Adjunct Law Prof Blog

Plan Administrator Can Rule Death Was Not Accidental Based Upon Blood Tests Taken At Time of Death

Stamp v. Met. Life, ___F.3d___(1st Cir. June 30, 2008), is an important Employee Benefits decision. The court held that a plan administrator of an employee benefits plan governed under ERISA may reasonably conclude that an insured, killed in a one-car collision with a tree while driving with BAC of 3 times the legal limit, did not die as a result of an "accident" for purposes of his Accidental Death and Dismemberment life insurance policies. This decision spans 35 slip opinion pages, is well reasoned and generated an important dissent.

The majority analysis was as follows:

The Wickman analysis thus began with an inquiry into the
expectations of the insured at the time of the incident that caused
his death. However, this subjective inquiry was not determinative.
We held that even if "the fact-finder determines that the insured
did not expect an injury similar in type or kind to that suffered,
the fact-finder must then examine whether the suppositions which
underlay that expectation were reasonable." Id. at 1088. We
further observed that "'the subjective state of mind of the insured
cannot be generally known.'" Id. at 1087-88 (quoting Hoffman v.
Life Ins. Co., 669 P.2d 410, 419 (Utah 1983)). Thus, in the usual
case, where the fact-finder will find "the evidence insufficient to
accurately determine the insured's subjective expectation," the
fact-finder "should then engage in an objective analysis of the
insured's expectations." Id. at 1088. We framed this objective
analysis as an inquiry into "whether a reasonable person, with
background and characteristics similar to the insured, would have
viewed the injury as highly likely to occur as a result of the
insured's intentional conduct." Id. This reasonable person
analysis, "when the background and characteristics of the insured
are taken into account, serves as a good proxy for actual
expectation." Id.

By contrast, the dissent felt that death caused by driving under the influence of alcohol was the result of an accident because DUI involves accidental or negligent conduct.

Both sides have good arguments. However, it is hard to challenge the rationale of the majority.

Mitchell H. Rubinstein

Congressional Research Service Issues Report on Basic ERISA Law

On April 10, 2008, the Congressional Research Service issued a 72 page report with 299 footnotes and a glossary about ERISA. The report provides background about the history of ERISA and a overview of the statute's requirements. This is an excellent primer on ERISA which lawyers, students and researchers should find extremely helpful. A copy of this report is available here Download ERISASummary.pdf .

That table of contents provides a good summary of this work. It is as follows:

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Historical Development of Pension Plans in the Unites States . . . . . . . . . . . 2
Origins of ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Types of Qualified Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Hybrid Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Revenue Act of 1978 and 401(k) Plans . . . . . . . . . . . . . . . . . . . . . 5
Principal Types of Defined Contribution Plans . . . . . . . . . . . . . . . . . . . . . . . 7
ERISA: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ERISA Title I: Protection of Employee Benefit Rights . . . . . . . . . . . . . . . . . . . . 7
A. Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1. Summary Plan Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2. Summary of Material Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Benefit Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Annual Funding Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. Notice of Freedom to Divest Employer Securities . . . . . . . . . . . . . 11
C. Participation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
D. Benefit Accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1. Anti-cutback Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. Benefit Accrual and Age Discrimination . . . . . . . . . . . . . . . . . . . . 14
E. Minimum Vesting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Breaks in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
F. Benefit Protections for Spouses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1. Preretirement Survivor Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2. Postretirement Survivor Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3. Qualified Domestic Relations Orders . . . . . . . . . . . . . . . . . . . . . . . 18
G. Buyouts, Mergers, and Consolidations . . . . . . . . . . . . . . . . . . . . . . . . . . 19
H. Plan Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1. Funding Requirements for Single-employer Plans . . . . . . . . . . . . . 20
2. Valuation of Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3. Benefit Limitations in Underfunded Plans . . . . . . . . . . . . . . . . . . . 22
4. Lump-sum Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5. Funding Requirements for Multiemployer Plans . . . . . . . . . . . . . . 24
I. Fiduciary Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1. Duty of Loyalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. Duty of Prudence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3. Duty to Diversify Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. Duty to Act in Accordance with Plan Documents . . . . . . . . . . . . . 30
5. Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6. Investment Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7. Fiduciary Duty and Participant-Controlled Investment . . . . . . . . . 34
8. Fiduciary Liability under ERISA Section 409 . . . . . . . . . . . . . . . . 36
J. Administration and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
1. Civil Enforcement under Section 502(a) . . . . . . . . . . . . . . . . . . . . . 37
2. Claims to Enforce Benefit Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3. Claims to Redress Breaches of Fiduciary Duty . . . . . . . . . . . . . . . 40
4. Claims to Enforce Plan Provisions and “Other Equitable Relief” . 41
5. Criminal Enforcement under ERISA and Other Federal Law . . . . . 43
K. Preemption of State Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
1. Section 514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2. Section 502 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
L. Special Regulation of Health Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 49
1. COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2. HIPAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3. Mental Health Parity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4. Maternity Length of Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5. Reconstructive Surgery Following Mastectomies . . . . . . . . . . . . . 51
ERISA Title II: Internal Revenue Code Provisions . . . . . . . . . . . . . . . . . . . . . . 52
A. Limits on Plan Contributions and Benefits . . . . . . . . . . . . . . . . . . . . . . 52
1. Defined Benefit Plan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2. Defined Contribution Plan Provisions . . . . . . . . . . . . . . . . . . . . . . 53
B. Coverage and Nondiscrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
1. Nondiscrimination Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
2. Safe Harbor Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
C. Distributions from Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
1. Plan Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
2. Additional Tax on Early Withdrawals . . . . . . . . . . . . . . . . . . . . . . 57
3. Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
D. Integration with Social Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
E. Special Rules for “Top-heavy” Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ERISA Title III: Jurisdiction, Administration, and Enforcement . . . . . . . . . . . . 60
ERISA Title IV: Pension Benefit Guaranty Corporation and
Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
A. Premiums for Single-employer Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
B. PBGC Insurance Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
C. Plan Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
1. Standard Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2. Distress Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3. Involuntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
D. Employer Liability to the PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
E. Reportable Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
F. Notice Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
G. Premiums for Multiemployer Pension Plans . . . . . . . . . . . . . . . . . . . . . 64
H. Withdrawal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
List of Tables
Table 1. Number of Plans, Participants, and Assets by
Type of Plan, 1975-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 2. Maximum Average 401(k) Contributions for
Highly Compensated Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Mitchell H. Rubinstein

