In Peterson v. UnitedHealth Group Inc., No. 17-1744 (8th Cir. 2019), UnitedHealth Group Inc. (“United”) administers thousands of health insurance plans. In the course of processing millions of claims for benefits, United at times erroneously overpays service providers. United can generally recover these overpayments from “in-network” providers because it has agreements with those providers that allow it to “offset” the overpayment by withholding the overpaid amount from subsequent payments to that provider. In 2007, United implemented an aggregate payment and recovery procedure in which it began to offset overpayments made to “out-of-network” providers, even where the overpayment was made from one plan and the offset taken from a payment by a different plan, a practice known as cross-plan offsetting.

The named plaintiffs in these consolidated class action cases are out-of-network medical providers who United intentionally failed to fully pay for services rendered to United plan beneficiaries in order to offset overpayments to the same providers from other United administered plans. The plaintiffs, litigating under ERISA on behalf of their patients, the plan beneficiaries, claim the relevant plan documents do not authorize United to engage in cross-plan offsetting. The district court agreed and entered partial summary judgment to the plaintiffs on the issue of liability. United appealed the summary judgment order.

Upon reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s decision. The Court found that, first, nothing in the plan documents even comes close to authorizing cross-plan offsetting, the practice of not paying a benefit due under one plan in order to recover an amount believed to be owed to another plan because of that other plan’s overpayment.  Second, the practice of cross-plan offsetting is in some tension with the requirements of ERISA. While the Court said that it need not decide here whether cross-plan offsetting necessarily violates ERISA, it said that, at the very least, the offsetting approaches the line of what is permissible. If such a practice was authorized by the plan documents, the Court said that it would expect much clearer language to that effect. This led the Court to conclude that United’s interpretation and offsetting practice is not reasonable.

In Frommert v. Conkright, Docket Nos. 17-114-cv(L), 17-738-cv(CON) (2nd Cir. 2019), the principal issue is whether the district court  awarded an adequate equitable remedy for violations of ERISA related to Xerox Corporation’s pension plan (the “Plan”).

The plaintiffs-appellants (“Plaintiffs”) are Xerox employees who left the company in the 1980’s, received lump-sum distributions of retirement benefits they had earned up to that point, and were later rehired. The dispute giving rise to this case concerns how to account for the Plaintiffs’ past distributions when calculating their current benefits—that is, how to avoid paying the Plaintiffs the same benefits twice. The defendants-appellees are Xerox, the Plan, and individually named retirement plan administrators (individually and collectively, the “Plan Administrator”). In the most recent decision of the Second Circuit Court of Appeals (the “Court”) in this case, the Court determined that the Plan Administrator’s method of calculating the Plaintiffs’ current benefits violated ERISA’s notice requirements and therefore could not be applied to the Plaintiffs’ benefits. The Court remanded the case to the district court to fashion, in its discretion, an equitable remedy providing appropriate retirement benefits to the Plaintiffs (the Court refers to these benefits as “New Benefits”)

Selecting the equitable remedy of reformation, the district court held that New Benefits should be calculated as if the Plaintiffs were newly hired on their return to Xerox.  In a separate decision and order, the district court also determined that the Plaintiffs are entitled to prejudgment interest at the federal prime rate.

In IRS Notice 2018-74 (the “Notice”), the Internal Revenue Service (the “IRS”) has issued new eligible rollover distribution notices.  The Notice contains revised safe harbor explanations, which may be used to meet the requirement found in Code section 402(f), that a plan administrator of a qualified retirement plan provide an explanation of the tax rules applying to an eligible rollover distribution made to the recipient.  The applicable safe harbor explanations in the Notice should be used immediately.  The Notice states that it has the following purposes.

This Notice modifies the two safe harbor explanations in Notice 2014-74 that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (“Code”) that certain information be provided to recipients of eligible rollover distributions.  The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”)) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47), and include other clarifying changes.

