In Employee Plans News Issue No. 2015-4, April 1, 2015, the IRS reminds us to follow up on corrections we agreed to in a Voluntary Correction Program (VCP) compliance statement. The reminder is here.
In Employee Plans News Issue No. 2015-4, April 1, 2015, the IRS reminds us to follow up on corrections we agreed to in a Voluntary Correction Program (VCP) compliance statement. The reminder is here.
Employment-Second Circuit Rules That New York State Wage Parity Law Is Not Unconstitutional Or Preempted By Federal Law
In Employ Concerned Home Care Providers, Inc. v. Cuomo, No. 13-3790-cv (Second Cir.2015), the Second Circuit Court of Appeals (the "Court") faced the following matter. A section of the New York Public Health Law known as the "Wage Parity Law" sets the minimum amount of total compensation that employers must pay home care aides in order to receive Medicaid reimbursements for reimbursable care provided in New York City and Westchester, Suffolk, and Nassau Counties (the "surrounding Counties"). N.Y. Pub. Health Law § 3614-c. The questions presented on to the Court on appeal are whether the Wage Parity Law is preempted by the National Labor Relations Act ("NLRA"), or the Employee Retirement Income Security Act of 1974 ("ERISA"), or is unconstitutional under the Fourteenth Amendment's Due Process and Equal Protection Clauses. The Court ruled that the Wage Parity Law is neither preempted nor unconstitutional.
ERISA-First Circuit Upholds Termination Of Disability Benefits Due To A 24 Month Limitation In The Plan For Disabilities Relating To Mental Health Conditions
In Dutkewych v. Standard Insurance Company, No. 14-1450 (1st Cir. 2015), the First Circuit Court of Appeals (the "Court") faced the following matter. Plaintiff Mark Dutkewych is a participant in a disability plan (the "Plan"), insured and administered by Defendant Standard Insurance Company under ERISA. The Plan limits long-term disability ("LTD") benefits to 24 months for "a Disability caused or contributed to by . . .: (1) Mental Disorders; (2) Substance Abuse; or (3) Other Limited Conditions." Applying this Limited Conditions Provision, Standard terminated Dutkewych's benefits after 24 months, on June 1, 2011. After Dutkewych's administrative appeal failed, he brought this lawsuit against Standard for unpaid benefits. The district court entered summary judgment against Dutkewych's claims, and Dutkewych appealed.
In reviewing the case, the Court said that Dutkewych contests Standard's decision to limit his LTD benefits to 24 months, saying he has been diagnosed with chronic Lyme disease, "a physical illness that is not limited under the terms of the Plan." Despite the hot dispute between the parties on this issue, this case does not turn on the insurer's doubts about the validity of Dutkewych's diagnosis with chronic Lyme disease. Instead, this case turns on the insurer's application of a different provision of the Plan, the subset of the Limited Conditions Provision related to mental disorders ("Mental Disorder Limitation").Standard maintains that, even if Dutkewych was disabled as a result of chronic Lyme disease in June 2011, the Mental Disorder Limitation nonetheless applies because his mental disorders, regardless of their cause, contributed to his disability as of June 2011. The Court ruled that Standard's interpretation of the Mental Disorder Limitation is reasonable and its application to Dutkewych's case is supported by substantial evidence. Accordingly, the Court affirmed the entry of summary judgment to Standard.
ERISA-DOL Proposes New Rule Defining A Fiduciary For Certain Purposes of ERISA And Providing Guidance On A Fiduciary's Conflict of Interest.
The U.S. Department of Labor (the "DOL") has issued a new proposed rule providing a new definition of fiduciary for certain ERISA purposes and pertaining to an ERISA fiduciary's conflict of interest. Here is what the DOL about the proposed rule:
This proposal contains a proposed regulation defining who is a "fiduciary" of an employee benefit plan under ERISA as a result of giving investment advice to a plan or its participants or beneficiaries. The proposal also applies to the definition of a "fiduciary" of a plan (including an individual retirement account (IRA)) under section 4975 of the Internal Revenue Code of 1986 (the "Code"). If adopted, the proposal would treat persons who provide investment advice or recommendations to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner as fiduciaries under ERISA and the Code in a wider array of advice relationships than the existing ERISA and Code regulations, which would be replaced. The proposed rule, and related exemptions, would increase consumer protection for plan sponsors, fiduciaries, participants, beneficiaries and IRA owners.
This proposal also withdraws a prior proposed regulation published in 2010 (2010 Proposal) concerning this same subject matter. In connection with this proposal, elsewhere in the same issue of the Federal Register, the DOL is proposing new exemptions and amendments to existing exemptions from the prohibited transaction rules applicable to fiduciaries under ERISA and the Code that would allow certain broker-dealers, insurance agents and others that act as investment advice fiduciaries to continue to receive a variety of common forms of compensation that otherwise would be prohibited as conflicts of interest.
