Recently in ERISA Category

April 23, 2014

ERISA-Tenth Circuit Holds That Plan Administrator Did Not Abuse Its Discretion When Deciding To Stop Disability Benefits

In Fite v. Bayer Corporation, No. 13-7027 (10th Cir. 2014), the plaintiff, Margie Fite ("Fite"), appeals the district court's grant of summary judgment to the defendants (collectively, "Bayer") on her ERISA claim for denial of short-term disability ("STD") benefits under Bayer's Disability Plan (the "Plan"). The district court determined that Bayer did not abuse its discretion when it concluded that Fite's depression and anxiety were excluded from coverage under the Plan as employment-related mental or emotional disabilities.

In this case, Fite had worked as a pharmaceutical representative for Bayer for several years when, based on a psychologist's diagnosis of major depressive disorder and generalized anxiety disorder, she took leave and applied for STD benefits under Bayer's Plan. After receiving the benefits for a while, Bayer determined that Fite was ineligible for the benefits and cut them off. This suit ensued.

In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") first said that Bayer's decision to stop the STD benefits will be reviewed under the arbitrary and capricious standard, since the Plan gave Bayer discretionary authority to determine the eligibility for benefits and to construe the terms of the Plan. The Court then said that Bayer has an inherent conflict of interest (as plan administrator and payer), so that the Court must weigh the conflict as a factor in determining whether there was an abuse of discretion, according it more or less weight depending on its seriousness. Here, the Court said that Bayer took active steps to reduce any potential bias and to promote accuracy: it sought an independent review of Fite's medical records by 4 different psychiatrists . Therefore, the Court said that it must give the conflict-of-interest factor limited weight in determining whether Bayer abused its discretion.

The Court concluded that -under the foregoing standard of review-Fite did not raise any arguments which show that Bayer abused its discretion in stopping the STD benefits. Therefore, the Court affirmed the district court's decision.

April 21, 2014

ERISA-Ninth Circuit Holds That Reopening A Claim for LTD Benefits By The Plan Administrator Does Not Restart The Statute Of Limitations, Which Otherwise Expired, For Filing Suit For Those Benefits

In Gordon v. Deloitte & Touche, LLP Group Long Term Disability Plan, No. 12-55114 ( 9th Cir. 2014), the plaintiff, Bridget Gordon ("Gordon"), was appealing the district court's summary judgment in favor of the defendant, Deloitte & Touche, LLP Group Long Term Disability Plan (the "Plan") "), based on her failure to file suit within the applicable limitation period. The Plan is insured and administered by Metropolitan Life Insurance Company ("MetLife").

In this case, while Gordon was working for Deloitte & Touche, she learned that she was HIV positive and claimed she could no longer work due to depression. She filed a claim for long-term disability ("LTD") benefits under the Plan. MetLife initially determined that she was eligible for LTD benefits under the Plan, and began paying the benefits, but later gave notice that it had terminated further payments, on the grounds that Gordon had failed to furnish continuing proof of disability as required by the Plan. Later, MetLife sent Gordon a letter, dated November 4, 2003 letter, saying that additional LTD benefits had been approved for the limited period of January 1, 2003 through March 2, 2003, because she was disabled during that period by her major depression, but the Plan limited payments to 24 months since the disability stemmed from a mental illness. The letter advised Gordon that she could appeal the decision limiting LTD benefits within 180 days.

Gordon failed to appeal, and took no action for more than four years. Later, spurred on by a letter from California's Department of Insurance , MetLife reopened the case. However, on December 8, 2009, MetLife informed Gordon in writing that it was upholding its original decision to terminate her benefits based on the Plan's 24-month limitation for disabilities resulting from mental illness. The letter said Gordon could appeal this decision, and also stated that if such appeal were to be denied, Gordon would have the right to bring a civil action under § 502(a) of ERISA. Gordon timely appealed, but on January 31, 2011, before MetLife's review of the appeal was completed, Gordon filed this suit pursuant to § 502(a) of ERISA in the district court. The district court granted summary judgment for the Plan. It concluded that Gordon's ERISA action was barred by the applicable four-year statute of limitation (found in analogous California law on contract claims), as well as by a three-year contractual limitation period contained in the Plan itself. The district court also rejected Gordon's arguments that the reopening of her file in 2009 reset the statute of limitation and that the Plan waived its limitation defense or was estopped from asserting it. The Ninth Circuit Court of Appeals (the "Court") agreed with the district court, and it affirmed the district court's decision.

