Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

On May 14, the Governor of New York issued a directive instructing state agencies that gay couples married outside of New York (in states such as California and Vermont) should "be afforded the same recognition as any other legally performed union."  It is important to understand that this directive does not fully recognize same-sex marriage in New York, but it will have an impact on benefits provided through state benefit plans.

The directive is for all state agencies to review all rules and regulations for their respective agencies to determine if they conflict with recognition of same-sex marriages report to the governor by June 30. State agencies will be expected to provide full faith and credit to same-sex marriages. The agencies will also report a list of state regulations and statutes that will likely need to be changed, such as state laws governing state pension and public housing. It affects the executive branch only and not the legislative or judicial branch. For example, it does not change tax laws and will not likely change laws governing child custody and welfare (but may be adopted by judges in court rulings).

The anticipated end result is that the State as an employer and provider of services will recognize same-sex unions, while the "State" as one of the 50 "states in the union" will not require general recognition and authorization of same-sex marriages.   State-run benefits programs will likely be impacted and I anticipate that the state health benefits funds and state retirement plans will be amended or revised in light of this directive to recognize same-sex spouses.  However, there should not presently be an impact on private employer sponsored plans.  As more information comes out, I will certainly share it with you.

• Email This
• Print
• Comments
• Trackbacks

Although fallout from the La Rue decision has yet to be fully experienced, there is some good news for fiduciaries of individual account plans.  The Fifth Circuit, in Kirschbaum v. Reliant Energy adopted a rebuttable presumption that fiduciaries have acted prudently when they follow the specific terms of the plan.

Factually, Reliant's plan provide for the purchase of company stock through a company stock fund that was an investment alternative option under the plan.  The plan mandated that investment into the company stock fund necessitated purchase of company stock.  A class of participants sued the company and the investment committee, alleging that the continued purchase of company stock was a breach of fiduciary duty because the value of the stock was artificially inflated and they contended it was not a prudent investment.  They contended that the plan should have terminated and liquidated the company stock fund, and certainly should not have made further investment into it.

The Plaintiffs were essentially arguing that, notwithstanding the terms of the plan, the fiduciaries had a duty to amend the investment policy statement of the plan to halt contribution to the company stock fund.  They contended that continued investment was a breach of a duty to amend the policy statement when it became clear that the company stock was not a sound investment.  The Court disagreed, affirming the lower court grant of summary judgment in favor of the company.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

Since I have previously addressed the issues of same-sex marriage and domestic partnerships in this blog, I would totally remiss not to provide some commentary on the recent decision of the California Supreme Court that resulted in the recognition of "gay marriage" in that state.  California already had a very strong domestic partnership law in place, but for plan administrators, this change to "marriage" might cause some problems that have to be addressed.  Not the least of which is preemption of federal law.

First, let's review retirement plan concerns.  Qualified retirement plans are generally governed by ERISA and various corresponding tax regulations.  All of these regulations are subject to the impact of the federal Defense of Marriage Act.  The net effect is that when considering the term "spouse" in your qualified plans, it does count include a same-sex partner, married or otherwise.  So any provision in a plan that provide for benefit to a "spouse" would not apply to a same-sex spouse even when married under state law.  For example, consider a defined benefit plan distribution that requires spousal consent for distribution.  A partner in a same-sex marriage is not required to obtain spousal consent because in the eyes of the plan, he or she has no spouse.  Similarly, any spousal rights that may accrue as a result of the death of the participant under the terms of the plan would not accrue to the same-sex partner. 

Second, when we look at welfare plans, all of the dependent coverage definitions in the plan referring to "spouse" would not automatically include the same-sex spouse.  Certainly a plan can add coverage for same-sex partners, but doing so does not grant them the federal protections of things like COBRA (which would not apply since the dependent would not be recognized as a spouse under federal law).  Cafeteria plans cannot provide benefits to same-sex partners, which (as we have discussed here previously) means that employees cannot pay that portion of their health coverage attributable to same-sex partners with pre-tax dollars.

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

There is certainly a lot of discussion recently about the relative health of the economy and corporations.  In tough times, company executives might think about misusing benefit plan contributions to prop up a struggling company.  Don't do it!  ERISA theft can result in some serious consequences.

In US v. Jackson, the 4th Circuit upheld the 7-10 year prison convictions of two executives for ERISA theft.  The CEO and CFO of the company were convicted based on their failure to make required contributions to the retirement plan and for using health plan contributions for purposes other than paying benefits.  The executives deliberately withheld the plan contributions and then falsified plan records to cover up the missing contributions.  In their defense, the executives said the company was indeed failing and that it did not have the resources to make the contributions.  The Court was not swayed.

The Court in this case reaffirmed the position that plan assets are "assets of the plan" when they are due for contribution, not when they are actually contributed.  So on the day the company was obligated to make its contributions, withholding was a breach of fiduciary duty.  Moreover, direction of those assets to some other payment constituted theft and embezzlement from the plan, even though they did not personally profit.  Regardless of other financial concern, then, it is extremely important for plan fiduciaries to remember to satisfy funding obligations and protect plan assets.

