By Sarah Touzalin and Mark Casciari

Seyfarth Synopsis:  Administrators of ERISA plans frequently receive requests from participants, beneficiaries, and their representatives for plan-related documents. A recent decision from the Court of Appeals for the Fifth Circuit supports providing only those documents that fall under a narrow reading of ERISA Section 104(b)(4). Over-production could serve to facilitate litigation.

Section 104(b)(4) of ERISA requires that plan administrators provide certain plan documents to a participant or beneficiary (or their authorized personal representative) upon written request, including copies of the summary plan description, plan document, annual report, trust agreement, contract and bargaining agreement, as well as documents that fall within a catch-all of “other instruments under which the plan is established or operated.” When document requests are received, it’s not at all uncommon for the request to include a long list of documents, often times repetitive, leaving the plan administrator to weed through the request and identify the documents that must be provided under ERISA.

In Theriot v. Building Trades United Pension Trust Fund, et al. (E.D. La. Nov. 4, 2019), plaintiff alleged that the defendants, a multi-employer pension fund and its trustees, failed to timely produce plan documents in violation of Section 104(b)(4), entitling the plaintiff to statutory penalties of up to $110 per day.

In 2017, the plaintiff requested “a complete copy of the plan agreement, including [her deceased mother’s] application and all other correspondence from her to the Fund.” The defendants provided a copy of the plan document, current through 2017. The plaintiff alleged that the defendants should have known that she was also requesting other plan documents, including an outdated version of the plan document and summary plan description, even though she did not specifically request them.

In 2018, the plaintiff made a second request, also including a long list of additional plan documents. The defendants provided only copies of the 2017 plan document, trust agreement and summary plan description in effect as of the dates specifically requested, as well as copies of Forms 5500 and attachments. Plaintiff, however, alleged that the defendants failed to produce any of the other documents from the 2018 request. The court determined that certain of the document requests were not sufficiently clear, some of the requested documents did not exist and some were not relevant to the plaintiff understanding her rights under the plan. The court also determined that a reasonable plan administrator would not have known that the plaintiff was requesting other documents beyond the 2017 plan document. And notably, the court agreed with the majority of other circuits that Section 104(b)(4) did not encompass the fidelity bonding policy, any errors and omissions insurance policy or any fiduciary insurance policy.

Takeaway: The Theriot case shows that narrowly construing Section 104(b)(4) can be defensible. It also can be advisable. Any lawsuit challenging fiduciary conduct must allege plausible facts to survive a motion to dismiss and enter into expensive discovery. There is no sound reason to make the plaintiff’s task in this regard easier by over-producing documents under Section 104(b)(4).

By Ryan Tzeng, Jessica Stricklin, and Alan Cabral

Seyfarth Synopsis: The First Circuit reversed a district court’s ruling holding two Sun Capital private equity (PE) funds responsible for the withdrawal liability incurred by a bankrupt portfolio company. The Circuit Court found that because the two PE funds were not acting in partnership with each other, neither was responsible for the portfolio company’s withdrawal liability, and vacated an award of nearly $9.4 million to a union pension fund. Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, No. 16-1376, 2019 WL 6243370 (1st Cir. Nov. 22, 2019)

In a 2013 decision, the District Court of Massachusetts found that the two Sun Capital PE funds were not only engaged in “trade or business,” but also were a partnership acting under “common control” with a bankrupt portfolio company, and therefore, liable for the portfolio company’s $4.5 million withdrawal liability to a multiemployer pension plan incurred upon its bankruptcy. Under ERISA, the common control standard is met if there is an 80% ownership interest. The district court found that even though the two PE funds had individual investment stakes in the portfolio company of only 70% and 30% respectively, they were acting as a partnership and so their ownership interests should be aggregated, thereby exceeding the 80% threshold.

