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Congress recently passed the Temporary Extension Act of 2010, which, in addition to extending unemployment benefits, extends and expands the COBRA premium subsidy originally provided by ARRA (the stimulus bill). The new law extends the end of the eligibility period for the COBRA subsidy from February 28, 2010 to March 31, 2010. This means that individuals involuntarily terminated between September 1, 2008 and March 31, 2010 are eligible for 15 months of subsidized COBRA premiums—with the employee paying only 35% of the actual COBRA premium.

The recent extension also expands the COBRA subsidy to those who lost their health insurance coverage as a result of a reduction in hours sometime between September 1, 2008 and March 31, 2010 and are subsequently involuntarily terminated between March 2, 2010 and March 31, 2010. Persons falling in this category who did not make a COBRA election at the time of the reduction in hours (or who made one but subsequently discontinued coverage) must be issued a new COBRA notice within 60 days of the involuntary termination, as if the involuntary termination was a new qualifying event. This notice must explain the rules regarding their special COBRA election period. Yet, if they elect coverage, their COBRA eligibility of 18 months dates back to the original qualifying event (the reduction in hours). The individual does not need to pay for COBRA premiums back to the date of the reduction in hours and can begin coverage as of the date of the involuntary termination. It appears that the COBRA subsidy, however, will only apply beginning with the period of coverage after the involuntary termination and continue for the remainder of the 18 months of COBRA eligibility.   It is likely that Department of Labor guidance and model notices for these individuals will be forthcoming.

Given that this is called a “temporary extension” bill, it is likely that an additional expansion of the COBRA premium will be passed by early April.

Please see our earlier posts explaining ARRA and the prior ARRA COBRA subsidy expansions:

March 2, 2010 – Ohio mini-COBRA expansion

January 14, 2010 - COBRA subsidy expansion

Dec. 23, 2009 – COBRA subsidy expansion

April 17, 2009 – Ohio mini-COBRA expansion

April 6, 2009 – What is an involuntary termination?

Feb. 26, 2009 – ARRA COBRA subsidy

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Governor Strickland just signed into law a bill (House Bill 300) that would extend Ohio’s state “mini COBRA” coverage for any policies delivered, issued, or renewed on or after February 25, 2010.

The coverage under the Ohio mini-COBRA law will be extended from 12 months to 15 months so long as the employee is eligible for the federal COBRA subsidy. At present, the federal COBRA subsidy does not apply to any employees involuntarily terminated after February 28, 2010. This state extension was passed in anticipation of a federal extension of the COBRA subsidy beyond that date, which is presently under consideration in Congress. We will continue to update you if the federal government passes an additional COBRA subsidy extension or if the Ohio Department of Insurance issues guidance on this new bill.

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As you will recall from my earlier post, Congress and the President extended the COBRA subsidy, originally a part of the American Recovery and Reinvestment Act of 2009 (ARRA) (the stimulus bill), to individuals involuntary terminated through February 28, 2010 (from December 31, 2009) and the length of the subsidy to 15 months (from 9 months). 

This COBRA subsidy extension will require new notices be sent to individuals involuntarily terminated (and otherwise qualifying under ARRA as an “assistance eligible individual” (AEI)). These model notices were released yesterday, and, in many cases, AEIs must be notified by February 17, 2010. The Department of Labor revised its General Notice to reflect the COBRA subsidy extension. This notice is to be used for all AEIs who have not already received a general COBRA notice. The Department of Labor also issued a model Premium Assistance Extension Notice to be provided to:

1. Individuals qualifying as AEIs as of October 31, 2009 and individuals who experienced a termination of employment on or after October 31, 2009 and lost health insurance coverage (unless they were already provided a timely, updated General Notice). This notice must be provided by February 17, 2010.
2. a) Individuals whose original 9 months of COBRA subsidy ended prior to December 19, 2009 and who are still eligible for some portion of the extended 15 months of COBRA subsidy and (b) individuals whose 9 months of COBRA subsidy ends or ended after December 19, 2009. These individuals must be notified within 60 days of the termination of the 9 month COBRA subsidy period or, for individuals whose COBRA subsidy ended prior to December 19, 2009, prior to February 17, 2010. 

