Private Employers May Be Able to Avoid ESOP Disclosures

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Privately held companies that have pension plans which own some of the company’s own stock (employee stock ownership plans, or ESOPs), have been concerned about publication of private information about their finances. The problem stemmed from the  Department of Labor’s publication of annual filings by ESOPs that included the private financial information.

In a very informative article, Connie Spinelli at BKDForsenics.com explains the background on this issue, and describes a recent step by the Financial Accounting Standards Board to indefinitely postpone disclosure requirements for these private securities.

 

Revenue Sharing in 401(k) Plans is OK, According to the Seventh Circuit

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Revenue sharing is an arrangement under which a mutual fund in which pension assets are invested pays a portion of its fees to the entity that services the pension plan. In Leimkuehler v. American United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013), the Seventh Circuit held that the arrangement did not violate ERISA fiduciary duties (at least as implemented in the case at hand). The court provided a helpful explanation of what revenue sharing was in general, and how it fits into the context of the management and operation of a 401(k) plan. Continue reading →

Fiduciary Duties and Investment Bubbles

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It is well-established that and ERISA pension plan administrator has a fiduciary duty to invest plan assets prudently. This duty is called, unimaginatively, the “prudent-man rule” – or perhaps the gender-neutral “prudent-person rule.” This rule, which existed long before ERISA was enacted, is enshrined in the text of the statute, which requires fiduciaries to use “the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” 29 U.S.C. § 1104(a)(1)(B).

With the benefit of hindsight, one might think that investing a significant fraction of plan assets in mortgaged-backed securities would be the height of imprudence. But, as the Second Circuit recently confirmed in Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Centers Retirement Plan v. Morgan Stanley Investment Mgt Inc., 712 F.3d 705 (2d Cir. 2013), the use of hindsight is impermissible when considering the prudent person rule. Continue reading →

US Airways v. McCutchen: Supreme Court Revisits, Again, the Scope of Equitable Remedies

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Disputes over what equitable remedies are “appropriate” under ERISA continue to percolate up to the Supreme Court. In its most-recent decision on the issue, US Airways, Inc. v. McCutchen (April 16, 2013), the Court held that an equitable doctrine cannot supersede the terms of an ERISA plan.

The dispute involved a relatively routine claim over a relatively small amount of money. McCutchen was injured in a car accident with a drunk driver. US Airways, through its self-funded health plan, paid McCutchen $66,866 in medical expenses related to that accident. McCutchen hired a lawyer to pursue claims arising out of the accident; though his total alleged damages exceeded $1 million, he settled for $110,000. His attorneys took a 40% contingency fee, leaving McCutchen with $66,000. US Airways sought recovery of the $66,866 it had paid, pursuant to a provision in the health plan requiring McCutchen to reimburse US Airways “for amounts paid for claims out of any moneys recovered from [a] third party.” McCutchen refused the indemnification demand, but his attorneys put $41,500 of hiss money in escrow pending resolution of the dispute. That sum represented US Airways’ full claim less a proportionate share of the attorneys’ fees.

US Airways filed suit under ERISA, seeking “appropriate equitable relief” to enforce the plan’s reimbursement provision.

In the Supreme Court, McCutchen agreed that US Airways had an equitable lien by agreement over his recovery, but the question was whether the lien was subject to one or more equitable defenses that might reduce, or eliminate, its recovery.
Continue reading →

Vesting of Employee Welfare Benefits – Who Knew It Was So Complicated?

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One of the great things about writing this blog is learning something new. I sometimes fall into the trap of determining the law on a particular issue in the circuit in which I practice most (the Second), and assume that other circuits are the same. Sometimes, though, it turns out that one circuit is not in step with the others, and one case can throw a monkey wrench into my world view.

The case that drew back the curtain for me on vesting of welfare benefits (an exciting topic, I know!), is Price v. Bd. of Trustees of Indiana Laborer’s Pension Fund, — F.3d –,  2013 WL 561354 (6th Cir. Feb. 15, 2013) (“Price II”). Price II held that an ERISA fiduciary could enforce a plan amendment shortening the length of time disability benefits would be payable against a participant who was on claim at the time of the amendment.

At first read, the decision seemed bizarre, because I knew (or thought I knew) that welfare benefits like disability benefits could not be changed for a participant who was “on claim.” As the Second Circuit held: “as a matter of law[,] …absent explicit language to the contrary, a plan document providing for disability benefits promises that these benefits vest with respect to an employee no later than the time that the employee becomes disabled.” Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202, 1212 (2d Cir. 2002). This rule means that you look to the plan language when the disability allegedly began, and subsequent amendments are irrelevant.

