Recently in ERISA Category

September 2, 2015

ERISA-Second Circuits Holds That Certain ERISA And Parity Act Claims May Proceed

In N.Y. State Psychiatric Association v. UnitedHealth Group, Docket No. 14-20-cv (2nd Cir. 2015), plaintiffs New York State Psychiatric Association, Inc. ("NYSPA"), Jonathan Denbo, and Dr. Shelly Menolascino sued UnitedHealth Group, UHC Insurance Company, United Healthcare Insurance Company of New York, and United Behavioral Health (collectively, "United").

Relying on §§ 502(a)(1)(B) and 502(a)(3) of ERISA, the plaintiffs claimed that United had violated its fiduciary duties under ERISA, the terms of ERISA-governed health insurance plans administered by United, and the Mental Health Parity and Addiction Equity Act of 2008 (the "Parity Act"), which requires group health plans and health insurance issuers to ensure that the financial requirements (deductibles, copays, etc.) and treatment limitations applied to mental health benefits be no more restrictive than the predominant financial requirements and treatment limitations applied to substantially all medical and surgical benefits covered by the plan or insurance, see 29 U.S.C. § 1185a(a)(3)(A). NYSPA also brought three additional counts under New York State law.

United moved to dismiss the amended complaint, arguing that NYSPA did not have associational standing to sue on behalf of its members, that United could not be sued under § 502(a)(3) for alleged violations of the Parity Act or under § 502(a)(1)(B), and that in any event it would not be "appropriate" for the plaintiffs to obtain relief under § 502(a)(3) if § 502(a)(1)(B) offered an adequate remedy. The district court granted United's motion to dismiss. Upon review, the Second Circuit Court of Appeals (the "Court") concluded that NYSPA has standing at this stage of the litigation and that Denbo's claims, but not Dr. Menolascino's claims, should be permitted to proceed. As a result, the Court affirmed the district court's decision in part, vacated the district court's decision in part, and remanded the case back to the district court.

August 31, 2015

ERISA-Third Circuit Dismissed Appeal From District Court's Decision For Lack Of Jurisdiction

In Stevens v. Santander Holdings USA Inc. Self Insured Short Term Disability Plan, No. 14-1481 (3d Cir. 2015), plaintiff Joseph Stevens ("Stevens"), a former employee of a subsidiary of defendant Santander Holdings USA Inc. ("Santander"), brought suit against Santander seeking to recover benefits from two disability benefit plans that Santander provided for its eligible employees. As an employee of a Santander subsidiary, Sovereign Bank, Stevens participated in these plans, a short-term disability plan ("STD") and a long-term disability plan ("LTD"). In October 2010, Stevens sought STD benefits through the administrator of Santander's plans, defendant Liberty Life Assurance Company of Boston, doing business as Liberty Mutual ("Liberty Mutual").

After it initially awarded STD benefits to Stevens, Liberty Mutual determined that Stevens no longer suffered from a qualifying disability, a determination that led it to terminate his STD benefits. Stevens then brought this suit under ERISA, seeking reinstatement of the payment of benefits. The district court found that Liberty Mutual's decision to terminate Stevens's STD benefits was arbitrary and capricious and remanded the case to the plan administrator with instructions to reinstate Stevens's STD benefit payments retroactively, and to determine his eligibility for LTD benefit payments.

Santander and Liberty Mutual appealed the district court's decision to the Third Circuit Court of Appeals (the "Court"). However, Stevens moved to dismiss the appeal for lack of jurisdiction, arguing that the district court's remand order to the plan administrator was not a "final decision" appealable pursuant to 28 U.S.C. § 1291 at that time. Upon review, the Court held that the district court has retained jurisdiction over the case, and that the order from which the defendants have appealed is not yet appealable. Therefore, the Court dismissed the appeal for lack of jurisdiction.


