Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

More than a year after submitting its proposed rule updating and consolidating the exemption procedures, EBSA has published the final rule, which consists of discrete sections (codified at 29 CFR part 2570, subpart B), generally reflecting the chronological order of the steps involved in processing an exemption application. As such, the rule “provides the public with a more comprehensive description of the prohibited transaction exemption process.”

Many of the final rule’s changes involve the types of information that must accompany an exemption request. Several changes revise the requirements for notifying interested parties that an exemption request has been filed. The final rule also affords expanded opportunities for applicants to submit information in electronic form for both the exemption request and notification to plan participants and other interested parties. Based on the changes, EBSA notes that it hopes that the updated procedures will “promote more prompt and efficient consideration of exemption applications” by the agency.

The final rule is effective December 27, 2011, and the rule’s new procedures will apply to all exemption applications filed on or after that date.

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This class action was brought after the company converted its defined benefit pension plan into a cash balance plan. The District Court found that the Company’s notice and its SPD contained material misrepresentations, resulting in inconsistencies between the notice and the SPD on the one hand, and the actual plan document on the other hand. The lower court deemed the plan to be rewritten to provide for a benefit equal to the prior plan benefit plus the post-conversion cash balance benefit, rather than the greater of the prior plan benefit or the opening account balance plus future cash balance credits. The Supreme Court held that section 502(a)(1)(b) did not authorize the lower court to revise the terms of the plan to reflect an erroneous notice and summary plan description , and returned the case for reconsideration under the plaintiffs’ alternative remedy sought under section 502(a)(3), which authorizes appropriate equitable relief.

In ordering this case back to the lower court for reconsideration, the Court provided guidance on how to handle various issues presented. The district court had declined to address whether relief would be available to the plan participants under the “appropriate equitable relief” provision of section 502(a)(3) of ERISA, on the basis that the Supreme Court’s prior decisions had so narrowed the scope of appropriate equitable relief that it was unlikely that full relief would be available for the perceived harm caused by the inadequate notices and SPD. The majority stated that because courts of equity could reform a trust document to correct fraud or mutual mistake, could surcharge a fiduciary for certain breaches, and could award benefits on the basis of equitable estoppel, the district court could explore all three of these approaches in order to fashion an appropriate form of relief. Indeed, in apparent response to the frequent complaint of the Plaintiffs’ bar that the Supreme Court’s prior cases result in a wrong without a remedy, the majority provided the following quote: “Indeed, a maxim of equity states that ‘[e]quity suffers not a right to be without a remedy.’ R. Francis, Maxims of Equity 29 (1st Am. ed. 1823).” (p. 18).

The majority also addressed the issue that had been the initial basis for bringing the case before the Supreme Court – whether the district court had properly held that a showing of “probable harm” was sufficient to afford class-wide relief without an individual showing of detrimental reliance. If the remedy is provided in the form of equitable estoppel, the Court affirmed that detrimental reliance is required. But a surcharge or reformation might not require detrimental reliance, but only “actual harm” and the Supreme Court suggested in dicta that in some cases an employee might not be required to read an SPD in order to bring a claim based on misrepresentations contained in the SPD. However, two judges in a concurring opinion pointed out that the District Court and the Second Circuit could follow that advice and later be reversed by the Supreme Court because that suggestion is mere dicta because that issue was not accepted by the Supreme Court for review.

For employers, the opinion has both good and bad features. It is good that an erroneous notice or SPD can no longer be written into the terms of the plan itself. It is also good that the Court clarified that detrimental reliance is required for an estoppel-based remedy. But the road map provided by the majority opinion has opened the door to allow district courts considerable flexibility in addressing perceived injustices arising from errors in communication, well beyond the limits thought to be applicable based on earlier Supreme Court precedents.

For more information on this case and practical considerations for employers, see Littler’s ASAP: U.S. Supreme Court Rules on Available ERISA Remedies for Misrepresentations About Benefit Plan Changes by Margaret Clemens.

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In a statement, EBSA Assistant Secretary of Labor Phyllis C. Borzi said: “Some workers and retirees may not be sufficiently computer literate to receive information electronically or have reasonable access to the Internet, and others may simply prefer traditional paper disclosure,” adding “But in some instances, electronic disclosure may be just as effective as paper-based communications and could save employers and service providers money.”