Both model notices are available at: http://www.dol.gov/ebsa/COBRAmodelnotice.html. In addition, the Department of Labor has updated its fact sheets, posters, and frequently asked questions available at: www.dol.gov/COBRA.

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CBC News in Canada is reporting that a Canadian long-term disability insurance carrier recently terminated the long-term disability benefits a Quebec woman was receiving for "major depression" after photos she posted on her Facebook page showed her "having a good time at a Chippendales bar show, at her birthday party and on a sun holiday." According to the CBC, the woman, 29-year-old Nathalie Blanchard, contends that her doctor recommended that she try "to have fun, including nights out at her local bar with friends and short getaways to sun destinations, as a way to forget her problems." Nevertheless, Manulife, the insurance carrier, which acknowledges that it uses Facebook for investigation purposes, terminated her long-term disability benefits.

Though anecdotal news flashes like this one may embolden employers to use Facebook and other social media to investigate employee activity while they are on a medical leave of absence or workers' compensation leave, caution is still necessary. For instance, Manulife confirmed that ít "would not deny or terminate a valid claim solely based on information published on websites such as Facebook." Presumably, Manulife forwarded Ms. Blanchard's Facebook photos and perhaps other evidence to a medical professional for an opinion as to whether the photos evidenced Ms. Blanchard's ability to return to work. Similarly, employers should resist the urge to make their own medical judgments as to an employee's ability to work when they obtain this kind of photographic or video evidence.

In addition, Ms. Blanchard apparently contends that she kept her Facebook photos private and does not understand how the insurance carrier obtained them. As I have preached before on this blog, employers should not circumvent an employee's Facebook privacy settings in order to investigate alleged misconduct. In this instance, a co-worker or other Facebook "friend" of Ms. Blanchard likely dropped the dime on her. When faced with this kind of evidence, employers and their insurance carriers would be wise to consider the motivations of the person providing the evidence and to conduct its own investigation. If employers avoid the temptation to immediately jump to conclusions, they will find that Facebook can be their "friend" when conducting investigations of workers' compensation or medical leave fraud.

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On October 7, 2009, the DOL, IRS, and HHS issued interim final regulations implementing Sections 101 to 103 of the Genetic Information Nondiscrimination Act of 2008 (GINA). For group health plans, these regulations become effective on the first day of the plan year beginning on or after December 7, 2009. For the individual market, the regulations are effective December 7, 2009. The new regulations broaden GINA’s general prohibition on requesting or requiring an individual or their family member to undergo genetic testing. Of note is the new rule that health plans may not provide incentives to induce participants to fill out health risk assessments that ask for family medical history. Under the regulations’ expanded definition of "underwriting purposes", providing an incentive under these circumstances violates GINA’s prohibition against requesting genetic information for underwriting purposes. The regulations also clarify that sponsors and administrator may obtain and use the results of genetic tests to aid in payment determinations so long as they only request the minimum amount of information necessary to make the determination. In nearly all other cases, sponsors and administrators may not request or require that an individual or their family member undergo genetic testing.

To ensure compliance with these new regulations, sponsors and administrators must familiarize themselves with the new regulations and update their policies and procedures. They must also examine their health risk assessments and wellness programs to ensure they do not violate the new rules. A copy of Porter Wright's Employee Benefits Practice Group's Law Alert, which addresses some of the major changes included in the regulations, can be found here.

