Recently in ERISA Category

February 5, 2016

ERISA-Fourth Circuit Rules That Plaintiffs' Suit Under ERISA Is Time Barred, Since The Plaintiffs Knew Of The ERISA Issue More Than Three Years Before They Filed Suit

In Bond v. Marriott International, Inc., Nos. 15-1160, 15-1199 (4th Cir. 2016) (Unpublished Opinion), Dennis Bond and Michael Steigman (the "Plaintiffs"), filed this action against their former employer, Marriott International, Inc., alleging that Marriott's Deferred Stock Incentive Plan (the "Plan"), a tax-deferred Retirement Award program, violates the vesting requirements of ERISA. After targeted discovery on the statute of limitations, the district court found that the claims were timely and granted summary judgment to the Plaintiffs on that issue. Marriot appeals. Upon reviewing the case, the Fourth Circuit Court of Appeals (the "Court") concluded that the Plaintiff's claims were time barred, and granted judgment to Marriot.

In reaching this decision, the Court said that, except for breach of fiduciary duty claims, ERISA contains no specific statute of limitations, and we therefore look to state law to find the most analogous limitations period. Here, Maryland's three year statute of limitations for contract actions applies. However, while we apply this three-year state limitations period, the question of when the statute begins to run is a matter of federal law. In most cases an ERISA cause of action does not accrue until a claim of benefits has been made and formally denied.

However, the Court continued, while the "formal denial" rule is generally applied in ERISA cases, we recognized that in limited circumstances the rule is impractical to use, such as cases-like the present one- which do not involve an internal review process and a formal claim denial. In such cases, the Court will look at the time at which some other event, other than a denial of a claim, should have alerted the plaintiff to his entitlement to the benefits he did not receive. Under this approach, a formal denial is not required if there has already been a repudiation of the benefits by the fiduciary which was clear and made known to the beneficiary.

Applying this alternative approach here, the Court concluded that the Plaintiffs' claims are untimely. A 1978 Prospectus--in a section entitled "ERISA"--plainly stated that the Retirement Awards offered by the Plan did not need to comply with ERISA's vesting requirements. The Prospectus explained that inasmuch as the Plan is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a selected group of management or highly compensated employees, the Plan was a top hat plan exempt from the participation and vesting, funding and fiduciary responsibility provisions of ERISA. (J.A. 298). This language clearly informed plan participants that the Retirement Awards were not subject to ERISA's vesting requirements, the very claim made by the Plaintiffs here. This Prospectus was distributed in 1980, 1986, and 1991, well more than three years before the Plaintiffs filed this suit. Thus the suit is time-barred.

February 2, 2016

ERISA-Supreme Court Holds That Participants' Complaint Against Plan Fiduciaries, For Continuing To Allow Investment In Employer Stock When The Value Has Dropped, Does Not State A Claim Under ERISA

In Amgen v. Steve Harris, 577 U. S. ____ (2016), the U.S. Supreme Court reversed the Ninth Circuit's determination that a participants'/stockholders' complaint states a claim under ERISA against plan fiduciaries for breaching the duty of prudence, when the fiduciaries failed to stop offering employer stock as an investment alternative under the plan. The Supreme Court discussed the facts and allegations supporting the claim of breach that should appear in the participants'/stockholders' complaint, in order to state a claim under ERISA. The case is here.

January 21, 2016

ERISA-Supreme Court Rules That When An Injured Health Plan Participant Dissipates The Proceeds Collected From A Third Party In Settlement For The Injury, The Health Plan May Not Apply Its Subrogation Clause To Bring Suit Under ERISA To Attach The Particip

In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, No. 14-723 (U.S. Supreme Court 2016), the Court faced the issue of subrogation rights of a health plan subject to ERISA. The Court noted that health plans often contain subrogation clauses requiring a plan participant to reimburse the plan for medical expenses, if the participant later recovers money from a third party for his injuries. In this case, the plan in question had a subrogation clause, and petitioner Montanile has signed a reimbursement agreement reaffirming his obligation to reimburse the plan from any recovery he obtained (the "Agreement").