Mandatory Sick Leave For Private Sector Employees Passed Connecticut State Senate

On May 1, 2008, the Connecticut state senate passed a bill (S.B. 217) mandating that Connecticut employers with 50 or more employees provide paid sick leave to their employees. The bill, which also applies to municipalities, passed by a vote of 20-16. The bill would allow employees to accrue paid sick time at the rate of one hour for every 40 hours worked, up to 52 hours. If the employer pays other benefits, such as vacation pay, it may substitute that benefit for all or part of the 52 hours of required sick leave.

If enacted, this would be a significant piece of state labor standards legislation.

Mitchell H. Rubinstein

ERISA Plan Not Subject To Labor Arbitration

Steelworkers v. Rohm, ___F.3d___(3rd Cir. April 14, 2008) is an important decision. The court holds that a dispute over an ERISA disablity plan is generally not subject to labor arbitration. As the court stated:

While we recognize the strong
policy considerations favoring arbitration of labor disputes,
there is no right to arbitration of ERISA benefits under a CBA
unless the ERISA benefits sought are either: (i) derived directly
from an ERISA plan established and maintained by or
incorporated into a CBA whose grievance procedure contains an
arbitration clause, or (ii) created by a separate ERISA plan and
that plan and/or the CBA provide that adverse benefit
determinations by a plan administrator are subject to the CBA’s
grievance procedure that includes arbitration. Because we hold
that the benefits sought in this case are neither created by or
incorporated into the CBA nor made subject to the CBA’s
grievance procedure, we reverse the District Court’s order
granting summary judgment to the union and those workers
seeking disability benefits and denying summary judgment to
the employer.

This was a lengthy decision that we are likely to hear more about in the future.

Mitchell H. Rubinstein

Interesting Article About LaRue Case Allowing Suits Against ERISA Fiduciaries

401(K) Party May Sue for Fiduciary Breach Under ERISA is a well written April 7, 2008 New York Law Journal article by Jeffrey S. Klein and Nicholas J. Pappas (registration required). The article summarizes the Supreme Court's recent decision in  LaRue v. DeWolff, Boberg & Associates (2008). The article also does an excellent job of summarizing the law leading up to LaRue.

LaRue held that a 401(k) participant may sue a fiduciary for breach of duty. As noted in the article, the court distinguished  Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144, 147. (1985) as a case involving a defined benefit plan. The article concludes by providing the following advice to plan fiduciaries:

In light of LaRue, plan sponsors and fiduciaries may want to take certain actions to evaluate their potential exposure to claims of fiduciary breach.

First, plan fiduciaries should be identified and the extent of fiduciary bonds and indemnifications should be reviewed. Since fiduciaries may be personally liable for plan losses, it is important for fiduciaries to be aware of the extent of their duties under the plan documents and those imposed by ERISA. Often plan sponsors provide fiduciaries with a bond and/or indemnification for damages resulting from certain types of breaches. This may be a good time for fiduciaries to review the amount of any bond that may have been purchased for reimbursement for damages incurred in their capacity as fiduciaries and the extent to which they may be indemnified.

Section 404(c) of ERISA limits fiduciary liability for certain investment losses in participant-directed account plans if certain requirements are met, including the requirement that the plan offers a diversified assortment of investments from which plan participants may choose. Plan sponsors and fiduciaries should review all of the requirements of, and ensure compliance with, ERISA §404(c) as a preventative measure to decrease the potential for investment loss claims.

Finally, other individual account plans such as nonqualified deferred compensation plans should be reviewed as well. These nonqualified arrangements may be subject to or exempt from ERISA, and it will become increasingly important to be aware whether the LaRue decision may be extended so as to impose liability under these types of arrangements as well.

Mitchell H. Rubinstein

Justice Kennedy Denies Stay of Enforcement of San Francisco Min. Health Care Ordinance

As previously reported on Adjunct Law Prof, in 2006 San Francisco passed a ordinance which required that most employers make certain health care expenditures for their employees or pay into a certain fund. There is a serious question about whether this Ordinance is preempted under ERISA.

As previously reported, a federal district judge held that this statute was preempted. The 9th Circuit, however, stayed enforcement of that lower court order. On Feb. 21, 2008, SCOTUS Blog reported that Justice Kennedy refused to bar the enforcement of this Local Law.   The 9th is scheduled to hold an expedited hearing on the dispute on April 17.  No health expenditures need be made under the law until April 30.

