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ERISA Litigation

Davidson v. Henkel: A Painful Reminder of the Special Rules for FICA Taxation of Nonqualified Deferred Compensation

Although the compensation that an employer pays to an employee is generally subject to FICA taxation at the time the compensation is paid, there are special rules for the FICA tax treatment of amounts payable under nonqualified deferred compensation plans (such as long-term incentive plans or supplemental retirement programs). These rules affect both the timing, and the amount, of the FICA tax that is payable with respect to such compensation (which tax is typically shared 50/50 by the employer and employee).   In the recent case of Davidson v. Henkel, an employer that failed to heed those special rules found itself facing the prospect of bearing substantial additional tax liability – for both the employer’s and the employee’s share of the FICA tax. This case serves as a reminder that employers should pay special attention to when amounts deferred under a nonqualified plan are properly taken into account as “wages” for purposes of FICA taxes.

How Is a Health Plan Reimbursement Provision Like Living in a Submarine?

The Supreme Court has handed down another important case in its line of decisions on enforcing the reimbursement provisions of self-funded ERISA welfare plans.  The lesson in US Airways, Inc. v. McCutchen is, once again, the importance of an airtight reimbursement provision.

Losing by Winning: Case Offers Harsh Reminder Concerning Preventable Expenses

The recent decision in Herring v. Campbell offers an object lesson in unnecessary exposure to administrative burdens and legal fees.  Because the plan document failed to say whether stepchildren would be considered “children” (for purposes of a retirement plan’s default beneficiary provision), the plan administrator and plan sponsor were caught between two feuding groups of potential beneficiaries.

THE FIDUCIARY CORNER: Correcting Operational Mistakes Can Eliminate Fiduciary Liability

Operational errors in administering a retirement plan not only threaten the plan’s “qualified” status under the Tax Code, but can also result in fiduciary liability under ERISA for those who are responsible for the errors.  As a Massachusetts employer recently learned, however, correcting those administrative mistakes can eliminate the risk of fiduciary liability under ERISA.  (Altshuler v. Animal Hospitals Ltd., (D. Mass. Oct. 31, 2012)).

Murder Victim’s Mother May Rely on Post-Amara Equitable Remedies

In McCravy v. Metropolitan Life Insurance Company, an ERISA plan continued to accept life-insurance premiums for a participant’s dependent daughter after the daughter was too old to be covered as a dependent.   But when the daughter died, the insurer denied the plaintiff’s claim.  Citing the Supreme Court’s 2011 decision in CIGNA Corp. v. Amara, the Fourth U.S. Circuit Court of Appeals held that the “other equitable relief” available to the plaintiff under Section 502(a)(3) of ERISA should include a monetary recovery equal to the amount that would have been due under the terms of a plan, had the daughter satisfied the plan’s definition of dependent child at the time of her death.  In so doing, the Fourth Circuit became the first federal appellate court to reverse its own pre-Amara rejection of such a remedy under Section 502(a)(3).

THE FIDUCIARY CORNER: Unintended Consequences of Individual Benefit Discussions

Although a retiree’s promissory estoppel claim against the sponsor and fiduciaries of an employer pension plan was ultimately rejected by a federal court, the case of Stark v. Mars, Inc., illustrates the importance of coupling any pension calculation with an appropriate caveat.  It also demonstrates why plan fiduciaries should avoid answering participant questions that are more properly delegated to individuals who can respond in a purely ministerial capacity.

Federal Appeals Court Rejects Equitable Remedies When SPD Promises More Generous Benefits Than Pension Plan Document

A federal appeals court has handed down the first significant decision to interpret the Supreme Court’s recent ruling on ERISA remedies.  In CIGNA Corp. v. Amara, the Supreme Court suggested three methods by which participants might enforce the terms of an SPD that promises greater benefits than the underlying plan document:  estoppel, reformation, and surcharge.  In Skinner v. Northrop Grumman Retirement Plan B, participants tested two of these methods.  The Ninth Circuit rejected both.

Federal Appeals Court Upholds $243,000 Damage and Fee Award for Employer’s Failure to Provide SPD and Election Forms

A recent ruling from the federal Court of Appeals highlights two critical ERISA basics:  fiduciary duties and disclosure requirements.  In Kujanek v. Houston Poly Bag, the Fifth Circuit upheld an award of damages and fees of more than $243,000 for an employer’s failure to provide a participant with a copy of a retirement plan’s summary plan description (“SPD”) and a rollover election form.  As explained more fully in the rest of this article, that amount could increase significantly when the lower court reconsiders the question of statutory penalties.

