March 2013 Archives

March 28, 2013

ERISA-EBSA Provides Tips For Plan Fiduciaries About Investing In Target Date Retirement Funds

The Employee Benefits Security Administration (the "EBSA") has provided, on its website, tips for plan fiduciaries for investing in target date retirement funds ("TDFs"). The tips are intended to assist plan fiduciaries in complying with ERISA when selecting and monitoring TDFs and other investment options in 401(k) and similar participant-directed individual account plans. The tips are summarized as follows:

Target Date Fund Basics. TDFs may be attractive investment options for employees who do not want to actively manage their retirement savings. TDFs
automatically rebalance to become more conservative as an employee gets closer to retirement. The "target date" refers to a target retirement date, and often is part of the name of the fund.

Investment Strategy For TDFs. TDFs offer a long-term investment strategy based on holding a mix of stocks, bonds and other investments (this mix is called an asset allocation) that automatically changes over time as the participant ages. A TDF's
initial asset allocation, when the target date is a number of years away, usually consists mostly of stocks or equity investments, which often have greater potential for higher returns but also can be more volatile and carry greater investment risk. As the target retirement date approaches (and often continuing after the target date), the fund's asset allocation shifts to include a higher proportion of more conservative investments, like bonds and cash instruments, which generally are less volatile and carry less investment risk than stocks.

The Glide Path. The shift in the asset allocation over time is called the TDF's "glide path." It is important to know whether a target date fund's glide path uses a "to retirement" or a "through retirement" approach. A "to" approach reduces the TDF's equity exposure over time to its most conservative point at the target date. A "through" approach reduces equity exposure through the target date so it does not reach its most conservative point until years later. Within this general framework, however, there are considerable differences among TDFs offered by different providers, even among TDFs with the same target date. For example, TDFs may have different investment strategies, glide paths, and investment-related fees. Because these differences can significantly affect the way a TDF performs, it is important that fiduciaries understand these differences when selecting a TDF as an
investment option for their plan.

What to Remember When Choosing Target Date Funds.

Establish a process for comparing and selecting TDFs. In general, plan fiduciaries should engage in an objective process to obtain information that will enable them to evaluate the prudence of any investment option made available under the plan. For example, in selecting a TDF you should consider prospectus information, such as information about performance (investment returns) and investment fees and expenses.

Establish a process for the periodic review of selected TDFs. Plan fiduciaries are required to periodically review the plan's investment options to ensure that they should continue to be offered. At a minimum, the review process should include examining whether there have been any significant changes in the information fiduciaries considered when the option was selected or last reviewed. Similarly, if your plan's objectives in offering a TDF change, you should consider replacing the fund.

Understand the fund's investments - the allocation in different asset classes (stocks, bonds, cash), individual investments, and how these will change over time. Have you looked at the fund's prospectus or offering materials? Do you understand the principal strategies and risks of the fund, or of any underlying asset classes or investments that may be held by the TDF? Make sure you understand the fund's glide path, including when the fund will reach its most conservative asset allocation and whether that will occur at or after the target date.

Review the fund's fees and investment expenses. TDF costs can vary significantly, both in the amount and types of fees. Small differences in investment fees and costs can have a serious impact on reducing long term retirement savings.

Inquire about whether a custom or non-proprietary target date fund would be a better fit for your plan. TDF vendors may offer a pre-packaged product which uses only the vendor's proprietary funds as the TDF component investments. Alternatively, a "custom" TDF may offer advantages to your plan participants by giving you the ability to incorporate the plan's existing core funds in the TDF, and by including component funds that are managed by fund managers other than the TDF provider itself, thus diversifying participants' exposure to one investment

Develop effective employee communications. Have you planned for the employees to receive appropriate information about TDFs in general, as a retirement investment option, and about individual TDFs available in the plan? Disclosures required by law also must be considered. The Department of Labor published a final rule that, starting for most plans in August 2012, requires that
participants in 401(k)-type individual account retirement plans receive greater information about the fees and expenses associated with their plans, including specific fee and expense information about TDFs and other investment options available under their plans.

Take advantage of available sources of information to evaluate the TDF and recommendations you received regarding the TDF selection. While TDFs are relatively new investment options, there are an increasing number of commercially available sources for information and services to assist plan fiduciaries in their
decision-making and review process.

Document the process. Plan fiduciaries should document the selection and review process, including how they reached decisions about individual investment options.

March 27, 2013

ERISA-Ninth Circuit Rules That Fiduciaries Who Included Retail Class Mutual Funds In a 401(k) Plan's Investment Menu Were Imprudent For Not Considering The Inclusion Of Institutional-Share Class Alternatives In The Menu

In Tibble v. Edison International, No. 10-56406 (9th Cir. 2013), participants in a 401(k) plan had brought suit under ERISA, alleging that the plan had been managed imprudently and in a self-interested fashion, primarily by including in its investment options certain "retail-class" mutual funds that engaged in revenue sharing (i.e., a mutual fund paying fees to an administrator out of plan assets). The Ninth Circuit Court of Appeals (the "Court") faced a number of issues on appeal.