The Court explained that the length of the statute of limitations is borrowed from state law, as was done by the district court. Also, an ERISA cause of action accrues - that is, the statute of limitations starts to run- either at the time benefits are actually denied or when the claimant has reason to know that the claim has been denied. A claimant has such reason to know where there has been a clear and continuing repudiation of a claimant's rights under a plan, such that the claimant could not have reasonably believed but that his benefits had been finally denied. Here, Gordon's claim was denied in the November 4, 2003 letter from Metlife. Assuming arguendo that the November 4 letter was not a final denial, because Gordon still had an administrative appeal option, the letter also stated that the right to appeal would expire 180 days from November 4, 2003, which meant on or about May 4, 2004. The Court then concluded that Gordon's right to file an ERISA action accrued no later than May 4, 2004. Gordon did not file the pending complaint until January 31, 2011. The result is that her suit is barred by the four-year statute of limitation. In addition, the Court said that MetLife's reopening of the claim does not restart the statute of limitations under Federal law.

April 16, 2014

ERISA-Seventh Circuit Upholds District Court's Order Of Contempt Issued For Failure To Comply With Its Earlier Order Requiring Health Plan Participant And Her Attorney To Place Funds In Attorney's Trust Fund Account For The Plan's Subrogation Lien

In Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13‐2214 (7th Cir. 2014), the defendants were appealing an order of the district court holding them in contempt. In this case, defendant Beverly Lewis had been injured in an automobile accident in Georgia, and her health plan (the principal plaintiff in this case) paid about $180,000 for the cost of her medical treatment. Represented by the other defendant in the present suit, Georgia lawyer David T. Lashgari, Lewis brought a tort suit in Georgia state court against the driver of the car involved in the accident (her son-in-law), and obtained a $500,000 settlement, under a settlement agreement. The plan had--and Lashgari knew it had--a subrogation lien: that is, a right, secured by a lien, to offset the cost that the plan had incurred as a result of the accident against any money that Lewis obtained in a suit arising out of the accident.

The lien was thus a secured claim against the proceeds of the settlement. But when Lashgari received the settlement proceeds in June 2011, instead of giving $180,000 of the $500,000 to the plan he split the proceeds between himself and his client. Lashgari's refusal to honor the subrogation lien precipitated the present suit, filed in July 2011, a suit under ERISA to enforce the lien, under Section 502(a)(3) of ERISA. The defendants argued in the district court that because the settlement funds have been dissipated, this really is a suit for damages--that is, a suit at law rather than in equity--and therefore not authorized by Section 502(a)(3). But, according to the Seventh Circuit Court of Appeals (the "Court"), the defendants are wrong. The plan wasn't required to trace the settlement proceeds. Its equitable lien automatically gave rise to a constructive trust of the defendant's assets.

In February 2012, the district court granted a preliminary injunction against the defendants' disposing of the settlement proceeds, until the health plan received its $180,000 share. The district judge also ordered the defendants to place at least $180,000 in Lashgari's client trust fund account pending final judgment in the case. The defendants complied with neither order. They said they couldn't pay $180,000, but offered no evidence of their inability to do so. As a result, the district court issued an order holding them in contempt. Does the order stand? Yes, said the Seventh Circuit Court, since the defendants willfully ignored the plan's subrogation lien and offered no evidence as to why. Further, the Seventh Circuit Court issued an order to the defendants to show cause why they should not be sanctioned under Rule 38 for filing a frivolous appeal, and it remanded the case, directing the district court to determine whether defendants should be jailed, until they comply with the order to deposit the settlement proceeds in a trust account.

April 15, 2014

ERISA-Eighth Circuit Upholds The Plan Administrator' Decision To Deny Long Term Disability Benefits, As The Decision Was Entitled To A Deferential Review, And The Decision Was Not An Abuse Of Discretion

In Prezioso v. The Prudential Insurance Company of America, No. 13-1641 (8th Cir. 2014), the plaintiff, Michael Prezioso ("Prezioso"), brought suit under Section 502(a)(1)(B) of ERISA, claiming that the Prudential Insurance Company of America ("Prudential") wrongly denied him long term disability ("LTD") benefits-for disability due to a back injury at work- under a group policy sponsored by his former employer (the "Plan"). Prezioso appeals the district court's grant of summary judgment dismissing this claim. He argues that the court erred in applying the abuse of discretion standard of judicial review and, alternatively, that Prudential abused its discretion in denying LTD benefits.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that a denial of benefits challenged under ERISA is to be reviewed under a de novo standard, unless the benefit plan gives the administrator discretionary authority to determine eligibility for benefits, in which case a deferential standard applies. In this case, the Court found that the Plan has sufficient language to provide Prudential-the plan administrator- with such discretionary authority. For instance, the policy expressly provides that, in considering a claim for LTD benefits, Prudential may request proof of continuing disability, satisfactory to Prudential. Another provision states that benefits, if granted, will cease on the date you fail to submit proof of continuing disability satisfactory to Prudential. Further, the Plan's summary plan description ("SPD") clearly explains to plan participants that Prudential has the sole discretion to interpret the terms of the Group Contract, to make factual findings, and to determine eligibility for benefits, and that Prudential's decisions as claims administrator shall not be overturned unless arbitrary and capricious. The SPD-which clearly grants discretionary authority to Prudential-may be relied on as a clarification of the Plan. As such, the Court ruled that Prudential has the requisite discretionary authority, so that its decision to deny LTD benefits is entitled to a deferential review.

