October 29, 2014

ERISA - DOL Says That A Series Of Target Date Funds Could Serve As QDIAs

Basically at the same time that the IRS said that a qualified defined contribution plan could offer for investment a series of Target Date Funds ("TDFs") (see yesterday's blog), the U.S. Department of Labor (the "DOL") offers some thoughts on the TDFs.

The DOL says, in an October 23, 2014 letter from Phyliss Borzi (Assistant Secretary) to J. Mark Iwry (the "Letter"), that the TDFs in the series could serve as "qualified default investment alternatives" or "QDIAs", within the meaning 29 CFR §2550.404c-5 (the QDIA regulation), in light of the TDFs' investments in unallocated deferred annuity contracts, described in IRS Notice 2014-66 (the" Notice"). If an investment fund qualifies as a QDIA, the plan does not lose the "no liability for bad investment" protection for its fiduciaries under ERISA section 404(c), merely because plan contributions are automatically invested in that fund without participant choice.

The Example. The Letter focuses on the following example in the Notice: The subject is a profit-sharing plan (the "Plan") qualified under Code section 401(a). Participants in the Plan can commence distribution at age 65, the normal retirement age under the Plan, or upon severance from employment. The Plan provides for the allocation of investment responsibilities to participants and beneficiaries. The Plan offers an array of designated investment alternatives, including the TDFs. The TDFs are designed to provide varying degrees of long term appreciation and capital preservation through a mix of equity and fixed income exposures based on generally accepted investment theories. The TDFs' asset mix is designed to change over time, becoming more conservative through a gradual reduction in the allocation to equity investments and a gradual increase in the allocation to fixed income investments as the participants in each TDF become older.

The intent of the plan sponsor is to satisfy the conditions of the QDIA regulation. Thus, for example, participants may transfer their holdings, in whole or in part, from the TDFs to other investment alternatives available under the Plan on at least a quarterly basis. The TDFs do not impose any fees or restrictions on the ability of a participant to transfer his or her holdings, in whole or in part, to other investments available under the Plan, or to make withdrawals pursuant to Code section 414(w)(2)(B), during the 90-day period beginning with the initial investment of a participant's assets in a TDF. Following the end of this 90-day period, the TDFs do not have any transfer or withdrawal restrictions or fees that differ depending on whether the particular participants affirmatively selected the TDFs, rather than having been defaulted into the TDFs.

Each TDF within the series is available only to participants who will attain normal retirement age within a limited number of years around the TDF's target date. Each TDF available to participants age 55 or older holds unallocated deferred annuity contracts, which constitute a portion of the TDF's fixed income investments. TDFs with such annuities normally do not permit participants whose ages fall outside the designated age band for the TDF to hold an interest in that TDF, because it is not actuarially reasonable for an insurer to offer a deferred annuity at a price that does not vary based on the age of the purchaser. As the age of the group of participants in such TDF increases, a larger portion of the assets in the TDF will be used to purchase unallocated deferred annuity contracts each year. TDFs that are available to participants younger than age 55 do not include unallocated deferred annuity contracts. However, the series is designed so that as the asset allocation changes over time, each TDF will include unallocated deferred annuity contracts beginning when the participants in that TDF attain age 55.

An "unallocated deferred annuity contract" is a contract with a licensed insurance company that promises to pay income to covered plan participants at some date in the future (possibly far into the future) on a regular basis for a period of time or for life. The annuity is written on behalf of a group of participants and not issued to and owned by a specific individual. As such, unallocated deferred annuity contracts do not ordinarily require the insurance company to have or maintain any personal information on individuals in the group. Rather, units of the unallocated annuity generally are largely interchangeable among members of the covered group, which facilitates transferability and allocation within the group, for example at the dissolution date of each TDF.

At its target date, each TDF dissolves, and participants with an interest in the TDF will receive an annuity certificate providing for immediate or deferred commencement of annuity payments. The certificate represents the participant's interest in the unallocated deferred annuity contracts held by the TDF. For instance, if a TDF 's asset mix contains a fifty percent investment in unallocated deferred annuity contracts, then half of each participant's individual account balance will be reflected in the certificate. The remaining portion of each such participant's interest in the TDF will be reinvested by the participant or plan fiduciary in other Plan investment alternatives in accordance with title I of ERISA.

