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December 19, 2014

ERISA-DOL Provides Guidance on Use Of Plan Assets By Apprenticeship and Training Programs

Introduction. In Field Assistance Bulletin ("FAB") 2012-01, the U.S. Department of Labor (the "DOL") provided guidance, intended for EBSA enforcement personnel, on the use of plan assets by apprenticeship and training plans to pay for graduation ceremonies and advertising. As a supplement, the DOL has now issued FAB 2012-02, which provides guidance on the expenditure of plan assets on apprenticeship skills contests or competitions. Here is what the new FAB says:

Background. Apprenticeship and training plans established by employers or labor organizations are "employee benefit plans" under ERISA, and are subject to the fiduciary standards in Part 4 of ERISA. ERISA section 404(a)(1) provides that a plan fiduciary shall discharge his duties: (1) solely in the interest of the participants; (2) prudently; and (3) for the exclusive purpose of (a) providing benefits to participants and their beneficiaries, and (b) defraying reasonable expenses of administrating the plan.

In the context of apprenticeship and training plans, the exclusive purpose rule and the duty to manage plan assets prudently require plan fiduciaries to ensure the reasonableness of plan expenses in light of the educational objectives of the training program. In every instance, a plan must be able to justify expenses as appropriate means of carrying out their mission as benefit plans. When fiduciaries expend plan assets without reasonably determining that the expenditures are likely to promote legitimate plan objectives, they breach their core fiduciary obligations under ERISA and are personally liable for the resulting loss of plan assets. Moreover, expenses should be permitted under the terms of the plan, and approved by a responsible plan fiduciary in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets.

Paying For Participation In A Skills Competition Or Contest. Apprenticeship plans provide training and apprenticeship opportunities to plan participants. Competitions can promote the plan's legitimate goals both by directly providing training benefits to plan participants and by helping plan fiduciaries assess the effectiveness of their plan's training programs. Where this is the case, plans may treat the necessary costs of a plan's engagement in competitions as costs of administering the plan. In accordance with ERISA section 404(a)(1)(A), the plan may defray such costs where they are permitted under the terms of the plan, in the plan's interests, and are reasonable. Such expenses also should be approved by a responsible plan fiduciary in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets.

Thus, for example, a plan may pay reasonable expenses properly and actually incurred on behalf of apprentices participating as contestants in the skills contest, such as transportation to and from the competition, registration fees, along with accommodations and meals, if necessitated by out-of-town travel. A plan may also pay lost wages of the apprentices due to their absence from employment while participating in a competition.

Prizes for apprentices competing in the skills contest would be a permissible plan expense. The prizes should be consistent with the training purposes of the plan, which may include, for example, credits to cover plan-related tuition expenses or tools and equipment used in the trade. The amounts spent on such prizes would not be subject to the modest amount limitation applicable to gifts to recognize people who assist in organizing or conducting competitions (see discussion below), but should be reasonable in light of the financial situation of the plan and other relevant circumstances (such as the size and level (e.g., local, regional, national, international) of the competition), or could be donated in whole or in part by industry employers or trade associations.

A plan also may pay reasonable travel expenses of individuals other than apprentices (e.g., instructors) if they play a necessary role in the conduct of a competition (e.g., setting up the contest site or serving as judges). It may also be permissible in certain circumstances to pay for plan trustees or other plan officials to attend and observe the competition in order to assess possible improvements in the plan's training program. The approving plan fiduciary should ensure that any such observers have adequate experience to make an informed evaluation.

Use of plan assets to pay travel expenses for others, or to pay for hotel accommodations and meals for days outside of the competition itself, would not be permissible.

Payment For Expenses Of Organizing And Conducting The Competition. Expenses for organizing or conducting competitions are payable from plan assets where: (1) they are reasonable in light of the role played by the competition in supporting the training program; (2) they are approved in accordance with the terms of the plan and internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets; and (3) the amount of the expense is reasonable in proportion to the amount of funds expended on the delivery of the primary apprenticeship and training benefits and is for costs of the competition.

Conducting and organizing a competition may require the expenditure of plan assets on the venue for the competition, travel, transport of necessary equipment, and communications to plan participants about the event. Gifts to those who assist in organizing or conducting competitions of modest value (e.g., $25 gift cards) would be permissible.

Similarly, modest expenses for T-shirts and similar apparel that bear the logo of the plan could serve a legitimate plan purpose of promoting and marketing the apprenticeship program. Further, promotional advertisement of a competition in order to encourage the participation of apprentices and the support of employers also would be consistent with this purpose.