The first issue was the statute of limitations that applied to filing the suit. The Court noted that, for claims of fiduciary breach, ERISA § 413 provides that no action may be commenced "after the earlier of": (1) six years after the date of the last action which constituted a part of the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation (six years in certain cases of fraud or concealment). The Court ruled that the act of designating an investment for inclusion starts the six-year period under section 413(1) for claims-as those here- asserting imprudence in the design of the plan investment menu. Here, the plaintiffs did not have the knowledge that would invoke the three-year limitations period.

The next issue was whether the plaintiffs' claims had to be dismissed under ERISA § 404(c), a safe harbor that can apply to a pension plan that "provides for individual accounts and permits a participant or beneficiary to exercise control over the assets in his account." The Court said that the 401(k) plan at issue is clearly covered by§ 404(c). That section provides that " [N]o person who is otherwise a fiduciary shall be liable under this part for any loss, or by reason of any breach, which results from such participant's or beneficiary's exercise of control." The defendants say that this language insulates them from plaintiffs' claims, because each challenged investment was a product of a "participant's or beneficiary's exercise of control," by virtue of his selection of it from the
Plan investment menu. Relying on the preamble to the DOL's 1992 regulations governing § 404(c), and since the defendants chose the plan's investment options, the Court concluded that § 404(c) does not preclude a court's consideration of the plaintiffs'claims, that is, the provision does not protect a fiduciary's selection of investment options for a plan's menu.

Going to the merits of the case, the Court ruled:

--against the plaintiffs' claim that revenue sharing between the retail-class mutual funds and the plan's administrative service provider violated the plan's governing
document and was a conflict of interest;

--that an abuse of discretion standard of review applied in this fiduciary duty and conflict-of-interest suit because the plan granted interpretive authority to the administrator, so that the administrator's interpretation of the plan to permit the revenue sharing had to be upheld;

--that the defendants did not violate their duty of prudence under ERISA merely by including in the 401(k) plan's investment menu (1) certain mutual funds, (2) a short term investment fund akin to a money market fund and (3) a unitized employer stock fund; and

--that the defendants were imprudent in deciding to include the retail-class shares of three specific mutual funds in the 401(k) plan's investment menu, because they failed to investigate the possibility of institutional-share class alternatives that had lower expense ratios.

March 26, 2013

ERISA-Seventh Circuit Holds That Defined Benefit Plan Could Be Amended To Use A Higher Discount Rate (And Thus Pay A Lower Lump Sum Benefit)

In Dennison v. MONY Life Retirement Income Security Plan, No. 12-2407 (7th Cir. 2013), the plaintiff ("Dennison") was appealing the district court's grant of summary judgment to the defendant.

In this case, Dennison had been employed by Mutual of New York Insurance Company ("MONY"). While so employed he had participated in: (1) MONY's Retirement Income Security Plan for Employees ("RISPE"), a tax-qualified defined benefit pension plan, and (2) the Excess Benefit Plan for MONY Employees (the "Excess Plan"), a nonqualified plan of deferred compensation for highly compensated employees. Both the RISPE and the Excess Plan entitled Dennison to benefits at age 55, and offered Dennison a choice of taking his benefits as a "straight life" annuity--a fixed monthly payment for the rest of his life--or as a lump sum. The lump sum form was represented to be the actuarial equivalent of the annuity, with actuarial equivalence depending on Dennison's life expectancy and an interest discount factor.

Dennison choose the lump sum for his benefits under both plans. He received a check for the RISPE, in the amount of $325,054.28, and a check for the Excess Plan, in the amount of $218,726.38. To calculate the RISPE lump sum, the discount rate was a blended rate, called a "segment rate" under IRC section 417, of roughly 5.24 percent. To calculate the Excess Plan lump sum, a discount rate of 7.5% was used. Dennison claimed that the proper rate-which would have resulted in significantly higher lump sums-was a rate, computed by the Pension Benefit Guaranty Corporation ("PBGC") on the basis of annuity premiums charged by insurance companies, of 3%. At the time Dennison left MONY's employ, the RISPE generally provided that the discount rate would be the PBGC rate, the 3% rate, and the Excess Plan was using 7.5 percent. Dennison later brought this suit over the appropriate discount rate for RISPE and Excess Plan lump sums.