Failing to Notify Participants of Plan Changes Can Be Costly

Among ERISA’s many notice and disclosure obligations, the requirement to timely inform participants of important plan changes is one that is too often overlooked.  Although there is no monetary penalty for failing to distribute a summary of material modifications (“SMM”) or an updated summary plan description (“SPD”) within the time periods set by the regulations, such a failure can still have severe consequences.  AT&T recently learned that lesson – to the tune of a six-figure judgment awarded to a deferred vested participant in its defined benefit pension plan.  (Helton v. AT&T, Inc., Sept. 16, 2011).

Despite Obstacles, 401(k) Excessive Fee Lawsuits Proliferate

Although federal courts generally look skeptically at lawsuits challenging 401(k) plan fees practices, such suits continue to be filed. One of the most recent is being pursued by the same St. Louis-based law firm that started the frenzy of fee challenges in 2006.

Employer Stock Funds Continue to Vex 401(k) Fiduciaries

Offering employees the opportunity to invest in the stock of their employer through a tax-favored vehicle like a Code Section 401(k) plan or employee stock ownership plan (“ESOP”) must have seemed like an innocuous idea at one time. Indeed, Congress expressed its approval of such arrangements by creating special tax benefits for both the sponsors of such plans (in the form additional deductions) and participants in them (in the form of favorable tax treatment on unrealized appreciation in the value of employer stock). Yet these “employer stock funds” are now the quickest path to the courthouse for employers that sponsor them and fiduciaries that administer them.

THE FIDUCIARY CORNER: Supreme Court Decision Requires New Focus on Participant Communications

A long-awaited ruling issued by the United States Supreme Court this spring gives employers both reason to celebrate and cause for concern. The Court’s decision in CIGNA Corp. v. Amara (May 16, 2011) reaffirms that courts will not enforce benefit rights that are described in a summary plan description (“SPD”) as if those rights were actually set forth in the plan document. At the same time that it foreclosed this avenue of relief for plan participants, however, the Court apparently opened up another by concluding that participants who are actually harmed by inconsistent or misleading plan summaries may have an equitable right to be compensated for that harm. As a result, participant communications are likely to be a new source of ERISA litigation in the coming years.

Agencies Issue Interim Guidance on External Review Procedures

Following up on their earlier guidance concerning the new requirements for dealing with health plan claims and appeals, the agencies charged with implementing health care reform have now issued interim guidance on the new rules for “external reviews.” This latest guidance includes model notices that plan administrators may want to use for this purpose.

Guidance Issued on New Claims and Appeals Procedures

Unless an employer health plan is “grandfathered,” it will soon be required to comply with a far more rigorous set of rules for processing benefit claims and appeals. The agencies charged with enforcing this requirement have just issued their initial set of guidance.

The Fiduciary Corner: The Duty to Ask for a Better Deal

When is it appropriate to accept the sticker price listed on a product without asking the salesman for a better deal? Maybe never, at least if you’re a fiduciary of a $2 billion 401(k) plan spending the participants’ money, according to a federal court in California. (Tibble v. Edison International, 7/8/2010). That’s true even if an independent consultant advises you to buy the higher priced product.

Regulations Issued on Lifetime and Annual Limits

Close on the heels of their regulations concerning grandfathered plans, the Departments of Labor, Health and Human Services (“HHS”), and Treasury have now released interim final regulations relating to preexisting condition exclusions, lifetime and annual limits, rescissions, and other patient protections under the Affordable Care Act (the “Act”). This article focuses exclusively on the guidance relating to lifetime and annual limits.

Agencies Clarify “Grandfathering” Under Health Care Reform

One of the first things a sponsor of an employer health plan will want to do in response to health care reform is determine whether its plan qualifies for “grandfather” protection under the new law and, if so, whether preserving that grandfathered status makes sense. This agency guidance should help to make those important decisions.

401(k) Compliance Questionnaire May Trap Unwary Plan Sponsors

Even employers that are not among the 1,200 sponsors of 401(k) plans that have been asked to complete this online questionnaire may want to do so on their own. The 69 questions provide an excellent outline of the compliance issues the IRS will be reviewing in the event the plan is ever audited.

Cafeteria Plan Changes

While the focus of the Affordable Care Act is clearly on the nation’s health insurance system the Act does include several rifle-shot changes to the Tax Code’s cafeteria plan rules.

Grandfathered Plans

In the weeks and months leading up to the enactment of the Affordable Care Act, one of the oftrepeated “campaign promises” made by promoters of the legislation was, “If you like your current health care coverage, you can keep it.” In keeping with the spirit of that promise, the Act includes provisions that exempt so-called “grandfathered” plans from some, but not all, of the benefit mandates in the Act. Unfortunately, the Act leaves many questions unanswered with respect to the application of these grandfather rules.

