Conflict Remains among Federal Appellate Circuits Regarding Recovery of Overpayments under ERISA Section 502(a)(3)
The U.S. Supreme Court recently declined to review a decision by the U.S. Court of Appeals for the Second Circuit in Thurber v. Aetna Life Insurance Co., 712 F.3d 654 (2d Cir. 2013), which held that a plan fiduciary was entitled under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (?Ç£ERISA?Ç¥) to recover overpayments made to a participant from a short term disability (?Ç£STD?Ç¥) plan subject to ERISA, even though the participant had already spent the overpayments she received from the plan.?á The overpayments in Thurber arose when the participant received ?Ç£other income,?Ç¥ which the STD plan document provided could reduce the amount payable from the plan. ?áThe Second Circuit specifically rejected the reasoning of the Ninth Circuit in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083, 1093?Çô95 (9th Cir. 2012), which held that overpayments from a disability plan could not be recovered under… Continue Reading
The U.S. Department of Labor (the ?Ç£DOL?Ç¥) has issued a notice of proposed rulemaking regarding a revision to the definition of ?Ç£spouse?Ç¥ under the Family and Medical Leave Act of 1993 (?Ç£FMLA?Ç¥).?á The revision is being proposed in light of the U.S. Supreme Court?ÇÖs decision in United States v. Windsor, which held Section 3 of the federal Defense of Marriage Act, restricting the definition of ?Ç£marriage?Ç¥ for federal law purposes to opposite-sex spouses, to be unconstitutional.?á Under the FMLA, eligible employees are permitted to take a leave of absence to care for a spouse in certain situations.?á Current regulations under the FMLA define ?Ç£spouse?Ç¥ based on the law of the state?áin which the employee resides; consequently, a same-sex couple who is married in a state or foreign jurisdiction that allows same-sex marriage is not treated as married under the FMLA if they reside in a state that does not recognize… Continue Reading
In Revenue Ruling 2014-18, the IRS ruled that a stock appreciation right granted by a ?Ç£nonqualified entity?Ç¥ for purposes of Internal Revenue Code Section 457A, that by its terms must be settled, and is only settled, in service recipient stock as defined in Section 409A, is exempt from Section 457A. Section 457A generally applies to deferred compensation paid by certain foreign corporations. Section 457A provides that the term ?Ç£nonqualified deferred compensation plan?Ç¥ has the meaning given under Section 409A, except that it also includes any plan that provides a right to compensation based on the appreciation in value of a specified number of units of the service recipient, i.e., stock appreciation rights. While stock options that are exempt under Section 409A are exempt from Section 457A, stock appreciation rights are generally not exempt. This ruling allows certain stock appreciation rights to be exempt from Section 457A. A copy of the… Continue Reading
Creating Uniformity Among Primary And Excess Policies: Using Contract Principles To Bind Excess Carriers To Arbitrate
Arbitration is often thought of as a procedure favored by carriers to the disadvantage of the corporate insured, because the insured usually prefers to have its coverage claims heard by a jury.?á There may also be remedies sought by the policyholder, which may not be available in arbitration.?á Alternatively, in certain circumstances, arbitration can be a powerful tool for the insured.?á For example, for parties seeking coverage under a Commercial General Liability (CGL) policy, a speedy resolution of any coverage disputes in arbitration (while the underlying litigation is pending) may encourage insurers to defend and settle claims promptly, reducing the risk of a judgment against the insured.?á This particular strategy may have limited value, however, if the primary policy provides for arbitration, but the applicable excess liability policies do not.?á Unless the insured can also require the excess carrier(s) to arbitrate, even a successful arbitration may leave the insured without… Continue Reading
Cycle D filers may want to consider filing their determination letter applications before June 30, 2014 in order to take advantage of using the 2011 Form 5300.?á The IRS issued a new Form 5300 at the end of last year that requires additional information not required on the 2011 Form 5300.?á An employer wanting to file before June 30th must distribute the related Notice to Interested Parties by June 20, 2014.?á In general, Cycle D filers are plan sponsors whose EIN ends in 4 or 9 or multi-employer plans.
The IRS is currently conducting Section 409A audits of certain taxpayers that were selected initially for employment tax audits. To date, fewer than 50 taxpayers have been selected for the Section 409A audits, and those taxpayers were selected based on the probability that the taxpayers would have nonqualified deferred compensation plans. The audits are focusing on the deferred compensation paid during the year under examination and are limiting the review to deferral elections and payouts (including application of the six-month delay rule). Generally, the audits have been limited in scope to the top ten most highly-compensated employees.
In the case of Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, the U.S. Court of Appeals for the Sixth Circuit ruled that Blue Cross Blue Shield of Michigan (?Ç£BCBSM?Ç¥), in its role as third-party administrator for the Hi-Lex Health and Welfare Benefit Plan (the ?Ç£Plan?Ç¥), breached a fiduciary duty to the Plan by adding undisclosed surcharges to hospital claims that BCBSM processed for the Plan.?á The court determined that the employee and employer contributions that Hi-Lex remitted to BCBSM were ?Ç£plan assets?Ç¥ for purposes of the Employee Retirement Income Security Act (?Ç£ERISA?Ç¥), and as such, BCBSM functioned as an ERISA plan fiduciary because it exercised discretionary control over the Plan?ÇÖs assets.?á The court ruled that BCBSM violated its ERISA-imposed fiduciary duty by using the Plan?ÇÖs assets for its own benefit.?á The Sixth Circuit affirmed the district court?ÇÖs award of more than $5 million in damages, plus pre-judgment… Continue Reading