In analyzing the case, the Court noted that in the Pension Protection Act of 2006, Congress authorized employers to amend their plans to retroactively raise the plan's discount rate to the segment rate. Before the Act, such an amendment would have violated ERISA's anti-cutback rule. MONY used this authorization to amend the RISPE-shortly before Dennison reached age 55 and became entitled to benefits- to use the segment rate as the discount rate. The Excess Plan was not changed. The RISPE had a provision which proscribed amendments decreasing accrued benefits. However, the "accrued benefit" here is the participant's benefit in life annuity form. Thus, the Court found that nothing prevented MONY from amending the RISPE to use a higher discount rate to compute lump sums. Further, the Court interpreted the Excess Plan, including its references to the RISPE and taking notice of prior practice, to be using the 7.5% discount rate. As such, the Court affirmed the district court's summary judgment against Dennison.

March 25, 2013

Employee Benefits-DOL Provides Guidance On Changes To Annual Funding Notice Requirements Under Map-21

In Field Assistance Bulletin ("FAB") No. 2013-01, the U.S. Department of Labor (the "DOL") has provided guidance on the changes to the annual funding notice requirements of section 101(f) ERISA which were made by the recently enacted legislation entitled "Moving Ahead for Progress in the 21st Century Act" (or "MAP-21"). In general, MAP-21 requires additional disclosure of the effect of segment rate stabilization on the funding of single-employer defined benefit plans. The FAB also includes a supplement to the model annual funding notice that plan administrators of these plans may use to comply with these new requirements.

More specifically, the interest rates generally used to determine the present value of a single-employer defined benefit plan's liabilities are the three segment rates described in section 303(h)(2)(C)(i), (ii), and (iii) of ERISA. The first segment rate for a month is the 24-month average of the yields on the top three tiers of investment grade corporate bonds maturing within five years. The second segment rate is the 24-month average of yields on such investment grade bonds maturing in years six through 20. The third segment rate is the 24-month average of yields on such investment grade bonds maturing after year 20. MAP-21 amended section 303(h)(2)(C) of ERISA by adding a new subclause (iv) to adjust the segment rates in section 303(h)(2)(C)(i)-(iii) as necessary to fall within a specified range, based on a 25-year average of the corresponding segment rates.

Section 101(f) of ERISA sets forth the requirements for the annual funding notices. MAP-21 amended section 101(f)(2) of ERISA by adding a new subparagraph (D). New section 101(f)(2)(D) of ERISA requires plan administrators of single-employer defined benefit plans to disclose additional information in the annual funding notice for a plan year beginning after December 31, 2011, and before January 1, 2015, if such plan year is an "applicable plan year" within the meaning of section 101(f)(2). The additional disclosures relate to the effect of the MAP-21 ERISA section 303(h)(2)(C)(iv) segment rate stabilization rules on plan liabilities and the plan sponsor's minimum required contributions to the plan. The FAB provides guidance on the additional disclosures and related matters.

March 22, 2013

Employee Benefits-IRS Discusses How the New EPCRS Revenue Procedure Affects 403(b) Plan Audits

In Employee Plans News, Issue 2013-1, February 13, 2013, Monika Templeman, Director of EP Examinations at the IRS, discusses how the new EPCRS Revenue Procedure, Rev. Proc. 2013-12, affects 403(b) plan audits. Here is what she said:

EPCRS changes for 403(b) plans. First, let's look at how the revenue procedure made changes for 403(b) plans. Generally, 403(b) plan sponsors can now correct:
• Most plan failures in the same way as qualified plans
• The failure to comply with the form and operational requirements of the 403(b) final regulations and other guidance
• The failure of not timely adopting a 403(b) written plan
Plans must use Revenue Procedure 2008-50 definitions for 403(b) plan failures occurring prior to January 1, 2009.

Interim sanction for no written plan prior to new EPCRS revenue procedure. IRS developed an interim approach for Audit Closing Agreement Program (Audit CAP) sanctions for 403(b) plan sponsors that failed to adopt a written plan prior to the issuance of the new EPCRS revenue procedure. In short, we used a Voluntary Correction Program (VCP) or "VC-plus" approach for 403(b) written plan failures. VC-plus means the sanction could be slightly higher than the regular VCP fee under the revenue procedure. Under this approach, sponsors who attempted in good faith to meet the written plan requirement had lower sanctions than those who didn't. Sanction amounts can also vary depending on whether the plan has met the requirements of Notice 2009-3.
The interim sanction only applied to written plan failures. Agents combined the interim sanction with the regular Audit CAP sanctions for operational failures.

Interim sanction for no written plan after new EPCRS revenue procedure. Now that we have the new revenue procedure, sponsors of 403(b) plans failing the written plan requirement should submit an application under the VCP. This approach is consistent with the IRS Correction Program's general principle of graduated fees and sanctions as an incentive to correct promptly.

