Category Archives: Cafeteria Plans

Today in ERISA History

Oct. 8, 2008 – The Emergency Economic Stabilization Act of 2008 (EESA), public law 110-343, is signed into law by President George W. Bush. EESA contained a number of provisions, including creating the Troubled Asset Relief Program (TARP) and the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).

MHPAEA amended ERISA section 712 to require that if a group health plan, or health insurance coverage offered in connection with a group health plan, offered coverage for mental health and substance abuse, the coverage must be equal for psychological disorders, alcoholism, and drug addiction. This change was emphasized by MPAEA changing the term “mental health benefits” to “mental health and substance disorder benefits” everywhere in the Code where “mental health benefits” had previously appeared.

MHPAEA was generally effective one year after the enactment date, which meant that it was effective for plan years beginning on or after Oct. 3, 2009. For calendar year plans, this meant MHPAEA was effective for plan years beginning Jan. 1, 2010.

Court Finds Third Party Administrator Liable as Fiduciary

Despite language in their contract which expressly states that they are not a fiduciary, yesterday the Court of Appeals for the 6th Circuit found Professional Benefits Administrators (PBA) was a fiduciary when it misappropriated funds meant to pay medical claims for 4 companies whose plans PBA administered. Guyan International v. Professional Benefits Administrators, Nos. 11-3126/3640 (Aug. 20, 2012).

PBA is a third party administration firm which entered into a Benefit Management Service Agreement with 4 companies – Guyan International (Permco), Precision Gear, Pritchard Mining Company, and Hocking Athens Perry Community Action Agency (HAPCA). Under the Agreement, PBA would establish a segregated bank account for each plan and the companies would deposit employer contributions and employee payroll contributions into that account. PBA would then pay medical claims presented to the plans by writing checks from this account.

Instead, according to the companies, PBA misappropriated the funds in the account for their own purposes. Permco was the first to file a lawsuit against PBA, alleging that PBA was a fiduciary under ERISA, that PBA had breached its fiduciary duties, that Permco and its Plan had been damaged by this breach, that ERISA pre-empted Permco’s breach of contract claims and that PBA had misappropriated $501,380.75 from Permco. The U.S. District Court for the Northern District of Ohio (Akron) agreed, and granted partial summary judgment to Permco on the ERISA breach of fiduciary duty claim.

Pritchard, HAPCA and Precision Gear than filed their own lawsuits, and were also granted partial summary judgments. The district court awarded $501,380.75 to Permco, $409,943.88 to Pritchard, $384,574.17 to HAPCA and $44,290.12 to Precision Gear.

PBA appealed to the Court of Appeals for the 6th Circuit, requesting that the 6th Circuit reverse the district court’s determination that PBA was a fiduciary under ERISA when it managed or disposed of the plan assets.

The 6th Circuit agreed with the district court, finding that:

“PBA was a fiduciary under ERISA because it exercised authority or control over Plan assets. PBA had the authority to write checks on the Plan account and exercised that authority. Moreover, PBA had control over where Plan funds were deposited and how and when they were disbursed.”

The Court further found that because PBA used plan funds in ways contrary to the Benefit Management Service Agreement, it demonstrated that PBA had practical control over Plan assets once they were received from the companies. Even though the agreement specifically stated that PBA was not a fiduciary, the Court, citing Briscoe v. Fine, 444 F.3d 478 (6th Cir. 2006), said that language in a contract expressly limiting fiduciary status does not override a third party administrator’s functional status as a fiduciary.

Carl H. Gluek, Jennifer L. Whitney and Olivia Lin represented Pritchard Mining Company, Hocking Athens Perry Community Action Agency, Precision Gear and Merit Gear before the 6th Circuit.

Peter Turner represented Guyan International (Permco) before the 6th Circuit.

Steven G. Janik, Crystal l. Nicosia, Colin P. Sammon and Ellyn Mehendale represented Professional Benefits Administrators and Robert Hartenstein before the 6th Circuit.

Today in ERISA History

Aug. 21, 1996 – The Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191, was signed into law by President Bill Clinton.

HIPAA was 168 pages long, and added Part 7 on Group Health Plan Portability, Access, and Renewability Requirements to ERISA.

HIPAA was introduced in the House of Representatives on March 18, 1996 by Rep. Bill Archer (TX-7).