Health Care Reform: The Near Term

This newsletter is devoted entirely to articles concerning the recently enacted Patient Protection and Affordable Care Act. Check back often for updates on the status of health care reform.

New Reporting and Disclosure Requirements

In addition to transforming the rules governing the benefits that health plans must offer, the Affordable Care Act substantially alters the way that plan sponsors and health insurers must describe and report those benefits. From new claim appeal procedures to standardized benefit summaries to additional governmental reporting, the Act will almost certainly increase administrative costs and complexities for employers. And like many other aspects of the Act, determining precisely how – and even when – to comply with some of the new reporting and disclosure obligations will be difficult. Although regulations will likely answer some of these questions, plan sponsors should start revising many of their procedures immediately. The following discussion summarizes seven of the Act’s most significant reporting and disclosure changes. Unless otherwise noted, these changes will apply to all plans, whether grandfathered or not. The new requirements are summarized in the order in which they become effective.

Short-Term Incentives for Expansion of Health Coverage

Although the key provisions of health care reform do not apply until 2014, the new law included a number of short-term measures designed to expand the number of individuals with health coverage. This article addresses three such program of particular interest to employers.

COBRA Premium Subsidy Extended Again

As had been widely anticipated, Congress has extended the 65% COBRA premium subsidy yet again. Under the “Continuing Extension Act of 2010,” the subsidy will now apply to involuntary terminations occurring on or before May 31, 2010 (rather than March 31, 2010).

Latest Extension of COBRA Premium Subsidy Comes with a Twist

As widely reported in the news media, the recent extension of unemployment insurance benefits included a one-month extension of the 65% COBRA premium subsidy. Under the “Temporary Extensions Act of 2010,” the subsidy will now apply to involuntary terminations occurring on or before March 31, 2010 (rather than February 28, 2010).

DOL Adopts Safe-Harbor Rule For Depositing Participant Contributions In Small Plans

For years, the Department of Labor (“DOL”) has focused much of its enforcement resources on delinquent deposits of participant contributions. Under the general rule set forth in existing regulations,
participant contributions to ERISA plans become plan assets “as soon as they can reasonably be segregated” from the employer’s general assets. The current regulations set outer limits on when participant contributions become plan assets (90 days for welfare plans; for retirement plans, 15 business days after the end of the month in which the employer either receives the amount or would have paid it in cash to the participant). However, we have always cautioned employers that the outer limits are not safe harbors. Employers cannot rely on them if it is shown that the employer could reasonably have segregated the contributions sooner.

DOL Releases Model CHIP Notice

As we reported in our February 2009 article, the Children’s Health Insurance Program Reauthorization Act of 2009 (“CHIPRA”) directed the Department of Labor (“DOL”) to draft model notices by which sponsors of employer group health plans could notify their employees of the premium assistance made available under both CHIP and Medicaid. The DOL has now issued a model notice that may be used for this purpose.

HEART Act Guidance Includes Some Surprises

In June of 2008, the Heroes Earnings Assistance and Relief Tax (“HEART”) Act became law. The Act made a number of significant changes to the treatment of military reservists under employee benefit plans. In an August 2008 article, we summarized those changes as they applied to qualified defined benefit and defined contribution plans, Section 403(b) plans, and Section 457(b) plans. In January of 2010, the IRS issued Notice 2010-15 (the “Notice”), which contains guidance on a number of the Act’s provisions. This article summarizes the most significant and surprising elements of that guidance, which apply to differential wage payments, “in-service” distributions on a reservist’s deemed severance from employment, and the Act’s mandatory death benefit provisions.

IRS Opens Determination Letter Program To Remaining Plans

Rounding out the final year of its first five-year cycle, the IRS has now opened its determination letter program for individually designed retirement plans to those plans falling within “Cycle E.” These are plans sponsored by employers whose employer identification number ends with either “5” or “0.”

Agencies Issue Regulations Under Mental Health Parity And Equity Addiction Act

Over a year after the Mental Health Parity And Equity Addiction Act (“MHPAEA”) was enacted (and after the statutory provisions took effect for most group health plans), the Departments of Labor, Health and Human Services, and Treasury have finally issued interim final regulations implementing the provisions of the MHPAEA. The regulations are welcome guidance for many plan sponsors who have thus far been forced to interpret the statutory requirements on their own.