To assist with the implementation of the modified safe harbor explanations, this Notice contains two appendices. Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account. Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

In GCIU Employer Retirement Fund v. Quad/Graphics, Inc., No. 17-55667 (9th Cir. 2018) (Unpublished Memorandum), the issue for decision was whether Quad/Graphics, Inc. (“Quad”) partially withdrew from the GCIU-Employer Retirement Fund (“the Fund”) in 2010, after employees at Quad’s Versailles, Kentucky, facility voted to decertify a collective bargaining agreement (“CBA”).  An arbitrator found that Quad had not withdrawn, but on review, the district court disagreed.  Quad appeals.

In reviewing this case, the Ninth Circuit Court of Appeals (the “Court”) said that, like the district court, we must presume the arbitrator’s factual findings are correct but review his conclusions of law de novo.  As such, the Court affirmed the district court’s decision that Quad had partially withdraww from the Fund.

In explaining its decision, the Court noted that an employer partially withdraws from a multiemployer pension plan, such as the Fund, when it permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute.  The district court correctly held that Quad partially withdrew from the Fund in 2010.  The Versailles CBA-one of the CBAs that Quad had with the Union- became void prospectively as of the decertification of the union as the employee’s bargaining representative in December 2010, extinguishing Quad’s ongoing obligations to contribute to the Fund on behalf of Versailles employees under the Versailles CBA.

In Leirer v. P&G Disability Ben. Plan, No. 17-3426 (8th Cir. 2018), Gary Leirer worked for the Proctor & Gamble Company (which maintained the Proctor & Gamble Disability Benefit Plan, collectively, the “Company”) for many years.  He became disabled as a result of a medical condition and began receiving total disability benefits.  Following a medical examination, the Company later determined that Leirer was partially disabled, and it terminated his benefits when his partial disability coverage ended.  After the Company upheld its determination, Leirer filed suit under section 502(a)(1)(B) of ERISA (a suit for benefits).  The district court granted summary judgment in favor the Company, and Mr. Leirer appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) upheld the district court’s decision.  In doing so, the Court noted the following.  Mr. Leirer has not shown that a serious procedural irregularity existed, which caused a serious breach of the plan administrator’s fiduciary duty to him.  Further, the Company’s denial letter adequately stated the reasons supporting its decision.  The Company’s interpretation of the plan was reasonable and the Independent Medical Examination and Functional Capacity Evaluation constituted substantial evidence in support of its decision.  Also, there was no evidence that the Plan administrators’ conflict of interest—arising from their dual responsibilities of adjudicating Leirer’s claim and paying his benefits—affected the disposition of Leirer’s claim.


In Jander v. Retirement Plans Committee of IBM, Docket No. 17-3518 (2nd Cir. 2018), plaintiffs Larry Jander and Richard Waksman appeal from a judgment of the district court dismissing their suit against fiduciaries of IBM’s employee stock option plan (the “ESOP”).  The plaintiffs claim that the defendants violated their fiduciary duty under ERISA to manage the ESOP’s assets prudently, because they knew but failed to disclose that IBM’s microelectronics division (and thus IBM’s stock) was overvalued.  The district court determined that plaintiffs did not plausibly plead a violation of ERISA’s duty of prudence, because a prudent fiduciary could have concluded that earlier corrective disclosure would have done more harm than good.

On appeal, the plaintiffs assert that the foregoing standard for the duty of prudence is stricter than the one set out in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), and that the district court and others have applied this stricter standard in a manner that makes it functionally impossible to plead a duty-of-prudence violation.

In reviewing the case, the Second Circuit Court of Appeals (the “Court”) found it unnecessary to determine whether plaintiffs are correct, because they plausibly plead a duty-of-prudence claim even under the stricter standard used by the district court.  Here, the Court concluded that several allegations in the plaintiff’s complaint (considered in combination and drawing all reasonable inferences in plaintiffs’ favor) establish that a prudent fiduciary in the ESOP defendants’ position could not have concluded that corrective disclosure would do more harm than good.  Accordingly, the Court reversed the judgment of the district court and remanded the case back to the district court for further proceedings.


In Testa v. Becker, Nos. 17-1826-cv, 17-1985-cv (2nd Cir. 2018), in 1998, defendant Xerox Corporation Retirement Income Guarantee Plan (the “Xerox Plan”) issued a Summary Plan Description explaining that it would calculate plan participants’ benefits using the so-called “phantom account offset” method.  In 2006, the Second Circuit Court of Appeals (the “Court”) held in Frommert v. Conkright, 433 F.3d 254 (2d Cir. 2006), that defendant Lawrence Becker (“Becker”) could not use the phantom account offset when calculating benefits for a group of over one hundred plan participants who were hired before 1998.