As to the question of whether Prudential abused its discretion in deciding to deny the LTD benefits, the Court said that the record demonstrates that Prudential provided Prezioso a required full and fair review before denying his first appeal from the initial denial of LTD benefits. It considered all comments, medical records, and other information submitted by Prezioso; did not afford deference to the initial decision; referred the appeal to a different decision maker; consulted a neutral health care professional with appropriate training and experience in lower back disabilities; and obtained advice from a qualified vocational expert regarding the demands of Prezioso's regular occupation. See 29 C.F.R. § 2560.503-1(h)(2) and (3). Prudential did not abuse its discretion by according more weight to the opinions of its own experts than to the opinions of Prezioso's treating physicians and other experts. Based on this record, the Court held that Prudential did not abuse its discretion in denying Prezioso's first appeal from the adverse initial decision. Similarly, the Court held that subsequent medical evidence submitted by Prezioso for a voluntary, second appeal he took did not render Prudential's denial of his mandatory first appeal an abuse of discretion As such, the Court concluded that Prudential did not abuse it discretion in deciding to deny the LTD benefits, and affirmed the district court's summary judgment in Prudential's favor.

April 8, 2014

ERISA-Sixth Circuit Rules That Plaintiff Is Entiled To Long-Term Disability Benefits, Despite A Determination To The Contrary By the Plan Administrator

In Javery v. Lucent Technologies, Inc. Long Term Disability Plan For Management or LBA Employees, No. 12-3834 (6th Cir. 2014), the plaintiff, Nilratan Javery ("Javery"), was appealing the judgment of the district court in favor of the defendant, Lucent Technologies, Inc. Long Term Disability Plan For Management or LBA Employees (the "Plan"), denying Javery's claim under ERISA for long-term disability ("LTD") benefits.

In this case, Javery contends that the Plan wrongfully denied his application for LTD benefits. In support of his claim, Javery submitted opinions and evaluations from several medical doctors and psychiatrists, the majority of whom assert that Javery was unable to perform his job as a result of his physical and mental illnesses. Javery also offered other evidence including his successful application for Social Security disability benefits to show that he was "disabled" as that term is defined in the Plan. The Plan argues that Javery has not established by a preponderance of the evidence that he was "disabled" at the relevant time. Additionally, the Plan contends that Javery should be judicially estopped from pursuing his ERISA claim because he failed to disclose the claim in his Chapter 13 personal bankruptcy action.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") first refused to apply the estoppel defense, since Javery's failure to disclose the claim in the Bankruptcy action was almost certainly due to carelessness or inadvertent error as opposed to intentional, strategic concealment or impermissible gamesmanship. The Court then considered whether the district court erred in denying Javery's claim for LTD benefits. In this case, the decision of the plan administrator to deny the claim on the Plan's behalf is not entitled to deference, since the plan administrator was not given discretionary authority to decide claims. The Court said that, to succeed in his claim for LTD benefits under ERISA, Javery must prove by a preponderance of the evidence that he was "disabled," as that term is defined in the Plan. The Plan defines the term "disabled" as being "prevented by reason of . . . disability . . . from engaging in [his] occupation or employment at the Company." Thus, the dispositive inquiry is whether Javery was unable to work for Lucent (his employer) as a software engineer due to his physical condition, his mental condition, or a combination of the two. Here, the Court concluded, after a "careful and comprehensive review of the full administrative record and supplemental administrative record" that Javery proved that he was so disabled.

Based on this finding, the Court overturned the district court's decision, and remanded the case back to the district court with instructions to enter judgment approving Javery's claim for the LTD benefits.

April 3, 2014

ERISA-Second Circuit Case Discusses the Determination of An Award Of Attorney's Fees For A Plaintiff Who Prevails On An ERISA Claim

In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), the plaintiff ("Donachie") suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston ("Liberty"), the administrator of his employer's LTD plan. On the basis of it's own doctor's recommendation, Liberty denied Donachie's claim. Ultimately, this suit ensued.