Current audits - sanction for no written plan. What about those 403(b) plans with a written plan failure that are currently under audit or those notified of an audit (which precludes a VCP submission)? IRS doesn't want to place plan sponsors in a "gotcha" situation. We have developed the following transitional plan relief:
• For 403(b) plan sponsors currently under audit or notified of an audit between now and April 1, 2013, IRS may allow plans correcting under Audit CAP the same compliance fee relief for failure to adopt a written plan that IRS affords to plans that submit for VCP under Revenue Procedure 2013-12 (considering all facts and circumstances).
• This relief is only for failure to adopt a 403(b) written plan and does not apply to operational errors.

March 21, 2013

Employment-Tenth Circuit Holds That FLSA Claim For Overtime Fails Because Employee Did Not Use Employer's Timekeeping System To Report Work Hours

In Brown v. ScriptPro, LLC, No. 11-3293 (10th Cir. 2012), the plaintiff, Frank Brown ("Brown"), had filed suit against his former employer, ScriptPro, LLC ("ScriptPro"), claiming that the termination of his employment by ScriptPro violated, among other things, the Fair Labor Standards Act ("FLSA"). The district court granted summary judgment in favor of ScriptPro, and Brown appealed.

In the case, Brown claimed to have performed 80 hours of overtime work at home. He did not record this time in ScriptPro's KRONOS timekeeping system, or otherwise report these hours on time sheets. ScriptPro's employee handbook does not specify how to report overtime. However, it does require employees like Brown to turn in time sheets recording hours worked. ScriptPro never paid Brown for the 80 hours of overtime. ScriptPro later terminated Brown for certain unresolved performance issues. Brown then filed a suit in district court under the FLSA, in order to receive payment for the 80 hours of overtime work he allegedly performed at home.

In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") said that, to succeed on an FLSA claim for unpaid overtime, the plaintiff, such as Brown, has the burden of proving that he performed work for which he was not properly compensated. This means that Brown's burden is to produce sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference. At the summary judgment stage-which is where the case was at the time- Brown must set forth specific facts showing there is a genuine issue for trial. Here, Brown failed to show the amount of overtime by justifiable or reasonable inference. He chose not to enter any of the hours he allegedly worked from home in ScriptPro's timekeeping system, or otherwise keep any other record of these hours. ScriptPro keeps accurate records of hours worked, and employees can even access the KRONOS timekeeping system from home. There, Brown easily could have entered his hours. The Court ruled that, under these circumstances, where the employee fails to notify the employer through the established overtime record-keeping system, the failure to pay overtime is not a FLSA violation. As such, the Court affirmed the district court's summary judgment on the FLSA claim.

March 19, 2013

Employment-First Circuit Rules That Plaintiff's Claim Of Retaliation Under The ADA Survives Summary Judgment

In Kelley v. Correctional Medical Services, Inc., No. 11-2246 (1st Cir. 2013), the plaintiff, Katherine Kelley ("Kelley"), was appealing the district court's grant of summary judgment in favor of the defendant, Correctional Medical Services, Inc. ("CMS"), on her retaliation claim under the Americans with Disabilities Act (the "ADA"). Kelley had claimed that she had been terminated by CMS in retaliation for asking for an accommodation for leg and health issues from which she suffered.

In analyzing the case, the First Circuit Court of Appeals (the "Court") indicated that, to survive summary judgment on a retaliation claim under the ADA, the plaintiff must first establish a prima facie retaliation claim, by showing that: (1) she engaged in protected conduct; (2) she experienced an adverse employment action; and (3) there was a causal connection between the protected conduct and the adverse employment action. Once the plaintiff has made a prima facie showing of retaliation, the defendant must articulate a legitimate, non-retaliatory reason for its employment decision. If the defendant meets this burden, the plaintiff must then show that the proffered legitimate reason is pretextual and that the job action was the result of the defendant's retaliatory animus. Requesting an accommodation is protected conduct under the ADA's retaliation provision.

The Court then said that the issue on appeal is whether the plaintiff has shown that CMS's reason for the termination was pretextual and that the termination was retaliatory. After reviewing the record, the Court concluded that the plaintiff had made such a showing, based primarily on evidence of a supervisor's hostility towards Kelley's disability and several requests for accommodation. The Court therefore overturned the district court's grant of summary judgment and remanded the case back to the district court.

March 18, 2013

ERISA-Fifth Circuit Rules That Plaintiff Alleging Breach Of Fiduciary Duty Under ERISA Could Be Entitled To Monetary Damages Under Amara

In Gearlds, Jr. v. Entergy Services, Inc., No. 12-60461 (5th Cir. 2013), the plaintiff ("Gearlds") was appealing from the district court's dismissal of his suit against defendant Entergy Services, Inc. ("Entergy"), in which he alleged claims of equitable estoppel and breach of fiduciary duties under ERISA.

In this case, Gearlds took early retirement from Entergy in 2005, at the age of 55, and received a reduced pension and full medical, dental, and vision benefits from Entergy's employee benefit plans. Gearlds alleged in his complaint that he agreed to retire early because Entergy told him orally and in writing that he was covered by Entergy's Medical Benefits Plus Plan and would continue to receive medical benefits. At some point, Gearlds waived medical benefits available under his wife's retirement plan when she retired from her employment because of the assurances he had received from Entergy.

