Blogging Employee Benefits

October 31, 2006

Key ADEA Ruling from Divided En Banc 6th

Filed under: ADEA, Disability, Litigation — Fuguerre @ 5:37 pm

By demonstrating that a retirement plan’s disability benefits provision facially discriminates on the basis of age, the EEOC has established a prima facie case of age discrimination, according to a divided en banc 6th Circuit ruling reversing its original panel’s decision. (Equal Employment Opportunity Commission v. Jefferson County Sheriff’s Department, 03-6437) The full 6th further ruled that no evidence of discriminatory animus is required, since discriminatory intent was directly evidenced by the facially discriminatory nature of the plan. Perhaps somewhat less clear was the court’s rejection of its precedent in Lyon v. Ohio Education Assn and Professional Staff Union, by which earlier proceedings in Jefferson County had felt bound.

Prior to July 2000, a participant under the Kentucky Retirement System was ineligible to receive disability retirement benefits unless the individual was less than normal retirement age at disablement. After the current litigation commenced, an amendment modified the key condition to exclude from disability retirement any member who was eligible for an unreduced retirement allowance. The en banc panel found this plan design to be facially discriminatory on the basis of age in at least two ways: (1) Employees who remain in active service beyond a specified age are excluded from a particular employment benefit because of age; and (2) Even members who do become entitled to disability benefits receive lower benefits under the plan than similarly situated younger members.

Lyon‘s definition of a prima facie ADEA claim can no longer stand.

Previous rulings for this case had followed much the same path considered by the en banc panel, but had followed Lyon precedent, which had held the opposite of the two key rulings in the current case under arguably similar circumstances. Retracing steps all the way back to the origins of ADEA itself, the 6th now seems to see it differently, stating, “We believe that [OWBPA’s] legislative history is compelling evidence that when revising the ADEA in response to Betts, Congress intended to prohibit the very sort of age-based discrimination that the original panel [in the current case], bound by Lyon, condoned in this plan.” Yet although concurring with the majority opinion, Circuit Judge Rogers observes inter alia not only that it is unnecessary to overrule Lyon except to the extent that former precedent is inconsistent with the current holding, but that this decision leaves us with a fair degree of uncertainty, wryly quipping, “I would leave to future litigants the task of going through Lyon and identifying what survives and what does not.”

Dissenting opinion found relevant distinction between the Kentucky Retirement System design and the landmark Betts template, the crucial distinction being that Betts’ Ohio plan provided younger workers with a specific benefit that was withheld from older workers, whereas the Kentucky system’s design provides disability benefits that are intrinsically no different than normal retirement benefits. Perhaps the point at which one ought to commence Rogers’ task, then, might be to speculate which long-accepted normal retirement benefit designs could now come under renewed scrutiny, with an ever-evolving light?


October 24, 2006

Oregon PERS Amendment Not Unconstitutional

Filed under: Litigation, PERS — Fuguerre @ 3:24 pm

No State shall . . . pass any . . . Law impairing the Obligation of Contracts.

That makes for a reasonably interesting blogging afternoon, to be able to quote from that legal document that starts out, “We the People of the United States, in Order to form a more perfect Union, . . .” In this case, from Art I §10 cl 1, the Contract Clause, sometimes raised by states’ public employees dissatisfied with changes made to a public employee retirement system. In a sense, like the ultimate authoritative version of what private pension plans face under IRC §411(d)(6), not only with respect to previously accrued benefits, but with respect to any future accruals or benefit rights to which the public employees felt they had been granted contractual rights by their state employer.

And on several notable occasions, the employees have prevailed, particularly when the issue of whether a contractual relationship existed was not the issue in dispute. Frequently, though, the employees run up against a long-standing presumption expressed by the U.S. Supreme Court in National Railroad Passenger Corp. v. Atchinson Topeka and Santa Fe Railway Co., quoting from its own earlier decision in Dodge v. Board of Education, maintaining that –

[A]bsent some clear indication that the legislature intends to bind itself contractually, the presumption is that “a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise.

In Robertson v. Kulongoski (No. 04-35898), the 9th Circuit Court of Appeals today ruled that although the Oregon Public Employee Retirement System had been expressed in prior state litigation as “a contract between the state and its employees,” there exists no clear indication that the Oregon legislature intended to promise its employees a perpetual, immutable right to contribute to specific accounts under the terms of its retirement system. So although the U.S. Constitution prohibits a state from impairing its contracts, the “contours” of the pension contract between Oregon and its public employees may be open to amendment. Granting due deference to the Oregon Supreme Court’s detailed analysis in Strunk v. Public Employees Retirement Board [OR Sup.Ct., SC S50593, 3/8/05], the 9th Circuit has ruled that Oregon’s 2003 legislation modifying terms of OPERS does not violate the Constitution’s Contract Clause, affirming district court summary judgment in favor of the state. Although as previously blogged here, other aspects of the plan amendment remain in dispute.