In addition, keep in mind that Title II of GINA, which prohibits employers from discriminating on the basis of genetic information goes into effect on November 21, 2009. Generally, Title II prohibits employers from discharging, refusing to hire, or otherwise taking adverse employment action against applicants or employees based on their genetic information. It also prohibits employers from intentionally acquiring or disclosing genetic information about applicants and employees. Finally, Title II requires employers to maintain any genetic information in its possession separate from employee personnel files in accordance with the medical confidentiality provisions of the ADA.

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As we previously have noted, the Department of Health and Human Services recently issued an interim final rule under the HITECH Act requiring HIPAA-covered entities to notify each individual whose unsecured PHI has been, or is reasonably believed by the covered entity to have been, accessed, acquired, used, or disclosed as a result of a breach of unsecured protected health information.  Employers who sponsor self-insured group health plans need to take immediate action to ensure compliance with the new rule. Among other things, employers should be modifying written HIPAA privacy policies and procedures, training plan sponsor workforce members who are authorized to have access to protected health information, and modifying business associate agreements. A copy of Porter Wright's Employee Benefits Practice Group's Law Alert, which addresses the interim final rule from the perspective of the self-insured group health plan, can be found here.

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Sports fans, you can breath easier about your fantasy football lineups -- Michael Vick is out of the doghouse with the U.S. Department of Labor, presuming he complies with a consent judgment. We had cautioned in an earlier post that Vick’s release from prison did not necessarily mark the end of his government obligations, given DOL allegations of ERISA violations. As explained in the DOL’s press release, the DOL’s complaint alleged that Vick and others improperly removed $1.35 million of pension plan assets to help pay the criminal restitution imposed on Vick after his conviction for unlawful dog fighting, and to help pay his attorney in his bankruptcy cases. Vick and his company, MV7 LLC, agreed to repay at least $416,461.10, pay a fiduciary to manage the plan until its termination, and pay a monetary penalty. The $933,539 difference between the amount alleged in the complaint and the repayment amount is not explained in the press release, though perhaps that is because Vick agreed to forfeit his share of the pension benefits. Vick can play football, but he is permanently barred from being an ERISA plan fiduciary.

Hopefully we don’t need to caution our readers to refrain from participating in unlawful dog fighting, and from “improperly removing” pension plan assets to buy their way out of trouble. But there is one sentence in both this press release and another press release about an Ohio mortgage broker that hits closer to home: “In fiscal year 2008, [DOL] achieved monetary results of $1.2 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.” If someone out there is essentially stealing well over $1.2 billion per year of employee money (since this is just the amount recovered), shouldn’t we be appalled at the systemic flaw that allows this to happen? But is that really what is happening, or do employers need to be more worried about how DOL is getting to this $1.2 billion per year figure? A significant portion of this large dollar figure is related to participant contributions that EBSA argues “were not timely contributed” to a benefit plan.

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The Sixth Circuit has decided two new cases regarding ERISA lifetime retiree healthcare benefits under a collective bargaining agreement, continuing to put a thumb on the scale in favor of vested benefits, but recognizing that an employer may have the right to make “reasonable modifications” to those benefits. In an earlier post, we discussed the hurdles in place for employers attempting to reduce or eliminate these benefits.

In Reese v. CNH Am. LLC, No. 08-1234/1302/1912 (July 27, 2009), a group of retirees sought a declaration that they were entitled to lifetime healthcare benefits under a 1998 collective bargaining agreement (CBA), and that CNH was required to “maintain the level of retiree health care benefits currently in effect.”  The district court granted the retirees judgment, and CNH appealed. The CBA stated that CNH would provide healthcare benefits to retirees at no cost and tied eligibility for healthcare benefits to eligibility for pension benefits—“‘[e]mployees who retire [under the pension plan]. . . shall be eligible for’ health-care benefits” and “‘[n]o contributions are required for the Health Care Plans.’” While the CBA limited the duration of other benefits, it was silent as to the duration of these benefits. The Sixth Circuit found its earlier decision in Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571 (6th Cir. 2006) involving identical language and circumstances to be indistinguishable, although Yolton was merely a preliminary injunction decision, rather than a decision on the merits. 
 