The PE funds appealed the decision and the First Circuit reached its decision just last week: no partnership, no common control, no withdrawal liability. The First Circuit applied factors derived from an old tax court case, Luna v. Commissioner, and concluded that the PE funds’ activities did not rise to the level of a partnership. Among the factors considered, the PE funds were not acting in concert when making investments, conducted business under separate names, filed separate tax returns, kept separate books, and disclaimed any sort of partnership. The court also noted the fact that the PE Funds were formed as LLCs further demonstrated an intent not to form a partnership.

Importantly, the court stated that it was reluctant to impose withdrawal liability on the PE funds when there was no clear congressional intent to do so, and no guidance from the PBGC.

But beware: While this is a significant victory for PE funds in general, the court’s decision was very fact specific, and it did not “reach other arguments that might have been available.” It will be interesting to see if other circuit courts follow this precedent.

By Sarah Touzalin and Richard G. Schwartz

Seyfarth Synopsis: Many of the limitations that apply to tax-qualified plans, including 401(k) plans, are subject to cost-of-living increases. The IRS just announced the 2020 limits. 401(k) plan contribution limits are increasing, so check your elections starting in 2020. Employers maintaining tax-qualified retirement plans will need to make the necessary adjustments to the plans’ administrative/operational procedures and participant notices (e.g., safe harbor notice).

This morning the IRS announced the various limits that apply to tax-qualified retirement plans in 2020. Pursuant to IRS Notice 2019-59, you may be eligible to contribute up to $19,500 to your 401(k) plan in 2020, an increase of $500 over the 2019 limit. If you are or will be age 50 by the end of 2020, you also may be eligible to contribute up to an additional $6,500 as a “catch-up” contribution, also a $500 increase over the 2019 limit. Thus, if you are or will be age 50 by the end of 2020, you may be eligible to contribute up to $26,000 to your 401(k) plan in 2020. These same limitations apply if you work for a governmental or tax-exempt employer and participate in a 403(b) plan.

Other annual limits that increased include:

  • the maximum that may be contributed to a defined contribution plan (e.g., 401(k) or 403(b) plan) in 2020, inclusive of both employee and employer contributions, will increase $1,000 to $57,000;
  • the maximum annual compensation that may be taken into account will increase from $280,000 to $285,000; and
  • the “highly compensated employee” income threshold will increase from $125,000 to $130,000.

The Notice includes numerous other retirement-related limitations for 2020, including a $6,000 limit on qualified IRA contributions (unchanged), and adjustments to the income phase-out for making qualified IRA contributions.

Individuals should check their plan contribution elections and consult with their personal tax advisor before the end of 2019 to make sure that they take full advantage of the increased contribution limits in 2020. Employers who sponsor a tax-qualified retirement plan should begin making the necessary adjustments to plan administrative procedures and participant notices to ensure proper administration of the plan in 2020.

Employers who sponsor defined benefit pension plans (e.g., cash balance plans) also should be sure to review the new limits in IRS Notice 2019-59 and make any necessary adjustments to plan administrative/operational procedures.

By Manleen Singh and Mark Casciari

Seyfarth Synopsis: Two new Executive Orders and a corresponding decision in the Supreme Court effectively limit how agencies can utilize guidance against private parties—the agency must rely only on guidance that is fully consistent with the governing statute.

Employee benefit lawyers, including employee benefit litigators, have historically been inclined to rely on federal agency guidance that does not technically have the force of law. Lawyers have followed this practice to appease the agency—the first line of potential opposition—and thus allow a client to re-focus quickly on business goals. Another reason is that the federal courts have for years given deference to federal agencies. So why not reflexively back away from a fight when the agency is likely to win in court anyway?

The difficulty with a “guidance-as-gospel” approach is that federal agency officials and regulators are not elected and thus cannot enact legislation. Deference may operate as a shield for guidance that is outside what Congress has legislated, and is based on an executive-branch political agenda.

This is the view of the Trump administration.

