ask a job applicant disability-related questions or questions likely to solicit information about a disability or ask an applicant to submit to a medical examination before an offer is made. An employer may, however, ask the applicant questions during the interview about the applicant's ability to perform specific job functions.An employer may condition a job offer on the satisfactory outcome of a post-offer medical examination or medical inquiry, if such medical examination or inquiry is required of all entering employees in the same job category. However, if the employer withdraws a job offer because the post-offer medical examination or inquiry reveals a disability, the reason(s) for not hiring must be job-related and consistent with business necessity. Having HIV alone can almost never be the basis for a refusal to hire after a post-offer medical examination.

The Q&As further say that, after a person starts work, a medical examination or inquiry of an employee must be job related and consistent with business necessity. Employers may conduct employee medical examinations where there is evidence of a job performance or safety problem, when examinations are required by other Federal laws, and/or when examinations are necessary to determine current "fitness" to perform a particular job. For example, an employer could not ask an employee who had recently lost a significant amount of weight, but whose job performance had not changed in any way, whether the employee had HIV or AIDS. An employer could, however, require an employee who was experiencing frequent dizzy spells, and whose work was suffering as a result, to undergo a medical examination.

Third question-what obligations does an employer have if an employee discloses his or her HIV status? The Q&As say that the ADA requires that medical information be kept confidential. This information must be kept apart from general personnel files as a separate, confidential medical file available only under
limited conditions.


August 2, 2012

ERISA-Eighth Circuit Upholds The Insurer's Termination Of Disability Benefits

In Wade v. Aetna Life Insurance Company, No. 11-3295 (8th Cir. 2012), the defendant, Aetna Life Insurance Company ("Aetna"), as plan administrator of a welfare benefits plan (the "Plan"), determined that the plaintiff, Sharon Wade ("Wade"), was no longer disabled and stopped paying long-term disability ("LTD") benefits to her from the Plan. Wade brought suit under ERISA. The district court granted summary judgment in favor of Aetna, upholding Aetna's decision to terminate Wade's Ltd benefits and concluding that Aetna did not abuse its discretion in reaching this decision because the decision was supported by substantial evidence. The Eighth Circuit Court of Appeals (the "Court") affirmed the district court's grant of summary judgment.

In so ruling, the Court found that the district court: (1) applied the correct standard of review to Aetna's decision to stop the LTD benefits (it applied a deferential standard due to language in the Plan which gave Aetna discretionary authority to determine benefit entitlement); (2) gave appropriate weight to the Social Security Administration's (the "SSA") grant of long-term disability benefits to Wade (it noted that a plan administrator is not bound by an SSA determination); and (3) did not abuse its discretion by determining substantial evidence supported Aetna's decision.

August 1, 2012

ERISA-DOL Revises Its Guidance On Participant Fee Disclosures To Eliminate Disclosure Of Information For Investments Obtained Through Brokerage Windows

The Department of Labor (the "DOL") has replaced Field Assistance Bulletin No. 2012-02, which provides guidance on the new participant fee disclosure rules (found in 29 CFR section 2550.404a-5 (the "regulation")), with Field Assistance Bulletin No. 2012-02R. The change? Q&A-30 appearing in Field Assistance Bulletin No. 2012-02 has been deleted, and replaced in Field Assistance Bulletin No. 2012-02R with new Q&A-39.

Q&A-30 had required a plan with over 25 investment alternatives to disclose information for an investment acquired through a brokerage window or similar arrangement, if that investment was so acquired by a specified minimum number of participants, and even if the investment is not otherwise a designated investment alternative under the plan. New Q&A-39 does not have this requirement. Rather, Q&A-39 indicates that, when a plan permits participant investment through a brokerage window, self-directed brokerage account, or similar plan arrangement (for convenience, a "brokerage window"), and the plan's fiduciary does not designate any of the investments available through the brokerage window as a "designated investment alternative" under the plan , then neither the brokerage window nor any investment acquired through it is treated as being a designated investment alternative for which information disclosure is required under the regulation. To be a designated investment alternative, an investment must be specifically identified as available under the plan.

The Q&A does caution that, in the case of a 401(k) plan or other individual account plan covered under the regulation, a plan fiduciary's failure to designate investment alternatives, for example, to avoid investment disclosures under the regulation, raises questions under ERISA section 404(a)'s general statutory fiduciary duties of prudence and loyalty. Also, fiduciaries of such plans with brokerage windows that enable participants to select investments beyond those designated by the plan are still bound by ERISA section 404(a)'s statutory duties of prudence and loyalty to those participants, including taking into account the nature and quality of services provided in connection with the brokerage window.