Today in ERISA History

Aug. 6, 2007 – The IRS issues proposed regulations on cafeteria plans. They are comprehensive regulations which incorporate previous guidance into this one set of proposed regulations and withdraw previous regulations issued in 1984, 1986, 1989, 1997 and 2000. These proposed regulations for cafeteria plans were part of an effort by the IRS to issue comprehensive regulations for a number of types of plans, including cafeteria plans and 403(b) plans. Like the Final 403(b) Regulations, these proposed regulations for cafeteria plans required a written plan document.

These regulations have not been finalized. History and Congress overtook the regulatory process when the Affordable Care Act became law, which requires a rewrite some of these regulations in addition to some new regulations.

Supreme Court Likely to Release Affordable Care Act Opinion on Monday

If you’ve already made your pick in your office pool about when the U.S. Supreme Court will release its opinion regarding the Affordable Care Act, you may not want to read the rest of this post. The Supreme Court has an interesting history when it comes to releasing ERISA-related opinions in June. Consider that the Supreme Court released the following opinions in June:

  • June 2, 1997 – Boggs v. Boggs, 520 U.S. 833 (1997) (Monday);
  • June 2, 1997 – De Buono v. NYSA-ILA Medical and Clinical Service Fund, 520 U.S. 806 (1997) (Monday);
  • June 3, 1985 – Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985) (Monday);
  • June 7, 2007 – Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (2004) (Thursday);
  • June 8, 1998 – Geissal v. Moore Medical Corp., 524 U.S. 74 (1998) (Monday);
  • June 10, 1996 – Lockheed Corp. et al. v. Spink, 517 U.S. 882 (1996)(Monday);
  • June 11, 2007 – Beck v. PACE, Int’l Union, 551 U.S. 96 (2007) (Monday);
  • June 12, 2000 – Pegram v. Herdrich, 530 U.S. 211 (2000) (Monday);
  • June 12, 2000 – Harris Trust and Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238 (2000) (Monday);
  • June 15, 2006 – Howard Delivery Service v. Zurich Amer. Insurance Co., 547 U.S. 651 (2006) (Thursday);
  • June 18, 1984 – Pension Benefit Guaranty Corp. v. RA Gray & Company, 467 U.S. 717 (1984) (Monday);
  • June 18, 1990 – Pension Benefit Guaranty Corp. v. The LTV Corp., 496 U.S. 633 (1990) (Monday);
  • June 19, 2008 – Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) (Thursday);
  • June 20, 2002 – Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) (Thursday);
  • June 21, 2004 – Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) (Monday);
  • June 24, 1983 – Shaw v. Delta Air Lines Inc., 463 U.S. 85 (1983) (Friday); and
  • June 25, 1998 – Eastern Enterprises v. Apfel, 524 U.S. 498 (1998) (Thursday);

Of these 16 opinions:

  • 11 were released on a Monday;
  • 5 were released on a Thursday; and
  • 1 was released on a Friday.

When it comes to ERISA, Monday at the U.S. Supreme Court could be called ERISA-Monday.

Another truism about the U.S. Supreme Court is that the Court is completely unpredictable when it comes to releasing opinions in specific cases, so while this analysis would indicate the Court will release the Affordable Care Act opinion on Monday (since it is the last Monday in June this year), it is also possible that the Court will release the opinion on Tuesday, Wednesday, Thursday or Friday. In fact, as I write this, the Court may be releasing its opinion in the Affordable Care Act cases. On the other hand, you know which day I have in the office pool.

Today in ERISA History

June 20, 2002 – The U.S. Supreme Court releases its opinion in Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002), holding that an Illinois statute which provided recipients of health coverage by such organizations with a right to independent medical review of certain denials of benefits, as applied to health benefits provided by a health maintenance organization under contract with an employee welfare benefit plan, is not preempted by ERISA.

In 1996, Debra Moran had pain and numbness in her right shoulder. After conservative treatment for her condition failed, her physician recommended an unconventional treatment for her condition to be performed by a physician who was not affiliated with her HMO. The HMO denied the request, and her subsequent appeals of their decision denying this treatment, on the grounds that the procedure was not “medically necessary”.