Montanile has been seriously injured by a drunk driver, and his ERISA health plan paid more than $120,000 for his medical expenses. Montanile later sued the drunk driver, obtaining a $500,000 settlement. Pursuant to the health plan's subrogation clause and the Agreement, respondent plan administrator (the Board of Trustees of the National Elevator Industry Health Benefit Plan, or the "Board"), sought reimbursement from the settlement. However, Montanile's attorney refused that request and subsequently informed the Board that the fund would be transferred from a client trust account to Montanile unless the Board objected. The Board did not respond, and Montanile received the settlement.

Six months later, the Board sued Montanile in Federal District Court under §502(a)(3) of ERISA, which authorizes plan fiduciaries to file suit "to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan." 29 U. S. C. §1132(a)(3). The Board sought an equitable lien -which arises from the plan's subrogation clause and the Agreement-on any settlement funds or property in Montanile's possession and an order enjoining Montanile from dissipating any such funds. Montanile argued that because he had already spent almost all of the settlement, no identifiable fund existed against which to enforce the lien. The District Court rejected Montanile's argument, and the Eleventh Circuit affirmed, holding that even if Montanile had completely dissipated the fund, the health plan was entitled to reimbursement from Montanile's general assets.

The Court held that, when an ERISA health plan participant wholly dissipates a third-party settlement on nontraceable items, the plan fiduciary may not bring suit under §502(a)(3) to attach the participant's separate assets (what is left is a personal claim by the Board against those assets). The ERISA suit would have been allowed if the Board immediately sued to enforce its equitable lien-provided, again, from the plan's subrogation clause and the Agreement -against a specifically identifiable fund attributable to the settlement. This ERISA suit is permitted against only: (1) specifically identified funds (so attributable) that remained in the participant's possession or (2) traceable items that the participant purchased with the funds. But that result does not obtain-and the ERISA suit is not permitted- when the defendant has dissipated all of a separate settlement fund, and the plan then seeks to recover out of the defendant's general assets.

Note: The Supreme Court's decision could cause health plans to begin to intervene in a participant's legal action or other proceedings against the third party causing the injury, and otherwise take accelerated actions, in order for the health plan to protect its interests.

January 20, 2016

ERISA-Eighth Circuit Denies Request For Preliminary Injunction That Would Have Required A Pharmacy Benefits Manager To Honor Its Contracts And Pay The Pharmacies For Medicines Dispensed

In Grasso Enterprises, LLC v. Express Scripts, Inc., No. 15-1578 (8th Cir. 2016), the plaintiffs (the "Plaintiffs") are compounding pharmacies that prepare and sell customized compound drugs in accordance with doctors' prescriptions. The defendant, Express Scripts ("ESI"), is a pharmacy benefits manager that contracts with health plan sponsors and administrators to administer the pharmacy benefits provided in their group health plans, many of which are subject to ERISA. Plaintiffs have entered into separate Provider Agreements with ESI, under which, as members of ESI's pharmacy provider network, Plaintiffs "look solely to ESI for payment of Covered Medications" provided to health plan participants and beneficiaries. ESI pays Plaintiffs pursuant to the Provider Agreements for the medicines Plaintiffs dispense; the health plans reimburse ESI.

In June 2014, ESI announced a program to reduce the increasing costs being incurred by health plans for compound drugs, and consequently began denying Plaintiffs' claims for payment for medicines they dispensed. Plaintiffs commenced this action on November 18, 2014, alleging that ESI is systematically denying payment of compound drug claims without adhering to the procedural requirements of ERISA's "Claims Regulation," 29 C.F.R. § 2560.503-1. Plaintiffs asserted claims for relief under two ERISA remedial provisions, §§ 502(a)(1)(B) and (a)(3), codified at 29 U.S.C. §§ 1132(a)(1)(B) and (a)(3).

Plaintiffs amended their complaint and moved for a preliminary injunction declaring that ESI must pay all claims for compound medications until it is in compliance with the Claims Regulation. After hearing oral arguments, the district court denied the requested preliminary injunction on numerous grounds. Plaintiffs appeal. Concluding that Plaintiffs failed to meet the well-established standards for preliminary injunctive relief, the Eighth Circuit Court of Appeals (the "Court") affirmed the district courts holding. Court's primary finding was that there is no precedent for upholding a private plaintiff's claim for injunctive relief mandating the future procedures an ERISA plan must follow to comply with the Claims Regulation.

