February 20, 2014

ERISA-Second Circuit Rules That Showing Of Actual Harm Not Needed To Obtain Relief In The Form Of Plan Reformation

In Osberg v. Foot Locker, Inc., No. 13-187-cv. (2nd Cir. 2014) (Summary Order), the plaintiff, Geoffrey Osberg ("Osberg"), was appealing the district court's award of summary judgment to the defendants, his former employer Foot Locker, Inc., and Foot Locker Retirement Plan ("Foot Locker"), on claims that Foot Locker violated ERISA, in connection with converting its defined benefit plan to a cash balance plan, by (1) issuing false and misleading summary plan descriptions in violation of ERISA's disclosure requirements; (2) breaching fiduciary duties in making such materially false and misleading statements and omissions and (3) failing to provide plan participants with notice, as required by ERISA § 204(h).

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said first, as to the Section 204(h) notice claim (claim (3) above), that Section 204 (h) does not, in any event, afford Osberg the remedy he seeks, i.e., a pension benefit calculated under the cash balance plan but with an opening balance equal to the value of the retirement annuity he had already earned under the old formula. This is because insufficient notice in violation of § 204(h) does not, as Osberg contends, invalidate only the undisclosed portion of the plan amendment, but rather voids the entire amendment. Thus, the Court affirmed the district court's dismissal of his § 204(h) claim.

As to Osberg's disclosure claims (claims (1) and (2) above), the Court said that to survive summary judgment, Osberg was required to raise a genuine issue of material fact with respect to his demand for "appropriate equitable relief"--specifically, surcharge or reformation--under ERISA § 502(a)(3). The Court noted that, in CIGNA Corp. v. Amara, the U.S. Supreme Court recognized surcharge and reformation as traditional equitable remedies that may allow for awarding monetary compensation based on misleading disclosures. The Court further noted that it had recently articulated the following two questions to be answered in determining entitlement to these remedies: (i) what remedy is appropriate and (ii) whether the plaintiffs have established the requisite level of harm as a result of the notice violations.

Here, the Court continued, the district court concluded that Osberg's disclosure claim failed to raise an issue of fact as to whether he suffered the type of "actual harm" necessary to obtain the equitable relief of reformation and surcharge. As such, the district court erroneously applied an "actual harm" requirement. Since, in this case, reformation of the plan in question would afford Osberg the total relief sought, there is no need for the Court to decide now whether he would also be entitled to recovery under surcharge. Thus, the Court overturns the district court's summary judgment, and remands to the case back to the district court, as it applies to a request for reformation.

February 19, 2014

ERISA- Eighth Circuit Holds That Plaintiff Fails To Make Out A Case Of Interference Under Section 510 Of ERISA

In Barnhardt v. Open Harvest Cooperative, No. 13-2254 (8th Cir. 2014), the plaintiff, Jacqueline Barnhardt ("Barnhardt"), was appealing the district court's grant of summary judgment to the defendant, Open Harvest Cooperative ("Open Harvest"), on her claim alleging a violation of § 510 of ERISA.

In this case, in December 2006, Barnhardt was diagnosed with arteriovenous malformation ("AVM"), a vascular condition that causes cognitive difficulties and occasional seizures. At some point during February 2011, Barnhardt disclosed her AVM to her supervisor. Open Harvest terminated Barnhardt's employment in August 2011. On September 15, 2011, Barnhardt filed a claim for short-term disability benefits with Dearborn National. In its letter denying benefits, Dearborn National stated that Open Harvest had terminated Barnhardt's coverage on July 31, 2011, and that Barnhardt had not become disabled until August 2, 2011. Because she became disabled after her coverage had terminated, Barnhardt was not entitled to benefits. Barnhardt then brought suit againt Open Harvest claiming, among other things, that Open Harvest had violated § 510 of ERISA by preventing her from obtaining the short-term disability benefits.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that Section 510 of ERISA prohibits, among other things, an employer from discharging or discriminating against a participant in an ERISA plan "for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan." 29 U.S.C. § 1140. In order to recover under a § 510 interference claim, a plaintiff must prove that the defendant possessed a specific intent to interfere with her ERISA benefits. The Court found that Barnhardt had not identified any direct evidence that Open Harvest acted with the specific intent to interfere with her ERISA benefits. As such, the Court said that it had to analyze her claim under the McDonnell Douglas burden-shifting framework.