The assets of the Funds include plan assets for purposes of part 4 of title I of ERISA and such Funds are managed by an investment manager as described in section 3(38) of ERISA. The investment manager has complete discretion to manage, acquire, or dispose of any assets of the Funds, including the unallocated deferred annuity contracts held by the Funds, and complete discretion to choose and retain the insurance company or companies issuing the contracts. The investment manager is independent from the insurance company or companies issuing such contracts. The investment manager acknowledges in writing that he is a fiduciary with respect to the Plan.

The QDIA Regulation. After reviewing the Notice's example, the Letter explains that the the QDIA regulation implements ERISA section 404(c)(5). Under this section, a participant or beneficiary in an individual account plan who fails to provide investment directions for his or her account will be treated as exercising control over assets in the account, if the plan fiduciary complies with certain notice requirements and invests the assets in accordance with regulations prescribed by the DOL. The QDIA regulation requires, among other things, that participants on whose behalf the investment is made had the opportunity to direct the investment of the assets in their account but did not, and that they are furnished a notice describing the circumstances under which their assets may be invested in the QDIA, their right to direct the investment of their assets into any other plan investment alternatives, and the investment objectives, risk and return characteristics, and fees and expenses attendant to the QDIA.

The QDIA regulation also describes the attributes necessary for an investment fund, product, model portfolio, or managed account to be QDIA. A TDF that meets the specific requirements of the regulation is a type of fund that could be a QDIA. 29 CFR §2550.404c-5(e)(4)(i). Among other things, such a fund must be designed to produce varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures based on the participant's age or target retirement date. In the DOL's view, the use of unallocated deferred annuity contracts as fixed income investments, as described in the Notice, would not cause the TDFs to fail to meet the requirements of paragraph (e)(4)(i) of the QDIA regulation. It is also the DOL's view that the distribution of annuity certificates as each TDF dissolves on its target date is consistent with paragraph (e)(4)(vi) of the QDIA regulation. This section provides that an investment product will not fail to be a QDIA "solely because the product or portfolio is offered through variable annuity or similar contracts or through common or collective trust funds or pooled investment funds and without regard to whether such contracts or funds provide annuity purchase rights, investment guarantees, death benefit guarantees or other features ancillary to the investment [product.]"

Annuity Selection Safe Harbor. The Letter also provides guidance on whether, and to what extent, the DOL's "annuity selection safe harbor," 29 CFR §2550.404a-4, is available in connection with the selection of the unallocated deferred annuity contracts as investments of the TDFs.

Conclusion. The Letter concludes by stating that the use of unallocated deferred annuity contracts as fixed income investments, as described in the Notice, would not cause the TDFs to fail to meet the requirements of paragraph (e)(4)(i) of the QDIA regulation.

October 28, 2014

Employee Benefits-IRS Allows Qualified Defined Contribution Plans To Offer Lifetime Income Through Target Date Funds

In Notice 2014-66, the Internal Revenue Service (the "IRS") provides guidance which enables a qualified defined contribution plan (such as a 401(k) plan) to provide lifetime income by offering, as investment options, a series of target date funds ("TDFs") that include deferred annuities, even if some of the TDFs in the series are available only to older participants. This guidance provides that, if certain conditions are satisfied, a series of TDFs in a defined contribution plan is treated as a single right or feature for purposes of the nondiscrimination requirements of § 401(a)(4) of the Internal Revenue Code. This permits the TDFs to satisfy those nondiscrimination requirements as they apply to rights
or features, even if one or more of the TDFs considered on its own would not satisfy those requirements.

Under the Notice, the condition for such treatment are:

1. The series of TDFs is designed to serve as a single integrated investment program under which the same investment manager manages each TDF and applies the same generally accepted investment theories across the series of TDFs. Thus, the only difference among the TDFs is the mix of assets selected by the investment manager, which difference results solely from the intent to achieve the level of risk appropriate for the age-band of individuals participating in each TDF. In accordance with the consistent investment strategy used to manage the series of TDFs, the design for the series is for the mix of assets in a TDF currently available for older participants to become available to each younger participant as the asset mix of each TDF for younger participants changes to reflect he increasing age of those participants.

2. Some of the TDFs available to participants in older age-bands include deferred
annuities, and none of the deferred annuities provide a guaranteed lifetime
withdrawal benefit (GLWB) or guaranteed minimum withdrawal benefit (GMWB)

3. The TDFs do not hold employer securities, as described in section 407(d)(1) of
ERISA, that are not readily tradable on an established securities market.