August 27, 2015

ERISA-Eighth Circuit Holds That A Subrogation Provision, Contained In The SPD, Is Enforceable

The case of National Elevator Inc. Health Benefit Plan v. Moore, No.14-4048 (6th Cir. Aug. 25, 2015) involved a subrogation claim, which arose from a dispute involving the Health Benefits Plan (the "Plan") established by the Board of Trustees of the National Elevator Industry (the "NEI Board") under ERISA. The NEI Board, acting as the fiduciary and administrator of the Plan, sued Kyle Moore and the law firm Goodson & Company, Ltd. (collectively, "Moore"), seeking reimbursement for medical expenses that the Plan paid on Moore's behalf, following Moore's successful settlement of a negligence action filed against the entities responsible for injuries he suffered in an accident. In response, Moore contended that the terms of the Plan did not provide for reimbursement and filed a counterclaim alleging that the Board had violated its fiduciary duty by misrepresenting the terms of the Plan. The district court granted summary judgment against Moore, and Moore appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that the district court correctly decided that the summary plan description (the "SPD") containing the subrogation provision set out the binding terms of the Plan and that the plain language of the provision required reimbursement. Thus, the Court affirmed the district court's decision.
In so affirming the decision, the Court's findings included the following about the subrogation provision and its inclusion in the SPD. First, the Court found that the SPD-the only document in the record containing a subrogation provision--is a binding plan document that sets out enforceable terms. The SPD itself constitutes a welfare benefits plan, which is provided for in a governing trust agreement. There is no other plan document (aside from the trust agreement). The Supreme Court's decision in Amara does not change this result.

Second, the Court noted that the subrogation provision states:

"Amounts that have been recovered by a covered person from another party are assets of the Plan by virtue of the Plan's subrogation interest and are not distributable to any person or entity . . . . However, amounts recovered by such covered person from another party in excess of benefits paid by the Plan are the separate property of such covered person (emphasis added)."

The Court said that the reimbursement of amounts recovered by Moore, sought by the Plan, are not amounts in excess of benefits paid by the Plan, and therefore are assets of the Plan. Finally, the subrogation provision may be applied, even though (as here) the settling third-party has not actually been determined, either through judicial finding or admission, to be liable for the participant's injuries.

August 25, 2015

ERISA-Second Circuit Holds That A Company Was Not Engaged In A Trade Or Business, And Therefore Could Not Be Held Responsible For A Related Company's Withdrawal Liability.

In UFCW Local One Pension Fund v. Enivel Properties, LLC, No. 14-2487 (2nd Cir. 2015), the Second Circuit Court of Appeals (the "Court") faced the issue of whether a separate business organization can be held responsible for the liabilities of another commonly controlled entity under ERISA.

In this case, Steven Levine was the sole shareholder of Empire Beef Co., Inc. ("Empire"), a food-processing company. Empire was party to a collective bargaining agreement that required it to contribute to the United Food and Commercial Workers Local OnePension Fund (the "Fund") for retirement and related benefits for its employees. In November 2007, Empire effected a "complete withdrawal" from the Fund pursuant to 29 U.S.C. § 1383(a) and incurred a withdrawal liability assessment to the Fund of $1,235,644.00. The Fund sued Empire under ERISA for the assessment, as well as liquidated damages, interest, costs, and attorneys' fees, and secured a judgment against Empire for $1,790,343.90. Empire has not paid any portion of the judgment.

In addition to Empire, Steven and his wife, Lori, owned an investment company, Enivel Properties, LLC ("Enivel"). Steven held forty percent of Enivel's stock; Lori owned the remainder and was solely responsible for Enivel's business operations. The Fund sued Enivel to recover on its judgment against Empire, alleging that Enivel is a trade or business under common control with Empire such that it is jointly and severally liable for Empire's withdrawal liability.

In analyzing the issue, the Court said that, in order to impose withdrawal liability on an organization other than the one obligated to the pension fund, two conditions must be satisfied: the second organization must be (1) under common control with the obligated entity; and (2) a "trade or business." See 29 U.S.C. § 1301(b)(1). Enivel does not dispute that Steven Levine controlled both Empire and Enivel. The only question in this appeal is whether Enivel is a "trade or business."

The Court continued by saying that the courts employ the Supreme Court's reasoning in a tax case, Groetzinger, for guidance in determining the types of conduct that constitute engaging in a "trade or business." Based on that case, for an activity to be a "trade or business" under section 1301(b)(1), a person or entity must engage in the activity: (1) for the primary purpose of income or profit; and (2) with continuity and regularity. The district court had found that, based on the facts of the case, Enivel's primary purpose in any leasing and sales activity it undertook was "personal" for the owners, and that profit was only a secondary purpose. Any activity was not continuous or regular, because it was likely that any time spent managing, leasing, and trying to sell the properties Enivel held was negligible. The Levines did not fragment their business operations over several entities. Rather, Enivel's mission was primarily personal and any profit it derived was incidental. As such, the Court concluded that Enivel did not engage in any trade or business, and therefore could not be held responsible for Empire's withdrawal liability.