August 25, 2006

States Immune from FMLA Self-Care Claims

Filed under: FMLA, Litigation — Fuguerre @ 3:07 pm

States are immune from claims brought under the self-care leave provision of the Family and Medical Leave Act, according to a 7th Circuit ruling reversing a district court decision. [Toeller v. Wisconsin Department of Corrections, 05-4064] Although the U.S. Supreme Court’s 2003 Hibbs decision had found that FMLA’s family-care provisions validly abrogated state immunity, the 7th joined 6th and 10th Circuit conclusions that FMLA’s self-care provisions are to be evaluated separately, versus reading Hibbs as applicable to FMLA in its entirety. Finding no justification that FMLA’s self-care provision trumps state immunity “pursuant to a valid grant of constitutional authority,” the 7th remands the case for dismissal.

August 19, 2006

State’s Healthcare Assignment Law Not Preempted

Filed under: ERISA Preemption, Healthcare, Litigation — Fuguerre @ 10:07 am

As is often the case, congressional silence whispers sweet nothings in the ears of both parties.

Unconvinced by the whispers of health insurers, the 5th Circuit has affirmed a district ruling that Louisiana law relating to assignment of healthcare benefits is not preempted by ERISA. [Louisiana Health Service & Indemnity Co. v. Rapides Healthcare System, 04-31114]

Louisiana state law requires an insurance company to honor assignments of healthcare benefit claims made by patients to hospitals. A provision under the insurer’s agreement with “participating providers” allowed direct payment to a healthcare provider; but payments for services from a “nonparticipating provider” were made solely to the patient, regardless of any assignment to the healthcare provider. When hospitals took noncompliance with the state’s assignment statute up with the Louisiana Department of Insurance, the insurers went to court seeking a declaration that the state law was preempted to the extent applicable to ERISA employee welfare benefit plans.

The appellate court first disagreed with the district court on weight given to language in the healthcare plans stating that assignments were not to be honored “except as required by law.” The insurers contested the district court conclusion that that plan provision required compliance with the state assignment law, arguing that plan provision to be trumped by another stating “except when preempted by federal law.” The appellate court disagreed with both sides, instructing —

Neither policy provision displaces the preemption analysis in this case. ERISA plans must always conform to state law, but only state law that is valid and not preempted by ERISA. The presence of the phrase “except as [sic] preempted by [federal] law” serves no additional purpose, as all state laws are potentially subject to ERISA’s preemptive force. The two provisions do not forestall determination of the preemption question.

Turning to the central issue of ERISA preemption, the court rejected the insurer’s contention that the state’s assignment statute conflicts with ERISA’s exclusive enforcement scheme, pointing out —

ERISA is silent on the assignability of employee welfare benefits; it neither prohibits nor mandates recognition of assignments.

Moreover, the state’s assignment statute does not create additional enforcement mechanisms that duplicate otherwise applicable ERISA duties. To insurer concerns that compliance with the assignment statute poses risks of double recovery through liability to a hospital after a patient had already been paid, the court responded that assignments simply ought not be ignored, observing —

Failure to follow the law cannot create preemption concerns.

As to the issue of whether the state assignment law is preempted because it “relate[s] to” employee benefit plans, the court heard from the opposing parties two contrasting interpretations of the whisperings gleaned from congressional silence regarding assignment of employee welfare benefits: from the insurers, that the issue is to be left to free negotiations of the contracting parties; from the hospitals, that ERISA is not to preclude state law on the issue. On this debate the 5th Circuit parted company with the 8th and 10th Circuits to side with the hospitals, rejecting insurer arguments that the assignment law imposes a set of rules requiring benefit payments in contravention of plan documents and impermissibly interferes with nationally uniform plan administrator. Viewing contrary precedent as uninformed by the “starting assumption that Congress did not intended [sic] to preempt state law in an area of traditional state regulation,” the court stood convinced that Louisiana’s assignment statute has no impermissible connection with ERISA plans.

Congressional silence cannot dictate our conclusion in this case, but we consider what Congress did in order to determine what Congress intended to preclude the states from doing.

ERISA 510 Claim Time-Barred

Filed under: Litigation — Fuguerre @ 8:11 am

Insurance salesmen’s claims that an insurance company’s modification of its employment contract violated ERISA §510 were not filed before the expiration of the applicable state’s statute of limitations, according to a 7th Circuit decision affirming the district court. [Berger and Laxton v. AXA Network LLC and Equitable Life Assurance Society of the United States, No. 05-2495]

The insurance salesmen had been employed as independent contractors through an “honor system” agreement under which they were eligible for participation in the insurance company’s ERISA plans. In 1999, the company eliminated the honor system in favor of an objective annual sales goal that was to be met by an agent in order to continue to be recognized as a statutory employee. Two Illinois agents lost their employment status under the revised agreement in 1999 and 2000, along with several thousand other of the company’s agents nationwide. In 2003, the plaintiffs filed a complaint alleging that the company’s revision of their employment agreement violated ERISA §510, which prohibits interference with protected ERISA rights through discharge of employment.