Applying this analysis, the Court concluded that Open Harvest had articulated a legitimate, non-discriminatory justification for its termination of Barnhardt's coverage under the short-term disability plan. Under the McDonnell Douglas framework, the burden shifted back to the plaintiff to show a genuine dispute whether Open Harvest's justification was pretextual. The Court concluded that Barnhardt had not shown a genuine dispute whether Open Harvest terminated her employment with a specific intent to interfere with her ERISA benefits. As such the Court affirmed the district court's summary judgment in favor of Open Harvest.

February 11, 2014

ERISA-Second Circuit Rules That ERISA Preempts State Law Requiring A Report From A Self Insured Health Plan

ERISA-Second Circuit Rules That ERISA Preempts State Law Requiring A Report From A Self Insured Health Plan

In Liberty Mutual Insurance Co. v. Donegan, No. 12-4881-cv (2nd Cir. 2014), the plaintiff, Liberty Mutual Insurance Co. ("Liberty Mutual"), was appealing a judgment by the district court, concluding that ERISA does not preempt a Vermont statute and regulation requiring self-insured employee health plans to report to the state, in specified format, claims data and "other information relating to health care."

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said, as to ERISA preemption, that recent court precedent has set a rebuttable presumption against preemption of state health care regulations. Two constants in the cases, however, remain: (1) recognition that ERISA's preemption clause is intended to avoid a multiplicity of burdensome state requirements for ERISA plan administration and (2) acknowledgment that "reporting" is a core ERISA administrative function. These two considerations, for a statute and regulation that clearly has a connection to ERISA plans, led the Court to conclude that the Vermont law, as applied to compel the reporting of Liberty Mutual plan data, is preempted. The Court therefore reversed the district court's decision and remanded the case for entry of judgment in favor of Liberty Mutual.

February 10, 2014

Employment-Seventh Circuit Rules That An Employee Is Entitled to FMLA Leave To Care For A Parent, Even When The Parent Traveled To Las Vegas

In Ballard v. Chicago Park District, No. 13‐1445 (7th Cir. 2014), the Court faced the question of what the term "caring for" a family member means for purposes of the Family and Medical Leave Act (the "FMLA"). The FMLA gives eligible employees a right to twelve workweeks of leave for, among other things, to care for the spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition.

In this case, a question arose as to whether FMLA leave is available to allow an employee to provide physical and psychological care to a terminally ill parent while that parent is traveling away from home. Here, the plaintiff, Beverly Ballard ("Ballard"), is a former Chicago Park District employee. In April 2006, Ballard's mother, Sarah, was diagnosed with end‐stage congestive heart failure. Ballard lived with Sarah and acted as her primary caregiver. In 2007, Sarah and a social worker met to discuss Sarah's end‐of‐life goals. Sarah said that she had always wanted to take a family trip to Las Vegas, and the trip and funding therefore were arranged.

Ballard requested unpaid leave under the FMLA from the defendant, the Chicago Park District, so that she could accompany her mother to Las Vegas. The Park District ultimately denied the request, although Ballard and her mother went anyway. Ballard continued to serve as her mother's caretaker during the trip. Several months later, the Chicago Park District terminated Ballard for unauthorized absences. Ballard then filed suit under the FMLA. The issue for the Seventh Circuit Court of Appeals (the "Court") was whether Ballard was entitled to FMLA leave, in order to care for her mother, even though the care was rendered during a trip to Las Vegas.

In analyzing the case, the Court said that the words "to care" for, as used in the FMLA regulations, include "physical and psychological care" without any geographic limitation. It agreed with the district court, which had stated that where the care takes place has no bearing on FMLA protections. The Court therefore ruled that entitlement to FMLA leave was not lost because of the Las Vegas trip.