The district court granted summary judgment to Donachie on his claim for the LTD benefits, and the Second Circuit Court of Appeals (the "Court") affirmed this decision. But what about Donachie's request for attorney's fees, which the district court denied? Here is what the Court said:

This Court reviews a district court's denial of an application for attorneys' fees under ERISA for abuse of discretion. ERISA's fee shifting statute provides that the court in its discretion may allow a reasonable attorney's fee and costs to either party. 29 U.S.C. § 1132(g)(1). The Supreme Court has said that a district court's discretion to award attorneys' fees under ERISA is not unlimited, inasmuch as it may only award attorneys' fees to a beneficiary who has obtained some degree of success on the merits. In addition to this standard, the Supreme Court said that a court may use a test, when deciding whether or not to grant attorney's fees, based on the 5 following factors, called the "Chambless Factors" in the Second Circuit:

(1) the degree of the opposing parties' culpability or bad faith;

(2) ability of opposing parties to satisfy an award of attorneys' fees;

(3) whether an award of attorneys' fees against the opposing parties would deter other persons acting under similar circumstances;

(4) whether the parties requesting attorneys' fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and

(5) the relative merits of the parties' positions.

The Court said that, in this case, there is no question that, as the prevailing party, Donachie was eligible for an award of attorneys' fees. Although the district court had discretion to consider whether the Chambles Factors provided a particular justification for denying Donachie attorneys' fees, it misapplied that framework. It originally denied attorneys' fees on the sole basis that Liberty had not acted in bad faith. But the Court has explained that a party need not prove that the offending party acted in bad faith in order to be entitled to attorneys' fees. The district court also did not address Liberty's degree of culpability or the relative merits of the party's positions. The Court has also explained that while the degree of culpability and the relative merits are not dispositive under the Chambless Factors, they do weigh heavily. By inadequately addressing these two important factors and, instead, treating the absence of bad faith as the most salient factor, the district court committed an error of law, and, therefore, abused its discretion.

The Court said that its review of the record reveals no particular justification for denying Donachie's request for attorneys' fees, and the Court is persuaded that awarding attorneys' fees in the circumstances presented furthers a policy interest of vindicating the rights secured by ERISA. Accordingly, the Court vacated the district court's denial of an award of attorneys' fees to Donachie, and remanded the case back to the district court with directions to award Donachie reasonable attorneys' fees in an amount to be calculated on remand.

April 2, 2014

ERISA-Second Circuit Affirms Summary Judgment Granting Long-Term Disability Benefits

In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), one issue on appeal is whether the district court erred by entering sua sponte summary judgment for plaintiff on his claim for long-term disability ("LTD") benefits pursuant to ERISA.

In this case, the plaintiff ("Donachie") suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston ("Liberty"), the administrator of his employer's LTD plan (the Plan"). On the basis of its own doctor's recommendation, Liberty denied Donachie's claim. Ultimately, this suit ensued.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that a sua sponte grant of summary judgment to the plaintiff is permissible only if the facts before the district court were fully developed so that the defendant suffered no procedural prejudice and the court is absolutely sure that no issue of material fact exists. Here, Liberty does not contend that it was denied the opportunity to place all relevant evidence in the record. Accordingly, the district court's grant of summary judgment was not procedurally deficient. Further, upon review of the record, the Court concluded that Liberty's denial of LTD benefits was arbitrary and capricious. Liberty ignored substantial evidence from Donachie's own treating physicians that he was incapable of performing his current occupation, while failing to offer any reliable evidence to the contrary. Accordingly, the Court affirmed the District Court's judgment under which it entered summary judgment for Donachie on his ERISA claim for LTD benefits.

April 1, 2014

ERISA-District Rules That Defendants, Who Own And Control An Employer, Are Liable For A Judgment Obtained Against The Employer For Failing To Make Required Contributions To Multiemployer Health And Welfare Funds

In The Construction Industry and Laborers Health and Welfare Trust v. Archie, No. 2:12-CV-225 JCM (VCF), (D.C. Nevada 2014), the following situation arose. The plaintiffs claim to be fiduciaries, for the purposes of ERISA, of certain multiemployer health and welfare funds (the "Funds"). According to the plaintiffs, the defendants were the officers, directors and/or owners of a corporation named Floppy Mop. This corporation and the Laborers International Union of North America, Local No. 872 signed a collective bargaining agreement (the "CBA"). The CBA required Floppy Mop to submit monthly remittance reports and to make timely contributions based on those reports to the plaintiffs, for deposit in the Funds, on behalf of each employee who performed work covered by the CBA.

In a prior lawsuit, the plaintiffs obtained a judgment against Floppy Mop in the amount of $535,158, based on its failure to make required contributions to the Funds. Plaintiffs have now filed the instant lawsuit against Sheryl Archie and James McKinney, the defendants, whom plaintiffs claim are personally liable for Floppy Mop's outstanding judgment by virtue of their ownership and control of Floppy Mop.