One of the new executive orders attempts to stop reliance on guidance that goes beyond a statute, or notice and comment regulations (which have the force of law, if consistent with the governing statute). The other order requires agencies to establish a single, searchable toolbar that links to all of the already issued guidance. Additionally, the website must note that the guidance does not have the force and effect of law, unless as authorized by law or incorporated into a contract. The new executive orders direct that enforcement action cannot be based only on guidance. Enforcement must be based on the governing statute.

The force of the new executive orders may extend beyond the life of the Trump administration.

Federal courts increasingly question the wisdom of the historic deference given to guidance. Noteworthy is Kisor v. Wilkie, 139 S. Ct. 2400 (2019), wherein a veteran sought PTSD disability benefits from the Department of Veterans Affairs. The agency partially denied his claim and the Court of Appeals for the Federal Circuit affirmed by deferring to the agency’s interpretation of what it said was an ambiguous regulation. The Supreme Court reversed and remanded the case back to the Court of Appeals. Justice Elana Kagan wrote the majority opinion, and stated that a court should defer to the agency only after satisfying itself that the regulation is “genuinely” ambiguous, and if so, “reasonable.” The Court added that the agency’s interpretation must be an official position, as opposed to an ad hoc statement, must implicate its substantive expertise, and be otherwise “fair and considered.”

To be sure, Kisor does not involve guidance, but its holding—federal courts must not reflexively defer to agency action—applies with the same (or greater) force to guidance. So, employers and fiduciaries should rely only on guidance they believe is fully consistent with a careful analysis of the governing statutory law.

By Christina Cerasale, Kelly Rourke, and Richard G. Schwartz

Seyfarth Synopsis: The Department of Labor (“DOL”) just issued proposed rule changes governing the disclosure of ERISA-required notices via an electronic format (e.g., emails, intranet sites, etc.). These proposed rules update final regulations issued by the DOL in 2002, which given the pace at which employers and employees were then transitioning to the use of computers and the internet as the principal means of communication, were pretty much outdated by the time the DOL issued them in final form. The new proposal establishes a safe harbor standard that employers should find more useful than the previous safe harbor rules, resulting in cost and administrative burden savings for retirement plan sponsors and administrators.

ERISA generally requires that certain retirement plan information be disclosed to participants and beneficiaries (e.g., summary plan descriptions, summary of material modifications, blackout notices, etc.). Historically, that meant distribution of required notices by hand (e.g., with paychecks) or by first-class mail.  By the late 1990s – early 2000s, the use of desktop computers was exploding across the working world, and hand-delivery or delivery via the US mail of ERISA-required notices was becoming more expensive and more time-consuming than need be.

To address these concerns, in 2002, the DOL established a safe harbor rule for the distribution of ERISA-required disclosures through electronic “media” (e.g., such as by email or posting on an Intranet website). While that safe harbor was somewhat helpful, actual use of the safe harbor required burdensome consent obligations with respect to employees who were not using a computer at their desk or work-station as an integral requirement of their job. While it seems almost inconceivable in 2019 that computers weren’t always an integral part of most jobs only 17 years ago, the fact is that many employers had not yet fully integrated the use of computers into employees’ daily work routines at that time. Further, given the frantic pace at which the computer age was progressing at the time, the 2002 DOL regulations were outdated in short order.

The DOL’s new (and long-awaited) proposal establishes a new “notice and access” safe harbor for the use of electronic media communications for ERISA-required notices. Under these proposed rules, a plan administrator may generally default a participant or beneficiary into electronic delivery, unless the individual affirmatively opts out. The proposed rules also require an initial paper notification for administrators transitioning to the new safe harbor and provide guidance on treatment of terminated employees.

The proposed rule will only become effective 60 days after the final rule is published in the Federal Register, and does not apply to ERISA-required employee welfare benefit plan communications.  Employers and plan administrators should find the proposal to be helpful in communicating with plan participants electronically, but the proposal includes specific standards that will need to be understood and adapted to specific situations.

By Mark Casciari and Ian Morrison

Synopsis: Two Courts of Appeal reach opposite results on ERISA preemption, thus continuing the judicial quest for a definitive meaning of ERISA preemption. Stay tuned for more such decisions, and yet more Supreme Court preemption decisions.

