Retirement & Welfare Benefits

Securing the Right to Deferred and Contingent Benefits

Moeller v. Bertrang

Did Bernie establish an ERISA plan?

Bernie Bertrangs Promise And the Alleged Conditions

Lump sum at retirement. Amount: $1,000/year of service. Agreed conditions: At least five years of employment.
Are there strings attached to that retirement watch?

Further alleged conditions: (1) no moonlighting in similar work; (2) continued service until retirement at 62.

ERISA Plan v. Contract: Whats At Stake for Parties?

ERISA or contract law? Federal jurisdiction? ERISA vesting rules for pension benefits?
Whats under the hood of this lawsuit for a pension?

ERISA anti-forfeiture rule for pension benefits.

Potential effect on Bernies lump sum promise?

Did Bernie Establish a Plan? Looking at Plan Function

ERISA pension benefit plans and welfare benefit plans.

Pension: provides retirement income or results in deferral of income for periods extending to termination of covered employment or beyond.

When is deferred pay a pension?

Did Bernie Establish a Plan? Looking at Plan Form

[N]o single act in itself necessarily constitutes the establishment of the plan. Do circumstances permit ascertainment of benefits, beneficiaries, source of financing, procedures? Effect of lack of writing?

Does a benefit plan require a fund?

Further Reflections On Contract v. Plan

Bilateral negotiation v. unilateral establishment. Participation by acceptance v. participation by membership in defined class. Individual v. class-based, standardized terms.
A plan creates a system for uniform treatment of a class of employees

A different set of rules for class-wide modification.

Another Type of ERISA Plan: The Welfare Benefits Plan

Provides medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services.... Might be paid or enjoyed during employment. No statutory vesting, forfeiture rules.

Things That Look Like ERISA Plans But Arent ERISA Plans
One-shot transaction v. ongoing administration.

Payroll practice (including vacation pay).

Plan excluded by definition, especially workers comp. benefits. Public employee plans.

Vacation pay is a benefit, but does it come from an ERISA plan?

ERISA Problems
Employer begins reduction in force, and offers 1 weeks pay for each year of employment to each employee accepting voluntary layoff. ERISA plan? Employer announces annual bonus plan based on employee salary and annual corporate profit. ERISA plan? Employee handbook describes sick leave policy providing pay for up to 10 days of absence due to sickness. ERISA plan?

Employee handbook describes disability policy, providing pay for up to six months of pay at 60% of regular pay, provided employee is still an employee.

ERISA and Pension Benefits

How Does ERISA Secure a Golden Retirement?

ERISA does not require an employer to offer a pension, or to maintain a pension it has!

Why Do Employers Voluntarily Establish Pension Plans?

Humane system of retiring older workers? Competition with unions? Development of employee loyalty? Tax incentives?
Why give any more than a watch at retirement?

Self-interest of management, and effect of ERISA non-discrimination rules?

How ERISA Secures Pensions: Financial Responsibility

Funded v. unfunded. Insurance for unfunded plans (the PBGC). Fiduciary duties for funded plans.

Reporting & disclosure requirements.

Is your pension safe?

How ERISA Secures Pensions: Anti-Forfeiture &Vesting Rules

Minimum standards for vesting, accrual of benefits. No forfeiture of vested benefits. No diminution of vested benefits by amendment. No interference with attainment of rights.

Under ERISA, you can take it with you.

ERISA & Amending Acts And Health Care Benefits

How Does ERISA Secure Access to Medical Care?

ERISA does not require an employer to offer health insurance or to maintain insurance for employees!

Why Do Employers Voluntarily Offer Health Insurance?

Competition with unions? Employee loyalty? Tax incentives? Self-interest of managers: efficiency of broad enrollment?

Could the benefit cost more than your salary?

Securing Medical Benefits Continuation Coverage Rules

Medical benefit is welfare benefit; no vesting or anti-forfeiture rules.
COBRA

Consolidated Budget Reconciliation Act (COBRA).

Participant right extended 18 mos. after basis for participation ends; but charged at group rate.

Securing Medical Benefits Bridging Plan Coverage

Health Insurance Portability & Accountability Act (HIPAA). Restricts waiting period for new employee enrollment.

HIPAA

Limits on pre-existing condition exclusions in insurance policies.

Deciding Benefit Claims:

Ensuring Fairness & Accountability

Basic ERISA Provisions For Fairness & Accountability

Duty to put plan (including contingencies) in writing.