This is an important decision to watch.

Mitchell H. Rubinstein

Supremes Decide In LaRue's Favor; 502(a)(2) is A Viable Remedy

On Feb. 20, 2008, the Supremes decided a very important ERISA case concerning remedies under Section 502(a)(2), LaRue v. DeWolff, ___U.S.___ (Feb. 20, 2008). The Court held "that although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account."  Professor Paul Secuenda over at Workplace Prof Blog did an excellent job describing this case so I thought we could just piggy back on his analysis. As Professor Secunda states:

1.    Justice Stevens was the perfect person to write the majority opinion (joined by Souter, Breyer, Ginsburg, and Alito) because twenty-three years earlier he wrote the decision in the Russell case, which found that consequential damages were not permitted under a Section 502(a)(2) breach of fiduciary duty claim. His understanding that Russell applied to the the meaning of a plan loss in the defined benefit plan context as opposed to the defined contribution plan (401(k)) context of this case, carries considerable weight in trying to decide the relationship between LaRue and Russell.  In fact, and this is rank speculation on my part, I wonder if Alito joined the progressives because he was particularly swayed by the meaning of that case given to it by its original author.

2.    This was some thought that the Court would also decide whether LaRue could bring his breach of fiduciary claim under the catch-all provision of Section 502(a)(3) for "appropriate equitable relief."  Although that was the provision LaRue filed his case under, the Court decided that it was not necessary to address issues about whether make whole relief is available under (a)(3) in order to come to a decision in this case. So the issue of make whole relief under (a)(3), aptly highlighted by Justice Ginsburg in her 2004 concurrence in Davila will have to await another day.

3.     A point not only stressed by the majority, but bought into by Justices Thomas and Scalia, in their textualist concurring opinion in the result, is that a loss is a loss is a loss when considered what is a plan loss under Section 409 in the defined contribution context.  As Stevens put it: "Although record does not reveal the relative size of petitioner's account, the legal issue under Section 502(a)(2) is the same whether his account includes 1% or 99% of the total assets of the plan.

4. I could not agree less with the concurrence written by Chief Justice Roberts, and joined by everybody's favorite swing vote, Justice Kennedy, that this case is really not a fiduciary breach case under 502(a)(2), but rather a denial of benefit case under 502(a)(1)(B), subject to exhaustion and Firestone discretion.  I think it is interesting that Justice Scalia did not join Roberts opinion since he asked most of the questions in the oral argument about (a)(1)(B) alternative, but it seems clear that he and Thomas believed this was a fiduciary case and not a benefits case being mischievously recast.

5. Justice Roberts concurrence has the potential to completely undermine the holding of the LaRue majority.  Roberts writes that lower federal courts in the future should consider whether 502(a)(1)(B) applies in a case like this and if so, whether there must be exhaustion of internal remedies before the 502(a)(2) issue is reached, if at all.  There is the argument under Varity that if appropriate relief is available under (a)(1)(B), there is no need to consider an (a)(2) remedy. This would be disastrous for ERISA participants because the (a)(1)(B) remedy would not provide any meaningful remedy to make up their losses from their individual accounts.

6.  Indeed, even the majority leaves open in footnote 3 of its opinion the possibility that LaRue may still lose the case on the merits, including because there is still the question open of "whether he was required to exhaust remedies set forth in the Plan before seeking relief in federal court pursuant to Section 502(a)(2).  That being said, I think there is an important difference between recharacterizing this case as an (a)(1)(B) case (Robert's view, mistaken I believe), and whether one must exhaust internal remedies under (a)(2) like one must under (a)(1)(B).

7.    Justice Stevens also seems to approve of the loss of profit point under Section 409 in footnote 4 of the opinion.  Since at least 1985's Bierwirth decision by the Second Circuit, loss of the plan does not go to whether the plan made money or lost money, but whether the plan could have made more profit if fiduciary duties had not been breached. From my own recollection, this is the first type that the Supreme Court has sanctioned the Bierwirth formulation in this context.

8.  Kudos to Susan Stabile, Bruce Wolk, and John Langbein for having their employee benefit case book relied upon by Justice Stevens in his opinion.

9.    Double kudos to Ed Zelinky, "Mr. ERISA," for not only having his Yale Law Journal piece relied upon twice by the majority, but for apparently providing the necessary distinction between Russell and LaRue that the Court relied upon!!!

10. Also kudos to Radha Pathak for organizing the amicus brief of eleven law professors that I joined which opposed the motion to dismiss on mootness grounds filed by DeWolff in this case. Justice Stevens mentioned in footnote 6 of the majority opinion why he agreed with us and others that the case was not moot: simply because a participant as defined by ERISA includes a former employee with a colorable claim to benefits.

Mitchell H. Rubinstein

ERISA Administrator's dual role in both determining and paying claims as a conflict of interest--Certiorari granted.

Metlife v. Glenn, (U.S.) 
The United States Supreme Court will determine if a claims administrator of an Employee Retirement Income Security Act (ERISA) plan has a "conflict of interest," which must be weighed in a judicial review of the administrator's benefit determination, whenever the administrator also funds the plan. Additionally, the Supreme Court posed an additional question of its own, which asks, in the event an administrator that both determines and pays claims is deemed to be operating under a conflict of interest, how that conflict should be taken into account on judicial review of a discretionary benefit determination.

