ERISA & Employee Benefits Litigation Blog

Update on the Multiemployer Pension Reform Act of 2014

Posted in Uncategorized

On December 11th, we reported on the proposed Multiemployer Pension Reform Act of 2014 (MPRA).

We can now report that President Obama enacted this legislation on Tuesday, December 16th as part of the $1.1 trillion spending bill for 2015.  The final MPRA is identical in substance to the draft legislation that we reported on earlier (click here for the final 57-page version of the MPRA ).

On January 14, 2015, Seyfarth ERISA litigation and benefits attorneys will provide an overview of the MPRA, and what it means for employers.

Topics to be addressed include:

  • Benefit reduction process for deeply troubled plans
  • New merger and partition rules
  • Disregard of surcharges and certain contribution increases in withdrawal liability payment schedules
  • New required plan disclosures
  • Withdrawal liability calculations post MPRA

Click here for a link to sign up for this important event.  If you have any questions about the upcoming webinar, please contact events@seyfarth.com.

A Potential Turning of the Tide: Eleventh Circuit Affirms Enforcement of Summary Plan Description Terms

Posted in Plan Administration Litigation

By: Ian H. Morrison and Christopher M. Busey

While the debate over Amara and its implications continues, the Eleventh Circuit gave welcome ammunition to ERISA plan administrators and fiduciaries in a recent opinion. In Board of Trustees of the National Elevator Industry Health Benefit Plan v. Montanile, No. 14-11678 (Nov. 25, 2014), the court held that a summary plan description constituted a written instrument that sets out enforceable terms of an ERISA employee welfare benefit plan. The court affirmed the District Court of Southern District Florida’s grant of summary judgment for the Plaintiff-Appellee Board of Trustees.

Robert Montanile participated in the National Elevator Industry Health Benefit Plan, a jointly administered health and welfare plan. He was hit by a drunk driver and recovered $500,000 in a lawsuit against that driver. The Plan’s Board of Trustees sued to recover payments it had made for Montanile’s treatment for injuries suffered in the crash under subrogation and reimbursement clauses that appeared only in the Plan’s summary plan description.

Montanile argued that the reimbursement and subrogation provisions were unenforceable because they were not set forth in the formal plan documents and that equity did not permit the Plan to recover.  The Eleventh Circuit court of appeals disagreed.

The Eleventh Circuit first addressed Montanile’s contention that recovery was unavailable under ERISA § 502(a)(3), which permits only equitable remedies. He argued that an equitable lien or constructive trust were unavailable because he’d spent or dissipated the money received from the settlement.  Relying on another recent Eleventh Circuit case — AirTran Airways, Inc., v. Elem, 767 F.3d 1192 (11th Cir. 2014) — the court found that, because the settlement funds were “specifically identifiable” prior to the dissipation, the Board’s equitable lien remained intact.

The court then addressed ERISA’s elephant in the room. Montanile argued, relying on Amara, that the subrogation provision could not be enforced because it appeared only in the SPD. The court first rejected the argument that a document could not be both a written instrument that set forth the plan’s terms, as required by ERISA § 3(a)(1), 29 U.S.C. § 1102(a)(1), and a summary plan description, as required by § 102, 29 U.S.C. § 1022. On this point, the court specifically distinguished Amara. It observed that Amara held only that an equitable remedy — there, reformation of a plan — was not permitted under ERISA § 502(a)(1)(B). The Supreme Court’s holding thus had no bearing on Montanile’s case, in which the Board of Trustees sought relief under § 502(a)(3). The court also confronted the oft-repeated proclamation that an SPD “suggests information about the plan” and is “not itself part of the plan.” Although Amara precludes enforcement of SPDs “where the terms of that summary conflict with the terms specified in other, governing plan documents,” the Eleventh Circuit noted that the Supreme Court only rejected the proposition that SPDs “necessarily may be enforced . . . as the terms of the plan itself.” This “leaves open the possibility that terms in those summaries may, at times, be enforced, even though they are not always enforceable.”