Administrator is fiduciary.
Required written explanation of decision and internal appeal.

Judicial review? Risks of too much, versus risks of too little.

Firestone Tire & Rubber v. Bruch

The plaintiffs: Laid off, or just waiting to be retreaded?

Firestone v. Bruch Who Has the Final Say?

Plan: Benefits if services discontinued because of reduction of workforce. Employer interpretation? Employee interpretation?

An ERISA plan?

Is Firestones decision puncture-resistant?

Significance of ERISA coverage?

Plan Decision-Making And Judicial Review

What common law model is the best analogy?

Administrators duty in deciding claims under this model? Appropriate level of judicial review?
The Administrator: Agent for Employer? Or for Beneficiaries?

Judicial Review After Firestone Tire v. Bruch

How can employer change the level of judicial review?

The problem of conflict of interest: How does it affect judicial review? Factors affecting severity of the conflict of interest?
Will a manager/administrator remember who he serves?

Hypothetical (Benny Fisher)

The SPD: If you retire at 65 or older, your life insurance will be reduced by 10% on your retirement date, and by an equal amount on each of the next four anniversaries of your retirement date. Thereafter, 50% of your life insurance coverage will remain in force for the rest of your life, at no cost to you. For more details of the plan, refer to the Life Insurance Plan Statement available in the HR Office. The Plan Document: [T]he administrator shall interpret the plan in his sole discretion and the Company reserves the right to terminate or amend the plan at any time. The Notice of Termination: (a year before Fisher retirement): The Company regrets to inform its retirees that it will be terminating its life insurance coverage for retirees.

Issues for Fisher Hypothetical

Welfare or pension plan (why is this important)? Did SPD promise insurance after retirement? Was SPD subject to terms of other document?
Will Fisher Sr. rest in peace?

Did VP of Human Resources have discretion to interpret the documents? Conflict of interest?

Special Issues for Health Insurance Benefit Decisions

Usual administrator: Insurer. Typical issues: Medically necessary? Experimental? Can administrator overrule treating doctor?
Are insurers bound by the Hippocratic Oath?

Practical barriers to challenging administrators decision?

State medical review laws.

Fiduciaries & Fiduciary Duties

Is your employer looking out for you and your benefits?

Fiduciaries & Fiduciary Duties: What Does ERISA Say?

Fiduciary: Trustee; administrator; anyone who controls assets or has discretionary authority or responsibility for plan.

Must act solely in interest of beneficiaries.

Reporting & disclosure duties. Other common law duties of a fiduciary?
Is the administrator a guardian angel?

Is the Employer a Fiduciary With Respect to Its Plan?

Yes, when it acts as administrator, to extent of role as administrator. Yes, when it exercises or fails to exercise discretionary authority or responsibility.
BENEFIT CLAIMS HERE

No, when it creates, modifies or terminates plan (employer can be selfish).

Is the employer a fiduciary? Sometimes. Sometimes not.

Varity Corp. v. Howe

Its Varity Corp., Not Verity Corp.

Project Sunshine A Plan to Unload Pesky Debts

Massey-Ferguson: losing money in some operations. Losing operations burdened by expensive benefit plans.

Not shining for employees.

Plan: Shift losing operations to new subsidiary.

Encourage employees to to accept transfer.

Why not just close losing operations or plans?

Was Employer a Fiduciary? Did It Violate Fiduciary Duty?

In creating subsidiary, transferring employees? In terminating old plans, creating new plans? In providing required information about plans? In pitching new jobs with predictions about new corporation and its plans?

Speaking as employer? Or as administrator?

Problem: Is There a Remedy? Section 1132 Causes of Action

1) For benefits due. 2) To regain assets for plan. 3) To enjoin violation of ERISA or the plan.

4) For other appropriate equitable relief.

Select the right remedy for plaintiffsfrom this list.

Beyond Varity Corp.: Is Employer Verity Enough?

Intentional concealment? Negligent concealment?

Negligent counseling?
Duty to help maximize benefits, avoid inadvertent loss of benefits? Reasons for or against duty?

Must an administrator be on watch for beneficiaries?

Interference & Retaliation

When an Employer Acts as an Employer

The Employers Dual Roles Employer v. Administrator

As administrator, owes fiduciary duty to serve beneficiaries exclusively. As employer, owes no fiduciary duty. Can be selfish.
Which hat was employer wearing when it took the challenged action?