The RFI consists of 30 specific questions regarding general usage of electronic disclosures, access and usage, technical issues, and administrative considerations. Commenters are also encouraged to provide information on any other matters that they believe are relevant to the topic.

Comments must be received within 60 days of the notice’s publication in the Federal Register, which is scheduled for Thursday, April 7. Comments may be submitted electronically through the federal eRulemaking portal or via email to e-ORI@dol.gov. Include the Regulatory Identification Number (RIN): 1210-AB50 in the subject line of the message. Written comments may be sent to: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210, Attention: E-Disclosure RFI. All submissions received must include the agency name (EBSA) and RIN 1210-AB50.

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In essence, the proposed rule would create a new subpart B of PBGC’s regulations governing this issue that addresses the applicability and enforcement of section 4062(e). The proposed rule provides guidance on whether and when a “section 4062(e) event” occurs by defining each of the following key terms: “operation,” “facility,” “cease,” “separate,” and “result.” The proposed rule explains, for example, that a section 4062(e) event concerns itself with the cessation of one operation and the effect of that cessation on the employment of participants in the affected plan. Therefore, the section would apply to an employer’s termination of operations at a facility even if the operation is continued or resumed by another employer at the same or another facility.

With respect to the enforcement provisions of section 4062(e), the proposed rule explains the agency’s investigatory program, provides rules for notifying PBGC of section 4062(e) events, explains how section 4062(e) liability is calculated and how it is to be satisfied, and requires the preservation of records about events that may be section 4062(e) events. Additionally, the proposed rule describes how the new Subpart B would provide for waivers under certain circumstances.

Comments must be made no later than 60 days after the proposed rule’s publication in the Federal Register, which is slated for August 10, 2010. Additionally, all comments must include the Regulatory Identification Number (RIN) 1212-AB20. Written comments should be submitted to: Legislative and Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, DC 20005-4026. In the alternative, comments may be faxed to: 202-326-4224, or submitted electronically to reg.comments@pbgc.gov or via the federal eRulemaking portal: www.regulations.gov.

In this case, the City of Chicago had created a hiring list for its firefighters based on the results of a written exam. The results of this test were divided by score into three levels: “well qualified,” “qualified,” and “not qualified.” Only about 11 percent of the 1,782 applicants who fell into the “well qualified” category were African American. Although applicants whose scores landed them in the “qualified” tier would be placed on the eligible list for the jobs, over the next six years the City drew upon the “well qualified” pool in selecting candidates for employment before proceeding to the “qualified” applicants.

A class of approximately 6,000 African American applicants who fell into the “qualified” category filled suit against the City more than two years after the test was administered and the scores announced, claiming that the test had a disparate impact on minority candidates. A federal judge in Chicago initially ruled in favor of the plaintiffs. The Seventh Circuit reversed this decision, finding that the plaintiffs failed to file a claim with the EEOC within the statutorily-prescribed 300 days of the announcement of the test results. The City had argued that if anything, its use of the test results to create a hiring list was the discriminatory event, triggering the limitations period. The appellate court agreed, stating “[t]he first injury in this case was the classification of the black applicants as merely ‘qualified’ on the basis of a test that they contend was discriminatory.” The court therefore rejected the plaintiffs’ argument that the discriminatory event was the application of the test results – i.e., the failure to hire the affected African American candidates. The Seventh Circuit also rejected the plaintiff’s “continuing violation” theory, explaining that “the statute of limitations begins to run upon injury (or discovery of the injury) and is not restarted by subsequent injuries.”

In reversing and remanding this decision, the Supreme Court first ruled that the exclusion of most of the applicants deemed “qualified” from the possibility of advancement constituted a cognizable disparate impact claim under Title VII. As for the timeliness issue, the Court distinguished disparate treatment from disparate impact claims: “For disparate-treatment claims—and others for which discriminatory intent is required—that means the plaintiff must demonstrate deliberate discrimination within the limitations period. . . . But for claims that do not require discriminatory intent, no such demonstration is needed.”

