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.

In Notice 2018-94, the Internal Revenue Service “IRS”) extends the due date for for furnishing to individuals the 2018 Form 1095-B, Health Coverage, and the 2018 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2019, to March 4, 2019.

A Form 1095-B provides information to an individual who is covered by minimum essential health coverage and therefore are not liable for the individual shared responsibility payment.  A Form 1095-C reports to the individual information about offers of health coverage from and enrollment in the employer’s health plan, and the individual may use this information to determine whether, for each month of the calendar year, the individual may claim the premium tax credit on his or her individual income tax return.

The Notice states that, in view of this automatic extension to March 4, 2019, the provisions under the Treasury regulations allowing the IRS to grant an extension of time of up to 30 days to furnish Forms 1095-B and 1095-C will not apply to the extended due date.  Notwithstanding the extension provided in this notice, employers and other coverage providers are encouraged to furnish 2018 statements as soon as they are able.

Recent tax legislation has changed some of the rules of the Internal Revenue Code (the “Code”) and the underlying regulations that apply to hardship withdrawals from 401(k) and 403(b) plans.  These changes are effective as of the plan year starting in 2019 (January 1, 2019 for calendar year plans), and are as follows, according to the preamble to the new proposed regulations (discussed below):

Changes Affecting 401(k) Plans.

Section 41113 of the Bipartisan Budget Act of 2018 (the “BBA”) directs the Secretary of the Treasury to modify Treas. Reg. §  1.401(k)-1(d)(3)(iv)(E) to: (1) delete the 6-month prohibition on pre-tax and after-tax employee contributions following a hardship distribution and (2) make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) (which allows distribution of pre-tax employee contributions for hardship).  The prohibition in (1) had been a part of the “safe harbor” hardship distribution rules.

In Sulyma v. Intel Corporation Investment Policy Committee, No. 17-15864 (9th Cir. 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s grant of summary judgment in favor of the defendants in an ERISA action on the ground that the limitations period had expired.

In this case, a former employee and participant in Intel’s retirement plans sued the company for allegedly investing retirement funds in violation of ERISA section 1104 (breach of fiduciary duty).  The district court concluded that the employee had the requisite “actual knowledge” to trigger ERISA’s three-year limitations period, 29 U.S.C. § 1113(2), so that the period of limitations for bringing the suit had expired.

The Panel held that a two-step process is followed in determining whether a claim is time- barred by section 1113(2).  First, the court isolates and defines the underlying violation on which the plaintiff’s claim is founded.  Second, the court inquires whether the plaintiff had “actual knowledge” of the alleged breach or violation.  The Panel held that actual knowledge does not mean that a plaintiff had knowledge that the underlying action violated ERISA, nor does it merely mean that a plaintiff had knowledge that the underlying action occurred.  Rather, the defendant must show that the plaintiff was actually aware of the nature of the alleged breach more than three years before the plaintiff’s action was filed. In an ERISA section 1104 case, the plaintiff must have been aware that the defendant had acted and that those acts were imprudent.  Disagreeing with the Sixth Circuit, the Panel held that the plaintiff must have actual knowledge, rather than constructive knowledge.

In W.A. Griffin, M.D. v. Teamcare, No. 18-2374 (7th Cir. 2018), W.A. Griffin, M.D., is the assignee of her patient’s health plan, TeamCare (the “Plan”).  The Board of Trustees of Central States, Southeast and Southwest Areas Health and Welfare Fund (collectively “Central States”) administers the Plan.  ERISA governs the Plan.  Dr. Griffin sued Central States for underpayment and for statutory penalties based on its failure to furnish plan documents upon request.  The district court dismissed her complaint.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) found that Dr. Griffin adequately alleged that she is eligible for additional payment for services and statutory damages.  Accordingly, the Court affirmed the district court’s judgment only as to Count 2 (Central States breached its fiduciary duty by not adhering to the Plan’s terms), vacated the district court’s judgment as to Count 1 (Central States did not pay Dr. Griffin the proper rate for her services under the Plan) and Count 3 (Central States failed to produce, within 30 days, the summary plan description she requested, and certain other information), and remanded Counts 1 and 3 back to the district court for further proceedings.

The case of McCann v. Unum Provident, No. 16-2014 (3rd Cir. 2018) involves two principal issues: first, whether a group insurance plan is governed by ERISA and, second, whether the physician—claimant was incorrectly denied his disability benefit payments.

In this case, plaintiff-appellant, Dr. Kevin McCann, is a radiologist certified in the specialty of interventional radiology.  The gravamen of this appeal concerns a supplemental long-term disability insurance policy Dr. McCann purchased from defendant, Provident Life and Accident Insurance Company.  After initially issuing payments under the policy, Provident terminated Dr. McCann’s disability benefits.  Central to its decision was a determination that Dr. McCann was primarily practicing as a diagnostic radiologist—rather than as an interventional radiologist—at the time he became disabled.  This suit followed.

In analyzing the case, the Third Circuit Court of Appeals (the “Court”) said that, as a preliminary matter, the parties dispute whether Dr. McCann’s claim arises under ERISA.  Thus, the Court first considers the outer bounds of an employer’s involvement in a group or group—type insurance plan before deciding whether the plan may be governed by ERISA.  The Department of Labor has promulgated a safe harbor regulation exempting certain plans from the definition of an “employee welfare benefit plan.”  But the Court concluded that Dr. McCann’s then—employer sufficiently endorsed the plan under which his policy was purchased to render the safe harbor inapplicable.  The plan is therefore governed by ERISA, which will supply the governing framework.