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Do you sponsor any employee benefit plans that are required to be audited on annual basis? If yes, you should be aware that the DOL is targeting certain auditors and is seeking penalties from the plan administrator (typically, the employer) of up to $1,100 per day, or $50,000 per annual report, when it believes that the audit work is deficient. There are a number of due diligence steps you can take in an effort to comply with ERISA responsibilities, and to reduce exposure in this area.  For a discussion of these steps, please read our recent Client Alert: DOL Scrutinizes ERISA Plan Audits.

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On August 24, 2009, the U.S. Department of Health and Human Services ("HHS") published its interim final rule in the Federal Register, thereby implementing the HITECH Act. The Act's breach notification rules will become effective on September 23, 2009 -- fewer than 30 days away. 

Therefore, as the Act relates to employer-sponsored group health plans and health care providers, any breaches of protected health information (PHI) that occur on or after September 23rd must be reported to the affected individuals and, when the breach impacts 500 or more individuals, to HHS and the media. Covered entities must make annual reports of breaches of PHI impacting fewer than 500 individuals. Beginning on September 23rd, business associates also will be required to notify the group health plan or health care provider for which they are providing services of any breaches occurring at or caused by the business associate.

Porter Wright has issued two Client Alerts on the HITECH Act, one at the time the statute was enacted and one earlier this week when the interim final rule was published. Those Alerts, which more fully discuss the impact of the HITECH Act, can be found here and here.

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On May 18, 2009, the Supreme Court of the United States issued its opinion in AT&T v. Hulteen. Reversing the Ninth Circuit’s decision, the Court held that AT&T did not violate the Pregnancy Discrimination Act of 1978 (PDA) by calculating the accrual of pension benefits in a way that gives less retirement credit to employees who took pregnancy leave before enactment of the PDA than to employees who took other kinds of medical leave.

AT&T offered pension benefits based on Net Credited Service, which was calculated based on an employee’s date of hire and adjusted for any time the employee was not working, i.e. not earning service credits. Before 1978 (and the enactment of the PDA), employees were credited a maximum of 30 days for pregnancy leave. In contrast, employees on regular temporary disability had no limit on the days they could remain off work while continuing to accrue service credits. This method of accrual was changed after the PDA went into effect, but not retroactively. As a result, the plaintiffs in Hulteen received smaller pensions than they otherwise would have received had they received full credit for pregnancy leave taken before enactment of the PDA.

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As discussed in its press release, the U.S. Department of Labor has sued former -- and likely future -- NFL quarterback Michael Vick (and two of his financial advisors) to recover assets removed from the ERISA pension plan sponsored by his celebrity marketing company for the benefit of the company's employees. The DOL's Complaint, filed in federal court in Virginia, alleges that Vick and his advisors improperly removed the funds, and used the plan assets to pay criminal restitution charges stemming from his conviction for dog fighting charges. They also allegedly used the assets to pay Vick's bankruptcy attorney. The ERISA lesson here of not using plan assets for personal use is too obvious to speak.

We have no way of knowing whether Michael Vick may later face criminal charges in this ERISA matter, but it may be a little too early for sports fans to count on including him in their fantasy football lineups.

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Many executive compensation arrangements, including nonqualified deferred compensation plans, employment agreements, and equity compensation plans, are subject to strict deferral election and payment timing rules under Internal Revenue Code Section 409A. Failure to comply with these rules results in an employee incurring immediate income inclusion of amounts deferred, an additional 20% penalty tax on these amounts, and interest. The IRS and Treasury Department required all plans subject to Code Section 409A to be amended no later than December 31, 2008. More recently, the Department of Treasury and the IRS have issued proposed regulations that explain how to calculate amounts includible in income when Code Section 409A is violated and the resulting penalties and interest. The IRS also issued additional guidance that offers relief from these penalties in many circumstances if employers take corrective action by December 31, 2009.