January 14, 2016

ERISA-Eleventh Circuit Holds That An Assignment By A Patient To A Treating Doctor Of A Claim Against A Health Plan For Medical Benefits Can Be Blocked By An Anti-Assignment Provision In The Health Plan

In W.A. Griffin v. Verizon Communications, No. 15-13525 (11th Cir. 2016) (Unpublished), Dr. W.A. Griffin was appealing the dismissal by the district court of her complaint under ERISA. The Eleventh Circuit Court of Appeals (the "Court") affirmed the district court's decision.

In this case, Dr. Griffin, who operates a dermatology practice in Atlanta, Georgia, treated two patients insured under a Verizon Communications Inc. ("Verizon") health plan (the "Plan"). The patients executed assignments that "assign[ed] and convey[ed]" to Dr. Griffin "all medical benefits and/or insurance reimbursement, if any, otherwise payable to me for services rendered from [Dr. Griffin]." The assignments further stated that they were "valid for all administrative and judicial review under . . . ERISA." However, the Plan never consented to the assignments. Pursuant to these assignments, Dr. Griffin requested that the Plan pay for the services she rendered to the patients. When the Plan refused to pay the full amount requested, this suit ensued.

In explaining its decision, the Court said that Section 502(a) of ERISA provides that only plan participants and plan beneficiaries may bring a private civil action to recover benefits due under the terms of a plan. A health care provider is not a participant or beneficiary, and thus generally does not have to right to sue the plan under Section 502(a). However, this Court has recognized an exception, under which the health care provider can obtain the right to sue by securing a written assignment from a 'beneficiary' or 'participant' of his right to payment of benefits under the plan. However, the Plan, in this case, contained an anti-assignment provision, and this Court has enforced such provisions to block the assignment of a claim, so that the health care provider cannot sue. The Court decided to uphold the Plan's anti-assignment, so that Dr. Griffin cannot sue the Plan.

The Plan's anti-assignment provision stated: "You cannot assign your right to receive payment to anyone else, except as required by a 'Qualified Medical Child Support Order' as defined by ERISA or any applicable state or federal law. . . . The coverage and any benefits under the plan are not assignable by any covered member without the written consent of the plan ...."

January 13, 2016

ERISA-Eighth Circuit Holds That Suit Is Timely Filed, Based On Period For Filing Allowed By State Law

In Mulholland v. Mastercard Worldwide, No. 15-1211 (8th Cir. 2015) (Unpublished), Brenda Mulholland was appealing the district court's adverse grant of summary judgment in her action under ERISA. The district court had determined that Mulholland's lawsuit challenging the termination of her long term disability ("LTD") benefits was time-barred, based on the Supreme Court's decision in Heimeshoff v. Hartford Life & Accident Ins. Co. ("Heimeshoff").

Under Mulholland's LTD plan, legal action of any kind could not be brought more than three years after proof of disability was required to be filed "unless the law in the state where [the plan participant] live[s] allows a longer period of time." Upon de novo review, the Eighth Circuit Court of Appeals (the "Court") agreed with Mulholland that the district court overlooked the critical distinction between the contractual limitations provision in this case and the provision addressed in Heimeshoff. Specifically, the provision in Heimeshoff did not contain the additional language allowing a participant to file suit beyond three years if the law of the state provided for a longer period. As such, the Court concluded that the instant suit was not time-barred.

In so holding, the Court noted that it had previously held that in Missouri the applicable limitations period for ERISA actions is the ten-year limitations period in Mo. Rev. Stat. § 516.110(1). See Johnson v. State Mut. Life Assurance Co. of America (because ERISA contains no statute of limitations for actions to recover benefits under an employee benefit plan, looking to state law for most analogous statute of limitations) ("Johnson"). This Court subsequently determined that Johnson was binding, where the ERISA-governed benefit plan contained a contractual limitations period nearly identical to the one here. See Harris v. The Epoch Group, L.C. (applying § 516.110(1)'s longer limitations period where contractual limitations provision prohibited filing suit unless it was brought within three years from expiration of time within which proof of loss was required "or such longer period as required by applicable state laws"). Accordingly, the Court reversed the judgment of the district court and remanded the case back to the district court to consider the case's merits.