In the decision below, the Sixth Circuit found that the district court, in reviewing a long-term disability benefits termination, was required to take into account the apparent conflict of interest of an administrator authorized both to decide the participant's eligibility for long-term disability benefits and to pay those benefits. It based its conclusion on the Supreme Court's seminal decision in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), citing the following sentence: "If a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a 'factor in determining whether there is an abuse of discretion,' " 489 U.S. at 115. "This factor did not receive appropriate consideration by the district court," the Sixth Circuit held, because the district court's analysis of the plan administrator's basis for terminating the benefits neither included any discussion of the role that the administrator's conflict of interest may have played in its decision.

This is an important to decision to watch.

Mitchell H. Rubinstein

Most Americans Have Inadequate Pensions

Oklahoma Law School Prof. Jon Foreman, who runs an employee benefit law professor list serv writes to provide us with a copy of his Op. Ed. piece that has been accepted by McClatchy-Tribune Wire Service and available here (as reproduced by Fresno Bee). Jon's point, and its a good one, is that most Americans are not saving enough for retirement and most pensions are indequate. He calls for a 3% payroll tax for a mandatory pension saving system. As Jon writes:

Even with universal access, however, many workers simply will not save for retirement. In the end, we will need a mandatory universal pension system.

For example, we might collect another 3 percent of payroll from every American worker and place that money into individual retirement savings accounts. Those accounts could be held by the government, invested in a broadly diversified portfolio of stocks and bonds, and converted into a monthly annuity at retirement. In a new discussion paper for the Urban-Brookings Tax Policy Center, Adam Carasso of the New America Foundation and I estimate that these 3-percent-of payroll accounts would provide 13.8 percent of final wages at retirement for the every worker.

Our paper, "Tax Considerations in a Universal Pension System," also shows how targeted tax subsidies could lead to even larger benefits for low- and moderate-income workers.

Millions of American workers have been left out of the current pension system and have no retirement savings. A system of 3-percent-of payroll individual accounts would ensure that every worker has at least some retirement savings. Altogether, Social Security and these "add-on" individual accounts would guarantee that every worker has an adequate retirement income.

I am familar with the report Jon is citing. Jon, I do have one question if you care to comment. Wasn't the Social Security System itself designed to be a mandatory retirement system that supplements retirement income. It seems like your calling for a mandatory supplement to increase what was only designed to be a supplement in the first place.

Mitchell H. Rubinstein

Albany Law Professor Battles Insurer Over Expensive Chemotherapy Treatment

Albany Law Health Clinic Battles Insurer Over Expensive Chemotherapy Treatment is a December 14, 2007 New York Law Journal article by Thomas Adcock about Albany Law Professor Joseph Connors and two students successful efforts to require that an insurer pay $42,000 a month for cancer therapy. As the article states:

Edward J. Hazelton could have been dead from brain cancer this month. Instead, he spent part of an afternoon last week in Albany with a law professor and two students who persuaded Empire Blue Cross and Blue Shield to pay for life-sustaining chemotherapy treatments that cost $42,000 a month.

The result of legal work by Professor Joseph M. Connors, director of the Health Law Project at Albany Law School, and students Donald J. Labriola and Daniel M. Lindenberg may well have statewide and national impact, according to the professor.

With its successful challenge to Empire's initial denial of payments for the expensive treatments Mr. Connors said his clinic has identified "an unmet legal need" and established a valuable lesson for future students in "the concept of medical-legal collaboration, which holds that doctors and lawyers working together can achieve what neither can acting alone."

As part of the clinic's outreach effort to patients in similar disputes with insurers, Mr. Connors has posted many of the documents relating to the Hazelton case at the clinic's Web site at www.albanylaw.edu/sub.php?navigation_id=66.

Mitchell H. Rubinstein

9th Stays Lower Court Decision Finding San Franciso's City Health Care Ordinance Preempted

  On Jan. 7, 2008 Adjunct Prof Blog wrote about San Franciso's Heathly program being preempted. That posting is available here. The next day, on Jan. 8, 2008, the 9th Circuit issued a decision staying that decision. That decision is available here. The 9th granted the stay because it believed that the City was likely to succeed on the merits of the appeal. The 9th explained that ERISA did not preempt this local law because the ordinance did not have a connection with and did not reference an ERISA plan.

This Ordinance, passed in 2006, requires covered employers to make health care expenditures for their employees. Depending on their size, employers must make minimum expenditures by paying directly into health spending accounts, contributing to private health insurance or participating in the city's health plan created by the Ordinance.  The Ordinance applies to employers with at least 50 employees effective immediately and will take effect for for-profit employers with 20 or more employees on April 1, 2008.

I am a bit surprised by the 9th Decision. ERISA does not provide any minimum standards. This is a minimum standard type of legislation. ERISA also contains very broad, and complicated, preemption provisions. As much as I am in favor of the reasons behind this legislation, it is apparent to me that this does have a connection to ERISA plans because it provides for a minimum standard. My view of the applicable case law, which is extensive, is that this Ordinance is unfortunately, therefore preempted. 

On the other hand, this is also a type of regulation often regulated by the states and under Travelers, there is a presumption against preemption. This may fit within that presumption. However, that presumption is rebuttable and in light of the applicable case law, the 9th appears to have erred.