4. Each TDF in the series is treated in the same manner with respect o rights or
features other than the mix of assets. For example, the fees and administrative
expenses for each TDF are determined in a consistent manner, and the extent to which those fees and expenses are paid from plan assets (rather than by the
employer) is the same.

The Notice includes and analyzes an example of a plan offering a series of TDFs-to be discussed in tomorrow's blog.

October 27, 2014

ERISA-Fourth Circuit Rules That, Since Defendants Were Not Acting As Fiduciaries When Allegedly Engaging In Wrongful Conduct, The Claim Against Them Under ERISA For Breach Of Fiduciary Duty Fails

In Moon v. BWX Technologies, No. 13-1888 (4th Cir. 2014), Judy L. Moon ("Moon"), individually and as executor of the estate of Leslie W. Moon ("Mr. Moon"), appeals the district court's order dismissing her case against the defendants under ERISA, arising out of defendants' failure to pay life insurance benefits.

In analyzing the case, the Fourth Circuit Court of Appeals (the "court") concluded that, since Moon failed to sufficiently allege that the defendants were acting as fiduciaries under ERISA at the time of their allegedly wrongful conduct, Moon has failed to state a claim for breach of fiduciary duty and equitable estoppel. As such, the Court affirmed the district court's decision.

In this case, the alleged breach of fiduciary duty was the defendants' acceptance of a premium payment from Mr. Moon for life insurance, without notifying Mr. Moon that he was no longer eligible for life insurance benefits under the plan at issue. For this alleged violation of ERISA, Moon was seeking equitable estoppel under 29 U.S.C. § 1132(a)(3) in the form of an order estopping the defendants from denying the existence of a life insurance contract between Mr. Moon and the defendants in the coverage amount of $200,000.00. However, the Court concluded that the defendants were not acting as fiduciaries at the time the premium payment was accepted, so Moon's claim fails.

October 22, 2014

ERISA-Eleventh Circuit Affirms Judgment Awarding Medical Plan The Benefits It Paid To A Participant, When The Participant Settled Her Case Against The Party Causing Her Injury, Even Though The Benefits Could Not Be Traced To The Settlement Amount.

In Airtran Airways, Inc. v. Elem, Nos. 13-11738 and 13-14912 (11th Cir. 2014), the issue to be decided is whether an employee welfare benefit plan may recover medical costs it spent on behalf of a beneficiary after she and her attorney conspired to hide and disburse settlement funds she received after a car accident.

In this case, Brenda Elem participated, as an employee of AirTran, in a self-funded employee welfare benefit plan. After Elem suffered injuries in a car accident and the plan paid over $100,000 for her medical care, Elem sued the other driver and settled for $500,000. AirTran sought reimbursement from Elem under an equitable lien created under the plan, but Elem's attorney, Mark Link, misrepresented that Elem had settled for only $25,000. The truth was discovered when Link accidentally sent the plan a copy of a settlement check for $475,000. After AirTran sued Elem, Link, and Link & Smith, P.C., for violations of ERISA under section 502(a)(3), seeking equitable relief (that is, to enforce the equitable lien), the district court granted summary judgment for the $100,000 plus in medical benefits to AirTran, and awarded attorney's fees and costs in favor of AirTran. The defendants appeal.

In analyzing the case, the Eleventh Circuit Court of Appeals (the "Court") said that Elem, Link, and the law firm challenge three orders. They contest the summary judgment for the $100,000 plus in medical benefits on the ground that AirTran failed to satisfy the strict tracing rules of equitable restitution, but these rules do not apply to the equitable lien by agreement that the AirTran plan created. See Sereboff v. Mid Atlantic Med. Serv.,Inc., 547 U.S. 356, 364-65, 126 S. Ct. 1869, 1875 (2006). Elem and Link argue that the district court abused its discretion when it awarded AirTran attorney's fees and costs, but the district court had the authority to sanction them for their bad faith. Elem and Link also complain that the district court misapplied Federal Rule of Civil Procedure 70 when the court ordered enforcement of the judgment, but that issue became moot when Link and his law firm complied with the order. Therefore, the Court affirmed the summary judgment and award of fees and costs and dismissed as moot the appeal of the order to enforce the judgment.