Retirees Prevail in Cliam for Vested Health Benefits

Unlike pension benefits, ERISA does not ordinarily require any vesting of welfare benefits. Over the years, however, many court decisions have held that an employer can create a vested right to welfare benefits by taking affirmative steps that indicate an intent to provide vested benefits. A recent decision by the Third U. S. Circuit Court of Appeals (In re Unisys Corp. Retiree Medical Benefits ERISA Litigation) will make it easier for welfare plan participants to prevail on a claim that welfare benefits have vested.

THE FIDUCIARY CORNER: No Judicial Deference if Claim Denial Is Untimely

We are occasionally reminded that the claims and appeals procedures carefully spelled out in ERISA plans have real meaning. Although the regulatory deadlines within which plan fiduciaries must render decisions on benefit claims and appeals may appear arbitrary – and although many plan administrators treat them as mere “guidelines” – the failure to abide by those deadlines can have disastrous consequences in court.

HHS Issues Interim Final Rule On HIPAA Breach Notification

As we reported in our March 2009 article, the Health Information Technology for Economic and Clinical Health (“HITECH”) Act created a new notification requirement in the event of a breach involving protected health information (“PHI”). The Department of Health and Human Services (“HHS”) recently published interim final regulations clarifying when and how such breach notices must be provided.

Employer’s Aggressive Anti-Smoking Policy Survives Court Challenge – For Now

In a closely watched case pending in a Massachusetts federal court, Scotts LawnService has successfully defended its policy of refusing to hire anyone who smokes, even if they do so on their own time. The employer’s anti-smoking policy was just one component of a comprehensive wellness initiative. Employers across the country who are seeking judicial guidelines on the extent to which they can stretch wellness programs may find some comfort in this ruling, but they would be well advised not to place too much emphasis on it.

Amendment Deadline Looming for PPA Changes

The Pension Protection Act of 2006 (“PPA”) became law on August 17, 2006. It was one of the most sweeping retirement reform bills in recent history, mandating a host of changes for tax-qualified retirement plans. Most of these changes are already in effect – in some cases, for years. Accordingly, most sponsors have long since wrestled with the necessary changes to plan administration and are operating their plans in compliance with PPA’s requirements.

REMINDER: 2010 Welfare Plan Changes Coming Soon

With annual enrollment season fast approaching, now is the time to consider 2010 welfare plan changes. We have discussed each of these changes in detail in past issues of Benefits in Brief. Thus, the following is just a brief reminder of the new requirements, with the relevant effective date for each . . .

IRS Announces 2010 HSA And HDHP Dollar Amounts

Assuming a health savings account (“HSA”) is paired with a high deductible health plan (“HDHP”), an individual’s contributions to the HSA are tax-deductible. Section 223 of the Tax Code specifies a maximum annual HSA contribution, as well as both a minimum annual deductible and a maximum annual out-of-pocket amount for an HDHP. These calendar-year amounts are subject to annual inflation adjustments, based on the increase in the consumer price index (“CPI”) during the 12-month period ending on the prior March 31st. This adjustment schedule allows each year’s dollar amounts to be known in advance of the annual enrollment period for that year. Based on the 2.8% increase in the CPI for the twelve months that ended March 31, 2009, the IRS has recently announced the HSA and HDHP dollar amounts for 2010.

THE FIDUCIARY CORNER: Severance Plan Subject To ERISA Can Protect Employer

The economic recession has caused many employers to reevaluate their severance policies. We find that employers often strive to ensure that those policies do not amount to enforceable promises to provide similar benefits to similarly situated employees, but rather are non-ERISA, ad hoc arrangements. That strategy, however, may be short-sighted. A recent decision from a federal court in California serves as a reminder that ERISA-covered severance plans often give employers more protection than informal, “one-off” arrangements. (Pierce v. Wells Fargo Bank)

Dust Off Your HIPAA Hats: Major Changes to HIPAA Privacy and Security Rules Are on the Way

After a few years of relative calm after the “HIPAA storm,” it appears that clouds are on the horizon for employers, plan administrators, and business associates. In addition to the new COBRA subsidy requirements, another of the items included in the recent economic stimulus package (formally known as the American Recovery and Reinvestment Act, or “ARRA”) was a significant expansion of the HIPAA privacy and security rules. While Congress has given covered entities and business associates a bit more time than it gave employers to comply with the new COBRA rules, they should still act quickly to review and digest the new HIPAA requirements.

“CYCLE D” Determination Letter Program Now Open

Under the IRS’s determination letter program, all individually designed plans (i.e., those that are not maintained on either a prototype or volume submitter document) are on a 5-year cycle for renewing their determination letters. Plans in “Cycle D” may now file their determination letter applications. The deadline for filing these applications is January 31, 2010.