February 6, 2014

Employment-Supreme Court Rules That Time Spent Changing To And From Protective Gear Is Not Compensable Under The FLSA

In Sandifer v. United States Steel Corporation, No. 12-417 (S.Ct. 2014), the Supreme Court faced the question of the meaning of the phrase "changing clothes" as it appears in the Fair Labor Standards Act (the "FLSA"). The plaintiffs were seeking backpay for time spent donning and doffing various pieces of protective gear, which the employer required them to wear because of hazards regularly encountered in their work at a steel plant. The district court granted summary judgment to the defendant, United States Steel Corporation. The Court of Appeals for the Seventh Circuit upheld this judgment, and the plaintiffs appeal.

In analyzing the case, the Supreme Court said that, in 1949, Congress amended the FLSA to provide that the compensability of time spent changing clothes or washing is a subject appropriately committed to collective bargaining (a "CBA"). Here, under the applicable CBA, changing clothes is not compensable time. But does the donning and doffing of protective gear qualify as "changing clothes"? The Supreme Court answered this by saying that "clothes" encompasses the entire outfit that one puts on to be ready for work-including the protective gear. As to "changing", the Supreme Court said that any alteration of dress will constitute a change. As such, the Court held that the plaintiff's donning and doffing of the protective gear at issue qualifies as "changing clothes", which is not compensable under the applicable CBA. Therefore, the Court affirmed the lower courts' rulings.

February 4, 2014

ERISA- Eighth Circuit Uphold District Court's Decision That Death Was Accidental, So That A Death Benefit Is Payable

In Nichols v. UniCare Life and Health Insurance Company, Nos. 12-4047, 13-1033 (8th Cir. 2014), defendant UniCare was appealing the district court's grant of summary judgment to the plaintiff Nichols. In this case, Nichols is the surviving spouse of Dana Nichols. Dana was employed by Acxiom Corporation, and she was insured under the Acxiom Corporation Life and Accidental Death and Dismemberment Insurance Plan (the "Plan"). The Plan is funded by a policy underwritten by UniCare, and UniCare also serves as the claims administrator.

On May 3, 2010, Dana was found face down in bed, and upon being transported to a nearby hospital, she was pronounced dead. The autopsy report indicated that her manner of death (natural, accidental, etc.) "could not be determined," and her cause of death was mixed drug intoxication. Nichols filed a claim for accidental death benefits under the Plan. UniCare-as claims administrator- ultimately denied Nichols' claim, on the grounds that: (1) the manner of death was listed on the death certificate as "could not be determined," and (2) the Plan excludes benefits for death caused by intoxication. This suit ensued. The district court, applying a de novo standard of review, granted Nichols the accidental death benefits in a summary judgment, finding that the cause of Dana's death was more likely than not an accident and rejecting the argument that Dana's consumption of numerous medications was an intentional act so that no accident had occurred. UniCare appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") agreed with the district court, which had said that, in sum, all of the evidence indicates that Dana's death was the unexpected result of ingesting prescribed medications. That is, the death was an accident. Accordingly, the Court concluded that the district court correctly found that UniCare erred in denying coverage for accidental death benefits. The Court also rejected an application of the Plan's intoxication exclusion, since UniCare had not met its burden that this exclusion applied. As such, the Court affirmed the district court's decision.

February 3, 2014

Employee Benefits-IRS Provides Answers On The Health Coverage Tax Credit

Have any questions on the Health Coverage Tax Credit? The IRS has provided a list of the most frequently asked questions about the credit for the 2013 tax year. The list is here.