The prohibited transaction provisions of ERISA section 406(b) prohibit a fiduciary of a plan from dealing with the assets of a plan in his own interest or own account. Thus, fiduciaries involved in the decision for the plan to conduct or participate in a contest may not benefit themselves through the expenditure of plan assets related to that contest beyond the reimbursement of direct expenses related to organizing or participating in the conduct of the contest.

Permissible Travel Expenses. Assuming compliance with the above general principles, permissible plan expenses would include the reasonable costs of meals, travel (e.g., airfare), and accommodations. Costs attendant to such travel, such as reasonable expenses for transportation from the airport to the hotel or competition site and return, baggage fees, airport parking or shuttle fees, and shipping costs for tools, equipment, and supplies necessary to conduct or compete in the contest generally would be permissible plan expenses. Alternatively, a plan could reimburse some travel expenses by using a reasonable "per diem" amount.

Competitions may sometime include a celebratory meal to recognize participants, judges, volunteers, and organizers, and to present awards to the contest winners. In general, if a plan was paying authorized attendees per diem expense in connection with their travel to participate in the competition, a plan could use those funds to cover the costs for those individuals to attend such dinners. Plans would have to deduct that amount from the meal or per diem reimbursement that they would otherwise pay to the apprentice or other authorized attendee. In other cases, for example, where the skills competition is local and attendees, therefore, are not receiving per diem expense, the standards articulated in FAB 2012-01 for use of plan assets to pay for graduation ceremony expenses would apply to the use of plan assets to pay for such an awards dinner.

Permissible plan expenses would not include, for example, the costs associated with the personal itinerary of such participants such as hotel, meals or travel accommodations for days not associated with necessary travel to or from the competition or during the competition itself, or costs to upgrade travel tickets or hotel rooms (e.g., from coach to business class).

Reimbursements For Wages Lost. In some cases, rather than paying the apprentice directly for lost wages due to participation in a skills contest, the plan may instead reimburse employers who agree to pay plan participants their wages and make related benefit plan contributions for time away from work to take part in a contest. See the FAB for details.

December 10, 2014

ERISA-Eighth Circuit Holds That Insurer Did Not Abuse Its Discretion In Denying Claim For Disability Benefits

In Hampton v. Reliance Standard Life Insurance Company, No. 13-2782 (8th Cir. 2014), after being diagnosed with insulin-dependent diabetes mellitus, Christopher Hampton ceased work as an over-the-road truck driver for Ozark Motor Lines, Inc. Pursuant to the company's employee benefit plan--Ozark Motor Lines Inc. Benefit Plan (the "Plan")--which is governed by ERISA, Hampton submitted a claim for long-term disability benefits to Reliance Standard Life Insurance Company, the Plan's insurer and claims-review fiduciary. Reliance Standard concluded that Hampton was not disabled under the terms of the Plan and denied the claim on that basis. Hampton sued Reliance Standard and the Plan, arguing that Reliance Standard abused its discretion. The district court granted judgment on the record for Hampton. Reliance Standard and the Plan appeal.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that where, as here, an ERISA-governed employee benefit plan grants discretion to the plan administrator or another fiduciary, such as the claims-review fiduciary, to interpret the plan and to determine eligibility for benefits, we review the fiduciary's decision for abuse of discretion. Under this standard of review, we must uphold Reliance Standard's decision so long as it is based on a reasonable interpretation of the Plan and is supported by substantial evidence. Where a fiduciary both evaluates claims for benefits and pays benefits claims, the court still applies the deferential abuse-of-discretion standard, but the fiduciary's conflict of interest is one factor to be considered in the review.

The Court concluded that Reliance Standard's interpretation and application of the Plan is reasonable. Reliance Standard interpreted the Plan to require, when claiming long-term disability benefits, "evidence that one is physically or mentally incapable of performing the material duties of his occupation," independent of his loss of a license. Mere loss of license due to a medical condition-as happened to Hampton -does not mean that Hampton is disabled for purposes of the Plan. The Court further concluded that Reliance Standard's determination that Hampton was not totally disabled, within the meaning of the Plan, was supported by substantial evidence. As such, the Court held that Reliance Standard did not abuse its discretion in denying the long-term disability benefits, and the Court reversed the district court's judgment.

December 4, 2014

ERISA-Eleventh Circuit Rules That Action By The Defendant To Stop Benefit Payments Causes The Statute Of Limitations On Filing Suit To Start Running

In Witt v. Metropolitan Life Insurance Co., No. 14-11349 (11th Cir. 2014), the Eleventh Circuit Court of Appeals (the "Court") was asked to determine whether the plaintiff Don Witt's lawsuit, seeking to recover disability benefits allegedly due from May 1997 to the present, is barred by the applicable statute of limitations and, if so, whether the defendants waived that statute-of-limitations defense.