Mitchell H. Rubinstein

Minimum Health Care San Francisco Ordinance Held To Be Preempted By ERISA

In 2006, San Francisco passed a ordinance which required that most employers make certain health care expenditures for their employees or pay into a certain fund.

However, in Golden Gate Restaurant v. San Francisco, ___F.Supp. 2d___, 2007 U.S. Dist. Lexis 94112 (N.D. Cal. Dec. 26, 2007)(registration required), Judge Jeffrey White concluded that although the goal of this legislation was "laudable," the ordinance was preempted under ERISA. The court concluded that this ordinance failed both parts of the Shaw test in that this legislation was connected with and made a reference to an ERISA covered plan.

This is a critically important case and my guess is that it is going to be appealed. This decision should be closely watched. Health insurance is enormously complex and expensive. A number of localities have enacted similar types of minimum standards legislation. The problem is that ERISA preemption is very broad.

ERISA preemption is a very complex area of law. The court decisions in this area are often contradictory. Additionally, court's have broadly interpreted ERISA's preemption provisions. The problem, however, is that ERISA-which is a product of the 1960's before the current health care crisis- imposes virtually no minimum standards that employers must meet. This case demonstrates that legislative relief is needed in this important area of law.

Mitchell H. Rubinstein   

Supremes To Hear Oral Argument In ERISA Case On November 26th

In LaRue v. DeWolff, 450 F. 3d 570 (4th Cir. 2006), the Fourth Circuit dismissed an ERISA action brought under 502(a)(2) and 502(a)(3) of ERISA. The plaintiff alleged that his 401(k) plan did not follow his instructions and resulted in a $150,000 loss.

Why did the court dismiss such a case? The court interpreted 502(a)(2) (breach of fiduciary duty claims) to only apply to claims by a plan and not to individual claims. Look for that ruling to be affirmed as the courts analysis appears harsh, but sound.

The 502(a)(3) claim is another matter. That statue authorizes an award of "equitable relief" and the court concluded that what plaintiff sought was damages-a legal remedy. There is certainly enough precedent to support the courts holding. The court looking to Sereboff v. Mid Atlantic, 126 S.Ct. 1869(2006) and Great West v. Knudson, 534 U.S.204 (2002) read that section as requiring that a defendant have unjust possession of identifiedable funds with the possession and control of the defendants for the relief to be equitable. The court is again correct with its analysis.

Where I think we are going to see a change is that the Court is going to hold that when a plaintiff can point to a specific amount of damages- or in equitable terms restitution-a fund can be held responsible under the statute. You heard it here first!

Cornell Law Schools Liibulletin service has an excellent summary of the case as well as the principle arguments under review.  A copy is available here.

Mitchell H. Rubinstein       

5th Holds That Where Summary Plan Description Conflicts With Plan SPD Controls And Reliance Does Not Have To Be Established

Washington v. Murphy Oil, ___F. 3d___ (5th CIr. 2007), is a short, but important ERISA decision.

As most employees covered by a pension plan know, they are entitled to a Summary Plan Description or SPD. For most, this is the only document they will see. However, there is also a much more comphrensive Plan Document. Query, what should a court do if the documents conflict? Murphy Oil holds that the SPD controls and reliance does not need to be shown-as least where the SPD unequivocally grant the employee with a vested right to benefits. However, the circuits are in conflict with respect to this issue. In a footnote, the court described the various circuit rulings as follows:

We certainly do not write on a clean slate. Indeed, there appears to be a five-way circuit split regarding whether an ERISA claimant needs to establish reliance and/or prejudice based on the conflicting terms of an SPD [summary plan description]. The Third and Sixth Circuits do not require a showing of reliance. See Burstein v. Ret. Account Plan for Employees of Allegheny Health Edu. and Research Found., 334 F.3d 365, 380-82 (3d Cir.2003); Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 137 (6th Cir.1988). The Second Circuit also does not require a showing of reliance, but does require a showing of a likelihood of prejudice, which an employer may then rebut through evidence that the deficient SPD was in effect a harmless error. See Burke v. Kodak Ret. Income Plan, 336 F.3d 103, 111-14 (2d Cir.2003). The Seventh and Eleventh Circuits require a showing of reliance. See Health Cost Controls of Illinois, Inc. v. Washington, 187 F.3d 703, 711 (7th Cir.1999); Branch v. G. Bernd Co., 955 F.2d 1574, 1579 (11th Cir.1992). The First, Fourth, and Tenth Circuits require a showing of reliance or prejudice, though it appears that the terms "reliance" and "prejudice" are sometimes treated synonymously. See Govoni v. Bricklayers, Masons & Plasterers International Union, Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir.1984); Aiken v. Policy Management Sys. Corp., 13 F.3d 138, 141 (4th Cir.1993); Chiles v. Ceridian Corp., 95 F.3d 1505, 1519 (10th Cir.1996). Finally, the Eighth Circuit requires a showing of reliance or prejudice, but only if the SPD is "faulty." See Palmisano v. Allina Health Sys., 190 F.3d 881, 887-88 (8th Cir.1999); Marolt v. Alliant Techsystems, 146 F.3d 617, 621-22 (1998).

Mitchell H. Rubinstein 

ERISA 502(a)(3) Does Not Include Make Whole Relief

  In Amschwand v. Spherion Corp., ___F. 3d___ (5th Cir. Oct. 18, 2007), the Fifth Circuit held that under ERISA section 502(a)(3), "other appropriate equitable relief" does not permit recovery of extracontractual, or "make-whole," damages in the form of payment of life insurance benefits that would have accrued to a plan beneficiary but for a plan fiduciary's breach of fiduciary duty.