October 21, 2014

Employee Benefits-IRS Provides Guidance On Directing Distributions To Multiple IRAs

In Employee Plans News, Issue 2014-16, October 15, 2014, the Internal Revenue Service (the "IRS") provides guidance on directing retirement plan distributions to multiple IRAs. Here is what the IRS said.

Beginning January 1, 2015, when participants choose to direct their retirement plan distribution to go to multiple destinations, the amounts will be treated as a single distribution for allocating pre-tax and after-tax basis (Notice 2014-54 and REG-105739-11). This will allow qualified, 403(b) and 457(b) governmental retirement plan participants to:

• roll over amounts to both a Roth IRA and a non-Roth IRA;

• allocate the pre-tax amount of the distribution to the non-Roth IRA and the after-tax amount to the Roth IRA; and

• avoid having to pay income tax on pre-tax amounts rolled over to the non-Roth IRA.

Current separate distributions rule

Under current rules, each destination of a retirement plan distribution (for example, a distribution split between a direct rollover to an IRA and an actual distribution of funds) is considered a separate distribution. If a participant's account balance contains both pre-tax and after-tax amounts, each distribution includes a pro rata share of both. A participant can't choose to transfer the pre-tax amount to a traditional IRA and the after-tax amount to a Roth IRA.

Transition rules

The new single distribution allocation rules aren't mandatory for plan distributions prior to January 2015. However, plan sponsors may apply this allocation rule to distributions made on or after September 18, 2014, and apply a reasonable interpretation of the allocation rules for distributions made prior to September 18.

October 20, 2014

ERISA-Sixth Circuit Holds That The Plan's Venue Selection Clause Is Valid And Enforeceable Against The Plaintiff

In Smith v. Aegon Companies Pension Plan, No.13-5492 (6th Cir. Oct. 14, 2014), plaintiff Roger Smith ("Smith") appeals the district court's dismissal of his claims without prejudice because of improper venue. The district court held that the venue selection clause in the ERISA governed Aegon Pension Plan, which requires that suit be brought in federal court in Cedar Rapids, Iowa, was enforceable and applied to Smith's claims. Accordingly, the court dismissed his complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

In analyzing this case, the Sixth Circuit Court of Appeals (the "Court") agreed with the district court, that the plan's venue selection clause is enforceable and applies to Smith's claims. It said that ERISA's statutory scheme is built around reliance on the face of written plan documents. Plan administrators and employers are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate a plan. The Court felt that there is no reason-such as a conflict with other ERISA provisions- why the plan's written document cannot contain a venue selection clause.

Further, the Court felt that the venue selection clause in the Aegon Pension Plan is enforceable against Smith, since Smith did not complain that the clause: (1) resulted from fraud, duress, or other unconscionable means or (2) designated a forum that would ineffectively or unfairly handle the suit, or would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust. Accordingly, the Court affirmed the district court's decision.

October 17, 2014

ERISA-Third Circuit Holds That Issuer of Group Annuity Contracts Is Not A Fiduciary

In Santomenno v. John Hancock Life Insurance Company, No. 13-3467 (3rd Cir. 2014), the plaintiffs had invested money in 401(k) benefit plans. They brought suit against John Hancock Life Insurance Company and its affiliates ("John Hancock"), alleging that John Hancock had charged excessive fees in violation of its fiduciary duty under ERISA on certain group annuity contracts held by their accounts under the plans. The district court granted John Hancock's motion to dismiss, ruling that John Hancock was not a fiduciary with respect to the alleged breaches.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") said that ERISA makes a person a fiduciary to a plan if the plan identifies them as such. See 29 U.S.C. § 1102(a). This was not the case here. It also provides, in 29 U.S.C. § 1002(21)(A), that a person can be a fiduciary by being a "functional" fiduciary, that is, the person acts in the capacity of manager, administrator or financial advisor to a plan. Further, a person will be a "functional" fiduciary to the extent the person so acts. To be liable for a breach of fiduciary duty, the person must have committed the breach with respect to the action complained of. The question in this case is whether John Hancock acted as a fiduciary to the plans in question with respect to the fees that it set. The Court concluded that John Hancock did not so act, and it affirmed the district court's decision.

October 16, 2014

Employee Benefits-DOL Issues FAQ Providing Guidance On Reference Pricing And Annual Cost- Sharing Limit

In Affordable Care Act Implementation Frequently Asked Questions (FAQs Part XXI), the U.S. Department of Labor (the "DOL") provides guidance on reference pricing and the annual cost- sharing limit.