Thus, because in this case the SPD was a plan document, the court found it enforceable. In fact, the court noted that ignoring the SPD would lead to an absurd result as the plan documents alleged to constitute all governing plan documents by Montanile did not “specify the basis on which payments are made to and from the plan,” as required by ERISA § 402(b), 29 U.S.C. § 1102. Those provisions existed only in the SPD. Thus, under his interpretation, “there would be no governing document that specifies Plan participants’ rights or obligations regarding benefits.” Accordingly, the Eleventh Circuit held that the SPD contained enforceable terms of the plan and affirmed the grant of summary judgment for the plan’s Board of Trustees.

The implications for this opinion are still unclear. This opinion follows decisions from other circuits that have similarly enforced terms in summary plan descriptions. For example, the Eighth Circuit recently found a grant of discretion to a claims administrator contained only in the plan’s SPD to be valid. See Prezioso v. The Prudential Insurance Company of America, 748 F.3d 797 (8th Cir. 2014). The Eleventh Circuit’s decision supports a more nuanced and pragmatic reading of Amara—one advanced by plan fiduciaries and administrators since Amara. While several circuits have gone the other way on this issue or have yet to weigh in, this decision may suggest that another Supreme Court showdown over ERISA plan documents is in the offing.

ALERT: COMPREHENSIVE MULTIEMPLOYER PENSION REFORM IN PLAY

Posted in Uncategorized, Withdrawal Liability

By: Ron Kramer

Don’t look now, but pension reform is back in play.  The proposed “Multiemployer Pension Reform Act of 2014” (“MPRA”), 161 pages long (click here), was recently introduced in the House Rules Committee by Representatives George Miller (D-CA) and Rep. John Kline (R-MN), and may be adopted before the end of the lame duck session this week as part of the spending deal to keep the government running.  The House Rules Committee claims the bill would permit trustees of severely underfunded plans to adjust vested benefits, enabling deeply troubled plans to survive without a federal bailout while protecting the most vulnerable employees and adjusting the premium structure to improve the health of the PBGC.

Much of the draft legislation is based on recommendations previously issued by the National Coordinating Committee for Multiemployer Plans.  The bill is designed to make it easier for multiemployer pension plans to take steps to improve their health without necessarily placing significant additional financial burdens on participating employers or taxpayers.  Below are three key highlights of interest for employers:

1.  Ability of deeply troubled plans to reduce benefits before insolvency:  Key to the MPRA is the ability of critical and declining plans to reduce employee benefits now to avoid insolvency.  Currently, vested benefits can only be reduced under certain limited circumstances:  e.g., with “critical status” plans or when a plan is insolvent (and then they are reduced to PBGC guarantee minimums).  The MPRA provides for an extensive process for “critical and declining” plans — i.e., critical plans which are projected to become insolvent within 14 plan years (19 plan years if the plan has a ratio of inactive participants to active participants that exceeds 2 to 1 or if the unfunded percentage of the plan is less than 80 percent) — to seek approval to “suspend” benefits to no less than 110% of PBGC minimums (subject to certain exceptions to protect the most vulnerable retirees) to the extent needed to avoid insolvency.  The process for obtaining approval for reducing benefits is extensive (including the appointment of a retiree representative for larger plans to advocate for the retirees), and includes a mandated vote in favor by the participants.  That vote can be overridden, however, in the event the government determines that the plan is “systemically important,” i.e., the present value of projected financial assistance payments by the PBGC would exceed one billion dollars (indexed going forward) if suspensions are not implemented.

The ability to suspend benefits now, while painful for participants, may help many critical and declining funds in the long run to avoid insolvency or outright plan termination.  To the extent this will permit a fund to avoid insolvency, fund employers may be less likely to withdraw.  This change does not necessarily help employers interested in withdrawing from such plans, however, or employers that may experience a withdrawal for business reasons beyond their control.  Benefit suspensions are disregarded in withdrawal liability calculations unless the withdrawal occurs more than ten years after the effective date of a benefit suspension.

2.  Changes to mergers and partitions:  The MPRA significantly revises existing merger and partition rules.  The PBGC will be authorized to promote and facilitate plan mergers and may provide financial assistance (provided it has sufficient funds) in certain situations where one of the plans to be merged is in critical and declining status.  The PBGC’s ability to approve partitions to carve out the bad parts of a plan from the good parts also has been expanded.  Under the MPRA, in order for a partition to be approved:  (i) the plan must be in critical and declining status; (ii) all reasonable measures to avoid insolvency (including the imposition of the maximum allowable benefit suspensions) must have been taken; (iii) a partition would reduce the PBGC’s expected losses, and would be necessary to keep the plan solvent; (iv)  the PBGC can do it financially without hurting its ability to meet its other financial obligations; and (v) the PBGC’s costs are paid for exclusively from the fund for basic benefits guaranteed for multiemployer plans.  Only the minimum amount of the plan’s liabilities necessary for the plan to remain solvent will be permitted to be partitioned.