In analyzing the case, the district court said that, contrary to the defendants' assertion, the $535,158 judgment is valid. Further, the unpaid contributions to the Funds are considered to be "plan assets" under ERISA, since the Funds' governing documents identify unpaid employer contributions as plan assets. The documents provide that "all money owed to the [Funds], which money (whether paid, unpaid, segregated or otherwise traceable, or not) becomes a [Fund] asset on the Due Date" and have other, similar language creating plan asset status.

The district court continued, by stating that, since the unpaid contributions are plan assets, the plaintiffs must demonstrate that the defendants exercised authority or control over those assets, so that they become fiduciaries under ERISA, and are personally liable for the judgment. The court then concluded that the plaintiffs have provided ample evidence, taken from the defendants' own depositions,that demonstrate that the defendants did exercise control and authority over Floppy Mop's operations and financials, including over the corporation's payment of the contributions to the Funds, and therefore are ERISA fiduciaries. By virtue of their failure to direct Floppy Mop to make the contributions to the Funds, as required by the CBA, defendants Archie and McKinney are both individually and personally liable for the judgment against Floppy Mop.

March 26, 2014

ERISA-Eighth Circuit Finds That Float Generated By 401(k) Plan Contributions Is Not A Plan Asset

In Tussey v. ABB, Inc., No. 12-2056, etc. (8th Cir. 2014), the Eighth Circuit Court of Appeals (the "Court") faced, among other things, the issue of whether the defendants' handling of float constituted a violation of the ERISA fiduciary duty of loyalty.

In this case, Fidelity Management Trust Company ("Fidelity") was the trustee and recordkeeper of a 401(k) plan (the "Plan"). When a Plan participant or his/her employer made a contribution to the Plan, Fidelity processed the contribution to the Plan investment option designated by the participant and credited the participant's account with shares in that investment option. The Plan became the owner of the selected investment option as of the date the contribution was made, entitling the Plan to any dividends or any other change in the fund that day. The actual contribution flowed into a depository account held at Deutsche Bank for the benefit of the Plan investment options (as opposed to the Plan itself). For logistical reasons, the contribution could not be distributed to the investment option until the next day. Money sitting in the depository account overnight before it is distributed to the Plan investment options is often described as "float."

Fidelity temporarily transferred the float to secured investment vehicles to earn interest often called "float interest" . The following day Fidelity transferred the principal back to the depository account. Fidelity used the float income to pay fees on float accounts before allocating the remaining income to the investment option selected by the participant (and, again, not to the Plan itself) . The float income ultimately benefitted all the shareholders of the investment option receiving it. Fidelity did not receive the float or float interest.

The question for the Court: did the use and treatment of the float by Fidelity violate the ERISA fiduciary duty of loyalty to the Plan, on the grounds that Fidelity failed to distribute the float and float interest to the Plan itself instead of the investment options? Here is how the Court answered this question:

The Court said that the issue here is whether the float is a "plan asset". Although ERISA does not exhaustively define the term "plan assets", the Secretary of Labor has repeatedly defined "plan assets" consistently with ordinary notions of property rights. Here, the participants failed to adduce any evidence that the Plan had any property rights in the float or float income. To the contrary, the record evidence indicates that, when a contribution was made, Fidelity credited the participant's Plan account and the Plan became the owner of the shares of the selected investment option--typically shares of a mutual fund--the same day the contribution was received. The Plan received the full benefit of ownership--including any capital gains or dividends from the purchased shares--as of the purchase date. The participants do not rebut Fidelity's simple assertion that once the Plan became the owner of the shares, it was no longer also owner of the money used to purchase them, which flowed to the investment options through the depository account held for their benefit. Under the evidence and circumstances of this case, the Plan investment options-as opposed to the Plan-held the property rights in the depository float and were entitled to the float income.

The Court concluded that, since neither the float or float income was a Plan assets, Fidelity could not have breached its ERISA fiduciary duties based on the way it handled the float.

March 25, 2014

ERISA-Eighth Circuit Affirms One And Reverses Other Rulings That Defendants Breached ERISA Fiduciary Duty

In Tussey v. ABB, Inc., No. 12-2056, etc. (8th Cir. 2014), the Eighth Circuit Court of Appeals (the "Court") considered an appeal in a class action brought by representatives of a class of current and former employees of ABB, Inc. ("ABB") who participated in two ABB 401(k) retirement plans (together, the "Plan"). The district court had entered judgment against the defendants on a claim that they had violated their fiduciary duties under ERISA concerning the Plan. The defendants were, among others, ABB, the Plan fiduciaries and Fidelity Management Trust Company and an affiliate.