Background. Public Health Service ("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 section 1302(c)(1) of the Affordable Care Act. Section 1302(c)(1) limits an enrollee's out-of-pocket costs. For plan years beginning in 2015, the annual limit on an individual's maximum out-of-pocket ("MOOP") costs in effect under Affordable Care Act section 1302(c)(1) is $6,600 for self-only coverage and $13,200 for coverage other than self-only coverage. The limit is adjusted for inflation for subsequent plan years.

Previous Guidance. Previous FAQs on MOOP clarified that if a plan includes a network of providers, the plan need not (but may if it wishes) count an individual's out-of-pocket spending for out-of-network items and services toward the annual limit on cost-sharing.

The previous FAQs also addressed reference-based pricing in non-grandfathered large group insurance market and self-insured group health plans ("Affected Plans"). Reference pricing means that the Affected Plan pays a fixed amount for a particular procedure (for example, a knee replacement), which certain providers will accept as payment in full.

The FAQs further stated that, until guidance was issued and effective, the DOL (and the other agencies which enforce the Affordable Care Act) will not treat an Affected Plan as failing to comply with the MOOP requirements, merely because the plan treats providers that accept the reference amount as the only in-network providers, as long as the plan uses a reasonable method to ensure that it offers adequate access to quality providers. That is, so long as the proviso is met, the providers who accept reference pricing may be treated as in-network, so the annual cost-sharing limit will apply to their services (and the agreed upon fee mitigates the limit from the plan's perspective). Consequently, any provider who does not accept the reference pricing is treated as out-of-network, and may (unless the plan chooses otherwise-not a likely event) provide services without any cost-sharing limit.

The Concern And This FAQ. Will the foregoing rule on establishing the in-network fail to provide adequate access to quality providers? This FAQ says the following on this concern:

Pending issuance of future guidance, for purposes of enforcing the requirements in PHS Act section 2707(b), the DOL (and the other agencies which enforce the Affordable Care Act) will consider all the facts and circumstances when evaluating whether a plan's reference-based pricing design (or similar network design) that treats providers that accept the reference-based price as the only in-network providers, and excludes or limits cost-sharing for services rendered by other providers, is using a reasonable method to ensure adequate access to quality providers at the reference price, including:

1. Type of service. Plans should have standards to ensure that the network is designed to enable the plan to offer benefits for services from high-quality providers at reduced costs, and does not function as a subterfuge for otherwise prohibited limitations on coverage. For this purpose:

a. In general, reference-based pricing that treats providers that accept the reference amount as the only in-network providers should apply only to those services for which the period between identification of the need for care and provision of the care is long enough for consumers to make an informed choice of provider.
b. Limiting or excluding cost-sharing from counting toward the MOOP with respect to providers who do not accept the reference-based price would not be considered reasonable with respect to emergency services. Furthermore, any provision in an Affected Plan that involves a more restrictive network cannot be applied to emergency services pursuant to PHS Act section 2719A (incorporated by reference into ERISA section 715 and Code section 9815) and its implementing regulations.

2. Reasonable access and quality. Plans should have procedures to ensure that an adequate number of providers that accept the reference price are available to participants and beneficiaries and meet reasonable quality standards.

3. Exceptions process. Plans should have an easily accessible exceptions process, allowing services rendered by providers that do not accept the reference price to be treated as if the services were provided by a provider that accepts the reference price if:
a. Access to a provider that accepts the reference price is unavailable (for example, the service cannot be obtained within a reasonable wait time or travel distance).
b. The quality of services with respect to a particular individual could be compromised with the reference price provider (for example, if co-morbidities present complications or patient safety issues).

4. Disclosure. Plans should provide the following disclosures regarding reference-based pricing (or similar network design) to plan participants free of charge.

a. Automatically. Plans should provide information automatically (e.g., in the SPD) regarding the pricing structure, including a list of services to which the pricing structure applies and the exceptions process.

b. Upon Request. Plans should provide upon request:
i. A list of providers that will accept the reference price for each service;
ii. A list of providers that will accept a negotiated price above the reference price for each service; and
iii. Information on the process and underlying data used to ensure that an adequate number of providers accepting the reference price meet reasonable quality standards.