The federal Employee Retirement Income Security Act (ERISA) has been effective, as a general matter, since 1974. Its section 514 preempts state laws that “relate to” ERISA plans. The United States Supreme Court has wrestled, in 18 cases, with how to define, and thus limit, “relate to,” as everything can be said to be related to everything else. Compounding matters is that section 514 lists specific exceptions to “relate to” preemption. It is our expectation that the Supreme Court will agree to hear more ERISA preemption cases in the future. See generally — here.

In the meantime, the Courts of Appeal continue to rule on the limits to ERISA preemption, often with opposite results.

In Rudel v. Hawai’i Management Alliance Ass’n, 2019 U.S. App. LEXIS 27371 (9th Cir. Sept. 11, 2019), an ERISA plan participant received ERISA medical plan benefits after a motorcycle accident. Plan terms allowed it to seek reimbursement from a third party tortfeasor, to the extent the tortfeasor paid general damages, up to the amount of the plan payout. The participant sued to clarify the plan’s reimbursement right, or lack thereof to be more precise, relying on a Hawai’i statute that invalidated general damage insurance reimbursement rights. The Ninth Circuit said that the state law “related to” an ERISA plan, but found no preemption, relying on the statutory exemption to ERISA preemption in favor of state laws that regulate insurance.

The Ninth Circuit found that the Hawai’i statute regulated insurance because it was directed at insurance reimbursement rights. The Court added that the state statute affected the risk pooling arrangement between the insurer and the insured by impacting the terms by which insurance providers must pay plan members.

In Dialysis Newco, Inc. v. Cmty. Health Sys. Grp. Health Plan, 2019 U.S. App. LEXIS 27418 (5th Cir. Sept. 11, 2019), however, the Court of Appeals for the Fifth Circuit found ERISA preemption. The ERISA medical plan at issue contained a valid anti-claim assignment provision. A third party health care provider sued to recover on what it claimed was a valid assignment of plan benefits, by relying on a state statute requiring plan administrators to honor assignments made to healthcare providers.

The Fifth Circuit found that the state statute “related to” the ERISA plan because it impacted a “central matter of plan administration” and interfered with “nationally uniform plan administration.” The Court said, because states could—and seemingly already do—impose different requirements on when such assignments would be honored, permitting one state law to govern the plan would interfere with nationally uniform plan administration.

These two cases show how the courts continue to grapple with the nearly infinite nuances of ERISA’s remarkably broad preemption provision. Given the historic interest of the Supreme Court on ERISA preemption, it is likely only a matter of time until this or a related ERISA preemption question is again before that Court. ERISA preemption is bound to get more interesting before it gets boring.

By Michael W. Stevens, Jonathan A. Braunstein and Mark Casciari

Seyfarth Synopsis: Reversing course and overruling previous precedent, the Court of Appeals for the Ninth Circuit now holds that ERISA plan mandatory arbitration and class action waiver provisions are enforceable, and can require individualized arbitration of claims for breach of fiduciary duties.

In Dorman v. Charles Schwab Corp., No. 18-15281, 934 F.3d 1107 and 2019 WL 3939644 (Aug. 20, 2019), the Ninth Circuit reversed course, overruled precedent, and enforced an arbitration provision in an ERISA 401(k) plan that mandated individual, and not class, arbitration of ERISA § 502(a)(2) and (3) claims.

In Dorman, a 401(k) participant brought suit on behalf of a putative class of plan participants and beneficiaries, alleging that the fiduciaries had breached their fiduciary duties by investing assets in the funds affiliated with the defendant. However, nine months prior to the named plaintiff’s termination of employment and nearly a year before his account withdrawal, the plan was amended to expressly include an arbitration provision binding the plan to arbitration, and forbidding class actions.