August 24, 2015

ERISA-District Court Discusses Whether A Business Owner Is An Employee Under ERISA

In Silverman v. Unum Group, No. 14-CV-6439 (DLI) (SMG) (E.D.NY 2015), Neil Silverman (the "Plaintiff") had brought suit against various insurance companies (collectively the "Defendants"). The Defendants had provided disability insurance coverage (all such coverage referred to below as the "Plan") to the Plaintiff during his employment at Chip-Tech Ltd. The Plaintiff seeks long-term disability benefits from the Defendants, and alleges that his claim for benefits was calculated improperly and then terminated early. The Defendants move to dismiss the complaint, arguing among others that the Plaintiff's claims are preempted by ERISA. Plaintiff counters by, among others, contending that ERISA does not apply to the case, as he is not considered an employee under ERISA.

On the issue as to whether the Plaintiff is an employee for purposes of ERISA, the Court said the following. Plaintiff was part owner and employee of Chip-Tech Ltd. He owned fifteen percent of Chip-Tech Ltd. and his siblings, Robert Silverman and Ivy Raffe, owned seventy and fifteen percent of Chip-Tech Ltd., respectively. The Plan covered only the three owners. The Court said further that it cannot consider the owner of a corporation an "employee" where the corporation is wholly owned by the individual or by the individual and his or her spouse. 29 C.F.R. § 2510.3-3.

The Court noted that the Second Circuit has not addressed whether a plan is governed by ERISA where the only participants are shareholder co-owners of a corporation who are not spouses. However, the Supreme Court has stated that Congress intended working owners to qualify as plan participants. Relying on the explicit language in ERISA regulation 29 C.F.R. § 2510.3-3, the Supreme Court held, in Raymond B. Yates, M.D., P.C. Profit Sharing Plan v Heldon, that:

--plans that cover only sole owners or partners and their spouses fall outside of ERISA's domain; while

--plans covering working owners and their nonowner employees, on the other hand, fall entirely within ERISA's compass.

Relying on the Yates decision, the Fifth Circuit held, in Provident Life & Acc. Ins. Co. v. Sharpless, that shareholder co-owners were considered employees under ERISA and that their plans, therefore, were ERISA plans because the definition of an employee in ERISA excludes owners of corporations only held by one individual and his or her spouse, not multiple shareholder co-owners of a corporation. The Court then said that the facts in the present case are closely analogous to those considered by the Fifth Circuit in Provident Life. Here, three shareholders owned Chip-Tech Ltd. and the Plan was available exclusively to them. Therefore, the Court concludes that the Plaintiff is considered an employee under ERISA, and that the Plan is subject to ERISA. Additionally, the facts show that the Plaintiff was paid a salary and hired by the corporation, further supporting his treatment as an employee for ERISA purposes.

August 18, 2015

ERISA-Eighth Circuit Holds That Claims Against Insurers For Restitution, And The Imposition Of An Equitable Lien And Constructive Trust, Are Legal And May Not Be Brought Under Section 502(a)(3) of ERISA

The case of Central States, South East and South West Areas Health & Welfare Fund v. Student Assurance Services, Inc., 2015 U.S. App. LEXIS 13941 (8th Cir. 2015) involved the following situation. Central States, a multi-employer trust fund governed by ERISA, provides health and welfare benefits to participants in the teamster industry and their dependents. Columbian Life and Security Life are insurance companies that sell, among other things, medical insurance for accidents suffered by students. Student Assurance Services processed claims for policies issued by Columbian Life and Security Life. For convenience, these three entities are referred to collectively as "Student Assurance."