January 12, 2016

ERISA-Eighth Circuit Rules That Plaintiffs Did Not Make Out A Case Of Breach Of ERISA Fiduciary Duty By Charging Excessive Fees

In McCaffree Financial Corp. v. Principal Life Insurance Company, No. 15-1007 (8th Cir. 2016), McCaffree Financial Corp. ("McCaffree") was maintaining a retirement plan covered by ERISA. McCaffree brought a class action lawsuit on behalf of those participating employees against Principal Financial Group ("Principal"), the company with whom McCaffree had contracted to provide the plan's investment options. McCaffree alleged that Principal had charged McCaffree's employees excessive fees in breach of a fiduciary duty Principal owed to plan participants under ERISA. The district court granted Principal's motion to dismiss for failure to state a claim. Upon reviewing the case, the Eighth Circuit Court of Appeals (the "Court") affirmed. Why?

In so affirming, the Court said that, in order to state a claim that a service provider to an ERISA-governed plan breached a fiduciary duty by charging plan participants excessive fees, a plaintiff first must plead facts demonstrating that the provider owed a fiduciary duty to those participants. The Court concluded that the plaintiff fails to do this here, since Principal owed no duty to plan participants during its arms-length negotiations with McCaffree under which the fees were set, and McCaffree did not otherwise plead a connection between any fiduciary duty Principal may have owed and the excessive fees Principal allegedly charged.

January 5, 2016

ERISA-Third Circuit Rules That A Plan, Not Established By A Church, Cannot Be Exempt From ERISA As A Church Plan

In Kaplan v. Saint Peter's Healthcare System, No. 15-1172 (3rd Cir. 2015), the Third Circuit Court of Appeals (the "Court") reviewed the exemption from ERISA for church plans, found in section 4(b)(2) of ERISA.

The Court noted that, under this exemption, a church plan need not comply with a host of ERISA provisions, including fiduciary obligations and minimum-funding rules. The Court noted, further, that ERISA section 3(33)(A) defines a church plan as one that is "established and maintained . . . for its employees (or their beneficiaries)" by a tax-exempt church. Also, section 3(33)(C)(i) clarifies that a "plan established and maintained" by a church includes a plan maintained by a qualifying agency of a church (for example, a qualifying organization affiliated with the church).

But the question faced by the Court is whether a church agency can, in addition to maintaining an exempt church plan, also establish such a plan? The district court concluded that it cannot. The Court agreed. It said that, per the plain text of ERISA, only a church can establish a plan that qualifies for an exemption under § 4(b)(2). Because no church established St. Peter's Healthcare System's retirement plan-the plan in question in the case- the Court held that this plan is ineligible for a church plan exemption.

December 22, 2015

ERISA-Fifth Circuit Upholds Plan Administrator's Denial Of Death Benefits

In Hagen v. Aetna Insurance Company, No. 15-40597 (5th Cir. 2015), Plaintiff Judy Hagen ("Mrs. Hagen") brought a suit against defendants Aetna Life Insurance Company ("Aetna") and Hewlett Packard Company ("Hewlett Packard") to recover a death benefit, as the beneficiary of her husband's group life insurance plan under section 502(a)(1)(B) of ERISA. She appeals from the district court's final judgment affirming the decision of the ERISA plan administrator to deny her the death benefit.

In this case, Mrs. Hagen's husband, David Hagen, was an employee of Hewlett Packard and participated in the company's Comprehensive Welfare Benefits Plan (the "Plan"), which included Basic Life Insurance Coverage and Basic and Supplemental Accidental Death and Personal Loss ("AD&PL") coverage under a plan issued and administered by Aetna. David had named his wife, Mrs. Hagen, as the beneficiary under the Plan. David later died, following hip surgery necessitated by a fall at home. Mr. Hagen filed a claim with Aetna for a death benefit under the Plan. However, Aetna denied the claim, on the grounds that David's death was not caused by the accidental fall, but by other preexisting, contributing medical conditions. This suit ensued.

