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 20, 2015

Employee Benefits-IRS Summarizes How the Health Care Law Affects Aggregated Companies

In IRS Health Care Tax Tip 2015-50, August 18, 2015, the Internal Revenue Service (the "IRS") summarizes how the health care law affects aggregated companies. Here is what the IRS said.

The Affordable Care Act applies an approach to common ownership that also applies for other tax and employee benefit purposes. This longstanding rule generally treats companies that have a common owner or similar relationship as a single employer. These are aggregated companies. The law combines these companies to determine whether they employ at least 50 full-time employees including full-time equivalents.

If the combined employee total meets the threshold, then each separate company is an applicable large employer. Each company - even those that do not individually meet the threshold - is subject to the employer shared responsibility provisions.

These rules for combining related employers do not determine whether a particular company owes an employer shared responsibility payment or the amount of any payment. The IRS will determine payments separately for each company.

For more information about how the employer shared responsibility provisions may affect your company, see our Questions and Answers on IRS.gov/aca. For details about how to determine if you are an applicable large employer, including the aggregation rules, see Determining If You Are an Applicable Large Employer.

August 19, 2015

Employee Benefits-IRS Summarizes What Employers Need to Know about the Affordable Care Act


In IRS Health Care Tax Tip 2015-46, August 4, 2015, the Internal Revenue Service (the "IRS") summarizes what employers need to know about the Affordable Care Act (the "ACA"). Here is what the IRS said.

The health care law contains tax provisions that affect employers. The size and structure of a workforce - small or large - helps determine which parts of the law apply to which employers. Calculating the number of employees is especially important for employers that have close to 50 employees or whose work force fluctuates during the year.

The number of employees an employer has during the current year determines whether it is an applicable large employer for the following year. Applicable large employers are generally those with 50 or more full-time employees or full-time equivalent employees. Under the employer shared responsibility provision, ALEs are required to offer their full-time employees and dependents affordable coverage that provides minimum value. Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.

The Tax Tip then sets forth a chart which summarizes ACA requirements for employers, and says that, to find more information on these and other ACA tax provisions, visit IRS.gov/aca.

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 14, 2015

Employment-US Department of Labor Signs Agreement With Alaska Department Of Labor And Workforce Development To Protect Workers From Misclassification

Memorandum: According to a U.S. Department of Labor News Brief (8/13/2015), officials from the U.S. Department of Labor and the Alaska Department of Labor and Workforce Development have signed a three-year Memorandum of Understanding (the "MOU" ) intended to protect employees' rights by preventing their misclassification as independent contractors or other non-employee statuses. Under the agreement, both agencies may share information and coordinate law enforcement.

Background: The MOU represents a new, combined federal and state effort to work together to protect the employees' rights and level the playing field for responsible employers by reducing the practice of misclassification. Alaska is the 25th state agency to join this effort with the U.S. Labor Department. Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Idaho, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Washington, Wisconsin and Wyoming agencies have signed similar agreements.

More information on misclassification and the effort are available at http://www.dol.gov/misclassification/.

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 12, 2015

Employee Benefits-The Penalties For Failure To File Or Provide An ACA Information Return Or Statement Has At Least Doubled

The recently enacted Trade Preferences Extension Act of 2015 (the "Act") doubles the penalties for the failure to file or provide ACA information returns and statements.

Returns And Statements Required. The Affordable Care Act (the "ACA") added section 6056 to the Internal Revenue Code (the "Code"). Under that section, an "Applicable Large Employer" or "ALE" which maintains a group health plan is required to file an information return relating to the plan with the IRS. This return provides information on the health coverage provided under the plan. The ALE must generally use Form 1095-C, with transmittal Form 1094-C, as the return. The filing is due by the February 28 (March 31 if filing is electronic) following the year for which the return is made. In addition, the ALE is required to furnish each full-time employee with a statement that includes the same information provided to the IRS on the information return, by January 31 following the year to which the statement relates.

Further, the ACA added section 6055 to the Code. Under that section, the plan sponsor of a self-insured group health plan (including the trustees of a multiemployer health plan) is required to file an information return relating to the plan with the IRS. This return provides information on the "minimum essential coverage" provided under the plan. The plan sponsor must generally use Form 1095-B, with transmittal Form 1094-B, as the return. The filing is due by the February 28 (March 31 if filing is electronic) following the year for which the return is made. The plan sponsor is required to furnish, to each covered individual of the plan, a statement that includes the same information provided to the IRS on the information return, by January 31 following the year to which the statement relates.

If the plan sponsor which maintains a self-insured plan is also an ALE, then the plan sponsor must combine reporting under sections 6055 and 6056, by filing a single information return, Form 1095-C and transmittal, Form 1094-C. Then a single statement would be given to each full-time employee and other covered individuals.
The first returns and statements are for calendar year 2015, and are therefore due in 2016.

Information Reporting Penalties. An ALE, or plan sponsor maintaining a self-insured group health plan, which fails to comply with the information reporting requirements described above may be subject to the general reporting penalty provisions under section 6721 (failure to file correct information returns) and section 6722 (failure to furnish correct payee statement) of the Code. And the Act has at least doubled to the applicable penalties under those sections. As such, the penalties are as follows:

• For returns required to be filed after 2015, the penalty for failure to file an information return is increased from $100 to $250 for each return for which such failure occurs, with a total penalty for any calendar year capped at $3,000,000 (up from the $1,500,000 total for pre-2015 returns).