Rush Prudential HMO, Inc. was a health maintenance organization that contracted with employee welfare benefit plans covered by ERISA to provide participants with “medically necessary” services. Ms. Moran participated in such a plan through her husband’s employer. After denying her request for the unconditional treatment recommended by her physician, Rush proposed that Ms. Moran undergo standard surgery performed by a physician affiliated with Rush.

Ms. Moran lived in Illinois, which had a state statute requiring independent medical review in the event of a dispute between the primary care physician and the HMO regarding the medical necessity of a covered service proposed by a primary care physician. If the reviewing physician determined the covered service to be medically necessary, the Illinois statute required the HMO to provide the covered service.

Rush refused to provide the independent review as required by the Illinois statute, and Ms. Moran filed a lawsuit in Illinois state court to compel Rush to comply with the state statute. Rush removed the lawsuit to federal district court on the grounds that ERISA “completely preempted” the cause of action.

While the lawsuit was pending, Ms. Moran had the surgery by the unaffiliated physician, and amended her compliant to include a claim for reimbursement from Rush. Rush treated the amended claim as a renewed request for benefits, and began a new inquiry to determine benefits, consulting with 3 doctors who said the surgery had been medically unnecessary.

The federal district court remanded the lawsuit back to Illinois state court, finding that a request for independent review under the Illinois statute did not require an interpretation of ERISA, so the claim was not “completely preempted” by ERISA permitting removal to federal court. The Illinois state court assigned to this case ordered Rush to submit to review by an independent physician, who decided that Ms. Moran’s treatment was medically necessary. Rush refused to concede that the surgery had been medically necessary, and again denied Ms. Moran’s claim in 1999.

Ms. Moran amended her complaint in state court to include reimbursement for her surgery as “medically necessary” under the Illinois statute, and Rush again removed the lawsuit to federal court, arguing that Ms. Moran’s reimbursement claim stated a claim for ERISA benefits and thus was completely preempted by ERISA. The district court agreed with Rush, and denied Ms. Moran’s claim on the ground that ERISA preempted the Illinois statute.

The U.S. Court of Appeals for the 7th Circuit reversed, finding that the Illinois statute regulated insurance, and therefore was not preempted by ERISA, and Rush appealed to the U.S. Supreme Court.

After a long discussion of the history of ERISA preemption as it relates to HMOs, the Court affirmed the decision of the 7th Circuit, finding that an HMO provides health care and it does so as an insurer, and the Illinois statute regulates insurance, so it was not preempted by ERISA.

John G. Roberts, Jr. argued on behalf of Rush before the U.S. Supreme Court with Clifford D. Stromberg, Craig A. Hoover, Jonathan S. Franklin, Catherine E. Stetson, James T. Ferrini, Michael R. Grimm, Sr. and Melinda S. Kollross joining him on the brief. Melinda Sue Kollross argued on behalf of Rush before the U.S. Court of Appeals for the 7th Circuit.

Daniel P. Albers argued on behalf of Debra Moran before the U.S. Supreme Court with Mark E. Rust and Stanley C. Fickle joining him on the brief. Daniel P. Albers argued on behalf of Ms. Moran before the U.S. Court of Appeals for the 7th Circuit.

Today in ERISA History

June 19, 2008 – The U.S. Supreme Court issues its opinion in Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), deciding that when an entity both administers the plan and determines whether an employee is eligible for benefits and pays benefits out of its own pocket, this dual role creates a conflict of interest that should be considered as a factor when a court determines whether the plan administrator has abused its discretion in denying benefits.

Metropolitan Life Insurance Company was both administrator and insurer of the Sears, Roebuck & Company’s long-term disability insurance plan with authority to determine whether an employee’s claim for benefits was valid. Wanda Glenn was a Sears employee diagnosed with severe dilated cardiomyopathy, a heart condition, who applied for disability benefits. After initially approving disability benefits for Glenn, Sears denied benefits after 24 months, finding that Glenn failed to meet the Social Security definition because they believed she was capable of performing full-time sedentary work.

Glenn filed a lawsuit seeking review of MetLife’s denial of benefits. The district court found in MetLife’s favor, and Glenn appealed to the U.s. Court of Appeals for the 6th Circuit. The 6th Circuit reversed the district court’s decision and set aside MetLife’s denial of benefits. MetLife appealed that decision to the U.S. Supreme Court.