On appeal, Mrs. Hagen contends that the district court erred by: (1) failing to reduce the deference afforded Aetna's determination in light of Aetna's conflict of interest, primarily due to procedural irregularities, Aetna's history of biased claims administration, and failure to take steps to reduce bias in the instant case; (2) concluding that substantial evidence supported Aetna's determination that Mr. Hagen's fall was not an accident; and (3) failing to conclude that Aetna's interpretation of the Plan's exclusions clause was contradictory to the plain language of the Plan. The Fifth Circuit Court of Appeals (the "Court") considered the contentions in (1) and (2) and found them to be without merit, since they were not supported by the evidence. As such, the Court did not feel that it had to consider (3). Accordingly, the Court affirmed the district court's decision.

December 15, 2015

ERISA-Eleventh Circuit Rules That Plaintiff's State Law Claims Are Subject To Complete ERISA Preemption, So That The District Court Has Subject Matter Jurisdiction Over The Claims

In Gables Insurance Recovery, Inc. v. Blue Cross and Blue Shield of Florida, Inc., No. 15-10459 (11th Cir. 2015) (Unpublished), the district court had held that, because ERISA completely preempts plaintiff Gables's claims, the court had subject matter jurisdiction, and then had dismissed Gables's claims without prejudice for failure to exhaust ERISA administrative remedies. Upon review, the Eleventh Circuit Court of Appeals (the "Court") affirmed the district court's judgment.

In this case, South Miami Chiropractic LLC had provided medical services to an insured under a Florida Blue health insurance plan. The terms of Florida Blue's insurance contract with its insured govern its payment to medical providers for services they provide to its insureds. When South Miami Chiropractic sought payment from Florida Blue, the insurer failed to pay. South Miami Chiropractic then assigned its right to payment to Gables, which sought to collect from Florida Blue. Gables sued Florida Blue in state court, alleging six state law causes of action, generally based on a breach of contract.

On appeal, Gables argues that the district court erred in determining that there was complete preemption and thus federal question jurisdiction. Gables does not challenge the district court's finding that it failed to exhaust administrative remedies. Thus, the Court considered only whether Gables's causes of action were completely preempted. In considering this issue, the Court applied the following two-part test which the Supreme Court established in Aetna Health Inc. v. Davila: (1) whether the plaintiff could have brought its claim under § 502(a) of ERISA; and (2) whether no other legal duty supports the plaintiff's claim. The answers to (1) and (2) are yes. As to (2), the claims involve solely an ERISA plan and an ERISA duty to pay benefits. As to (1), the claims relate to a denial of coverage under an ERISA plan and, having received an written assignment of the right to medical benefits (even though it is a sub-assignee of the plan participant and not the healthcare provider), Gables has statutory standing to pursue the benefits. As such, total preemption applies, and the Court therefore affirmed the district court's decision.

November 18, 2015

ERISA-Sixth Circuit Rules That Continued Investment In Employer Stock Did Not Violate ERISA's Prudence Rule

In Pfeil v. State St. Bank & Trust Co., No. 14-1491 (6th Cir. 2015), the Sixth Circuit Court of Appeals (the "Court") was called on to apply recent developments in ERISA. The Court said that ERISA imposes a duty of prudence on plan fiduciaries when investing plan assets. This rule generally requires diversification of the investments. But to solve the dual problems of securing capital funds for necessary capital growth and of bringing about stock ownership by all corporate employees, Congress established a special kind of ERISA plan called an Employee Stock Ownership Plan (an "ESOP"). ESOPs are designed to invest primarily in qualifying employer securities, rather than to diversify across securities of many companies.

In 1995, continued the Court, the Third and Sixth Circuits adopted a presumption (the so called "Moench Presumption") that an ESOP fiduciary's decision to remain invested in employer securities is prudent. However, the Moench Presumption was eliminated by the Supreme Court in 2014 in Fifth Third Bancorp v. Dudenhoeffer ("Dudenhoeffer").