Central States's complaint identifies thirteen junior high, high school, and college student-athletes who were covered dependents under its plan. These students also were covered under policies issued by Student Assurance. After the students sustained athletic injuries, Central States paid the students' medical expenses and sought reimbursement from Student Assurance. Student Assurance refused to pay. In total, Central States paid $137,204.88 in benefits. Central States alleges that according to the coordination of benefits provision of its plan, the student accident policies supply primary coverage for the students' covered medical expenses. Student Assurance insists, however, that the student accident policies are excess policies, and that they are not obligated to pay until Central States has reached the maximum contribution under its plan. Central States sued, invoking federal common law and section 502(a)(3) of ERISA. The complaint includes claims for declaratory relief, restitution, and the imposition of an equitable lien and constructive trust to secure reimbursement for the benefits paid on behalf of the common insureds. Student Assurance moved to dismiss on the ground that Central States's claims, while ostensibly seeking equitable remedies, were actually for legal relief that is unavailable under section 502(a)(3). The district court granted the motion and dismissed the complaint. Central States appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") concluded that Central States was seeking legal relief, not equitable relief. The fund seeks compensation out of the general assets of the non-ERISA insurers, and does not assert the right to particular property in the possession of the insurers. Since it is not seeking equitable relief, the Court held that Central States cannot bring its claim under section 502(a)(3). As such, the Court affirmed the district court's decision.

August 17, 2015

ERISA-Eighth Circuit Comments On Successor Liability For Delinquent Contributions and ERISA Violations

In Nutt v. Kees, No. 14-3364 (8th Cir. 2015), Kevin and Lisa Nutt had successfully sued their former employers under ERISA for two claims: delinquent contributions and breach of the fiduciary duty of care. The district court found that the Nutts' former employers could not provide adequate relief and thus relied on a theory of successor liability to hold Osceola Therapy & Living Center, Inc. ("OTLC") liable. OTLC appeals. The Eighth Circuit Court of Appeals (the "Court") reversed.

As to the successor liability theory, the Court said that the doctrine of successor liability provides an equitable exception to the general rule that a buyer takes the assets of his predecessor free and clear of all liabilities other than valid liens and security interests. However, even assuming that that successor liability applies in the ERISA context, the Court concluded that the district court clearly erred, and abused its discretion, in its factual findings and improperly weighed the equities when it held OTLC liable as the successor of the Osceola defendants.

Continuing, the Court said that several considerations guide its review of the district court's decision to impose successor liability. However, the ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy. Before imposing financial liability for a predecessor's past misdeed, courts look for two factors to ensure that liability is proper--notice and the direct transfer of assets from the predecessor. Here, OTLC did not purchase, and thus did not receive a direct transfer of, assets, nor did it receive timely notice of the potential liability. Thus, the district court abused its discretion in imposing successor liability.

August 13, 2015

ERISA-Ninth Circuit Holds That Employers' Unpaid Contributions To Employee Benefit Funds Are Not Plan Assets, Even If the Plan Documents Label Future (Unpaid) Contributions As Such, So That The Failure By The Employer To Pay Is Not An ERISA Fiduciary Viol

In Bos v. Board of Trustees, No. 13-15604 (9th Cir. 2015), the Ninth Circuit Court of Appeals (the "Court") was asked to decide whether an employer's contractual requirement to contribute to an employee benefits trust fund makes it a fiduciary of unpaid contributions under ERISA.

In this case, beginning in 2007, Gregory Bos was owner and president of Bos Enterprises, Inc. ("BEI"). BEI was a member of the Modular Installers Association, an employer association. As president of BEI, Bos agreed that BEI would be bound by the Carpenters' Master Agreement, and several trust agreements. The Carpenters' Master Agreement required each employer--including BEI--to contribute monthly payments based on hours of work to the trust funds (the "Funds") for the purpose of providing employee benefits. Each trust agreement defined its respective fund as including "all contributions required by the [Carpenters' Master Agreement]. . . to be made for the establishment and maintenance of the [respective plan], and all interest, income and other returns of any kind."

Bos personally had full control over BEI's finances, as well as authority to make payments on behalf of BEI, whether to the Funds or to other creditors. Thus, Bos was personally responsible for making the required contributions to the Funds on behalf of BEI. However, he failed to make certain required contributions. In an action by the Funds to collect the unpaid contributions, the issue arose as to whether, because the trust agreements defined the Funds as including contributions "required . . . to be made" to the Funds, the unpaid contributions were plan assets, so that Bos-who had control over BEI's funds-had liability as an ERISA fiduciary for the nonpayment of the contributions.