The U.S. Supreme Court examined the inherent conflict of interest in MetLife’s role both as administrator and insurer/payor of benefits claims, determining that MetLife saved a dollar for every dollar it denied in benefits claims. The Court then examined the approach taken by the 6th Circuit in applying different factors in determining that MetLife’s denial of Glenn’s claims was improper, and affirmed the 6th Circuit’s decision.

Stanley L. Myers, Ted M. Sichelman, E. Joshua Rosenkranz, Jeremy N. Kudon, Malaika M. Eaton, Sara K. Pildis, and Heeler Ehrman represented Wanda Glenn before the U.S. Supreme Court. Stanley L. Myers argued before the 6th Circuit on behalf of Wanda Glenn.

Amy K Posner, Michelle M. Constandse, Lee T. Paterson, Miguel A. Estrada, Amir C. Tayrani, Minodora D. Vancea, Gene C. Schaerr represented MetLife before the U.S. Supreme Court. C. Scott Lanz argued before the 6th Circuit on behalf of MetLife.

IRS Clarifies Amending Health Flexible Spending Accounts for New $2,500 Limit

Today, the IRS issued Notice 2012-40 on Health Flexible Spending Arrangements not Subject to $2,500 Limit on Salary Reduction Contributions for Plan Years Beginning Before 2013 and Comments Requested on Potential Modification of Use-or-Lose Rule. In 11 pages, the IRS clarifies the effective date of the $2,500 limit for health FSAs and the deadline for amending plans to comply with that limit. It also provides relief for plans that mistakenly exceed the $2,500 limit and are corrected in a timely manner.

Prior to the Pension Protection Act of 2006, there was no statutory limit for the amount of salary reduction contributions that employees could elect to contribute to health FSAs other than the limit imposed by the plan sponsor. The Pension Protection Act of 2006 added Code section 125(i) which imposes a statutory limit of $2,500 on salary reduction contributions to health FSAs in a taxable year, effective for plan years beginning after Dec. 31, 2012. For plan years beginning after Dec. 31, 2013, the $2,500 will be indexed for cost-of-living adjustments.

Notice 2012-40 clarifies that the $2,500 limit imposed by Code section 125(i) does not apply for plan years beginning before 2013.

It states that plans may adopt the required amendments to reflect the $2,500 limit at any time through the end of calendar year 2014, and reminds us that cafeteria plan amendments may only be amended prospectively.

For a cafeteria plan which fails to timely amend by Dec. 31, 2014 for this change but operates in accordance with the requirements of Code section 125(i) for plan years beginning after Dec. 31, 2012, Notice 2012-40 states that the plan can be amended retroactively to correct this plan failure.

Along with providing guidance on Code section 125(i), Notice 2012-40 requests comments on a possible modification of the use-or-lose rules for Health FSAs due to the $2,500 limit. The use-or-lose rule prohibits any contribution or benefit under an FSA from being used in a subsequent plan year or period of coverage, which results in unused amounts in a health FSA to be “forfeited” at the end of the plan year.

The IRS is requesting comments by Aug. 17, 2012 on whether the proposed regulations should be modified to provide additional flexibility with respect to the operation of the use-or-lose rule for health FSAs and, if so, how any such flexibility might be formulated and constrained. Comments are also requested on how any such modifications would interact with the $2,500 limit. Notice 2012-40 contains instructions on how to comment and where to send your comments.

Today in ERISA History

May 21, 2008 – The Genetic Information Nondiscrimination Act of 2008 (GINA), Pub. L. 110-233, is signed into law by President George W. Bush. It generally prohibits group health plans and health insurance issuers from discriminating based on genetic information. Welfare plans, including cafeteria plans, are required to adopt an amendment stating that they comply with GINA. The Dept. of Labor has an FAQ about GINA posted on their website.

More Information from DOL About Affordable Care Act Benefit Summaries

The Dept. of Labor has issued new FAQs About Affordable Care Act Implementation Part IX on May 11, 2012. The FAQs provide some details about providing the Summary of Benefits and Coverage (SBC), including providing SBCs electronically. It also provides details on presenting SBC in different formats, including using a side-by-side comparison format.

One of the more interesting FAQs states that issuers are required to provide SBCs to group health plans or their sponsors who are shopping for coverage but have not yet submitted an application for coverage.