In February, we reported that the Department of Labor (DOL) issued a proposed rule that could make it easier for small businesses to join together to purchase health insurance. That proposed rule sparked considerable debate on the general merits of association health plans (AHPs), as well as on the nuances of the proposed rule. Some commentators and experts remained skeptical of such arrangements, citing to the history of AHPs being used as a vehicle for fraud. Others were clearly in favor of any rule that might provide small employers with a new avenue to provide health coverage to their employees. And still others were cautiously optimistic, reserving judgment until some of the open issues in the regulations were resolved.

Well, the debate can now begin in earnest, as the DOL has issued the final regulations.
Continue Reading Final association health plan regulations provide opportunity for small employers…maybe

Editor’s Note:  This blog first appeared last Thursday on our sister blog – Employee Benefits Law Report.

My assistant informed me that my patience is shot and I need to do something about that, so I am channeling my energy into one issue. Since health care reform was enacted, I have been hearing about how we should anticipate a flood of ERISA Section 510 (29 U.S.C. Section 1140) discrimination cases from people who are not participants under the plan terms, but want to be participants. I don’t get it.

ERISA Section 510 provides, “[i]t shall be unlawful for any person to…discriminate against a participant or beneficiary…for the purpose of interfering with the attainment of any right to which such participant may become entitled under the provisions of an employee benefit plan.” ERISA Section 3(7) defines “participant” as “any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan.”

In Firestone Tire & Rubber Co. v. Bruch, the United States Supreme Court first considered Section 3(7) (29 U.S.C. Section 1002(7)) in the context of standing. It found this term to include “employees in, or reasonably expected to be in, currently covered employment,” or former employees who “have . . . a reasonable expectation of returning to covered employment” or who have “a colorable claim” to vested benefits.  The Court held that in order to establish that he or she may become eligible for benefits under ERISA Section 502, a claimant must have a colorable claim that (1) he or she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future. The Court applied the same standard to Section 104(b)(4), the provision that requires providing plan documents that indicate whether or not an individual is eligible to participate to a person who claims to be eligible.

As Justice Scalia explained in an opinion concurring in part and concurring in the judgment, this definition ignores the fact that some of these supposed participants and beneficiaries are not actually participants and beneficiaries. Consider competing claimants to a 401(k) plan death benefit:  a same-sex spouse not designated as a beneficiary, and a parent designated as beneficiary. One of these will ultimately be found to be a beneficiary, and the other will not. But both will be treated as beneficiaries for purposes of making their case.

In Fleming v. Ayers & Assoc., the Sixth Circuit held that where an employer hired a part-time employee with the [employer’s] intent that she would become full-time when a position opened up, the employee was a participant under ERISA Section 3(7) and for purposes of Section 510. The Court did not further explain this conclusion, or discuss Firestone or Justice Scalia’s caution. A number of courts have distinguished Fleming, explaining that ERISA Section 510 does not require employers to make a part-time employee who is ineligible for benefits a full-time employee and thereby eligible for benefits. See, e.g., Geist v. Gill/Kardash P’ship, LLC, 671 F. Supp. 2d 729  (D. MD 2009) (plaintiff was not a full-time employee and was not eligible for benefits under the plan terms; plaintiff rejected a forty hour per week full-time schedule on more than one occasion and seems to have understood that this decision disqualified her for benefits); Pine v. Crow, 2001 U.S. Dist. LEXIS 8629 (S.D. IN 2001) (ERISA does not require an employer to make an employee full-time); Shawley v. Bethlehem Steel Corp., 784 F. Supp. 1200, 1203 (W.D. Pa. 1992) (concluding ERISA does not expressly prohibit a refusal to hire based on the employer’s potential benefit liability), aff’d, 989 F.2d 652 (3rd Cir. 1993).