In analyzing the case, the Court held that an employer's unpaid contributions to employee benefit funds are not plan assets, even if the plan document expressly defines the fund to include future payments. This result applies, and is in accord with decisions in the Sixth and Tenth Circuits, even though the Second and Eleventh Circuits have held for or at least recognized a contrary result. Under the Court's holding, Bos did not control plan assets, and thus had no fiduciary duty under ERISA to remit any of BEI's assets to the Funds. The case was decided in the context of Bos's filing for bankruptcy, and has implications for bankruptcy situations as well as ERISA cases.

August 10, 2015

ERISA-Seventh Circuit Rules That Defendant Could Be Liable For Withdrawal Liability As A Successor To Employer From Which It Purchased Assets, Since The Defendant Had Notice Of Potential Withdrawal Liability At The Time Of Purchase

In Tsareff v. ManWeb Services, Inc., No. 14-1618 (7th Cir. 2015), plaintiff Indiana Electrical Pension Benefit Plan (the "Plan"), through its trustee, James Tsareff, brings this action under ERISA to collect withdrawal liability from defendant ManWeb Services, Inc. ("ManWeb"). The Plan argues that ManWeb is responsible for the withdrawal liability incurred by Tiernan & Hoover, certain assets of which ManWeb acquired through an asset sale, under a theory of successor liability. The Plan appeals the district court's grant of judgment as a matter of law to ManWeb and denial of the Plan's motion for summary judgment. After reviewing the case, the Seventh Circuit Court of Appeals (the "Court") reversed the district court's decisions.

In doing so, the Court noted that the Supreme Court and this Circuit have imposed liability upon a business successor when: (1) the successor had notice of the liability before the acquisition and (2) there was substantial continuity in the operation of the business before and after the asset sale. As to the notice requirement in prong (1), the Court said that the district court had held that this requirement excludes pre-acquisition notice of contingent liabilities; thus, because the Plan did not assess the amount of Tiernan & Hoover's withdrawal liability until after the asset purchase, it was impossible for ManWeb to have notice of any existing withdrawal liability prior to acquisition. The Plan argued that, in the narrow context of multiemployer pension fund withdrawal liability, the successor liability notice element encompasses both existing and contingent liabilities. Accordingly, the Plan maintains that the notice requirement is satisfied because the record shows that ManWeb had notice of Tiernan & Hoover's potential withdrawal liability.

The Court agreed with the Plan on this issue, finding that ManWeb did-in fact-have such notice, since:

--prior to finalizing the purchase of Tiernan & Hoover's assets, ManWeb conducted pre-purchase negotiations and performed the due diligence necessary to evaluate the asset sale;

-- going into this process, ManWeb's key decision-makers were aware of Tiernan & Hoover's union obligations and shared concerns related to the Plan's unfunded pension plan liabilities; and
-- Tiernan & Hoover's contingent withdrawal liability was explicitly included in the Asset Purchase Agreement between Tiernan & Hoover and ManWeb.

However, after finding that prong (1) for imposing successor liability was satisfied, the Court said that prong (2) for imposing such liability, namely the "successor liability continuity requirement", was not considered by the district court. As such, after reversing the district court's decisions, the Court remanded the case back to the district court to determine if prong (2) was satisfied.

August 5, 2015

ERISA-Sixth Circuit Rules That Plan Was Arbitrary And Capricious In Denying Plaintiff His LTD Benefits, And Then Awarded The LTD Benefits To The Plaintiff

In Shaw v. AT&T Umbrella Benefit Plan No. 1, No. 14-2224 (6th Cir. 2015), plaintiff Raymond Shaw sued defendant AT&T Umbrella Benefit Plan ("the Plan"), alleging that the Plan denied his claim for long-term disability ("LTD") benefits, stemming from chronic back pain, in violation of ERISA. The district court granted summary judgment to the Plan, finding that the Plan had properly denied Shaw benefits.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") found that the Plan acted arbitrarily and capriciously in denying Shaw LTD benefits. Although the Plan determined that there was not objective medical documentation of Shaw's inability to perform any occupation, it ignored favorable evidence submitted by his treating physicians, selectively reviewed the evidence it did consider from the treating physicians, failed to conduct its own physical examination, and heavily relied on non-treating physicians.

Further, since the Court found that Shaw has demonstrated that he was denied benefits to which he was clearly entitled, the Court remanded the case to the district court and directed it to enter an order awarding Shaw his LTD benefits.