January 29, 2014

Employee Benefits-IRS Says That Deadline To Add New In-Plan Roth Rollover Provisions Has Been Extended

In Employee Plans News, Issue 2013-10, December 19, 2013, the IRS discusses the extended deadline for adding new in-plan Roth rollover provisions to an eligible plan. Here is what the IRS says:

In Notice 2013-74, the IRS extended the deadline to adopt a discretionary plan amendment to allow in-plan Roth rollovers in 2013 of amounts in a plan that could not be distributed to the participant:

401(k) and governmental 457(b) plans - to the later of the last day of the first plan year in which the amendment is effective or December 31, 2014. Safe Harbor 401(k) plans have until December 31, 2014, to add the amendment effective for 2013 and 2014.
403(b) plans - to the later of the last day of the first plan year in which the amendment is effective or the end of the plan's remedial amendment period. The end date of the remedial amendment period has not been announced, but it will not be before 2015.
The amendment's effective date must be the date the plan first allows the designated Roth account transactions permitted by the amendment.
The extended amendment deadline also applies to related amendments that permit:

• in-plan Roth rollovers of some or all otherwise distributable amounts,
• designated Roth accounts to accept rollovers, and
• elective deferrals under the plan to be designated as Roth contributions.

Rules for in-plan Roth rollovers of otherwise nondistributable amounts

• The plan must separately account for any in-plan Roth rollovers of otherwise nondistributable amounts.
• The amounts rolled over remain subject to the distribution restrictions that applied to them before the in-plan Roth rollover.
• The rollover must be direct; 60-day rollovers are not permitted if the amount was otherwise nondistributable.
• Tax withholding does not apply.

Amounts now eligible for in-plan Roth rollovers

Regardless of the participant's age, a plan may permit in-plan Roth rollovers of:

• elective deferrals
• matching (including safe harbor 401(k) matching) contributions
• nonelective (including safe harbor 401(k) nonelective) contributions
• earnings

Adding or removing Roth provisions

A plan isn't required to offer designated Roth accounts or in-plan Roth rollovers. A plan may also limit the types and amounts of contributions eligible for Roth rollovers and the frequency of rollovers. For example, a plan could provide that only otherwise distributable amounts are eligible for in-plan Roth rollovers.
A plan may also discontinue the availability of in-plan Roth rollovers. An employee's ability to make in-plan Roth rollovers is not protected by the anti-cutback rules in Internal Revenue Code Section 411(d)(6).

Background on in-plan Roth rollovers

Since 2010, plan participants have been able to roll over certain amounts in a 401(k), 403(b) or governmental 457(b) plan to a designated Roth account in the same plan. But the amounts rolled over had to be eligible for distribution from the plan.
Beginning in 2013, a plan may also allow in-plan Roth rollovers of amounts that aren't otherwise distributable (Internal Revenue Code Section 402A(c)(4)(E), as amended by the American Taxpayer Relief Act of 2012).

January 28, 2014

ERISA-Fifth Circuit Holds That Plaintiff's Claim Of A Violation Of The Anti-Retaliation Rule Under ERISA Section 510 Survives Summary Judgment

The case of Parker v. Cooper Tire and Rubber Company, No. 12-60503 (5th Cir. 2013) (Unpublished Opinion), arose out of the termination of the plaintiff, Jimmy Parker ("Parker"), from his employment with the defendant, Cooper Tire and Rubber Company ("Cooper").

Parker had been taking absences from work due to severe disability. It appears that Parker complied with Cooper's notification of absence policy on all but three occasions. Nevertheless, Cooper fired Parker for failing to report those absences. This suit ensued. Parker claimed, among other things, that Cooper discharged him to prevent him from collecting disability and medical benefits in violation of the anti-retaliation rule in section 510 of ERISA.

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") noted that there were two disability benefit plans at issue: a short-term disability plan, and a long-term disability plan. As to the latter, the Court ruled that Parker had failed to apply for long-term ERISA benefits, even though he was enrolled in the long-term benefit plan, and this is fatal to his retaliation claim as to that plan. As to the short-term disability plan, the Court ruled that this plan was not covered by ERISA, since it falls in the exception for payroll practices. Thus Parker's claim fails as it applies to the disability plans.