In this case, from May 18, 1972, until December 29, 1994, Witt worked as a senior operations specialist with Shell Oil Company. In connection with his employment, Witt gained access to short-term and long-term disability insurance through the Shell Oil Long Term Disability Plan (the "Plan"), whose long-term disability claims are administered by Metropolitan Life ("MetLife"). In January, 1997, Witt filed a claim for disability benefits based on a number of medical problems. MetLife approved this claim. However, on May 22, 1997, MetLife terminated Witt's claim, effective May 1, 1997, for failure to provide adequate supporting medical records. After filing an unsuccessful appeal with MetLife in 2011, which MetLife entertained as a "courtesy review" but denied, Witt brought this suit for reinstatement of the benefits in 2012.

In analyzing the case, the Court said that, because Congress did not specify a limitations period for a claim-of-benefits ERISA action, district courts must apply the forum state's statute of limitations for the most closely analogous action. The applicable statute here is Alabama's six-year statute of limitations. Federal law determines when the statute begins to run. Witt contends the limitations period did not begin to run until May 4, 2012, when MetLife issued a final, conclusive, and written decision denying him benefits following the courtesy review. In response, MetLife contends that the limitations period began to run when MetLife stopped making monthly payments to Witt because, at that point, Witt knew or should have known that his claim had been denied.

The Court said that, as in this case, in the absence of a final or formal denial, an ERISA cause of action accrues--and the limitations period begins to run--when the claimant has reason to know that the claim administrator has clearly repudiated the claim or amount sought. MetLife's conduct-failing to provide benefits on or after May 1, 1997- demonstrated a clear and continuing repudiation of Witt's rights, and therefore caused the six year statute of limitations to start running (and expire well before 2012). Witt's claim is thus time-barred. Further, MetLife's subsequent courtesy review in 2011 did not restart the statutory clock. Additionally, MetLife did not waive any defense based on the statute of limitations by failing to specify untimeliness as a basis for denying the claim after its courtesy review.

November 24, 2014

ERISA-Second Circuit Rules That Plaintiffs' Claims Are For Legal Relief, Which Is Not Available Under ERISA Section 502(a)(3)

In Central States, Southeast and Southwest Areas Health and Welfare Fund v. Gerber Life Insurance Company, No. 13-4834-cv (2nd Cir. 2014), the Second Circuit Court of Appeals (the "Court") considered whether the plaintiff's claims are ones for "appropriate equitable relief" under § 502(a)(3) of ERISA, or whether the claims are for legal relief which is not available under that section. The Court concluded that the claims are ones for legal relief.

In this case, Central States, Southeast and Southwest Areas Health and Welfare Fund ("Central States") is an ERISA employee welfare benefit plan that provides health insurance to participating Teamsters and their dependents. Gerber Life Insurance Company ("Gerber") issued accident insurance policies that covered, among other things, scholastic sports-related injuries. The claims at issue arose from injuries suffered by several students during scholastic athletic activities. The students were insured by Central States as dependents of plan participants, and were also directly insured by separate accident policies written by Gerber. The central controversy in this litigation is which of the two policies afforded primary and which afforded secondary coverage for the injuries. Although Central States considered its coverage to be secondary, it nevertheless paid the injured students' claims as an accommodation to them and their families. After it paid the claims, Central States sought reimbursement from Gerber, whom it considered the primary insurance provider. Gerber refused to pay, taking the position that under its coordination of benefits provision, its policies provided only excess, secondary coverage. Central States then brought this lawsuit to recover the amounts it had paid on the claims.

Central States' complaint alleged various claims for declaratory judgment and injunctive relief pursuant to federal common law and ERISA § 502(a)(3). The district court dismissed the case, finding that Central States' claims were not equitable in nature so that the relief sought was unavailable under ERISA. Central States appeals. In analyzing the case, the Court determined that Central States sought legal relief, since it seeks to obtain a judgment imposing a merely personal liability upon the defendant to pay a sum of money, as opposed to seeking restitution in equity by identifying (i.e., tracing) particular property held by the defendant but belonging to the plaintiff in good conscience. This result obtains, the Court said, even though it may leave a plaintiff such as Central States without a remedy.