Because of a breach of fiduciary duty, the plaintiffs estate did obtain life insurance benefits even though plaintiff paid the premiums! The 5th Circuit held that it was "circumscribed by a line of Supreme Court decisions" which interpreted 502(a)(3) as allowing money damages in the form of equitable restitution only if the defendant was in possession of the disputed res. As the court correctly stated "a defendant's possession of the disputed res is central to the notion of a restitutionary remedy. . ."

Something is wrong here. This case is example number 1 why ERISA needs to be amended to allow for make whole monetary damages. Circuit Judge Benavides in his concurrence probably agree with my view in that he stated that the facts "scream out for a remedy beyond the simply return of premiums."

Mitchell H. Rubinstein   

Duties of Directed Trustees in ERISA Stock Drop Litigation

Duties of Directed Trustees in ERISA Stock Drop Litigation is an interesting Oct. 9, 2007 New York Law Journal Article about recent litigation concerning the liability of directed trustees. The article focuses on recent "stock drop" litigation where a company stock drops and directed trustees continue to make investments according to the terms of the plan. The difficult legal issues is when do directed trustees have a duty to disregard the plan's instructions. As the article states:

    A major issue that has emerged in stock drop litigation is the circumstances under which ERISA fiduciary liability may be imposed upon directed trustees for failing to stop allegedly imprudent investments by pension plans in employer stock. Directed trustees have argued that they were retained to execute instructions from others, not to act as discretionary trustees or investment managers. While ERISA §403(a)(1) relieves directed trustees from fiduciary responsibility to the extent that they acted on the basis of a named fiduciary's "proper" instructions, plaintiffs have attempted to argue that directed trustees should be subject to liability if they "knew or should have known" that the named fiduciary's instructions were imprudent.

In this article, we discuss some important legal developments that have occurred over the last several years as to the existence and scope of fiduciary liability for directed trustees. In sum, the duty of directed trustees to question the prudence of instructions from a named fiduciary appears to have been limited over the years to certain extraordinary circumstances and courts are now more willing to dismiss claims against directed trustees at an earlier stage in the litigation.

This article may be of interest to scholars and attorneys with stock drop cases and who are seeking to impose liability on directed trustees.

Mitchell H. Rubinstein

Employer Able To Reduce Retiree Health Benefits Because Grievance Over Expired Welfare Plan Found Not To Be Arbitrable

In Crown Cork and Seal v. IAM, ___F. 3d ____(8th Cir. Sep't. 18, 2007), the union sought to arbitrate a grievance after the employer unilaterally modified a health care plan for retirees who had already retired. The modified plan included premium sharing, increased deductibles and out of pocket limits, decreased hospitalization coverage and elimination of some coverage for dependents.

The court held that the dispute was not arbitrable. The collective bargaining agreements the union was relying on had expired. While the court recognized that the duty to arbitrate can survive the expiration of the collective bargaining agreement, the court held that duty only survives if the parties failed to negate the presumption in favor of arbitrability expressly or by clear implication, citing Nolde Bros. v. Local No. 358, 430 U.S. 243, 251 (1977). Stated another way, the benefits must be considered "vested" under the collective bargaining agreement.

Significantly, here  there were a number of writings which limited benefits "for the life of the agreement." The plan also had a reservation of rights clause which allowed the employer to unilaterally terminate or modify the retiree health care plan. Accordingly, retiree health benefits was not considered vested and therefore, the dispute was not arbitrable.

The 8th Circuit also dismissed the ERISA cause of action because the plaintiffs could point to no provision of the plan which was violated.

This was a tough case. However, the 8th Circuit's legal analysis appears to be sound. The case points to a need for legislative relief in this area which would prevent employers from modifying health care plans of retirees.

Mitchell H. Rubinstein 

   

Disablity Plan Not A Welfare Plan Notwithstanding The Fact That Employer Referred To This Plan As An ERISA Plan In Its Summary Plan Description

As my students are well aware, it is often difficult to determine whether a certain plan is a "welfare plan" governed by ERISA. In Langley v. Daimler Chrysler Corp., ___F. 3d ____(6th Cir. Sep't. 18, 2007), the 6th Circuit held that the employer's "Disability Absence Plan," which provided payments to employees unable to work, was not an ERISA welfare plan. This was largely because payments were made from the employer's general assets. The court relied on a Department of Labor regulation which states that such programs are considered "payroll practices" and therefore, not an ERISA welfare plan. See, 29 CFR Sec. 2510.3-1(b)(2). Such payroll practices are not regulated by ERISA.

The interesting aspect of this case and why I bring it to your attention is that in the Summary Plan Description, the Disability Absence Plan was specifically referred to. The court concluded in light of the those representations employees could conclude that the plan was governed by ERISA.

Never-the-less, the 6th Circuit held that the Disability Absence Plan was not a welfare plan because the summary plan description was not determinative. To hold otherwise, said the court, would allow an employer to convert an otherwise exempt benefit into one covered by ERISA.

This opinion appears to clearly be correct. The plaintiff did not make any estoppel argument.  The result may indeed be different, if the participant is able to generate some type of detrimental reliance. Apparently, there was no such reliance in this case.