In arriving at this conclusion, the Court recognized that:

Employers may face new disparate-impact suits for practices they have used regularly for years. Evidence essential to their business-necessity defenses might be unavailable (or in the case of witnesses’ memories, unreliable) by the time the later suits are brought. And affected employees and prospective employees may not even know they have claims if they are unaware the employer is still applying the disputed practice.

The Court, however, explained that it is its job to “give effect to the law Congress enacted. . . . Congress allowed claims to be brought against an employer who uses a practice that causes disparate impact, whatever the employer’s motives and whether or not he has employed the same practice in the past. If that effect was unintended, it is a problem for Congress, not one that federal courts can fix.”

In the second case released today – Hardt v. Reliance Standard Insurance Co. (pdf)  – the Court unanimously held that under the Employee Retirement Income Security Act (ERISA), workers covered by an employee benefit plan are entitled to recover attorneys’ fees in lawsuits over benefits even if they are not “prevailing parties,” so long as they have achieved “some degree of success on the merits.” According to the Court, ERISA’s fee-shifting provision entitles courts to award attorneys’ fee to either party at their discretion.

In this case, the Fourth Circuit, in an unpublished opinion, held that an employee who filed a claim in district court alleging that her denial of long-term disability benefits was unlawful was not entitled to an award of attorney’s fees. The lower court had agreed with the claimant and remanded the matter back to the insurance underwriter for reconsideration, which eventually granted her the benefits sought. The Fourth Circuit reasoned that only enforceable judgments on the merits and court-ordered consent decrees render a claimant a “prevailing party” for attorney’s fees purposes.

The Supreme Court disagreed, finding that section 1132(g)(1) of ERISA – the provision that governs attorney’s fees – “unambiguously allows a court to award attorney’s fees ‘in its discretion . . . to either party.’” The Court further pointed out that “the words ‘prevailing party’ do not appear in this provision.” Moreover, the Court determined that because the claimant “achieved far more than ‘trivial success on the merits’ or a ‘purely procedural victory,’” the lower court properly exercised its discretion in awarding her fees.
 

In accepting this case for review, the Supreme Court will resolve whether Section 502(g)(1) of ERISA, the attorney’s fees provision, provides a district court discretion to award reasonable attorney’s fees only to a prevailing party; and whether a party is entitled to attorney’s fees under this section when she persuades a district court that a violation of ERISA has occurred, successfully secures a judicially-ordered remand requiring a re-determination of entitlement to benefits and subsequently receives the benefits sought on remand.

The key concept of the new COBRA provision involves creation of a new “qualifying event” that makes involuntarily-terminated employees (and their covered dependents) eligible for a 65% COBRA premium subsidy. The employer “fronts” the subsidy by collecting only 35% of the applicable premium, and then is reimbursed from the employer’s payroll tax transmittals (or with a direct payment, if payroll tax transmittals are insufficient). Under the Senate bill, the employer can elect to make available to these subsidy-eligible employees any other broad-based medical coverage option that is also offered to active employees, and that has a lower premium than the option in which the employee was enrolled prior to termination. The subsidy ends for any covered individual as soon as another group health plan is made available to that individual, or 9 months (in the Senate bill) or 12 months (in the House bill) after the first month of subsidy coverage, or at the date COBRA would otherwise expire.

A subsidy-eligible employee must otherwise be eligible for COBRA coverage (which means that the “gross misconduct” exclusion will still apply), and must have been involuntarily terminated between September 1, 2008 and December 31, 2009 (and must have become eligible for COBRA coverage during that period). If the election period had already expired by the time the law is enacted, the employer will be required to provide a COBRA notice and a new 60-day election period to any subsidy-eligible former employee who did not elect COBRA, but the effective date of such coverage would be the enactment date of the new law (in the House bill). In the Senate bill, the effective date is the first of the month beginning at least 30 days after enactment.

The period of non-coverage could not be counted toward any pre-existing condition exclusion. The “retroactive” COBRA notice must be provided within 60 days after enactment of the new law. Any denial of eligibility (such as a gross-misconduct determination) will be subject to expedited review under the auspices of the Department of Labor.