August 4, 2015

ERISA-Second Circuit Rules That Defining Normal Retirement Age As "Five Years of Service" Violates ERISA, Since The Definition Bears No Relation To Normal Retirement

In Laurent v. PricewaterhouseCoopers LLP, Docket No. 14-1179 (2nd Cir. 2015), former employees of PricewaterhouseCoopers LLP sued the company and its retirement plan, alleging that the plan violated ERISA. The plan defines "normal retirement age" as five years of service, so that it coincides with the time at which employees vest in the plan. Plaintiffs allege that this scheme deprives plan participants of so-called "whipsaw payments," which guarantee that participants who take distributions in the form of a lump sum when they terminate employment will receive the actuarial equivalent of the value of their accounts at retirement. The district court denied defendants' motion to dismiss, holding that the PricewaterhouseCoopers plan, a cash balance plan (the "Plan") violated ERISA because: (1) five years of service is not an "age" under ERISA, (2) the plan violated ERISA's antibackloading rules, and (3) the plan's documents violated ERISA's notice requirements.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that it agrees with the district court that the Plan violates ERISA, but for different reasons than those cited by the district court. The Court held that the Plan's definition of "normal retirement age" as five years of service violates the statute, not because five years of service is not an "age," but because it bears no plausible relation to "normal retirement." As such, the Court affirmed the district court's ruling.

July 30, 2015

ERISA-Third Circuit Rules That Plaintiff Must Show Individual Harm To Have Standing To Seek Equitable Relief Under Section 502(a)(3) of ERISA

In Perelman v. Perelman, Nos. 14-1663 and 14-2742 (Third Circuit 2015), the Third Circuit Court of Appeals (the "Court") faced a matter arising under section 502(a)(3) of ERISA, which authorizes suits by, among others, a pension plan beneficiary to enjoin any act or practice that violates ERISA, "to obtain other appropriate equitable relief . . . to redress such violations," or to enforce any provision of ERISA or the terms of a pension plan.

In this case, the plaintiff, Jeffrey Perelman, is a participant in the defined employee pension benefit plan (the "Plan") of the defendant, General Refractories Company ("GRC"). Jeffrey alleges that his father, Raymond Perelman, as trustee of the Plan, breached his fiduciary duties by covertly investing Plan assets in the corporate bonds of struggling companies owned and controlled by Jeffrey's brother, defendant Ronald Perelman. Jeffrey contends that these transactions were not properly reported; depleted Plan assets; and increased the risk of default, such that his own defined benefits are in jeopardy. The district court dismissed several of Jeffrey's claims for lack of constitutional standing, later granted summary judgment against him on all remaining claims, and denied his application for attorneys' fees and costs. Jeffrey appealed, but the Court affirmed the district court's rulings.

Jeffrey raised two issues pertaining to section 502(a)(3) on appeal. First, he contends that he has standing to seek monetary equitable relief such as disgorgement or restitution under section 502(a)(3), since he did in fact suffer individual harm, in the form of an increased risk of Plan default with respect to his defined benefits. The Court rejected this contention, saying that Jeffrey has not suffered individual harm, since at this point the Plan-a defined benefit plan- remains adequately funded and able to pay Jeffery's benefit, and any risk of nonpayment is too speculative.

Jeffrey's second issue is whether, insofar as Jeffrey seeks relief on behalf of the Plan under section 502(a)(3), no showing of individual harm is necessary to obtain monetary equitable remedies. As to this issue, the Court said that its own case law provides no support for this theory, and other federal appellate courts have unanimously rejected it. As such, the Court concludes that -since Jeffrey did not show individual harm-he lacks standing to sue under section 502(a)(3) even purely as a Plan representative, insofar as he seeks monetary equitable relief.

July 28, 2015

ERISA-Eleventh Circuit Rules Against Imposition Of Statutory Penalty Under ERISA For Failure To Furnish Documents

In Smiley v. Hartford Life and Accident Insurance Company, No. 15-10056 (11th Cir. 2015) (Unpublished Opinion), the Eleventh Circuit Court of Appeals (the "Court") reviewed the issue of whether a statutory penalty should be imposed under ERISA for the failure to furnish plan documents. The district court decided that the penalty should not be imposed, and the Court must review this decision for abuse of discretion.