November 18, 2014

ERISA- Ninth Circuit Rules That Plaintiff's Claim Is NotTime-Barred

In Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., No. 12-17604 (9th Cir. 2014), one issue faced by the Ninth Circuit Court of Appeals (the "Court") was whether a claim for benefits is time-barred. The Court ruled that it was not. Why?

In this case, Spinedex was a physical therapy clinic whose patients included beneficiaries of various health plans (the "Plans"). Spinedex's patients signed several documents in connection with their treatment, including an assignment of benefits form (the "Assignment"). The Assignment assigned to Spinedex its patients' "rights and benefits" under their respective Plans. After treating patients covered by the Plans, pursuant to the Assignements, Spinedex submitted claims to United Healthcare ("United"). United paid some claims, but denied others in whole or in part. Spindex brought suit under ERISA against United and the Plans for the unpaid claims But is the suit time-barred?

The summary plan descriptions ("SPDs") for the Plans contain two-year limitations periods for claims of benefits. There is no question that Spinedex's action was filed after the expiration of the two-year period. However, the Court held that because the limitation periods were not properly disclosed in the SPDs, these provisions are unenforceable.

In an SPD, under ERISA, circumstances which may result in disqualification, ineligibility, or denial or loss of benefits must be clearly disclosed. A limitation of the time for bringing suit qualifies as such a circumstance. Under the regulations, at 29 C.F.R. § 2520.102-2(b), either: (1) the description or summary of the restrictive provision-such as a time limit on bringing suit- must be placed in close conjunction with the description or summary of benefits, or (2) the page on which the restrictive provision is described must be noted adjacent to the benefit description. The SPDs in question comply with neither requirement, as the restrictive provision is buried in a section that is not close to the discussion of benefits, and there is no reference, adjacent to the benefits description, to the page number on which the restrictive provision appears. Applying a reasonable plan participant test to 29 C.F.R. § 2520.102-2(b), a reasonable participant would not be expected to find the restrictive provision in this case. As a result, the restriction cannot be enforced, and Spinedex's suit is not time-barred.

November 12, 2014

ERISA-District Court Finds That The Company's Sole Owner Is Not Jointly and Severally Liable With The Company For Its Withdrawal Liability

In Board of Trustees of the Automobile Mechanics' Local No. 701 Union and Industry Welfare Fund v. Beland & Wiegers Enterprises, Inc., Case No. 13 CV 1611 (N.D. Illinois 2014), one of the claims was for withdrawal liability owed to a multiemployer pension plan (the "Plan") under ERISA.

In this case, an employer, Beland & Wiegers Enterprises, Inc. ("B&W"), ceased its operations and incurred withdrawal liability to the Plan in the amount of $261,052. Daniel Beland ("Beland") is the sole owner of B&W. At the time of B&W's withdrawal from the Plan, Beland owned the property located at 11625 South Ridgeland, Alsip, Illinois. Before cessation of covered operations, B&W operated out of that property. The Plan asked the court to hold B&W and Beland jointly and severally liable for the withdrawal liability, and its associated liquidated damages, interest, and attorney's fees.

In analyzing the case, the court said that it must determine whether withdrawal liability may properly be imputed to Beland under 29 U.S.C. § 1301(b)(1). Under that section "all employees of trades or business which are under common control shall be treated as employed by a single employer and all such trades and business as a single employer" for purposes of withdrawal liability. Thus, for the court to hold Beland liable for B&W's withdrawal liability, the Plan must establish that: (1) Beland and B&W are each a "trade or business," and (2) Beland and B&W are under common control.

As to prong (1), the court must consider whether the organization engaged in an activity: (a) with continuity and regularity and (b) for the primary purpose of income or profit. B& W is clearly a trade or business. But what about Beland? Beland owned the property out of which B&W operated when B&W withdrew from the pension. But ownership of a property does not necessarily rise to the level of a "trade or business." Here, the Plan has not alleged facts showing that Beland leased his property to B&W with any continuity and regularity. The undisputed facts do not indicate how long Beland leased out his property, whether the lease was continuous or whether the lease was for the purpose of income and profit. Further, the alleged facts do not show that Beland generated revenue from B&W's operations out of the property or that Beland and B&W had a lease agreement. Thus, court concluded that the alleged facts are insufficient to show that Beland's ownership of the property constitutes a "trade or business", and as such the court could not hold him jointly and severally liable for B&W's withdrawal liability.