New York AG Investigates Data Used to Determine Out-of-Network Reimbursement Rates

Many group health plans provide that reimbursement of “out-of-network” claims will be based on a percentage of the “reasonable and customary” (R&C) charges. In most cases, the determination of an R&C charge is based on data obtained from third-party sources. A new investigation by the office of the New York Attorney General (NYAG) should prompt plan administrators to take a second look at the source of such data

Required Minimum Distribution Relief: A Nightmare for Employers

In an effort to cushion the blow to retirement savings inflicted by the stock market crash, former President Bush signed the Worker, Retiree and Employer Recovery Act of 2008 (“WRERA” or the “Act”) on December 23, 2008. Although the Act provides some much-needed funding relief for sponsors of defined benefit plans, its attempt to help retirees under defined contribution plans will leave the sponsors of those plans reaching for a bottle of aspirin.

THE FIDUCIARY CORNER: Misleading Participants About Contributions Is a Bad Idea

Tough financial times may tempt struggling employers to fudge a little when it comes to making contributions to their retirement plans. A construction company owner in Michigan recently learned the hard way, however, that leading participants to believe that contributions have been made, when in fact they haven’t, is a bad idea. (Safran v. Donagrandi, E.D. Mich. 1/30/09).

DOL Finalizes Safe Harbor for Annuity Selection

Section 401(k) plans are not required to offer annuity distribution options – and most do not. Instead, participants are typically offered a lump-sum payment and, perhaps, a range of installment options. Of those few 401(k) plans that do offer annuity options, only a tiny fraction of retirees select them. Nonetheless, there is now a trend toward encouraging sponsors to offer annuity options. In this regard, both Congress and the Department of Labor have taken steps to insulate sponsors from fiduciary liability in the event the issuer of such an annuity becomes insolvent.

Mental Health Parity Laws Expanded

Most plan sponsors have become familiar with the provisions of the Mental Health Parity Act of 1996 (“MHPA”). The MHPA required group health plan sponsors to eliminate certain annual caps and lifetime limits on mental health benefits. Notwithstanding the MHPA, however, many plan sponsors continued to impose reduced coinsurance limits and frequency limitations on mental health benefits. Now, as part of the emergency economic stabilization legislation that was signed by President Bush on October 3, 2008, the mental health parity rules have been expanded significantly.

THE FIDUCIARY CORNER: The Perils of 401(k) Brokerage Windows

The analysis of a federal district judge last year in a decision dismissing a class action complaint that challenged Deere & Co.’s 401(k) fee practices generated a great deal of excitement about 401(k) brokerage windows. The court seemed to imply that the existence of such an investment portal – through which participants may invest their plan accounts in almost any mutual fund or security – insulated the plan sponsor from claims that the plan’s core funds were too expensive or otherwise imprudent. That analysis is currently being tested as the parties appeal the judge’s decision. It has also drawn a cool reception from the Department of Labor.

Market Turbulence Has Implications For ERISA Fiduciaries

The recent turmoil in the financial markets, while troubling for individual investors, also has potentially significant implications for ERISA fiduciaries. Individuals and committees who have investment authority over plan assets should reevaluate their portfolios in light of these developments. This is true not only for fiduciaries of qualified retirement plans, but also welfare plan fiduciaries.

Important 401(k) Fee Rulings on the Horizon

Many of the lawsuits that challenge retirement plan fee practices are nearing critical decision points. After languishing for months in what were often heated procedural battles, several of these cases are fast approaching discovery cutoffs and summary judgment deadlines. Rulings on those summary judgment motions could widen the existing schism among the courts about the extent to which ERISA governs the inner workings of the 401(k) industry. We are likely to learn whether “revenue sharing” payments among service providers are plan assets subject to regulation, whether minimal involvement in fund selection makes service providers ERISA fiduciaries, and how plan sponsors should determine whether fees are excessive. One thing is certain: these rulings will determine whether more lawsuits will be filed in the coming months.

HEART Act Changes Retirement Plan Rules for Military Reservists

In June, the Heroes Earnings Assistance and Relief Tax (“HEART”) Act became law. The Act makes a number of significant changes to the treatment of military reservists under employee benefit plans. This article summarizes those changes as they apply to qualified defined benefit and defined contribution plans, Section 403(b) plans, and Section 457(b) plans.

Medicare Part D Notices Revised (Again)

The Medicare Part D regulations issued by the Centers for Medicare and Medicaid Services (“CMS”) require group health plans providing prescription drug coverage to Part D-eligible individuals to disclose to participants whether the coverage is “creditable” — that is, at least as good as Medicare Part D coverage. Plans must send these notices to participants each fall, prior to the beginning of the initial enrollment period for Medicare Part D coverage.