Mitchell H. Rubinstein      

Health Plan Entitled To Restitution Under Plan's Subrogation Clause

Administrative Committee of Wal-Mart Stores, Inc. v. Shank, ___F.3d ___(8th Cir. Aug. 31, 2007) is an important ERISA decision. 

Wal-Mart's self-insured health care plan paid out $469,216 in medical costs for a employee who was severely injured in a car accident. The employee settled a tort law suit for $700,000 and the plan sought reimbursement of the money it paid under a subrogation clause in the plan.

Wal-Mart brought suit under 502(a)(3) of ERISA which authorizes equitable relief. Whether this type of claim would be viable was questionable until 2006. In 2006, the Supreme Court decided Sereboff v. Mid-Atlantic Medical Services, 126 S.Ct. 1869 (2006), and held that restitution was available as an equitable remedy when plaintiff sought to recover specifically identifiable funds. That is what the plaintiff sought here and it was entitled to summary judgement.

While the decision may seem somewhat harsh, it appears to be legally correct. Particularly, after Sereboff, it appears that restitution is available when plans have subrogation clauses.

Mitchell H. Rubinstein 

PA Elder, Estate and Fiduciary Law Blog and Health Care Decision Making Wiki Run By An Adjunct Law Prof.

Widener Adjunct Professor  Neil Hendershot writes to inform us of his blog entitled "PA Elder, Estate and Fiduciary Law Blog." What is interesting about it is that Neil uses it as a teaching tool. As Neil explained to me:

One year ago, at the start of class, I began a blog for the benefit of the students.  I continued it beyond that semester.  Now I am teaching Elder Law to a new class.  I invited students to submit entries to me for posting (after editing).  We also refer to it during class.

Right now there is a timely article about HIPAA. Check it out.

Neil also started a "wiki" in January 2007, to teach lawyers about PA's new Health Care Directives law, Chapter 54 of Title 20 of PA Cons. Stats. See PA Healthcare DecisionMaking. There is a wealth of information about end of life decision making on that web site that should be very useful to attorneys and researchers.

Mitchell H. Rubinstein

Number of Americans Without Health Insurance Continues To Rise At An Alarming Rate

Workplace Prof Blog reports on new U.S. Census Bureau finding which states that shows that the number of uninsured rose from 44.8 million (15.3 percent) in 2005 to 47 million (15.8 percent) in 2006.

I join with Professor Paul M. Secunda in finding this absolutely unacceptable. Something has to be done about this and the problem is that our politicians cannot decide on what. This is a long term problem and its solution should not depend upon which party is in the White House.

Personally, I favor a national health insurance system with a legal after market where employees and others have supplemental can cut down the wait time that would probably be a by-product of a national health insurance program.

The U.S. is the only major Western nation not to have national health insurance and its about time that this is changed.

Mitchell H. Rubinstein

401(k) Fiduciaries Win Round 1 on 'Excessive Fees' Suits

The August 17, 2007 New York Law Journal has an interesting article by  Donald P. Carleen entitled "401(k) Fiduciaries Win Round 1 on 'Excessive Fees' Suits"The article discusses Heckler v. Deere & Company,___F. Supp.2d ___,  2007 WL 1874367 (W.D. Wisc. 2007)(registration required), which dismissed a case alleging breach of fiduciary duty under ERISA because excessive 401(k) fees were imposed. The participants did not pay the fees directly. Rather, the fees were taken out from the Mutual Funds run by Fidelity Management and Research Company. The court found that the trustees were not liable because the individuals controlled the investments and their full disclosure was given about the fees. As the article states:

Ruling in favor of the defendants on their motion to dismiss the complaint, the Heckler court found that Deere was protected from liability by the safe harbor because the company met the disclosure and other requirements imposed by the DOL regulations. The court stated that the disclosure requirements which must be met for the safe harbor to apply were limited to those imposed by Congress and the DOL. In so ruling, the court rejected the plaintiffs' contention that the disclosures made in the prospectuses and SPDs were inadequate because they did not include information about revenue sharing or a detailed breakdown of other expenses not specifically required by the regulations. Perhaps more importantly, the court rejected the plaintiffs' assertion that the defendants breached their fiduciary duties by failing to provide participants with a choice of investment options that charged lower fees.

401(k) plans are in vogue today and Fidelity is a major player in this market. This decision is probably not the last word on the critically important issue of whether plan fiduciaries have a duty to offer investment options which charge low fees. I can very easily see some courts going the other way and imposing such a duty on fiduciaries.

Mitchell H. Rubinstein   

What is a Pension Plan?

I recently came across Guilbert v. Gardner, 480 F.3d 140 (2d Cir. 2007), which addresses the all important issue of what is a pension plan under ERISA? Unfortunately, this is not always an easy question to answer.

When Plaintiff was offered a job, he informed his new employer that he had accumulated $39,000 in pension funds from his old job. Plaintiff was told that if he joined the company, the employer would establish a pension fund with an initial deposit of $39,000 and a $10,000 deposit each year thereafter. Plaintiff alleges that these terms were written down on a yellow pad, but those notes were not produced at trial. Plaintiff also alleged that defendant orally assured him on numerous occasions that they had taken care of his pension needs.

Guess what, when it came time to collect his pension it turns out that a pension plan was never established. Can plaintiff maintain an action under ERISA? That depends upon whether he was covered by a pension plan and the court held that he was not.