The instant case, said the Court, concerns an ESOP for employees of General Motors (GM). In 2008, GM faced severe business problems that resulted, ultimately, in its bankruptcy. Those events gave rise to this case. Plaintiffs Raymond M. Pfeil and Michael Kammer (together "Pfeil") were GM employees who, prior to GM's most recent financial difficulties, elected to invest in the GM ESOP. Defendant State Street Bank ("State Street") served as fiduciary of certain pension plans, including the Common Stock Plan, an ESOP maintained for employees of GM. The Common Stock Plan-which held GM common stock- lost money in 2008. But State Street declined to stop buying GM stock for the plan until November 8, 2008, and did not divest the fund of (i.e., sell) GM stock from the plan until March 31, 2009. Just over a week later, Pfeil filed this suit against State Street, claiming that its investment decisions to continue to buy and also to decline to sell GM common stock for the plan during certain dates in 2008 were actionably imprudent under ERISA.

The district court granted summary judgment to defendant/State Street. The Court affirmed the district court's grant of summary judgment. Applying the ERISA prudence requirement after Dudenhoeffer, the Court found that, during the time period in question, State Street's managers repeatedly discussed at length whether to continue the investments in GM that are at issue in this case. Given the prudent process in which State Street engaged, Pfeil failed to demonstrate a genuine issue about whether State Street satisfied its statutory duty of prudence.

November 16, 2015

ERISA-Sixth Circuit Rules That Claim Of Impermissible Cutback Is Time Barred

In Durand v. The Hamover Insurance Group, Inc., No. 14-5648 (6th Cir. 2015), the plaintiffs were appealing a magistrate judge's holding that their claims were time-barred. In this case, on March 3, 2007, lead plaintiff Jennifer Durand filed the complaint initiating this ERISA class action against her former employer, The Hanover Insurance Group, Inc. (the "Company"), and the pension plan it sponsors, Allmerica Financial Cash Balance Pension Plan (the "Plan"). The complaint challenged the projection rate used by the Plan to calculate the lump-sum payment Durand elected to receive after ending her employment at the Company in 2003. At the time Durand elected to receive her lump-sum payment, the Plan used a 401(k)-style investment menu to determine the interest earned by members' hypothetical accounts. Durand alleged that defendants impermissibly used the 30-year Treasury bond rate instead of the projected rate of return on her investment selections in the "whipsaw" calculation required under pre-2006 law, in violation of ERISA.

One defense to the complaint raised by the defendants is the assertion that the claims of putative class members, who received lump-sum distributions after December 31, 2003, were time barred due to an amendment to the Plan that took effect after that date (the "2004 Amendment"). The 2004 Amendment changed the interest crediting formula from the 401(k)-style investment menu to a uniform 30-year Treasury bond rate. The plaintiffs argued that the 2004 Amendment was an illegal reduction or "cutback" in benefits. The magistrate judge, presiding over the case with the consent of the parties, held that the plaintiff's "cutback" claims were time-barred and did not relate back to the "whipsaw" claim asserted in the original class complaint in March 2007.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") said that, because ERISA does not provide a statute of limitations for non-fiduciary claims such as those made here, the plaintiffs' cutback claims are governed by the most analogous state statute of limitations. The district court adopted the five-year limitations period in Kentucky law applicable to statutory claims pursuant to Kentucky Revised Statutes § 413.120(2). On appeal, the plaintiffs concede that their cutback claims accrued on January 1, 2004 and that the limitations period expired in January 2009--more than eleven months before the first amended complaint was filed on December 15, 2009. Plaintiffs argue that the cutback claims are nonetheless timely because they relate back to the whipsaw claims alleged in the original complaint in 2007. The Court rejected this argument, since the cutback claims and whipsaw claims challenge different plan policies, which were adopted at different times, as illegal under distinct provisions of ERISA, and consequently do not arise from or otherwise relate to the same transaction. The earlier claims do not give defendants any notice of the later claims. As such, the Court affirmed the magistrate judge's decision.

November 12, 2015

ERISA-DOL Discusses Whether A Stop-Loss Insurance Policy Is An ERISA "Plan Asset"

In DOL Advisory Opinion 2015-02A, U.S. Department of Labor (the "DOL") responded to the question of whether stop-loss insurance policies purchased by a plan sponsor to manage risk associated with self-insured contributory welfare plans would constitute "plan assets" for purposes of ERISA.

The Facts: The welfare plans in question (the "Plans") provide medical, dental, vision, health care flexible spending accounts, and dependent care flexible spending accounts under Internal Revenue Code section 125. Although the medical portions of the Plans are largely funded from the general assets of the plan sponsors (the "Plan Sponsors"), employees also make contributions to both Plans at specified rates.