Click here for complete alert.

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Small employers providing health care benefits to employees residing in Ohio need to take note of changes in Ohio’s continuation coverage law, sometimes referred to as “mini-COBRA.”

The trigger for this law change was the COBRA premium subsidy provision included in the recent federal economic stimulus bill, which we have discussed in a series of prior posts and a recent webinar. But the changes in the Ohio mini-COBRA law extend beyond the premium subsidy issue, and continuation coverage will now be now be available to more individuals, as follows:

• Coverage has been extended from 6 months to 12 months
• Entitlement to unemployment compensation is no longer required
• Employees must be involuntarily terminated, other than for gross misconduct
• Continuation coverage must include prescription drug coverage if it is included in the group coverage.

The Ohio Department of Insurance has issued revised guidance regarding the law change and how the premium subsidy works for small employers. Included in the guidance is a timely reminder to employers that they are required to notify employees of their right to continue coverage at the time they notify the employee of termination of employment. Employers must also notify an insurer if an employee elects continuation of coverage under Ohio’s mini-COBRA law. The Ohio Department of Insurance guidance contains a number of links to other resources, for those who need more information. 

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Struggling employers have been asking, can we reduce or eliminate retiree medical benefits? The Supreme Court has held that welfare benefits regulated by the Employee Retirement Income Security Act (ERISA) do not usually vest, and courts have generally followed the Sixth Circuit’s presumption that retiree medical benefits are not vested, unless the plan documents confer vesting. Thus, with proper reservation of the right to amend and terminate the plan, and consistent communications, an employer may be able to terminate these benefits without much risk of successful challenge.

But what if employees are unionized? In that case, the plan documents are not enough; courts also look to the terms of the collective bargaining agreement (CBA). And as the Sixth Circuit reminds us this month, the most important question just might be: in what court could this case be litigated? In Tackett v. M&G Polymers, USA, LLC, No. 07-4515/4516 (6th Cir. Apr. 3, 2009), the Sixth Circuit reversed dismissal of a retiree class action lawsuit, finding that the language in the CBA demonstrated an intent to vest retiree medical benefits sufficient to survive a motion to dismiss.

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Webinar Recording: 
COBRA Premium Subsidy: Action Steps Required to Avoid Problems

Under the recent economic stimulus act, virtually every employer that maintains a health plan, including small employers that are not subject to federal COBRA rules but are subject to a state law continuation of medical coverage requirement, must comply with new COBRA premium subsidy rules. Potentially eligible individuals must be identified and notices must be distributed by April 18, 2009.

It is critical that employers understand the requirements and steps that are needed given the following:

• the immediate cash flow demand on many employers;
• the discretion that has been granted to the Department of Labor to hear appeals;
• the ongoing and extensive documentation requirements and risk of audit; and
• the substantial penalties for failure to comply.

Ann Caresani, Mike Underwood and Jim Prior from Porter Wright, along with Sean Kelley from BGS Associates discussed the impact of the stimulus on COBRA on April 1, 2009. 

If you were unable to participate in the webinar, we invite you to listen to the recording by clicking on the link below.  We hope you find it helpful.

Webinar Recording: 
COBRA Premium Subsidy: Action Steps Required to Avoid Problems

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On Tuesday, March 31, 2009, the IRS issued its Notice 2009-27 providing additional guidance under the American Recovery & Reinvestment Act of 2009 (“ARRA”) relating to premium subsidies for COBRA coverage. The Notice addresses a number of issues, including the question of who is eligible for the subsidy, the method for calculating the premium reduction, and the length of the entitlement to the subsidy. [View the notice here.]