These changes also will help save critical and declining funds.  Employers seeking to withdraw within ten years after a partition will have their liability calculated with respect to both plans, thus ensuring exiting employers will not monetarily benefit from the partition.

3.  Employer relief on withdrawal liability payments:  Under current law, an employer’s withdrawal liability payment schedule is directly tied to its highest contribution rate in the past ten years.  The MPRA clarifies that surcharges imposed pursuant to the Pension Protection Act do not count towards that rate — an issue reported on earlier (click here) that is currently pending before the Third Circuit Court of Appeals.  Moreover, under the MPRA, contribution increases mandated by a rehabilitation or funding improvement plan also will be disregarded in certain circumstances.  These changes, at least for employers who withdraw after they take effect, will considerably reduce an employer’s annual withdrawal liability payments — and hence total spend when subject to the 20-year cap on payments.

Other changes include, but are not limited to:  giving plans the right to impose rehabilitation and funding improvement plan contribution increases based on the schedule option (preferred or default) previously adopted if the parties have not negotiated the increases within 180 days of the contract termination date; giving plans the ability to elect to be in critical status under certain conditions; expanding the rights of participants and employers to certain plan information; amending certain rules governing certain charity and nonprofit pension plans; adjusting premium payments to the PBGC, etc.

Will it pass both houses of Congress?  What will remain in the bill if passed?  What surprises lurk within the 161 pages?  How much will it help multiemployer plans?  Will it make employers reconsider entering or exiting multiemployer plans, especially those that are in endangered or critical plans?  Stay tuned.

Judge To The State’s Defense of the Illinois Pension Reform Law: NO DICE

Posted in Uncategorized

By Ron Kramer and Jim Goodfellow

Today, a Sangamon County Circuit Court judge in In re: Pension Litigation, struck down Illinois’ pension reform law, Public Act 98-059, in its entirety as unconstitutional.

By way of background, Illinois faces a pension funding crisis that has been reported at over $100 billion dollars.  The aim of the pension reform law was to save the state $160 billion over the next 30 years by decreasing cost-of-living adjustments, capping pensionable salaries, and raising retirement ages, among other reforms. The law was set to go into effect on June 1, but implementation had been stayed pending the outcome of this litigation.

The Court concluded that the pension reform law impaired and diminished retiree benefits in violation of Article XIII, Section 5 of the Illinois Constitution, which clearly and unambiguously prohibits the impairment or diminishment of retiree benefits.  The Court struck down the State’s affirmative defense claims that it could diminish benefits despite the Article XIII of the Constitution based upon an exercise of the State’s “reserved sovereign powers or police powers.”  There was “no such legally valid defense” according to the Court,  because the pension protection clause of the Constitution does not provide for any such exception or limitation. In light of this conclusion, the Court did not even need to address the merits of the State’s defense.

In essence, the Court followed the rationale set forth in the Illinois Supreme Court’s recent decision in Kanerva v. Weems, 2014 IL 115811, wherein the Supreme Court concluded that the Illinois Constitution’s pension protection clause protects the state’s subsidization of health insurance for retirees from any unilateral diminishment and impairment. Undeterred, the Governor and Attorney General have stated that they will move for an immediate appeal of the In re: Pension Litigation decision to the Supreme Court. Given the Supreme Court’s ruling in Kanerva, however, it is unlikely that this decision will be overturned on appeal.

More Uncertainty on Health Care Reform — Supreme Court to Hear Challenge to Premium Tax Credits in Federal Exchanges

Posted in Uncategorized

By Mark Casciari and Ben Conley

As we suggested might happen, the Supreme Court has granted certiorari in King v. Burwell.  The core of this case, as copious press reports have noted, is whether the Affordable Care Act’s limitation of premium tax credits to exchanges “established by the State” was sloppy drafting or an intentional effort to limit tax credits to those states that choose to establish their own exchanges/marketplaces (as opposed to deferring to the federal government).