The Plan Sponsors wish to purchase one or more stop-loss insurance policies (the "Policies") for the purpose of managing the risk associated with their liabilities under the medical benefit portions of the Plans. Pursuant to the Policies, the insurer will reimburse the Plan Sponsors only if, during the policy year, they pay benefit claims required under the Plans in excess of a pre-determined amount, or attachment point, consistent with applicable state insurance law. The purchase of such insurance will not relieve the Plans of their obligations to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants. The Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plan from their own assets, so that the Plan Sponsors will never receive any reimbursement for claim amounts paid with participant contributions. The Plan Sponsors will use certain accounting procedures to ensure that no monies attributable to employee contributions are used for paying premiums on the Policies.

Other Pertinent Facts: (1) the insurance proceeds from the Policies would be payable only to the Plan Sponsors, who would be the named insured under the Policies; (2) the Plan Sponsors would have all rights of ownership under the Policies, and the Policies would be subject to the claims of the creditors of the Plan Sponsors; (3) neither the Plans nor any participant or beneficiary of the Plans would have any preferential claim against the Policies or any beneficial interest in the Policies; (4) no representations would be made to any participant or beneficiary of the Plans that the Policies would be used to pay benefits under the Plans or that the Policies in any way represent security for the payment of benefits; and (5) the benefits associated with the Plans would not be limited or governed in any way by the amount of stop-loss insurance proceeds received by the Plan Sponsors.

The DOL's Answer: The DOL concluded that the Policies would not constitute assets of the Plans. Why? The DOL said the following. First, except for the use of participant contributions to partly fund the medical benefit portions of the Plans, the facts surrounding the purchase of the Policies will be identical in all material respects to the facts surrounding the purchase of the stop-loss insurance policy described in Advisory Opinion 92- 02A, in which the DOL found that the policy was not a plan asset. Second, with respect to the use of participant contributions to fund in part the benefits under the Plans, the Plan Sponsors use an accounting system that ensures that the payment of premiums for the Policies includes no employee contributions. Third, the purchase of such insurance will not relieve the Plans of their obligation to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants. Fourth, the Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plans from their own assets so that the Plan Sponsors will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.

November 2, 2015

ERISA-DOL Revives Guidance On Economically Targeted Investments

According to FAQs issued on October 22, the Employee Benefits Security Administration (the "EBSA") has released Interpretive Bulletin 2015-01 (IB 2015-01) to provide guidance on the investment duties of plan fiduciaries under ERISA when considering economically targeted investments ("ETIs") and investment strategies that take into account environmental, social and governance ("ESG") factors. IB 2015-01 is available on EBSA's website at

Here is what the FAQs say:


The Department has been asked periodically over the last 30 years to consider the application of ERISA's fiduciary rules to pension plan investments selected because of the collateral economic or social benefits they may further in addition to their investment returns. Various terms have been used to describe this and related investment behaviors, such as socially responsible investing, sustainable and responsible investing, environmental, social and governance (ESG) investing, impact investing, and economically targeted investing (ETI).

The Labor Department previously addressed issues relating to ETIs in 1994 in Interpretive Bulletin 94-1 (IB 94-1) and in 2008 in Interpretive Bulletin 2008-1 (IB 2008-1). The Department's stated objective in issuing IB 94-1 was to correct a popular misperception at the time that investments in ETIs are incompatible with ERISA's fiduciary obligations. The preamble to the IB explained that the requirements of sections 403 and 404 of ERISA do not prevent plan fiduciaries from investing plan assets in ETIs if the ETI has an expected rate of return that is commensurate to rates of return of alternative investments with similar risk characteristics that are available to the plan, and if the ETI is otherwise an appropriate investment for the plan in terms of such factors as diversification and the investment policy of the plan. Some commenters have referred to this standard as the "all things being equal" test.

The Department has also consistently stated, including in IB 94-1, that ERISA plan trustees or other investing fiduciaries may not use plan assets to promote social, environmental, or other public policy causes at the expense of the financial interests of the plan's participants and beneficiaries in receiving their promised benefits. A fiduciary may not accept lower expected returns or take on greater risks in order to secure collateral benefits.