In Retirement News for Employers, April 2, 2015 Edition, the IRS provides guidance on keeping records for hardship withdrawals and plan loans. The guidance is here.
As appropriate for this time of year, in Retirement News for Employers, April 2, 2015 Edition, the IRS discusses IRA contribution limits. This discussion is here.
Employee Plans-IRS Discusses How A Self-Employed Individual Should Calculate His Or Her Retirement Plan Contribution And Deduction
In Retirement News for Employers, April 2, 2015 Edition, the IRS discusses how a self-employed individual should calculate his or her retirement plan contribution and deduction. This discussion is here.
Employee Plans-IRS Discusses Correction Of A Violation Of The Universal Available Rule For 403(b) Plans
In Retirement News for Employers, April 2, 2015 Edition, the IRS discusses how you may correct the mistake of excluding eligible employees from your 403(b) plan, that is, correction of a violation of the universal available rule that applies to 403(b) plans. This discussion is here.
In FAQs about Affordable Care Act Implementation (Part XXIV), the Employee Benefits Security Administration (the "EBSA") discusses the intention of the Departments (namely, the Department of Labor, the Department of Health and Human Services, and the Treasury), who are responsible for the rules governing the summary of benefits and coverage (the "SBC"), to finalize certain changes relating to the SBCs. Here is what the EBSA said:
SBC Guidance In General. Public Health Service ("PHS") Act section 2715, as added by the Affordable Care Act and incorporated by reference into ERISA and the Internal Revenue Code, directs the Departments to develop standards for use by a group health plan in compiling and providing an SBC that "accurately describes the benefits and coverage under the applicable plan or coverage." On February 14, 2012, the Departments published joint final regulations to implement the disclosure requirements under PHS Act section 2715 and an accompanying document announcing the availability of templates, instructions, and related materials. After the 2012 final regulations were published, the Departments released six sets of FAQs regarding implementation of the SBC requirements. After consideration of the comments and feedback from interested stakeholders, on December 30, 2014, the Departments published a notice of proposed rulemaking, as well as a new set of proposed SBC templates, instructions, an updated uniform glossary, and other materials.
Upcoming Changes. The Departments intend to finalize changes to the regulations in the near future, which are intended to apply in connection with coverage that would renew or begin on the first day of the first plan year that begins on or after January 1, 2016 (including open season periods that occur in the Fall of 2015 for coverage beginning on or after January 1, 2016).
The Departments also intend to utilize consumer testing and offer an opportunity for the public, including the National Association of Insurance Commissioners, to provide further input before finalizing revisions to the SBC template and associated documents. The Departments anticipate the new template and associated documents will be finalized by January 2016 and will apply to coverage that would renew or begin on the first day of the first plan year that begins on or after January 1, 2017 (including open season periods that occur in the Fall of 2016 for coverage beginning on or after January 1, 2017).
The Departments are fully committed to updating the template and associated documents (including the uniform glossary) to better meet consumers' needs as quickly as possible.
ERISA- Fifth Circuit Holds That An Out-Of-Network Hospital Has Standing To Sue A Health Plan Under ERISA For Unpaid Benefits, When Plan Participants Assigned To The Hospital Their Right To Benefits From The Plan
In North Cypress Medical Center Operating Company, Limited v. Cigna Healthcare, No. 12-20695 (5th Cir. 2015), the Fifth Circuit Court of Appeals (the "Court") ruled that an out-of-network hospital has standing-as a matter of both the constitutional minimum standing requirement and statutory standing needed under ERISA-to sue a health plan for payment of benefits, when plan participants had expressly assigned to the hospital their right to benefits from the plan.
In so ruling, the Court took into account the fact that hospital patients covered by a health plan generally assign their claims to the hospital in the admissions process well before their presentment to the plan's insurer or administrator. The Court then looks to the rights of the patient at the time of assignment. The fact that the patient assigned her rights elsewhere does not cause them to disappear. Further, as a fact to be taken into account, a patient suffers a concrete injury if money that she is allegedly owed contractually is not paid, regardless of whether she has directed the money be paid to a third party for her convenience. The patients contracted for coverage at out-of-network providers under their health plans. The patients allegedly incurred charges for medical care, and directed that the payments be made to the provider, but, here, the contracted-for payments have not been made. The patients have thus allegedly been deprived of what they contracted for, a concrete injury.