In light of the pending Supreme Court review, as press reports have noted, the D.C. Circuit has removed from its calendar the en banc rehearing of the like case of Halbig v. Burwell.  The government is asking the 10th Circuit to delay its hearing of Pruitt v. Burwell, another case presenting the same issue.

Some have speculated that the Supreme Court’s decision to address the tax credit issue prior to the D.C. Circuit’s en banc rehearing is an indication that the Court intends to strike down subsidies on federal exchanges.  If the Supreme Court waited for the D.C. Circuit to act first, it would have made Supreme Court review less likely (unless the 10th Circuit in Pruitt found for plaintiffs in the interim).  We won’t know for certain what is on the Supreme Court’s collective mind until, most likely, the end of June 2015.

In the meantime, the Supreme Court is adding to health law uncertainty for consumers, just as the 2015 open enrollment period commences.  We will continue to monitor and post regarding further developments.

Sixth Circuit Baits Supreme Court To Decide Constitutionality of Same-Sex Marriage Bans

Posted in Uncategorized

By: Sam Schwartz-Fenwick, Ian H. Morrison and Jules Levenson

It has been slightly over a year since the Supreme Court invalidated Section 3 of the Defense of Marriage Act (“DOMA”) in United States v. Windsor, thus allowing same-sex spouses who were legally married to receive the federal rights and benefits of marriage.  Left unanswered by Windsor was the constitutionality of Section 2 of DOMA.  Section 2 says that states do not have to extend the benefits of marriage to same-sex couples or to recognize same-sex marriages lawfully entered into in other jurisdictions.

Since Windsor, 47 state and federal trial courts have struck down state bans on same-sex marriage.  The courts have relied on the due process clause of the 5th Amendment and the equal protection clause of the 14th Amendment.  Four federal circuit courts (the 4th, 7th, 9th and 10th Circuits) presented with the same question all agreed that the same-sex marriage bans were unconstitutional.  On October 6, 2014, the Supreme Court rejected petitions to hear these cases.  Overnight the number of states with same-sex marriage increased, or was expected to increase shortly thereafter, to 35.  Proponents of same-sex marriage including former U.S. Solicitor General Ted Olson argued that the battle for same-sex marriage had been won.  See Ted Olson: SCOTUS Has Passed The ‘Point Of No Return’ On Gay Marriage.”

On November 6, however, a divided panel of the Sixth Circuit Court of Appeals, in DeBoer v. Snyder, interrupted this pre-mature victory lap.  In DeBoer, the Sixth Circuit upheld same-sex marriage bans in Kentucky, Michigan, Ohio, and Tennessee. The majority held that it was bound by the Supreme Court’s one sentence ruling from the 1971 case Baker v. Nelson.  In Baker, the Court held that it lacked jurisdiction to decide the constitutionality of same-sex marriageThe Sixth Circuit went on to find that marriage was an issue for states to define for themselves.  It suggested that it was only a matter of time until all states legalized same-sex marriage, and held that courts should not interfere with the democratic process by which the states might reach this result.  The court also found same-sex marriage bans to be rational (hence, constitutional) because they merely codified society’s definition of marriage, a definition which had existed (according to the court) for thousands of years.

In a strongly worded dissent, Judge Martha Craig Daugherty accused the majority of composing an “engrossing TED Talk” on political philosophy, but failing to actually deal with the constitutional question in the case.  The dissent attacked the “wait and see” approach espoused by the majority, noting that advocates of judicial restraint were almost always opponents of expanded constitutional rights.  In addition, the dissent cited approvingly the decisions striking down same-sex marriage bans.  The dissent found that no rational basis exists to maintain the bans, and thus concluded that if the judiciary does not have the authority and responsibility to right fundamental wrongs, the Constitutional system of checks and balances would “prove to be nothing but a sham.”

It is possible that the entire Sixth Circuit will rehear this case and reach a different conclusion.  However, it is equally plausible is that this decision will be appealed directly to the Supreme Court thus forcing the Court to address the Constitutionality of state same-sex marriage bans.  Any ruling by the Court would have significant consequences for benefit plans and employers that currently operate in states without same-sex marriage given the number of benefit plan provisions that turn on marital status.