On October 17, 2008, the Department replaced IB 94-1 with IB 2008-01, codified at 29 CFR § 2509.08-01. IB 2008-01 purported not to alter the basic legal principles set forth in IB 94-1. Its stated purpose was to clarify that fiduciary consideration of collateral, non-economic factors in selecting plan investments should be rare and, when considered, should be documented in a manner that demonstrates compliance with ERISA's rigorous fiduciary standards.

The Department believes that in the seven years since its publication, IB 2008-01 has unduly discouraged fiduciaries from considering ETIs and ESG factors. In particular, the Department is concerned that the 2008 guidance may be dissuading fiduciaries from (1) pursuing investment strategies that consider environmental, social, and governance factors, even where they are used solely to evaluate the economic benefits of investments and identify economically superior investments, and (2) investing in ETIs even where economically equivalent.

Overview of Interpretive Bulletin 2015-01

In an effort to correct the misperceptions that have followed publication of IB 2008-01, the Department is withdrawing IB 2008-01 and is replacing it with IB 2015-01 which reinstates the language of IB 94-1. The new interpretative bulletin does not supersede the "investment duties" regulatory standard at 29 CFR § 2550.404a-1, nor does it address any issues that may arise in connection with the prohibited transaction provisions of ERISA.

IB 2015-01 confirms the Department's longstanding view that plan fiduciaries may invest in ETIs based, in part, on their collateral benefits so long as the investment is appropriate for the plan and economically and financially equivalent with respect to the plan's investment objectives, return, risk, and other financial attributes as competing investment choices.

The IB also acknowledges that in some cases ESG factors may have a direct relationship to the economic and financial value of the plan's investment. In such instances, the ESG issues are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary's primary analysis of the economic merits of competing investment choices. When a fiduciary prudently concludes that such an investment is justified based solely on the economic merits of the investment, there is no need to evaluate collateral goals as tie-breakers.

In addition, consistent with the obligation of ERISA fiduciaries to choose economically and financially superior investments, the IB makes it clear that the Department does not believe ERISA prohibits a fiduciary from addressing ETIs or incorporating ESG factors in investment policy statements or integrating ESG-related tools, metrics and analyses to evaluate an investment's risk or return or choose among otherwise equivalent investments. Nor do sections 403 or 404 prevent fiduciaries from considering whether and how potential investment managers consider ETIs or use ESG criteria in their investment practices. As in selecting investments, the plan fiduciaries must reasonably conclude that the investment manager's practices in selecting investments are consistent with ERISA and the principles articulated in IB 2015-01.

Fiduciaries also do not need to treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors. IB 2015-01 explains that the Department concluded that no special documentation is presumptively required for such investments. As a general matter, the Department believes that fiduciaries responsible for investing plan assets should maintain records sufficient to demonstrate compliance with ERISA's fiduciary provisions. As with any other investments, the appropriate level of documentation would depend on the facts and circumstances.

October 28, 2015

ERISA-Tenth Circuit Rules That Retiree Cannot Convert His Pension Benefit To Disability Benefit

In Martinez v. Plumbers & Pipefitters Nat'l Pension Plan, No. 14-1315 (10th Cir. 2015), Joseph Martinez was a long-term participant in the Plumbers and Pipefitters National Pension Plan, a multiemployer defined benefit pension plan governed by ERISA (the "Plan"). Following some health problems, Martinez retired from plumbing in 2004 at age 56 and took advantage of the Plan's early retirement pension. After a few years in retirement, he felt well enough to resume working, and his pension was suspended during that time according to rules that prohibit retirement benefits during disqualifying employment. When he retired again in 2009, he asked the National Pension Fund to allow him to convert the pension benefits he previously elected from an early retirement pension to a disability pension--a change that would entitle him to higher monthly payments.

The Plan denied the conversion and the district court upheld the denial. In analyzing the case, the Tenth Circuit Court of Appeals (the "Court") agreed that the Plan language is unambiguous and allows Plan participants to apply for and receive only one type of pension benefit for life absent several clearly delineated exceptions, none of which apply to Martinez. Accordingly, the Court affirmed the Plan's denial of Martinez's claim for disability benefits and the district court's decision on the matter.