The Court noted that ERISA authorizes district courts to impose a daily penalty upon any plan administrator that "fails or refuses to comply with a request for information which such administrator is required . . . to supply to a participant or a beneficiary." 29 U.S.C. § 1332(c)(1). Specifically, ERISA requires a plan administrator to furnish the following upon request: "the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established and operated." 29 U.S.C. § 1024(b)(4). A plan administrator is either "the person specifically so designated by the terms of the instrument under which the plan is operated," 29 U.S.C. § 1002(16)(A)(i), or a company acting as a plan administrator.

In this case, the Court continued, the district court correctly concluded that defendant Hartford Life and Accident Insurance Company(" Hartford"), a third-party claims administrator, was not the plan administrator and therefore not subject to statutory penalties under § 1132(c)(1). The applicable plan expressly identified defendant Smile Brands, Inc. ("Smile Brands"), the employer, as the plan administrator. Further, Hartford was not the de facto administrator. The record demonstrates that Smile Brands retained the authority under the plan to make final decisions on appeal from the claims administrator, Hartford. Thus, Hartford was not the plan administrator, either in name or in fact, and was not liable for failing to furnish any plan documents.

Further, the Court continued, the district court did not abuse its discretion in refusing to impose statutory penalties on Smile Brands. The disclosure penalty provision of § 1132(c) "is meant to be in the nature of punitive damages, designed more for the purpose of punishing the violator than compensating the participant or beneficiary." As the district court concluded, the facts of this case do not warrant punishing Smile Brands because it did not refuse or fail to provide the plaintiff with any documents. There is no evidence that Smile Brands refused or failed to provide the plaintiff with the relevant documents, which were already in her possession. Given these facts, the Court could not say that the district court abused its discretion in denying disclosure penalties.

July 27, 2015

ERISA-DOL Provides Guidance ON Selection And Monitoring Under The Annuity Selection Safe Harbor Regulation For Defined Contribution Plans

In Field Assistance Bulletin No. 2015-02 (the "FAB"), the U.S. Department of Labor (the "DOL") discusses the application of the Annuity Selection Safe Harbor Regulations for Defined Contribution Plans. Here is what the FAB says.

The Issue. A regulation issued by the Department in 2008 at 29 CFR 2550.404a-4 regarding the selection of annuity providers under defined contribution plans (the "Safe Harbor Rule") provides plan fiduciaries with safe harbor conditions for the selection and monitoring of annuity providers and annuity contracts for benefit distributions. However, questions continue to be raised about how to reconcile the "time of selection" standard in the Safe Harbor Rule -- which embodies the general principle that the prudence of a fiduciary decision is evaluated under ERISA based on the information available at the time the decision was made -- with ERISA's duty to monitor and review certain fiduciary decisions.

Background. The current Safe Harbor Rule describes actions that defined contribution plan fiduciaries can take to satisfy their ERISA fiduciary responsibilities in selecting an annuity provider for benefit distributions. Similar to selecting plan investments, choosing an annuity provider for this purpose is a fiduciary function, subject to ERISA's standards of prudence and loyalty. The Safe Harbor Rule requirements are satisfied if the plan's fiduciary:

• Engages in an objective, thorough and analytical search for the purpose of identifying and selecting providers from which to purchase annuities. This process must avoid self-dealing, conflicts of interest or other improper influence and should, to the extent possible, involve consideration of competing annuity providers;
• Appropriately considers information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract;
• Appropriately considers the cost (including fees and commissions) of the annuity contract in relation to the benefits and administrative services to be provided under such contract;
• Appropriately concludes that, at the time of the selection [emphasis added], the annuity provider is financially able to make all future payments under the annuity contract and the cost of the annuity contract is reasonable in relation to the benefits and services to be provided under the contract; and
• If necessary, consults with an appropriate expert or experts for purposes of compliance with these provisions.

For this purpose the Safe Harbor Rule provides that "the time of selection" means:
1. the time that the annuity provider and contract are selected for distribution of benefits to a specific participant or beneficiary; or
2. the time that the annuity provider is selected to provide annuities as a distribution option for participants or beneficiaries to choose at future dates.

