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Court Orders Third-Party Administrator to Pay Over $5.1 Million for Breach of Fiduciary Duty

In Hi-Lex Controls Inc. et al. v. Blue Cross Blue Shield of Michigan, Blue Cross Blue Shield of Michigan (?Ç£BCBSM?Ç¥), as the third-party claims administrator of various self-funded ERISA group health plans, was withholding as additional administrative fees a portion of the amounts transferred by plaintiffs to BCBSM to fund claim payments (?Ç£Disputed Fees?Ç¥). ?áIn a prior ruling, the court held that BCBSM was a fiduciary of the plans because the amounts involved were plan assets over which BCBSM exercised practical control.?á With respect to plaintiffs?ÇÖ breach of fiduciary duty claims, the court found that BCBSM violated its ERISA fiduciary duty of loyalty by supplying false and misleading information to plaintiffs about the nature and extent of the Disputed Fees and by supplying false information for plaintiffs?ÇÖ Form 5500 filings, and ordered BCBSM to pay plaintiffs the full amount of the Disputed Fees plus costs, interest, and attorneys?ÇÖ fees, totaling… Continue Reading

Supreme Court Overrules Section 3 of DOMA

As you have probably already heard, the U.S. Supreme Court issued an opinion in U.S. v. Windsor today declaring Section 3 of the Defense of Marriage Act unconstitutional.?á Section 3 of DOMA was the provision that defined ?Ç£marriage?Ç¥ as between a man and woman for federal law purposes.?á?áWe are currently analyzing how this decision will impact employee benefit plans, including tax and payroll issues associated with provision of health benefits, beneficiary designation issues under retirement plans, distribution rights, treatment of domestic partners versus spouses, QDROs, and the definition of spouse under the plans.?á Employers have time to comply with the decision.?á We will continue to post updates on issues employers should be considering.

Ninth Circuit Overturns Presumption of Prudence in Stock Drop Case

Employees of a drug pharmaceutical company participated in the company?ÇÖs two 401(k) plans, each of which included an employer stock fund.?á Over a period of years, the company used improper marketing tactics which concealed the potentially adverse effects of its drugs.?á Once the company?ÇÖs tactics were exposed, the Food and Drug Administration issued a black box warning for off-label use of the drugs, while subcommittees of the U.S. House of Representatives investigated the drugs and voted to restrict their use and to expand warnings related to their use.?á As a result, the employer?ÇÖs stock lost significant value.?á Employees who participated in the 401(k) plans filed a lawsuit claiming several fiduciary violations under ERISA.?á The U.S. federal district court dismissed all of the claims.?á On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed the decision of the district court and remanded. The first ERISA claim was that the… Continue Reading

PCOR Fees are Deductible Business Expenses under Code Section 162

On June 7, 2013, the Office of Chief Counsel of the Internal Revenue Service released a memorandum, dated May 31, 2013, concluding that fees paid by certain insurers and employer sponsors of applicable self-funded health plans to fund the Patient-Centered Outcomes Research Trust Fund (?Ç£PCOR Fees?Ç¥) under the Patient Protection and Affordable Care Act (?Ç£PPACA?Ç¥) are ordinary and necessary business expenses that are deductible under Section 162 of the Internal Revenue Code of 1986.?á PPACA provides for the establishment of the Patient-Centered Outcomes Research Institute (?Ç£PCORI?Ç¥), a private, non-profit corporation intended to assist the public in making informed health decisions.?á PPACA provides that PCORI is to be financed, in part, by PCOR Fees, which are paid annually for each policy or plan year ending after September 30, 2012 and before October 1, 2019. A copy of the memorandum can be found here.

Final HHS Rule Delays Implementation of Some SHOP Provisions

The Department of Health and Human Services (?Ç£HHS?Ç¥) recently released a final rule related to the Small Business Health Options Program (?Ç£SHOP?Ç¥) under PPACA.?á Specifically, the final rule implements a transitional policy regarding employees?ÇÖ choice of qualified health plans (?Ç£QHPs?Ç¥) in SHOP and amends existing regulations regarding special enrollment periods for qualified employees and their dependents.?á First, the final rule delays until 2015 the requirement that a SHOP must permit qualified employers to offer their qualified employees a choice of QHPs within a single level of coverage, (i.e., bronze, silver, gold, or platinum).?á For 2014, a SHOP can either allow employers to offer their employees a range of QHPs or a single QHP; federally-facilitated SHOPs will simply allow employers to offer their employees a single QHP from the choices available in the SHOP.?á HHS stated that the transitional policy is intended to provide small businesses and their employees with the… Continue Reading