October 15, 2014

Employment-Eighth Circuit Rules That Federal And State Claims Fail Because The Plaintiff Was An Independent Contractor

In Alexander v. Avera St. Luke's Hospital, No. 13-2592, (8th Cir. 2014), pathologist Larry Alexander ("Alexander") suffered a heart attack in March 2008, underwent a heart transplant in May 2009, and was hospitalized for bipolar disorder in October 2010. In August 2011, Avera St. Luke's, a non-profit corporation operating St.Luke's Hospital in Aberdeen, South Dakota ("Avera"), terminated its December 2008 Pathology Services Agreement with Dr. Alexander, invoking the provision that either party may terminate the Agreement with or without cause on ninety days prior written notice. Alexander brought this action against Avera, alleging violations of the Americans with Disabilities Act ("ADA"), the Age Discrimination in Employment Act ("ADEA"), the Family and Medical Leave Act ("FMLA"), and the South Dakota Human Relations Act ("SDHRA"). The district court granted Avera's motion for summary judgment, concluding that each of these statutory claims failed because undisputed material facts demonstrated that Alexander was an independent contractor rather than an Avera employee. Alexander appeals.

After analyzing the case, the Eighth Circuit Court of Appeals (the "Court") agreed that Alexander was an independent contractor when performing under the Pathology Services Agreement, and affirmed the district court's holding. Why? The Court said that Alexander appeals the dismissal of his statutory claims that Avera violated his rights under the ADA, ADEA, FMLA, and SDHRA. Each of these statutes limits its protections to "employees." Independent contractors are not covered. Although the analysis differs somewhat under each statute, based generally on the test in Nationwide Mut. Ins. v. Darden (Supreme Court 1992), the Court concluded that Alexander is an independent contractor, because:

-- Avera had no right to control the specific manner in which Alexander rendered pathology services;

-- Avera did not provide Alexander with benefits or malpractice insurance;

--Avera did not withhold income and FICA taxes from Alexander's monthly compensation and reported his income on a Form 1099, and Alexander reported his compensation as the income of a self-employed independent contractor; and

-- Alexander had the contractual right to hire substitute pathologists and assistants at his own expense (including his wife), had no weekly hours requirement, was never assigned duties not specified in his contract, held other medical employment during much of his time at Avera, and was never bound by a non-compete agreement.

October 14, 2014

ERISA-Ninth Circuit Discusses Standard For Arbitrary and Capricious Review Of A Fiduciary's Decision

In Pacific Shores Hospital v. United Behavioral Health, No. 12-55210 (9th Cir. 2014), an employee of Wells Fargo, referred to as Jane Jones or "Jones", was covered under the Wells Fargo & Company Health Plan (the "Plan"). United Behavioral Health ("UBH") is a third-party claims administrator of the Plan. Jones was admitted to Pacific Shores Hospital ("PSH") for acute inpatient treatment for severe anorexia nervosa. UBH refused to pay for more than three weeks of inpatient hospital treatment. UBH based its refusal in substantial part on mischaracterizations of Jones's medical history and condition. PSH continued to provide inpatient treatment to Jones after UBH refused to pay. Jones assigned to PSH her rights to payment under the Plan. PSH sued the Plan and UBH, seeking payment for the additional days of inpatient treatment. The district court upheld UBH's decision to pay for no more than three weeks of treatment, and Jones appealed.

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court") concluded that UBH abused its discretion in deciding to pay for these days of treatment, and therefore reversed the district court's holding. Why this conclusion?

The Court determined that UBH's decision to deny the payment is entitled to review under the arbitrary and capricious standard, and therefore should be overturned by a court only upon a finding of abuse of discretion. Further, it said that, in reviewing for abuse of discretion, we consider all of the relevant circumstances in evaluating the decision of the claims administrator. The claims administrator abuses its discretion if it renders a decision without any explanation, construes provisions of the plan in a way that conflicts with the plain language of the plan, or fails to develop facts necessary to its determination. The court must be left with a definite and firm conviction that a mistake has been committed.

The Court continued by saying that, as claims administrator, UBH owed a fiduciary duty to Jones under ERISA, to act in Jones' best interest and for the purpose of providing benefits to her, and to act as a prudent man. Here, UBH fell far short of fulfilling its fiduciary duty to Jones. Dr. Zucker, UBH's primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH's final decisionmaker, stated that he arrived at his decision to deny benefits "after fully investigating the substance of the appeal." He then rubberstamped Dr. Center's conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors we have described. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted.