November 6, 2014

ERISA-Eleventh Circuit Rules That Plaintiff Is Not Entitled To Life Insurance Benefits As Beneficiary, Since Coverage Ended Before The Employee Died

In Snow v. Boston Mutual Life Insurance Company, No. 13-15067 (11th Cir. 2014), Dorothy Snow ("Snow"), the widow and designated beneficiary under a life insurance policy issued to James Francis Snow ("Mr. Snow") by Boston Mutual Life Insurance Company ("Boston Mutual"), appeals from the district court's final order in favor of Boston Mutual and Snow's former employer, Meadowcraft, Inc. ("Meadowcraft"), in Snow's case raising claims under ERISA. Snow had alleged that Boston Mutual wrongfully denied payment of approximately $115,000 in life insurance benefits to Snow, and sought equitable relief claiming that Boston Mutual, as plan administrator and claims adjudicator, breached certain fiduciary duties it owed to Snow.

In this case, Boston Mutual issued a group life insurance policy to Meadowcraft to insure the life and death component of Meadowcraft's long term disability plan (the "Plan"). Meadowcraft paid 100% of the premium for group life insurance coverage as a benefit to its employees, and the Plan included a waiver of premium provision allowing the coverage to continue if an employee became disabled. Mr. Snow worked at Meadowcraft from October 1993 until he because disabled in an industrial accident in May 2002, and he died on August 27, 2009 at the age of 66 years and 9 months. Once the premium is so waived, coverage will generally continue until "Normal Retirement Date". The Plan defines "Normal Retirement Date" as the "normal retirement date provided for by the Meadowcraft published or accepted personnel practices."

The issue in this case for the Eleventh Circuit Court of Appeals (the "Court") was whether Mr. Snow's Normal Retirement Date preceded his death, so that the Plan's life insurance coverage had ended before Mr. Snow died. The district court determined that Normal Retirement Date was age 65, so that the coverage had ended. The Court determined that the district court's determination was not in error. The Court said that, since the Plan defines "Normal Retirement Date" in reference to Meadowcraft's "published or accepted personnel practices," it was necessary for the district court to examine extrinsic evidence of Meadowcraft's personnel practices to determine the Normal Retirement Date. Moreover, not only was the term not ambiguous, but the district court did not clearly err in construing the Normal Retirement Date to be 65 year old. This age was found in a summary of Meadowcraft's 401(k) plan, which provided that "your normal retirement age is the date you reach age sixty-five," and in testimony from Meadowcraft human resources employees Larry York and Mary Beth Wilbanks. As such, the Court concluded that the district court did not err in ruling tht Snow was not entitled to any benefits under the Plan, and the Court upheld the district court's final order.

October 27, 2014

ERISA-Fourth Circuit Rules That, Since Defendants Were Not Acting As Fiduciaries When Allegedly Engaging In Wrongful Conduct, The Claim Against Them Under ERISA For Breach Of Fiduciary Duty Fails

In Moon v. BWX Technologies, No. 13-1888 (4th Cir. 2014), Judy L. Moon ("Moon"), individually and as executor of the estate of Leslie W. Moon ("Mr. Moon"), appeals the district court's order dismissing her case against the defendants under ERISA, arising out of defendants' failure to pay life insurance benefits.

In analyzing the case, the Fourth Circuit Court of Appeals (the "court") concluded that, since Moon failed to sufficiently allege that the defendants were acting as fiduciaries under ERISA at the time of their allegedly wrongful conduct, Moon has failed to state a claim for breach of fiduciary duty and equitable estoppel. As such, the Court affirmed the district court's decision.

In this case, the alleged breach of fiduciary duty was the defendants' acceptance of a premium payment from Mr. Moon for life insurance, without notifying Mr. Moon that he was no longer eligible for life insurance benefits under the plan at issue. For this alleged violation of ERISA, Moon was seeking equitable estoppel under 29 U.S.C. § 1132(a)(3) in the form of an order estopping the defendants from denying the existence of a life insurance contract between Mr. Moon and the defendants in the coverage amount of $200,000.00. However, the Court concluded that the defendants were not acting as fiduciaries at the time the premium payment was accepted, so Moon's claim fails.
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October 22, 2014

ERISA-Eleventh Circuit Affirms Judgment Awarding Medical Plan The Benefits It Paid To A Participant, When The Participant Settled Her Case Against The Party Causing Her Injury, Even Though The Benefits Could Not Be Traced To The Settlement Amount.

In Airtran Airways, Inc. v. Elem, Nos. 13-11738 and 13-14912 (11th Cir. 2014), the issue to be decided is whether an employee welfare benefit plan may recover medical costs it spent on behalf of a beneficiary after she and her attorney conspired to hide and disburse settlement funds she received after a car accident.