Now let’s consider the ERISA claims in Sanders v. Amerimed, Inc., a recent decision in the Southern District of Ohio. Sanders was a part-time employee and not a participant in the health care plan, because the plan’s eligibility provisions provided that only full-time employees were eligible to become participants. Sanders wanted to be a full-time employee, and he wanted to be a participant, and quit. He then argued that the defendant violated ERISA Section 510 by not hiring him into a full-time position. The Court held that under Firestone and Fleming, Sanders had a colorable claim to benefits and standing to pursue his claims. The Fleming decision seems to be overreaching; it does not explain the significance of “intent” in the context of case law. But even if we assume the conclusion was valid, it does not appear to provide authority for treating Sanders as anything other than a participant want-to-be. Sanders was well aware he was not a plan participant: that is why he quit. So I do not understand how he even had a colorable claim to benefits, but for the sake of argument, let us move on to the Section 510 claim itself.

The definition of “participant” in Section 3(7) is just the beginning; ERISA goes on to develop this concept in Section 202 (29 U.S.C. Section 1052) and other provisions. The steps require asking whether under the plan terms, as limited by law:

  1. Is the employee a member of a classification that is eligible to participate?
  2. Has the employee satisfied any age requirement?
  3. Has the employee satisfied any service requirement?
  4. Has the employee reached an entry date?

Continue Reading ERISA Section 510: wanting to be a participant, versus being a participant

Gaglioti v. Levin Group, Inc. (6th Cir. Dec. 13, 2012), serves as a good reminder to employers to pin down their reasoning for terminating an employee at the start, and stick to it.
Continue Reading Sixth Circuit Decision Reminds Employers: Get Your Ducks in a Row at the EEOC Charge Stage and, for Goodness Sake, Know Your Own Policies

 The following was posted by our associate Seth Hanft on our sister blog Employee Benefits Law Report last Friday. It provides a great reminder to in-house counsel addressing employee benefit claims that their communications with their benefits personnel regarding employee benefits claims may not be protected by the attorney-client privilege. Keep in mind that both counsel and benefits managers often wear fiduciary and non-fiduciary hats when addressing benefits plans issues and it is not always clear which hat they are wearing when. Therefore, to avoid potential spill over of this fiduciary exception to their other areas of responsibility, in house – and outside – counsel would be best advised to: (1) separate as best as possible their advice regarding fiduciary and non-fiduciary (e.g. plan sponsor, settlor, and employment) issues, so that privileged and non-privileged advice is not communicated at the same time and (2) be explicit in written communications as to the non-fiduciary purpose of legal advice being provided regarding non-fiduciary issues.

“Document everything” is often a best practice, but when you are an ERISA plan fiduciary communicating with your attorney, you may need to throw that thinking out the door. In Solis v. Food Employers Labor Relations Association the Fourth Circuit joined the Second, Fifth, Seventh, and Ninth Circuits in holding that the attorney-client privilege does not apply as to trust beneficiaries regarding communications between an ERISA plan fiduciary and an attorney when such communications relate to plan administration. The U.S. Supreme Court also recently discussed the fiduciary exception and its rationale in the context of ERISA matters in a recent non-ERISA decision, United States v. Jicarilla Apache Nation.Continue Reading The Fiduciary Exception to the Attorney-Client Privilege — “Document Everything” is a Best Practice, Except When It Isn’t

As demonstrated by the Sixth Circuit’s recent decision in Farhner v. United Transportation Union Discipline Income Protection Program, a well-drafted ERISA income protection or severance pay plan should enable the plan administrator to rely on the employer’s stated reason for termination of an employee, rather than conducting an independent review of the facts regarding the termination.

In May 2004, Mark Farhner, a trackman and conductor for the Kansas City Southern Railroad sought a three-month leave of absence for "medical reasons." KCSR’s human resources manager requested additional information from Farhner to justify his request. When Farhner’s vacation leave had been exhausted, his supervisor told him that he needed to provide the requested documentation or return to work within 48 hours. Rather than doing either, Farhner faxed a request for FMLA leave. After conducting an investigation (which included an actual hearing), KCSR terminated Farhner for insubordination.Continue Reading Sixth Circuit Upholds Denial of ERISA-Based Income Protection Benefits; Plan Administrator Need Not Investigate Whether the Employer Violated FMLA