• Email This
• Print
• Comments
• Trackbacks

Frequently I get calls about offering COBRA coverage when an employee is terminated and an employer wants to deny coverage for "gross misconduct."  I have written about this before but the topic fascinates me because it is not what everyone thinks it is.  It's not simply "misconduct."  It has to be "gross."

Prior to 1986, it was assumed that any time a worker lost or changed jobs, health benefits coverage was lost.  That changed with the passage of the provisions of The Consolidated Omnibus Budget Reconciliation Act (COBRA) that governed continuation rights for plan beneficiaries.  COBRA has been amended, with some of the most recent amendments going into effect in 2005.  Under COBRA, employees and their families that suffer certain defined qualifying events may be able to continue coverage under the employer’s group health plan except when an employee is terminated for “gross misconduct.”  Because the Act does not specifically define “gross misconduct,” it is left to judicial determination.  Unfortunately, this can create confusion over what is gross misconduct for COBRA purposes and what employers should do to deal with terminated employees for COBRA administration purposes.

So what is “gross misconduct” for COBRA purposes and how is it handled?

In Boudreaux v. Rice Palace, Inc., a district court was asked to consider a case where an employee was denied COBRA because of alleged “gross misconduct.”  The employer observed several instances where the employee had overmedicated to the point of becoming incoherent.  After several warnings, the employer determined that the employee represented a hazard to herself and other employees.  She was terminated denied the ability to elect COBRA coverage.  The Court ultimately determined that the employee’s termination was as a result of her deliberate violation of the employer’s standards and she showed carelessness or negligence to such a degree or recurrence as to show wrongful intent to cause harm, either to the employer or to other employees.

Three things are very important about this decision.  First, the court did not find that any “criminal” conduct was required to meet the “gross misconduct” definition.  Gross misconduct can be an intentional, deliberate, extreme and outrageous that “shocks the conscience.”  It can be “reckless or in deliberate indifference to an employer’s interests.”  Thus, employees that routinely engage in unauthorized activities that are contrary to the interests of the employer or jeopardize the safety of other employees could be engaging in “gross misconduct.”

Continue Reading...

• Email This
• Print
• Comments
• Trackbacks (1)

When one company purchases another, there can be significant implications to the obligation to provide health benefits. Former employees of the seller company are typically entitled to continue health benefits under COBRA if they lose coverage as a result of the transaction. The traditional view is that the seller company has the obligation to provide COBRA coverage. But what happens when the seller company ceases operation and terminates its health plan? How do these displaced employees get continuation coverage.

It is not uncommon, in an asset purchase transaction, for the buyer to assume a substantial portion of the operations of the selling company. In many instances, the buyer also agrees to take on and hire former employees of the seller. These types of arrangements give rise to special considerations for employee benefit plans, the continuation of health coverage being one of them.

The COBRA regulations contain a number of regulations explaining what happens to qualified beneficiaries in the event of an asset purchase transaction. 26 CFR 54.4980B-9 includes provisions that deal specifically with continuation rights and obligations in an asset purchase transaction. Included in these regulations is an explanation of instances where the buyer is obligated to provide the continuation coverage under its own plan, even though it may not have ever employed the individual employees.

In the context of a business reorganization, the regulations recognize the existence of a “M&A qualified beneficiary.” In an asset sale, this is someone who has a COBRA qualifying event prior to or in connection with the sale and whose last employment prior to the qualifying event was associated with the assets being sold. Under this definition, an employee working for the seller company who loses coverage as a result of the asset sale (typically through termination of employment) would be an “M&A qualified beneficiary.” Continue Reading...

• Email This
• Print
• Comments
• Trackbacks

As part of uniform "regulation of insurance," states are permitted to establish certain mandates in health benefits.  These mandates can be fairly extensive, covering everything from the common such as birth control (required in New Jersey but not New York) to the more extreme, such as surgical treatment for morbid obesity (required only in Maryland, Indiana and Florida).  Mandates can also define who must be included as covered persons.  For example, New York mandates that adopted children be defined as a covered person, while New Jersey has no such mandate.  This is not to say that other laws may not impact the nature of benefits provided (since adopted children are "dependents covered under New Jersey insurance laws), but rather to point out that state insurance regulation is very complex and it is important for employers with facilities in multiple states to be aware of what they may be required to provide.

Self-insured ERISA plans routinely contend that they are not subject to state mandates because of the impact of ERISA preemption.  However, employers sponsoring these plans should be aware of the mandates of the jurisdiction where they operate if for no other reason then to evaluate the effect of their own plan in comparison to others offered (particularly union sponsored plans if union avoidance is a concern). 

To review the Council for Affordable Health Insurance's 2008 report on state mandates, client here.

 

• Email This
• Print
• Comments
• Trackbacks