Any former employee who is paying full COBRA premiums when the law is enacted will also be entitled to the subsidy. The employer will be required to refund the excess (retroactive to the enactment date) or provide a credit in future premium payments for the overpayment (to be made up within 6 months). Of course, these reimbursements or credits will also be entitled to the employer tax credit provisions.

The House bill also would extend COBRA coverage to Medicare entitlement (or coverage under another employer’s group health program) for any voluntarily- or involuntarily-terminated employee who had attained age 55 or had 10 or more years of service with the employer. This coverage extension would also apply to such employees who lose coverage because of a reduction of hours.

While the reimbursement of the subsidy would appear to make these provisions cost-neutral to the employer, they, in fact, would not. In general, COBRA beneficiaries have significantly worse experience than active employees as a group – primarily because of the cost of COBRA coverage, but also because former employees with high medical expenses may be less likely to obtain other coverage as quickly as healthier (often younger) former employees. While the subsidized coverage may be more attractive to those former employees with less expectation of high medical expenses, the fact remains that laid-off employees have limited resources, and purchasing medical care may be of lower priority to those with less claims experience, even at subsidized rates. In addition, the retroactive election period (of at least 60 days) afforded to those who were laid off after September 1, 2008 and who did not originally elect COBRA is likely to lead to elections of coverage by those who did not expect high medical bills when they were laid off but who have developed serious medical conditions in the interim. Thus, we expect that the pattern of higher-than-average COBRA experience will continue.

The new law would not eliminate the termination of COBRA coverage when the employer ceases to provide any group health plan. And, as noted, the new law does not eliminate the “gross misconduct” exclusion. Employers who have not previously enforced the “gross misconduct” exclusion might consider adopting procedures for determining COBRA eligibility to reduce the impact of the new law.
 

This article was authored by Susan Hoffman, a shareholder in Littler's Philadelphia office.

Specifically, both versions of this healthcare bill would add new provisions to the end of Section 701(f) of ERISA mandating that group health plans and insurers allow employees and their dependants who are eligible for coverage but are not enrolled in the group plan to enroll if they become ineligible for Medicaid or a state child health plan, or if they become eligible for financial assistance from Medicaid or a state child health plan. If the employee or dependant chooses to enroll in either situation, he or she must do so within 60 days. Moreover, an employer would be required to notify employees in writing of any state Medicaid or child health assistance available to them if they need financial help to pay for their employer-sponsored health coverage. Notices would also be required when employees become eligible for employer-sponsored health plans, receive materials during health plan open season or election process, or when they receive summary plan descriptions.

Model notices for employers to use would be developed by the secretaries of labor and health and human services, along with the directors of state Medicaid and child health plan agencies.

In addition, plan administrators would be required to provide to the state, upon request, information about the benefits available under the group health plan “in sufficient specificity” so as to permit the state to make a determination of the cost-effectiveness of providing medical or child health assistance by offering premium assistance and supplemental benefits to employees.

Employers in violation of the provisions of this bill could be fined up to $100 per day.

The PPA adds new disclosure requirements under sections 101(j), (k), (l), and 514(e)(3) of ERISA. For example, an administrator of a single-employer defined benefit pension plan must provide written notice of limitations on benefits and benefit accruals to participants and beneficiaries. Additionally, a plan administrator of a multiemployer pension plan must, upon written request, furnish certain documents – including a notice of potential withdrawal liability – to any plan participant, beneficiary, employee representative, or any employer that has an obligation to contribute to the plan. Finally, a plan administrator of a plan with an automatic contribution arrangement must provide to each applicable participant notice of their rights and obligations under such a plan. The PPA authorizes the DOL to assess civil penalties up to $1,000 per day for each violation.

The new rule sets forth how the maximum penalty amounts are computed, identifies the circumstances under which a penalty may be assessed, sets forth certain procedural rules for service and filing, and provides a plan administrator a means to contest an assessment by the DOL and to request an administrative hearing.

This rule takes effect March 3.  For more information on the Pension Protection Act, see Littler’s ASAPs: Comprehensive Pension Reform Becomes Law: A Look At Changes Primarily Affecting Defined Contribution Plans and Comprehensive Pension Reform Becomes Law: A Look At Changes Primarily Affecting Defined Benefit Plans by J. René Toadvine and Kevin L. Wright.