What’s more, a Supreme Court ruling on this issue would likely turn on the equal protection clause of the 14th Amendment, and would potentially signal greater (or lesser) protection for the LGBT community, generally.  For example, a ruling would affect how courts address claims of LGBT discrimination predicated on Title VII and other anti-discrimination statutes.  A loss for proponents of same-sex marriage would at the least slow judicial efforts to broaden the reach of Title VII and other anti-discrimination statutes to include LGBT discrimination.  In contrast, a decision in favor of same-sex marriage would increase the willingness of at least some courts to hold that Title VII and other anti-discrimination statutes cover LGBT discrimination. See e.g. Terveer v. Billington, No. 12-1290 (CKK), 2014 WL 1280301, at *9 (D.D.C. Mar. 31, 2014) (allowing claim of sexual orientation to proceed under Title VII).

Employee benefit plan sponsors need to continue to follow these developments because, the plaintiffs’ bar has been actively attacking plan limitations on benefits for same-sex spouses, and depending on the outcome of this litigation sponsors may need to amend multiple plans provisions that relate to marital status.

EEOC Doubles Down—Attacking Employer Wellness Programs

Posted in Uncategorized

By Mark Casciari, Ben Conley and James Napoli

In its third lawsuit in as many months, the EEOC requested a temporary restraining order against the Honeywell International Inc. wellness program.  The EEOC alleged that the program violates the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).  Honeywell’s wellness program appears to fall squarely within the legal parameters of HIPAA (as amended by the Affordable Care Act), the ADA and arguably GINA (and Honeywell has released a statement to this effect).  All three actions are commenced by the Chicago office of the EEOC.  This alert focuses on the Honeywell case; for a discussion of the two cases see our earlier blog post.

The EEOC alleges that Honeywell’s wellness program violates the ADA because the penalties for failure to participate render the program “involuntary.”  The EEOC alleges that the penalties could amount to $4,000 annually (depending on whether the individual has enrolled in self-only or family coverage).[1]  The EEOC alleges that half of this amount is a smoker surcharge (HIPAA “health-contingent” wellness), and the remainder results from failure to participate in the biometric screening (HIPAA “participation-only” wellness).

The EEOC also alleges that Honeywell’s wellness program violates GINA, because it offers employees an incentive to provide family medical history in connection with a wellness program.  According to the EEOC, Honeywell contributes to employee health savings accounts (HSAs) if the employee and his/her spouse go through the biometric screening, but it imposes a $1,000 surcharge if they do not.  Under GINA, genetic information includes information relating to a manifestation of a disease or disorder in family members.  The statute defines “family member” to include spouses, even though spouses are not genetically related.

On November 3, 2014, the district judge denied the EEOC’s request for a temporary restraining order.  The case now reverts back to the administrative charging process pursuant to which the EEOC will investigate the alleged unlawful practices and attempt to conciliate the matter.

The court action taken by the EEOC raises a number of issues that may be resolved during the administrative process or in subsequent litigation.  Some of the more pertinent issues raised in the EEOC v. Honeywell case include:

1.  It appears that the program falls squarely within the parameters of the HIPAA nondiscrimination requirements (as amended by the Affordable Care Act).

Question Presented:  Is HIPAA compliance a safe harbor from ADA litigation?

2.  As noted in our earlier post, the ADA contains a safe harbor for wellness programs that are part of a bona fide benefit plan.  The Court of Appeals for the Eleventh Circuit, in Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012), relied on the ADA safe harbor to uphold a “participation-only” wellness program.  The EEOC now argues that ’s memorandum of law argues the Seff decision was misguided and inconsistent with the legislative history and purpose of the safe harbor provision.

Question Presented:  Does the ADA benefit plan safe harbor have the meaning afforded to it by the Eleventh Circuit?

3.   The EEOC has staked out a hyper-overly technical stance on GINA that goes far beyond the abuses GINA was intended to guard against.  No genetic information (in the literal sense) can be gleaned from combining the medical information of an employee and his or her spouse (i.e., the combined medical information does not equate to “family medical history”).  Moreover, the employer in this instance does not have access to the specific medical information being collected under the wellness program.

Question Presented:  Can GINA be used to undermine HIPAA-compliant wellness programs?