In this case, Brenda Elem participated, as an employee of AirTran, in a self-funded employee welfare benefit plan. After Elem suffered injuries in a car accident and the plan paid over $100,000 for her medical care, Elem sued the other driver and settled for $500,000. AirTran sought reimbursement from Elem under an equitable lien created under the plan, but Elem's attorney, Mark Link, misrepresented that Elem had settled for only $25,000. The truth was discovered when Link accidentally sent the plan a copy of a settlement check for $475,000. After AirTran sued Elem, Link, and Link & Smith, P.C., for violations of ERISA under section 502(a)(3), seeking equitable relief (that is, to enforce the equitable lien), the district court granted summary judgment for the $100,000 plus in medical benefits to AirTran, and awarded attorney's fees and costs in favor of AirTran. The defendants appeal.

In analyzing the case, the Eleventh Circuit Court of Appeals (the "Court") said that Elem, Link, and the law firm challenge three orders. They contest the summary judgment for the $100,000 plus in medical benefits on the ground that AirTran failed to satisfy the strict tracing rules of equitable restitution, but these rules do not apply to the equitable lien by agreement that the AirTran plan created. See Sereboff v. Mid Atlantic Med. Serv.,Inc., 547 U.S. 356, 364-65, 126 S. Ct. 1869, 1875 (2006). Elem and Link argue that the district court abused its discretion when it awarded AirTran attorney's fees and costs, but the district court had the authority to sanction them for their bad faith. Elem and Link also complain that the district court misapplied Federal Rule of Civil Procedure 70 when the court ordered enforcement of the judgment, but that issue became moot when Link and his law firm complied with the order. Therefore, the Court affirmed the summary judgment and award of fees and costs and dismissed as moot the appeal of the order to enforce the judgment.

October 20, 2014

ERISA-Sixth Circuit Holds That The Plan's Venue Selection Clause Is Valid And Enforeceable Against The Plaintiff

In Smith v. Aegon Companies Pension Plan, No.13-5492 (6th Cir. Oct. 14, 2014), plaintiff Roger Smith ("Smith") appeals the district court's dismissal of his claims without prejudice because of improper venue. The district court held that the venue selection clause in the ERISA governed Aegon Pension Plan, which requires that suit be brought in federal court in Cedar Rapids, Iowa, was enforceable and applied to Smith's claims. Accordingly, the court dismissed his complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

In analyzing this case, the Sixth Circuit Court of Appeals (the "Court") agreed with the district court, that the plan's venue selection clause is enforceable and applies to Smith's claims. It said that ERISA's statutory scheme is built around reliance on the face of written plan documents. Plan administrators and employers are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate a plan. The Court felt that there is no reason-such as a conflict with other ERISA provisions- why the plan's written document cannot contain a venue selection clause.

Further, the Court felt that the venue selection clause in the Aegon Pension Plan is enforceable against Smith, since Smith did not complain that the clause: (1) resulted from fraud, duress, or other unconscionable means or (2) designated a forum that would ineffectively or unfairly handle the suit, or would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust. Accordingly, the Court affirmed the district court's decision.

October 17, 2014

ERISA-Third Circuit Holds That Issuer of Group Annuity Contracts Is Not A Fiduciary

In Santomenno v. John Hancock Life Insurance Company, No. 13-3467 (3rd Cir. 2014), the plaintiffs had invested money in 401(k) benefit plans. They brought suit against John Hancock Life Insurance Company and its affiliates ("John Hancock"), alleging that John Hancock had charged excessive fees in violation of its fiduciary duty under ERISA on certain group annuity contracts held by their accounts under the plans. The district court granted John Hancock's motion to dismiss, ruling that John Hancock was not a fiduciary with respect to the alleged breaches.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") said that ERISA makes a person a fiduciary to a plan if the plan identifies them as such. See 29 U.S.C. § 1102(a). This was not the case here. It also provides, in 29 U.S.C. § 1002(21)(A), that a person can be a fiduciary by being a "functional" fiduciary, that is, the person acts in the capacity of manager, administrator or financial advisor to a plan. Further, a person will be a "functional" fiduciary to the extent the person so acts. To be liable for a breach of fiduciary duty, the person must have committed the breach with respect to the action complained of. The question in this case is whether John Hancock acted as a fiduciary to the plans in question with respect to the fees that it set. The Court concluded that John Hancock did not so act, and it affirmed the district court's decision.
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October 14, 2014

ERISA-Ninth Circuit Discusses Standard For Arbitrary and Capricious Review Of A Fiduciary's Decision