The defendant moved to compel arbitration. The district court denied the motion on multiple grounds, ruling that ERISA claims cannot be subject to mandatory arbitration; the arbitration provision was added after the named plaintiff’s participation in the plan began; and the plaintiff’s claims were brought on “behalf of the plan,” rather than as an individual, and thus could not be subject to the plan’s arbitration clause.

Thirty-five years ago, in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), the Ninth Circuit had held that ERISA claims were not subject to arbitration. Amaro reasoned that an arbitral forum may “lack the competence of courts to interpret and apply statutes as Congress intended.” In Dorman, however, the Ninth Circuit recognized that later Supreme Court cases, including American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), had held that arbitrators were competent to interpret and apply federal statutes. Thus, Dorman expressly overruled Amaro.

In an unpublished companion opinion, the Ninth Circuit addressed and reversed other holdings by the Dorman district court. Although the Ninth Circuit had recently held, in Munro v. Univ. of S. Cal., 896 F.3d 1088 (9th Cir. 2018), that Section 502(a)(2) claims belong to the plan, rather than the individual (see our discussion of that case here), the critical difference in Dorman was that the plan had been amended to include an arbitration provision binding the plan. Thus, the Ninth Circuit found, the plan “expressly agreed” that all ERISA claims should be arbitrated. The Ninth Circuit also held, citing LaRue v. DeWolff Boberg & Assocs., Inc., 552 U.S. 48 (2008), that although a § 502(a)(2) claim may belong to the plan, losses are inherently individualized in the context of a defined contribution plan such as the one at issue. The Ninth Circuit reversed and remanded with instructions to the district court to compel arbitration.

The Dorman plaintiff recently filed a petition for en banc review, so it remains to be seen whether the latest Dorman decisions will stand.

The Ninth Circuit has been the most hostile to arbitration, so Dorman (unless vacated) is a monumental change that could be the start of trend favoring ERISA plan arbitration. As we have noted here and here, arbitration in lieu of court litigation has pros and cons that need to be considered carefully before mandating arbitration and a class action waiver in ERISA plans, even though the court most hostile to forced arbitration now seems to allow it. 

By: Jon Karelitz and Mark Casciari

Synopsis:  A recent 4th Circuit decision reiterates the importance of aligning a plan fiduciary’s administrative claim and appeal review process with the standards for a “full and fair review” under U.S. Department of Labor regulations, including disclosing all documents considered in the course of determining a claim (absent compelling reasons not to). 

In Odle vs. UMWA 1974 Pension Plan, the Court of Appeals for the Fourth Circuit reversed a district court’s decision on summary judgment in favor of a pension plan’s fiduciaries (in this case, the board of trustees for a coal industry multiemployer fund).  The case involved a dispute over service credit towards a deceased participant’s pension.  The plan fiduciaries had denied a claim by the participant’s surviving spouse, concluding that 13.5 years of the participant’s service was actually performed in a position that was not classified as eligible under an industry-wide union agreement.  The administrative record indicated that the fiduciaries based their denial, in part, on an audit of employer timesheet records that was not disclosed to the claimant. The claimant alleged as well that she requested the audit records, and the plan refused to provide them.  The Fourth Circuit held that “by failing to disclose that audit during the administrative process, the Plan denied [the claimant] the ‘full and fair review’ of her claim that she was entitled to under ERISA.”

The regulations under ERISA Section 503 require that a claimant “be given reasonable access to documents relevant to her claim,” The regulations provide that documents, records and other information are “relevant” if they are “submitted, considered, or generated in the course of making the benefit determination.”

Under the Odle holding, a fiduciary should disclose all documents upon which a claim or appeal decision was based, unless there is a good reason not to.  Such disclosure should provide the claimant with an opportunity to consider all relevant information, and use that information in making arguments in support of the claim.  Of course, there may be compelling reasons not to disclose, under certain circumstances, and Odle does not address all possible arguments that cut against disclosure

By: Mark Casciari and Joy Sellstrom

Seyfarth Synopsis: HIPAA provides no federal cause of action, but alleged HIPAA violations may be remedied in state court under state negligence law.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal statute providing for confidentiality of medical records under certain circumstances. It is administered by the federal Department of Health and Human Services (HHS), which can extract substantial fines for non-compliance. Although HIPAA does not provide a private right to sue for HIPAA violations, employers should be aware that remedies for non-compliance are not necessarily limited to federal agency fines.