In 2010, however, Entergy notified Gearlds that it was discontinuing his medical benefits. Apparently, when Entergy determined the benefits to whichGearlds was entitled upon retirement in 2005, it believed that Gearlds was still receiving long term disability benefits from one of Entergy's plans, even though those benefits had actually ended three years earlier, and it therefore included the time from 2002 to 2005 when computing Gearlds's service time for purposes of determining his benefits. This error caused Entergy to determine that Gearlds was eligible for medical coverage, when he was not. Gearlds filed this suit, alleging that Entergy negligently induced him to take early retirement insofar as it promised him health care benefits, and asserting claims under for breach of fiduciary duty under ERISA § 502(a)(3) and equitable estoppel.

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") noted that ERISA § 502(a)(3) permits a plan beneficiary to bring a civil action to obtain "other appropriate equitable relief" for ERISA violations. In CIGNA Corp. v. Amara, the Supreme Court recently expanded the kind of relief available under § 502(a)(3), when the plaintiff is suing a plan fiduciary and the relief sought makes the plaintiff whole for losses caused by the defendant's breach of a fiduciary duty. The Supreme Court concluded that-in such a case- monetary damages could be allowed under that section, in the form of "surcharge". In this case, Gearlds's complaint under § 502(a)(3) for breach of fiduciary duty -which could lead to monetary damages in the form of surcharge, even though he did not specifically request it- is viable in light of Amara. As such, the Court overturned the district court's dismissal of the case, and remanded the case back to the district court.

March 15, 2013

Employment-A Reminder To Update Employee Handbooks For FMLA Changes

It has been a week since employers have been required to use the DOL's new poster notice (and revised model forms) for FMLA. The new notice poster and revised forms reflect changes to the FMLA regulations made recently to include rules for, among other things, military caregiver leave for a veteran, qualifying exigency leave for parental care, and the special leave calculation method for flight crew employees.

One important point: The FMLA rules require that, in addition to displaying the poster notice, the employer must provide a general notice containing the same information that is in the poster in its employee handbook (or other written material about leave and benefits). This means that, if you have not already done so, you now have to revise your employee handbook (or other material) to reflect the changes the DOL made to the poster notice. Any questions?

March 14, 2013

ERISA-Sixth Circuit Upholds Board of Trustees's Termination Of Disability Benefits Under A Retroactive Plan Amendment

In Price v. Board of Trustees of Indiana Laborer's Pension Fund, No. 11-4126 (6th Cir. 2013), the plaintiff, James Price ("Price"), had filed suit under ERISA against the defendants, the Board of Trustees of the Indiana Laborer's Pension Fund (the "Board") and the Pension Fund itself, after his disability benefits under the Pension Fund were discontinued.

The terms of the Pension Fund gave the Board the power to amend the Pension Fund retroactively. Price began to receive an "Occupational Disability Benefit" under the Plan in 2001. In 2004, the Board amended the Plan-retroactively- to terminate an Occupational Disability Benefit by December 31, 2006, if that benefit had started before 2005. This amendment caused Price's benefit to cease at the end of 2006. Without the amendment, the benefit would not have ceased until Price reached early retirement age in 2012. Price later brought this suit, which challenged the validity of the amendment under ERISA.

In analyzing the case, the Court noted that ERISA does not create a substantive right to welfare benefits--such as the Occupational Disability Benefits--nor does ERISA establish a vesting requirement for welfare benefits. As such, a welfare benefit may be terminated at any time so long as the termination is consistent with the terms of the plan. In this case, the Pension Fund stated that "Any amendment to the Plan may be made retroactively by the majority action [of the Board] . . . . [N]o amendment shall be made which results in reduced benefits for any Participant whose rights have already become vested under the provisions of the Plan on the date the amendment is made." The Board interpreted this provision to permit the amendment in question. The Court found that this interpretation of the Pension Fund was not arbitrary or capricious, and therefore must be upheld. As such, the Court concluded that the Board's interpretation, and the amendment on which it was based, was valid. Thus, the Court ruled that the termination of Price's Occupational Disability Benefit at the end of 2006 was correct.

March 13, 2013

Employment-Fifth Circuit Rules That Employee On FMLA Leave Who Failed To Provide Medical Certification Can Be Discharged Without Violating The FMLA

In Milton v. Texas Department of Criminal Justice, No. 12-20034 (5th Cir. 2013), the plaintiff, Tina Milton ("Milton"), had brought suit against her former employer, the Texas Department of Criminal Justice (the "TDCJ"), claiming violations of the Americans with Disabilities Act (the "ADA") and the Family and Medical Leave Act (the "FMLA"). The district court granted summary judgment in favor of TDCJ, and Milton appealed.