In Pacific Shores Hospital v. United Behavioral Health, No. 12-55210 (9th Cir. 2014), an employee of Wells Fargo, referred to as Jane Jones or "Jones", was covered under the Wells Fargo & Company Health Plan (the "Plan"). United Behavioral Health ("UBH") is a third-party claims administrator of the Plan. Jones was admitted to Pacific Shores Hospital ("PSH") for acute inpatient treatment for severe anorexia nervosa. UBH refused to pay for more than three weeks of inpatient hospital treatment. UBH based its refusal in substantial part on mischaracterizations of Jones's medical history and condition. PSH continued to provide inpatient treatment to Jones after UBH refused to pay. Jones assigned to PSH her rights to payment under the Plan. PSH sued the Plan and UBH, seeking payment for the additional days of inpatient treatment. The district court upheld UBH's decision to pay for no more than three weeks of treatment, and Jones appealed.

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court") concluded that UBH abused its discretion in deciding to pay for these days of treatment, and therefore reversed the district court's holding. Why this conclusion?

The Court determined that UBH's decision to deny the payment is entitled to review under the arbitrary and capricious standard, and therefore should be overturned by a court only upon a finding of abuse of discretion. Further, it said that, in reviewing for abuse of discretion, we consider all of the relevant circumstances in evaluating the decision of the claims administrator. The claims administrator abuses its discretion if it renders a decision without any explanation, construes provisions of the plan in a way that conflicts with the plain language of the plan, or fails to develop facts necessary to its determination. The court must be left with a definite and firm conviction that a mistake has been committed.

The Court continued by saying that, as claims administrator, UBH owed a fiduciary duty to Jones under ERISA, to act in Jones' best interest and for the purpose of providing benefits to her, and to act as a prudent man. Here, UBH fell far short of fulfilling its fiduciary duty to Jones. Dr. Zucker, UBH's primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH's final decisionmaker, stated that he arrived at his decision to deny benefits "after fully investigating the substance of the appeal." He then rubberstamped Dr. Center's conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors we have described. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted.

September 29, 2014

ERISA-Ninth Circuit Holds That Decision To Prohibit Transfer Of Account Balances From One Plan To Another Did Not Violate Anti-Cutback Rule

In Andersen v. DHL Retirement Pension Plan, No. 12-36051 (9th Cir. 2014), the Ninth Circuit Court of Appeals (the "Court") dealt with the question of whether the Defendants' ("DHL") decision to eliminate Plaintiffs' right to transfer their account balances from DHL's defined contribution plan to its defined benefit plan violated the ERISA "anti-cutback" rule. This rule, found at 29 U.S.C. § 1054(g), prohibits any amendment of an employee benefits plan that would reduce a participant's "accrued benefit."

In this case, prior to the amendment challenged in this case, the Plaintiff's, who were participants in an individual account profit sharing plan at DHL (the "Profit Sharing Plan"), could transfer the funds from their Profit Sharing Plan accounts to the defined benefit retirement plan in which they also participated at DHL (the "Retirement Plan"). The Retirement Plan would offset a participant's benefit under that plan by his or her Profit Sharing Plan account balance. As a result, the transfer option, if exercised, provided increased funds for the participant under the Retirement Plan, but also reduced the Profit Sharing Account balance to zero, so that there was no offset. As such, the transfer could work to the participant's advantage. However, DHL amended the Retirement Plan to prohibit the transfers, and this suit ensued.

In analyzing the case, the Court concluded that the amendment to the Retirement Plan eliminating the transfer option did not violate the anti-cutback rule. There is no reduction is a participant's accrued benefit. The amount of the accrued benefit is determined by formula in Section 4.01 of the Retirement Plan. The amendment did not affect this formula. Under that formula, a participant's accrued benefit is, and always has been, calculated on the basis of a participant's final average compensation and years of service, with an offset for an attributed annuity amount based on the participant's account balance, if any, in the Profit Sharing Plan. The transfer option eliminated was in Section 7.11, and that Section was not part of a participant's accrued benefit. The Court noted that the anti-cutback rule prohibits the elimination of an optional form of benefit (29 U.S.C. § 1054(g)(2)). But the Court reasoned that the only plan feature eliminated was the Retirement Plan provision under which transfers were accepted, and IRS regulations under the anti-cutback rule permit elimination of this type of feature.

