Retirement & Welfare Benefits

Securing the Right to Deferred and Contingent Benefits

Moeller v. Bertrang

Did Bernie “establish” an ERISA plan?

Bernie Bertrang’s Promise And the Alleged Conditions

• Lump sum at retirement.

• Amount: $1,000/year of service.

• Agreed conditions: At least five years of employment.

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

Are there strings attached to that retirement watch?

ERISA Plan v. Contract:What’s At Stake for Parties?

• ERISA or contract law?

• Federal jurisdiction?

• ERISA vesting rules for pension benefits?

• ERISA anti-forfeiture rule for pension benefits.

• Potential effect on Bernie’s lump sum promise?

What’s under the hood of this lawsuit for a pension?

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 ex-tending 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 acceptancev. participation by member-ship in defined class.

• Individual v. class-based, standardized terms.

• A different set of rules for class-wide modification.

A plan creates a system for uniform treatment of a class of employees

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 Aren’t 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 week’s

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?

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

Why give any more than a watch at retirement?

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 vestedbenefits.

• No diminution of vestedbenefits by amendment.

• No interference with “attainment of rights.”

Under ERISA, you can take it with you.

ERISA & Amending ActsAnd 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 BenefitsContinuation Coverage Rules

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

• Consolidated Budget Reconciliation Act (COBRA).

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

COBRA

Securing Medical Benefits Bridging Plan Coverage

• Health Insurance Portability & Accountability Act (HIPAA).

• Restricts waiting period for new employee enrollment.

• Limits on pre-existing condition exclusions in insurance policies.

HIPAA

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. BruchWho Has the Final Say?

• Plan: Benefits if services discontinued because of “reduction of workforce.”

• Employer interpretation?

• Employee interpretation?

• An ERISA plan?

• Significance of ERISA coverage?

Is Firestone’s decision puncture-resistant?

Plan Decision-Making And Judicial Review

• What common law model is the best analogy?

• Administrator’s dutyin deciding claimsunder this model?

• Appropriate levelof judicial review?

BENEFITS

The Administrator: Agent for Employer? Or for Beneficiaries?

Judicial Review After Firestone Tire v. Bruch

• How can employer changethe level of judicial review?

• The problem of conflictof interest: How does itaffect judicial review?

• Factors affecting severityof 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 termsof other document?

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

Will Fisher Sr. rest in peace?

Special Issues for Health Insurance Benefit Decisions

• Usual administrator: Insurer.

• Typical issues: “Medically necessary?” “Experimental?”

• Can administrator overrule treating doctor?

• Practical barriers to challenging administrator’s decision?

• State medical review laws.

Are insurers bound by the Hippocratic Oath?

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 ofbeneficiaries.

• Reporting & disclosure duties.

• Other common law duties of a fiduciary? Is the administrator

a guardian angel?

Is the Employer a FiduciaryWith 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.

• No, when it creates, modifies or terminates plan (employercan be selfish).

Is the employer a fiduciary? Sometimes. Sometimes not.

BENEFIT CLAIMS HERE

Varity Corp. v. Howe

It’s “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.

• Plan: Shift losing operations to new subsidiary.

• Encourage employees to to accept transfer.

• Why not just close losing operations or plans?

Not shining for employees.

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 withpredictions 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 plaintiffs—from 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 Employer’s Dual RolesEmployer v. Administrator

• As administrator, owes fiduciary duty to serve beneficiaries exclusively.

• As employer, owes no fiduciary duty. Can be selfish.

• Any duties limiting actions as employer?

Which hat was employer wearing when it took the challenged action?

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.

• Filing appeal or lawsuit, or reporting violation.

Did he engage in protected conduct?

Focus on Illegal Interference:Motivation to Prevent Benefits?

• Preventing access to information, documents.

• Impeding claim processing.

• Terminating, modifying plan?See next slide.

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

Did the employer put up roadblocks?

Interference by ModificationOr Termination of the Plan

• Doesn’t 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 planmodification/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.”

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

Which plant will we close?

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 employerto maintain unprofitable unit?

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

Selective elimination of “expensive” workers by selective

layoffs?

Selling a division? Or shaking out expensive employees?

Lessard v. Applied Risk

The Sale in Lessard: Designed To Leave Her Behind?

• How might “old” business beworth more to “new” owner?

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

• How did difference in treatmenttend to impact costly workers?

• Risk of subterfuge for unloading costly workers.

Left behind?

The Limits of the Court’sSolution in Lessard

• Could seller terminate medical leave plan?

• Amend plan to limit extended coverage?

• Sell assets, terminate plan, let buyer rehire employees?

• Remember practical limitsof each of these solutions.

“Too Clever By Half?” Or not clever enough?

Discriminatory Coverage

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

SELECTED EMPLOYEES

Recap: Why Do Employers Provide Benefits At All?

• Employer provided benefits are voluntary.

• Incentives: Loyalty, tax advantages, unionsas 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?

• Some participants must pay more or receive less?

A Plan for the “In Crowd” Only?

Overview of Limits on ChoosinessWhen 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.

ERISA’s “Non-Discrimination”Rules for Pension Plan Coverage

• Limits on eligibility rules.

• Rules restricting favoritism for highly paid employees.

• Rules still permit some disparities, exclusions.

• Independent contractors?

• No non-discrimination rules for welfare benefits.

With whom must management share the umbrella?

Other Federal Laws Prohibiting Discrimination in Employment

• Title VII: Sex discrimination

• Pregnancy Discrimination Act (amending Title VII)

• Age Discrimination in Employment Act

• Americans with Disabilities ActIs he entitled to the same medical and life insurance?

General Rule : Do Not Segregate By Prohibited Classification

Life insurance cheaper for women; pension cheaper for men.

Don’t Look at this Graph When Designing Your Plan!!!!

Special Problems for Costs Related to Pregnancy

• Remember: employer notrequired to offer any plan.

• Plan, if offered, must notdiscriminate based on sex.

• What about discriminationbased on “pregnancy?”

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

Doctor delivers 9 lb. medical bill.

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

• Don’t discriminate “because of pregnancy,” and …

• Do “treat pregnancy and related conditions the same as similarly disabling conditions.”

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

A heart attack: Sort of like 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 coverageof pregnancy of spouses;benefits for male employeesare inferior.

Must the Health Plan Pay?

Saks v.

Franklin Covey

Assisted

Reproduction,

Prevented

Reproduction,

&

Assisted Intercourse

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 accesstheory of sex discrimination?

Would the plan have denied Arnold’s claim, too?

PDA: Is Infertility a Condition Related to Pregnancy?

• If so, plan must provide samecoverage as for similarly disabling condition.

• Court: PDA protects only conditions related to pregnancy and unique to women.

• Infertility experienced and impregnation needed by bothwomen and men.

Maybe his condition required her surgical impregnation.

Sex Discrimination: Does The Exclusion Target Women?

• Saks: plan implicitly limits coverage to surgery for patient’s 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).

• Exceptions for some age-based distinctions in benefits.

Does he need life insurance? Can his employer afford it?

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 isn’t able to “retire?”

Disability DiscriminationThe 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.

Would denial of coverage for mental health be discrimination?

Lawful Maybe Unlawful

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.

• Complete preemption: non-application of well-pleaded complaint rule if claim is “within the scope” of ERISA’s enforcement provisions.

ERISA’s long preemptive shadow.

Aetna v. Davila

Good news: The plan says you’re well enough to go home.

Bad news: The plan says you’re 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 Ass’n v. Fielder

ERISA and Health Care Reform in the States

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

• Maryland’s 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?