In this case, Milton was a clerical employee with TDCJ from November 1990 until April 19, 2007. She was employed at the Wynne Unit in Huntsville, Texas, where she was responsible for looking for coded gang messages in inmate mail. She was terminated, administratively, in April 2007 after failing to provide medical documentation verifying her FMLA leave. Milton's allergic reaction to the use of scented candles and wall plug-ins around her work area is the basis of her ADA claim. Exposure to those items causes her asthma attacks, headaches, nausea, chest tightness, coughing, rhinitis, and sinusitis. Due to her condition, Milton took FMLA leave, effective January 3, 2007. A condition of Milton's leave, however, was that she submit medical certification of her continued illness, as provided by the FMLA. Milton provided this certification in January 2007, and continued to do so until March 2007. TDCJ never received Milton's March 2007 certification. Milton was not informed of the missing March certification until April 19, after she had been administratively terminated. This suit ensued.

As to the FMLA claim, the Fifth Circuit Court of Appeals (the "Court") noted that, when an employee takes an FMLA leave, the employer can require periodic medical certification for the leave. The governing regulations do not require employers to advise employees of missing certifications. Rather, if the employee fails to provide certification, the employer may deny the taking of FMLA leave. Here, there is no dispute that the medical certification due in March, 2007 was never received by TDCJ. Since the medical certification was not provided, TDCJ could terminate Milton without violating the FMLA. As such, the Court affirmed the district court's summary judgment in favor of TDCJ.

Note: The Court also determined that Milton was not disabled within the meaning of the ADA. However, the Court noted that it was not applying the amendments to the ADA made in 2008. Those amendments substantially expanded the conditions that are considered to be a disability.

March 12, 2013

ERISA-Second Circuit Reviews The Applicability Of The Presumption Of Prudence For Fiduciaries Investing In An Employer Stock Fund

In Taveras v. UBS AG, Docket No. 12-1662 (2nd Cir. 2013), the Court reviewed the applicability of the ERISA presumption of fiduciary prudence when investing in an employer stock fund. In this case, the defendants maintained two retirement plans: the Savings and Investment Plan (the "SIP") and the UBSFS 401(k) Plus Plan (the "Plus Plan"). Both plans are "eligible individual account plans" or "EIAPs" for purposes of ERISA, and they both offer, for investment by plan participants, the UBS Stock Fund. This fund holds stock of UBS, and as such is an employer stock fund. This suit arises out of the huge decrease in the value of the stock held in the UBS Stock Fund, and the corresponding decrease in the value of participants' accounts invested in that fund.

In analyzing the case, the Court noted that all ERISA fiduciaries are required to act in accordance with the duty of prudence, which requires those fiduciaries to make reasonable investment and managerial decisions on behalf of the ERISA plan they are overseeing. It said that the Second Circuit has adopted a "presumption of prudence" (the so-called "Moench Presumption") that applies to fiduciaries of certain plans who invest the plan they are overseeing, or offer participants the option to invest their individual accounts, in the employer's stock. The presumption applies to the types of EIAPs at issue here. The presumption dictates that, where applicable, a fiduciary's decision to invest an employer's retirement plan in the employer's own stock, or to offer plan participants the option to so invest, is a presumptively prudent decision in compliance with ERISA, and thus the decision to invest in the employer's stock is reviewed only for an abuse of discretion. However, judicial scrutiny should increase with the degree of discretion a plan gives its fiduciaries to invest in the employer stock.

The Court then noted that the Plus Plan states that "[t]he Trustee shall invest and reinvest all amounts in each Participant's Accounts . . . from among the Investment Funds made available by the Investment Committee . . . one of which shall be the [UBS] Common Stock Fund." The Investment Committee is allowed to "add[ ] or delete[ ]" any of the available investment funds, presumably including the UBS Stock Fund, "from time to time." The Court interpreted this language to mean that the Trustee is required to invest in the UBS Stock Fund, and concluded that the presumption of prudence applies with respect to the Plus Plan.

The Court found that the plan document for the SIP neither requires nor strongly encourages investment in UBS stock or the UBS Stock Fund. Instead it simply names that fund and presents it as one permissible investment option. Thus, the Court concluded that the presumption of prudence does not apply with respect to the SIP.

March 11, 2013

ERISA-Fourth Circuit Holds That ERISA Does Not Preempt A State Court Order Requiring A Plan's Named Beneficiary To Turn Over Death Benefits To The Estate Of The Deceased Participant

In Andochick v. Byrd, No. 12-1728 (4th Cir. 2013), the plaintiff, Scott Andochick ("Andochick"), brought this suit seeking a declaratory judgment that ERISA preempted a state court order requiring him to turn over, to the administrators of the estate of the deceased Erika Byrd ("Erika"), benefits which were to be paid with respect to Erika under ERISA retirement and life insurance plans. The district court had dismissed the preemption claim, and Andochick appealed.