September 17, 2014

ERISA-Sixth Circuit Upholds Grant Of Benefits, But Not Imposition Of Penalties, For Failure To Provide Benefits For Treatment For Alcohol Addiction

In Butler v. United Healthcare of Tennessee, Inc., No. 13-6446 (6th Cir. 2014), the following obtained. More than nine years ago, the plaintiff, Janie Butler ("Janie"), checked into a substance-abuse treatment facility to obtain inpatient rehabilitation for her alcohol addiction. She sought coverage for the treatment through her husband's employer-issued ERISA plan run by the defendant, United Healthcare of Tennessee, Inc. ("United"). United denied treatment, deeming it medically unnecessary. After seven years' worth of internal reviews, trips to the district court and remands to the plan for reconsideration, the district court decided that enough was enough. It held that United had acted arbitrarily and capriciously in continuing to deny the requested coverage. And it awarded John Butler (her then-husband and the assignee of Janie's plan benefits) the cost of the requested benefits plus prejudgment interest and statutory penalties. United objects to the decision to grant benefits and to the order to pay penalties.

Upon reviewing the case, the Court affirmed the grant of benefits, but reversed the penalty award. Why? As to the benefits, the Court said that Janie obviously qualified for rehabilitation benefits under United's residential-rehabilitation guideline, which grants residential-rehabilitation benefits to insured individuals with a "[h]istory of continued and severe substance abuse despite appropriate motivation and recent treatment in an intensive outpatient . . . program." The Court concluded that United's denial of these benefits is a clear abuse of discretion.

As to the penalties, the Court noted that the district court had awarded statutory penalties to John Butler, reasoning that ERISA allows penalties of "up to $100 a day" if the plan "administrator" "fails or refuses to comply with a request for any information" that the statute requires the administrator to provide. See 29 U.S.C. § 1132(c)(1)(B). However, since United is not the "administrator" of the plan, that was a mistake. The plan did not name an administrator, so under ERISA the employer is treated as being the "administrator". Further, John Butler did not allege a violation of section 1132 (the alleged violation being of section 1133), so that the $100/day penalty cannot apply.

September 3, 2014

ERISA-Tenth Circuit Holds That Suit For Disability Benefits Is Barred Due To Failure To Exhaust Administrative Remedies

In Holmes v. Colorado Coalition For The Homeless Long Term Disability Plan, No. 13-1175 (10th Cir. 2014), the plaintiff, Lucrecia Carpio Holmes ("Ms. Holmes"), appeals the district court's ruling that her claim for disability benefits under ERISA is barred due to her failure to exhaust administrative remedies.

In this case, Ms. Holmes is a former employee of the Colorado Coalition for the Homeless (the "Coalition") and participated in an employee benefits plan funded, in part, by a disability insurance policy through Union Security Insurance Company ("Union Security). While employed by the Coalition, Ms. Holmes presented with a number of medical conditions, including breast cancer, cataplexy, apnea, blackouts, diabetes, carpal tunnel syndrome, and neuropathy. As a result, she filed a claim for disability benefits with Union Security on March 10, 2005. Union Security sent written notification to Ms. Holmes on May 27, 2005 that it had denied her claim because she failed to prove she was disabled as defined by the Policy. The denial letter included an explanation of Ms. Holmes's right to internal review of the decision and attached a copy of a Group Claim Denial Review Procedure (the "Denial Review Procedure"), which describes a two-level review process.

On November 21, 2005, in accordance with the Denial Review Procedure, Ms. Holmes filed a request for review of the denial (the first-level review). Union Security issued a decision on the first-level review 137 days later on April 7, 2006, when it informed Ms. Holmes in writing that it had affirmed the denial of benefits. Union Security's April 7, 2006, letter contained a second copy of the Denial Review Procedure, which informed Ms. Holmes that she may request another review of Union Security's decision, and that this second-level review is the final level of administrative review available. The Denial Review Procedure further states that if Ms. Holmes's claim is denied as part of the second-level review, she will have a right to bring a civil action. Rather than filing the second-level appeal, on April 28, 2008, she filed this suit.

In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") said, first, that the plan document specifically authorized Union Security to advise Ms. Holmes of further appeal rights, which could include a second-level review. Next, the record shows that Union Security advised Ms. Holmes of her further appeal rights by supplying her with a copy of the Denial Review Procedures. The summary plan description (the "SPD") here did not discuss the second-level appeal, but, under the Supreme Court's decision in Amara, the SPD is not a part of the plan, and Ms. Holmes was not otherwise prejudiced by the failings of the SPD. Finally, based on the plan and the additional terms authorized by it, and the court-created requirement of exhaustion of internal claim procedures under ERISA, the Court concluded that Ms. Holmes was required to seek a second-level review before bringing this suit. Accordingly, the Court affirmed the district court's decision.