Employee Benefits-IRS Reminds Us That Expanded Actuarial Certifications For Multiemployer Plans Are Due March 31 (For Calendar Year Plans)
In Employee Plans News, Issue 2015-3, March 25, 2015, the Internal Revenue Service ("IRS") reminds us that expanded annual actuarial certifications for multiemployer plans are due March 31 for calendar year plans. Here is what the IRS says:
The Multiemployer Pension Reform Act of 2014 (MPRA), enacted on December 16, 2014, revised the annual funding certification requirements for multiemployer plans by:
• adding a new zone status, and
• providing special rules for entering into and emerging from certain zones.
The revisions generally apply to certifications for 2015 and subsequent plan years. For calendar year plans, the 2015 certification is due by March 31, 2015. MPRA also amended certain provisions of the Pension Protection Act of 2006 (PPA).
Pension Protection Act changes
MPRA made the following changes for zone certifications:
• Made permanent the annual requirement to certify a plan's funding zone. Before MPRA was passed, the annual certification requirement was scheduled to "sunset" on or after December 31, 2014.
• Election of Critical status: Plans projected to be in Critical status in any of the succeeding five plan years may elect to be in Critical status in the current plan year. Plans may bypass Endangered status by making this election.
• Changes made to emergence from Critical status: This was amended to include a condition for projected insolvency and special rules for plans with automatic amortization extensions.
Zone status changes
MPRA added a new zone status available for a plan actuary's annual certification. MPRA also added special rules allowing a plan to be treated as being in a particular zone when, before enactment, the plan would have been in a different zone. The new zone and special rules are indicated in bold below.
• Neither Endangered nor Critical (new special rule): A plan is treated as Neither Endangered nor Critical if it's projected to be in that status as of the end of the 10th plan year following the current plan year. The plan must not have been in either Critical status or Endangered status in the immediately preceding plan year.
• Seriously Endangered.
• Critical (new special rule): A plan can elect to be treated as Critical if the plan is projected to be in Critical status in any of the succeeding five plan years, but not in Critical status in the current plan year.
• Critical and Declining: This is the new zone status that applies if the plan is in Critical status for the current plan year and is projected to become insolvent in the current year or any of the succeeding 14 plan years. The period in which the plan is projected to become insolvent is extended from 14 plan years to 19 plan years if the ratio of inactive participants to active participants exceeds 2:1, or if the funded percentage is less than 80%.
Email and e-fax available for certifications
Actuaries can submit the Annual Actuarial Certification by email, e-fax or regular mail. Certifications must be filed by 90 days after the beginning of the plan year (March 31, 2015, for calendar year plans). The Employee Plans Compliance Unit (EPCU) doesn't provide return-receipt acknowledgements.
File a certification using only one of the following methods:
• Email: EPCU@irs.gov (Note: IRS cannot guarantee internet security for incoming email submissions)
• E-fax: 855-215-7122
• Mail: Internal Revenue Service, Employee Plans Compliance Unit, Group 7602 (TEGE:EP:EPCU), 230 S. Dearborn Street, Room 1700 - 17th Floor Chicago, IL 60604
EPCU offers more information on submission requirements and the actions taken if certifications are not received.
ERISA-Third Circuit Rules That Company's Erroneous Interpretation Of A Plan, Which Results In A Denial Of Benefits, Violated ERISA's Anti-Cutback Rule
In Cottillion v. United Refining Company, Nos. 13-4633 & 13-4743 (3rd Cir. 2015), the Third Circuit Court of Appeals (the "Court") was called on the apply ERISA's anti-cutback rule, under which an amendment may not reduce a plan benefit.
In this case, John Cottillion worked at United Refining Company (the "Company") for 29 years. He was age 54 when he quit, and his benefits under the Company's retirement plan (the "Plan") had vested. When Cotillion quit, the Company wrote him a letter, informing him that he may elect to have his monthly retirement benefit from the Plan begin at any time after the month in which Cottillion would turn 60, and that his monthly retirement benefit will be $573.70 at age 60. The letter did not state that the amount of Cottillion's benefit depended on whether he elected to receive it at age 60 or later, or that the benefit would otherwise be reduced if payment started before age 65. Payment of Cottillion's pension benefit commenced before he reached age 65, without a full actuarial reduction. Later, claiming that the failure to apply a full actuarial reduction is an error, the Company attempted to cancel Cottillion's monthly pension payments, then $506.58, and recoup from Cottillion the purportedly excess payments, in the amount of $14,475. This suit commenced, with Cottillion challenging the Company's attempted actions. The district court held that these actions would violate ERISA's anti-cutback rule, 29 U.S.C. 1054(g).