In this case, in February 2005, Andochick and Erika had married. During the marriage, Erika worked as an attorney at Venable, LLP, where she participated in the Venable Retirement ("401(k)") Plan and the Venable Life Insurance Plan (the "Plans"). The Plans are subject to ERISA. Erika executed beneficiary designations for the Plans, naming Andochick as her primary beneficiary. In July 2006, Andochick and Erika separated and entered into a marital settlement agreement. In the agreement, Andockick waived his rights to survivor benefits under the Plans, and agreed to execute any documents required to carry out the provisions of the agreement. In December 2008, Andochick and Erika divorced, and the judgment of divorce incorporated their marital settlement agreement.

When Erika died in April 2011, her parents, Ronald and June Byrd (the "Byrds"), qualified as administrators of her estate. At the time of her death, Erika had failed to name a new beneficiary under the Plans. Accordingly, the plan administrators of the Plans determined that the survivor benefits under the Plans should be paid to Andochick, the named beneficiary. The Byrds filed suit in state court to have Andochik's waiver of survivor benefits enforced, and to have him pay the benefits-when paid to him from the Plans- to the estate. The state court granted the Byrds the relief they sought, and this suit ensued.

In analyzing the case, the Fourth Circuit Court of Appeals (the "Court") noted that ERISA obligates a plan administrator to pay plan proceeds to the named beneficiary, here Andochick. The Court said that the only question being raised is whether ERISA prohibits a state court from ordering Andochick, who had previously waived his right to those benefits, to relinquish those proceeds-once received- to the administrators of Erika's estate. It further said that the Supreme Court, in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, held that an ERISA plan administrator must distribute benefits to the beneficiary named in the plan, regardless of any state-law waiver purporting to divest that beneficiary of his right to the benefits. But Kennedy had explicitly left open the question-raised here- of whether, once the benefits are distributed by the administrator, the decedent's estate can enforce a waiver against the plan beneficiary.

The Court then ruled that ERISA and the Kennedy decision do not cause ERISA to preempt post-distribution suits against ERISA beneficiaries (that is, individuals named as beneficiaries under a plan). As such, the Court affirmed the district court's decision that ERISA does not preempt the state court's order for Andochick to pay over to Erika's estate the benefits he will receive from the Plans as the named beneficiary.

March 7, 2013

Employment-IRS Reminds Us That It Has Expanded The Voluntary Worker Classification Settlement Program

In IR-2013-23, the Internal Revenue Service (the "IRS") reminds us that it recently expanded the Voluntary Worker Classification Program (the "VCSP"). Here is a summary of what the IRS said:

The VCSP provides partial relief from federal payroll taxes for eligible employers who are treating their workers or a class or group of workers as independent contractors or other nonemployees and now want to treat them as employees. Businesses, tax-exempt organizations and government entities may qualify.

Under the VCSP, as recently revamped, employers under IRS audit, other than an employment tax audit, can qualify for the VCSP. Furthermore, employers accepted into the program will no longer be subject to a special six-year statute of limitations, rather than the usual three years that normally applies to payroll taxes. These and other permanent modifications to the program are described in Announcement 2012-45 and in questions and answers, posted on Normally, employers are barred from the VCSP if they failed to file required Forms 1099 with respect to workers they are seeking to reclassify for the past three years. However, for the next few months, until June 30, 2013, the IRS is waiving this eligibility requirement. Details on this temporary change are in Announcement 2012-46.

To be eligible for the VCSP, an employer must currently be treating the workers as nonemployees; consistently have treated the workers in the past as nonemployees, including having filed any required Forms 1099; and not currently be under audit on payroll tax issues by the IRS. In addition, the employer cannot currently be under audit by the Department of Labor or a state agency concerning the classification of these workers or contesting the classification of the workers in court.

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees. Employers accepted into the program will generally pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Employers applying for the temporary relief program available for those who failed to file Forms 1099 will pay a slightly higher amount, plus some penalties, and will need to file any unfiled Forms 1099 for the workers they are seeking to reclassify.

March 6, 2013

ERISA-DOL Provides Guidance On Preventive Services That Must Be Provided By Healthcare Plans Under The Affordable Care Act

As noted in my blog on February 22, in FAQs about Affordable Care Act Implementation Part XII, the Department of Labor provides guidance on preventive services that must be provided by healthcare plans under the Affordable Care Act. The FAQs say the following:

Coverage Of Preventive Services. Public Health Services ("PHS") Act section 2713 requires "non-grandfathered" group health plans to provide benefits for, and prohibit the imposition of cost-sharing requirements with respect to, the following:

• Evidenced-based items or services that have in effect a rating of "A" or "B" in the current recommendations of the United States Preventive Services Task Force ("USPSTF") with respect to the individual involved;

• Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices ("ACIP") of the Centers for Disease Control and Prevention ("CDC") with respect to the individual involved;

• With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration ("HRSA"); and

• With respect to women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA, to the extent not already included in certain recommendations of the USPSTF.