THE FIDUCIARY CORNER: Rollovers to Plan Service Providers Present Fiduciary Concerns

Plan sponsors and retirement plan service providers each have reason to be concerned about a recent decision in an ERISA lawsuit pending before a federal court in Iowa. That decision allowed former participants in two separate 401(k) plans to proceed with their claims that the Principal Financial Group, the third-party service provider for each plan, breached its fiduciary duties by encouraging retired participants to roll their plan accounts into high-cost IRA products affiliated with Principal. (Young v. Principal Financial Group, Inc.) Although the court rejected one of the participants’ theories of relief on the grounds that they did not have standing to pursue it, a second theory survived.

Court Upholds Fired Smoker’s Right to Pursue ERISA Claim for Interference

Employer wellness programs are often touted as part of the answer to rising health insurance costs. However, a recent federal district court decision suggests that employers must tread carefully when seeking to control health insurance costs by policing employees’ conduct outside of work.

Labor Department and Congress Focus on Disclosure of 401(k) Fees

There has never been greater attention in Washington, D.C. to the issue of fees charged to individual participants in 401(k) plans, how those fees are shared among a plan’s service providers, and the disclosure of those fees/revenue sharing arrangements to plan sponsors and plan participants.

THE FIDUCIARY CORNER: Fiduciary Liability After LaRue

As we reported in our last issue of Benefits in Brief (Volume 2008, No. One, p. 1), the Supreme Court’s latest foray into ERISA left open many questions about the liability of ERISA fiduciaries and the remedies available to plan participants. In LaRue v. DeWolff, Boberg & Assocs., the Court opened the door for individual participants in defined contribution retirement plans (e.g., 401(k) plans) to sue for losses suffered in their own accounts. Although the Court’s ruling allowed Mr. LaRue to proceed with his claim against his employer, it did not decide whether his employer was, in fact, an ERISA fiduciary which could be liable for Mr. LaRue’s alleged losses.

High Court Allows Workers to Sue over 401(k) Losses

Workers gained a powerful weapon Wednesday by winning the right to sue employers when their retirement plans are mismanaged, raising the possibility of lawsuits over other worker-fund matters as well.


The U.S. Supreme Court ruled unanimously that workers could sue employers to recover losses when their 401(k) accounts were not handled in their best interests.

Be Careful What You Promise

A major insurer learned, to its chagrin, that it doesn’t pay to include soothing words in a summary plan description (“SPD”) unless those words are actually acted upon. The result in Rosenberg v. CNA Financial Corp. was potential liability for nearly $5 million in severance benefits that were clearly not payable under the terms of the plan.

THE FIDUCIARY CORNER: The Duty to Collect Delinquent Contributions

In a Field Assistance Bulletin issued February 1, 2008 (FAB 2008-01), the Department of Labor highlighted a problem that apparently is pervasive in retirement plan and trust documents: confusion over the responsibility to collect delinquent contributions. Recent DOL investigations uncovered plan and trust documents that neglected to assign responsibility for monitoring and collecting contributions, and some that even purported to relieve all of the plan’s fiduciaries from this responsibility. This guidance cautions that plan fiduciaries who ignore delinquent contributions do so at their own peril. Employers should review their documents carefully in light of this Bulletin, to make sure that these responsibilities are properly assigned.

Supreme Court Ducks Tough Questions in Latest ERISA Ruling

Like almost 70 million other Americans, James LaRue elected to save money for retirement through his employer’s 401(k) plan. When administrative errors reduced his account balance by nearly $150,000, Mr. LaRue sued his employer in federal court under ERISA to recover that amount. Initially, he lost. In a decision handed down on February 20, 2008, however, the United States Supreme Court resurrected his claim, in an apparent victory for Mr. LaRue and similarly situated 401(k) plan participants. (LaRue v. DeWolff, Boberg & Associates, Inc.) Unfortunately, the Supreme Court’s decision raises more questions than it resolves.

Nationwide Wins One, Loses One In Fee Litigation: Troubling Definition of “Plan Assets” Survives

After nearly 18 months of inactivity, the court in Haddock v. Nationwide (September 25, 2007), one of the most closely watched lawsuits challenging 401(k) fee practices, has rejected another attempt to derail the plaintiffs’ claims. Even more importantly, this most recent ruling leaves standing a controversial earlier decision that so-called “revenue sharing” payments may constitute ERISA plan assets.