Of particular interest to employers is the guidance concerning what will be considered an “involuntary termination” entitling persons to the premium subsidy. The IRS gives this broad definition: “An involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” Although it is a mouthful, that sounds simple enough. But, further language in the guidance and some of the specific examples show that there is plenty of room for disagreement about what is an involuntary termination. Of particular interest is language saying that the government will consider a resignation to be an involuntary termination if the resignation is “due to employer action that causes a material negative change in the employment relationship for the employee.”

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The Sixth Circuit recently held that, even though eliminating labor costs (and by implication, costs of retirement benefits) was an incidental factor in a plant-closure decision, the decision did not violate the Employee Retirement Income Security Act (ERISA) because the motivating factor in the employer’s decision was production overcapacity.  In doing so, the Court declined to fashion a bright-line rule that plant closures are never actionable under ERISA.  Instead, the Court held that, where affected employees can show that interference with attainment of ERISA-covered benefits is the motivating factor behind the closure, the decision violates ERISA.

Automotive supplier TRW Automotive decided to close its Van Dyke manufacturing plant in 2005.  Before making the decision, TRW considered using the facility for a new project.  Ultimately, TRW determined that the work should be done at a subsidiary’s Mancini plant.  The Mancini plant employees were not represented by a union and were not participating in a pension plan.  The employees at the Van Dyke facility, however, were covered by a collective bargaining agreement and a defined pension plan.  Under this pension plan, an employee needed to be credited with 30 years of service to maximize benefits.  After the Van Dyke facility was closed, a certified class of former Van Dyke employees sued TRW under Section 510 of ERISA arguing that TRW’s closing of the Van Dyke facility, failure to recall the employees from layoff, and failure to transfer the employees to the Mancini facility unlawfully interfered with their retirement eligibility.  The district court granted summary judgment for TRW, dismissing the employees’ claims. 

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The U.S. Department of Labor (DOL) has released four model notices for use by employers in connection with requirements of the American Recovery and Reinvestment Act (ARRA) (see Employment Law Alert – “Broad COBRA Changes in 2009 Stimulus Bill – What Should You Be Doing Now?” – March, 2009). The model notices are available on the DOL web site: http://www.dol.gov/ebsa/COBRAmodelnotice.html. Employers and plan administrators should use the model notices as a guide, but those notices will require customization to meet the circumstances of particular employers and plans. Also, in the Model election forms there is a technical error in the way the election period is described. The Model election forms state that an election must be made within 60 days of notice. In fact, COBRA regulations allow for elections within 60 days of the date of notice or the date that coverage will end due to the qualifying event, whichever is later. Employers and plans using the Model Notices as a guide should correct that error.

The DOL and Internal Revenue Service have posted on their websites answers to common questions regarding the COBRA changes: http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionER.html and http://www.irs.gov/newsroom/article/0,,id=204708,00.html.

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The American Recovery and Reinvestment Act of 2009 (the “Act”) was signed by President Obama on February 17, 2009. This Act includes several significant changes to COBRA that employers will quickly need to address. 

The most immediate and notable impact will be a significant reduction in the COBRA premiums paid by certain employees whose employment is involuntarily terminated (and their spouses and dependents who are COBRA-entitled). These individuals can get a 65 percent government-paid subsidy toward their COBRA premiums. Employers are required to “front” the subsidy by paying the full premium and obtaining a reimbursement via a later payroll tax offset. The subsidy takes effect for COBRA coverage periods beginning after the February 17, 2009 enactment date (March 1, 2009 for most plans). 

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In the first federal appellate decision addressing the new breed of ERISA “excess fee” cases, the U.S. Court of Appeals for the Seventh Circuit last week held, in Hecker v. Deere & Co that the Employee Retirement Income Security Act (“ERISA”) does not require an employer that sponsors 401(k) plans for its employees to disclose to plan participants that the plans’ investment advisor shared revenue with the affiliated plan trustee. According to the court, nothing in ERISA prohibits a fiduciary from selecting funds from one management company, or requires a fiduciary to scour the market to find the cheapest funds. The court also held that merely “playing a role” in the selection of funds to be offered in a plan is not enough to transform an entity into a fiduciary. 

