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Fifth Circuit Holds that Plan Can Obtain Reimbursement from Special Needs Trust
The federal Court of Appeals for the Fifth Circuit, whose jurisdiction covers the states of Texas, Louisiana, and Mississippi, issued an opinion on May 7, 2013 in ACS Recovery Services, Inc. v. Griffin, holding that the plan administrator and plan sponsor (collectively, “ACS”) of the group medical plan that covered employee Larry Griffin (the “Plan”) could recover from a special needs trust nearly $50,000 of medical expenses paid by the Plan on Mr. Griffin’s behalf when he was injured in an automobile accident. Mr. Griffin and his ex-wife filed suit against the company responsible for the other vehicle (the “Third Party”) and obtained a settlement with a present value of just over $294,000. The Plan’s terms provided that it would have “a first lien upon any recovery, whether by settlement, judgment, arbitration, or mediation” obtained in a third-party action, and further provided that a participant must not take any action… Continue Reading
Court Finds Breach of Fiduciary Duty Against Broker for Failure to Explain Interaction of Stop-Loss and Self-Funded Health Plan Coverage
In Express Oil Change, LLC v. ANB Insurance Services, Inc., the sponsor of an employee health plan (the “Employer”) decided to convert its funding for the plan from a fully-insured to a self-funded basis. In preparation for the conversion, the Employer sought the advice and expertise of ANB Insurance Services, Inc. (the “Broker”) with implementation of the self-funded plan (the “Plan”) and procurement of the associated stop-loss insurance coverage. Apart from providing benefit consulting services to the Employer, the Broker had a long-standing and close relationship with the Employer as its agent for various other types of insurance coverage. The terms of the newly self-funded Plan provided for a $1 million lifetime maximum per participant on out-of-network benefits, but no such limit on in-network benefits. The Employer erroneously thought that the lifetime maximum applied to both in-network and out-of-network benefits and purchased a stop-loss policy with a deductible of $75,000… Continue Reading
Supreme Court Holds that a Plan’s Clear Terms Prevail in Reimbursement Action
On April 16, 2013, the U.S. Supreme Court issued its decision in US Airways, Inc. v. McCutchen. In its opinion, the Court addressed whether equitable doctrines derived from the principle of unjust enrichment can override the clear terms of an ERISA benefit plan regarding rights to reimbursement from a third-party recovery. Mr. McCutchen was a participant in the US Airways group health plan (the “Plan”), which was governed by ERISA. After incurring claims under the Plan based on injuries he sustained in an automobile accident, McCutchen hired an attorney on a contingency fee basis to sue the driver of the other vehicle. McCutchen sought damages for medical costs, lost earnings, and other injuries. The lawsuit resulted in a settlement recovery, and McCutchen also obtained a payment from his own automobile insurer. After offsetting his total recovery by his attorney’s contingency fee, McCutchen was left with a recovery that was less than… Continue Reading
Federal Court Lacks Jurisdiction to Consider Arbitration or ERISA Benefit Related Issues under Employment Agreement
The U.S. Court of Appeals for the Eighth Circuit recently held that it lacked jurisdiction to hear a motion to enjoin a request for arbitration to settle disputes under an employment agreement. Dakota, Minnesota & Eastern Railroad Corporation (“DM&E”) entered into an employment agreement with its president and CEO (the “Defendant”) to encourage his retention following an anticipated change of control. With a merger imminent, DM&E terminated the Defendant without cause and triggered the employment agreement’s severance provisions; the Defendant filed a demand for arbitration. DM&E then filed an action in federal court to enjoin the arbitration. The Eighth Circuit agreed with the district court that the benefits sought in the Defendant’s arbitration demand were not claims for benefits due under an ERISA plan. The circuit court held that the benefits being demanded under the employment agreement (i.e., the continued provision of employee benefits or cash payments if such benefits… Continue Reading
State Court Order to Turn Over ERISA Plan Benefits Not Preempted by ERISA
A participant in two employer-sponsored ERISA plans divorced her husband. In the marital settlement agreement, her husband waived his interest and future rights in the plans. The participant neglected to update the plans’ beneficiary designation forms. They still designated her ex-husband as beneficiary when she died. The plan administrators for each plan initially determined that her benefit under the plans should be paid to the ex-husband. The participant’s parents, as administrators of her estate, appealed the decisions. After the claims appeal process, the ex-husband filed for declaratory relief in federal district court, which stayed its decision pending the outcome of the estate’s state court suit. The state court found the ex-husband in contempt of the marital settlement agreement and ordered him to waive his interest in the benefits. The federal district court then ordered the plan administrators to pay the funds to the ex-husband and the ex-husband to then waive… Continue Reading
Second Circuit Reaffirms that Moench Presumption Applies Only When Plan Terms Require Investment in Employer Stock
The U.S. Court of Appeals for the Second Circuit affirmed, in part, and vacated, in part, a fiduciary breach lawsuit against the investment committees of two eligible individual account plans. Participants sued the investment committees claiming that the decision to offer an employer stock fund was imprudent. The Second Circuit recognizes the Moench presumption—the presumption of prudence when a plan fiduciary retains employer securities as an investment option as required by the terms of the plan document. Although the district court applied the Moench presumption to both plans, the terms of only one plan required investment in employer stock; the other plan merely permitted investment in employer stock. Thus, with respect to the second plan, the Second Circuit vacated the dismissal and reinstated the claims and the derivative claims against the investment committee. McKevitt v. UBS AG, No. 12-1662 (2d Cir. Feb. 27, 2013).