4.  The EEOC’s actions in this case fall outside of its regulatory mandate.  Guidance is to be issued by the Congressionally confirmed Commissioners and not from an EEOC litigator in a field office.  If the EEOC continues down this path, employers will be left with a patchwork of case law that will not guarantee a uniform system of rules and regulations as is envisioned under the EEOC’s charter and required with respect to all benefit programs.

We will continue to monitor developments in EEOC v. Honeywell as well as the fallout caused by the case that is already beginning to be felt in the nation’s capital.


 

[1] It should be noted that the facts recited in this blog are taken from the EEOC’s court filing, and may not be entirely accurate.

Sixth Circuit “Unfriends” DOL: No “Regulation By Amicus” For ERISA Venue Selection Clauses

Posted in Uncategorized

By: Kathleen Cahill Slaught and Michelle M. Scannell

Sixth Circuit judges might not expect holiday cards from the folks at the DOL this year.  In a recent opinion involving ERISA venue selection clauses, the court ruled that the DOL’s amicus curiae—(“friend of the court”)—brief was a mere “expression of mood” that wasn’t entitled to judicial deference.  (Smith v. AEGON Cos. Pension Plan, 6th Cir. No. 13-5492 (10/14/14)).  The court ultimately disagreed with the DOL’s stance that ERISA forbids venue selection clauses.  Indeed, venue selection clauses are alive and well in the Sixth Circuit and elsewhere. (See, e.g., Rodriguez v. PepsiCo LTD Plan, 716 F. Supp. 2d 855, 861 (N.D. Cal. 2010); Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 436 (S.D.N.Y. 2007)).

As we know, the DOL often offers its two cents in private litigation by filing amicus briefs to announce its position on a disputed issue.  Here, the Sixth Circuit noted that the “Secretary of Labor has been particularly aggressive in attempting to mold statutory interpretation and establish policy” by filing amicus briefs in private litigation.  The court also noted that that the DOL had never before advanced its stated view on venue selection clauses through an enforcement action, regulation, or opinion letter.  The DOL had voiced this opinion only once before—in an amicus brief in a sister circuit.

The DOL didn’t request deference here. Yet the court considered whether the DOL was entitled to it, under either of two types of administrative deference recognized by the Supreme Court: “Chevron and “Skidmore deference.  Chevron deference may apply to an agency’s statutory interpretation where a statute is ambiguous or silent on an issue and the agency’s interpretation is a permissible one.  The court found that the DOL wasn’t entitled to such deference because its interpretation was unsupported by regulation, ruling, or administrative practice.

Under Skidmore deference, courts consider several factors in determining whether to defer to an agency’s statutory interpretation, including the thoroughness evident in the agency’s position, validity of its reasoning, and consistency with earlier and later statements on an issue.  The court found that such deference didn’t apply here.  Specifically, the DOL was “no more an expert” than the court in determining whether a statute forbid venue selection.  Also, the DOL’s “new interpretation” was inconsistent with its “prior acquiescence” to venue selection clauses.  The DOL’s position also “lacked longevity.”  The court thus viewed the DOL’s stance as a mere “expression of mood” not entitled to deference.  Ouch.

The court went on to hold that the plan’s venue selection clause was presumptively valid and enforceable.  The court found that such clauses do not place an excessive burden on participants, are not forbidden by ERISA, and further ERISA’s goal of uniform administrative schemes and low-cost plan administration.

This decision is unlikely to thwart the DOL’s active amicus program in ERISA cases and elsewhere.  But it’s nice to know that the Sixth Circuit recognizes limits on the agency’s ability to influence private litigation absent statutory support or past involvement in an issue.

The EEOC Tries To Ground HIPAA-Compliant Wellness Programs Through Litigation

Posted in Uncategorized

By: Mark Casciari, Ben Conley and Kylie Byron

The EEOC has commenced two lawsuits since August against employers who have established wellness programs that appear to comply with HIPAA’s wellness rules (as expanded by the Affordable Care Act).  The EEOC contends that the programs violate the Americans with Disabilities Act (ADA). The EEOC alleges that the ADA prohibits employers from penalizing participants who fail to complete a health risk assessment/biometric screening if participation was not “voluntary.”