Any duties limiting actions as employer?

For Actions As Employer: Section 510 (29 U.S.C. sec. 1140)

Retaliation: Must not discriminate for exercising any right or acting to enforce plan or ERISA. Interference: Must not discriminate to interfere with attainment of any right under the plan.

Personal fouls for an employer acting as an employer.

Focus on Illegal Retaliation: Motivated by Protected Conduct?

Protected Conduct: Exercising right, acting to enforce or aid enforcement. Seeking information. Filing claim.
Did he engage in protected conduct?

Filing appeal or lawsuit, or reporting violation.

Focus on Illegal Interference: Motivation to Prevent Benefits?

Preventing access to information, documents.

Impeding claim processing.

Terminating, modifying plan? See next slide.
Did the employer put up roadblocks?

Discharging employee to avoid benefit accrual, vesting? Two slides ahead.

Interference by Modification Or Termination of the Plan

Doesnt modification or termination interfere? ERISA does not require provision of benefits. Employer not a fiduciary in changing plan. Vesting is partial solution for pension, not welfare benefits. Practical restraints on plan modification/termination? Selective employment action?
Can an employer target expensive employees?

Cutting Benefits Costs By Selective Employment Action

Employment action is not a fiduciary function. However, interference with benefits is an illegal motive. Terminating an employee? Converting employee to non-employee status?

Laying off whole division with high benefit costs?

Selling divisions with high benefit costs?

Laying Off Divisions With High Benefit Costs

Nemeth (notes): Employer shrinks, closing plant with highest operating costs. Manager of selected plant: Pension costs were killing us.
Which plant will we close?

Transfers for able-bodied to report in 14 days (Mich. to NC) with no seniority, though local workforce insufficient to satisfy labor needs.

Nemeth: Consideration of Costs, Standing Alone, Not Unlawful

Costliness/profitability a legitimate basis for decision. Court: Were benefit costs incidental? Or primary? Could court order employer to maintain unprofitable unit?
Selective elimination of expensive workers by selective layoffs?

More likely claims: Restrictive transfer policy; ADEA, ADA and NLRA claims.

Lessard v. Applied Risk

Selling a division? Or shaking out expensive employees?

The Sale in Lessard: Designed To Leave Her Behind?

How might old business be worth more to new owner?

The sale and the employees: Medical v. non-medical leave.

How did difference in treatment tend to impact costly workers?
Left behind?

Risk of subterfuge for unloading costly workers.

The Limits of the Courts Solution in Lessard

Could seller terminate medical leave plan? Amend plan to limit extended coverage? Sell assets, terminate plan, let buyer rehire employees? Remember practical limits of each of these solutions.
Too Clever By Half? Or not clever enough?

Discriminatory Coverage

SELECTED EMPLOYEES

Can an Employer Avoid Costly Employees in the Design of Its Plan?

Recap: Why Do Employers Provide Benefits At All?

Employer provided benefits are voluntary.

Incentives: Loyalty, tax advantages, unions as competitors.

Managerial employer self-interest leveraged by non-discrimination rules (pension) and efficiency of large risk pool (welfare)

Could an Employer Be Choosy? Limiting Plan Participation

Employees only? Some employees, not others?

Some types of dependents, not others.

Some risks, events and conditions, not others?
A Plan for the In Crowd Only?

Some participants must pay more or receive less?

Overview of Limits on Choosiness When is Discrimination Unlawful?

Recall: employer not fiduciary in creating, amending, terminating plan (selfishness OK). Administrator must in fact follow terms of plan in granting benefits. No discrimination prohibited by other laws (Title VII, ADA, ADEA). ERISA nondiscrimination rules.

ERISAs Non-Discrimination Rules for Pension Plan Coverage

Limits on eligibility rules. Rules restricting favoritism for highly paid employees. Rules still permit some disparities, exclusions.
With whom must management share the umbrella?

Independent contractors?
No non-discrimination rules for welfare benefits.

Other Federal Laws Prohibiting Discrimination in Employment

Title VII: Sex discrimination Pregnancy Discrimination Act (amending Title VII) Age Discrimination in Employment Act
Is he entitled to the same medical and life insurance?

Americans with Disabilities Act

General Rule : Do Not Segregate By Prohibited Classification

Dont Look at this Graph When Designing Your Plan!!!!