A recent decision out of the Arizona Court of Appeals makes this point. In Shepherd v. Costco Wholesale Corp., 246 Ariz. 470 (2019), petition for review pending, the plaintiff alleged that, after he cancelled one of two prescriptions with the pharmacy, he requested that his wife (with whom he was reconciling) pick up the live prescription, and that the pharmacy mistakenly gave both to the wife. Plaintiff alleged as well that the cancelled prescription was embarrassing in nature, and that the pharmacist joked about it with the wife. The wife thereafter divorced the plaintiff, and the plaintiff sued the pharmacist to recover damages under a variety of state law tort theories, including negligence based on a state law duty of care informed by HIPAA.

The trial court granted a motion to dismiss, and the plaintiff appealed.

The state intermediate appellate court upheld the dismissal of all counts in the complaint, save the negligence count.

The appellate court stated that, although the negligence claim did not arise under HIPAA, the parties agreed that the pharmacy owed the plaintiff a duty of care to act as a reasonably prudent pharmacist would under the circumstances. The court then found that the allegations in the complaint for wrongful disclosure of protected information were sufficient to survive a motion to dismiss, and allowed the case to enter discovery and perhaps trial phases.

It is noteworthy that the pharmacy argued that HIPAA preempted state law. The court rejected the preemption argument, reasoning that allowing state law claims in this context does not interfere with government enforcement actions authorized by HIPAA. The court stated: “[A]dditional state law remedies encourage compliance with HIPAA by providing further means for patients to recover for harm suffered due to non-compliance.” The court concluded: “[W]e hold HIPAA’s requirements may inform the standard of care in state-law negligence actions just as common industry practice may establish an alleged tortfeasor’s duty of care.”

Lastly, the court, with one judge dissenting, kept alive the related punitive damages claim. Arizona law places no cap on punitive damages, although the United States Constitution forbids excessive punitive damages.

The take-away is — alleged HIPAA violations may be remedied by state lawsuits in addition to HHS fines. Also, stay tuned to state court developments. As noted, a petition for review of the Shepherd intermediate appellate court decision is pending in the Arizona Supreme Court.

By Diane Dygert and Richard Schwartz 

Seyfarth Synopsis: The IRS recently issued somewhat helpful guidance to plan administrators on what to do about the constant problem of uncashed benefit checks from qualified retirement plans. The initial excitement upon hearing the news, however, was quickly met with disappointment as the realization set in that the guidance was limited. 

For more background on this IRS Revenue Ruling, click on our client alert. For now, suffice it to say that the guidance applied narrowly to benefit checks that are required to be issued to participants. So, for example, a small amount cash-out check issued following termination of employment, or a check issued to a participant who made a distribution election. In these situations, the IRS advises that the participant’s failure to cash the distribution check does not affect the employer’s obligation to withhold and report taxes under the assumption that the participant had control of the check but for one reason or another simply didn’t cash it.

The more prevalent problem plaguing plan administrators is the “case of the missing participant.” These are participants who have gone missing despite the plan’s good faith efforts to find them. Plan administrators face a genuine dilemma about how to handle required distributions to such AWOL account holders. If the administrator gets returned mail and is unable to identify a better address, no distribution check will be able to be issued. Or perhaps a check is issued but gets returned as undeliverable. In these situations, plan administrators have been left to devise their own practices aligning with the plan qualification rules and their third party administrator’s systems as best they can.

The very agencies in charge of enforcing the plan qualification rules and fiduciary obligations appear to not have their arms around the situation. They acknowledge that guidance is needed in this area and are working on it. So, as the saying goes “the check is in the mail.”