As to the medical benefits, the Court concluded that Parker has met his burden of showing that the termination was a pretext for retaliation. It said that the close timing between Cooper's discovery that Parker had a severe disability requiring serious medical treatment (a liver transplant) and his subsequent termination (one day only between the events) factors into our analysis. Further, Cooper's stated reason for firing Parker was his failure to follow company procedures to report absences from work. However, Cooper repeatedly changed its determination as to which dates Parker actually failed to report his absences. This repeated inconsistency, in addition to efforts by Parker's family to report absences on his behalf, are other factors lending support to Parker's argument that Cooper's justification for his termination is pretextual. These factors are sufficient evidence to create a material issue of fact regarding whether Cooper's proffered reason for terminating Parker was mere pretext. Therefore, the Court held that Cooper is not entitled to summary judgment on Parker's claim for retaliation based on his loss of medical benefits.

January 22, 2014

Employee Benefits- IRS Issues a Checklist For SEPs

The IRS has issued a checklist for SEPs. Here is what it says about the checklist.

Every year it is important that you review the requirements for operating your Simplified Employee Pension ("SEP") plan. Use this checklist to help you keep your plan in compliance with many of the important rules. See www.irs.gov/retirement for online versions of this checklist, Fix-It Guides, and other resources for SEPs and other plan types. On the online version of this checklist, click on "(More)" in any of the questions for additional information (including examples) on how to find, fix and avoid each mistake.

The checklist is here.

January 21, 2014

ERISA-Eleventh Circuit Holds That Administrator Had Obligation To Consider Evidence Presented To Social Security When Deciding A Claim For Long Term Disability Benefits

In Melech v. Life Insurance Company of North America, No. 12-14999 (11th Cir. 2014), the plaintiff, Diane Melech ("Melech"), was the beneficiary of an employee welfare benefit plan provided by her employer Hertz. The plan includes a disability insurance policy (the "Policy") issued and administered by the defendant Life Insurance Company of North America ("LINA").

In the case, Melech stopped working at Hertz in May 2007, when her treating orthopedist took her off work on account of his diagnoses of degenerative disc disease in her cervical spine and tendonitis in her right shoulder. Melech submitted a claim for long-term disability ("LTD") benefits under the Policy in October 2007. At LINA's direction, she also applied for Social Security Disability Income ("SSDI") that same month. LINA denied Melech's claim in November 2007, while her SSDI application was still pending before the Social Security Administration ("SSA"). Melech appealed the denial of her claim through LINA's administrative process.

In December 2007, the SSA asked Melech to visit two new physicians for an independent assessment of her condition. The SSA granted Melech's application for disability benefits in February 2008, and Melech so informed LINA. LINA then went on to deny two consecutive administrative appeals without considering or even asking Melech for the SSA's decision, the two SSA physicians' assessments, or any other evidence before the SSA. This suit ensued, with Melech claiming that LINA violated the Policy's terms and ERISA's requirements--in part because LINA ignored the SSA process and the information it generated. The District Court granted summary judgment in favor of LINA, concluding that LINA's ultimate decision to deny LTD benefits under the Policy was correct based on the administrative record in LINA's possession at the time it made its decision--a record that did not contain any information related to Melech's SSDI application. Melech appeals.

In analyzing the case, the Eleventh Circuit Court of Appeals (the "Court") said that it was not judging the propriety of LINA's ultimate decision to deny Melech's claim for LTD benefits under the Policy. Rather, the Court held-after lenghthy analysis concerning the relation of SSDI benefits to LTD benefits under the Policy- that LINA had an obligation to consider the evidence presented to the SSA. Thus, because LINA did not have this evidence when it denied Melech's last appeal--and in fact could not have had that evidence when it initially denied her claim--the Court vacated the District Court's judgment, and remanded the case to the District Court with instructions to remand Melech's claim to LINA for its consideration of the evidence presented to the SSA.

