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

In conjunction with the COBRA subsidy application (the Request for Treatment as a Subsidy Eligible Individual), there is a mechanism that was created to appeal the denial of the subsidy directly to the United States Department of Labor.  The link for DOL website for making an appeal is here.

The appeal can be made on-line, or can be submitted via paper to the DOL.  the notice included with the application confirms that to be eligible for the subsidy, an employee must (1) be eligible for COBRA between 9/1/08 and 12/31/09, (2) elect coverage and (3) have a qualifying event involving an involuntary termination.  While the statutory creation of the appeal process seems to require a ruling within 15 days, nothing in this form references that specific time frame.

From an employers perspective, nothing in the notice defines how the appeal review will be conducted.  The employee seeking to appeal the determination is asked to submit documentation that will be reviewed, but there is no commitment that the DOL will contact the employer or plan administrator for further clarification.  It remains to be seen how they will be contacted, but it is safe to assume they will be contacted to verify the information submitted by the employee on appeal.

I think that initially, employers should work with their legal counsel if they are notified of an appeal (or receive an inquiry about a denial of the subsidy) simply to control the process so that it does not broaden in scope into a deeper "employee benefits" audit by the DOL.  I believe it is likely that this type of appeal and investigation will give the DOL the opportunity to identify potential problem employers or plans to conduct a more thorough investigation of their plan administration.  Employers will also want to be very careful about their responses to an investigation as they could be considered admissions to the DOL of faulty employment practices that could give rise to a DOL or EEOC investigation.  In sum, employers should not assume the DOL is just interested in dealing with the appeal and should be very careful about how they respond.  I am not suggesting the DOL is the "enemy,"  but employers should be careful if contacted. 

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The IFEBP reports that for 2008, 20.7% of multiemployer pension funds were in safe status (more than 80% funded), 41.4% were in endangered status (65-85% funded) and a whopping 37.9% of surveyed plans were in critical status (less than 65% funded).  That's an awful lot of unfunded liability waiting to strike employers and potentially a big 2010 budget concern because these figures make it very likely that required contributions to these pension funds are going to skyrocket.

If an employer is participating in a multiemployer pension plan by way of a collective bargaining agreement, there are two things that have to be considered about budgeting for 2010 employee benefit cost concerns.  The Pension Protection Act ("PPA") of 2006 provides that plans certified as critical or endangered have to develop rehabilitation plans to correct their underfunding.  While the plan can limit benefit accruals and eliminate some types of benefits, the most likely target to improve funding is to increase employer contributions.  After the plan has been certified as critical, the actuary is going to recommend to the plan administrator a "required contribution level" that will be part of the rehabilitation plan and that recommendation is likely going to be made in 2009. 

Under the PPA, the employer and the union have to agree to adopt the new contribution as part of their bargaining agreement.  If no agreement is made, there is a 10% surcharge that the employer has to pay to the fund over and above the current contribution level.  This is a very broad summary of the impact and more detail is available in earlier posts, but generally employers should be anticipating that, if they are in a critical or endangered plan, the contributions for the remainder of 2009 are going to go up at least for the amount of the surcharge.  Plus, if your collective bargaining agreement expires before the end of 2009, or even in 2010, you can anticipate a higher required contribution.

This last paragraph is the true purpose behind this post.  In dealing with clients who are preparing their 2010 budget and trying to anticipate increased labor costs, I find that they could be overlooking this potential cost increase: the added expense of being in an underfunded multiemployer pension fund.  At the bare minimum, the cost associated with being in a critical plan is going to be 10% higher based on the surcharge.  Plus the surcharge is mandatory so there is not even room to negotiate it downward.  Add that to the uncertainty of the increased amount of the contributions due under the rehabilitation plan, and you have a potential time bomb of expense waiting to explode.

What should you do?  If you are contributing to a multiemployer pension fund, first find out what status it is.  Ask the plan administrator for verification of the funding levels.  If you have not received a notice with this information, ask for one.  If you have received a notice, ask your counsel what it means.  Second, find out what the time frame is for that plan to adopt a rehabilitation plan.  Ask if they trustees have started the process.  Ask if the actuary has made any recommendations with respect to increased contributions.  Third, if you are headed into negotiations with the union, make sure this issue is clearly discussed and get commitments about how funding increases will be treated against other costs.  Consider making wage increases contingent upon the impact of increased pension costs, or building in other concessions depending on required contribution levels.  Make sure you negotiate with the understanding that your pension costs will be going up (unless you are in that rare 20.7% of safe plans).

Above all, budget accordingly.  Don't let this cost increase come as a surprise.  There is no easy solution to this nationwide problem of underfunded plans.  But knowing what to expect can make dealing with it easier.

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Imagine this scenario: plan participant calls plan administrator and ask about benefit entitlements under the terms of the plan. Plan administrator gives information and it is wrong or participant either misunderstands what he is told. When participant does not receive the full benefit, he files a lawsuit saying he is entitled to the full benefit because of the representation.

These types of claims tend to give rise to a debate over estoppel as it applies to ERISA plans. In sum, the argument is that the plan is "stopped" from denying the benefit because the participant relied on the statements. While it is generally recognized that a claim for estoppel may be a viable cause of action under ERISA, it is equally clear that an estoppel claim cannot apply where the terms of the plan are clear and unambiguous.

In Regency Hospital v. Blue Cross of Tennessee (2009 US Dist. LEXIS 37111), the Southern District of Ohio looked at a claim by a medical provider alleging that a plan was estopped from denying payment of a claim that was pre-approved. The result of the case was not as significant to me as how they got there. The Court rejected the provider's claim, in part, because the alleged misrepresentation contradicted the clear terms of the plan and refused to allow an estoppel claim to survive. The Court articulated that for an estoppel claim to survive, 5 factors must be met: (1) a representation of fact made with gross negligence or fraudulent intent, (2) made by a party aware of the true facts, (3) intended to induce reliance by the person requesting the information, (4) who is unaware of the true facts and (5) the person reasonably or justifiably relies on the statement to his detriment.

This last factor is the most important because the Court further articulated that a person cannot reasonably or justifiably rely on a statement that counters clear, unambiguous terms of the plan. If the plan terms are correct and thee is no ambiguity subjecting those terms to interpretation, it would appear to be unreasonable to rely on the misrepresentation. In other words, participants are to some extent charged with going and looking up the answer themselves in the plan document rather than simply calling an administrator and asking for an answer.

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