October 9, 2014

Employee Benefits-IRS Says It's Not Too Late for a Tax Break - Start a SEP Retirement Plan for 2013

In Retirement News for Employers, October 2, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that, if you own a business, you still have time to set up a Simplified Employee Pension ("SEP") plan for 2013. Here is what the IRS says.

If you set up and fund your SEP by the due date of your 2013 business return (including extensions), you can still take a deduction for 2013. If your business uses the calendar year for its tax year, the deadline to set up and contribute to a SEP plan for 2013 depends on the type of your business organization:

• If your business is a corporation, filing Form 1120 or 1120S, you have until
March 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a partnership, filing Form 1065, you have until April 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a sole proprietorship, reported on Schedule C of Form 1040,
you have until April 15, 2014 (October 15, 2014, if you file for an extension).

You can set up a SEP plan for little or no cost at a bank, investment firm or insurance company.

SEP plans offer high contribution and deduction limits, minimal paperwork and no
annual Form 5500 filing. You can contribute to a SEP plan even if you participate in an unrelated employer's plan (for example, a 401(k) plan). Contributions to a SEP plan are subject to the SEP contribution limits.

Other kinds of business-sponsored retirement plans must have been established before the end of 2013 in order for the business to get a deduction for 2013.

October 8, 2014

Employee Benefits-IRS Discussed Retirement Plans Startup Costs Tax Credit

In Retirement News for Employers, October 2, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the startup costs tax credit for retirement plans. Here is what the IRS said.

You may be able to claim a tax credit for some of the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan. A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

If you qualify, you may claim the credit using Form 8881, Credit for Small Employer Pension Plan Startup Costs.

Eligible employers

You qualify to claim this credit if:

• You had 100 or fewer employees who received at least $5,000 in compensation
from you for the preceding year;

• You had at least one plan participant who was a non-highly compensated
employee; and

• In the 3 tax years before the first year you're eligible for the credit, your
employees weren't substantially the same employees who received
contributions or accrued benefits in another plan sponsored by you, a member
of a controlled group that includes you, or a predecessor of either.

Amount of the credit

The credit is 50% of your ordinary and necessary eligible startup costs up to a
maximum of $500 per year.
Eligible startup costs

You may claim the credit for ordinary and necessary costs to:

• Set up and administer the plan, and

• Educate your employees about the plan.

Eligible tax years

You can claim the credit for each of the first 3 years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. The credit is part of the general business credit and you may carry it back or forward to other tax years if you can't use it in the current year. However, you can't carry it back to a tax year beginning before January 1, 2002.

No deduction allowed

You can't both deduct the startup costs and claim the credit for the same expenses. You aren't required to claim the allowable credit.

October 7, 2014

ERISA-District Court Rules That One Year Limit Contained In The Plan For Bringing Suit Is Extended By State Insurance Law

In Halpern v. Blue Cross/Blue Shield of Western New York, No. 12-CV-407S (W.D. New York 2014), the plaintiff, Burce J. Halpern ("Halpern"), brought this suit, under ERISA section 502 against defendant, Blue Cross/Blue Shield of Western New York ("Blue Cross"), following the denial by Blue Cross of reimbursement claims under an insured group health benefits plan (the "Plan").

One issue which the district court faced was whether Halpern's suit is timely. Blue Cross argues that Halpern 's suit is time-barred under the Plan's contractual limitations period because this period is one year, and Halpern filed his ERISA suit over one year from the last date for which he claimed benefits. The district court said that, since ERISA contains no statute of limitations for actions brought under section 502, such claims are subject to the most analogous state statute of limitations. In New York, courts typically apply the six-year limitations period for contract actions set forth in N.Y. Civil Practice Law and Rules. This limitations period may be shortened, where the parties memorialize such agreement in writing.

However, New York Insurance Law states that the limitations period in an insured arrangement cannot be less than two years following the time proof of loss is required by the arrangement. Since the Plan is insured, it is subject to this requirement, and ERISA preemption does not apply. Here, Halpern brought this suit on April 23, 2012, so that medical services from August 2010 to April 2011 for which he now seeks reimbursement fall within the applicable limitations period.