January 16, 2014

Employee Benefits-DOL Issues FAQs about Affordable Care Act Implementation, Including Preventive Services

The Department of Labor (the "DOL"), in conjunction with the Department of Health and Human Services and the Treasury (together, the "Departments"), has issued FAQs (Part XVIII) regarding implementation of the Affordable Care Act, including among other things guidance on preventive services. Here is what the FAQs say on this topic:

Coverage of Preventive Services. Public Health Service ("PHS") Act section 2713 and the interim final regulations relating to coverage of preventive services require non-grandfathered group health plans to provide benefits for, and prohibit the imposition of cost-sharing requirements with respect to, the following:

• Evidenced-based items or services that have in effect a rating of "A" or "B" in the current recommendations of the United States Preventive Services Task Force ("USPSTF") with respect to the individual involved, except for the recommendations of the USPSTF regarding breast cancer screening, mammography, and prevention issued on or around November 2009, which are not considered current;
• Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices ("ACIP") of the Centers for Disease Control and Prevention ("CDC") with respect to the individual involved;
• With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration ("HRSA"); and
• With respect to women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA, to the extent not already included in the current recommendations of the USPSTF.

If a recommendation or guideline does not specify the frequency, method, treatment, or setting for the provision of that service, the plan can use reasonable medical management techniques to determine any coverage limitations.
These requirements do not apply to grandfathered health plans.

New USPSTF recommendations. On September 24, 2013, the USPSTF issued new recommendations with respect to breast cancer. Specifically, the USPSTF revised its "B" recommendation regarding medications for risk reduction of primary breast cancer in women. The September 2013 recommendation now says:

The USPSTF recommends that clinicians engage in shared, informed decision making with women who are at increased risk for breast cancer about medications to reduce their risk. For women who are at increased risk for breast cancer and at low risk for adverse medication effects, clinicians should offer to prescribe risk-reducing medications, such as tamoxifen or raloxifene.

Accordingly, for plan years beginning one year after the date the recommendation or guideline is issued (in this case, plan years beginning on or after September 24, 2014), non-grandfathered group health plans will be required to cover such medications for applicable women without cost sharing subject to reasonable medical management.

January 15, 2014

Employee Benefits-DOL Issues FAQs about Affordable Care Act Implementation, Including Wellness Programs

The Department of Labor (the "DOL"), in conjunction with the Department of Health and Human Services and the Treasury (together, the "Departments"), has issued FAQs (Part XVIII) regarding implementation of the Affordable Care Act, including among other things guidance on wellness programs. Here is what the FAQs say on those programs:

Final Regulations. On June 3, 2013, the Departments issued final regulations regarding nondiscriminatory wellness programs providing group health coverage under PHS Act section 2705 and the related provisions of ERISA and the Code. The final regulations increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan from 20 percent to 30 percent of the cost of coverage, and further increase the maximum permissible reward to 50 percent for wellness programs designed to prevent or reduce tobacco use. The final regulations also address the reasonable design of health-contingent wellness programs and the reasonable alternatives that must be offered in order to avoid prohibited discrimination.

Tobacco Use. Some group health plans charge participants a tobacco premium surcharge, but also provide an opportunity to avoid the surcharge if, at the time of enrollment or annual re-enrollment, the participant agrees to participate in (and subsequently completes within the plan year) a tobacco cessation educational program. If a participant, who is a tobacco user, initially declines the opportunity to participate in the tobacco cessation program, but joins in the middle of the plan year, the plan may, but is not required to, provide the opportunity to avoid the surcharge or provide another reward to the individual for that plan year.

Reasonable Alternative Standards. The plan must provide a reward for individuals who qualify by satisfying a reasonable alternative standard. If an individual's personal physician states that an outcome-based wellness program is not medically appropriate for that individual and recommends a weight reduction program (an activity-only program) instead, the plan must provide a reasonable alternative standard that accommodates the recommendations of the individual's personal physician with regard to medical appropriateness. Many different weight reduction programs may be reasonable for this purpose, and a participant should discuss different options with the plan.
Notice of Availability of Reasonable Alternative Standard. Paragraph (f)(6) of the final regulations provides sample language that may be used to satisfy the requirement to provide notice of the availability of a reasonable alternative standard. Plans are permitted to modify this language. The final regulations state that the sample language provided in paragraph (f)(6), or substantially similar language, can be used to satisfy the notice requirement. Plans may modify the sample language to reflect the details of their wellness programs, provided that the notice includes all of the required content of the final regulations. Additional sample language is available in examples illustrating the final regulations' requirements for outcome-based wellness programs.