Technical Issues. The guidance provided by the FAQs include the following:

--If the plan does not have any in-network providers to provide a particular preventive service required under PHS Act section 2713, the plan may not impose cost-sharing on the particular service obtained out-of-network.

--Aspirin and other over-the- counter ("OTC") items and services recommended by the USPSTF must be covered without cost-sharing only when prescribed by a health care provider.

-- Contraceptive methods that are generally available OTC are only included in preventive services if the method is both FDA-approved and prescribed for a woman by her health care provider.

--Genetic counseling and breast cancer susceptibility gene ("BRCA") testing must be made available as a preventive service without cost-sharing.

--Some USPSTF recommendations apply to certain populations identified as high-risk. Identification of "high-risk" individuals is determined by the attending service provider. Therefore, if the attending provider determines that a patient belongs to a high-risk population, and a USPSTF recommendation applies to that population, that service is required to be covered without cost-sharing, subject to reasonable medical management.

--PHS Act section 2713 and the interim final regulations require coverage for immunizations for routine use in children, adolescents, and adults that have in effect a recommendation by the ACIP for routine use. The vaccines must be covered without cost-sharing requirements when the service is delivered by an in-network provider.

--The recommendations for women's preventive services in the HRSA Guidelines do not require multiple visits for separate services. Reasonable medical management techniques may be used to determine the frequency, method, treatment, or setting for "well-woman" visits.

--The HRSA Guidelines recommend at least one annual well-woman preventive care visit for adult women to obtain the recommended preventive services that are age- and developmentally-appropriate, including preconception and prenatal care. Thus, the plan must provide this visit without any cost-sharing. Additional well-woman visits may be needed to obtain all necessary recommended preventive services, depending on a woman's health status, health needs, and other risk factors. If the health service provider determines that a patient requires additional well-woman visits for this purpose, then the additional visits must be provided without cost-sharing and subject to reasonable medical management.

--The HRSA Guidelines include a recommendation for annual HIV counseling and screening for all sexually active women, and the term "screening" means actual testing for HIV. The plan must provide the testing without cost-sharing.

--The HRSA Guidelines include a recommendation for all Food and Drug Administration (FDA) approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity, as prescribed by a health care provider. The plan must provide these items and services without cost-sharing and subject to reasonable medical management techniques. The plan may not cover only oral contraceptives.

--The USPSTF recommends breastfeeding counseling. This service and any needed equipment must be provided without cost-sharing, subject to reasonable medical management.

Note: Since the FAQs do not provide an effective date for the guidance given, it appears that the guidance is effective immediately. Thus, an employer may have to immediately amend or modify its healthcare plan to provide the required preventive services discussed in the FAQs.

March 5, 2013

Employee Benefits-DOL Issues Checklist To Help Plans Comply With Affordable Care Act

The U.S. Department of Labor has issued a checklist, which an employer may use to determine if it is in compliance with certain provisions of the Affordable Care Act. These provisions include those: (a) making dependent health care coverage available until age 26, (b) prohibiting rescissions of health care coverage, (c) restricting the annual limits on essential health care benefits,(d) prohibiting lifetime limits on essential health care benefits, (e) proscribing preexisting condition exclusions by health plans, (f) providing patient protections under health plans and (g) providing external review of health care claims. The checklist is helpful since, among other things, it shows how the government interprets and applies these Affordable Care Act provisions.

March 1, 2013

Employment-DOL Issues Revised Notice Poster And Model Forms For FMLA

The U.S. Department of Labor (the "DOL") has issued revised poster notice and revised model forms for the Family and Medical Leave Act (the "FMLA"). The revised forms should be used starting March 1, and the notice poster should be put up and replace the existing notice poster by March 8. An employer may have to revise the model forms to fit its particular situation and/or comply with state and local requirements. The revised forms and notice poster reflect changes to the FMLA regulations made recently to include rules for, among other things, military caregiver leave for a veteran, qualifying exigency leave for parental care, and the special leave calculation method for flight crew employees.

The new notice poster may be found here.

The new model forms may be obtained by clicking on the form name below:

WH-380-E Certification of Health Care Provider for Employee's Serious Health Condition

WH-380-F Certification of Health Care Provider for Family Member's Serious Health Condition

WH-381 Notice of Eligibility and Rights & Responsibilities

WH-382 Designation Notice

WH-384 Certification of Qualifying Exigency For Military Family Leave

WH-385 Certification for Serious Injury or Illness of Current Servicemember - - for Military Family Leave

WH-385-V Certification for Serious Injury or Illness of a Veteran for Military Caregiver Leave