Why ERISA Was Enacted

It’s sometimes tempting to conclude that ERISA imposes unnecessary duties on plan fiduciaries – but then we see a case that confirms Congress’ wisdom in creating those duties. Such a case was recently decided by an Alabama federal court. The decision in this case, Cromer-Tyler v. Edward R. Teitel, M.D., P.C., serves as a roadmap for what plan fiduciaries should not do in administering a retirement plan.

THE FIDUCIARY CORNER: Eighth Circuit Says No Finger Pointing Among Fiduciaries

It’s a practice first developed in the early stages of life, witnessed countless times by the parents of young children, and frequently associated with a distraught youngster wailing something like “It wasn’t my idea, Dad; it was his fault.” Such blame-shifting is so ubiquitous it has even found a place in the American judicial system.

Court Upholds EEOC’s Right to Exempt Medicare Coordination from ADEA Claims

After protracted litigation, the Third U.S. Circuit Court of Appeals has finally upheld regulations issued by the Equal Employment Opportunity Commission (“EEOC”) allowing employers to reduce, change, or even eliminate retiree health coverage when retirees become eligible for Medicare.

THE FIDUCIARY CORNER: Supreme Court to Decide Scope of Fiduciary Relief

Imagine that you are a 401(k) plan participant who, over the course of many years and at a significant sacrifice to your take-home pay, has accumulated a hefty account balance. As your retirement date approaches, you decide to move your plan balance from the moderately aggressive equity funds in which it had been invested to a conservative money market fund. You fill out the on-line account transfer request, sit back, and contemplate the hammock and mystery novel awaiting you on the beach after retirement

Fidelity, NEA Targeted in New Fee Lawsuits

Fresh off a major victory in one lawsuit challenging its 401(k) fee practices, Fidelity has been sued yet again. This one was filed on July 23, 2007, in Massachusetts by Columbia Air Services, Inc., the sponsor and administrator of the Columbia Group of Companies 401(k) Retirement Savings Plan.

Opinion Dismissing Deere 401(k) Fee Suit Creates Split of Authority

In a closely watched case in the Western District of Wisconsin, a federal judge on June 21 dismissed claims that Deere & Co. breached its fiduciary duties under ERISA by permitting participants in its 401(k) plan to pay excessive fees. The judge also threw out claims that Fidelity, which acted as recordkeeper for the plan and provided most of the investment options, breached its fiduciary duties by charging and keeping the allegedly excessive fees.

Supreme Court Rejects Merger as Means of Plan Termination

The United States Supreme Court unanimously rejected the notion that a defined benefit plan sponsor must consider merging its plan with another retirement plan as a method of plan termination. Siding instead with the position taken by the plan sponsor, as well as the Department of Labor and PBGC, the Court ruled on June 11, 2007, that ERISA does not permit merger as a method of plan termination, because merger is an alternative to, rather than an example of, termination. Beck v. PACE International Union.

401(k) Fee Litigation Proceeds: More Suits, More Attorneys, New Targets

After firing off an initial volley of 14 class action lawsuits against Fortune 100 employers and their retirement plans, the St. Louis-based Schlicter, Bogard & Denton law firm now has plenty of company in the attack on 401(k) plan fee practices.

THE FIDUCIARY CORNER: Identifying Fiduciaries – The Ministerial Function Exception

Not everyone who has a role in the administration of an ERISA plan is a “fiduciary” under the Act’s special definition of that term. Even those who process claims and calculate benefits may be excluded from this category, so long as they do so within a framework of policies and procedures made by others. And not being a fiduciary is significant, because those on the outside of the fiduciary circle are not subject to the special obligations and personal liability that attaches to those on the inside.

Wal-Mart Hit with Class-Action Over 401(k) Plan

Plaintiffs’ attorneys have filed a purported class-action lawsuit class action lawsuit against Wal-Mart and the fiduciaries of its 401(k) retirement plan.

401(k) Plans In The Cross-Hairs

A recent spate of litigation involving 401(k) plan fees has drawn the attention of employers, the media, and Congress. At issue in these cases is hundreds of millions of dollars in potential liability, and also the very backbone of the retirement plan industry. Employers can expect more scrutiny of their plans from employees and, in some unfortunate circumstances, from plaintiffs’ attorneys.

Court Faults Employer for LTD Enrollment Glitch

A recent decision by a Utah federal court serves as a reminder that fully insured welfare plans actually achieve their goal of transferring an employer’s risk to an insurer only if the employer meets its fiduciary obligations during the enrollment process.