The Safe Harbor Rule also provides that when an annuity provider is selected to offer annuities that participants may later choose as a distribution option, the fiduciary must periodically review the continuing appropriateness of the conclusion that the annuity provider is financially able to make all future payments under the annuity contract, as well as the reasonableness of the cost of the contract in relation to the benefits and services to be provided. The fiduciary is not, however, required to review the appropriateness of its conclusions with respect to an annuity contract purchased for any specific participant or beneficiary.

The Discussion

ERISA's Prudence Standard Applied to the Selection and Monitoring of Annuities. Section 404(a)(1)(B) of ERISA provides that a fiduciary must discharge his duties with respect to a plan with the care, skill, prudence, and diligence under the circumstances then prevailing [emphasis added] that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

Consistent with this statutory language, the prudence of a fiduciary decision is evaluated with respect to the information available at the time the decision was made - and not based on facts that come to light only with the benefit of hindsight. The conditions of the Safe Harbor Rule embody this general principle of fiduciary prudence. A fiduciary's selection and monitoring of an annuity provider is judged based on the information available at the time of the selection, and at each periodic review, and not in light of subsequent events.

The periodic review requirement in the Safe Harbor Rule does not mean that a fiduciary must review the prudence of retaining an annuity provider each time a participant or beneficiary elects an annuity from the provider as a distribution option. The frequency of periodic reviews to comply with the Safe Harbor Rule depends on the facts and circumstances. For example, if a "red flag" about the provider or contract comes to the fiduciary's attention between reviews (e.g., a major insurance rating service downgrades the financial health rating of the provider or several annuitants submit complaints about a pattern of untimely payments under the contract), the fiduciary would need to examine the information to determine whether an immediate review is necessary, or, depending on the facts and circumstances, the fiduciary may need to conduct an immediate review.

The FAB continues with several examples on the above, and a discussion of ERISA
statute of limitations on fiduciary liability for the selection of annuity providers and annuity contracts.

July 23, 2015

ERISA-Second Circuit Holds That Hospital's Severance Policy is A "Plan" For Purposes Of ERISA

In Okun v. Montefiore Medical Center, Docket No. 13-3928-cv (2nd Cir. 2015), one of the issues faced by the Second Circuit Court of Appeals (the "Court") was whether a severance policy maintained by Montefiore Medical Center ("Montefiore") was a "plan" for purposes of ERISA.

In this case, the Montefiore severance policy at issue, number II-17a (the "Policy"), provides that all full-time physicians employed before August 1, 1996 who are terminated for other than cause are entitled to either twelve months' notice or six months' severance pay. Eligible employees with more than fifteen years' service are also entitled to automatic review of the amount of severance pay by the President of the Medical Center. Montefiore has maintained a severance policy since 1987, and the Policy itself has been in place, without revision, since 1996. The Policy explicitly notes that it may be changed, modified or discontinued at any time by the Medical Center's Senior Vice President of Human Resources, or designee, with or without notice.

In analyzing the issue, the Court said that the dispute here is whether the Policy is adequately alleged to constitute the kind of undertaking to pay severance benefits that can be described as a "any plan, fund, or program," as that phrase is used in the definition of "employee welfare benefit plan" found in section 3(3) of ERISA. The Court then noted that the term "employee welfare benefit plan" has been held to apply to most employer undertakings or obligations to pay severance benefits.

However, to constitute a plan, following the Supreme Court's decision in Fort Hallifax and James, the arrangement at issue must involve an "ongoing administrative program." The Court applies three non-exclusive factors to help determine whether the ongoing administrative program requirement is met: (1) whether the employer's undertaking or obligation requires managerial discretion in its administration; (2) whether a reasonable employee would perceive an ongoing commitment by the employer to provide employee benefits; and (3) whether the employer was required to analyze the circumstances of each employee's termination separately in light of certain criteria.

The Court concluded that, based on the facts alleged in the complaint, the Policy is a "plan" for ERISA purposes, as it involves the kind of undertaking that falls within the meaning of the phrase "any plan, fund, or program." The Policy represents a multi-decade commitment (since 1987) to provide severance benefits to a broad class of employees under a wide variety of circumstances and requires an individualized review whenever certain covered employees are terminated. This review requires discretion and individualized evaluation to administer. As a result, Montefiore assumed the responsibility to pay benefits on a regular basis, and thus faces periodic demands on its assets that require long-term coordination and control.