The particular fiduciary duties the district court found violated related to: (1) failing to control recordkeeping costs, (2) investment selection for the Plan, (3) exchanging one Plan investment for another (mapping) and (4) treatment of float. The Court affirmed the finding as to (1), and vacated and remanded the case back to the district court as to the findings in (2) (on district court's failure to give deference to fiduciary decision), (3) (same as for (2)) and (4) (concluding that no breach of duty of loyalty arose since float is not a plan asset).

March 24, 2014

ERISA-DOL Proposes Amendment To 408(b)(2) Regulations, To Provide Rules To Help A Fiduciary Review Lengthy And Detailed Information Received From Service Providers

On March 12, 2014, the U.S. Department of Labor (the "DOL") proposed an amendment to its regulations under ERISA section 408(b)(2), which will provide rules to help plan fiduciaries review lengthy and detailed disclosures provided by the plan's service providers. The DOL has also issued a Fact Sheet, which discusses the proposed amendment. Here is what the Fact Sheet says:

In General. Regulations under ERISA section 408(b)(2) require covered pension plan service providers to furnish detailed disclosures to plan fiduciaries before entering into, extending or renewing contracts or arrangements for services. The DOL is proposing to amend these regulations to require covered service providers to furnish a guide along with the required disclosures, if the disclosures are contained in multiple or lengthy documents.

Background. ERISA's fiduciary provisions require plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan's participants and beneficiaries. Responsible plan fiduciaries also must ensure that arrangements with their service providers are "reasonable" and that only "reasonable" compensation is paid for services. Fundamental to the ability of fiduciaries to discharge these obligations is obtaining information sufficient to enable them to make informed decisions about an employee benefit plan's services, the costs of such services, and the service providers.

In 2012, the DOL published final regulations under ERISA section 408(b)(2) requiring specific disclosures from plan service providers to ensure that responsible plan fiduciaries are provided the information they need to meet their fiduciary obligations when selecting and monitoring service providers for their plans. These regulations allow covered service providers the flexibility to satisfy their disclosure obligations using different documents from various sources as long as the documents, collectively, contain the required disclosures.

Overview of Proposed Amendment to 408(b)(2) Regulations. The DOL now proposes to require covered service providers who make their disclosures through multiple or lengthy documents to furnish a guide to such documents. The guide must specifically identify the document, page, or, if applicable, other sufficiently specific locator, such as section, that enables the responsible plan fiduciary to quickly and easily find the specified information, as applicable to the contract or arrangement. The proposed provision requires a specific locator, including the identity of the document and where the information is located within the document.

If a guide is required, the covered service provider must direct the fiduciary to the place in the disclosure documents where the fiduciary can find:
• The description of services to be provided;
• The statement concerning services to be provided as a fiduciary and/or as a registered investment adviser;
• The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services;
• The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total annual operating expenses.

The guide will assist responsible plan fiduciaries by ensuring that the location of all information required to be disclosed is evident and easy to find.

Effective Date And Comments. The DOL proposes that the amendment to the final rule become effective 12 months after publication of a final amendment in the Federal Register. Public comment on the proposed amendment is invited.

March 13, 2014

ERISA-Fifth Circuit Rules That Investment Advisor, Who Allegedly Made Misrepresentations About A Proposed Investment, Is Not An ERISA Fiduciary And Thus Is Not Liable For the Statements

In Tiblier v. Dlabal, No. 13-50344 (5th Cir. 2014), a pension plan (the "Plan") of a small cardiology practice had invested in the bonds of an oil and gas company. After the company stopped making interest payments on the bonds, the plaintiffs filed suit alleging violations of ERISA against the investment advisor, Paul Dlabal ("Dlabal"). The plaintiffs claimed Dlabal had made multiple oral misrepresentations to plaintiffs about investment in the oil and gas company in violation of his ERISA fiduciary duties. The district court granted summary judgment in favor of Dlabal. The plaintiffs appeal. The question for the Fifth Circuit Court of Appeals is whether Dlabal is an ERISA fiduciary of the Plan.

In analyzing the case, the Court concluded that Dlabal is not a fiduciary as defined by ERISA. The Court said that, in order for Dlabal to be liable for his advice regarding the oil and gas company, he must first be such a fiduciary of the Plan. Under ERISA, Dlabal is only a fiduciary: to the extent (i) he exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the Plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of the Plan. 29 U.S.C. § 1002(21)(A). The Court said that it is not enough for the plaintiffs to show that Dlabal acted in a general fiduciary capacity. Rather, the plaintiffs must establish that Dlabal acted as a fiduciary with regard to the specific transaction about which they complain: the investment in the oil and gas company.