District Court Declines to Dismiss Kraft 401(k) Fee Case

In an opinion dated March 16, a judge for the Southern District of Illinois ruled against defendants’ motion to dismiss claims that they breached their fiduciary duties by permitting the Kraft Foods 401(k) plan to charge excessive and undisclosed fees. The court also refused to strike or order clarification of portions of the complaint that defendants claimed were lengthy and ambiguous, but did grant defendants’ motion to transfer the case to the Northern District of Illinois.

Heightened Regulatory Focus On Plan Fees

The recent 401(k) class action lawsuits come on the heels of other judicial and regulatory actions that target 401(k) fee transparency. A report released by the Government Accountability Office on November 30, 2006, recommends legislative changes that would impose new fee disclosure requirements on both plan sponsors and service providers. In addition, the Department of Labor issued guidance in May 2005 that outlines questions plan fiduciaries should ask when selecting pension consultants.

Understanding 401(k) Fees

The administration of a 401(k) plan requires a number of parties. These include a custodian to hold the plan’s assets, a recordkeeper to maintain plan and participant records and process distribution requests, and investment fund managers with whom plan assets may be invested.

New Litigation Rules Will Affect Claims Processing

Changes to the federal rules governing civil litigation will affect the way that benefit claims and appeals are processed. While third-party claims administrators will be most directly affected, plan sponsors and their human resources staff should also be aware of the new rules. Failure to abide by them could make it more difficult to succeed if claim decisions are challenged in court.

401(k) Fee Practices Challenged

As we first reported in a Benefits Alert! e-mail blast several weeks ago, a series of ten class action lawsuits filed in recent weeks challenges the fee structure employed by most 401(k) plans. These cases attack investment-related fees paid by plans to service providers, including revenue sharing arrangements between plans, mutual funds, and recordkeepers.

IRS Grants Further Relief Under Section 409A

With the December 31, 2006, amendment deadline fast approaching – and with no final regulations in sight – the IRS has again extended the deadline for documentary compliance with the requirements of Section 409A of the Internal Revenue Code. Notice 2006-79 extends this deadline by another full year, to December 31, 2007.

Update: New 401(k) Suit Against Kraft Foods

As we first reported several weeks ago, plaintiffs’ lawyers are filing a wave of class-action lawsuits against major corporations alleging that their 401(k) plans charge excessive and undisclosed fees. (See “A Frontal Assault on 401(k) Fee Practices.”)

Supreme Court Charts Path To Recovery Under Welfare Plan Reimbursement Provisions

The Supreme Court has just made it easier for ERISA welfare plans to recover from participants who refuse to honor their plans’ reimbursement provisions. Resolving a question that has divided the federal circuit courts of appeals, the Court held in Sereboff v. Mid-Atlantic Medical Services that — under the right plan language and the right facts — a welfare plan’s action to recover such funds constitutes “equitable” relief and is therefore permissible under ERISA. And while the subtleties of the Court’s reasoning might not make spellbinding reading, they nonetheless contain an important message for employers who sponsor such plans.

Federal Court Agrees With Spencer Fane: Former Employees of Enron Subsidiary Lack Standing to Sue

Spencer Fane’s ERISA Litigation Group secured a major victory last month in a case arising from the Enron bankruptcy. The dispute followed the sale of an Enron subsidiary, Northern Natural Gas (“NNG”). As a consequence of the sale, NNG withdrew from Enron’s voluntary employees’ beneficiary association (“VEBA”) and established its own welfare benefit plan, which was funded by a VEBA established by NNG’s ultimate purchaser, MidAmerican Energy Holdings Co. (“MEC”).

Tenth Circuit Hands Down Health Plan Reimbursement Decision

In our August 2004 issue of Benefits in Brief, we surveyed recent developments in the law governing a health plan’s right to enforce its reimbursement provisions against a participant who receives payment from a third party for medical expenses the plan has already paid.

Trustee Faces Prison For Accepting Motorcycle

When an ERISA fiduciary accepts a gratuity from a plan’s consultant or other service-provider, he not only breaches his fiduciary duty under ERISA, he also commits a federal crime.

Tenth Circuit on Court Reveiw of Benefit Denials: Arbitrary And Capricious Ain’t What It Used to Be

In the landmark 1989 case Firestone Tire & Rubber Co. v. Bruch, the Supreme Court instructed federal courts to apply their most deferential standard of review (the arbitrary and capricious standard) to benefit decisions made by ERISA plan administrators under plans that grant them discretionary authority to determine eligibility for benefits or construe plan terms.

You’ve Got to Be Kidding: Health Plan Reimbursement Rights After Knudson

What would you think of a statute that says, If you receive money that you know belongs to someone else, but you spend it before they can sue you, you never have to pay it back?