Under the leading case of Donovan v. Dillingham, 688 F. 2d 1367 (11th Cir. 1982)(en banc),the decision to extend benefits is different from the establishment of a plan.  It is the reality of the plan, fund or program that courts look to. A plan is established if a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing and the procedures for receiving benefits. Here, the court held that no reasonable fact finder could find that the employer established or maintained a pension plan under ERISA and the employer was awarded summary judgment.

Plaintiff also brought a common law fraud claim which was dismissed as time-barred. All might not be lost for plaintiff because his breach of contract claim survived summary judgment.

Mitchell H. Rubinstein

The Suffolk County Fair Share for Health Care Act Aimed At Walmart Is Preempted By ERISA

On October 25, 2005, Steve Levy, as Suffolk County Executive, signed into law the Suffolk County Fair Share for Health Care Act, Suffolk County, N.Y., Reg. Local Law §§325-1 to 7 (2005) (the "Act"). As originally enacted, the Act required certain large retail stores selling groceries, to make "health care expenditures" for their employees equivalent to not less than $3.00 per hour worked by their employees in Suffolk County.

Walmart and others challenged this statute as being preempted under ERISA. In a lengthly opinion, Judge Arthur Spatt of the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, ___F. Supp. 2d __ (E.D.N.Y. 2007)(registration required) agreed. The court reasoned:

As in Shaw and Egelhoff, the present Act would interfere with employers' administration of their ERISA plans because employers would have to vary benefits for New York employees; the law would inhibit the administration of a uniform plan nationwide; and the law would disrupt uniform plan administration. In order to comply, employers would be required to alter their ERISA plans to meet the spending requirements of the Act. Moreover, "differing state regulations affecting an ERISA plan's system for processing claims and paying benefits impose precisely the burden that ERISA pre-emption was intended to avoid." Egelhoff, 532 U.S. at 150.

As such, "the Act has an obvious 'connection with' employee benefit plans and so is preempted by ERISA." Fielder, 475 F.3d at 193-94.

ERISA preemption is one of the most difficult fields of law to analyze. This is also an important decision which will certainly be appealed and may even wind up in the Supreme Court.

Mitchell H. Rubinstein

Employer Denied Summary Judgement Over Modification of Welfare Plan Because of Defective Notice

What benefits are injured employees entitled to? The answer depends upon the terms of a disability plan that the employer may or may not have. Can the employer change the terms of that welfare plan? Yes, so long as the employer gives the requisite notice. ERISA requires that "a summary of any material modification in the terms of the plan . . .shall be written in a manner calculated to be understood by the average plan participant and shall be furnished [within 60 days] 29 USC Sec. 1022(a).

Is first class mail sufficient? Yes, but it is dangerous to rely on the mail for lack of proof. Courts look to the method of mailing as opposed to whether the employee actually received the notice. In Custer v. Murphy Oil, ___F. 3d ___ (5th Cir. July 24, 2007), the employer was denied summary judgment because it did not provide any evidence about the actual mailing of the amendment. Instead, it produced testimony that the benefits department stuffed envelopes and gave them to the mail room. That was not sufficient in light of the fact that plaintiff produced three other employees who did not get the notice. Moral of the story is that mailing does not mean simply placing the envelope with the mailroom.

Thus, the plaintiff, who worked for the employer for 23 years before he became permanently disabled was able to state a claim. Perhaps, the most interesting part of this case concerned footnote 3 where the court questions what type of remedy is available to plaintiff. The court does not decide this issue, but notes the different approaches of courts.

Mitchell H. Rubinstein          

COBRA May Apply to Small Employers Under Equitable Estoppel Principles

  Health Plan Law Blog reports on an interesting 6th Circuit decision, Thomas v. Miller, ___F. 3d___, 2007 WL 1827293 (6th Cir. June 27, 2007)(registration required), which suggests that equitable estoppel principles may allow an employee to assert a COBRA claim against his or her employer even though the employer employs fewer than the statute's threshold of twenty employees.

Of course, equitable estoppel principles are only going to apply if the employer has used "conduct or language amounting to a representation" that the employee is entitled to COBRA. As Health Plan Law Blog points out, if the employer does not have COBRA insurance, the employer could be responsible for huge medical bills with no insurance carrier to turn to.

Health Plan Law Blog does a nice job of summarizing equitable estoppel principles. The plaintiff in the 6th Circuit case could not establish a cause of action for equitable estoppel, but the 6th Circuit held that such a cause of action was viable.

Mitchell H. Rubinstein   

401(k) Fees and ERISA

Steven Rosenberg over at Boston and Insurance Litigation Blog discusses a interesting National Law Journal Article about excessive 401(k) fees and how that can obiviously breed litigation. He then goes on to raise the spector of individual fiduciary suits under ERISA. As Attorney Rosenberg states:

Now connect the dots between that story and the LaRue case, which I discussed here and about which more can be learned here, in which the Supreme Court is being asked to determine whether a single participant in a 401(k) plan can bring a breach of fiduciary duty claim for breaches that harmed only his account. Right now, with regard to the excessive fee issue, we are seeing, as the National Law Journal article reflects, the development of essentially plan wide suits. . .This will create a different litigation world for fiduciaries, plan sponsors, plan administrators and the like, then the current one in which the real risk is large plan wide actions by specialist plaintiff firms. In its place will be more of a death by a thousand cuts type of litigation regime that will confront plan fiduciaries and their allies. . .

Mitchell H. Rubinstein