In Hecker, a class of participants in the Deere 401(k) plans sued Deere, the sponsor of the plans; Fidelity Management Trust Co. (Fidelity Trust), the directed trustee and recordkeeper who performed administrative tasks for the plans and managed two of the investment options; and Fidelity Management & Research Co. (Fidelity Research), the investment advisor for the Fidelity mutual funds offered as investment options under the plans. Deere selected the investment options, 23 of which were managed by Fidelity Research. The remaining investment options included two investment funds managed by Fidelity Trust, a Deere stock fund, and a “BrokerageLink” option giving participants access to 2,500 additional funds managed by companies other than Fidelity. Fidelity Research shared its revenue earned from mutual fund fees with Fidelity Trust, which compensated itself with those fees rather than through a direct charge to Deere. Based on statements in the summary plan descriptions supplements, however, the participants were under the impression that Deere was paying the administrative costs for the plans.

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The Emergency Economic Stabilization Act of 2008 (“EESA” or the “bailout law”), which was enacted on October 3, 2008, contains significant amendments to the Mental Health Parity Act of 1996 (“MHPA”) that are pertinent to group health plans. For most plans, these changes will be effective January 1, 2010.

Under the provisions of MHPA prior to this amendment, the annual or lifetime dollar limits on mental health benefits could be no lower than the dollar limits for medical and surgical benefits offered by a group health plan or health insurance issuer offering coverage in connection with a group health plan. The original sunset provision of the MHPA has been extended numerous times, with the current extension running through December 31, 2008. The MHPA, which does not apply to benefits for substance abuse or chemical dependency, provides that employers retain discretion regarding the extent and scope of mental health benefits offered. This includes cost sharing, requirements relating to medical necessity, and limits on numbers of visits or days of coverage. MHPA does not apply to small employers (less than 51 employees), and does not apply to a group health plan or group health insurance coverage if the application of the parity provisions would result in an increase in the cost under the plan or coverage of at least one percent. 

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In Kentucky Retirement Systems v. EEOC, No. 06-1037, 2008 WL 2445078 (U.S. June 19, 2008), the Supreme Court recently held that “where an employer adopts a pension plan that includes age as a factor” (in determining eligibility for retirement with pension benefits), and the employer subsequently “treats employees differently based on pension status,” the plan does not automatically violate the Age Discrimination in Employment Act (ADEA). Rather, the Court held that the plaintiff challenging such a policy must show that the differential treatment was “actually motivated” by age. In a 5-4 decision — with a rather strange alignment of the justices — the majority, which consisted of Justices Breyer (who authored the opinion), Stevens, Souter, and Thomas and Chief Justice Roberts, reversed the Sixth Circuit’s en banc ruling striking down the pension plan as facially discriminatory.

[This post serves as a follow up to my earlier posts on March 26, 2008 and January 2, 2008 regarding the decision in Erie County Retirees Association v. County of Erie by the Third Circuit upholding the EEOC’s rule allowing employers to coordinate retiree healthcare benefits with Medicare benefits, effectively resulting in equal total benefits between younger retirees and older Medicare-eligible retirees but unequal amounts spent on the two groups’ benefits because a portion of the Medicare-eligible retirees’ payments come from Medicare.]

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The Supreme Court recently issued a decision in Metlife v. Glenn, U.S., No. 06-923 where it considered: (1) whether a plan administrator has a conflict of interest when it both evaluates a claim for benefits and pays that benefit claim; and (2) how that conflict of interest should be taken into account by a court reviewing a discretionary benefit determination.

To answer the first question, the Court relied on its decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Court noted that in Firestone it held that a conflict of interest exists where the administrator “is the employer that both funds the plan and evaluates the claims” because “every dollar provided in benefits is a dollar spent by the employer; and every dollar saved is a dollar in the employer’s pocket.” 