ERISA §510 is given no express statute of limitations under ERISA itself and was enacted too early to come under the default 4-year federal limitations period of 28 U.S.C. §1658(a). Turning to the most analogous state law, the court’s analysis led it to New York, the state in which the insurance company’s corporate offices were located and the forum of law specified in the employment agreement. Next seeking New York state law most analogous to the concerns of ERISA §510, the court turned to New York Workers’ Compensation Law §120, which carried a 2-year statute of limitations.  Finding that the claim accrued in February 1998, when the 1999 change in the employment agreement was communicated to the agents, the appellate court affirmed the district court’s dismissal of the action as time-barred.

August 15, 2006

En Banc 9th Sets New Conflict Approch for Review Standard

Filed under: Litigation — Fuguerre @ 11:34 pm

We conclude that our earlier opinion in Atwood v. Newmont Gold Co., 45 F.3rd 1317 (9th Cir. 1995), misinterpreted Firestone. We now establish a more comprehensive approach to ERISA cases in which a conflict of interest exists. As we will explain below, abuse of discretion review, tempered by skepticism commensurate with the plan administrator’s conflict of interest, applies here.

Requiring ERISA plan participants to present material, probative evidence of plan administrator conflict of interest unreasonably shifts the burden of proof, according to an en banc 9th Circuit ruling, reversing a previous 9th panel’s decision and rejecting the conflict approach that had been established in the 9th’s own 1995 Atwood ruling. [Abatie v. Alta Health & Life Insurance Company, 03-55601]

The en banc Abatie panel found fault with the Atwood approach on three counts: (1) Atwood failed to adhere to the review standard dichotomy laid out in the Supreme Court’s 1989 Firestone decision, under which a plan granting discretion to the administrator was due review under the abuse of discretion standard; (2) Atwood ignored the Supreme Court’s requirement that the conflict of interest inherent when a plan administrator doubles as its fiduciary weigh in as a factor under the abuse of discretion standard; and (3) Atwood unreasonably placed the burden of proof on plan participants for producing evidence of a potentially conflicted plan administrator’s motives, granting administrators highly deferential review absent “smoking gun” evidence.

That approach wrongly aligns incentives. Instead of being encouraged affirmatively to demonstrate their impartiality and the reasonableness of their decisions, plan administrators are rewarded for suppressing dissent and denying claims with as little explanation as possible.

Returning to Firestone, the en banc Atwood panel calls for an abuse of discretion review whenever an ERISA plan grants discretion to the plan administrator, but takes any conflict of interest into account in the appraisal of whether discretion was abused. Although such an approach is similar to that adopted by other circuits, the 9th consciously rejects the “sliding scale” basis, whereby a court applies less deference as is sufficient to offset the conflict, while recognizing that, “An egregious conflict may weigh more heavily (that is, may cause the court to find an abuse of discretion more readily) than a minor, technical conflict might.”

But in any given case, all the facts and circumstances must be considered and nothing “slides,” so we find the metaphor unnecessary and potentially confusing.

Instead, the 9th calls for a case-by-case “indefinite” abuse of discretion review that weighs conflict on the basis of the particular facts and circumstances. The influence of a potential conflict is to be taken into account, without first requiring the participant to show presence of a serious conflict. Although the burden is not necessarily passed back to the plan administrator, the court suggests that “a conflicted administrator, facing closer scrutiny, might find it advisable to bring forth afirmative evidence that any conflict did not influence its decisionmaking process….”

Although an abuse of discretion review is generally limited to the administrative record, the 9th finds a “subtler question” in how much weight to give a conflict of interest in judging whether discretion has been abused, acknowledging that evidence outside the record could be considered. Moreover, although procedural violations would not necessarily alter the review standard, de novo review is the review standard when an administrator has engaged in “defalcations” that are “so flagrant as to alter the substantive relationship between the employer and employee….”

Finding the district court’s decision in favor of the plan administrator deficient under its fresh approach to conflict and procedural irregularities, the en banc 9th reversed and remanded Abatie for further proceedings. See LawMemo and Workplace Prof Blog for further background leading to this major decision.

August 8, 2006

Deference Denied for Unnecessary Multiple Valuations

Filed under: Distributions, Litigation — Fuguerre @ 10:34 pm

A money purchase plan administrator’s decisions to make multiple revaluations of plan assets for purposes of determining a distribution payout were not entitled to deference, according to a 1st Circuit ruling affirming the district court. [Janeiro v. Urological Surgery Professional Association, 05-2150]

Plan terms provided for annual valuation of plan assets each December 31, but gave the plan administrator discretion to construe plan terms and make benefits decisions, explicitly authorizing “an extraordinary adjustment date whenever market values of underlying assets have changed so much that it would be inequitable to do otherwise.” Bitter personal acrimony between the plan’s trustee and his departing former partner led to 5 successive revaluations of plan assets, eventually basing distribution of plan benefits at depressed market values of June 30, 2002, instead of the normal valuation date of December 31, 2000, that ought to have been used. Significant stuctural conflict of interest was present in that the distribution stood to deplete the plan of 70% of its assets, of which 92% would be in the trustee’s own account; but the district court looked further, finding additional evidence of conflict sufficient to abandon the deferential standard of review. Reviewing the benefit decision de novo, the district court found a fiduciary violation in the plan’s failure to timely segregate and liquidate plan assets sufficient to make the distribution, holding that the departing employee was entitled to a distribution valued as of 12/31/2000.

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