With regard to this transaction, the Court continued, Dlabal is not a fiduciary under any of the three categories. Dlabal is not a fiduciary under (i) because he did not exercise discretionary authority or control over the oil and gas investment, as he did not cause the Plan's trustees to relinquish their independent discretion in investing the Plan's funds and to instead follow the course that he prescribed. Dlabal is not a fiduciary under (ii) because he did not receive a fee from the Plan in connection with the oil and gas company investment; he received a fee only from a third party. The plaintiffs concede that (iii) does not apply, as Dlabal played no part in the administration of the Plan.

Since it concluded that Dlabal is not an ERISA fiduciary, the Court affirmed the district court's judgment.

March 5, 2014

Employee Benefits-IRS Continues To Provide Guidance On Application Of 90-Day Waiting Period Limit To Multiemployer Heath Plans

The Internal Revenue Service (the "IRS") through the Treasury Department, along with the Department of Labor and Department of Health and Human Services (together, the "Departments"), have issued final regulations implementing the 90-day waiting period limit for group health plans-including multiemployer health plans-under the Affordable Care Act. Under this limit, a group health plan cannot impose a waiting period for health care coverage to begin that exceeds 90 days, and cannot use provisions designed to avoid this requirement. This limit generally applies for plan years beginning after 2013. Except as otherwise stated in the final regulations or its preamble, the final regulations apply in plan years starting after 2014.

Issues have arisen as to how the 90-day waiting period limit applies to multiemployer health plans, and whether certain provisions in these plans will be treated as being designed to avoid the limit. The preamble to the final regulations says the following:

In the preamble to the proposed regulations, the Departments recognized that multiemployer health plans maintained pursuant to collective bargaining agreements have unique operating structures and may include different eligibility conditions based on the participating employer's industry or the employee's occupation. For example, some multiemployer plans determine eligibility based on complex formulas for earnings and residuals or use "hours banks" in which workers' excess hours from one measurement period are credited against any shortage of hours in a succeeding measurement period, functioning as buy-in provisions to prevent lapses in coverage. Owing to the nature of the bargaining process, the multiemployer health plans often have detailed and coordinated eligibility provisions (some requiring aggregation of data from multiple contributing employers), and the unique operating structure of these plans often allows for continued coverage after an employee's employment terminates (or after an employee's hours are reduced) until the end of the quarter.

On September 4, 2013, the Departments issued a set of frequently asked questions ("FAQs") pertaining, in part, to the 90-day waiting period limit. These FAQs stated that, under the proposed rules, to the extent plans impose substantive eligibility requirements not based solely on the lapse of time, these eligibility provisions are permitted if they are not designed to avoid compliance with the 90-day waiting period limitation. See FAQs about Affordable Care Act Implementation (Part XVI), Q2. The FAQs further provide that, therefore, for example, if a multiemployer plan operating pursuant to an arms-length collective bargaining agreement has an eligibility provision that allows employees to become eligible for coverage by working hours of covered employment across multiple contributing employers (which often aggregates hours by calendar quarter and then permits coverage to extend for the next full calendar quarter, regardless of whether an employee has terminated employment), the Departments would consider that provision designed to accommodate a unique operating structure, (and, therefore, not designed to avoid compliance with the 90-day waiting period limitation).

The final regulations include the following example, consistent with this FAQ:

Example 9. (i) Facts. A multiemployer health plan operating pursuant to an arms-length collective bargaining agreement has an eligibility provision that allows employees to become eligible for coverage by working a specified number of hours of covered employment for multiple contributing employers. The plan aggregates hours in a calendar quarter and then, if enough hours are earned, coverage begins the first day of the next calendar quarter. The plan also permits coverage to extend for the next full calendar quarter, regardless of whether an employee's employment has terminated.

(ii) Conclusion. In this Example 9, these eligibility provisions are designed to accommodate a unique operating structure, and, therefore, are not considered to be designed to avoid compliance with the 90-day waiting period limitation, and the plan complies with this section.

Blogger's Point: This guidance specifically allows a multiemployer health plan to determine eligibility for health care coverage by counting hours, from different employers, over a quarterly period, and then-if enough hours are credited- starting and continuing the coverage for the entire next quarterly period. Similar provisions should be permissible, due to the plan's operating structure, particularly, where the provision has been in existence for many years prior to the effective date of the 90-day limit, and where the provision reflects the need for the plan administrators to have time to count hours or other periods of service and determine who has coverage.

March 4, 2014

ERISA-Eleventh Circuit Rules That Plantiff's Claim Is Barred By Statute Of Limitations

In Fuller v. Suntrust Banks, Inc., No. 12-16217 (11th Cir. 2014), the plaintiff, Barbara Fuller ("Fuller"), was appealing the dismissal of her putative class-action complaint brought under ERISA.