Three years later, plaintiff Robert Testa (“Testa”), who was hired before 1998, learned that Becker had applied the phantom account offset to him.  Testa sued Becker under ERISA for denial of benefits and breach of fiduciary duty, alleging that Testa had defied the Court’s decision in Frommert.  The district court dismissed Testa’s denial-of-benefits claim as untimely but granted Testa summary judgment on his fiduciary-duty claim.  Becker appealed the latter; Testa cross-appealed the former.

Upon reviewing the case, the Court concluded that Testa’s denial-of-benefits claim is untimely (the the claim was brought 12 years after it accrued, so the 6 year statute of limitations had expired), and that Becker, not Testa, was entitled to summary judgment on the fiduciary-duty claim (Frommert did not apply to participants who did not bring timely denial of benefit claims).  Accordingly, the Court affirmed the judgment of the district court in part, reversed it in part, and remanded the case with directions to enter judgment for Becker and the Xerox Plan.

Further to yesterday’s blog, in a statement issued December 17, 2018, the Department of Health and Human said the following:

The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time. As always, the Trump Administration stands ready to work with Congress on policy solutions that will deliver more insurance choices, better healthcare, and lower costs while continuing to protect individuals with pre-existing conditions.

In Texas v. United States of America, Civil Action No. 4:18-cv-00167-O (N.D. Texas 2018), the district court judge ruled that the entire Affordable Care Act (the “ACA”) is unconstitutional, and therefore presumably unenforceable.

How did the judge arrive at this decision?  The Tax Cuts and Jobs Act of 2017 eliminated the penalty imposed on an individual for not having health insurance coverage, and thus not complying with the ACA’s Individual Mandate.  The judge who rendered the decision, Judge O’Connor, said that, without a penalty that could be imposed, the constitutionality of the Individual Mandate could no longer be supported by Congress’ taxing power, and, as no other power of Congress supports it, the Individual Mandate is unconstitutional.  Further, ruled Judge O’Connor, the Individual Mandate is not severable from the remainder of the ACA, so the entire ACA is not constitutional.

So what happens now?  Nothing immediately.  Judge O’Connor did not enjoin the ACA in his decision.  As such, the rules and requirements of the ACA remain the law.  The White House has announced that the ACA will stay in effect, through the upcoming appeal of Judge O’Connor’s decision to the Court of Appeals for the Fifth Circuit and (probably) to the United States Supreme Court.  So for right now, employers should continue to follow ACA rules.  Don’t be late with the Form 1094/1095 information returns (see my blog of December 12).

In Acosta v. Brain, Nos. 16-56529, 16-56532 (9th Cir. 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”) affirmed in part, reversed in part, and vacated in part the district court’s judgment in a civil enforcement action brought by the Secretary of the Department of Labor against Scott Brain, a former trustee of the Cement Masons Southern California Trust Funds (the “Trust Funds”), and Melissa Cook and Melissa W. Cook & Associates, PC (collectively, the Cook Defendants), former counsel to the Trust Funds, alleging violations of the ERISA.

The action alleged violations of two sections of ERISA — unlawful retaliation in violation of ERISA section 510, and breach of fiduciary duty in violation of ERISA section 404.

The Panel held that the district court did not err in concluding that Brain violated ERISA section 510 by retaliating against whistleblower Cheryle Robbins, the Director of the Trust Funds’ internal Audit and Collections Department.  The Panel held that Robbins’s participation in the Department of Labor (“DOL”) investigation of Brain was unmistakably protected activity under ERISA, and constituted an independently sufficient ground for the district court’s conclusion.  The Panel noted that there was a circuit split on the issue of whether “unsolicited internal complaints” constituted protected activity within the meaning of ERISA section 510, but concluded that the issue of Robbins’s letter-writing being protected activity was immaterial where Robbins’s cooperation with the DOL investigation provided an independent basis for the section 510 claim.