Though on re-reading Feifer, it was clear that the court recognized that other circuits approached this issue differently, that kind of caveat was not something that stuck with me. Then along came Price II and caused me to revisit the issue. Continue reading →

ERISA’s “Ordinary Conflict Preemption” Is Not a Basis for Federal Jurisdiction; “Complete Preemption” Is

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The Fourth Circuit recently gave a succinct reminder about the difference between ordinary conflict preemption and complete preemption, and how those two doctrines impact federal jurisdiction. In Moon v. BWX Technologies, Inc., 2012 WL 5992209 (4th Cir. Dec. 3, 2012), the court considered whether the district court correctly denied a motion to remand a case that had been removed from state court. Briefly, the facts were that the plaintiff’s husband enrolled in a life insurance benefit plan shortly before he retired. After his post-retirement death, his wife sought the insurance benefit, and her claim was denied. She then sued the employer in state court (apparently acknowledging that the benefit plan did not cover the loss, so she did not sue the insurer), arguing that the employer’s communications with her husband had created a non-ERISA contractual obligation. The employer removed the case to federal court, and the district court denied a motion to remand before addressing the merits of the claim. Continue reading →

Examining the Treating Physician

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Often the most common divide between a participant claiming disability benefits and the claim administrator evaluating the claim is the weight to be given the opinion of a treating physician. Time was that a claimant argued that the administrator must defer to the treating physician, like the Social Security Administration does. That argument, at least in its basest form, has been eliminated in ERISA cases. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834, 123 S.Ct. 1965, 1972, 155 L.Ed.2d 1034 (2003) (“courts have no warrant to require administrators automatically to accord special weight to the opinions of a claimant’s physician”).

Often the argument is now made in a more limited fashion, or couched in different language. It might be argued that the administrator should have conducted an independent medical examination (suggesting that the opinion of a doctor who lays hands on the patient necessarily is better). It might be argued that some claims are particularly inhospitable to “paper reviews,” such as claims based on a mental illness or pain. Even where the treating physician argument does not explicitly surface, there is often an undercurrent running through disability claims in which the treating physician is placed on a somewhat higher plane than a physician who is compensated by the claim administrator. There is often the unexpressed notion that treating physicians are unbiased reporters of medical facts, while the motivation of a reviewing physician might not be equally pure.

There are, however, rulings by several courts that allow those who represent administrators to shade some of the glow enveloping treating physicians. Continue reading →

Employers Deserve Equity Too: Restitution for Overpayments to Plan

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It is not an issue that arises every day, but it is worth exploring an employer’s remedies when it contributes too much into an ERISA plan. A recent decision in the 8th Circuit, Greater St. Louis Const. Laborers Welfare Fund v. Park-Mark, Inc., 700 F.3d 1130 (8th Cir. 2012), provides an opportunity to do so. Continue reading →

Everything You Never Wanted to Know About Backloading

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ERISA does not require employers to establish retirement plans for its employees, and it does not require employers to pay particular benefits if they choose to establish a plan. ERISA does, however, impose some restrictions on employers who choose to provide a retirement benefit. One of those requirements concerns backloading, which is a concept only an actuary could love. Backloading rules, and remedies for violating them, combined to give rise to a wildly complicated class-action dispute called Kifafi v. Hilton Hotels Retirement Plan, — F.3d –, 2012 WL 6216631 (D.C. Cir. Dec. 14, 2012). Continue reading →

Including Ambiguous Plan Language Verbatim In the SPD Can Effectively Eliminate Discretion to Interpret It — At Least in the Fifth Circuit

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In Koehler v. Aetna Health, Inc., 683 F.3d 182 (5th Cir. 2012), the Fifth Circuit criticized a health insurer for having an SPD that mirrored the plan, and held that Cigna v. Amara did not prevent the terms of the SPD from impacting plan interpretation.

The plaintiff, a participant in an HMO, suffered from sleep apnea, for which her physicians recommended treatment by an outside specialist. Aetna denied covered for the treatment, asserting that the plan required pre-authorization for an outside referral. The parties’ dispute centered around a specific provision in the Certificate of Coverage (“COC”), which the court found was ambiguous with respect to the need for pre-authorization for outside services rendered on an ad hoc basis.

The court noted at the outset something that is common in recent-vintage plans: the plan functions as an SPD. As the court explained: “in addition to appearing in the plan, the COC’s text also constitutes the ‘summary plan description’ which ERISA requires plan administrators to provide to participants and beneficiaries. Thus, although a plan summary is a separate document from the plan itself, in this case the summary’s text is simply a verbatim copy of the underlying plan provisions.” Continue reading →