Nothing in the ADA restricts wellness programs to those that are “voluntary.”  To the contrary, the ADA contains a benefit plan safe harbor that limits ADA applicability in the benefit plan context to claims that a plan is used as a subterfuge for disability-based discrimination in non-benefit aspects of employment.  The EEOC conveniently ignores this safe harbor.

The EEOC has said that it is considering formal guidance on the applicability of the ADA to HIPAA-compliant wellness programs, but now that guidance appears unlikely given a split in views of the EEOC Commissioners on the subject.

The facts of the two cases just filed by the EEOC are worth noting.  In the first case, involving Orion Energy Systems, the employer allegedly canceled an employee’s medical insurance and subsequently terminated her employment because she would not participate in medical exams that are said to have asked disability-related wellness program questions.

In the second case, the EEOC sued Flambeau, Inc. for allegedly cancelling an employee’s medical plan after he failed to complete a health risk assessment and biometric screening that was part of the company’s wellness program.  The employee alleged he could not complete the health risk assessment/biometric screening because he was on medical leave.

Considering the wellness program structures alone (and putting aside for now the alleged termination of employment in Orion and the fact that the employee was arguably not given an effective opportunity to complete the requirements in Flambeau), the EEOC’s position in both cases runs counter the decision of the Court of Appeals for the Eleventh Circuit in Seff v. Broward County, 691 F.3d 1221 (11th Cir. 2012).  In Seff, the Court upheld what could be characterized as an “involuntary” wellness program by citing to the ADA benefit plan safe harbor.  There, the employer imposed a $20 biweekly premium surcharge on employees who refused to complete a health risk assessment/biometric screening. The Court found that deduction was a term in a benefit plan, and thus protected by the ADA safe harbor.

A challenge based on a similar program is pending in Oregon against the Oregon Public Employees’ Benefit Board (PEBB).  Notably, the EEOC did not participate in the Seff case and has not yet weighed in on the suit against the Oregon PEBB

Employers with wellness programs, especially HIPAA-compliant programs that can be seen as aggressive, need to be aware that, even though the EEOC is lurking, there are sound arguments to keep the EEOC at bay.

The Supreme Court To Address ERISA’s Statute Of Limitations In A 401(k) Fee Case

Posted in 401(k) Fees and Investment Selection Litigation

By: Mark Casciari and Gina Merrill

In 2006, a number of large companies that sponsored ERISA 401(k) plans were sued by clients of the Schlichter, Bogard & Denton law firm for, among other things, excessive 401(k) plan provider fees.  The fee litigation placed at issue ERISA Section 413’s limitations rule, which requires the filing of a complaint within the earlier of a six year repose period after the claim accrued or a three year period after the claim accrued with actual knowledge of the violation.  Section 413 also provided a special rule if fraud or concealment of the violation is adequately alleged and shown — the complaint then must be filed within six years after the date of discovery of the violation.

Most of the Schlichter firm cases, but not all, have been resolved though settlement or decisions on the merits of the complaints.  One ongoing Schlichter firm case is Tibble v. Edison International, 729 F.3d 1110 (9th Cir. 2013).  In Tibble, the Court of Appeals for the Ninth Circuit held, in part, that “the act of designating [401(k)  plan investment options] starts the six-year period under section 413(1)(A) for claims asserting imprudence in the design of the plan menu.”  Id. at 1119.  The Ninth Circuit explained that a contrary result would “make hash out of ERISA’s limitation period and lead to an unworkable result.”  Id.  The Ninth Circuit roundly rejected the plaintiff “continuing violation” theory endorsed by the Department of Labor as out of step with the language and purpose of the statute.  The limitations concerns animating the Tibble decision reflect the quintessential concerns that have led to the imposition of statutes of limitation — loss of hard evidence, faded witness memories, and the possibility of being hauled into court for events that occurred 15 or 30 years prior to the commencement of the litigation.  The courts have also been concerned that lax or no enforcements of limitations periods will lead to more litigation and uncertainty in the administration of the law.

On October 2, the Supreme Court announced that it will decide if the Ninth Circuit got it right when it applied a limitations bar in Tibble.

If the Court reverses the Ninth Circuit’s limitations decision, Section 413’s six-year limitations periods may provide little repose and less comfort for plan fiduciaries defending cases to which Section 413 applies.