Standardized Workers’ Compensation Release Agreement Did Not Extend to ERISA Claims
“An employee had been receiving long-term disability (“LTD”) income replacement benefits under her employer’s ERISA-governed LTD plan for nearly five years. The employee then settled a workers’ compensation claim against the employer and executed a standardized form compromise and release agreement (the “Release”), which only covered claims under California’s workers’ compensation laws, and an “Informed Consent to Compromise and Release” (the “Consent”). The employer subsequently terminated the employee’s disability benefits, arguing she waived her right to those benefits when she executed the Release and the Consent. The trial court, however, disagreed, reasoning that because neither the Release nor the Consent mentioned ERISA or ERISA claims, or the LTD plan by name, neither document could release the employer from its obligations under the plan. This case is a reminder to employers to include explicit language in a settlement agreement that clearly references any ERISA claims to ensure that such claims are… Continue Reading
Fifth Circuit Reverses Established Circuit Precedent, Holding that Make-Whole Monetary Damages are an Available Remedy Under ERISA
The U.S. Court of Appeals for the Fifth Circuit (whose jurisdiction covers Texas), became the second federal appeals court to reverse established precedent by ruling that make-whole money damages are an available remedy under ERISA, citing the recent Supreme Court decision in Cigna Corp. v. Amara. Prior to Amara, the Fifth Circuit, and others, held that “other equitable relief” permitted under ERISA section 502(a)(3) was limited to traditional equitable remedies, such as injunctions or restitution, and not to make-whole money damages. The Fifth Circuit concluded that its prior precedent had been overruled by Amara and remanded the case back to the district court. Gearlds v. Entergy Services, Inc., No. 12-60451 (5th Cir. Feb. 19, 2013).
IRS Issues Final Regulations Permitting Plan Sponsors to Eliminate Prohibited Payment Options
Under Internal Revenue Code (“Code”) section 436, unless a defined benefit pension plan sponsored by a debtor in bankruptcy is fully funded, the plan may not make “prohibited payments” (i.e., lump sum payments or payments in any other form that exceed the monthly amount under a single life annuity). Moreover, the anti-cutback rule in Code section 411(d)(6) prohibits a plan from being amended to eliminate an optional form of benefit. On November 8, the IRS issued a limited exception to the anti-cutback rules to permit a plan sponsor in bankruptcy to amend its plan to eliminate prohibited payments such as lump sums. The exception applies if the following four conditions are satisfied: first, the enrolled actuary certifies that the plan is less than fully funded; second, the prohibition on making prohibited payments arises because the plan sponsor is a debtor in bankruptcy; third and fourth, the bankruptcy court must issue… Continue Reading
Liability for Fiduciary Breach Not Dischargeable in Personal Bankruptcy
The Department of Labor (“DOL”) sued the president of several related companies to establish his personal liability for more than $67,000 in employee contributions never remitted to the employer sponsored benefit plans and to prevent him from discharging this liability in his pending personal bankruptcy action. Over a nearly three-year period, the companies withheld but never remitted the employee contributions to the companies’ group health and 401(k) plans (the “Plans”). The court concluded that, under ERISA, the president was a “functional fiduciary” of the Plans because he exercised discretionary control over plan assets—the employee contributions—when he retained those funds in the companies’ general assets to pay other corporate debts, rather than timely remitting them to the Plans as required by ERISA. The president’s conduct also violated several other ERISA provisions, including the duty of loyalty, exclusive benefit rule, and prohibited transactions rule. Accordingly, he was personally liable for the unremitted… Continue Reading
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