In this case, in late 2005, Fuller ended her employment with defendant Suntrust Banks, Inc. ("Suntrust"), and on October 12, 2005, Fuller was distributed her entire account balance in the 401(k) plan maintained by Suntrust. More than five years later, on March 11, 2011, Fuller filed a putative class-action complaint alleging that Suntrust and the other defendants had breached their ERISA-imposed fiduciary duties of loyalty and prudence to the 401(k) plan participants, by selecting and adding certain investment options in the Plan menu--specifically proprietary mutual funds of Suntrust that performed poorly and had high fees benefiting Suntrust, rather than the 401(k) plan participants.

The central issue in the case is whether Fuller's claim is barred by the statute of limitations. On this issue, the Eleventh Circuit Court of Appeals (the "Court") said that, for the claims of ERISA fiduciary breaches at issue, ERISA provides, in Section 413, that no action may be commenced "after the earlier of":

(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.

As to the three-year limitations period, the Court concluded that Fuller did not have actual knowledge of the defendants' alleged breaches within three years of filing suit, since she had not been provided with any documents pertaining to the 401(k) plan which contained the facts underlying her claim, and the defendants did not show that she otherwise obtained the knowledge.

However, as to the six-year limitations period, the relevant period is six years after the date of the last action which constituted a part of the breach or violation. The selection of the mutual funds in question all occurred prior to April 9, 2004, which (due to some tolling matters) is the earliest date a breach could occur and not be barred under ERISA's statute of limitations. The closer question is whether the alleged failure to remove those mutual funds from the 401(k) plan in subsequent years constitutes a cognizable breach separate from the alleged improper selection of the mutual funds, so that the six-year limitations period does not bar the claims. Because the plaintiff's allegations concerning the defendant's failure to remove the mutual funds are in all relevant respects identical to the allegations concerning the selection process, the Court concluded that Fuller's complaint contains no factual allegation that would allow it to distinguish between the alleged imprudent acts occurring at selection from the alleged imprudent acts occurring thereafter. Thus, Fuller's claims, at their core, are a challenge to the initial selection of the mutual funds, and the failure to remove them is not a separate breach. As a result, the six-year limitations period began to run prior to April 9, 2004, more than six years before Fuller filed this suit even considering the tolling, so that her suit is time-barred by the six-year limitations period. Therefore, the Court affirmed the district court's decision.

March 3, 2014

ERISA-Eleventh Circuit Upholds District Court's Grant Of Preliminary Injunction Against Enforcement Of A State Law Imposing Notice Requirements On A Self-Insured Health Plan

In America's Health Insurance Plans v. Hudgens, No. 13-10349 (11th Cir. 2014), the Eleventh Circuit Court of Appeals (the "Court") reviewed an opinion and order by the district court preliminarily enjoining Defendant Ralph T. Hudgens (the "Commissioner") from enforcing several provisions of the Georgia Code as preempted by Section 514 of the ERISA.

In this case, on May 2011, the State of Georgia enacted the Insurance Delivery Enhancement Act of 2011 ("IDEA"), which amends certain portions of Georgia's Insurance Code, including Georgia's "Prompt Pay" laws. These Prompt Pay laws had been in place since 1999 and required "insurers" to either pay a claim for benefits, or give notice of why a claim would not be paid, within fifteen working days after receipt of a claim. If an insurer did not comply with the Prompt Pay requirements, the insurer would have to pay annual interest of eighteen percent on the proceeds or benefits due under the terms of the plan. IDEA extended Prompt Pay to apply to self-funded ERISA plans and their third party administrators. The question for the Court: is Prompt Pay, as so extended, preempted by Section 514 of ERISA.

In analyzing the case, the Court said, first, that the district court's grant of a preliminary injunction is reviewed for abuse of discretion. A district court may grant a preliminary injunction only if the moving party shows that: (1) it has a substantial likelihood of success on the merits; (2) irreparable injury will be suffered unless the injunction issues; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest.

In this case, the Court found that Prompt Pay should be preempted under ERISA Section 514. It impermissibly relates to self-funded ERISA plans, since it would require such plans to process and pay provider claims, or notify claimants of claim denials, within fifteen or thirty days, depending on whether the claim is submitted electronically or conventionally, thereby creating certain timeliness requirements unique to Georgia instead of allowing uniform, national rules. Prompt Pay would not be saved by the "Saving Clause" in Section 514, which permits state regulation of insurance without preemption, since the "Deemer Clause" in Section 514 exempts self-insured plans from the Savings Clause. Given that Prompt Pay is preempted, the Court ruled that an examination of the factors (1) to (4) for granting a preliminary injunction indicate, in this case, that the district court did not abuse its discretion. As such, the Court upheld the preliminary injunction.