IRS Releases New Version of Form 720 for Certain Health Plans to Report and Pay PPACA Imposed Fee

The Internal Revenue Service (the ?Ç£IRS?Ç¥) recently posted a revised version of Form 720 that applicable self-insured health plans should use to report and remit the Patient-Centered Outcomes Research Institute (?Ç£PCORI?Ç¥) fee due under the Patient Protection and Affordable Care Act (?Ç£PPACA?Ç¥).?á The PCORI fee is intended to partially fund the PCORI, which was created under PPACA, and is due for each plan year ending on or after October 1, 2012 and before October 1, 2019.?á Although Form 720 is designed for quarterly payments of certain excise taxes, the PCORI fee is reported and paid annually, no later than by July 31 of the calendar year immediately following the last day of the plan year to which the fee applies.?á Consequently, the first round of PCORI fees for many health plans will be due by July 31, 2013.?á Generally, the PCORI fee is equal to $1.00 multiplied by the average… Continue Reading

Departments Release Final Rules on Workplace Wellness Programs under the Affordable Care Act

The Departments of Labor, Health and Human Services, and the Treasury (the ?Ç£Departments?Ç¥) jointly released final rules regarding nondiscriminatory employment-based wellness programs.?á The final rules do not markedly change the substance of proposed rules released by the Departments on November 26, 2012, and they apply to both grandfathered and non-grandfathered group health plans for plan years beginning on or after January 1, 2014.?á The final rules continue to divide wellness programs into two categories: ?Ç£participatory wellness programs,?Ç¥ which make up the majority of wellness programs, and ?Ç£health-contingent wellness programs.?Ç¥?á The final rules increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan from 20 percent to 30 percent of the cost of coverage, and further increase the maximum permissible reward up to 50 percent for a wellness program aimed at smoking cessation. A key difference between these final rules and the proposed… Continue Reading

Owner Who Leased Land to Company and Worked as an Independent Contractor for an Unrelated Entity Held Personally Liable for Company?ÇÖs Withdrawal Liability

Nagy Ready Mix (the ?Ç£Company?Ç¥) withdrew from a multiemployer pension plan after the Company ceased employing workers covered by a collective bargaining agreement.?á The pension plan filed suit to collect withdrawal liability from the Company; Mr. Nagy, the Company?ÇÖs owner; and two affiliated companies under his common control.?á While passive investors are not ?Ç£trades or businesses?Ç¥ for withdrawal liability purposes, an individual who engages in an unincorporated trade or business under common control with the withdrawing employer is personally liable for the withdrawal liability.?á The Seventh Circuit Court of Appeals cited two grounds for imposing personal liability on Mr. Nagy.?á First, the court held that Mr. Nagy was personally liable for the withdrawal liability because he leased property to the Company.?á In prior opinions, the court held that leasing property to a withdrawing employer is ?Ç£categorically?Ç¥ a trade or business.?á Second, the court held that Mr. Nagy was liable for… Continue Reading

Coverage Denial Upheld for Treatment ?Ç£Ineluctably and Unambiguously?Ç¥ Excluded From Plan Terms

In the recent case of Dubaich v. Connecticut General Life Insurance Co., the U.S. District Court for the Central District of California held that medical treatment provided to a participant in an employer?ÇÖs self-funded medical plan (the ?Ç£Plan?Ç¥) was not entitled to coverage under the Plan, despite evidence submitted in support of its ?Ç£medical necessity?Ç¥ because the treatment was excluded under the Plan?ÇÖs terms.?á Ms. Dubaich, a participant in the Plan, sought surgical treatment for her back condition.?á Her physician performed the surgery and then submitted a claim to the Plan?ÇÖs claims administrator on Dubaich?ÇÖs behalf.?á The Plan?ÇÖs terms designated the employer?ÇÖs ?Ç£Plan Administration Committee?Ç¥ as plan administrator (under Section 3(16) of ERISA), but provided that the employer?ÇÖs ?Ç£claims administrator?Ç¥ (which was Connecticut General Life Insurance Company, i.e., ?Ç£CIGNA?Ç¥) was authorized to review and make final decisions with respect to internal claims and appeals under the Plan.?á The initial claim… Continue Reading

June 2013