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The IRS issued Revenue Ruling 2008-13 to clarify what constitutes “performance-based” compensation under Internal Revenue Code Section 162(m).  This classification is important because Code Section 162(m) generally prohibits public companies from deducting compensation in excess of $1 million to the CEO and certain named executive officers.  If the compensation is performance-based, however, this deduction limitation does not apply.

Under prior guidance, an executive could receive a performance award (either cash or equity) upon involuntary termination without cause, termination for good reason, or retirement, without regard to whether performance goals were actually met. In Revenue Ruling 2008-13, the IRS reversed its position, holding that such an award will not be treated as performance-based compensation under Code Section 162(m). This ruling puts many executive compensation plans and employment agreements at risk in light of the new restrictions on deductions for non-performance-based compensation that exceeds $1 million.

For more information on this latest guidance, you may view our recent law alert.

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As we noted in our recent discussion of LaRue v. DeWollf, Boberg & Assoc., Inc., the Supreme Court’s highly anticipated decision avoided the troubling issue of what constitutes equitable relief for purposes of ERISA Section 502(a)(3) claims. On March 3, 2008, the Supreme Court signaled that it may be willing to address this issue by inviting the Solicitor General to file briefs in Amschwand v. Spherion Corp., 505 F.3d 342 (5th Cir. 2007). Amschwand v. Spherion Corp., U.S., No. 07-841, request for solicitor general brief 3/3/08.

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As we mentioned in our recent post regarding the Sixth Circuit’s decision in Tullis v. UMB Bank, the U. S. Supreme Court agreed to resolve a circuit split regarding the viability of ERISA lawsuits that seek damages for individual – as opposed to plan – injuries. Just yesterday, the Court issued its ruling and, in so doing, endorsed the approach taken by the Sixth Circuit in Tullis.

In particular, the Court ruled in LaRue v. DeWollf, Boberg & Assoc., Inc. that, although ERISA Section 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.  In reaching this decision, the Court needed to reconcile its 1985 holding in Massachusetts Mutual Life Ins. Co. v. Russell – i.e. that a disability plan participant entitled to a specified benefit could not bring suit under 502(a)(2) to recover consequential damages arising from delay in processing her claim. In doing so, the Court noted that the "landscape has changed." Specifically, the Court explained that individual participant account balance plans have become prevalent and, regardless of whether a fiduciary breach diminishes plan assets payable to all participants or only to a particular individual account, such a breach creates the kind of harm that concerned the draftsmen of ERISA’s fiduciary breach provisions.

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As many ERISA attorneys will tell you, the Sixth Circuit has a rather unique way of reviewing a long-term disability plan’s claims administrator denial of benefits when the participant alleges that the administrator had a conflict of interest that may have influenced its benefits determination. Now, the Supreme Court will decide whether the standard of review adopted by the Sixth Circuit is appropriate. On January 18, 2008, the Supreme Court agreed to hear arguments in Metlife, et al. v. Glenn,U.S., No. 06-923. In deciding the case, the Court will answer the following question: “If an administrator who both determines and pays claims under an ERISA plan is deemed to be operating under a conflict of interest, how should that conflict be taken into account on judicial review of a discretionary benefit determination?” 

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A Ninth Circuit panel recently announced that it would stay a district court order and allow a San Francisco ordinance that requires private employers to provide health care coverage to their employees to go into effect. Golden Gate Restaurant v. City and County of San Francisco, No. 07-17370, 2008 U.S. App. LEXIS 364 (9th Cir. January 9, 2008).

The San Francisco Health Care Security Ordinance (the “ordinance”) requires private employers to pay a health care expenditure of up to $1.76 per hour per employee (depending on the number of employees). Any amount paid by an employer to employees or third parties on behalf of employees for the purposes of providing health care services for covered employees or reimbursing the cost of such services for covered employees constitutes an expenditure under the ordinance. 

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