In analyzing the case, the Court said (among other things) that the Company action complained of is based on an erroneous interpretation of the Plan, and that an erroneous interpretation of a plan provision that results in the improper denial of benefits to a plan participant-which occurred in this case- may be construed as an "amendment" for the purposes of the anti-cutback rule. The Court summarized its findings by saying that the Company provided a detailed pension plan that clearly explained how to calculate payments owed to those who, like Cottillion, earned accrued benefits and left employment before he was eligible to receive them. The pension plans' method of calculation did not include an actuarial adjustment for participants who took benefits before turning 65, and ERISA forbids the Company from drafting those reductions into the Plans whether by amendment, interpretation, or otherwise. The Company must pay the employees what it promised, and thus the district court holding is affirmed.
Employee Benefits-IRS Reminds Us That Many Retirees Face April 1 Deadline To Take Required Retirement Plan Distributions
An Internal Revenue Service ("IRS") Release, dated March 19, 2015, reminds us that many retirees face an April 1 deadline to take required retirement plan distributions. This reminder applies generally to individuals who turned 70½ during 2014. The Release is here.
ERISA-Sixth Circuit Rules That Disgorgement Of Profits Is Not An Available Remedy Against A Fiduciary For Wrongful Denial Of Benefits, When The Plaintiff Had Already Recovered The Full Amount Of The Benefits
In Rochow v. Life Ins. Co. of N. Am., 2015 U.S. App. LEXIS 3532 (6th Cir. 2015), the Sixth Circuit Court of Appeals (the Court) was asked to review the district court's order requiring Life Insurance Company of North America ("LINA") to disgorge profits obtained from its wrongful denial of long-term disability ("LTD") benefits.
In this case, the late Daniel J. Rochow ("Rochow"), an employee of Arthur J. Gallagher & Co. ("Gallagher"), was covered under a LINA policy of insurance providing LTD benefits. Rochow developed a condition known as HSV-Encephalitis, a rare and severely debilitating brain infection, and was forced to resign from Gallagher. Rochow then filed a claim for LTD benefits under the policy with LINA. LINA denied Rochow benefits, stating that Rochow's employment ended before his disability began. Rochow subsequently filed this suit. The case reached the Court, which decided the LINA's denial of the LTD claim was a breach of fiduciary duty under ERISA, since the denial was arbitrary and capricious, was not the result of a deliberate, principled reasoning process, and did not appear to have been made solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries' as required by ERISA. As a result of this finding that a breach of fiduciary duty had occurred, the plaintiff (suing in the late Rochow's place) recovered the LTD benefit denied under ERISA section 502(a)(1)(B). The issue then arose as to whether the plaintiff was also entitled to a disgorgement of profits due to the Court's ruling. A district court had ruled that the plaintiff was so entitled.
In analyzing the case, the Court said that there is essentially one issue before us: is the plaintiff entitled to recover under both ERISA section 502(a)(1)(B) and 502(a)(3) for LINA's breach of fiduciary duty stemming from its arbitrary and capricious denial of LTD benefits, given plaintiff's recovery of the LTD benefits? Section 502(a)(3) makes "appropriate equitable relief" available to redress violations such as a breach of fiduciary duty. The Court concluded that, in this case, the disgorgement relief was not available, since--absent a showing that the the 502(a)(1)(B) remedy is inadequate (and no such showing here)--granting this relief would result in an impermissible duplicative recovery. Accordingly, the Court overturned the district court's ruling, and remanded the case back to the district court to determine if the plaintiff is entitled to prejudgment interest on the benefits recovered.
In Hotel 71 Mezz Lender LLC v. The National Retirement Fund, No. 14-2034 (7th Cir. 2015), the National Retirement Fund ("NRF") and its trustees sought to hold Hotel 71 Mezz Lender LLC ("Mezz Lender") and Oaktree Capital Management, L.P. ("Oaktree") responsible for multiemployer pension fund withdrawal liability pursuant to section 4201 of ERISA.
In this case, Oaktree, through Mezz Lender, provided financing for the acquisition of a hotel by Chicago H&S Hotel Property LLC ("H&S"). When H&S later defaulted on the loan, it was taken into bankruptcy and the hotel was sold. NRF is a multiemployer pension plan to which H &S had been making employer contributions for the hotel employees under a collective bargaining agreement. NRF contends that the sale of the hotel triggered withdrawal liability to NRF on the part of H&S and any other "trade or business" under common control with it--including both Oaktree and Mezz Lender (together, the "Oaktree parties"). One issue for the Seventh Circuit Court of Appeals (the "Court")-do the Oaktree parties have any responsibility for the withdrawal liability? The Oaktree parties had come under common control with H &S, so the remaining question was whether they conducted a "trade or business".
In analyzing the case, the Court concluded that there was uncertainty and an absence of evidence as to whether the Oaktree parties were engaged in a "trade or business". As such, the Court could not determine whether the Oaktree parties could have responsibility for the withdrawal liability. Consequently, the Court remanded the case back to the district court to make this determination.