Life insurance cheaper for women; pension cheaper for men.

Special Problems for Costs Related to Pregnancy

Remember: employer not required to offer any plan. Plan, if offered, must not discriminate based on sex. What about discrimination based on pregnancy?
Doctor delivers 9 lb. medical bill.

Early equal access theory: No discrimination if men & women covered for same conditions.

First, PDA Amends Title VII: Sex Means Pregnancy, and

Dont discriminate because of pregnancy, and Do treat pregnancy and related conditions the same as similarly disabling conditions.

A heart attack: Sort of like pregnancy?

How does plan cover other temporarily disabling conditions? Compare with pregnancy.

Second, Supreme Court Revises Sex Discrimination Theory

Newport News: PDA overruled equal access rule. New theory: Denial of benefits for condition unique to one gender and resulting in inferior coverage for one gender is sex discrimination. Example: Denying coverage of pregnancy of spouses; benefits for male employees are inferior.

Saks

Franklin Covey
Assisted Reproduction,
Prevented Reproduction, &

v.

Assisted Intercourse
Must the Health Plan Pay?

Discrimination in Benefits Based on Sex? On Pregnancy?

Plan: Covers some fertility treatments but not surgical impregnation. Saks: Denial of surgical impregnation discriminates. Result under old equal access theory of sex discrimination?
Would the plan have denied Arnolds claim, too?

PDA: Is Infertility a Condition Related to Pregnancy?

If so, plan must provide same coverage as for similarly disabling condition.

Court: PDA protects only conditions related to pregnancy and unique to women.
Maybe his condition required her surgical impregnation.

Infertility experienced and impregnation needed by both women and men.

Sex Discrimination: Does The Exclusion Target Women?

Saks: plan implicitly limits coverage to surgery for patients own condition. Exclusion of surgical impregnation impacts only infertile women (infertile men are not seeking surgery on their own bodies). Court: Existence of such intent too speculative.

Beyond Saks: Other Conditions Related to Pregnancy

Assisted pregnancy avoidance. Assisted sexual intercourse (drugs and treatments for sexual dysfunction). Remember: Employer need not provide benefits at all.

Age Discrimination: The ADEA and Benefits

No discrimination based on age. Applies to discrimination against persons more than 40. No mandatory retirement (even if part of a pension plan).
Does he need life insurance? Can his employer afford it?

Exceptions for some age-based distinctions in benefits.

Discrimination Scenarios: Conditions Based on Age

Offering less or charging more for life insurance. Disability pay reduced by pension to which employee is eligible. Severance pay offset by pension to which employee is eligible.

What if she becomes disabled, but isnt able to retire?

Disability Discrimination The ADA and Benefits

Must not discriminate against disabled persons (participation in plan must not depend on non-disability). May discriminate v. condition based on b.f. underwriting or classifying risks.

EEOC: Exclusion must not arbitrarily target particular disability

Entitled to equal participation. But must the employer pay for wheelchairs?

Discrimination Scenarios: Disability and Medical Benefits

No coverage or higher charge for HIV positive persons. Benefit cap of $50T for AIDS; otherwise cap is $1 M. Plan covers physical but not mental health. Plan covers mental health except for bipolar disorder. Maybe Unlawful

Would denial of coverage for mental health be discrimination?

Lawful

Federal Preemption: ERISA Supercedes State Law

ERISA supersede[s] any and all State laws insofar as they relate to any [non-exempt] plan.... Removal from state court to federal court.
ERISAs long preemptive shadow.

Complete preemption: non-application of wellpleaded complaint rule if claim is within the scope of ERISAs enforcement provisions.

Aetna v. Davila

Good news: The plan says youre well enough to go home. Bad news: The plan says youre well enough to go home.

The Claims in Davila: Tortious Denial of Coverage?

Cause of harm to plaintiffs? Tortious failure of due care in treatment decision? Court: Does state remedy duplicate, supplement or supplant ERISA remedy? Did ERISA offer a remedy?
New hospital discharge procedure

Retail Industry Leaders Assn v. Fielder

ERISA and Health Care Reform in the States

RIL v. Fielder: A Mandate? Or an Indirect Incentive?

Marylands Fair Share Health Care Fund Act. In general, a law requiring provision of particular benefits relates to an ERISA plan and is preempted. Exception for indirect financial incentive affecting but not binding employers?
Who does the law cover?