October 6, 2014

Employee Benefits-IRS Permits New Election Changes Under Cafeteria Plans For Health Coverage

In IRS Notice 2014-55, the Internal Revenue Service (the "IRS") permits election changes under a cafeteria plan, when a participant may wish to revoke, during a period of coverage (generally the plan year), the employee's election under the plan for employer-sponsored health coverage in order to purchase a health plan under an Affordable Care Act Health Insurance Exchange (a "Qualified Health Plan"). This Notice does not apply to a health care flexible spending account (a "health FSA") offered under the cafeteria plan.

The Notice provides that a cafeteria plan may allow an employee to prospectively revoke an election of coverage under a group health plan (again, other than an FSA), which provides minimum essential coverage (as defined in § 5000A(f)(1)), so long as the following conditions are met:

(1) the employee has been in an employment status under which the employee was reasonably expected to average at least 30 hours of service per week, and there is a change in that employee's status so that the employee will reasonably be expected to average less than 30 hours of service per week after the change,even if that reduction does not result in the employee ceasing to be eligible under the group health plan (that is, the employee switches from full-time to part-time status under the Affordable Care Act); and

(2) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee, and any related individuals who cease coverage due to the revocation, in another plan that provides minimum essential coverage (e.g., a Qualified Health Plan), with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.

For these purposes, a cafeteria plan may rely on the reasonable representation by the employee that condition (2) will be satisfied.

In addition, the cafeteria plan may allow a prospective revocation of an election of coverage under the group health plan (again, other than an FSA), so long as:

(a) the employee is eligible for a Health Insurance Exchange's special enrollment period to enroll in a Qualified Health Plan, or seeks to enroll in a Qualified Health Plan during the Health Insurance Exchange's annual open enrollment period; and

(b) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee and any related individuals who cease coverage due to the revocation in a Qualified Health Plan, for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

For these purposes, a cafeteria plan may rely on the reasonable representation by the employee that condition (b) will be satisfied.

The guidance in the Notice is effective on September 18, 2014. To allow the new permitted election changes under this Notice, a cafeteria plan must be amended to provide for such changes. The amendment must be adopted on or before the last day of the plan year in which the election changes are allowed, and may be effective retroactively to the first day of that plan year, so long as the cafeteria plan operates in accordance with the guidance under this Notice and the employer informs participants of the amendment. As a transition rule, the cafeteria plan may be amended to adopt the new permitted election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015. However, in no event may an election to revoke coverage on a retroactive basis be allowed.

October 1, 2014

Employment-Seventh Circuit Rules That Plaintiff Is Covered By The FMLA

In Cuff v. Trans States Holdings, Inc., No. 13-1241 (7th Cir. 2014), the Seventh Circuit Court of Appeals (the "Court") was faced with the question of whether the plaintiff, Darren Cuff ("Cuff"), who was on the payroll of Trans States Airlines ("Trans States"), was covered by the Family and Medical Leave Act (the "FMLA").

The Court noted that, in this case, United Airlines contracts with other firms for regional air services under the "United Express" brand. Trans States Holdings ("Holdings") is one of United's suppliers. It owns two air carriers: Trans States and GoJet Airlines ("GoJet"). The FMLA applies only if the employer has at least 50 employees within 75 miles of a given worker's station. 29 U.S.C. §2611(2)(B)(ii). Cuff worked at O'Hare Airport in Chicago. The parties agree that in January 2010, when it fired Cuff after he took leave despite its denial of his request under the FMLA, Trans States had 33 employees at or within 75 miles of O'Hare, while GoJet had 343 and Holdings had none. Cuff contends that he worked for Trans States and Go-Jet jointly.

The Court also noted that the Department of Labor has issued a regulation, providing that workers are covered by the FMLA when they are jointly employed by multiple firms that collectively have 50 or more workers. 29 C.F.R. §825.106(a). A separate regulation adds that two or more firms may be treated as a single employer when they operate a joint business. 29 C.F.R. §825.104(c). Cuff invoked both of these provisions. The two lead factors identified by regulation §825.106(a), in determining whether there is joint employment, is whether "there is an arrangement between employers to share an employee's services" and whether "one employer acts directly or indirectly in the interest of the other employer in relation to the employee". The Court found that, in Cuff's case, both questions are answered "yes," and it concluded that Cuff was a joint employee of at least Trans States and GoJet, if not of Holdings too. Combining those entities allows Cuff to meet the 50 workers threshold, so that Cuff is covered by the FMLA.