Employment and Labor Relations Lawyer & Attorney : Porter Wright's Employer Law Report : Employment Litigation, Non-Compete, Trade Secrets

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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The Sixth Circuit recently decided to allow individual plan participants to sue for damages on their own behalf for breaches of fiduciary duty under ERISA. Until now, ERISA plaintiffs could seek damages for breaches of fiduciary duty only on behalf of the plan – not in their individual capacity as plan participants.

In Tullis v. UMB Bank, No. 06-4632/4633 (6th Cir. January 28, 2008), plaintiffs, two doctors from Toledo, maintained pension funds through the Toledo Clinic Employees’ 401(k) Profit Sharing Plan, an ERISA-governed “defined contribution” pension plan. Plaintiffs chose William Davis of Continental Capital Corporation (“Capital”) as their investment advisor. In October 1999 the U.S. Securities and Exchange Commission entered a Temporary Restraining Order against Capital because two of its brokers were engaged in fraudulent activities. Plaintiffs argued that UMB Bank, which served as trustee of the Plan, knew of the fraud and failed to inform them. In 2001, UMB filed suit for fraudulent activity against Davis and a subsidiary of Capital on behalf of the Plan. Plaintiffs alleged that defendant again failed to inform them of Davis’ and Capital’s fraudulent activities.

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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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