• For statements due after 2015, the penalty for failure to provide a correct statement to a full-time employee or other covered individual is increased from $100 to $250 for each statement for which such failure occurs, with the total penalty for a calendar year capped at $3,000,000 (up from the $1,500,000 total for pre-2015 statements).

• Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement.

Note that the waiver of penalty and special rules under section 6724 of the Code, and the applicable regulations, including abatement of information return penalties for reasonable cause, may apply to certain failures under section 6721 or 6722.

August 11, 2015

Employee Benefits-IRS Discusses The Tax Treatment Of Contributions Made To An HRA Established For Retirees

In Private Letter Ruling Number 201528004, the IRS faced the following situation, and came to the following conclusions:

The taxpayer currently provides health coverage to eligible retirees, their spouses, their registered domestic partners and their dependents through a choice of health plans. Upon retirement, eligible retirees generally pay premiums for the health coverage with their own after-tax funds. Some retirees are also eligible to have a portion of their accumulated unused sick leave at retirement mandatorily converted to a contribution from the employer to pay for the health insurance premiums. Contributions are uniform and based on hours of sick leave available for conversion and the class of retiree coverage (e.g., retiree-only coverage, retiree-plus-dependent, retiree-plus-family).

The taxpayer proposes to establish a new retiree medical benefit structure in the form of a health reimbursement arrangement for the benefit of eligible retirees, their spouses, their registered domestic partners and their dependents (the "retiree HRA"). Eligible employees hired before a certain date will make an election at retirement to participate in either: (1) existing health plans with premiums funded, in part, by mandatory sick leave conversion, or (2) the retiree HRA funded by mandatory conversion of accumulated unused sick leave at retirement. Retiree HRA contributions are uniform and based on hours of sick leave available for conversion, class of retiree coverage, and Medicare eligibility. The election to waive coverage under the existing health plans may not generally be changed. No other contributions, other than the sick leave conversion, are made to the retiree HRA. The taxpayer represents that amounts in the retiree HRA may be used only to reimburse health insurance premiums and medical expenses as defined in section 213 of the Code. The retiree HRA will not pay claims for registered domestic partner's medical expenses. Nor will the retiree HRA reimburse spouse's group health insurance that has been paid with pre-tax dollars. The taxpayer represents that under no circumstance may the eligible retiree or any beneficiary receive any conversion amounts at any time in cash or other benefits. Following the retiree's death, unused amounts continue for the benefit of the retiree's spouse, registered domestic partner and eligible dependents (children under 26).

Based on the foregoing, the IRS concludes that:

(1) Taxpayer contributions made to the retiree HRA on behalf of eligible retirees, spouses, and eligible dependents, which are used exclusively to pay for eligible medical expenses, are excludable from the gross income of eligible retirees under section 106 of the Code;

(2) Taxpayer contributions described in (1) are not "wages" and are not subject to FICA taxes under section 3121(a), FUTA taxes under section 3306(b) or income tax withholding under section 3401(a); and

(3) Taxpayer contributions made to the retiree HRA that are used to provide medical coverage for registered domestic partners of eligible retirees (e.g., health insurance premiums) are included in the gross income of eligible retirees under section 61 of the Code.

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 7, 2015

Executive Compensation-SEC Adopts Rule For Pay Ratio Disclosure

In Press Release 2015-160 (Washington D.C., Aug. 5, 2015), the Securities and Exchange Commission (the "SEC") says that it has adopted a final rule that requires a public company to disclose the ratio of the compensation of its chief executive officer (the "CEO") to the median compensation of its employees. According to the Press Release, the new rule, which is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides companies with flexibility in calculating this pay ratio, and helps inform shareholders when voting on "say on pay."

The Press Release includes a Fact Sheet, which explains the new rule.

August 6, 2015

Employee Benefits-IRS Says That Small Business Can Get IRS Penalty Relief For Unfiled Retirement Plan Returns

In Employee Plans News, Issue No. 2015-8, July 27, 2015, the Internal Revenue Services (the "IRS") discussed how a small business can get relief from penalties for the failure to file retirement plan returns. Here is what the IRS said.

In IR-2015-96, July 14, 2015, the IRS encourages eligible small businesses that did not file certain retirement plan returns to take advantage of a low-cost penalty relief program enabling them to quickly come back into compliance. The program is designed to help small businesses that may have been unaware of the reporting requirements that apply to their retirement plans.

Small businesses that fail to file required annual retirement plan returns, usually Form 5500-EZ, can face stiff penalties -- up to $15,000 per return. However, by filing late returns under this program, eligible filers can avoid these penalties by paying only $500 for each return submitted, up to a maximum of $1,500 per plan. For that reason, program applicants are encouraged to include multiple late returns in a single submission. Find the details on how to participate in this program, under Revenue Procedure 2015-32, on IRS.gov.

The program is generally open to small businesses with plans covering a 100 percent owner or the partners in a business partnership, and the owner's or partner's spouse (but no other participants), and certain foreign plans. Those who have already been assessed a penalty for late filings are not eligible. The Department of Labor offers a similar relief program for businesses with retirement plans that include employees known as the Delinquent Filer Voluntary Compliance Program.

Started as a one-year pilot, the IRS program was made permanent in May 2015. The IRS has received about 12,000 late returns since the pilot program began in June 2014.
The IRS reminds retirement plan sponsors and administrators that in most cases, a return must be filed each year for the plan by the end of the seventh month following the close of the plan year. For plans that operate on a calendar-year basis, as most do, this means the 2014 return is due on July 31, 2015. For details, visit the Form 5500 Corner on IRS.gov.

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.