January 14, 2014

Employee Benefits-DOL Issues FAQs about Affordable Care Act Implementation, Including Cost-Sharing Limits

The Department of Labor (the "DOL"), in conjunction with the Department of Health and Human Services and the Treasury (together, the "Departments"), has issued FAQs (Part XVIII) regarding implementation of the Affordable Care Act, including among other things guidance on the cost-sharing limits. Here is what the FAQs say on those limits:

In General. PHS Act section 2707(b), as added by the Affordable Care Act, provides that a non-grandfathered group health plan must ensure that any annual cost-sharing imposed under the plan does not exceed the limitations provided for under sections 1302(c)(1) and (c)(2) of the Affordable Care Act. Section 1302(c)(1) limits out-of-pocket costs and, for small group market plans, section 1302(c)(2) limits deductibles.

For plan years beginning in 2014, the annual limitation on out-of-pocket costs in effect under Affordable Care Act section 1302(c)(1) is $6,350 for self-only coverage and $12,700 for coverage other than self-only coverage. For later plan years, the annual limitation on out-of-pocket costs is increased by the premium adjustment percentage described under Affordable Care Act section 1302(c)(4).

After 2014. For plan years beginning after 2014, non-grandfathered group health plans must have an out-of-pocket maximum which limits overall out-of-pocket costs on all essential health benefits ("EHBs"). Because cost-sharing limits in section 1302(c) of the Affordable Care Act apply only to EHBs, plans are not required to apply the annual limitation on out-of-pocket maximums to benefits that are not EHBs. To determine which benefits are EHBs, the Departments will consider self-insured group health plans or large group health plans to have used a permissible definition of EHBs under section 1302(b) of the Affordable Care Act if the definition is one that is authorized by the Secretary of HHS.

Plan Structure. Plans are permitted to structure a benefit design using separate out-of-pocket limits, provided that the combined amount of any separate out-of-pocket limits applicable to all EHBs under the plan does not exceed the annual limitation on out-of-pocket maximums for that year under section 1302(c) of the Affordable Care Act.

Out-of-Network/Non-Covered Services. A plan may, but is not required to, count out-of-pocket spending for out-of-network items and services towards the plan's annual maximum out-of-pocket limit. Similarly, a plan may, but is not required to, count out-of-pocket spending for non-covered services towards the plan's annual maximum out-of-pocket costs.

January 13, 2014

ERISA-DC Circuit Rules That Reliance On Counsel's Advice Was Reasonable And Allowed Plan Fiduciaries To Avoid A Breach Of Duty

In Clark v. Feder Semo and Bard, P.C., No. 12-7092 (DC Cir. 2014), the law firm of Feder Semo had closed its doors and terminated its retirement plan (the "Plan"). Plaintiff Denise Clark ("Clark") was an attorney at the law firm for almost a decade and participated in the Plan. Unfortunately, when the Plan was terminated, there were not enough assets to satisfy all of its obligations. Dissatisfied with the amount of money that came her way, Clark sued, alleging that decisions made by Joseph Semo and Howard Bard (the law firm's directors who administered the Plan) breached their fiduciary duties under ERISA. The district court rejected all of Clark's claims, and The DC Circuit Court of Appeals (the "Court") affirmed.

In affirming the district court's decision, the Court pointed out that the defendants-Plan fiduciaries- had relied on the advice of counsel when determining the amount payable to Clark from the Plan. In ERISA, Congress provided that a fiduciary must act "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use." 29 U.S.C. § 1104(a)(1)(B). Doing so, ERISA adopted much of what the common law had, over time, come to require of fiduciaries. However, the courts must be on the lookout for instances in which ERISA departs from the common law, sometimes requiring more, other times requiring less, of fiduciaries. As such, a fiduciary may rely on the advice of counsel when reasonably justified under the circumstances. Here, the district court found that the fiduciaries rightly relied on counsel's advice, so no breach of ERISA fiduciary duties obtained.